CPSIA - NAM Ad In The Hill Supporting Passage of ECADA

From The Hill Newspaper, dated July 21, 2011:

The time left to Congress to act on amending the CPSIA before the 100 ppm lead standard boom crushes more businesses and jobs is only 24 days.  [Html version of the ad]  This includes the time to get through the Senate, then conference, then to the President for signature.  Not a lot of time . . . and par for the course for this government, I suppose.  Will they act in time?  I certainly hope so but with Henry Waxman doing his evil best to prevent any progress on this issue, I don't have high expectations.  Let's hope some Democrats still have a conscience.

CPSIA - CPSC Punts on "Material Inaccuracy"

The war over the CPSIA Database continues at high pitch. In today's print edition of Politico, Consumers Union upheld its well-deserved reputation as a fear monger with the below ad entitled "Will this crib leave parents sleepless?" CU intones: "When you buy a crib, you want to know it's safe. Luckily for parents, the [CPSIA] created an easy-to-use database for the public to report unsafe products. But right now, some members of Congress want to stop that database, putting your children at risk. Don't let them."

The ad concludes with this warning "Congress: Don't play politics with our kids' safety."


At the same time, the National Association of Manufacturers launched its own campaign documenting the many incidents of inaccurate data and other related snafus in the database SO FAR. The body of the NAM letter is found here.

The objections to the CPSIA Database by manufacturers, importers, private labelers and retailers is all about inaccurate data. Filling the database with junky, incorrect or idle chatter masquerading as thoughtful analysis presents REAL threats to investments in companies, products and brands. Naturally, this also threatens jobs at many levels in our economy. Were the database maintained by the CPSC with clean and accurate data, I rather doubt the objections to this program would be so intense. However, industry stakeholders know that the media and our government are reactive by nature, tending to report, judge and act on stimuli before adequately investigating or resolving underlying accusations. Consider Toyota braking systems, DryMax diapers, Shrek glasses. It's a long list of manhandled companies or products. There are legitimate reasons to fear what a mismanaged "post it and forget it" database will do to industry.

I realize industry objections may seem theoretical or somehow calculated to serve a larger purpose. It is worth noting, however, that the NAM letter provides concrete illustrations of the problem facing industry. Likewise, it is important to remember that consumer groups gloss over the objections of companies to pluck heart strings - that's how they raise funds. To clarify the picture, I have a REAL EXAMPLE to share. It involves the first (and so far only) submission to the database about our company's products.

The following incident was filed against one of our products during the so-called "soft launch". The soft launch was intended to allow the CPSC to work the "kinks" out of the database and to practice interacting with the entire U.S. economy on consumer products. As you know from prior blogposts, Inez Tenenbaum has admitted in House testimony that the CPSC is not likely to be able to resolve questions of accuracy before posting the data (but they will try very hard). She said "That's what the rub is." Indeed. And you also know that once data appears on the Internet, its traces are all but impossible to remove. The long tail of misinformation is likely to affect brands and companies for years.

The subject product happens to be discontinued. We have protested this particular filing to the CPSC and they replied with the following decision: "[CPSC] staff concluded that the report would be posted in the database but for soft launch". In other words, as a CPSC policy matter, what follows is a legitimate posting to the database when it goes live.

Put yourself in the position of the CPSC and YOU MAKE THE CALL!

First, consider the final rule on the database. The database is to be populated with "reports of harm". What's that? "Report of harm means any information submitted to the Commission through the manner described in § 1102.10(b), regarding any injury, illness, or death; or any risk of injury, illness, or death, as determined by the Commission, relating to the use of a consumer product." And what is a "harm"? "Harm means injury, illness, or death; or risk of injury, illness, or death, as determined by the Commission." Who can file? Basically anyone. No direct knowledge of the "incident" is required.

The person making the filing does have to give their name to the manufacturer. In this case, we were faced with an unnamed accuser. Please note that Cheryl Falvey, General Counsel of the CPSC, said at ICPHSO this year that she couldn't imagine why anyone would withhold their identity in a complaint. This was our first "product incident". O for 1 so far, Cheri.

