MoCRA Responsibilities and Recall Cost Allocation in U.S. Cosmetics Supply Agreements
- 1. MoCRA and the Responsible Person’s Obligations
- 2. Adverse Event Information Sharing and Reporting Procedures
- 3. Recall Costs and Deductions from Payments
- 4. Indemnification and Product Liability Insurance
- 5. Regulations Not Yet Finalized and Contract Adjustments
- 6. Implications for Businesses
- Relevant Legislation and References
Review of MoCRA responsible person designation, adverse event reporting procedures, recall costs and chargebacks, indemnification, and insurance
When K-beauty companies enter into cosmetics supply agreements with U.S. distributors or importers, the designation of the responsible person and adverse event reporting obligations under the U.S. Modernization of Cosmetics Regulation Act of 2022 (MoCRA) directly affect the allocation of costs and legal liability. Distributor-prepared agreements often contain broad supplier indemnification obligations and provisions allowing deductions from amounts payable to the supplier.
This article outlines key considerations when reviewing responsible person designation, adverse event information sharing, recall costs and chargebacks, indemnification and insurance, and the allocation of costs arising from regulations that have not yet been finalized in U.S. cosmetics supply agreements.
1. MoCRA and the Responsible Person’s Obligations
MoCRA is U.S. cosmetics legislation enacted in December 2022. The manufacturer, packer, or distributor whose name appears on the label is the responsible person.
The responsible person must report serious adverse events to the FDA within 15 business days of receiving the information and must submit additional reports within the same deadline for new medical information received within one year.
Facility registration, product listing, and retention of safety substantiation records are also required. The supply agreement should first identify who will be the responsible person and who will perform these obligations.
2. Adverse Event Information Sharing and Reporting Procedures
Consumer complaints usually reach the distributor’s customer service center or stores first. If a Korean company is the responsible person, delays by the distributor in passing on the information can make it difficult to meet the reporting deadline.
The agreement should specify how many days the distributor has to forward adverse event information to the supplier after receiving it and what supporting materials must be provided. It should also address record retention periods and cooperation with FDA inquiries.
If, instead, the distributor is the responsible person, key issues include the ingredient and safety information the supplier must provide and the scope of its warranties as to that information’s accuracy.
3. Recall Costs and Deductions from Payments
MoCRA gave the FDA authority to order mandatory recalls of cosmetics. Whether a recall is voluntary or mandatory, it entails product retrieval, disposal, customer refund, and transportation costs.
U.S. distributor agreements commonly contain chargeback provisions allowing costs to be deducted from payments for reasons such as noncompliance or product returns. Without defined grounds for deductions, a method for calculating the amounts, and a dispute procedure, the supplier may bear costs regardless of their actual cause.
The parties should establish in advance how costs will be allocated depending on whether the recall arises from a manufacturing defect, storage issues during distribution, or label wording.
4. Indemnification and Product Liability Insurance
U.S. distributors often require suppliers to provide broad indemnification against product liability claims and to obtain insurance. They also frequently require the distributor to be named as an additional insured.
Negotiations should seek to limit indemnification to defects in the supplier’s products and breaches of warranty, while excluding losses caused by the distributor’s own negligence or marketing statements.
Before signing, the parties should also confirm policy limits, responsibility for premiums, and whether coverage from a Korean insurer extends to U.S. litigation.
| Provision | Key Review Points |
|---|---|
| Responsible person | Entity named on the label, facility registration and product listing, and retention of safety records |
| Adverse event reporting | 15-business-day reporting deadline; the distributor’s information-sharing deadline and cooperation obligations |
| Recalls and deductions | Allocation of costs by cause; grounds for chargebacks and dispute procedures |
| Indemnification and insurance | Limitation to matters attributable to the supplier; policy limits and additional insured status |
| Regulatory changes | Allocation of costs arising from rules not yet finalized, including GMP requirements; price renegotiation |
5. Regulations Not Yet Finalized and Contract Adjustments
Some MoCRA rules have not yet been finalized. The FDA did not issue its cosmetics good manufacturing practice (GMP) rule by the statutory deadline and withdrew its proposed rule on asbestos testing in talc-containing cosmetics in November 2025.
Future finalization of these rules may create new testing and process modification costs. The agreement should therefore allocate responsibility for those costs and establish a price renegotiation procedure.
The governing law and dispute resolution provisions should also be reviewed. If the agreement provides only for the jurisdiction of U.S. state courts, the parties may consider procedures that could place less of a burden on the Korean company, such as an arbitration clause.
6. Implications for Businesses
In the U.S. cosmetics market, regulatory obligations and distributors’ contractual requirements can readily combine to increase the supplier’s burden. Defining the responsible person arrangement and information-sharing procedures in the agreement helps prevent both missed reporting deadlines and excessive cost shifting.
With some MoCRA rules still pending, establishing principles for allocating future costs and procedures for renegotiation in advance can improve the predictability of commercial terms.
Relevant Legislation and References
FDA: Modernization of Cosmetics Regulation Act of 2022 (MoCRA)
