Thursday, April 15, 2010

CPSIA - A Quick and Incomplete Analysis of New Draft Waxman Amendment 2.0

With only a few hours to look over the new draft of the Waxman Amendment 2.0 before tomorrow's meeting, I guess the idea is that we are supposed to drop what we are doing to complete an analysis fire drill. Power trip for the Waxman staffers? Possibly. Still, what choice do we have? I thought I would outline my preliminary comments to contribute to the debate.

It goes without saying that this is entirely my own work without the benefit of discussing it with others similarly situated and without the opportunity to compare notes. It is therefore likely that I have missed something important or made other mistakes. Sorry . . . . This post is also painfully long. Again, given that Mr. Waxman hardly cares about your problems or mine, I have little choice but to post this as one essay. Again, sorry . . . .

a. Modifications to Section 101(b)(2) Exemption Process:

  • The idiotic post-exemption warnings provision has been deleted.
  • The three-pronged exemption test remains in place, as does the ambiguous and troubling term "practicable". "Practicable" is a sneaky Waxman approach to providing an escape hatch for big industries with narrow product definitions like ATVs and books. You're not supposed to know this. Our laws aren't for the little people anymore.
  • The third prong of the exemption test has been clarified from no effect on "public health or safety" to no effect on "the user’s health or safety, taking into account normal and foreseeable use and abuse by all foreseeable users." This change seems like new belts and suspenders to make it easy to deny an exemption. The Dem zealots want to be sure no one gets an exemption but ATVs and books, wink-wink-nudge-nudge.
  • Poor applicants for exemptions are still obliged to wait hungrily by the door of the CPSC for the leavings of rich supplicants. Yes, small business owners who want exemptions like the big guys but can't afford to pay the big bucks can reuse the big guys' consultant's reports provided the evidence is considered non-proprietary. [Whatever that might be.] Nice . . . if someone else has already paid for it and submitted it in an exemption process, and if you have access to it (and have found it), you can use it. Noblesse oblige, I guess. Thank You, Kind Sir. I speak for all the little people . . . . Oddly, this concept reappears in a confusing provision called "Previously Denied Petitions" that only refers to previously denied petitions in its title (I don't get it).
  • In another "how closely are you watching me?" change, the grounds for decision provision now permits the Commission to consider "only" evidence presented by "interested parties", rather than the evidence presented by the party seeking such exceptions. So if you ever get as far as an exemption hearing, this provision turns it into a town meeting. How would you like it if anyone could enter and participate in your litigation without your consent . . . like your competitors or your business enemies? I have a good idea - why not just write into the law that Rachel Weintraub will be considered a party in interest to every action at the CPSC?
  • The Narrowest Scope provision has been modified to clarify that you must not only address each component but also each material. The paranoia you sense in this legislation is just the precautionary principle at work. The staffer-gnomes who have been crafting this legislation are not thinking about how our markets work or should work - they are simply obsessing over how we business people might find loopholes. Of course, it is in the nature of business people to try to avoid laws, we are all so evil. Oh yeah, I forgot . . . .
  • The Limitation of Exception provision now is framed in terms of "all foreseeable users" which I can only assume is meant to make the burden of proof higher for supplicants. After all, if you can foresee a so-and-so using the product (I won't supply the colorful example), then the Commission must limit the exception. No possibility of risk can be tolerated by the precautionary principle folks.

As the provision for exclusions has not changed much, here is my analysis of the original language for your reference.

b. Treatment of Resale Shops by the Waxman Amendment:

  • The provision defining a "used children's product" seems to now mean (a) an actual used children's product, and (b) new goods donated for a charitable purpose. This would seem to protect resale shops from liability for sale of items violating the lead provisions (but not the phthalates ban, notably) unless the seller or the person who supplied it to the seller knew it was in violation of the lead provisions. If that seems somewhat circular, it is. In this case, the law as drafted encourages resale shops to remain as ignorant as possible. This is Waxman's "Don't Ask, Don't Tell" policy. Nice.
  • There has been no clarification about the application of this provision to consignment shops. Do they "obtain" goods for resale if they never take title? Something fun to speculate about!
  • In a little-noticed provision, the definition of "seller" includes lenders or donators of used children's products. Thus, for lending libraries, they will be in the clear if they lend used goods, but will be on the hook if they lend new product. Does it become "used" after one loan, and if so, what does this mean? The legal department in your local children's library will figure this out. Sure. As to people who donate, the provision is circular again. As best I can figure out, you are not subject to the lead rules (only) if you are donating something used for charitable purposes, but if you give away something new, you are on the hook. At least, that's how I read it. So the bottom line is - don't give anything new to a charity, just give them junk. This is what Mr. Waxman wants. And that means this is what Congress wants.

