Sunday, July 19, 2009

CPSIA - Fashion Jewelry Loses a BIG One

With morbid anticipation, I just read the statements of the three CPSC Commissioners on the Fashion Jewelry industry petition to exclude crystals and glass beads from the overbearing strictures of the CPSIA. On a day when I was a bit emotionally damaged by Tom Watson's failure to win the British Open, these statements more or less finished me off. Should we laugh or cry over this decision? Cry, because it bodes terribly for all of us.

The jewelry industry made all the usual arguments for excluding these non-controversial items from the law. The items in question have no history of causing injury, they are infrequently abused, the amount of lead possibly ingested is absurdly low, etc. Been there, done that. The staff recommended against the petition, per form, because the law clearly states that nothing can be exempt unless it either is always within the law's lead limits (in other words, it already complies) or else it cannot emit so much as an atom of lead into the body. The CPSC staff has previously opined that it has yet to identify a single Earthly material which meets this "common sense" standard which is why it has recommended denial of each and every stay.

The two Democrat Commissioners voted to deny the request on the grounds that the law does not permit exceptions. They then said they would direct the enforcement activities of the agency toward the class of children they deemed most "at risk" (a relative term, if there ever was one). Republican Nord also voted against the exclusion as required by law, but recommended a stay, mainly to allow Congress to fix the law.

Seems like "same old, same old", right? Not in this author's opinion. Here's what I take away:

a. The Days of Easy Stays are Over. The ATV'rs and bike industry can take some (limited) pleasure in their short stays. The window seems closed. Of course, it also means that when their stays are up, they are likely in big trouble. Chairman Tenenbaum took a strict constructionist view of the law: "[Having concluded that swallowing crystals and beads is foreseeable as required under Section 101(b)(1)(A),] the question turns to whether the ingestion or mouthing of these beads would result in the absorption of any lead by a child. In making a determination, I was mindful that the statute does not use the term "harmful" amount or another term which would allow staff to utilize a risk based approach." [She later explicitly rejects a risk based approach as not permitted under the CPSIA.] In other words, true to her word at her confirmation hearing, Ms. Tenenbaum is committed to enforcing the laws handed down by Congress without judgment. She read the law faithfully and did what it instructed. There was no consideration of consequences of the decision or of the relative risk posed by these materials.

Commissioner Moore chimed in with his own analysis of Congress' instructions on the narrow question of crystals. In quoting from the House Report behind HR 4040 (CPSIA), Moore noted that "Paragraph (4) authorizes the CPSC, in very narrow circumstances, to exclude, by rule, certain materials and products from the total lead weight limits. The lead content of these materials must be in a form that will not result in absorption of any lead whatsoever into the human body. . . ." [Emphasis added.] There you go.

Mr. Moore also notes that this decision of the Commission effectively overrules a Proposition 65 settlement applying to crystals. Not sure how the Commission's decision could be made more disruptive or commercially devastating. Even the over-the-top Proposition 65 is outdone by the CPSIA. The reliance of jewelry companies on this California settlement was seemingly not taken into account by Commissioners Moore or Tenenbaum. I believe the effect of this decision is to render the industry's inventory prepared in compliance with various states laws like California and Minnesota instantly WORTHLESS. To continue to sell these items on Monday is an intentional violation and we all know what misery that might bring. More gratuitous business risk and economic losses from your friends in Congress. . . .

I believe the Commission's stay decision on pens needs to be read very, very narrowly in light of the jewelry decision. It is hard for me to believe that the logic of the pens decision will be utilized again. Until it is, I believe that decision should be regarded as limited to the specific facts and circumstances of pens.

b. Economics Will Not Be Considered in Exclusion Decisions. Commissioner Nord produced a laundry list of immediate economic harm from the decision to reject a stay. It is shocking. Presumably, this data was available to the entire Commission but notably neither Tenenbaum nor Moore mentioned it. This makes sense because the CPSIA does not make financial impact relevant in these decisions. The Commission's decision is driven by the law's definition of the interest of consumers (note, I do NOT mean the ACTUAL interest of consumers), namely that "any lead is too much lead" and thus, financial impact is outside the decision matrix. I do not think this is right, because the law is really just a bundle of economic incentives, and in making this decision, the Commission is changing the rules of the market which will change behavior. Products will be killed, choice reduced and companies will exit. The widespread elimination of children's departments in the resale industry is a pertinent example of this effect. By narrowly defining consumer interests in this way, the CPSC ensures maximum economic damage to everyone.

Here's a glimpse of the future: In two years, the Commission will make a decision on whether the new 100 ppm lead limit is technologically feasible. This term is defined in the CPSIA in Section 101(d) - and nowhere will you find a reference to economics. Thus, my new pet saying can be taken as LAW now: If Rolex CAN do it, Timex MUST do it. Put that in your pipe and smoke it.

[There will be a Congressional election before this determination is made, please note. Some careful consideration of your voting choices could have a significant effect on this law, for those of us still in business by then.]

c. The Commission Seems to Think that Enforcement Discretion Makes Violations Go Away. The statements make clear that the CPSC won't be enforcing this rule outside of the market for children six years of age and under. What they do not address is the fact that they have clearly stated that these materials violate the law for all children 12 years of age and under. Thus, to "knowingly" import or sell these items into their no-enforcement zone is to take the chance that a shift in regulatory wind could mean BIGGGG trouble. The CPSC is unable to restrict the 50 State AGs either, so it leaves everyone WIDE OPEN to nastiness on the State level. Sound good? Who would take this chance?

