Tuesday, June 29, 2010

CPSIA - Your Partner in Mischief, Congress

Never content to leave an economy merely in tatters, Henry Waxman and Bobby Rush jumped into action this week to create an international trade war, all in the name of "protecting" you. In fact, their troubling new legislation includes a sneak amendment of the CPSIA. It also takes an idea dropped from the CPSIA (submission to U.S. jurisdiction) and applies it across several new industries. Sounds promising, right?

Nominally introduced by Rep. Betty Sutton (D-OH), a wobbly Democrat said to need propping up in her faltering reelection campaign, the new bill (called "H.R.4678 -- Foreign Manufacturers Legal Accountability Act of 2010") is scheduled for mark-up tomorrow (in Rush's subcommittee. This innocuous and technical sounding bill is packed with trouble for you and for our country. In Sutton's blue collar industrial district, that kind of work is prized. Or so the Dems must think.

Here is the GovTrack version of the bill. In fact, I have obtained a more recent version of the bill, a "manager's mark-up" , which includes many new provisions. The revised version of the bill packs quite a punch, right to the gut. I discuss the newer version of the bill below.

The purpose of this bill is to make foreign manufacturers of finished goods and parts intended to be used as components in those finished goods register for service of process in this country. In other words, foreign manufacturers must register here so our plaintiff's bar and the government can sue them with ease. The new law prohibits trade with foreign manufacturers unless they are registered, and enlists the aid of the federal government's snarling dog, the U.S. Customs and Border Patrol, to enforce this law.

This means that every factory we use outside the U.S. will have to register for service of process in the U.S. if we want to continue to import our products from them. The law goes even FURTHER, asking that each agency involved to study ways to force manufacturers of components to register here, too. So, for example, if you make a toy in China and your factory buys boxes from a local printer who has NO contractual relationship with you, this law asks the agencies to study the feasibility of getting such box printers to register for service of process in this country. To accomplish that lofty goal, of course, you have to know their identity. Our customers do not know our vendors' names and we aren't telling. It's none of their business. Do you think it's any different for our factories relative to us? Will they ever disclose that information to our Mother Government (to them, a foreign government)? Please - would you disclose your sources to the Chinese government? And who pays the administrative and out-of-pocket costs of this exercise? And what about the consequences of the fear factor and the costs of new litigation on markets?

What-a-stimulus program! Naturally, those groups most linked to your future business health and ability to create jobs, the plaintiff's bar and consumer groups, think this legislation is long overdue!

The scope of this law covers the EPA, the CPSC, the FDA and NHTSA, and applies to drugs, cosmetics, medical devices, "biological products", consumer products, chemicals and chemical mixtures under TSCA (the coming storm), pesticides, motor vehicles or "motor vehicle equipment", plus components for the foregoing. That's pretty much everything and everyone.

Oh, by the way, the manager's mark-up adds a little provision that gives you five working days to inform the CPSC if you have "a safety recall or other safety campaign" in any country, whether initiated by the company or by the foreign government. Just thought they'd slip that one in, just in case you weren't watching!

So, who cares? Doesn't this "solve" the Chinese drywall problem? In fact, it's going to make things a lot worse. This is Major League trade war material. It is not entirely unlike Smoot-Hawley, the bill that precipitated the Depression. None of our factories will be willing to accept exposure to our ravenous tort system and out-of-control invasive government regulators as a condition of doing business with us. To most of them, this will be too risky and too hard to understand. Our suppliers are small businesses like us - they will NEVER have the resources or skills to master the minute details of our legal system and myriad risks and rules. It will also be breathtakingly expensive for them, and they run very low margin businesses with no ability to absorb those costs.

Even if some of our factories will take this risk, many will not. As with Smoot-Hawley's tariffs, this kind of rule will spur quick responses by foreign governments. If the U.S. wants the right to reach across borders and take the assets of foreign companies without a legal presence in this country, then foreign governments will extend the same "privilege" to U.S. companies selling products inside their borders. Won't that be nice?! Learning Resources sells its products in dozens of countries. Will we have to register in each country to continue to do so? Will we be exposed to lawsuits all over the world as a result? Will we have to pay to settle "strike suits" in dozens of new jurisdictions? If the answer is yes, I cannot imagine staying in business across borders.

The provision about foreign "safety campaigns" is intended to make sure that we don't miss a trick here. The Waxmanis want a worldwide recall system. Does ANYONE IN CONGRESS know what this will cost? Congress must want to terminate small businesses in our economy.

Rumor has it that Ways and Means wants to take this bill out of the hands of the Energy and Commerce Committee. Of course. Speaker Pelosi can skip that step if she wants. Ways and Means purportedly knows there are BIG problems here and I am assured the Republicans on that committee will fight to restrain this bill. Still, it is in keeping with recent House practice to pass something irresponsible and dangerous like this bill, relying on the Senate to stop it. It's a "message" bill, unless it somehow gets passed into law . . . . Then there's the rumor that the Dems intend to stick it into a moving bill, like a jobs bill, to make it impossible to stop. You know, because it's for our own good.

This is an example of how I learned to HATE Congress and Democrats. These rules descend on our business in suffocating waves, adding no value but creating major distractions and feeding fear. On the other hand, perhaps I will be eating crow when Obama's recently announced master plan to reduce the deficit by two-thirds in three years through increased spending, increased entitlements, increased taxes and increased regulation works like a charm. Maybe this law is part of the implementation of that great plan.

It must be me.

It must be me. . . right?


Alo Konsen said...

Well said. I've linked your post.

Anonymous said...

When I was in school (oh, so many years ago!) we were taught that the one constant about history is: "People as a whole do NOT learn from history".

As I watch history repeating itself . . . and the USA moving more and more down the path towards socialism/communism, I can only think of what I was taught as a child. Stories from our Russian friends who grew up under communism there do nothing to encourage or inspire me that we are heading in a good direction.

Melissa said...

Rick - What about the fact that I am seeing that overseas suppliers are blogging about how they don't need to worry about CPSIA compliance because the U.S. importers are legally on the hook for the compliance of the end product? We are trying to do our regulatory diligence, but our company can't afford to test every single children's product we import and - in most cases - we must rely on their upstream certifications / testing. Having them held legally accountable in the U.S. would help so that we are not the only ones holding the bag when they screw up!

That said, I agree that the inevitable reciprocity by foreign governments will make things worse for U.S. industries who sell to global markets... Tough issue.

Thanks for your blog!

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

All roads lead to Rome in this case. The importer is legally responsible for compliance with law under the CPSIA for the products which it imports. Who pays for the tests is a matter of contract. If the factory does not choose to comply, they won't be selling into the U.S. Frankly, I would carefully consider the source of these blogs. Anyone bragging about not complying with this law is probably certifiably nuts.

The Foreign Manufacturers Legal Accountability Law has nothing to do with your dilemma. You are stuck in the sad and commonplace spot created by the CPSIA where compliance costs are destroying your business, possibly killing it. The new law is intended to make it possible for consumers to sue your factories directly. I believe this is just another way for lawyers to extort from companies. The U.S. importer should be the person legally responsible if there is a tort. We can all carry insurance, too - consumers, importers and manufacturers.

My analysis of this law is still right. This law is tragically bad. What do you expect from this Congress?