Monday, July 5, 2010

CPSIA - Deaf Congress Makes Up Its Own Justifications for New Law

The recently approved H.R. 4678 Foreign Manufacturers Legal Accountability Act of 2010 is based on testimony given by several of the usual suspects. Consumer groups filed testimony portraying the need for this law as rather "obvious":

Consumers Union (June 16, 2010): "While [the CPSIA] has made great strides in improving product safety, and will continue to do so as its implementation continues, the CPSIA focuses on improving safety by requiring that children’s products subject to mandatory standards be tested to ensure compliance with the standard. The law does not address bringing foreign manufacturers into our civil justice system. However, to fully protect consumers from unsafe products, wherever they are made, American consumers must be able to hold manufacturers accountable when they are harmed – no matter where the products are made."

Consumers Union goes on to assert: "If a foreign manufacturer knows that they cannot be held responsible in U.S. courts for the products they sell, this knowledge has a likely significant impact upon their manufacturing decisions. Do they use the stronger, more expensive component? Do they ensure that the product meets the safety standards? Do they prioritize safety if they know they are not accountable to U.S. consumers in U.S. courts? Holding manufacturing entities accountable in our civil justice system acts as an important deterrent to unethical and potentially harmful business conduct."

The Briefing Memo for the mark-up (prepared by the Dems) takes up the anti-business, leftist consumer group cause, namely that we need to change the rules to allow consumers to sue foreign manufacturers to protect our way of life. The new law is intended to overcome a little legal wrinkle preventing true consumer justice - the U.S. Constitution:

"In addition, even if a victim successfully serves process on a foreign manufacturer, the manufacturer will likely challenge the exercise of personal jurisdiction over it by a U.S. court. Under well-established constitutional due process principles, before a U.S. court can exercise personal jurisdiction over a defendant it must consider: (1) the defendant’s purposeful minimum contacts with the state in which the court sits, and (2) fairness to the defendant of being subjected to jurisdiction in that state’s courts. . . . H.R. 4678 requires foreign manufacturers and producers that import products into the United States to designate a registered agent who is authorized to accept service of process here in the United States. . . . Registering an agent consistent with the Act constitutes acceptance by the manufacturer of personal jurisdiction of the state and federal courts of the state in which the agent is located."

Problem solved! Congress found a way to circumvent the framers' intent. That darned Constitution gets in the way of good government, you know.

Notably, the "urgent" need to go around the Constitution was not echoed in the CPSC's own testimony:

"Additional authority allowing the CPSC to require foreign manufacturers designate a U.S. registered agent for service of process could be helpful in some cases – particularly those involving administrative requests for documents or information.”

In a few cases, however, the lack of a registered agent for service of process has hindered the Commission's ability to develop information that would help us to provide relief to consumers.”

“The lack of a registered agent for service of process has also been recognized by Chinese industry groups, and some local lawyers in China have provided legal advice seeking to exploit this situation . . . . This type of sentiment appears rare.” [Emphasis added]

Opponents to the bill made arguments similar to those previously highlighted in this space (see above and here): American Association of Importers and Exporters and National Customs Brokers & Forwarders Association of America.

I estimate that our business will lose 25-50% of our foreign suppliers and untold numbers of component factories if they are required to have a registered agent under this new law. Most of these sources are irreplaceable in our business (for a variety of reasons). That means that the products we make at these factories will have to be discontinued. Too bad for us, I guess. This could happen quickly, too.

I wish that were the only problem. The lame-brained notion that foreign countries will allow U.S. citizens to cross borders to take domestic assets to settle foreign disputes will prove to be delustional. U.S. companies will soon be greeted by reciprocal registration requirements or even harsher laws exposing them to onerous trade barriers and significant new legal risks. Again, our business is squarely in the bullseye of this maelstrom. We have worked tirelessly for more than 20 years to build an international network of dealers for our products. That creates JOBS here. Anyhow, it is inevitable that a law like this will spawn a need to register our company in dozens of countries abroad, meaning we would need to hire a law firm for each country, translate all the laws, decide if we want to bear the expense and risk of registration. Our foreign business would evaporate quickly and efficiently.

The basic idea that our country actually needs this law is hard to comprehend. Where are all the hungry plaintiffs' attorneys who can't put food on the table? Which rights aren't being satisfied? For each product imported into this country, there must a U.S. importer. Why isn't that pool of assets enough to satisfy this need, as it has been for years and years? Why doesn't importers' exposure under the U.S. tort system provide enough incentive to address Consumers Union's parade of horribles above? I thought that's why we have our crazy tort system in the first place. No answer has been provided by Congress to these questions. They just gave us a wonderful new law to worry about.

Thanks so much, Democrats in Congress. We love ya! And we can't wait to vote AGAINST you! See you at the polls.


Anonymous said...

Your first sentence is misleading. I'd hardly call forwarding by the subcommittee "Approved" -- which to most people implies it's done in Congress and awaiting the President's signature.

This has a long way to go.

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

It may be somewhat misleading but remember, the very same committee that drew up, nurtured and defended the CPSIA over the last two years is the committee that wrote and pushed along this awful bill. I have suffered enough at their hands in the last two years.

