Thursday, October 29, 2009

CPSIA - ICPHSO Toronto Update

I attended this week's ICPHSO meeting in Toronto. The meeting was located in Toronto and focused much attention on the proposed amendment to Canada's 40-year-old Hazardous Products Act (the so-called Bill C-6). The meeting was attended by more than 250 people, largely comprised of Health Canada officials (the analog to the CPSC), CPSC staff, including Chairman Inez Tenenbaum directly from China, a variety of testing companies, mass market companies, Canadian companies, lawyers and other interested parties.

I thought I would share a few tidbits from the meeting:

Chairman Tenenbaum's Keynote Speech: Chairman Tenenbaum addressed the conference on Wednesday morning. Her speech is posted on the CPSC website. The speech included a few hints of movement toward accommodation of businesses under the CPSIA, but unfortunately, it is only provides hints at this point. It is worth noting that sidebars at the conference suggest that there is more sensitivity to business concerns than CPSC public statements might suggest, but then again, we can only rely on real action, not just words. The next development to look for is a change in tone and a change in actions. When we can triangulate from words to actions, and see a real easing of the intense pressure on businesses, then we can take the off-line assurances more seriously.

Some highlights from the speech:
  • The "good": The "15 Month Rule" is due soon. Tenenbaum promised a special two-day workshop on this rulemaking IN ADDITION to normal public outreach. She emphasized that they want to "get it right". [Ed. Note: Rumorville has it that this rulemaking will be delayed, and the two day workshop may precede the issuance of the draft rule. Likewise, there is growing suspicion that the testing stay may therefore have to be stayed. There are multiple reasons why this may have to happen.]
  • She emphasized a need to minimize the burden on small businesses. [Minimize is a relative term, let's not get too giddy yet. Need to see what they have up their sleeves.]
  • The CPSC is reaching out to SAGs to make them partners in the safety process. She wants to minimize competition between the CPSC and the SAGs. I consider this a major advancement in CPSC practice and a nice contribution by Ms. Tenenbaum in the early days of her administration. Arguably, the 2007-8 crush of State legislation and SAG grandstanding evidenced strong State feelings of isolation and legal impoverishment (in addition to a general desire of local politicians to appeal to the populace before elections). A proactive approach by the CPSC to working with the SAGs is the best chance for ANY OF US to neutralize or minimize the disruptive behavior of States and SAGs in the future.
  • Ms. Tenenbaum announced a substantial change to the penalty factors when she said: "In cases where CPSC may impose a financial penalty on a U.S importer for violations, CPSC may to take into account whether the importer has safety or compliance programs in place and whether they conducted pre-market and production testing to minimize safety risks." Gib Mullan also acknowledged that the penalty factors will be changing. This is another faint sign that we are being heard. The penalty factors were very harsh in the first draft. After a bit of an uproar, it appears now that the agency is going to moderate its approach somewhat. If this turns out to be a "real" shift, it is good news indeed.
  • The "bad": The overall tone of the speech remained harsh and somewhat threatening, at least that's how it felt to me. Phrases such as the following were reminders that the CPSC has a big club and intends to use it:

- "Chinese suppliers and U.S. importers are now on notice from both governments that it is a mistake to depend on good intentions and a few final inspections to ensure compliance with safety requirements."

- "We will enforce in a firm but a fair manner the new federal law that puts strict limits on lead and phthalates in children’s products and makes all toy requirements mandatory." [The emphasis was hers in the live speech.]

- "As I have consistently stated, we intend to enforce this law that Congress put in place in a firm but fair manner. CPSC also has a federal rule making underway that puts U.S. importers on notice."

- "Another area that we at CPSC are rethinking is the singular approach used in the past to identify risks and simply recall products when necessary. This is one aspect of enforcement that will not work if pursued alone."

So Ms. Tenenbaum maintained the tough tone but gave hints of a coming thaw. We'll see in due course if I am imagining things. Needless to say, I hope not!

Remarks of Gib Mullan: Gib Mullan, the CPSC chief enforcement officer, gave a short speech summarizing the CPSIA and recent events. I must say I found some of this speech positively chilling. For one thing, Mr. Mullan noted with apparent satisfaction the first recall of a toy for violations of the phthalates ban. I believe this refers to the recall of 40 inflatable toy baseball bats previously highlighted in this space. Aside from the fact that Mr. Mullan confirmed that the enforcement focus of the agency is (supposedly) bath squeeze toys, which certainly does not include inflatable baseball bats, this micro-recall of 40 bats is highly suggestive of a strict liability enforcement policy. If that is so, then what is the purpose of pointing out this recall to the crowd at ICPHSO? I would suggest that it is intended to scare the business community. Mission accomplished?!

Further to that mission, Mr. Mullan announced that the agency is attempting to be more "consistent" and "rigorous" in assessing penalties. Okay kids, think of Target's $600,000 penalty - if the CPSC is going to be "consistent", what does that precedent mean for the rest of us? If Target gets hit with a massive penalty after it performed preshipment testing, had no actual knowledge, was increasing its safety surveillance and turned itself in voluntarily after catching its own errors, what should we expect from a "consistent" penalty practice at the agency now? Mr. Mullan continued by noting (again, with a bit too much relish) the rising tide of penalties assessed by the agency in 2009, and further noted that they haven't even cracked the 2007 lead-in-paint violations yet. He said larger penalties should be expected now, given the new powers allowed the agency under the CPSIA.

What is the purpose of this announcement? What else could it be, besides an intent to scare you and me? And, hats off to the chef, it succeeded. Among the many outrages of this new practice is the focus on retribution for old recalls with new penalties. Why is this a problem in my view? Well, for one thing, no one can do anything about the 2007 recalls at this point. Is the CPSC under the impression that the toy industry hasn't "learned its lesson" yet? If that isn't their view, then why lay on mega-penalties for matters that were apparently closed with significant expense now almost three years ago?

At what point is our penance complete? I can only supply a couple suggestions to explain this new penalty practice - (a) vindictiveness (as in CPSC meting out "justice", rather than simply ensuring a safe marketplace), and (b) terrorizing the corporate community into "compliance". Both rationales are wrongheaded and destructive. I continue to return to my original comment (December 17) on the penalty factors - CPSC penalties can only be consistent, rigorous, purposeful and (importantly) predictable if they are restricted to egregious conduct. Until the CPSC disciplines itself to a fairer penalty system, ALL OF US will assume we are next in line to get whacked like Target. After all, the CPSC has said publicly that they intend to be consistent and rigorous on penalties - in other words, they are telling us that we can and should learn from Target's experience. That message unleashes a parade of horribles. The CPSC needs to take this on board.

One last observation about Mr. Mullan's speech - he noted that recalls from China fell by 40% in 2009, the first fall in years. This is of course good news for everyone, most of all the children's product industry. As we know, success has many fathers but failure is an orphan. Many pundits point to the CPSIA as the reason that recalls have fallen. Mr. Mullan added another factor, the deep recession of 2009. Both of these factors contributed, but I think the real "father" of this success is that the notorious publicity of the new law and the new strict enforcement of the lead-in-paint rules (under the old law) led various companies and industry organizations to get mobilized to address safety practices. Who among us wasn't shocked and horrified by the suicide of the owner of a Chinese factory that supplied Mattel with lead-in-paint toys? The horrors of the recall frenzy and everything it entailed led to changes in practice. The remaining hubbub of the new law is just a hang-over IMHO, and does not explain the good recent reduction in recalls. For this reason, I believe the focus of the CPSC and its enforcement activities can and should SHIFT toward maintaining these gains through industry outreach, education, targeted and focused enforcement, and development of new and modern systems appropriate to the changing marketplace. It even calls into question the value of the law's kneejerk requirement of prophylactic testing, something I am on record opposing.

Health Canada and Bill C-6: Frankly, I have not had time to dig into the Bill C-6 yet but it got a lot of air-play at ICPHSO. Much of the brass at Health Canada was there, and I attended several talks by these professionals. I must say I left impressed with the Health Canada leadership. They were incredibly approachable and engaged. I was not made to feel like the "enemy". Especially notable was their TONE. They don't even imply that businesses are populated with bad or untrustworthy people. They repeatedly pledged to work cooperatively with businesses and noted that they have done well for 40 years with voluntary recalls and non-confrontational relationships. Hmmm, could it really be true that you catch more flies with honey than with vinegar?