While these changes may be an improvement, they are sadly improvements without much impact. This provision remains convoluted and hard to understand. The definition has numerous exceptions and also avoids giving the same shelter to resale shops for all the other picayune provisions of the law, like the phthalates ban. Frankly, without a clean exemption for this industry, resale stores are all going to avoid this class of goods. The complexity alone will kill this exemption except for the most sophisticated participants in an industry not known for its legal skills or resources. These stores won't hire lawyers to check their work. They can't afford it.

This is my original criticism of this provision, which is still applicable.

c. Prospective Application of 100 ppm Lead Limits - this provision was not changed in the new draft.

d. Low Volume Manufacturer "Exceptions":

  • Thank heavens, they changed the term of art for these small fry to Small Batch Manufacturers. This was done at the insistence of the HTA. What a victory! Someone please explain this to me.
  • The "In General" provision is basically unchanged, other than the fancy new name for the supposed beneficiaries of this largess. Notably, the last sentence was clarified to make sure no one could contend that Waxman inadvertently gave the Commission the power to grant "alternative testing methodologies" for ANYONE but the small batch guys. There's so much trust and love flowing here . . . .
  • The truly non-existent "relief" of this provision remains EXACTLY the same. Here it is, bask in its wonderfulness: "The Commission . . . may, by regulation, provide alternative testing requirements for covered products manufactured by small batch manufacturers in lieu of those required under subsection (a) or (b). Any such alternative requirements shall provide for reasonable testing methodologies to assure certification based on compliance with the relevant consumer product safety standards." [Emphasis added] Standing ovation? These lucky micro-businesses must meet alternative TESTING methodologies that ASSURE compliance with the standards. In other words, they gotta test. They even added a "savings clause" to forbid any relief here (such as it is) if any foreseeable user might be foreseeably at risk. Some relief.

Notably, the reach of this section has now been limited to "covered products". This new term, which incorporates a three-prong test (this is the second three-pronger of this amendment so far, but not the last). [See below.] Please NOTE that this new term means that the ONLY relief the CPSC can grant is to these small fry products. A product that exceeds the limits of a "covered product" will NOT enjoy any theoretical testing relief, even if made by a business qualifying for relief overall. Should you care? Well, in my view, if you have to endure the burden of full compliance with one product, you have to build the full infrastructure and bear the related liabilities. Thus, these micro-businesses supposedly being saved here are actually at substantial risk of suffocation if even ONE product sells well. Too bad for them.

The absurd and utterly inappropriate definition of a "low volume manufacturer" has been completely jumbled and incorporates the new concept of "covered products", too. Let me try to sort out this for you.

- As noted above, only "covered product" enjoy any potential relief under this section. The "covered products" test is a three-prong test: (i) manufactured not more than 5,000 "units" of the product in the prior fiscal year, (ii) had not more than $30,000 in sales of the product in the prior fiscal year, AND (iii) had no more than $500,000 in total sales in the prior fiscal year. [Do you feel vines growing over your brain yet?] Dollars are indexed for inflation. Notably, the definition ONLY applies to the manufacture of these items, NOT importation. Too bad, importers. GOTCHA!

The implication of this definition is that if you grow to over $500,000 in total sales, all exemptions applicable to any of your low volume items goes up in smoke instantly. That last dollar is gonna HURT. You also cannot get relief for any individual product if your sales of THAT item are greater than 5,000 "units" per year or $30,000 in sales. Here's another compliance tip: don't grow your business! Too hard? Don't worry, the other policies of this government should help you meet this goal . . . .