I deeply resent that our representatives in Congress can justify wasting their time on a law like this one when we have so many REAL problems that need solving. Should these people succeed in getting this bill into law, we will all be huge losers - again. You have to take them very seriously. They have many ways to get this done. Having passed it out of subcommittee, the bill is "moving". What happens next is anyone's guess, and the very fact that the bill is ill-conceived and self-destructive provides little comfort to me anymore.

Will it become law? I don't know but have learned that we sit on our hands at our significant peril. I am taking this very seriously.

Ben S said...

Go lawyers!

Anonymous said...

The problem remains: If employees of a foreign company never set foot on U.S. soil, they cannot be sued (for all practical purposes). You can set up any compliance system you want but between the loading of the ship and the stocking of the shelves a lot can happen, and often does, because many foreign manufacturers just don't care.

Is anyone suggesting alternative solutions?

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

Foreign manufacturers can't sell into this country without some sort of presence here. Either they must have operations here (in which case they are subject to the jurisdiction of our courts) or theirproducts are being imported by a company with a presence here. Either way, there's somebody juicy here for you to sue.

The importer is responsible to meet the CPSIA's requirements, NOT the foreign manufacturer. This is fine from a safety standpoint because that simply assigns responsibility for compliance a company in the chain of commerce that can be held accountable. They push it upstream to the factory as a condition of their contractual relationship. It is wholly unrealistic to assume that the foreign manufacturer would be indifferent to our rules. How many businesses survive by being indifferent to the critical needs of their customers? This assertion is nothing more than consumer group drivel.

The "need" to sue a foreign manufacturer is virtually non-existent if your legal system is not based on retribution. Since our legal system is based on concepts of resolving disputes between non-contracting parties (consumers and manufacturers, say) and on concepts of restitution (rarer, but similar to tort remedies), then our system should meet the needs of U.S. consumers. I believe the facts bear this out.

Some people advocating for this law talk about "what if" the local importer goes bust - then what? In my experience, the disappearance of a responsible party is rare, so rare that it is irrelevant to rational law design. The Simplicity crib recall example is an outlier. In any event, that example demonstrates that things usually work out for the best.

In addition, there is a longstanding concept of American jurisprudence that liabilities can be discharged by bankruptcy. Likewise, you never have to go to jail for your debts. In other words, we have decided as a society to bear the risk of nonpayment. This cost is spread over all our transactions and is comfortably borne by Americans. This is the fallacy of the Chinese drywall dispute - the American importers are the parties for consumers to look to. The desire to cross borders to recover assets to satisfy tort liabilities is contrary to the principles of how we govern our economy. You benefit from this.

Bottom line, no one can point to a real and profound problem that we need to solve here. The proponents are making a speculative accusation of a flaw in our legal system that is not backed up by data. The problems they would be creating are quite real, however.

We deserve MUCH better from our government.

halojones-fan said...

"Either they must have operations here (in which case they are subject to the jurisdiction of our courts) or theirproducts are being imported by a company with a presence here. Either way, there's somebody juicy here for you to sue."

But "somebody here sells the product" isn't the same thing as "the manufacturer is financially and legally vulnerable".

Also, wouldn't this be a step towards the kind of supply-chain solution that the CPSIA seems to want? Retailers selling, e.g., Bunzo Buroni toy products--in any circumstance, even thrift-shop sales--would have a Bunzo Buroni domestic contact to call and say "can you send me the testing reports for your XJ-2047, I've got some arsehat from CPSIA auditing my store here".

See, that's the thing about test documentation--you don't have to do the test yourself, you just have to show that the test was done.

"How many businesses survive by being indifferent to the critical needs of their customers?"

Ho, ho, ho. Why can't we say that toy manufacturers are the "business" and retailers are the "customers"? If a to manufacturer refuses to do lead testing of its products, and instead chooses not to sell in the US, isn't that "being indifferent to the critical needs of their customers"?

Anonymous said...

How is the importer able to get enforcement for his "contractural relationship" with the factory if they have no presence in the US for service of process? I would think this law might help rather than hurt.

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

The importer has nexus to sue the factory but may have to do it overseas. In any event, the concept in our economy is that businesses are supposed to protect their own interests. In establishing a commercial relationship, the two parties presumably negotiate how disputes would be resolved. In the case of our business, we rely on the continuing relationship as a basis for resolving disputes. We are a source of revenue. That's pretty important. We also maintain a great deal of insurance, like any responsible company would, to address risks that are inherent in a modern economy. So far, knock wood, it has worked fine. No need for Congress' assistance (thanks so much).

Anonymous said...

One thing to keep in mind is that the supporters of this bill rely upon the argument that this will help level the playing field for U.S. manufacturers. They argue that foreign manufacturers are not handicapped by the U.S. legal system the same way U.S. manufacturers are. While that is a dubious claim - for the reasons that Rick has pointed out in his blog and comments - it also directly suggests that the U.S. legal system makes U.S. business anti-competitive. Perhaps Democrats are beginning to embrace and understand the need for tort reform in the U.S? Unlikely. Although Democrats have articulated the need for tort reform, the conclusion they reach is not for reform of the US system but to impose it on the world...