They also stressed their interest in hearing about "lessons learned" and engaging in real dialogue as the new bill is crafted and refined. They noted some real gaps in their enforcement empowerment under the existing law, which they characterize as outmoded, but then again, they also stressed that these powers are intended to be used only if necessary. What a different tone they struck. They convinced me that they are nice people who mean to be partners in safety with industry. A refreshing change.

The contrast with the last year of CPSC hostility was palpable. It gave me reason to reflect on the course of my own relationship with the CPSC. Interestingly, I was a big fan of the agency until about two years ago. For 17 years I trusted them, I consulted with them, I had no reluctance to work with them and thought of them as partners, I advised friends to trust them, I did not see them as the 'enemy". The CPSIA and the feeding frenzy of the last two years sadly eroded that trust. Trust has to be earned, of course. I believe trust in the CPSC can be restored but not without real effort and real action. The Health Canada folks struck the right tone, and we can only hope that the CPSC was listening. Industry and the CPSC do not have to be at loggerheads, and there can be trust (there MUST BE trust). To get there, the "new" CPSC may need to make some concessions, but a path to this worthy karma level does exist. This detente does not need to involve endangering children, either. Health Canada implicitly recognizes that industry has no interest in harming children. Considerable efforts by industry are expended to avoid this terrible outcome. The presence of a few bad or incompetent actors in a massive marketplace of many thousands of companies and millions of different products does not make the rest of the market participants into bad guys, too. This is the notion that must be abandoned.

Final Thoughts: ICPHSO was a great event for networking, off-line conversations and sharing of perspectives. I feel that there is room for more dialogue. We can only hope that some barriers are being broken down, and that we may see some positive surprises (for a change). It is also clear, as Health Canada demonstrated, that a regulator can be effective and non-confrontational at the same time. We know the CPSC has a big stick, perhaps they can stop reminding us with harsh rhetoric and harsh actions (we won't forget about the stick, trust me). Next on the agenda is a rationalizing of the rules to allow businesses to function economically. Unfortunately, I cannot conceive of this development without a change in the law. To do this, the CPSC must summon up its resolve and TELL Congress that changes are needed. I do not see any way to avoid this. Time has a value, too, so the CPSC leadership must weigh the consequences of waiting - costs are mounting rapidly as time goes by.

I hope I'm not dreaming. This can be done. The coming weeks will reveal a lot about the direction and resolution of the pending issues confronting the business community.


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

The horrifying suicide of the Chinese toy factory owner in 2007 is perhaps the only known death from lead-in-paint in 2007. This contrasts with one, precisely one, reported injury from lead-in-paint in 2007-8 out of 125 recalls. If memory serves me, the injury was to a baby from lead-in-paint on a crib (presumably with elevated lead blood levels from sucking on the side rails). Thus, out of umpteen million recalled units, one injury to a child . . . and one adult death. The media frenzy and panicked public outcry at the time exacted a terrible price.

Tone and approach matters. We don't need to drive business owners to despair to correct a simple fixable manufacturing defect. I think a higher road is the better road and the more effective road.

Anonymous said...

I couldn't agree more. The tone from Washington is too often anti-business, even when they take ownership of said businesses. From toy companies to software companies to insurance companies it seems we are assumed bad?

It is devastating to me the sad faces on see on small business people when discussing this law and the damage. These are good people who believed they were doing good things and to be treated like villains is unconscionable.

I did not know all the evil I would be suspected of by simply becoming an American entrepreneur. Yes, an entrepreneur, a person who decided to neither join the rigidity of corporate america or politics. Will this path be lost to Americans in the future?

It is devastating these children we are trying to hard to protect from ourselves will not have the same options.

Happymom4 aka Hope Anne said...

Rick, thank you for your clear and common sense reporting, as usual. I hope and pray that the faint winds of fresh air will become stronger and stronger. . . and blow away the filth and stench that CPSIA has wrought INADVERTANTLY (oh yeah?!) with speed.