- The definition of a "small batch manufacturer" defines who should be treated with special charity by the CPSC under this marvelous section of the amendment. It's not going be a long list. Who wants to see another three-prong test?! Okay, break out your calculator so you can figure out if they are referring to you: (a) AT LEAST TWO-THIRDS of "the manufacturer's products" (I love that term) meets this two-part test: (i) the manufacturer manufactured or imported not more than 5,000 units of the product in the prior CALENDAR year, AND (ii) the manufacturer had not more than $30,000 in sales of the product in the prior CALENDAR year, AND (b) the manufacturer had not more than $500,000 in sales in the prior CALENDAR year.

This is getting fun! Okay, first we need to decide - is it a two-prong test with one prong having two sub-prongs, or is it a three-prong test? This is a rather metaphysical question . . . but I say it's our third three-prong test of this short amendment. [Imagine how many three-prong tests are in the health care bill.] I welcome your insights on this question.

There are some interesting quirks in the Small Batch Manufacturer definition. First, this provision applies to imported products, but the "covered products" definition does not. Gotcha! What does this mean? Who knows. The head spins . . . . Even better, the definition of "Small Batch Manufacturer" is based on calendar year calculations and the definition of "covered products" is based on fiscal year calculations. Love it. I learn so much from Mr. Congress. Apparently, Congress wants it to work this way because there must be some sort of dangerous loophole for people who have fiscal years which are not the calendar year. Mr. Waxman is onto your game, you desperadoes! There's no escape!

At least the Waxmanis kept it simple. Good job, guys, it's artful!

Btw, they added a little provision to make sure that the Commission investigates the structure of your business' "affiliations". Clearly, the Commission needs to make SURE they correctly tote up your revenues for this ornate determination. [Little known fact: the CPSC uses clacker balls for this work.] The reach of the Obamist/Waxman government into your private affairs, in ways completely and utterly unrelated to public interest or safety, apparently knows no bounds. Get your files ready, little businesses - the CPSC wants to take a peek. Perhaps check out your tax returns and . . . oops, it appears you took a few deductions that you weren't entitled to. We can just let our sister agency know, you don't have to do ANYTHING, we're just here to help.

Small business people, you should be flipping mad over this pathetic attempt to "help" you. My original criticism of this provision is still largely applicable.

e. Phthalates Ban Exception for Internal Components: This is largely intact from the prior draft although they did add a provision modifying the Commission's right to adopt the definition of an internal component from the lead accessibility standard. The Commission must now, "as appropriate", consider whether the component can be placed in the mouth. We are talking about internal components here.

I wish I had a laugh track for my blog . . . .

f. Removal of CPSA Section 6(b) Due Process Rights of Manufacturers: has been eliminated from the draft.

g. Voluntary Recall Standards to be Matched to Mandatory Recalls: has been eliminated from this draft.

h. Imminent Hazard Panic Attacks by the Commission: has been eliminated from this draft.

i. Subpoena Power for Underlings at the CPSC: This provision was trimmed back partially to apply only to physical and documentary evidence. This modest restructuring of this new right does not in any way address the issues I have pointed out in the past (here and here). This new subpoena power is not essential to the operation of the CPSC, regardless of their assertions, and represents a significant degradation of procedural protections that encourage business people to invest. When all trust is destroyed among the regulated community and its safety regulator, who will want to invest? Hello, Congress?


The Waxman Amendment has been improved mainly by deletions of several truly awful and duplicitous provisions. Many defective provisions in the original draft survived the revisions. What's left provides little substantive relief to the unwashed masses, but promises some sub rosa relief to the book industry and ATV'rs without giving the appearance of favoritism. There is little to cheer here for resale shops, small businesses (even micro-businesses, hello HTA, are you there?), education companies, apparel companies, you-name-it.

And many important issues are left completely unaddressed. I have previously provided my most discrete list of CRITICAL missing elements that must be part of any meaningful amendment of the CPSIA:

  • Risk Assessment by the CPSC and/or the Commission.
  • Changes in age limits for the lead standards and phthalates ban.
  • Narrowing of the scope of "Children's Product" to eliminate many categories of products unthinkingly pulled into this law by its overly broad language.
  • True reform to protect small businesses.
  • Tracking labels relief.

My full list of needed changes is found here.

More fun to follow tomorrow, I am sure.

No comments: