Saturday, April 18, 2009

CPSIA - The Significance of the ATV Exemption Decision

As you may know by now, the CPSC as anticipated denied the ATV Exemption request on Friday on the grounds that the law does not permit exemption of ATVs from the noxious CPSIA. On this point, both Commissioners agree. The Commissioners voted 2-0 to extend a retroactive and permanent enforcement ban on ATVs made on or before May 1, 2011, thus permitting the continued manufacture and sale of child-sized ATVs for at least two more years, and directed their staff to prepare an official enforcement ban for publication in the Federal Register. What does this all signify?

1. The Continuing Issuance of Stays is an Acknowledgement of the Flaws in the CPSIA. This is essentially the third stay of the CPSIA, and perhaps not the last. [Look for a stay of the tracking labels requirement as chaos is again building in the marketplace.] Having stayed the testing and certification requirements for a year, and deferred enforcement of the law against certain products and materials previously, the Commissioners have again put the law on hold. Why would "landmark" legislation need to be stayed again and again, and may need to be stayed some more? Let me suggest an obvious reason - the law makes no sense and the CPSC cannot make it make sense. Not only does the CPSC recognize that the law is toxic to commerce, which is not the desired purpose of well-crafted safety legislation, but it is also turning many safe and valued products into endangered species. As the Commissioners note, the law is so restrictive that a stay is the only means they have available to avoid the most terrible consequences of this overreaching law.

PLEASE NOTE the absence of howls of protests from Congressional "leaders" and consumer groups over the gutting of the retroactive feature of the CPSIA for the benefit of the ATV'rs. I thought these luminaries told us the standards were intended by Congress to be retroactive and that (evil) American industry had enough time to get the old product off the shelf. If so, why aren't our Mother Protectors screaming about the terrible CPSC Commission selectively letting the ATV industry off the hook??? That darned Nancy Nord again . . . oh yeah, it was Thomas Moore, too. Perhaps the screamers' principles aren't quite so rock hard, and retroactive effect of the lead and phthalate standards weren't actually essential to preserve our way of life after all. Hmmm. Senators???

What does that say about the law itself?

2. The CPSIA Puts the CPSC in Gridlock (not Nancy Nord). The Commissioners continue to struggle with the straitjacket imposed by Congress. In the case of the ATV Exemption request, the staff indicated that the law compelled them to deny the application despite absurdly low lead intake from ATVs (far below daily lead intake from food, water and breathing, ah but details like this are the hobgoblin of the small mind . . .). Likewise, BOTH Commissioners came to the same conclusion. Nancy Nord: "It is clear that the law does not give the Commission the flexibility to grant an exclusion for the petitioners' products." Thomas Moore: "Given the extremely restrictive language of the law, the only avenue I can see is for the Commission to establish an enforcement plan that follows, to the greatest extent possible, the Act's intention for future production. . . ." The Commissioners are stuck and make no bones about it.

Okay, so no exemptions are possible. [Senators, there's some "common sense" for you.] How about the future? Can manufacturers ever find a way to wriggle out of the ridiculous restrictions or will the entire Children's Products industry be slave to these inflexible restrictions going forward? Ummm, we're slaves. The enforcement stay proposed by the Commissioners after considerable delay to study their legal options states that the standard for relief in the future will be "technical feasibility". This sounds like a logical standard, something that reasonable people exercising "common sense" could administer capably, right? I don't know how to tell you this [Senators] but . . . no, not right.

The term "technological feasibility" is defined in Section 101(d) of the CPSIA specifically to tie the hands of the CPSC. Among other things, no consideration of economics is allowed. Notably, something is considered technologically feasible if "a product that complies with the limit is commercially available in the product category . . . or . . . alternative practices, best practices, or other operational changes would allow the manufacturer to comply with the limit." In other words, if Rolex can do it, Timex MUST do it. Mr. Moore, whose enthusiasm for this law seems to approach the pathological, gloats: "The evidence considered is strictly limited to technological feasibility, not on the higher cost of a viable substitute. The guiding principle of this agency's determinations has to be the safety of the children . . . ." Notwithstanding the non sequitur of Mr. Moore's second sentence, his statement is a clear admission that the CPSC has no way to exercise that famous "common sense" recommended by Senator Pryor and his flock.

