Wednesday, September 30, 2009

CPSIA - Businesses Plan for the Final Days

With the February 10th stay on testing expiration rapidly approaching, the 15-month rules due on November 14 (expected to set deadly testing frequency requirements) and absolutely no relief on the horizon from a unfeeling, uncomprehending, resolutely unyielding Democratic Congress, businesses are left to fend for themselves. Consider the calendar: February 10th is only four months and ten days away. From that day forward, every item imported must be accompanied by a super-expensive CPSIA test report. Time is running out. This is a problem.

For many products, the cost of testing ALONE renders them unprofitable. And this is on top of the high cost of tracking labels and other costs associated with the CPSIA. These new costs make obsolete many business models serving specialty markets like schools. [Btw I was told yesterday to be prepared to pay $35,000 to modify our warehouse management software system to fix ONE hole in our tracking labels accountability effort. ONE hole, not ALL the holes. Ah, it's just money, and money grows on trees, right?!] If you are a maker of products rendered unprofitable by CPSIA testing, you face ugly choices. Because many businesses run on a calendar marketing cycle, you may have to drop items mid-year after testing requirements kick in. Most dealers won't forgive you for this. What to do?

At this point, with so much uncertainty, businesses are struggling to answer this question. Planning is literally impossible. How can you address this major business planning issue set to mature in only 133 days if, for instance (as is true), no phthalates testing labs have been accredited yet and no final phthalate testing standard has been announced? Good question, darned good question.

A common strategy to prepare for the Final Days is to top off inventory ahead of the testing requirement. Businesses are now scouring inventory records and ordering stock ahead of time to ride out 2010. This will be a mini-stimulus bill for China factories, giving them a boost in production if the American importers can find inventory financing from tired and scared banks. The upside to all this is that businesses planning ahead in this way will not have to torch dealer relations during 2010. This buys time as Congress continues to sit on its hands after gutting the business futures of countless small businesses.

The next phase will be recovering from the shock of the Section 102(d)(2)(B) 15-month rule which is expected to require at least annual testing (or, as rumored, even more frequent testing, such as once per production run). After finalization of this rule, the jig will be up, and businesses will have to finally reconcile themselves to being put out of their markets once and for all. [Notice that this has nothing to do with safety, just gratuitous, thoughtless destruction of economic value and markets.] Specialty companies will face the prospect of either abandoning their specialty markets for mass markets (with smaller, less-specialized product lines), abandonment of children's products altogether (this has happened widely in the Donated Goods industry and in apparel already) or sale/closure. The inventory top-offs going on now will allow businesses to wind up their current business plans in an orderly fashion.

At demoralizing times like this, I like to think of the comforting words of a staffer of Illinois' own Senator Dick Durbin (whataguy!): "I think you are right that the CPSIA imposes costs on businesses, and because of economies of scale it’s the smaller businesses that will feel these costs more acutely. This is part of a larger calculation that it’s worth the costs to shift from the old system of post-market correction (once a dangerous product is out in the market and leads to sick kids, recalls, lawsuits, etc.) to a new system of pre-market testing and certification (instead of just assuming products are safe and paying the price for false assumptions)." [Correspondence dated April 16, 2009] At least we know they meant for us to die. Comforting . . . unless you thought those guys worked for you, too.

It's nice to know we are living a purpose-driven life. We get to be sacrificial lambs to Senator Durbin's master plan to keep everyone safe. Everyone, from the Senate to Henry Waxman's House to the caring CPSC, should be SO proud!

CPSIA - Crain's Says We're About to Get Sued

In this week's Crain's Chicago Business, the news periodical speculate on which mass tort action could succeed asbestos as the next gravy train for plaintiff's attorneys. And guess who makes a guest appearance???

Asbestos and the legal black hole

By: Steven R. Strahler
September 28, 2009

Asbestos has lived up to its Greek origin — "inextinguishable" — on legal and medical landscapes alike: Mass tort actions involving asbestos have bankrupted more than 60 makers and users of the once-widespread insulating material, starting with Johns-Manville Corp. in 1982 and claiming Chicago's USG Corp. in 2001.

Odds are, corporate defendants won't see another mass tort topic like it: more than 700,000 claims pending against 8,000-plus defendants and estimated costs exceeding $250 billion. Because asbestos-related symptoms can take 30 years or more to manifest, the litigation is expected to last until mid-century.

. . . .

"No, there is no asbestos-like gravy train pulling up in front of the American Bar Assn.," says Robert Hartwig, president of the Insurance Information Institute. Still, he says, "there are great unknowns, like climate change and latent manifestation of occupational disease."

Among the most likely post-asbestos targets for plaintiffs' attorneys:

. . . .

Product liability

The Consumer Product Safety Improvement Act of 2008 requires independent testing of children's products, including cribs and metal jewelry, empowers state attorneys general to file federal actions and increases penalties, all of which will boost opportunities for mass-tort suits.

Monday, September 28, 2009

CPSIA - Ashton Kutcher to the Rescue!

The CPSC rolled out its latest weapon in the war on safety two days ago - CELEBRITIES! Yes, rather than focus its energies on consideration of the issues present by its regulated community or devote its limited resources and energy to identifying real threats to safety, the CPSC is instead reaching out to Ashton Kutcher to lend a hand with its Internet strategy. After all, who would know better than Ashton, he of the Blah Girls fame ( Ashton, known as "aplusk" on Twitter (3.7 million followers - you, too?), is a renowned expert on safety and the perfect ally for the CPSC. Anything to avoid dealing with its role in driving small businesses serving the children's market into the tank. . . .

Apparently, Scott Wolfson has been given the chore of mining the Hollywood connection. In a tweet two days ago, Scott rang up his bud' Ashton perhaps in the hope that Ash' would retweet his words of wisdom:

Scott_wolfson: @aplusk ashton - federal gov. just launched @OnSafetyto help keep children and families safe in their home. Thx.

Ashton is certainly the right place to turn for an ally in safety. Check out the description of his new characters/series Blah Girls: "Meet..."The Blah Girls!" BlahBlahBlah is an interactive, animated Web series that focuses on popular culture, told through the perspective of the Blah Girls - Tiffany, Krystle and Britney. They will keep you up to date on the latest in celebrity gossip, fashion, relationships and life as it happens." Just oozes safety and concern for the health of children, doesn't it? Ashton, SAVE ME!

Maybe Ashton asked Scott to keep him posted. I don't know. From my perspective, the outreach to the Hollywood types is yet another sign of confused, conflicted priorities in today's CPSC. It seems to me that the agency is being tooled to please the power elite of the moment while placing the mission of safety in a back seat (except when the power elite wants some heads on a stick to impress the populace). They talk about "transparency" and "openness" but don't answer questions or respond to clear and documented criticisms. They reach out to celebrities and publicize the garage sale police (with a little too much enthusiasm) but are unwilling to resist the decimation of critical regulated markets with sterling safety records like educational products, apparel (putting aside drawstrings, a different issue altogether), bikes and ATVs, non-lead jewelry and jewels. The emerging picture is certainly not inspiring to someone (like me) who has known this agency for almost two decades and knows the good work it is capable of.

It makes so much sense. . . . Thanks Scott for turning Ashton on to your new website! I am sure that will make everyone so safe - and so hip!

Friday, September 25, 2009

CPSIA - Consumer Group LIES

The propaganda machine of the consumer groups grinds on, even as the screams of dying businesses echo in the media and in the blogosphere. In a recent email to a Handmade Toy Alliance member, a WashPIRG Consumer Advocate (Seattle, Washington) made the following remarks:

"Thank you for your e-mail! While my primary concern is keeping toxics substances out of toys and other consumer products, I share your concern about how this new law impacts the viability of small businesses. As with most laws written by Congress, the CPSIA allows the agency enforcing new regulations to flesh out how the law will be implemented. In this case, the Consumer Product Safety Commission can, and indeed has, written reasonable exemptions for certain products. Clothes, wood products, and books have been exempted and non-toxic pre-approved dyes for children's products will be on the market soon, which should preempt the need for testing.

To be blunt, I'm not impressed with some of the statements made by the Handmade Toy Alliance over the past year. Just as an example, they've grossly overestimated the average cost of toy testing on several occasions. The $300 - $4,000 fee per toy figure is, quite frankly, exaggerated. The average cost per toy test is often as low as $75. Moreover, toy manufacturers won't be required to purchase testing guns, but can instead contract out to existing testing services who, in most cases, charge much lower rates than those quoted by the Alliance."

I see. Again, we are being victimized by business prognosticating by people who have never worked for a business and have never made a product.

Let's count the lies and misinformation:

a. ". . . the CPSIA allows the agency enforcing new regulations to flesh out how the law will be implemented. In this case, the Consumer Product Safety Commission can, and indeed has, written reasonable exemptions for certain products."

This baloney has been hashed over endlessly in this space and is a well-documented lie. Chairman Tenenbaum and Commissioners Nord and Moore, among others, have repeatedly bemoaned their utter lack of flexibility in making decisions under the CPSIA. The absurd rules of the CPSIA has forced the CPSC to confirm the illegality of ATVs, bicycles, ballpoint pens and rhinestones and has caused companies selling rocks and fossils to test them for sharp point and the presence of lead. The fact that they have exempted cotton cloth from lead testing is not the same as liberating the apparel industry, nor does it exempt those products from the burdensome tracking labels requirement or any of the other extreme provisions of this law.

b. "Clothes, wood products, and books have been exempted and non-toxic pre-approved dyes for children's products will be on the market soon, which should preempt the need for testing."

As previously noted, the phthalates testing standard requires testing on anything that "conceivably" could have phthalates in them, including natural wood and cloth, among other things. In addition, clothing will only avoid testing for lead if they have NO components which are subject to testing. This means no appliques, grommets, buttons and so on. The only wood products that will avoid lead testing are products made of pure, untreated natural wood. Not exactly a truck-sized hole to drive through. Finally, the component testing rule, which is more than a year in preparation, is unlikely to solve all the testing problems in the market. The ones that will be solved are easy ones, like button testing. In any event, I have never been convinced that a jumbled mass of product testing reports will satisfy the market in a post-CPSIA environment. You would be BLOWN AWAY by the testing and certification requests we get on a daily basis. The testing mania is a boat that left the harbor on August 14, 2008, and unless Congress gets this back under control, it seems utterly hopeless to me.

c. THE BIG LIE: "To be blunt, I'm not impressed with some of the statements made by the Handmade Toy Alliance over the past year. Just as an example, they've grossly overestimated the average cost of toy testing on several occasions. The $300 - $4,000 fee per toy figure is, quite frankly, exaggerated. The average cost per toy test is often as low as $75. Moreover, toy manufacturers won't be required to purchase testing guns, but can instead contract out to existing testing services who, in most cases, charge much lower rates than those quoted by the Alliance."