Here is what the anonymous filer said:

"I saw this product on the FAO Schwartz website. It looks like a nice idea not very well thought out. The product is called: 'Smart Snacks Sweet Heart Sayings'. The suggested age states: 2-7 yrs. By: Learning Resources. The Product Description: 'With 28 plastic hearts that lace together vertically and horizontally, 3 laces, candy scoop and storage jar, this Smart Snacks Sweet Heart Sayings set from Learning Resources® offer a delectable introduction to colors, shapes, matching and printed words. Little hands stay busy too as kids gain confidence in fine motor skills and hand-eye coordination. Charming lacing hearts features a word or picture on each side. Children can create colorful candy designs and cute messages while improving fine motor skills. Hearts are color-coded to help children make sentences.' These plastic 'beads' look very much like the candy conversation hearts sold around Valentines day. Maybe I am over concerned, but this seems like these beads could easily be mistakenly ingested or could pose a choking hazard." [Emphasis added]

I certainly hope the readers of this space are confident that, in fact, this item complies with U.S. law. In fact it does with test reports to prove it. Of course, small parts are always a concern whenever we design products for children under three years of age. Despite the IMPRESSION apparently given to the unknown filer BASED ON AN IMAGE SEEN ONLY ON A WEBSITE (not a physical examination of the product), the beads do NOT go through a choke tube. There are no small parts.

Put another way, this accusation has no basis in fact and thus cannot be a "report of harm" under any reasonable interpretation. It is unadulterated and inaccurate conjecture. We sent the CPSC our third party test reports and photographs of the parts proving that they won't pass through a choke tube to support our protest that this complaint is "materially inaccurate".

Nevertheless, the CPSC apparently determined the complaint states a "risk of harm" and thus should be published in the database.

To get a flavor of the "sympathetic" audience we received at the CPSC when we pushed back, please enjoy selections from the written response we received:

"I should make it clear from the outset that I am not the person within the agency with the delegated authority to handle material inaccuracy claims. This email reflects my opinions and not those of the Commission and has not been reviewed by the Commissioners. When you first approached me about this . . . I told you that my gut reaction was that despite the concerns you raised, the Commission staff handling these issues would take the consumer's report at face value as a claim raising a concern of a risk of harm. I explained then that your Firm could provide a comment with your objections to the report or object to the report as materially inaccurate. Given your concerns about the report, I raised the issue with the database team handling the issues and confirmed to you in our call last Friday that the response was the same. I also indicated that the claim of material inaccuracy would likely be denied. I explained that the personnel handling these matters were not making decisions as to whether the product was harmful but rather they would take a quick look at whether the report of harm articulates a risk of harm." [Emphasis added]

Our claim of material inaccuracy was denied - even though the issue was disposed by a valid third party test report directly on point . . . . Makes you wonder what WOULD be deemed "materially inaccurate".

So why didn't our test reports and photos PROVE "material inaccuracy"? After all, the filer states: "Maybe I am over concerned, but this seems like these beads could easily be mistakenly ingested or could pose a choking hazard." The CPSC explains:

"However, in assessing whether a report of harm articulates a risk of harm, the staff is not adjudicating whether the product actually presents such a risk of harm. We have other processes for making that determination which require an assessment of the risk by Commission staff, including a subject matter expert - in this case, a physiologist on the issues relating to the likelihood of a choking hazard to children . . . . As I explained on Friday, the database process is set up to allow the manufacturer to state its reasons why the report does not present a risk of harm and have that appear next to the consumer's report. The staff handling claims of material inaccuracy will not be determining the ultimate question of whether the product does, in fact, present a risk of harm. That would only occur after a full assessment of the risk of harm by the subject matters experts and ample opportunity for the firm to address the issues with our compliance staff. The disclaimer is intended to notify users that the information has not been evaluated and specifically states: The Commission does not guarantee the accuracy, completeness or adequacy of the contents of the Consumer Product Safety Information Database, particularly with respect to the accuracy, completeness, or adequacy of information submitted by persons outside of the CPSC."

Can anyone out there feel our outrage? Is this what Congress "intended"? Is it acceptable that the CPSC not exercise ANY judgment whatsoever on filings and that manufacturers be powerless to stop the posting of nonsense? Can't we expect more of this agency with its 500 employees?

The CPSC informs us that all is well BECAUSE even though the accusation is known to be false, we are allowed to post comments side-by-side with the accusation.

". . . it would be up to the Firm to decide whether it wants its test reports and photos posted as comments in response to the report. The conclusion was that this is the type of report that has been included in our databases in the past and would be included in the public database along with the manufacturer's comments and the mandatory disclaimer as to the accuracy of the information in the public database."