3. The Notion that a New Chairman Would Impact Outcomes Has Been Exposed as Nonsense. This is the 24th consecutive CPSIA decision of the two person CPSC Commission which has been decided 2-0. There are NO examples of 1-1 votes on the CPSIA. The two Commissioners read the law EXACTLY the same. My heavens, if the Commissioners under this kind of pressure read the law as similarly as they do, is it POSSIBLE that they read the law correctly and are working in concert, exercising similar sound if constrained judgment and in fact, are doing their jobs responsibly? The new Chairman is supposed to clean this up by instituting a new policy at the CPSC to . . . what? Break the law? The demand for a new Chairman to "resolve" the issues under the CPSIA insults the public's intelligence. The Members of Congress and consumer groups that stand in line to bash Nancy Nord and blame her for these decisions and the direction of the agency shame themselves with their mischaracterization of the facts.

4. Fairness and Equity in Safety Regulation or Application of Rules across Industry Lines is Another Casualty of the CPSIA. I am happy for the ATV'rs that they got a break on the unfair retroactive application of the lead standards to their products and inventory. Our suffering need not be their suffering. It is worth noting, however, that they are not alone in their need for relief from the retroactive impact of the law or its harsh disruption of their marketplace. The rippling impact of this law on many industry groups has been well-documented. At a minimum, I simply cannot understand how the CPSC could justify giving a PERMANENT pass on retroactive effect for ATVs through May 1, 2011, but not do the same for all other industries affected by this law. This is shocking, irresponsible, oblivious, unfair and unkind. Had Congress or the CPSC actually given a two-year pass to everyone on retroactivity (preferably several months ago), the transition time alone would have cured many ills, including the need to sort out how to administer the new rules. Likewise, a big chunk of the problem for resellers of used or donated goods would be resolved or at least tabled for further study. Instead, justice will apparently be meted out slowly and unevenly, and will be governed by economics. You can safely anticipate that there will be justice for the rich only. Only rich industries or companies will be able to afford to mount the multi-million dollar effort to appeal for these exemptions. Crafters, for instance, will be sacrificed unless a Sugar Daddy saves them. Don't count on it.

5. The Future of Safety Regulation is Bureaucracy and Complexity without Benefit. The decision in the ATV case makes it clear that unless the law is changed, regulation of safety in children's products will be by exception only. Having mandated that regulating by risk assessment is no longer permitted, Congress' great new scheme is to make everything illegal unless the Commission decides it isn't illegal. It will be years, if not forever, before a coherent, settled law emerges. In the meantime, we will live in the grey zone.

As I have written in the past, there will be significant costs to a regulatory system based on exceptions. For one thing, it will be exceptionally difficult to clearly understand the rules if you must first find and understand all the exceptions. While this might sound achievable, it is not. Neither the law nor its exceptions are clear or entirely black-and-white. Case law or a body of other regulatory decisions will slowly and expensively clarify the law - provided you can find, understand and utilize those decisions. And. . . the body of decisions may not (likely will not) set out the answers applicable to you. It is typically clear as mud.

What will life under this kind of legal system look like?

  • You will need to hire counsel. You will not feel comfortable making the legal analysis yourself. You will also become accustomed to weighing legal risks in the normal, everyday conduct of your business.
  • Easy things will become hard. There will be a need for vast paperwork that does not contribute to the development of your business or the satisfaction of your customers.
  • Your costs will rise to cover the bureaucracy. This will not make your products more valuable or raise the price you will receive for them in the market.
  • Increasingly, your focus will be on paper, not building your business. Regulatory paper will become the medium of trade and owing to the blizzard of paper will lose its meaning. Your business processes will feel Dickensian. [Ah consumer groups, thank you so much for all you are doing to make America great!]
  • You will learn to fear the CPSC and State regulators in your bones for the randomness and pettiness of their rule administration. Rules, NOT common sense, will dominate in a world of forbidden risk assessment, and random seizure of your profits (through fines and technically-driven recalls) will become commonplace. If this sounds apocalyptic, talk to anyone who has dealt with Customs. Get used to it.

