Tuesday, August 11, 2009

CPSIA - Something Else . . . Again?

Sometimes I feel the assault never ends. Today is such a day. I just heard about the latest innovation of our very own Congress. The new morsel is the Foreign Manufacturers Legal Accountability Act of 2009 (S. 1606), introduced last week by Senators Whitehouse (D-RI), Sessions (R-AL) and Durbin (D-IL). In this "long awaited" legislation, the three gallant Senators provide a way for Americans to sue foreign manufacturers by forcing the foreign manufacturers to accept service of process in this country and further, to accept personal jurisdiction in our courts. In order to spread the love, the bill specifically includes products subject to the Consumer Product Safety Act.

If this legal jargon has not put you to sleep yet, it means that you can sue a foreign manufacturer in U.S. courts under this legislation without a hassle. Previously, to pull a foreigner into the jurisdiction of our courts was difficult or impossible. The law ostensibly was inspired by evil Chinese drywall, and naturally our Senators need to jump into action by pointing the finger overseas. [Couldn't be the fault of the unaware importer, naturally - he's American.] Sound good?

Let's hope this goes NOWHERE. Here are a few reasons to be more than a little suspicious:

a. Mr. Durbin thought the CPSIA was a great idea (and still does). That's enough for me, personally. Other CPSIA rabble-rousers supporting this brave new world include the Consumers Union and Consumer Federation of America, as well as the "American Association of Justice" (formerly known as the Association of Trial Lawyers of America). Let me just say, what's good for trial lawyers is not good for us. Period. Take a close look at the links above - how many are sponsored by plaintiff lawyers? Worried yet?

b. If you make foreign manufacturers subject to our courts, what do you think will change for THEM? Do you think they will experience a greater or lesser incentive to enter our markets? Okay, maybe we won't miss the drywall guy, I'll grant you that. But what about the incentives felt by other factories? Some, perhaps like the factories that makes your iPod or iPhone, have enough capital and are sufficiently international in their reach that this law will little effect on them. Others, particularly the small, private family-owned factories supporting much of our middle market and small business importers, cannot take on the U.S. legal system. This law cooks their goose.

Trying to find new factories to custom manufacture products will be much harder if lawsuit exposure comes with your purchase orders. Right now, foreign factories do not have to add legal exposure to U.S. consumers into their importers' costs. All American consumers benefit from the resulting lower prices (one reason for our high standard of living). It is up to us to select and supervise our supply chain properly - that's our job. If something goes wrong, we believe you are going to come looking for us. Most (if not all) U.S. companies maintain liability insurance for this very purpose. This shifts the liability (contingent risk) to insurance companies at an affordable cost to everyone. As long as you deal with a creditworthy supplier, you will have recourse if there's a problem. This phenomenon is nothing new and if anything, this allocation of risk between U.S. businesses, their insurers and their factories is simply a matter of contract and no concern to their customers. If this law goes through, however, the entire system breaks down. Expect many market dropouts - and expect prices to go WAY up.

c. This bill is jingoistic and is intended to create a trade barrier to hurt foreign companies attempting to sell here. Trade barriers are fundamentally misguided. What happens when we put up a big trade barrier? A trade war, perhaps? In fact, a typical response (besides punitive tariffs on our products overseas) would be reciprocal laws. In other words, our principal trading partners might pass similar rules aimed at U.S. businesses, meaning that we would become subject to lawsuits all of the world. Do you know what it costs to defend a lawsuit in a foreign jurisdiction? The number isn't small. Will that provide a positive incentive for American businesses to branch out and find customers overseas? I know that it would be a viable option for us to leave a market (a country), simply to avoid lawsuits. The grass is definitely greener overseas right now. This law is a "solution" to all that.

Connect the dots, guys.

The tyranny of these new looney laws must be stopped. The damage keeps piling up. This is not my imagination - yet it definitely is your government. We better take it back before it's too late.


Wacky Hermit said...

Hold on there a minute, Rick. I need some clarification (I haven't had my morning caffeine yet). Are you saying that there shouldn't be recourse in court against foreign producers of defective goods and it should just be "buyer beware?" Or are you saying that you just don't support this particular scheme for holding people accountable? If the latter, do you have a better one?

I think we benefit from being able to hold somebody accountable for the shoddy goods. We need that as a check against unlimited importation of dangerous stuff. I'd much rather have "customers will sue you if you bring in a shoddy product" than the "we'll make everyone prove their products aren't shoddy" approach that CPSIA takes. Now I'm not prepared to argue that it should be done this particular way. But I certainly won't protest that there has to be some recourse for damages. A toy is one thing-- you can throw a toy away and not be out much out of pocket-- but a house ruined by defective drywall would be some serious damages.

I don't know much about this law, but I will say that even if Dick "The Dick" Durbin is sponsoring it, even if Consumer's Union has left their trail of slime on it, I'd support it if it puts the incentives in the right place and provides a missing feedback mechanism without being gratuitously destructive of trade.

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

The problem with the law is that it reshuffles the existing system. Right now, you have the unfettered ability to go after your suppliers and everyone in the chain of commerce under U.S. law. Nothing prevents you from suing a foreign company in the chain of commerce today, it's just hard and expensive. You probably wouldn't bother because one or more creditworthy U.S. parties are standing between you and the foreign factories. That's where you would focus your efforts in a lawsuit. The U.S. company and the foreign company have allocated risk and liability between them by contract already.

The problem with making it possible to sue everyone everywhere at a very low cost is that someone has to pay for this "lottery ticket". Right now, for instance, you get a "lottery ticket" every time you go to the doctor, whether you like it or not. And you PAY for it. The lottery ticket enables you to sue the doctor without limit, and he/she defrays that high cost by buying malpractice insurance at an even higher cost and then passes it along to you as a cost of doing business. You have no right to opt out of this awful system, either. The trial lawyer bar lobbyists rules Congress, it seems.

If we allow foreign manufacturers to be sued as set forth in this law, many of them will avoid selling here. That's part of the cost of your new lottery ticket. The remaining companies who elect to continue to trade here will buy expensive insurance and charge you for it, and will move capital to places where you can't reach it. This is like taking gasoline out of a car's engine - the economy will run less efficiently (more expensively) as a result. Again, you know who will pay for this in high costs and a lower standard of living.

Worst of all, the rest of the world will not stand idly by while we feed our lawyers. For the privilege we assert to be able to sue these companies locally at a low cost, they will impose similar rules against our companies in foreign markets. What's good for the goose is good for the gander. Thus, U.S. companies will lose the ability to control litigation costs without acquiring the most expensive of insurance. Even then the expense may be uncontrollable (And hence random). Many business liability policies are full of loopholes and exclusions, in other words the coverage is quite incomplete. If you trade overseas, what can you do about this? Nothing.

If the world retaliates, you may find your company on the short end of the stick, or you or your family members may lose their job(s) as victim of foreign litigation. That's terrible. And completely unnecessary, but for the good work of Mr. Durbin and his merry men.

Is our society so fouled up, are we so without legal options, that we must rewrite liability and jurisdiction rules so significantly? Are our foreign trading partners really to blame? Is our government really failing us? My opinion - no and no. We are not out of legal options - tort lawsuits are a thriving local business in America. Let's keep suing each other and leave the foreign companies at a distance. It's working "fine" (I hate it, but that's a story for another day) and the new proposed replacement system will be very disadvantageous to us.

Anonymous said...

Is this Durbin's answer to all those comments he collected about the CPSIA?