So, there you have it. The CPSC knows it is posting nonsense and other pap, refuses to filter out the bunk and then boldly asserts that it is up to the manufacturer to choose how it wants to counter the misinformation. The term "materially inaccurate" does not apparently extend to factually inaccurate accusations - I believe it only refers to misidentified products. [This is not the first tortured interpretation of the English language to emerge from the CPSC during this administration.] One wonders to what lengths the CPSC will go to post controversial complaints in the database. They have their justification - they must make consumers "safe" with errant complaint data. It is a rich irony that the CPSC doesn't even argue the complaints are true or accurate and then scurries to hide behind its website disclaimer when asked to defend its lame administrative approach.

No doubt twisting themselves into a linguistic pretzel is only the start for this CPSC.

This position is NOT mandated by the CPSIA - this is a political decision dictated by forces outside the law. Please note that in this case, the CPSC overlooked a valid third party test report mandated by the CPSIA that refutes a conjecture based on a photo posted on a website. Guess that test report doesn't count for much at the CPSC. But it is ESSENTIAL to keep kids safe. . . .

Right. And so is the rest of the CPSIA and this database. Right.

The CPSC didn't just "punt" on the meaning of "materially inaccurate" - they punted on the future of your business and the jobs you provide to your teammates. If only we could punt on the jobs of the people who were doing this to us. . . .

CPSIA - NAM Letter Pounds the CPSIA Database

March 8, 2011

Mr. Todd A. Stevenson
Office of the Secretary
Consumer Product Safety Commission
Room 502
4330 East West Highway
Bethesda, MD 20814

Dear Mr. Stevenson:

The National Association of Manufacturers respectfully requests the Consumer Product Safety Commission (“CPSC” or “Commission”) to 1) reconsider aspects of its final rule on the Publicly Accessible Database (“Database’),1 and 2) continue for at least three months the “Soft Launch” phase of the Database to allow the Commission and affected business users to address operational and administrative flaws identified in the “Soft Launch” to date.

On January 21, 2011 the Commission announced a “Soft Launch” to test procedures and processes to implement the database requirements, as interpreted by the Commission in its final rule. As the official Database launch date approached, companies have registered or attempted to register to participate in the Database. A total of 723 registrant companies were reported in testimony to the House Subcommittee on Commerce, Manufacturing and Trade on February 17, which is only a fraction of companies manufacturing or importing consumer products in the United States. In addition, due to reported technical problems only a few preliminary “reports of harm” (as defined in the CPSC’s Final Rule on the Database) have now been able to be subject to completed processing. NAM has similarly sought information from manufacturers, importers and private labelers on experiences and problems encountered during such soft launch.

Based upon surveys of manufacturer experience, the following have been discovered to be problems which must be addressed by the Commission prior to final launch of the database:

1. Manufacturers with different divisions and brands among different product lines have indicated an inability on the part of CPSC staff to timely register multiple parties within such corporations. It is important to both the CPSC and manufacturers that the system allow for the assignment of adequate identifiers to permit review and comment on the material inaccuracy of filed complaint data within the database in a timely fashion as required by the final rule, minimizing duplicative filings for multiple corporate entities within a broader organization and allowing for streamlined communications between businesses and the CPSC. The difficulty in registering by brand/product line/division and the slow or incomplete response by the CPSC to registration raises troubling questions about the promised flow of information between the CPSC and registered companies.

2. A number of manufacturers, importers and private labelers have reported that reports not directly involving “Harm” (an express precondition to processing and posting) have contaminated the Database. Some respondents report that as many as 30% of the complaints forwarded were not adequately scrubbed to assure that they involve “harm,” as defined by law, as an express precondition to processing and posting within the database. Other respondents indicate that some claims are simply conjecture based on a review of Internet postings or product listings on a website. Such unresolved errors can undermine the integrity and purpose of the Database.