Okay, Mr. PIRG, here are a few representative testing reports. Please show me the test report that costs $75. This lie is laughably ridiculous. We have been aggressively testing our products for 20 years and to my knowledge, have NEVER paid $75 for a safety test. Perhaps one line on an invoice is $75, but clearly that won't do it.

Unfortunately, the PIRGs of the world have a very gullible Congress in the palm of their hand. Congress seems quite susceptible to the Big Lie. As long as Congress will accept nonsense as fact, and as long as the CPSC continues to willingly implement the toxic CPSIA as though nothing were wrong, we are doomed. It won't matter if the PIRGs are telling the Big Lie. We won't be here to argue about it anymore.

Wednesday, September 23, 2009

CPSIA - Casualties

Here are a few casualties of the wonderful CPSIA to consider. Some of these announcements are for the discontinuation of product lines, not necessarily the death of the overall business. In addition, there are many other companies that have similar stories to tell, but some of them are distributors of these product lines or else I cannot verify the business changes. And, of course, product discontinuations are rarely announced publicly in a form that we could summarize or produce here. The background losses far exceed this representative list.

Story Blox
Oopsie Dazie
Hands & Hearts (one of our customers serving homeschoolers)
Selecta (including this sad note on the "last" Selecta toy)
Woodland Magic

Some ghouls who are watching the CPSIA saga unfold want to see piles of bodies before any action will be considered. It is hard to deliver bodies because the economy is messy (cause-and-effect is not always clear) and in addition, everyone is doing everything possible to cling to (business) life. After all, these business owners need to keep their businesses going for the sake of their families, their employees' families, and their customers. There are a lot of "true believers" in the children's product market. In addition, many people (our company included) are waiting to the-very-last-minute before capitulating on the business decisions that the law is driving. No one walks away from their business without a tremendous push. Enter the CPSIA . . . .

The bodies will mount, yes, but the accumulation will be slow. It is analogous to a pin hole leak in an inflated tire - the losses are slow and hard to detect, but they add up.

It is very sad that this is how we must "negotiate" with Congress - by producing CPSIA bodies. Frankly, it makes it hard to maintain any faith in how we are governed these days.

CPSIA - Hmmm

From this week's New Yorker Magazine:

CPSIA - Tenenbaum Has the Wrong Focus

Chairman Inez Tenenbaum is quoted in the September 21 issue of the Product Safety Letter responding to requests from manufacturers for "speed and clarity" (NAM meeting): "Clarity is what we want too. We want everyone to get it straight, to get the information out to suppliers, and make sure everyone gets it right."

Unfortunately, that's not quite right. Yes, everyone wants the water torture to end. Yes, stop talking about component testing rules and ISSUE THEM. To that extent, she's right. That would help. On the other hand . . . hurrying to issue guidance or rules that are shortsighted, worded in double-speak or obviously defective won't help anyone. Getting the word out about destructive or unworkable rules will only WORSEN the chaos and confusion. Nancy Nord issued a warning along these lines in her January 30 letter to Reps. Waxman and Rush and Senators Rockefeller and Pryor (attached to her statement explaining her vote to stay implementation of the CPSIA testing and certification requirements): "Although the staff has been directed to move as quickly as possible to complete its work, short-circuiting the rulemaking process gives short shrift to the analytical discipline contemplated by the statute." This remark was noted in the recent letter by Rep. Michael Burgess.

Interestingly, Ms. Nord also noted in her January 30 statement: "The stay will give the CPSC time to develop and issue rules defining responsibilities of manufacturers, importers, retailers, and testing labs. It will give the Commission time to rule on exemptions and exclusions from the lead provisions and develop and put in place appropriate testing protocols. It will give staff time to develop an approach to component parts testing, given the ambiguity of the statute on this point." If I still had a sense of humor, I might find this 236-day-old statement amusing. Nice to know that the staff could use this extra time so productively to crank out the component testing standard. . . what? It's not out yet? That CAN'T be right! Wow . . . .

Ms. Tenenbaum needs to understand that her challenge is not all about speed. She needs to get it RIGHT on the first try. Sending manufacturers down the river to meet a deadline is rather . . . shortsighted, and that's putting it nicely. Of course, to get it right may involve taking some political risk and publicly disagreeing with the Democratic demagogues. If she won't do that, we are all doomed, but then again, according to Ms. Tenenbaum, at least the end will come quickly.

I just can't guarantee that it will painless.

Tuesday, September 22, 2009

CPSIA - How Much Should We Pay to Prevent "Cheating"?

I was contacted today by an ex-CPSC'r who read my blog on Section 102(d)(2)(B) and wanted to point out that sometimes people lie and cheat when it comes to disclosure to the agency.

So the question is: if people might pull the "switcheroo" or otherwise commit intentional fraud, wouldn't the right solution be to make everyone test under much more controlled and regulated circumstances? This might make things much harder for cheaters. Isn't that good?

My response is NO. First of all, I hope it is no surprise to you or anyone that some people cheat. I believe this was discussed in the Bible and frequently thereafter. This MIGHT be the reason we have a criminal code and JAILS. Some people are also incompetent. They don't cheat, they just fail repeatedly but goodnaturedly. The rest of us work hard and get our jobs done. As for me, although some people might cheat, I do NOT. If all the honest people must pay a high certain price in order to squeeze out the bad guys, we will all be crushed. This is akin to being treated like a murderer - just because there have been murders in your town. The CPSIA punishes the many for the sins of the few.

The dispiriting idea underlying the lunkheaded Section 102(d)(2)(B) is that no one can be trusted, and that unless the government gets involved in regulating the minutia of safety testing, we cannot be sure that everything will be okay. [Did you ever think about why the CPSC must now accredit testing labs? We never needed it before - what precipitated the change? I am not aware of a single recall that was blamed on an incompetent or fraudulent lab. This is all the more troubling when you consider how much money has been wasted on this pointless and growing devotion of CPSC resources.]

The economics of over-regulation are poor. Investment incentive is crushed by excessive regulatory costs as a profit motivation is rendered moot. In this case, we are CERTAIN to bear excessive costs for needless and pointless testing, all because a panicked Congress' felt an urgent need to "do something" about recalls. What costs will be eliminated as a result? If our company has to pay 2-5% of our revenue for compliance with this new law (my estimate), can we save that much or more in avoided costs? Not based on our 25-year track record (recalled 130 pieces out of a billion in 25 years, or 0.000013% per annum). We now must trade an annual cost increase of 2-5% for an annual savings of 0.000013%. What about the costs to society? Well, in our case, all 130 pieces were recovered and there were no known injuries. Cost to society: zero. This is not so crazy, as less than 0.01% of all children's products are ever recalled. Consider the famous lead-in-paint recalls of 2007-8: 125 recalls, no deaths and only one claimed injury (from a crib).

So, who will pay for this folly?


Some myths need to be dispelled:

a. America pays the costs of the CPSIA. This is simple economics. The law of land regulates us a community. We pay for all recalls and we incur the costs of all injuries. Although costs may be shifted (reallocated) among us by law (some winners, some losers), ideal laws lower our net societal costs by incentivizing the most efficient allocation of resources. Thus, a law might assign one party to bear a responsibility because they can manage it at the lowest overall cost, thus avoiding significant and greater costs by a less efficient party. Common examples of this are torts (the law places strict burden for product liability on manufacturers) and railroad crossings (railroads must pay for safety of the crossings). Manufacturers and railroads are in the best position to protect against safety dangers, as opposed to consumers acting individually. If manufacturers and railroads weren't allocated this responsibility, consumers would bear too much cost (inefficiently) in the form of injuries or losses. This is nothing more than a law-and-economics explanation of how legal systems work. See "The Problem of Social Cost" by Ronald Coase (Coase received the Nobel Prize for this theory). In the bargaining world hypothesized by Mr. Coase, costs would be borne by the party best able to bear them efficienlty, which might be manufacturers . . . or might be consumers.

[It also is clear that no matter what happens to the CPSIA (be still, my heart!), manufacturers will still have a strong incentive (by law) to make their products as safe as possible. Tort law provides this economic incentive quite well.]

b. NOT all recalled items are "deadly". Some recalls have the potential to kill, but most do not. Of the simple "risk of injury" recalls, many are technical violations (immaterial threats of injury), theoretical risks, or worst of all, self-imposed (sometimes companies insist on recalls over the objection of the CPSC). It is plainly WRONG to contend that recalled items are "deadly" (Ahem, Ms. Tenenbaum).

c. We cannot simply "raise" our prices to cover the new costs. Products have a strong "perceived value" which cannot be overcome with marketing. Some items are quite price sensitive. How much would you pay for your Starbucks latte? If the price went over $5, would you change coffee shops? $6? $8? No one is indifferent to price. How much would you pay for napkins at McDonalds, given that you probably think you are entitled to free napkins? Most people would cut their napkin use by 90%+ if the cost was as little as 1 cent each. This reasoning applies to ALL products and ALL services, no exceptions (even medical care). In the case of toys, many toys are commodities and have essentially a known "market value". If you price them too high, you will lose business. "Perceived value" is set or heavily influenced by the mass market, precisely the part of the children's market most able to absorb new CPSIA costs. Those of us in the specialty markets are toast as a consequence.

d. The right way to measure recall effectiveness is in their economics. As noted above, we Americans will bear the net cost of this law. Is it worth it? We know that some items subject to recall present "unacceptable" risks of injury and others do not. It has always been the common sense practice of the CPSC (until recently) to exercise judgment when imposing a recall. They used to recognize that recalls come at a cost.

There are many factors to assess in determining that a recall is merited. Having never been a CPSC manager or a legislator (heaven forbid!), please take my amateur's list of factors with a grain of salt: (i) nature and severity of the risk of injury, (ii) number of units in circulation, (iii) age of the child subject to the risk, (iv) public policy [Is there a reason to justify strict liability? This would presumably be infrequent.] and (v) durability and value of the recalled item. Common sense dictates that you must weigh the benefits of a recall against the economic damage wrought by the recall. Since we finance both sides of the ledger, we Americans have an incentive to behave rationally and take the lowest cost route. [The Coase Theorem again.]

If you think about the case where one "dangerous" children's product (say, a pair of shoes) is in circulation somewhere in the United States, it probably wouldn't be worth the significant expense of recovering that special pair of shoes unless we knew that one or more lives were DEFINITELY at risk, a very high cost. [Exploding shoes, perhaps.] Thus, if some situations present low grade risk of injury and a high expense for a recall, it may sense to NOT expend the money on a recall, but perhaps to engage in other activities to keep costs down (like education or a "running" change in product design). Let's also not forget that manufacturers that go through a CPSC process incur meaningful "transaction" costs even if there is NO recall (i.e., legal expenses, possible inventory loss, embarrassment, etc.). Thus, even without penalties, there is an incentive to do better next time - a recall is not needed to get most companies to straighten up.

Given my estimate that we will expend 2-5% of revenues to comply with this awful law, could the economics ever justify that expense to save "injuries"? You already know that we incur an anticipated annual expense for recalls of 0.000013% of revenue, all to avoid a 25-year injury rate of zero. This annual "CPSIA tax" of 2-5% is entirely "inefficient" in a Coase sense, as the imposition (and allocation) of costs is irrational. This completely explains why the law is misconceived. Since the CPSC is not allowed to exercise judgment under the CPSIA, and since economics are not allowed to be considered either, it is by definition an irrational and shamefully inefficient law. Mr. Coase would be outraged.

I happen to be outraged, too. Cheaters frustrate me but that's no justification for treating everyone like they are cheaters. It's time to rewrite the law to permit the cheaters to be treated like cheaters, and leave the rest of us ALONE.

Monday, September 21, 2009

CPSIA - Brace for It, Things Are About to Get WORSE

CPSIA Testing Costs . . .
Tracking Labels . . .
Retroactivity . . .
Civil Penalties . . .
Criminal Penalties . . .
Phthalates ban . . .
State AG enforcement . . .
Market Chaos . . .

It's bad, bad, bad right now. Could it REALLY get worse?

Consider Section 102(d)(2)(B) of the CPSIA, the latest horror story to smack you in the kisser:

"(d) ADDITIONAL REGULATIONS FOR THIRD PARTY TESTING . . . (2) COMPLIANCE; CONTINUING TESTING.—Not later than 15 months after the date of enactment of the Consumer Product Safety Improvement Act of 2008, the Commission shall by regulation . . . (B) establish protocols and standards— (i) for ensuring that a children’s product tested for compliance with an applicable children’s product safety rule is subject to testing periodically and when there has been a material change in the product’s design or manufacturing process, including the sourcing of component parts; (ii) for the testing of random samples to ensure continued compliance . . . ."

Nice and obscure, buried deep in the CPSIA. Never heard of it? Ayyy! Haven't I told you that you must ALWAYS read the fine print???

This rulemaking, which has been giving CPSC Bar attorneys sleepless nights but has otherwise escaped the attention of the business community, is due in about seven weeks (November 14 deadline). It has the potential to be the final nail in our coffin, guys. Right now, there are no rules on frequency of safety testing. We are free to negotiate with our customers or establish our own testing plan. This has worked rather well for many, many years - after all, less than 0.01% of all children's products are EVER recalled. But no longer. The CPSC is going to tell us how to assure safety and quality now. The premise is that we are incompetent to do so without government involvement. In our company's case, the 130 pieces we recalled in 25 years (one incident) out of perhaps a billion pieces sold is no proof that we know what we are doing, apparently. Thank heavens we will finally have someone qualified to oversee our processes!

The speculation is that the CPSC is going to specify testing every X pieces or Y lots, or at least annually. In addition, the requirement to have random testing suggests that we cannot be allowed to supply testing samples directly. The "idea", as simple-minded and insulting as it may be, is that manufacturers might somehow pull the SWITCHEROO after a test report is issued. After all, we are SO EVIL! The CPSC does, actually, worry about the "switcheroo". They have mentioned it repeatedly as one of the impediments to the long-promised component testing rule that is aging like fine wine somewhere. NEVER has anyone pointed to a SINGLE recall that involved a "switcheroo" to my knowledge, but whatever - laws don't need any basis in reality anymore. Hence the CPSIA.

Math Interlude Begins Here . . . .

I have submitted information to Congress on testing for one of our telescopes. We recently obtained a new quote on testing - it now costs about $11,500 all-in (including the 23-24 samples). Our annual revenue for this item before the econony crashed was about $30,000 per annum. Assuming gross margins of 33%, typical for the toy industry (and easy for illustration purposes), our annual gross profit (not NET profit) would be $10,000. The cost to test this item is MORE than our annual GROSS PROFIT. This means that the telescope dies - even IF we can set our own reasonable testing program. If testing on this item is conducted annually, our COMPANY dies, too.

Let's look at it another way. Say your testing cost (including samples and so on) is $3,000 for a particular product. How much profit do you require to make it worthwhile to sell that item? If you need a gross profit 33% to make 5% on the bottom line, presumably you cannot afford an annual testing cost of even 5% of the total revenue of the item. If you accept breakeven as the tipping point for this illustration, then the math is also simple: $3,000/5%, or $60,000 in annual revenue. Ideally, you would want more than that so you aren't just "trading dollars". You would be marginally profitable at $80,000 in annual revenue for this ONE item. In the specialty market, a product producing $80,000 per annum is pretty darned good. The profit you would earn on this $80,000 item would be 5% net profit or $4,000 less the testing cost of $3,000, or a grand total of $1,000. Sell $80,000 in telescopes, make a thousand bucks. Nifty, that must be how Bill Gates got so rich.

Remember, this also means that the prospective revenue hurdle for a comparable NEW item is ALSO $80,000 per annum revenue. AND, in the case of a new telescope, you would have to front $11,500 before you get revenue dollar "one". Hmmm, that might cut your product development pipeline down a LOT.

In fact, this annual testing requirement will send many companies scurrying into other markets, such as the mass market or into other businesses, in any event far, far away from the CPSC and this law. I do not see how the education market would survive. Honestly, virtually every manufacturer serving the NSSEA market (educational dealers) is a small company. Even the bigger small companies still do insufficient revenue on the vast majority of products to justify this expense. I know that this rule ALONE could many companies to shed at least two-thirds of their product line. That's too horrible to contemplate.

Math Interlude Ends Here . . . .

It is another irony of this rule that by formalizing the requirement to retest when you change components, you actually provide a negative incentive to become more efficient or more safe. There is no incentive to change factories if you save less than the new testing costs. It will take our factories about two seconds to realize that this gives them dominion over their customers. American businesses will be tied to their sources irretrievably even as costs rise, and will thus be at a cost disadvantage outside the U.S. to more efficient European and other competitors. In addition, the law punishes companies for improving their products by imposing a testing penalty on any change. Thus, your incentive to change a product to, for example, make it better or safer is greatly reduced - you will pay (literally) for your good deed. As these innovations are often voluntary, it will be impossible for the government to know how you might have improved your products had they not meddled in your business. You save money, and your products are more expensive, uncompetitive and less safe. What a great way to run an economy!

Given everything that has happened to date, we shouldn't expect a Knight in Shining Armor to emerge from the CPSC to save us. After the double-speaking phthalates standard and tracking labels guidance, plus the truly stupefying rules on exempt materials, I find it hard to believe they will do the right thing here. The lip service by Commissioners about recognizing the needs and legitimate concerns of the business community has been just that - lip service.

How could disaster be averted? It would take unprecedented bravery and character by Inez Tenenbaum. Democratic leadership in Congress has thumbed its nose at the children's product industry. It would be overly kind to call their attitude a calculated indifference to our fate. That leaves us in the hands of Chairman Tenenbaum. Thusfar, Ms. Tenenbaum has chosen to kiss the pinkie rings of Mr. Waxman and Mr. Rush and with Southern charm, coo about the "good statute". She has done nothing to stand up for the moral, law-abiding, crucial businesses serving the children's market despite overwhelming documentation of the senseless damage being done by the terrible CPSIA.

Ms. Tenenbaum needs to have a change of heart. If she takes the route of least resistance and issues guidance requiring frequent testing and other unnecessary but expensive similar requirements, it is probably game over for everybody. On the other hand, she could rise to the call of history and tell Mr. Waxman to drop his pretense that this law is somehow workable. Frankly, there is no data available to justify Section 102(d)(2)(B). The assertion that the government must, for the first time in history, tell us how often to test to assure quality has no basis in fact. It's just a Congressional staffer's (or consumer group's) lunkheaded idea.

Ms. Tenenbaum, it's your call. You can save us and be a hero, or you can send us down the river and be remembered as the one who committed this mortal sin. You won't be afforded the opportunity to blame this one on Congress - you can act, and you know it.

Sunday, September 20, 2009

CPSC - Rep. Michael Burgess Bashes the CPSIA

Rep. Michael Burgess (R-TX26), a practicing physcian for nearly three decades, wrote a three-page letter to Reps. Henry Waxman and Bobby Rush. [Dr. Burgess was also a speaker at our April 1 Rally.]

The letter certainly makes interesting reading. Here's a couple snippets. Please remember that Rep. Burgess is a medical doctor, presumably able to assess the scientific need for the strong restrictions in the law.

1. "I voted for this bill. At the time, I was compelled by the arguments we should work diligently to bring the Consumer Product Safety Commission into the 21st Century. . . . Sadly, this intent has ushered in a virtual avalanche of unintended consequences. . . . During a time of recession and staggering job loss, [businesses large and small] are suffering while the CPSC is moving at a staggering snail's pace to implement the 42 required actions under this law. This has caused me to regret my vote for the nebulous language of this bill. In our zeal to protect children from lead in children's toy products, we have endangered an entire industry." [Emphasis added]

2. "Furthermore, Ms. Nord stated numerous times that her hands were tied at the CPSC due to the language of the CPSIA. This complaint is one that, regardless of whether it is true or not, needs to be addressed. The CPSC should not have to spend all their time fielding exclusion requests from the application of the CPSIA. The CPSC should be implementing, enforcing and punishing for lead in toy products. Not for clothes, not for shoes, not for books, not for wooden jewelry and not for all-terrain vehicles."

3. "[At last week's hearing, we] should have had third party testers who could explain to us . . . how they are going to test this multi-billion dollars industry every minute, of every hour, of every day, of every year until Congress addresses this issue. We cannot say we are addressing the problems as a result of our own actions with having a hearing with one panelist." [Emphasis added]

Thank you, Rep. Burgess. You speak the truth. I note you copied the White House on your letter. I hope someone is listening. . . .

CPSIA - Too Much of a Good Thing? Nah!

The CPSC's notorious Resale Roundup was greeted with more "acclaim" by Fox News this week. I don't know whether to laugh or cry. Be sure to check out the article ("New Government Policy Imposes Strict Standards on Garage Sales Nationwide"), the slideshow ("Ridiculous Recalls?") and the video. Each is worth your time.

For those who are not familiar with this novel new program, the CPSC is fanning out to save you from "evil" resellers who might be foisting off recalled items on you. This includes spying on local garage sales, visiting your local resale shop and poking around on eBay and The CPSC has apparently given up on education and individual responsibility as a way to protect against harm - instead, they are redoubling their effort to be the Cop On The Beat, like it or not. In this case, they have chosen to make up a fake crisis, the resale of recalled items, to justify becoming an active protector of the public safety.

To get the flavor of this article and the basic problem, here are a few quotes:

1. "The [strict CPSIA] standards were originally interpreted to apply only to new products, but now the CPSC says they apply to used items as well. 'Those who resell recalled children's products are not only breaking the law, they are putting children's lives at risk,' said CPSC Chairman Inez Tenenbaum. 'Resale stores should make safety their business and check for recalled products and hazards to children.'"

RW - Note that Ms. Tenenbaum justifies this massive incursion into people's lives by the claim that recalled items "[put] children's lives at risk". While I concede SOME recalled items might in fact endanger children's lives, please check out the slideshow for perspective on the mortal danger posed by many recalled items. Hmmm. A little hyperbole, perhaps? There are ways to deal with the limited problem of certain dangerous items circulating without resorting to the claim that there's a Five Alarm Fire burning.

2. "CPSC spokesman Scott Wolfson says the fines are intended for large companies with serious infractions. 'CPSC is an agency that has used its penalty powers over its 30-year history against companies,' Wolfson told 'CPSC is not seeking to pursue penalties against individuals hosting a garage sale or yard sale, we are encouraging them to take the right steps to not resell recalled products.' But FOX News Legal Analyst Bob Massi says the law makes no distinction for families and small resellers. . . . Don Mays, senior director of product safety planning at the publisher of Consumer Reports, says the hefty penalties are necessary to have an impact. 'The former civil penalty limit of $1.87 million was too small to be an effective deterrent to large companies who flagrantly violated the law,' Mays told 'Mattel and its subsidiary Fisher-Price, for example, recently paid a $2.3 million penalty for importing about 2 million toys that violated the CPSC 30-year-old lead paint ban — that amounts to just over one dollar per toy.'"

RW - CPSC says they won't hit you with big penalties, but the law permits it. The Fox video shows that people are afraid. It's hard to trust a regulatory agency out looking for "bad guys" in your garage with a BIG stick and no checks, balances or controls on how it will use it. Yes, they claim to be all sweetness and light - but what happens if they change their minds? The consumer groups are all for hefty fines, as Mr. Mays confirms, and nowadays, they seem to be passing notes to Congress and to the CPSC. So, is it any surprise that many people are quite alarmed?

Side note: Don't worry, the CPSC says they won't be coming into your home (yet): "Scott Wolfson, a spokesman for the agency, said it wouldn't be dispatching bureaucratic storm troopers into private homes to see whether people were selling recalled products from their garages, yards or churches. 'We're not looking to come across as being heavy-handed,' he said. 'We want to make sure that everybody knows what the rules of engagement are to help spur greater compliance, so that enforcement becomes less of an issue. But we're still going to enforce.'" Aha. Personally, I feel SO much better now.

3. "'It is scary to think that there could be such hefty fines imposed on unsuspecting households,' another garage sale organizer, Patti Lombardi, told 'I think I speak for many people when I say that the government spends too much time interfering in the individual citizen's personal life and this is almost bordering on the ridiculous ... what if it opens up a Pandora's box of litigation brought by the purchasers of items at garage sales?'"

RW - Ms. Lombardi hits the nail on the head for the business community. We all KNOW that litigation will follow in the wake of this law. There is a reason why the trial bar-supported consumer groups are all so gung-ho on this law. Everything's illegal now (check out your reporting requirements under Section 15(b) of the CPSIA - you have a generous 24 hours to report ANY violation of ANY term of ANY law, regulation or rule enforced by the CPSC (they don't even publish a list, btw) - super!). Litigation by public attorney generals, State attorney generals and the Feds is expected by everyone. Given that it is inevitable that everyone will have violated something, and with the imputed knowledge standard of the CPSIA, probably deemed to have done so "intentionally", the choice of when and who to sue will favor the government rather substantially. The law was written to terrorize - and mission accomplished, it has.

4. "'If I've got a wirebound notebook, the lead content in that wire binding is now under scrutiny, even though the chance of ingesting lead in any amount from something like that is virtually non-existent, [ content director Chris Byrne] said. 'It's a level of political grandstanding to say 'we're taking care of everything,' but the science clearly demonstrates that the transference is not really possible — I mean, a child who eats the wire binding from a notebook is going to have significantly worse health problems than lead.'"

Perhaps you get the idea. I wonder if the CPSC and Congress will EVER get the idea.

CPSIA - Consider the Source (Part II)

From an article in today's BNA entitled "Need for CPSIA Changes Debated",

"In an interview with BNA, Nancy Cowles, executive director of Kids in Danger, praised the commission's July decision on fashion jewelry accessories. Cowles told BNA that lead is a severe toxin with no safe level.

She added that while more common sense could be applied to determining which products are hazardous, consumers overall do not want products containing lead.

“People will come up with other ways to put [jewelry] on children's clothing that isn't toxic. Whether the lead [in rhinestones] leaches out fully, it's hard to know, but we don't want lead in our children's products. We will come up with other ways to decorate our clothes,” Cowles said."

There are other quotes from consumer groups in this article that set my blood ablaze, but I thought this one deserves special "heralding".

I should note that I have written about rhinestones extensively, and debunked the opinion expressed by the estimable Ms. Cowles thoroughly. [See my "Jewelry" tags.] You may wonder, why do I care so much about rhinestones. Our business does not use rhinestones, so what's the big deal for me? Rhinestones is a poster child for the stupidity of the law. The impact of the CPSIA on rhinestones is the impact that is bedeviling the entire children's product industry, from toys to books to shoes to bedding to what-have-you. If rhinestones go down, safe as they are, we all go down. If we can save rhinestones on a rational and fair basis, perhaps the rest of us will get fairer treatment.

That said, I have a couple comments on Ms. Cowles' remarks. First of all, she is fear mongering, not advocating for you and your children. She says rhinestones are "toxic" - I say "prove it". The people behind the CPSIA are left with few options to save their precious law but to deceive the general public about health risks. The case on rhinestones is out there to be examined by Ms. Cowles. Why not attack rhinestones with data and analysis? Because no data or analysis exists to weaken the case FOR rhinestones. The "there's no safe level of lead" mantra is faulty. We already consume plenty of lead in our air, our food and our water daily. The rationale that trace presence of lead in children's products is somehow the health "tipping point" has never been proven and frankly cannot be asserted on a reasoned, scientific basis. The lead we consume in our normal daily activities dwarfs the lead you might ingest from casual contact with children's products. If there really is "no safe level for lead", then our wise Congress should attack the big sources of lead first, and leave the rest of us for later.

Second, Ms. Cowles is sending a lot of people down the river with her casual condemnation of rhinestones. I would note that many industries use rhinestones in their products. The people who run those companies, are employed by those companies, are supported by income from those companies, trade with those companies or value those products in their lives, will ALL lose if the likes of Ms. Cowles get to run our society. Does that make ANY sense to ANYONE (besides Ms. Cowles)?

I keep thinking of the prescription she offers for living a safe and wondrous life. She says we will (and should) find something else to decorate our products with. Perhaps Ms. Cowles decorates herself with the jewels from Pretty, Pretty Princess. That's what she is suggesting, that we get used to plastic jewelry. Perhaps Ms. Cowles can live with getting gifts for her kids from a vending machine, but that's not how I want to live. As I have noted before, inexpensive stones are a way for people to bedeck kids with jewelry inexpensively. Rhinestones are important to a lot of people, some of whom may not have the economic wherewithal to switch to diamonds and rubies. In addition, it's an inexpensive way to let little kids have a bit of bling. If you are trying to make your little kids look special for social, cultural or religious reasons, I think Palladium earrings may be somewhat impractical for most people. Little kids to tend to outgrow their clothing and shoes quickly. Parents can't really afford to buy and rebuy clothing and jewelry using precious stones as their kids grow, and may never warm up to Pretty, Pretty Princess jewelry. If this is the way it has to be, I think we should think more insightfully about who is writing the rules for our society.

Increasingly, the recommendations of consumer advocates are ringing more and more hollow. How crazy has the world become? Consider this quote from the November 2008 "Trouble in Toyland" report issued by the Vermont PIRG:

"Some children’s toys, jewelry and cosmetics may contain toxic chemicals, especially lead and toxic phthalates. . . . PHTHALATES AND OTHER CHEMICALS Avoid toys made of PVC plastic; which often contains phthalate softeners. Choose unpainted wooden or cloth toys instead."

Yes, PIRG wants us to use cloth toys and plain unpainted wooden toys to be "safe". But how "safe" are these toys? The CPSC, after due consideration, has informed us in their new phthalates testing standard: "Examples of materials that do not normally contain phthalates and, therefore, might not require testing or certification are . . . Natural wood [and] Textiles made from natural fibers, such as cotton or wool . . . ." Uh-oh! PIRG is telling you to buy products that MIGHT contain phthalates! Ouch. [To be fair, I have no idea how phthalates would get in there, but heck, the CPSC says they MIGHT. They must know something I don't.]

So PIRG has it wrong - we can't even play with cloth toys or wood. What's left? Rocks. Oh, no - rocks need to be tested for lead, phthalates and sharp points! Well, perhaps after the Residential Rock Roundup is wrapped up, we will all be safe to move into caves to play with our rocks. Ms. Cowles, get your own cave - you can't play with my rocks.

Friday, September 18, 2009

CPSIA - Dingell v. Tenenbaum (9-10-09 Hearing)

I would be remiss if I closed the book on last week’s hearings without reviewing the fascinating interchange between Rep. John Dingell and Chairman Inez Tenenbaum. Mr. Dingell has played an important role in the CPSC’s history as co-author of the legislation (Consumer Product Safety Act) that created the CPSC in 1972 and co-author of last year’s CPSIA. In addition, Mr. Dingell famously asked for information from the CPSC about the CPSIA implementation difficulties last spring, which many of you responded to. [See various posts in this space from March 6-13.]

Mr. Dingell’s opening remarks contain a harsh rebuke of the Senate for modifying the House bill in ways deleterious to the conduct of safety administration and business, and scorned the “abundant outside assistance which confused the issues further, from consumer representatives and enthusiasts who did not know how government works or how government should work.” He reiterated his concern over the implementation of the CPSIA “as improved by the United States Senate” and highlighted Former Chairman Nancy Nord’s warning on January 30 of unrealistic deadlines under the law and the risks involved in giving “short shrift to the analytical discipline contemplated by the statute.” Notably, Dingell reported that meetings between House and Senate members were triggered by the CPSIA implementation difficulties “in which it was discussed that perhaps maybe the House and the Senate should pressure CPSC to come to conclusions which may or may not be supported by the law.” Perhaps you remember the letter by the 28 Senators earlier this year. This paints quite a lovely picture of our Congressional saviors, doesn’t it?

Mr. Dingell framed his questioning of Ms. Tenenbaum around the reply of CPSC staff to his March 4 letter. In their reply, the staff “indicated support for amendment of the statute ‘to set risk-based priorities given the finite resources available to [the CPSC].’” Restricting Ms. Tenenbaum to yes/no answers (to accommodate his limited time), he asked for candid replies to assess her support of the staff’s recommended course of action or how she would otherwise address the problems in implementation of the CPSIA. [I have annotated the Q&A with my interpretation of Ms. Tenenbaum’s answers where relevant.]

Q1: Do you believe that the retroactivity provisions of the statute should be restricted products manufactured after the date of the statute (except where the product presents a health and safety issue for children)?

A: NO. A Federal Court in the phthalates case determined that we could not exempt product manufactured before the statute was passed.

[RW: Because the CPSC lost the phthalates case, the phthalates provision operates retroactively. The CPSC has always applied the lead standard retroactively. In this answer, Ms. Tenenbaum states that she believes these limits SHOULD work this way. In other words, she does not see a problem with the retroactive application of the new standards. Perhaps she would like to talk to my accountant.]

Q2: The broad age limit used in the definition of “children’s products” unnecessarily subjects products like bikes and books to more rigorous standards than otherwise necessary. Should the age limit be lowered “to better reflect exposure”?

A: NO, because you often have children of multiple ages in one household using the same products.

[RW: Apparently, all children use all children’s products. This answer reflects the consumer groups’ fantastic notion that children are fascinated by other children’s possessions (a two-year-old wants to use the 12-year-old’s Gameboy). Ms. Tenenbaum’s focus on this “risk” ignores the logically troubling “risk” that the same kids may also be interested in their parents’ possessions or the family dog’s toys, both entirely unregulated and presumably laden with toxins. Her answer is also consistent with the view that only the government can control risk – individual responsibility is an outmoded concept (so is parental supervision).]

Q3: Should the CPSC be given the discretion to set higher ages for certain materials or classes of products?

A: NO.

[RW: It is incredible that the Chairman of the CPSC apparently thinks that Congress is better than her own agency at setting age limits on children’s products. There are Ph.D. scientists and human factors experts in the employ of the CPSC. I don’t think Congressional committees have similar scientific resources.]

Q4: Concerned that tracking labels and certifications will be unduly cumbersome to both the CPSC and consumer product manufacturers. Should the CPSC be allowed to address these and other issues “on a product class or other logical basis using risk assessment methodologies to establish needs, priorities and a phase-in schedule”?

A: It depends on the individual product. Have to look at it product-by-product.

[RW: She seems to say that she would like to use risk assessment on a product-by-product basis, but that is inconsistent with her (many) other statements. Her answer is hard to reconcile with the actions of the agency, especially since the tracking labels guidance issued during her term did not differentiate among product classes on critical issues. She may not have understood this question in the rapid-fire environment of the hearing.]

Q5-7: [Questions about funding]

Q8: Do you believe the problems encountered in implementing CPSIA could be “remedied solely by administrative action by CPSC”?

A: “I would say most of them can by administrative action.”

[RW: I wish I was as confident as Ms. Tenenbaum on this point. Anyone reading my blog knows I am darkly pessimistic about the workability of the testing rules and tracking labels, among other things.]

JD: “’Most’ - that means some cannot.”

A: “There will be some areas where we still have not come up with a solution.”

Q9: Do you support targeted amendments to the CPSIA to address the concerns which have arisen during the act’s implementation?

A: It’s premature to answer this question. We are working all the affected industries, “trying to untangle the knots that they have with their products”. Making great progress resolving many of these issues administratively. Will know which problems can’t be resolved in a “short time”.

[RW: As you will see below, none of these industry interactions involve the CPSC concluding that certain products are being unnecessarily regulated (as in safe products being newly regulated). Under Ms. Tenenbaum, the measuring stick seems to be whether by-hook-or-by-crook the new statute can be implemented as written, NOT whether it makes any sense to do so (and damn the consequences,. too). The new CPSC is apparently not willing to comment (negatively) on the quality of the work done by Congress.]

Q10-11: You are telling me that some amendments of the CPSIA may be required? Will you tell the committee if such amendments are required and work with us on these amendments?

A: Yes, they may be required. Yes, I will absolutely work with the committee.

Q12: When will you know if carefully-targeted amendments are required?

A: We are working on the component part testing rules. This will help the handcrafters and will relieve them of testing responsibilities.

Q13: You have had trouble crafting a rule for bikes and ATVs, right?

A: We are working on these issues administratively with both industries during the two-year stays. Working on how to make the lead inaccessible in the parts that a rider might come in contact with it, like the handlebars.

Q14: You have a problem you can’t solve very quickly, can you?

A: “Yes we can, once we determine that they can make those parts inaccessible.”

[RW: Again, Ms. Tenenbaum made no comment on risk here. Based on her answers, she appears unconcerned about differentiating between low risk and high risk situations. Her focus is on changing products to comply with the law - period. The wastefulness of the effort is seemingly lost on her. Based on other remarks at this hearing, one can surmise that her working premise is that “there is no safe level of lead” and therefore, allowing handlebars with lead in the alloy is plainly unacceptable. While this may have been the driving concept behind Congress’ action in passing this legislation, it makes no scientific or real world sense, and if the law is implemented guided by this principle, the damage will be severe and senseless. This is the Nanny State at work.]

Q15: You got a problem with motorcycles.

A: Motorcycles have the issue of lead in the handlebars and possibly in their vinyl seats but they might not be a children’s product.

[RW: That a motorcycle for kids might not be a “children’s product” under the CPSIA is news to me. I wonder why there were multiple representatives speaking at our April 1 Rally from the motorsports industry if they were off the hook. Perhaps this is a recent “discovery”. Or perhaps this is what Mr. Dingell was talking about, namely making interpretations of the law that are not supported by the law itself.]

Q16: Similar problem with ATVs and snowmobiles.

A: “There are issues there with implementation and we are working with the industry and met with them last week.”

[RW: Ms. Tenenbaum does not mention that she has been told personally that four of the eight “legacy” ATV manufacturers (members of the SVIA) have stopped making youth ATVs as a result of the CPSIA, notwithstanding the two-year stay of enforcement. Does that give you some perspective on this answer?]

Q17: And you have a problem with lead in publications.

A: No we don’t.

Q18: Why are book publishers always telling me so?

A: I am offering to meet publicly with affected industries and we are holding public hearings. We are resolving many of these issues. Ordinary books produced today comply with the law.

Q19: There are books out there that don’t comply.

A: “The only books that don’t comply are books that are published prior to 1985, which we don’t consider a ‘children’s book’. These are vintage books that will be considered adult vintage books, even if they are for children.” The only ones of concern are those books with illustrations in color.

[RW: Can you see my jaw dropping? To my knowledge, this is the first time that the CPSC has stated that books made on or after 1985 are okay and books made before that date are ALSO okay because they are all “collectibles”. This presumably includes all the “collectible” books sold at thrift stores, flea markets and lent out by libraries all over the country. I wonder if the General Counsel of the CPSC knows about this yet.]

JD: “What I want you to understand is that this Committee wants to see to it that you have a statute that you can properly administer without a lot of ‘toe-dancing’ and improper pressure being placed upon you to resolve questions in a way which are inconsistent with statute.”

Mr. Dingell indicated that he will be submitting additional questions to Ms. Tenenbaum to get to the bottom of these issues.

A picture of Ms. Tenenbaum emerges from this interchange. She is committed to a full implementation of the law as her primary objective as Chairman of the CPSC. She seems to feel that implementation of this law is tantamount to safety administration, which means she will not make judgments on safety in those places where Congress has already spoken. It’s not her place; she won’t even express a personal opinion. Given this point of view, her enthusiasm for regulating bicycle handlebars, library books, t-shirts and socks, potato clocks and so on, makes all the sense in the world – since Congress decided these items might be unsafe.

Because it appears that Ms. Tenenbaum believes it is not her job to tell Congress how to administer safety but instead only what she cannot implement under their “good statute”, we manufacturers are now left to our own devices. This hearing was a loud advertisement for the new CPSC. You better learn to live with the CPSIA and reconcile yourself to its really obnoxious terms. Ms. Tenenbaum has no intention of sticking up for you, even if you make an overwhelming case for the safety of your product. Listen politely, perhaps, but take no action – for the reasons outlined above. You must take your case to Congress directly. It’s a bureaucratic system in the truest sense of the word.

This kind of safety administration will turn out to be very expensive to our society. It is highly penal to Small Business and also to anyone in a specialty market. For suppliers or customers of the mass market, perhaps it will be welcome news. The big will get bigger, and the small will die. With the severe weakening of the Small Business children’s product community, we will all lose some standard of living. Wait until a Congressman wants to buy something for a dyslexic grandchild and can’t find anything good. Hmmm, how did that happen???

CPSIA - Letter to CPSC re Tracking Labels Guidance 9-18-09

September 18, 2009


Todd Stevenson
Director, Office of the Secretary
U.S. Consumer Product Safety Commission
4330 East West Highway
Bethesda, MD 20814

Re: Section 103 Tracking Labels Guidance

Dear Mr. Stevenson:

I am writing on behalf of the Alliance for Children’s Product Safety, an organization comprised of small businesses in many industries impacted by the Consumer Product Safety Improvement Act (CPSIA). I request your prompt consideration of an urgent matter regarding the impact of Section 103 tracking labels guidance issued on July 21 (the “Guidance”) on small businesses in America.

By way of background, I would like to draw your attention to the fact that I have expended considerable effort to help the agency avoid mishap in the implementation of the CPSIA’s troubling tracking labels provision in recent months. I have testified before the CPSC on tracking labels (May 12 hearing, second panel), wrote a comment letter on Section 103, sent a letter to Rep. John Dingell in part addressing tracking labels and posted no less than 38 blog entries related to tracking labels, including a comprehensive list of “unanswered questions” about the Guidance. To date, none of my “unanswered questions” have been addressed by the agency in any form as far as I know.

The Guidance was originally heralded as a document sensitive to the interests of small businesses. Some terms seemed to offer relief to small lot manufacturers who did not already mark products with lot information. This regulatory approach was forecast by Commissioner Moore in his May 13 statement explaining his vote on the NAM tracking labels stay petition, when he noted that tracking labels implementation would be “a learning process for all of us and not an excuse to punish an unwitting mistake.”

Unfortunately, the Guidance also specified that all of the information in Section 103 needed to be “ascertainable” by both the manufacturer and consumers. This has been interpreted to mean that manufacturers must be able to produce “detailed production information, including the means to distinguish products made from different factories, made with different components, at different times” for any product pulled from any store shelf anywhere and at any time. The Commission made it clear that this is a serious legal obligation. As Mr. Moore wrote on July 20, “those who fail to keep the information required by the tracking label provision . . . will not find a very sympathetic ear at the Commission.”

The issue of what “ascertainable” means gets to the heart of the issue that Mr. Moore highlighted. It is also at the heart of the tracking labels dilemma for small businesses. In my “unanswered questions” blogpost on August 14, I posed the following question:

The Guidance states: “The question of what should be ascertainable is a different question than whether that specific information can be marked on the product or packaging.” [Emphasis added.] Thus, it appears that the CPSC will not permit ANY manufacturers to sell ANY children’s product for which the specified Section 103 information is not “ascertainable”. In other words, if a consumer calls up to inquire about the Section 103 information for any unit of a children’s product made on or after August 14, regardless of whether made by a small lot manufacturer, that information must be available – or less. Correct?

Elsewhere in the Guidance, the CPSC advises that small lot manufacturers need not create a lot marking system if one does not currently exist. So, essentially, the rules require that co-hort information be “ascertainable” on items without lot markings. This is, for all practical purposes, impossible. An unmarked item is fungible with all other similar unmarked items. If small businesses are not required to mark by lot, then it will be impossible to distinguish products by lot.

This is a massive problem for small businesses. It is not solvable as far as I can tell. The Guidance says on one hand that we do not need to mark by lot, and on the other hand, says we will be exposed to civil and criminal penalties if we cannot “ascertain” lot information. This is faulty “guidance” at a minimum. It is tantamount to requiring universal marking of products by lot – although the Guidance states the exact opposite.

Please do not overlook the fact that Section 103 applies to every children’s product sold in this country without exception. It is a common misconception in the market that tracking labels are only required for items subject to the new lead limits or the phthalates ban. Thus, the scale of affected industries and product classes is incomprehensibly large.

As I have testified and written extensively on the issues relating to tracking labels for businesses catering to low volume specialty markets, I will not highlight again the many reasons why this rule is impractical in the extreme. Please consider, however, a very practical business problem. Many specialty items are low-priced and have not been designed optimally for tracking labels. The Guidance recognized the seriousness of this issue for the bulk vending industry, but overlooked it for everyone else. Frankly, the practical issues for items that sell for $0.25 are virtually identical for items that sell for $10. In any event, “ascertaining” co-hort information on any children’s product without a lot marking is basically impossible (without changing every lot in some physical way, a manufacturing “solution” likely to quickly degrade into utter chaos or commercial disaster). It is therefore likely that most products sold into specialty markets will violate the Guidance unless they incorporate permanent lot markings.

Members of the Alliance for Children’s Product Safety are facing a profound disaster as a consequence of this rule. Products are already being dropped for an inability to meet the “ascertainable” rule, particularly under threat of penalties under the CPSIA. No one working for a children’s product manufacturer will risk going to jail over co-hort information; they are much more likely to drop products to avoid the issue entirely. The economic damage will be deep and wide – and will contribute nothing to consumer safety. It is ironic that declining product availability as a result of implementation of Section 103 may lead to fewer recalls, thus giving the misimpression that children are safer. In fact, children will simply go to poorly-stocked schools and enjoy a lower standard of living.

I call on the Commission to review and modify the Guidance to provide real and meaningful relief from the requirement on “ascertainability” for small businesses catering to specialty markets. Your prompt attention to this urgent issue will save jobs, products and industries.

Thank you for your prompt consideration of this important matter.


Richard Woldenberg
Alliance for Children’s Product Safety

cc: Chairman Inez Tenenbaum
Commissioner Robert Adler
Commissioner Thomas Moore
Commissioner Nancy Nord
Commissioner Anne Northrup

Thursday, September 17, 2009

CPSIA - What on EARTH is She Talking About?

In a statement approving of a penalty imposed on a company for a drawstring choking hazard violation, Commissioner Nancy Nord made some mysterious remarks. Dense as I am, I just don't get it. If you understand these remarks, I hope you can explain them to me sometime.

a. "On a broader level, I commend companies already following the drawstring voluntary standard. However, I am deeply concerned by the industry's need to increase its efforts to educate its member companies about the problem with drawstrings on children's upper outwear, as well as the Agency's need to increase its efforts to publicize the hazards of these circumstances. Industry and the Agency must make a more aggressive effort, together, to get this warning information out to manufacturers, especially smaller ones who may be less likely to be aware of the seriousness of this problem. In addition, efforts need to be increased to have parents be better informed and be more vigilant in making sure their young children do not wear clothing with drawstrings in their upperwear."

Huh? A need for EDUCATION OF MANUFACTURERS, ESPECIALLY SMALL ONES? What?! The CPSC and industry working COOPERATIVELY to REACH OUT to both makers AND TO PARENTS? Heresy! Besides, doesn't Commissioner Nord know that all problems are best solved by governments, and that individual responsibility, not to mention the obligation to supervise children, is an outmoded concept? Please!

b. [This quote is even CRAZIER.] "In situations like this, I am sadly reminded how agency and industry efforts and limited resources have had to be focused on issues that do not present real safety concerns, like bike valves, library books and rhinestones, instead of on real dangers like drawstrings on children's apparel. The Agency, the industry, and the public at large need to remain focused on the seriousness of drawstrings in children's outerwear until every avoidable injury is just that - avoided." [Emphasis added.]

I don't get it. What's she talking about? You would think she's never been the Chairman of the CPSC or something. First of all, why does she regret the expenditure of millions of dollars and thousands of man-hours dickering about dangerous items like rhinestones? Kids lick their bike chains and chow down on rhinestones every day, after all - oooh, that's so unsafe! And what's this about "limited resources"? Can't Obama just print up some more dough? It's raining dollars, let's hire lots of investigators . . . . I am also mystified by the notion that it is possible to figure out that some dangers are "real" and some are not. Didn't Congress do all the thinking for us already? Ms. Nord, get with the times!

I certainly hope this kind of thinking doesn't catch on. What would I do for amusement?

CPSIA - My Letter to Inez Tenenbaum (9-17-09)

September 17, 2009


The Honorable Inez Tenenbaum
U.S. Consumer Product Safety Commission
4330 East West Highway
Bethesda, MD 20814

Re: Safety of Rhinestones and Crystals

Dear Chairman Tenenbaum:

I am writing on behalf of the Alliance for Children’s Product Safety, an organization comprised of small businesses in many industries impacted by the Consumer Product Safety Improvement Act (CPSIA).

Of particular concern to Alliance members is the “unintended consequences” of the CPSIA, namely that many safe products will be explicitly or effectively forced from the market despite sterling safety records, and that many viable and law-abiding businesses will be economically crippled (or worse) by new testing, labeling and other obligations and liabilities under the new law.

We are aware of your recent testimony at a CPSIA oversight hearing conducted by the House Subcommittee on Commerce, Trade and Consumer Protection on September 10, 2009. In your testimony, you expressed concern that swallowing “50 beads” (referring to rhinestones, glass beads or crystals) might lead to measurable change in blood lead levels and would hence be considered “unsafe.” You also indicated that your statement of July 17, 2009 explaining your vote to deny the Section 101(b) exclusion request of the Fashion Jewelry Trade Association and other organizations for such beads was “poorly worded,” and the level of lead in such beads was in fact a cause for concern. You mentioned, in particular, beads with lead levels of 23,000 ppm.

We are puzzled by this testimony and kindly request clarification.

Notably, you wrote in your statement of July 17 that “Commission staff recognized that most crystal and glass beads do not appear to pose a serious health risk to children.” You also stated clearly that risk assessment by the Commission “appears to be in direct conflict with the statutory language [of the CPSIA]” and therefore the agency is foreclosed from considering factors such as “bioavailability of lead, accessibility of the lead to children, foreseeable use and abuse, foreseeable duration of exposure, marketing and life cycle of the product” in any exemption proceeding. We are therefore confused by your testimony that your vote against the exclusion request was actually motivated by a safety concern (risk assessment).

The clarity and consistency of CPSC administration of the CPSIA is a serious issue for businesses attempting to comply with the new law. It is well-known that confusion among the regulated industries has caused market chaos and considerable business losses. The rhinestones decision, followed by your recent Congressional testimony, creates serious new issues that will further confuse those trying to comply with the law.

We request that the Commission provide clarification on your July 17 contention that exemption requests will be made without regard to risk assessment. If risk assessment is not permitted by the CPSIA in such proceedings (as has been consistently stated by you as well as by Commissioners Nord and Moore), we request that the Commission explain the relevance of the safety considerations of swallowing 50 rhinestones on the rhinestones exemption request decision. If your testimony before Congress indicates that risk assessment is now permitted in CPSIA exemption proceedings, please explain the legal basis for this change in statutory interpretation.

We believe that the terms of the CPSIA require that the CPSC deny the exclusion request for rhinestones based solely on the lead levels in the stones; however, we do not believe rhinestones, crystals or glass beads present any health issue for children. Rhinestones are well-known to be safe. These stones are a classic “innocent victim” of CPSIA, like so many other safe product classes similarly affected.

We request the information that you used to support your testimony that swallowing 50 beads present a health risk to children. In particular, we believe this conclusion is dependent on two theses:

a. That swallowing 50 beads is a “foreseeable use and abuse”.
b. That swallowing 50 beads will cause a measurable change in blood lead levels (one micro-gram per deciliter of blood).

Likelihood of Swallowing 50 Beads. Based on a review of medical literature, the risk of swallowing 50 beads is minimal for “normal” children. For instance, in "Foreign-Body Ingestion in Children: Experience With 1,265 Cases", Journal of Pediatric Surgery, Vol. 10, No. 10 (October, 1999), pp. 1472-1476, the authors document 552 cases of proven foreign body ingestion but do not indicate any record of jewels being ingested. Although NEISS data (this author reviewed data from 2005) shows that jewelry is known to be ingested by children, many cases in the database are not proven (merely suspected) or involve products not relevant to this issue, and in the vast majority of cases, the swallowing are inadvertent or accidental. The accidental nature of ingestion of jewelry is quite relevant here, as the accidental ingestion of four bracelets or 20 rings in incontestably improbable. In addition, such a serious incident would take a great deal of time and an intent to create mischief, none of which is considered a “foreseeable use and abuse” of a children’s product. It is notable that rhinestones are not meant to be ingested, have no flavor or smell and are, in fact, rocks. Rocks are not food and are unlikely to be ingested by children with normal mental health or normal intelligence.

On February 2, 2009, the Fashion Jewelry Trade Association and related organizations submitted a request for exclusion of these stones from the lead limits of the CPSIA under Section 101(b) (the “February 2 Letter”). In that letter, they provided industry data on the use of decorative stones in jewelry. Notably, the February 2 letter indicates that jewelry intended for children six years or younger contains between 4-15 stones. Thus, a child of six years of age or younger would have to consume 4-13 pieces of his/her jewelry to swallow 50 beads. This appears to be a highly unusual event.

We therefore request that CPSC provide data supporting your contention that swallowing 50 beads is a “foreseeable use or abuse” of children’s products containing rhinestones, crystals or glass beads..

Likelihood of Blood Lead Level Changes. In their February 2 letter, the Fashion Jewelry Trade Association and related organizations provided a technical study entitled “Evaluation of Lead in Crystal Beads and Rhinestones” prepared by the respected consulting company, Exponent. In its study, Exponent calculates the lead leaching rate of rhinestones (with lead levels in excess of 600 ppm) in saline (mouthing, 0.15 micro-grams per gram of stones) and acid extraction (ingestion, 0.52 micro-grams per gram of stones). Likewise, it notes that one gram of the most common size of such stones (10PP) equal 333 stones. [Obviously, larger stones require fewer stones to reach one gram in mass, but the analytical results are similar.]

Studies of the daily intake of lead for children demonstrate that lead is present throughout the food system and is present in our air and water as well. As a consequence, children will inevitably consume lead throughout the day by simply breathing, eating and drinking water. [It is well-accepted that the largest source for childhood lead is house paint, followed by dirt and air.] A recent study of dietary intake of lead by children in India indicates that tolerable daily intake of lead far exceeds 10 micro-grams per day (see “Dietary and Inhalation Intake of Lead and Estimation of Blood Lead Levels in Adults and Children in Kanpur, India”, Risk Analysis, Vol. 25, No. 6, pp. 1573-1588, December 2005). Similarly, the Exponent study submitted on February 2 indicates that the FDA has determined that six micro-grams of lead per day is required to produce a one micro-gram of lead per deciliter change in blood lead levels in children six years old or younger. Thus, to produce such a change in blood lead levels from jewels would require sustained daily ingestion of 12 grams of stones (roughly 4,000 stones or hundreds of pieces of jewelry) or mouthing of 42 grams of stones (roughly 14,000 stones or more than 1,000 pieces of jewelry). Clearly, this is unlikely to occur, particularly accidentally.

It goes without saying that ingestion of 50 beads is far more likely to result in physical injury because of intestinal blockage or similar maladies than from lead poisoning. We do not believe any NEISS cases involving the accidental ingestion of jewels were considered a lead poisoning risk by the attending physicians. We kindly request that the CPSC provide data on any incident in the NEISS database documenting that the attending physician considered lead poisoning a risk from the ingestion of jewels.

We also kindly request that the CPSC provide back-up data and analysis to support your assertion that the CPSC “could not determine” whether swallowing 50 beads will cause a measurable change in blood lead levels.

The Need for Flexibility. Finally, we note that in last week’s hearings, Rep. George Radanovich asked you whether you needed “flexibility so [you] can exempt safe products”. You replied that it was ‘premature” for you to answer that question. We are concerned by your unwillingness to answer this question definitively and kindly request an explanation as to why it is “premature” to ask for flexibility to exempt safe products from the lead limits of the CPSIA. Given that the agency has a limited budget, please explain how the Commission will deploy its resources to regulate and supervise safe products, when the need to deal with unsafe products or safety risks is so overwhelmingly large.

Thank you for your prompt consideration of this important matter.


Richard Woldenberg
Alliance for Children’s Product Safety

cc: Commissioner Robert Adler
Commissioner Thomas Moore
Commissioner Nancy Nord
Commissioner Anne Northrup

Wednesday, September 16, 2009

CPSIA - More "Rhinestone Cowboy" Action

How much of a set-up was last week's hearing? In case it isn't obvious that this one-witness, check-the-box hearing had a pre-ordained outcome, let's look at one issue as an illustration (my favorite, rhinestones):

Chairman Bobby Rush of the Subcommittee hosting the hearing kicked things off by heralding the CPSC's rhinestones decision as a sign of Ms. Tenenbaum's good administration: "When you took over the helm, Madame Chair, you showed courage, good sense and a preference for rulemaking over eleventh hour stays. One of the first agenda items you scheduled was whether to exclude crystals and glass beads in children's jewelry from the lead content restriction in Section 101(a) of the CPSIA. You applied the facts as you found them to the CPSIA's lead limits and to real world facts and foreseeable possibilities. For example, you talked and wrote about how children handle and play with this jewelry by mouthing, ingesting, and swallowing the beads, and how any amount of lead constituted too much lead in these beads."

Let's not forget these are the words of the Democratic Subcommittee Chairman, not Ms. Tenenbaum. Her words, at the time, were rather different. In Ms. Tenenbaum's statement on the rhinestones decision, she set out the following logic to justify her voting decision:

a. Exemptions under the law are only permitted if it can be scientifically determined that NO lead will pass from the rhinestones into the body from foreseeable use and abuse of the product.

b. Rhinestones violate the CPSIA lead limits, and therefore need an exemption to be sold legally.

c. Industry data shows that some leaching of lead from ingested rhinestones will occur. She acknowledges blood lead level changes may not measurable.

d. Swallowing or mouthing rhinestones is a "normal" and "foreseeable" use and abuse of jewelry. She reinforced this with her assertion that jewelry is one of the top five items (inappropriately) ingested by children.

e. The law does not require that the lead leached from rhinestones be deemed "harmful".

f. Notwithstanding that CPSC staff "recognized that most crystal and glass beads do not appear to pose a serious health risk to children", the fact that some lead will pass into the body makes it impossible to grant an exemption.

g. Risk assessment is no longer permitted by the CPSC in making exemption determinations, including topics like the bioavailability and accessibility of the lead in the crystals.

So Mr. Rush recharacterized the rhinestones decision as one using common sense safety judgments, and Ms. Tenenbaum's statement was the opposite, namely that a decision to reject the exemption was compelled by law, not safety risk. Other than Mr. Rush's revisionist history, what's my gripe?

Well, I have two problems with this. First, Ms. Tenenbaum herself rose to the occasion of rewriting history when she took the opportunity to insert risk assessment into her decision retroactively. When Rep. George Radanovich asked her if the Commission has the "flexibility to exempt safe products that don't meet the [lead limit] exemption standard", she first replied that "interpretation" of her comments muddied the waters by implying that rhinestones "pose no hazard at all to children". She then said her statement was "poorly worded".

Noting that leaching from one bead would not meet the old FHSA "substantial illness or injury" standard, Ms. Tenenbaum then argued that the CPSC "could not determine" if swallowing "50 beads" might in fact cause substantial illness or injury. In other words, she reversed field and defended the rhinestones decision on basis of RISK ASSESSMENT (which never occurred), rather than the bright line lead limit rule set by Congress. Yes, rhinestones are apparently dangerous now, according to Ms. Tenenbaum, although she explicitly ruled out risk assessment in the original decision/statement. This fits the message control implicit in Mr. Rush's glowing introduction and matches his faulty characterization of the original decision. Unfortunately, it's fiction.

Second, Ms. Tenenbaum passed on stating the obvious to Congress, namely that many safe products are being sent to the gallows by an overly broad and inflexible law. When cornered by Rep. Radanovich about whether she needed "that flexibility so [she] can exempt safe products", she said it was "premature for [her] to answer that question at this time because these beads went all the way up to 23,000 ppm." In so answering, Ms. Tenenbaum threw good and moral businesses to the dogs, all to avoid criticizing the "good statute" (CPSIA). After all, she noted that Congress set the lead limits after due deliberation at 300 ppm (the "safe level for lead"), the implication being that the law DEFINES what's safe and relieves her of any responsibility to make that judgment.

If this confuses you, don't feel too badly. It makes no sense. Incredibly, the head of the CPSC refused to take a position on whether she needed the flexibility to grant exemptions for safe products. You would think that's an easy question to answer, wouldn't you? She claimed it was "premature" because "Congress struggled with this very issue". I am afraid Ms. Tenenbaum is setting the tone for her next four years. While businesses are welcome to "dialogue" with her, because she wants an "open" CPSC, she apparently has no intention to exercise judgment. That responsibility has been given to Congress and from now on, her definition of "safe" is dependent solely on test reports.

Something to think about the next time you want to "dialogue" with the CPSC. Lalala, I can't hear you. . . .

CPSIA - Phthalates Test Standard Comment Letter 9-16-09

[As submitted 9-16-09]

To Whom It May Concern:

I am hereby submitting comments in response to the Notice of Availability of a Statement of Policy: Testing of Component Parts With Respect to Section 108 of the Consumer Product Safety Improvement Act [CPSC Docket Number: CPSC–2009–0063] dated August 17, 2009.

1. Applicability of Component Testing. We believe the clear language of the CPSIA provides that TOTAL WEIGHT OF THE PRODUCT be the basis of any calculation of phthalate content. Sections 108(a) and 108(b)(1) state that “it shall be unlawful for any person to manufacture for sale, offer for sale, distribute in commerce, or import into the United States any children’s toy or child care article that contains concentrations of more than 0.1 percent of [certain phthalates].”

Notably, in the August 7, 2009 Statement of Policy on the Phthalate Testing Standard (the "Statement"), justification for component level testing is based on an argument that Section 108 of the CPSIA uses the term "children's product" incorporates the term "consumer product" which is defined in Section 3 of the CPSA as "any article, or component part thereof, produced or distributed . . . ." The Statement concludes: "Because the term consumer product includes components of an article, the Commission believes that the phthalate limits in section 108 of the CPSIA apply to each component part of any article." This reasoning overlooks the fact that the CPSIA also uses the same term "children's product" in Section 101 in regard to the new lead standards but clarifies it in the following terms: " . . . the lead limit referred to in paragraph (1) is 600 parts per million total lead content by weight for any part of the product." [Section 101(a)(2)(A)] [Emphasis added] Rules of statutory construction require that the words of a statute be interpreted to give meaning to all the words used. Therefore, apparently, Congress did not impute an obligation to test components for the term "children's product" in Section 101 and felt it necessary to state plainly that the lead standard applied to "parts", whereas no such limitation was incorporated into Section 108. The reasoning used to justify component testing on this basis is thus faulty. Without further action by Congress, the July revision revision of the March standard previously announced by the CPSC should be revoked and total toy phthalate concentration testing protocols be restored.

2. The Apparent Paradox of a Component in a Hypothetical Toy Containing Phthalates. The introduction to the July 27 Test Method (the "Standard") refers to a hypothetical toy containing a teether with phthalates in excess of permitted levels. The introduction refers to this as a "paradox". In fact, it is hardly paradoxical. The law does not prohibit parts containing phthalates, as illustrated above. In addition, the CPSC has on two occasions (CHAPS in 1998 and 2001) concluded that phthalates do not present a material health risk to children. Thus, I do not understand how the CPSC can express concern that a part in a hypothetical toy contains phthalates that might violate the standards IF the part were a stand-alone toy as the CPSC itself has stated publicly that this would not present a health risk. The apparent meaning of the "paradox" referred to in the Standard is that Congress outlawed six phthalates as a health risk in contravention of the reasoned and well-researched opinion of the CPSC scientists. This conflict does not justify reading the law more broadly than it is written.

Many companies and many valued products will be sacrificed to this "paradox" if the meaning of the underlying law is not respected. I think it is highly unlikely that any parts in a hypothetical toy will contain the six "bad" phthalates when they are outlawed all over the world. The economic incentive to use them is too low, and legal and uncontroversial substitutes are too readily available. Needless to say, the very existence of the CPSIA (not to mention the EU ban) cuts the market for the six phthalates substantially, if not entirely. With much lower volumes, these chemicals will rise in price and will become harder to find. In due course, manufacturers will literally have to work to obtain supplies of the six phthalates and take considerable risk to use them, all for no economic incentive. In a nutshell, right or wrong, the CPSIA will have the effect of ridding the market of these chemicals as long as they are illegal (which is not the same thing as saying that they are dangerous). YET under the test standards, we must forever test each and every component to prove that these hard-to-find chemicals are not present. That is the true "paradox" of the Standard's example - it is paradoxical that our safety system requires that we prove the absence of chemicals that are not economically or functionally advantageous nor easy to find.

In any event, in the cited hypothetical example, a teether is at issue. Why not simply require testing for all components which are suitable for children up to 36 months old and which can be placed in the mouth? In the past, the CPSC has asked industry to take certain phthalates out of products like this (without controversy, I should add). Companies can certainly test teethers, pacifiers and rattles without testing each other component that is not likely to be placed into the mouth. Given that this test procedure includes items suitable for children up to 12 years old, the Standard will impose widespread economic harm apparently in order to catch teething rings. I think this is unwise and unnecessary and will harm markets.

3. The Rationale Offered for Component Testing. In the Statement, the following rationale for the change to component testing is offered: "Given that testing the phthalate content of an entire children’s toy or child care article presents certain difficulties, may lead to dilution of the phthalate concentrations compared to that in one or more of its component parts, differs from similar regulations issued by other jurisdictions, and can be prohibitively expensive, the Commission believes that phthalate testing should be limited to those plastic parts or other product parts which could conceivably contain phthalates ('plasticized component parts')." I have previously addressed the inapplicability of component testing under Section 108. I will now address the other rationales offered in this statement.

Regarding "dilution", it can only be considered an issue here if component testing is required under the law. At the moment, the law as written (as explained above) specifies phthalate levels for the entire toy. Dilution would only be an issue if the law read differently, requiring certification by part, which it does not. As the CPSC has already ruled out in two previous CHAPS that the six phthalates present a material health risk to children, it lacks the legal authority under the FHSA to impose restrictions on products containing them as "banned hazardous substances". It is therefore entirely dependent on Section 108 to justify this new Standard. Dilution is therefore legally irrelevant as a consideration.

It has not been our experience in testing for phthalates that testing the whole toy presents any "difficulties". Testing for phthalates is, in general, prohibitively expensive. The right way to moderate that expense is to run fewer tests. Testing an entire toy is definitely cheaper than testing every component because it requires fewer tests. If a manufacturer encounters "certain difficulties" or finds that testing the entire toy is somehow more expensive than testing components, your rule should permit the manufacturer to opt for component testing. This simple solution will preserve the benefit those of us who have discovered that testing the entire toy is cheaper.

The concern expressed for coordinating test requirements with other jurisdictions is commendable, but which jurisdictions are the CPSC attempting to align with? If the Statement is referring to a state (like California), the Standard and Federal law should preempt the state standard. I think that industry action can be used to help bring different jurisdictions in line on testing standards. If that is not sufficient, legislative action is the next step. [It is ironic, actually, that this justification for the phthalate standard has been offered, as for many years the CPSC has stood pat and refused to align its testing procedures with European standards, causing U.S. manufacturers to test repetitively to two standards.] In this case, the alignment justification is going to cost industry millions of dollars in excessive and ineffective component testing. Unless the law requires that the CPSC correlate its testing standard, I think the March Standard should be remain in place (toy-level testing).

The Statement also notes: "Testing component parts to the phthalates limits established in section 108 is more protective of human health . . . ." As noted above, the CPSC has twice rejected the notion that phthalates are dangerous in CHAPS in 1998 and 2001. This statement should be struck from the Statement for that reason alone. The fact that Congress outlawed six phthalates does not invalidate the scientific conclusions reached in the agency's two CHAPS.

4. Inaccessible Components. The Statement and Standard do not differentiate between accessible and inaccessible components. Without meaning to contradict my comments above on the invalidity of component testing requirements, I believe there MUST be a distinction in the rules between accessible and inaccessible parts in any testing standard for phthalates. Inaccessible parts should be exempt from testing, whether on a component or whole toy basis, as there is no known health risk possible from inaccessible parts (whether or not the results of the two CHAPS are respected). This is a rather self-evident concept, as phthalates do not have the ability to "leap" from inside a toy into the human body. There is only one mechanism that can transport phthalates from a toy into the human body, namely mouthing or chewing. Inaccessible parts cannot be mouthed or chew without unforeseeable and substantial toy abuse, and thus should be excluded entirely from the testing requirements.

5. Vague Standards. In the Statement as quoted above, the test standard now requires that any "plastic parts or other product parts which could conceivably contain phthalates" be tested. This expansive definition is not only vague and undefined but it is also subject to second guessing. Vague terms like this also tend to cause disagreements in the supply chain, leading to loss of revenue and unnecessary testing. The Standard does not let the manufacturer make this judgment definitively, either. The inability of a manufacturer to rely on a "safe harbor" rule, short of testing every component of every product, is a major economic disincentive and will certainly disrupt markets. The CPSC has already received MUCH data from companies documenting this kind of market disruption. Although the CPSIA may have been cleansed of any reference to money or economics, the CPSC has no legal or moral obligation to promulgate rules that are devoid of sensitivity to market considerations. In this case, please consider that the financial implications of the new Standard making new products too expensive to develop, manufacture or distribute will stifle innovation, reduce the diversity of products available in specialty markets, stunt new company formation and reduce jobs - all to enforce a law which is directly contravenes the results of two CPSC CHAPS. To do so will severely disrupts markets regulated by the CPSC and disproportionately harm Small Business. In light of the CPSC's stated opinion on the safety of phthalates, this is unacceptable as a matter of public policy.

The Standard should specify which materials are known to contain phthalates and restrict it to known materials meeting physical examination criteria. In other words, it should not be sufficient that it is "conceivable" that phthalates have been used in a particular plastic or component. The part or material itself must also exhibit the characteristics of a plastic or part containing phthalates (in other words, it is pliable). This is a highly effective and low cost way to differentiate between plastics that have phthalates and those that do not. The presence of phthalates is not hard to detect with a physical examination.

De minimus risk of phthalates used in low mass components or materials, especially noting the function of the parts, should be exempt from testing. As an example, coatings on parts that are not likely to be mouthed (in other words, they are not intended for children under three years old or cannot be placed in the mouth) should not require testing. In addition, the mass of the possible phthalates in such coatings is likely completely immaterial. The repetitive testing of low value, low risk items or parts will bankrupt companies still remaining in this devastated market. Some exercise of regulatory judgment is necessary to save the children's market here.

6. Multiple Components. If component testing is required in the final standard, the standard should not require repetitive testing of the same component. If a component is used in multiples in a particular product or is used in more than one toy, the testing standard should permit use of a single test on a single component to apply for all of its uses in applicable toys.

It is also our recommendation that raw material testing be accepted in lieu of component testing. That said, raw materials testing is not likely to resolve testing problems under the CPSIA except for the simplest products. While I have consistently written that raw materials testing is an appropriate and effective supply chain management technique, raw materials test reports when compiled for a complex product will tend to raise questions (they will form an unreconcilable, incomprehensible mass of seemingly meaningless reports) and will in fact, detract from assurances that the final product actually complies with law. This flaw, which is highly likely to cause expensive delays at the border when U.S. Customs begins to examine test reports under the CPSIA, will again tend to force companies to test whole products at high expense, simply to keep products moving across borders and to make it easier to sell them into retailers who do not want to accept such reports for legal liability reasons or spend the time or money trying to reconstruct a passing test report on a toy from a pile of raw material test reports.

7. The Phthalates Standard is Effectively a Requirement to Test Every Component in Every Toy. The Statement does not rule out testing of ANY material as far as I can tell. The standard even leaves open the possibility that natural sand, glass, crystal, unfinished metal, cotton textiles or even natural wood might need testing under some circumstances. This is particularly perplexing because the CPSC knows that phthalates are an additive and do not exist in nature. They are also an organic chemical that would not survive the heat necessary to forge steel or melt sand into glass. To suggest that these items "might" have phthalates is quite a stretch - and all manufacturers using these materials will pay dearly for this stretch.

As if that wasn't bad enough, the Statement goes on to note: "Manufacturers either know or should know what materials and components go into the products they make, and if the product or its components contain one of the plasticizers specified in section 108 of the CPSIA, the manufacturer or importer certifying the product must test the component or product to ensure that it complies with the CPSIA. Failure to comply with section 108 of the CPSIA is a prohibited act under section 19 of the Consumer Product Safety Act (CPSA) and can result in civil and criminal penalties. Likewise, failure to have a product subject to section 108 of the CPSIA tested by an accredited third-party laboratory and have the appropriate certification for that product is also a prohibited act under section 19 (CPSA)." Such remarks are guaranteed to create insatiable demand among risk-averse retailers for complete suites of tests on every component in every toy, no matter what. The Statement could not be clearer that ALL mistakes, oversights or judgments invalidated with 20-20 hindsight by the CPSC will be held against the supply chain selling the product. As the CPSC penalties and saber rattling of the agency have been widely publicized, this rule is certain to depress trade and shrink markets. No one will be willing to take the risks outlined in this paragraph.

I would note also that a standard that puts the onus on manufacturers to make judgments on whether to test or not, and then attempt to get their customers (and testing labs) to go along with their judgments, seems particularly impractical and unrealistic. The scenario is apparently that manufacturers must prove to all of their trading partners, again and again, that their judgment to not test certain components or materials is legitimate. That judgment will not be accepted lightly, with or without documentary proof, by trading partners who have read the Statement's stern warning about liability. In any event, a long inquiry by trading partners and testing labs into any such manufacturer's judgment can be anticipated with a high degree of certainty. While some manufacturers may be looking forward to spending the rest of their working lives arguing with customers to accept a decision to save $500 in testing costs, I personally find it quite unappealing and unworkable. We have a business to run and cannot spend all day on test reports - we have to make some sales (to pay for the tests). If this is how the rules will work, we will either have to test everything comprehensively or drop the products. Please think realistically about the commercial implications of the rules you are promulgating.

If it is the intention of the Commission to require comprehensive testing of every component of every toy with no exceptions, I think the standard should be rewritten to say so directly and unambiguously. Writing a standard that uses vague language stating that incomplete testing is permissible under some circumstances, but only at high risk of civil or criminal liability, is disingenuous, as the agency knows full well the impact and meaning of those words.

Thank you for considering my views on this important topic.


Richard Woldenberg
Learning Resources, Inc.
380 North Fairway Drive
Vernon Hills, IL 60061
Tel 847-573-8420