The gerry rigging of this law in this way does not replicate the law that preceded the CPSIA (if that was the goal). In other words, this construct simply does NOT work to lessen risk or financial harm. By saying that the CPSC will only enforce in certain circumstances does NOTHING to make it easier to do business. We are not allowed to violate the law, whether the CPSC wants to enforce it or not. Read the penalties section and think about how penalties have been handed out so far (with lots of imputed "knowing" conduct). In the olde days, the decision on where to enforce or not was completely effective to demarcate the part of the market that needed to tighten its legal belt because back then, everything wasn't illegal. Now it is. The policy to only enforce in part of the market doesn't relieve any responsibility under the law - it only gives the appearance of shifting risk to that part of the market. Remember your 15(b) obligation to report - it still applies to ANY violation. Remember your whistleblower risk - you can't discuss using violative materials in the no-enforcement zone or risk "problems". Remember that any intentional violation of the law, whether the CPSC intends to enforce or not, could be grounds for a felony charge. Hey, it's not my idea - read the law. Do you want to run your business feloniously, even if the Commission says it's okay (today)?

d. Forget "Common Sense". The Commissioners in avoiding the obvious conclusion that glass beads and crystals can be safely sold and sticking closely to the ridiculous language on exemptions (notwithstanding the encouragement of the CPSC by a "primary sponsor" of the CPSIA to grant exclusions for "materials that can be shown to pose no [risk of a] measurable increase in a child's blood lead level", as noted by Ms. Nord) clearly breaks with the tentative baby steps of the Commission under Nord and Moore to introduce a semblance of common sense into the implementation of the CPSIA. Those days seem to be over. The new attitude appears to be that the law as written is to be enforced and that blunting the edges with "common sense" is inappropriate.

The Tenenbaum Commission's approach to statutory construction makes a lot of sense to me. I have long asked the Commission to enforce the written law and not make it up as they go along. Unwritten laws are even worse than bad written laws. I am glad the Commission is showing it can read. Congress remains in denial. I don't know if the jewelry decision is more of a message for Mr. Waxman or for you and me. If we or anyone wants a different way to administer safety, it will require a change in federal law. This is the reality of our situation, like it or not. This Commission apparently intends to enforce the law as written, and that won't change even if the law is foolish on its face. "Common sense" is no longer part of the calculus in interpreting this law strictly.

e. Don't Hold Your Breath for Relief on Tracking Labels. The narrow reading of the law by the Commission here, where almost nothing (other than money) was at stake, suggests grim tidings in the super-secret tracking labels guidance due to be voted into effectiveness without your comments on July 20. I can only speculate on why the Commission didn't think we should read the guidance before they voted on it. I think we could have handled it. The jewelry decision suggests that it is highly likely that the many problems created by the tracking labels provision will be left in place. As previously noted, the CPSC has not deigned to respond to ANY questions on the noxious tracking labels provision in the last 11-and-a-half months. We have no idea where they stand on anything.

Let me give you a great example - I think the guidance is going to require you to disclose your sources on your packaging and on your product directly. This was forecast by Gib Mullan and Cheryl Falvey at ICPHSO in February (we were told to "get over the mourning process"). This term alone will kill many companies and many products. All high volume customers will now have the option to go direct, courtesy of Congress. While this may seem like a zero sum game at first glance, what it really means is that the incentive to innovate or take financial risk on any item that you cannot protect will end. Private labeling will become much harder or impossible. Trading among competitors will end. The net result will be shrunken markets and withered companies. Serious consequences will follow. Again, the Commission has more or less indicated that economic consequences are not its concern, as Congress in its infinite wisdom has determined this provision is best for all of us. Brace for it.

I have long stated that tracking labels is the absolute worst part of this law. The emergency posed by this law is drawing near. If tracking labels becomes law on August 14 without delay and if this law isn't revised significantly in the very near future, the outlook appears very, very grim for all of us. The posture of this Commission suggests that we might be facing a worst case scenario soon. This is disappointing, to say the least. It is Congress' fault. The CPSC is doing what has been asked of it, ridiculous or not.

If you are still sitting on your hands, you might want to call your lawyer soon.


Ben said...

Rick, let's not forget that even if a company decided to sell crystals for kids 7-12, they still face the wrath of the state attorney generals who don't have to follow the Commissions enforcement discretion.

Anonymous said...

When are the hearings that Waxman said he would have when Obama appointed the new CPSC Chair? What are they waiting for?

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

Mr. Waxman just cancelled the hearings scheduled for this week. He has not set a new date. This is now par for the course, I am afraid. There will not be any hearings prior to the August 14 deadline.

Happymom4 aka Hope Anne said...

If certain people are re-elected, I will believe that the voters didn't have enough of your educational toys and resources available to them as children, Mr. Woldenberg.

Thank you for all you continue to so fearlessly do . . . even though some of us are basically shuttered, we are cheerfing you on!!