3. Licensors have indicated that they have received reports that are materially inaccurate since they involve products for which they are not the manufacturer, importer or private labeler, but which have been identified as suitable for posting. This has occurred notwithstanding a response from licensors verifying that they have been falsely identified as the manufacturer, importer or private labeler of the product, when they are not. The challenge to accurately identify the responsible party is apparently not being met by the filers, and these inaccuracies are not currently being rectified by the CPSC staff.2

4. Manufacturers, importers or private labelers have indicated that they have received reports of harm identifying an incident as involving their product that did not in fact involve their product, so were materially inaccurate, and advised CPSC of this fact. They have not received return affirmative confirmation that CPSC staff will not post such false claims in the database. CPSC staffers have indicated they may not possess the resources to adequately scrub the database to avoid posting upon such notification. This is contrary to the express direction of Congress that materially inaccurate information with the potential for irreparable reputational harm be vetted prior to posting. This is essential to fundamental fairness. Although the Commission has sought to transfer the burden of proof to manufacturers, it cannot do so once a claim is made that such data is false or materially inaccurate. The Commission can assure the public during an extended soft launch that no such harm occurs.

5. Registrant businesses also report that the completed complaint forms they received often omitted necessary data such as the model, serial number, date of manufacture or date/tracking code information (required by law to be contained on many products, including specifically children’s products) so as to better identify the products alleged to be involved with the potential for harm. The absence of this critical data makes such reports unverifiable, which can result in unfair damage to the reputation of products, brands and manufacturers.

6. The Commission’s decision in the final rule to define the term “consumer” very broadly appears contrary to the intent of Congress, and will result in the potential for multiple reports of harm involving the identical incident. This will result in public confusion about the potential extent of any possible harm and will result in the inclusion of reports based on second-hand information without the possibility of verification. Experience with paper-based reporting demonstrates that often multiple products are erroneously cited as related to reported injuries without an actual causative connection. This results in misidentification and duplication of reports, which must be avoided in the Database.

While the NAM supports a product incident database serving consumers’ need for accurate product information, we do not believe a poorly-functioning database serves the public interest. Based upon the foregoing, we respectfully request and petition the Commission to reconsider the final rule and extend the “Soft Launch” for a period of three months, so as to enable its staff to implement the statutorily mandated Database in accordance with the conditions imposed under statute and the Commission’s own regulations.

To ensure the accuracy of information submitted to the database, we specifically ask that the Commission reconsider, under its final rule, the expansive definition of “consumer” and “public safety entities” that include attorneys, investigators, or other agents of a consumer and consumer advocates, individuals who work for NGO’s, consumer advocacy organizations and trade associations. Additionally, we ask the Commission to reconsider its provisions for review of claims of materially inaccuracy and its decision not to withhold potentially inaccurate information from publication until it makes a final determination of its accuracy. Last, we ask that the Commission reconsider any provisions or sections of its rule that prevent it from effectively implementing Congressional intent or its stated aims to ensure timely review and processing of database submissions and to ensure the accuracy of its contents.

Sincerely,

Rosario Palmieri
Vice President
Infrastructure, Legal and Regulatory Policy
The National Association of Manufacturers

1 75 Fed. Reg. 76832-76872 (December 9, 2010).

2 According to the CPSC, firms receiving notice of a report of harm that incorrectly identifies them as the responsible manufacturer or private labeler of a product that immediately informs the Commission of such misidentification can reasonably expect the CPSC to stop the 10 day clock for publication of the report in the Database. If the recipient of the report of harm is not the manufacturer or private labeler, the Commission can decide not to post the report either because it is materially inaccurate or because it has determined that the report of harm is missing one of the minimum requirements for publication. CPSC staff has noted that given its experience with the incident reporting system, it recognizes that consumers may misidentify the product manufacturer or private labeler. Such claims of material inaccuracy generally are resolved quickly and easily if the receiving firm provides sufficient information. Staff further notes that Firms have an incentive to immediately report errors to prevent reports of harm from being published in the Database that misidentify them as the manufacturer or private labeler. This underscores the importance of an accurate registration system that allows businesses to be identified and to quickly get reports of harm to relevant business contacts within the company so that a response can be provided. The CPSC has not yet defined what information will be deemed “sufficient” to block publication, leaving manufacturers, importers and private labelers to guess on how to deal with inaccurate identification of their products or brands in database filings.

CPSIA - The War Over Pompeo's Amendment to De-Fund CPSC Database

The players are lining on either side of Rep. Mike Pompeo's brave amendment to de-fund the terrible CPSC public injury/incident database. The problem with the database is that it will likely be filled with garbage and malicious material that no manufacturer can effectively block. As you know, once the material is out on the Internet, it can't be retracted in any practical way. This prompted Wayne Morris of AHAM to call the database a government-sponsored "blog" at yesterday's Congressional hearing. Pompeo's amendment, no. 545 to the Continuing Resolution on the House Floor right now, is likely be to voted on later today, possibly in the wee hours of night. It's NOT too late to ask your Congressman to support it!

The National Association of Manufacturers sent out the following email and letter in support of Mr. Pompeo's amendment:

"Colleagues,

The NAM sent the following letter to all members of the U.S. House of Representatives supporting an amendment by Rep. Mike Pompeo (R-KS) to discontinue funding for implementation and operation of the CPSC's Product Safety Information Database for the remainder of this fiscal year to allow Congress the time necessary to fix the remaining challenges with the implementing rules. We expect a vote on his amendment #545 to H.R. 1 the Continuing Resolution sometime this evening. You are encouraged to share your support for this amendment to Members of the House."

And on the other side, Rep. Edward Markey (D-MA) sent out a "Dear Colleague" letter in opposition. It contains the usual tired and worn posturing that we have endured for three years now. Interestingly, Mr. Markey did not attend yesterday's hearing of the House Subcommittee on Commerce, Manufacturing and Trade which concerned the database in large part. I guess there's no reason to listen to testimony if you know everything already, right?

Markey's letter:

"OPPOSE THE POMPEO #545 AMENDMENT ON CONSUMER PRODUCT SAFETY

From: The Honorable Edward J. Markey
Sent By:
Bill: H.R. 1
Date: 2/18/2011

February 18, 2011

OPPOSE THE POMPEO #545 AMENDMENT

PROTECT PARENTS' ABILITY TO GET EARLY WARNINGS ON POTENTIALLY DEFECTIVE TOYS AND OTHER CONSUMER PRODUCTS

Dear Colleague:

I write to urge a NO vote on amendment #545, which would eliminate funding for the Consumer Product Safety Commission’s (CPSC’s) online, searchable database. This database enables members of the public to report and obtain information about potentially defective products that could cause serious injury or even death.

The Consumer Product Safety Improvement Act (CPSIA) passed the House by a vote of 424 to 1 and was signed into law by President Bush in August 2008. It contained language I originally authored to create this online “Early Warning System” for those who wish to report or research potentially harmful or defective toys and other products.

The need for this database is clear: Before its creation, it often took YEARS before the public ever learned of serious threats to health and safety that some products posed. For example, although both industry and the CPSC were first made aware that small magnets that easily fell out of children’s toys were causing serious, life-threatening injuries in 2000, it took FIVE years before the public was given any information, and more than SEVEN YEARS before a full recall of the products occurred.

The CPSC has implemented my database requirement in a responsible and reasonable way – it allows industry ten days in which to challenge the material accuracy associated with all reports and even provides the opportunity for industry to comment on reports it believes are erroneous, so consumers can hear both sides of the story.

Moreover, a recent poll found that eighty-seven percent of those surveyed want the ability to find out if another consumer experienced a safety hazard with a consumer product.

However, industry now wants to turn the clock back and return to a time when news of products that may maim or kill can be kept secret in the interests of maximizing profits and keeping the public in the dark.

VOTE NO on the Pompeo amendment to take this vital safety tool away from mothers and fathers all across this country.

Sincerely,


Edward J. Markey"

CPSIA - News Round-up Ahead of Hearing

There's a lot happening! Here are a few highlights:

a. Fox News is reporting that today's hearing is the beginning of an effort by House Republicans to restore common sense to the CPSIA. Be still my heart! Of course, readers of this space knew that the cavalry was coming. Lots of good people are pulling for change right now but the path forward will not be easy. On the one side, we have Republicans: "'There are parts of (the children’s product safety law) that need to be peeled back and thrown into the trash,' said one Republican source close to the process." And on the other side, you have the fear mongers: "'When the first children get sick from using a product with lead, it will point out the folly of their ‘common sense,’ said Nancy Cowles, executive director of Chicago-based Kids in Danger, who is testifying at Thursday’s hearing. 'It’s common sense to most people not to have lead in their products.'”

b. Rep. Mike Pompeo (R-KS) is introducing (or introduced, not sure) an amendment to the Continuing Resolution currently on the floor of the House to DE-FUND THE DATABASE! Hurray for Mike Pompeo. This move is garnering strong public support from other Republican leaders in the House. Cross your fingers. Again, there's a long road ahead. Here is the amendment:

