Wednesday, June 30, 2010

CPSIA - More Analysis of Damaging Foreign Mfr Accountability Legislation

One additional point about the design of the extremely ill-conceived Foreign Manufacturers Legal Accountability Act of 2010: the "minimum amount" hurdle that triggers the requirement to register for service of process is NOT set by the law. The different agencies have to set it for the products they regulate.

The draft legislation provides the following mechanism for establishing this limit:

"(4) APPLICABILITY — (A) IN GENERAL.—Paragraph (1) applies only with respect to a foreign manufacturer or producer that exceeds minimum requirements established by the head of the applicable agency under this section. (B) FACTORS.—In determining the minimum requirements for application of paragraph (1) to a foreign manufacturer or producer, the head of the applicable agency shall, at a minimum, consider the following: (i) The value of all covered products imported from the manufacturer or producer in a calendar year. (ii) The quantity of all covered products imported from the manufacturer or producer in a calendar year. (iii) The frequency of importation from the manufacturer or producer in a calendar year."

So for those of us suffering under the CPSIA, this legislation tenders some discretion to the CPSC on how penal this provision will be. Interesting, isn't it, that Congress will allow the CPSC to set this threshold without oversight but won't let them assess the risk of pens, rhinestones, science kits or ATVs? Anyhow, given the current practice of the CPSC to apply strict liability standards to so many things, leading to recalls of (for instance) 40 inflatable toy baseball bats for violative phthalate levels (the one-and-only recall for phthalates in U.S. history) and the pending "15 Month Rule" which creates an unbearably expensive and risk-averse scheme of safety compliance, I presume that the CPSC will set these thresholds very low. After all, how else can American consumers sleep well at night???

And consider how this rule might be applied. To determine whether you are above or below the threshold, you must disclose your revenues and volumes to the government for their scrutiny and approval. This is remarkably invasive and is reason enough for many factories to concentrate on sales to South America, Europe, Asia and the Middle East. Who needs this nonsense?

[And if registration is unavoidable, the registration process itself is also tedious and requires the disgorgement of lots of detailed information - which not only will discourage participation but also sets up the foreign manufacturers for liability to the government for "false" statements if they make errors. We have 1500 catalog items, so I can identify with the problems that this kind of requirement might create. It's nothing more than a bureaucratic set-up for regulators to accumulate causes of action to use as they see fit.]

If you think I am delusional or just tend to see the world darkly, please ask yourself - would YOU disclose ANY of this information to the government of Germany? China? Slovakia? Venezuela? Do you trust foreign governments? The confidentiality of their records? The likelihood that this information will not come back to bite you? Do you expect to get a fair shake in a foreign jurisdiction, particularly in a dispute with a local company? Do you think your suppliers will serve you better if you ask them to do this? Are you important enough to influence your suppliers or would they simply throw you overboard? What will this mean to your business - even if foreign governments refrain from retaliation (unlikely)?

This is yet more evidence of the shamefully low quality work of this Congress and its absolute ignorance of the real world. Think of the pending Waxman Amendment which posits that alternative testing methods can be used by small (micro) businesses to avoid certain testing requirements under the CPSIA. Of course, no such testing methods exist but that's just a trivial detail, right? Or the fact that in order to qualify for this "relief" under that legislation, each of these tiny businesses must disclose their financial records to Mother Government to confirm their eligibility for relief. Sounds REALLY workable, right? It does, if you have never worked for a company and have been closeted in the federal government for long enough.

Another sad, sorry low point for the worst Congress in history. Well, it's nice to be distinguished in SOME way, right???


Anonymous said...

I think many foreign manufacturers will deal with this law simply by stopping exporting to the United States. This isn't the 1960s anymore, where America was far-and-away the biggest market. There are now plenty of places in Europe, Asia, and the rest of the Americas where you can make plenty of money selling products, and where you don't have to deal with the headaches of exporting to America.

Anonymous said...

Its not necessary to turn over financial information to the government in response to this bill unless you contest whether you meet the minimum standard, and want to continue to have your foreign manufactured goods sold in this country. In other words, if you clearly satisfy the minimum standard, you simply comply with requirement that you have a registered agent in the jurisdiction of your choice. If you don't meet the minimum requirement, you have three options: 1) register anyway and subject yourself to liability for the harm your negligently manufactured products cause to consumers; 2) submit the necessary documentation to prove you do not meet the minimum standards; or 3) stop selling your goods in this country.

Your criticisms are absurd because you ignore the fact that forcing companies to submit themselves to the American Court system is only a punishment if you are manufacturing products which are harmful to consumers.

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

In fact, the absurdity of this bill is the assertion that it is necessary in any way. All parties in the chain of commerce in this country are available to consumers to sue, if need be. There is strict liability for torts, too. Putting aside whether intensifying the barrage of litigation in this country would benefit ANYONE (other than lawyers), our legal systen places a strong incentive on everyone in the chain to take appropriate care. EACH such party is subject to destruction if they don't take appropriate precautions to protect people using products they have sold.

I believe the blood lust notion that we cannot have "true justice" unless foreign factories pay for torts reflects an assumption that these factories enjoy some form of unjust enrichment that must be rectified. This completely overlooks the way the system works. Our legal system incentivizes U.S. importers to oversee their overseas suppliers because they would be on the hook if the products they import cause a problem. It has been this way for the last century or longer. What do U.S. importers do to protect themselves? Among other things, they buy insurance, lots of it. They also patrol their sources. Or else they risk going out of business.

This is the solution to the Chinese drywall problem. Blame the U.S. importers - THEY are the ones who sold the bad drywall that apparently caused a tort. Put them out of business if need be. It's THEIR fault.

The idiotic FMLA will open up a Pandora's Box of problems that could devastate U.S. importers AND U.S. exporters. And for what? To solve an imaginary problem.

This bill will kill many jobs and hurt our economy dramatically. It's Smoot-Hawley all over again. Smoot-Hawley was the low point of a time known for economic stupidity. Surely we can be smarter than that.