Monday, March 15, 2010

CPSIA - "Low Volume Manufacturers" under Waxman Amendment

The proposed Waxman Amendment adds a new term to our CPSIA lexicon: "Low Volume Manufacturers" (LVMs). This term is introduced in the ironically-named Section 4: "RELIEF FOR SMALL MANUFACTURERS AND OTHER BUSINESSES".

How small is "small"? The definition of a LVM is a manufacturer that

"(A) manufactured or imported no more than 2,000 units of all products manufactured by the manufacturer during the most recent calendar year; and (B) had gross receipts totaling not more than $200,000 during such year."

To clarify, the definition intones:

"the products and gross receipts of a manufacturer shall be considered to include all products and gross receipts of each entity that controls, is controlled by, or is under common control with such manufacturer."

Yep, THAT'S small alright. In other words, if you made or imported 2000+ units of anything regardless of value (all products added together) OR had gross receipts of $200,001 last year, you get nothing here. So, if you sold 3,000 Popsicle sticks for $50, you are out. If you sold 201 cabinets for $1,000 each, you are out. Only the true small fry are included here. Happy?

Hey, isn't there some sort of federal definition of a "Small Business"? Yessir, the SBA publishes size standards to define Small Business. These federal standards are found in myriad federal legislation (shocking, right?). They are widely used - so why not include them here? That question was posed directly to the Dems - especially since earlier drafts of this amendment featured a higher dollar limit (also inadequate). Why did the Dems tighten the standard so much? Why not incorporate the SBA standards, like every other federal agency?

The best explanation I can give is that the Dems don't really have any interest in providing relief to small businesses. They also may want to appear to give relief, principally to fool members of Congress who have expressed concern for the fate of crafters under the CPSIA.

Do you think I'm being too cynical? Let's not forget the words of Senator Durbin's associate a year ago: "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)."

She said it - small business problems induced by the CPSIA were part of a "larger calculation". With this amendment, the Dems again test our gullibility.

The provisions relating to LVMs provide the following "relief":

a. This provision is designed to provide modified requirements for LVMs under Section 14(d) of the CPSA, in other words, the long-delayed and never drafted "15 Month Rule". For those of you scoring at home, the "15 Month Rule" is now four months late - call it the "19 Month (and counting) Rule".

b. The "relief" that the CPSC can offer LVMs is "alternative testing requirements" that "provide for reasonable testing methodologies to assure certification based on compliance with the relevant consumer product safety standards". The alternative methods must ASSURE COMPLIANCE. Can you picture what such "assured compliance" might look like? If these words have their normal English language meaning, the "relief" should be nil if compliance must be assured.

c. The CPSC has the right to implement such alternative testing requirements for LVMs on a product, product class or even for a specific safety standard or part of a standard.

d. NO relief is allowed for lead-in-paint, cribs, pacifiers, small parts, children's metal jewelry, baby bouncers, walkers and jumpers and durable infant or toddler products (as defined somewhere). All of you LVMs, make a note!

Have you ever heard the expression "trap for the unwary"?

e. This provision also calls for the creation of an "Office for Business Education, Outreach, and Advocacy". Since I called for such education resources in my first speech at the CPSC back in November 2008, I shouldn't make fun of this. I just like the legislative goal of this organization: "assist the Commission in informing and educating manufacturers and retailers about requirements under this Act or any other Act enforced by the Commission". This is much needed. Of course, given that you must master literally thousands of pages of gobbledygook to fully understand the CPSIA as implemented, I would DEFINITELY not want this job. If anyone calls about this opening, tell them I am at the dentist.

f. The provision adds an idyllic sounding provision (Section 4) to the CPSIA which states the pleasant intention to "cooperate" with LVMs "in enforcing the lead limits and third-party testing requirements". Of course, all cooperation must be "consistent with [he] goals of statute". In other words, you must be able to prove you comply. There are soothing words about assessing the practicability of tracking labels for these micro-businesses. [Remember that "practicable" incorporates concepts of economics .]

Shame that you and I won't be eligible for tracking labels relief, too . . . .

This charade purports to provide relief to small businesses but in fact, will benefit virtually no one. Even the Handmade Toy Alliance, a CPSIA advocacy group created by crafters, has few members that would benefit. Notably, there are many more small businesses affected by this law beyond the HTA, so the failure to impact HTA members is just an indicator of how lame the proposed relief actually is.

The SBA sets a high bar in its definition of small business for several reasons (as high as 500 employees or $500 million in revenue). Among them is a fear that legal benefits for small businesses may be unfairly distributed if the definition is too narrow. Many small businesses could miss out on needed protections. Furthermore, the complexity of the U.S. economy makes it difficult to describe a small business. The high bar in the SBA definition leaves room for small businesses in every industry from airplanes to pencils to baby clothing.

The SBA certainly doesn't want to disincentivize growth or prosperity among small businesses. They recognize that the small business community is a huge jobs creator, so maintaining its financial health is a public policy imperative. The SBA wouldn't want small businesses to lose special legal benefits because of an immaterial event, like a small incremental sale. So a law that TAKES EVERYTHING AWAY when you sell one more unit of ANYTHING or take in one incremental revenue dollar (all at a very low level of sales that would not coincide with a fundamental change in the nature of your business) would never fly. Never fly with the SBA, that is. Mr. Waxman apparently thinks this is fine - but actually, it's UN-AMERICAN. Our laws are supposed to encourage us to grow. At least they used to.

If there is one basic reason to be critical of this provision, it's the very conceit of granting relief by business size. This misses the point of SAFETY entirely. Size of business only became an issue under the CPSIA because the law is too broad. Let's not forget that the prior law had standards for products, not for companies by size. Why do we need size exceptions now?

Think about it - if your child is harmed by a product, will it matter how much revenue the manufacturer earned in the previous year? Do you think the CPSC wants to modify "safety rules" for little businesses only to find out that one of these businesses hurt your kid? Uh, no. So why take this legislative approach? It's simple -the Dems have constrained the way we can fix the law. They have fixed, absolutely FIXED, the definition of "safety". The original standards and the original age limits MAY NOT BE REVISITED. These rules are too broad and invite many negative consequences - but since the Dems will not agree to modify them, we must apparently devise ever more complex rules to circumvent (or apparently circumvent) the problems they cause. In this case, the Dems offer relief for tiny companies. Those of us who have enjoyed enough success to hire a few employees and stop working out of our bedrooms are ineligible for this "relief" although our problems are just as troubling.

I do not accept that there is no solution here, however any durable solution requires that the definition of safety be modified to something sensible. The Dems won't allow it. This is their "legacy" and they are bound and determined to ensure that it survives, ridiculous or not.

That's your small business relief. Enjoy!

I intend to publish one more post analyzing the rest of the Waxman Amendment. It will cover an exception to the phthalates ban for inaccessible components. It will also document the sneakiness of the remaining language in the amendment. You aren't meant to understand it - but I will do my best to shed some light.

Sorry, Henry! Let the sun shine in.

1 comment:

Paul said...

UN-AMERICAN?! hum... ...,

True or not, the fact is there is a certain sentiment from many parts of the rest of the world that generalizes “American” is “Self-Righteous-Serving, Arrogant, Bully.”

If Mr. Waxman shares that view, what he is doing with the CPSIA-Show could actually be VERY-AMERICAN.

Well, while letting his act speaks for him, it’s getting more clear that the CPSIA-Show has very little concern with child safety.

So what could be next? A disgruntled employee or partner would report to the CPSC for company gross 200,001, and Gestapo then knocks on the door?