6. Small Business is the CPSIA's Sacrificial Lamb. Who survives in a world defined by the ATV decision? This decision makes clear that a serious and expensive legal campaign is required to get permission to sell known safe products that give off about as much lead as four cups of water from your kitchen tap. [You know, the water you feed to your children and grandchildren, and drink yourself.] This is unaffordable and well-beyond the capabilities of 99% of all regulated companies and is thus a closed door (effectively) for small business. We have seen a recent letter by Senator Durbin's staff practically clucking at the nobility of sacrificing small business to the need for pre-market testing. As an Illinois resident, I find this indescribably infuriating. I understand the importance of small business to the marketplace and to local communities. I work at a small business and fear what will happen to us if this law is not gutted quickly. If we really must accommodate these rules, our business will become unrecognizable. That would be a very sad day for me, for our associates, for our marketplace and for our valued customers.

7. The CPSC Has Been Neutered as a Regulator. Ms. Nord sums it up in her April 17 letter: "I hope the state attorneys general will follow our lead in [the enforcement ban on ATVs.]" I hope so, too. That being said, in an orderly legal system, there is one policymaker, one decision-maker. The U.S. Supreme Court doesn't close all of its decisions by saying "We sure hope the Supreme Courts of California, Arizona and the other 48 States will follow our lead on this one." In our business, we say "Hope is not a strategy." Uh-oh.

The CPSC knows it has been cuckolded by the law since it is now subject to oversight by 50 SAGs. If you get yourself a nice two-year enforcement stay from the CPSC, are you going to take a chance to continue to sell your products when Lisa Madigan (SAG-IL) or Edmund Brown (SAG-CA) or others might choose to read the law differently than the CPSC? Does the Federal stay actually mean ANYTHING? According to my 15-year-old daughter, who has more common sense than at least 28 Senators I can name, the answer is NO. And, yes, these SAGs are not above telling the CPSC that they read the CPSIA wrong (see my recent blogpost on this topic). There is no longer a law of the land.

Final Thoughts. With the ATV decision in the books, we now must wait for the enforcement stay to be written up and published. Don't expect any surprises as the Commissioners have published their expectations already (again, one list from the 2-0 Commission vote). Will other industries raise their voices in protest? Questionable, in my opinion. If the past few months has not been enough to get people over their (irrational and misplaced) animal fears, I don't know how the current situation will add much motivation. There aren't enough motivated and persistent protestors out there, and frankly, it's understandable. The economy's still a wreck so everyone needs sales, not new hobbies. Advantage, lead fear mongers.

Time will tell. I hope some of you will answer the call.



Beth and David said...

Rick, have you tried to get a meeting with Durbin? I've been really frustrated with the (non)responses I've gotten from his staff. I wondered if representatives of any larger-than-myself companies have been successful in trying to speak directly with him. CPSIA has definitely affected who I will be looking to support in elections (Madigan included).

Rick Woldenberg, Chairman - Learning Resources Inc. said...

I have met with Mr. Durbin's staff and spoken to them on several occasions. These encounters have been fairly universally frustrating and sometimes worse. Mr. Durbin himself seems unreachable both in terms of facts and argument. He has made up his mind, and has a philosophical POV that is impervious to our problems. I think he is prepared to let our Illinois businesses suffer or die, all in support of an untested and demonstrably dangerous idea. I perceive little opportunity with him, personal meeting or not. As an Illinois resident and as an Illinois small business person, I feel utterly disenfranchised by both my own Senator and by his Party. The leadership of the Democratic Party in Congress has callously thrown us to the dogs without even letting us testify on the impact of their handiwork. I am focusing on others who may still retain an open mind.

Anonymous said...

Mark Twain's new book of previously unpublished essays goes on sale Tuesday. I may buy it. According to the review in Saturday's WSJ, there is an essay where he rants against congressmen who work in "the National Asylum"

I need a good laugh.

Beth and David said...

Sadly, I think you are right. I don't quite know what to do, as every attempt to contact him or his representatives is met with a letter that makes it clear to me that they have not truly read, considered, or understood the implications of what I've said. Disenfranchised is quite the understatement.