AMENDMENT TO H.R. 1

OFFERED BY MR. POMPEO OF KANSAS

At the end of the bill (before the short title), insert the following:

SEC. __. None of the funds made available by this Act may be used to carry out any of the activities described in section 6A of the Consumer Product Safety Act (15 U.S.C. 2055a).

c. The Democrats are going away meekly on the CPSIA. Yesterday, Henry Waxman together with Subcommittee Ranking Member G.K. Butterfield put out a press release entitled "New Poll Shows “Very Strong” Support for Federal Consumer Product Safety Efforts". Bringing to mind popularity polls released by Idi Amin back in the waning days of his Emperorship, the poll commissioned by Consumer Reports indicates that 98% of consumers "agreed strongly or somewhat that the federal government should play a prominent role in improving product safety". If they included my vote . . . . The Waxman/Butterfield press release references three Pompeo amendments but it is my understanding that only the database amendment above will be introduced.

The Pompeo amendment and this absurd push poll are related events. You can examine how "out of touch with reality" we apparently are by checking out the amazing poll details at this link.
d. Inez Tenenbaum has also been commissioned to push back on Pompeo. Yesterday, she posted a joint blogpost with U.S. PIRG on the topic of the database. As Carter Wood of NAM's Shopfloor blog pithily tweeted: "Hard to imagine #CPSC Commissioners Nord or Northup ever co-blogging with NAM or Rick Woldenberg the day before a cmte hearing." Carter makes an interesting point. I am not hurt, by the way . . . . He also notes: "Tenenbaum’s co-blogging at the site of a leading left-leaning activist group immediately before the hearing almost looks like a conscious poke in the eye to committee members."

Should be another interesting day today!

CPSIA - NAM Demands Extension of Testing Stay

The National Association of Manufacturers sent this letter to the CPSC today demanding that the testing and certification stay be extended. This controversial stay is due to expire one month from today. Numerous organizations signed the letter, including the Alliance for Children's Product Safety.

CPSIA - NAM Coalition Asks for Senate Hearing on CPSIA

The National Association of Manufacturers led a coalition of 41 trade associations and alliances in requesting a promised Senate hearing on the CPSIA this week. In a letter to Senator Mark Pryor, the coalition asked Senator Pryor to honor his commitment to hold hearings 60 days after confirmation of Ms. Tenenbaum as the new Chairman. The letter states: "The various stays of enforcement issued by CPSC to temporarily resolve CPSIA implementation problems will soon expire, and a permanent resolution is needed. We believe that the Senate's oversight role is extremely important in helping the agency implement common sense solutions to resolve these issues, and we strongly urge you to set a date for a CPSIA oversight hearing."

These hearings, if they come soon, will be the first opportunity for Congress to hear from business owners affected by this law since the law's passage. [I am disregarding last May's staged hearing at the House Small Business Committee that was nothing more than an opportunity for the Democratic leadership to launch yet another missile at the CPSC for not using "common sense".] It is shocking that Congress has dodged this necessary "sunshine" activity. I have always felt it is part of their message control where all problems are blamed on the CPSC, Congress naturally being faultless like any good omnipotent organization. The persistence of this Congressional attitude is exposing the CPSC to embarrassment as it attempts the impossible, sensible implementation of a defective law. The harder it tries, the more it twists itself into a tighter pretzel. Notwithstanding the unfortunate position it is in, the CPSC seems quite reluctant to challenge Congress (or even notify Congress of its own educated view of the matter). Care to guess who is stuck in the middle?

We can only hope that Congress will develop a renewed interest in fact finding, or the CPSC will finally stand up and deliver the unsolicited message that the CPSIA needs to be fixed. While that's hardly kneecapping Congress, I recognize that some members of Congress won't want to hear anything of the kind. Whether you call these changes "fixes", "amendments" or "tweaks", the fact remains that an incoherent, overreaching law governs the land, and its byzantine requirementes are making administration of safety almost as complicated as the tax code. The CPSC needs to educate and guide Congress on the changes necessary to create a robust but workable, effective but sensible regulatory system.

Oh, to dream . . . .

CPSIA - Tenenbaum Has the Wrong Focus

Chairman Inez Tenenbaum is quoted in the September 21 issue of the Product Safety Letter responding to requests from manufacturers for "speed and clarity" (NAM meeting): "Clarity is what we want too. We want everyone to get it straight, to get the information out to suppliers, and make sure everyone gets it right."

Unfortunately, that's not quite right. Yes, everyone wants the water torture to end. Yes, stop talking about component testing rules and ISSUE THEM. To that extent, she's right. That would help. On the other hand . . . hurrying to issue guidance or rules that are shortsighted, worded in double-speak or obviously defective won't help anyone. Getting the word out about destructive or unworkable rules will only WORSEN the chaos and confusion. Nancy Nord issued a warning along these lines in her January 30 letter to Reps. Waxman and Rush and Senators Rockefeller and Pryor (attached to her statement explaining her vote to stay implementation of the CPSIA testing and certification requirements): "Although the staff has been directed to move as quickly as possible to complete its work, short-circuiting the rulemaking process gives short shrift to the analytical discipline contemplated by the statute." This remark was noted in the recent letter by Rep. Michael Burgess.

Interestingly, Ms. Nord also noted in her January 30 statement: "The stay will give the CPSC time to develop and issue rules defining responsibilities of manufacturers, importers, retailers, and testing labs. It will give the Commission time to rule on exemptions and exclusions from the lead provisions and develop and put in place appropriate testing protocols. It will give staff time to develop an approach to component parts testing, given the ambiguity of the statute on this point." If I still had a sense of humor, I might find this 236-day-old statement amusing. Nice to know that the staff could use this extra time so productively to crank out the component testing standard. . . what? It's not out yet? That CAN'T be right! Wow . . . .

Ms. Tenenbaum needs to understand that her challenge is not all about speed. She needs to get it RIGHT on the first try. Sending manufacturers down the river to meet a deadline is rather . . . shortsighted, and that's putting it nicely. Of course, to get it right may involve taking some political risk and publicly disagreeing with the Democratic demagogues. If she won't do that, we are all doomed, but then again, according to Ms. Tenenbaum, at least the end will come quickly.

I just can't guarantee that it will painless.

CPSIA - Hugh Hewitt Interview 7-24-09

Here's a link to the Hugh Hewitt interview. The interview starts at 10:37 and goes about 20 minutes. If you can't open it, try this one. ShopFloor.org had this to say about the interview.

Let's hope we had some listeners - in Congress. . . .

CPSIA - More Reasons to be Cynical

A couple news items to consider:

a. The Tenenbaum hearings scheduled tentatively for next week in front of the House Energy and Commerce Committee have been postponed indefinitely, supposedly until sometime in September. I do not recommend holding your breath waiting for Mr. Waxman to act. Expect Senate hearings first. Mr. Waxman wants us all to rot before he allows anyone to discuss the CPSIA publicly in front of him. A consistent man, this is one in a series of hearing cancellations on the CPSIA for him. He has not held a hearing on the CPSIA since it was passed last year. I guess he must feel there's nothing to discuss. We seem to be talking to ourselves here.

b. The tracking labels guidance is DONE - yippee, how exciting! Of course, we are not permitted to read it . . . . As disclosed in this space yesterday, the guidance is up for a Commission vote before you get to read it. Apparently, they know what's best for all concerned, so seemingly there is no need to solicit your comments on this long-awaited document (it took more than 11 months to craft). [N.b., as previously noted, despite great effort in constructing the first set of rules on advertising rules last Fall, the CPSC felt a need to solicit comments on the new rules and later significantly changed them. There were many comments submitted, and serious issues were fleshed out in these comments. In other words, the later round of public comments on the rules had some VALUE. Public comments on new rules has much precedence at the CPSC over the last 30 years. Those days are gone, apparently.] No vote on the NAM tracking labels stay petition has been docketed.

We are now 30 days away from implementation of the tracking labels requirement. Zero questions have been publicly answered on tracking labels thusfar. IMHO, many important and reasonable questions have been asked on this topic by many different affected industries. The point has been well- and clearly-made that it takes TIME to implement something as sweeping (and pointless and ultra-expensive) as tracking labels. Any person of even modest sophistication can figure out that three weeks advance notice ain't gonna do it. The Commission vote is docketed for July 20. That leaves 24 whole days to absorb and implement tracking labels according to their new FINAL rules. Golly, that doesn't sound like much time (especially for the inevitable curveballs or impossible requirements), but if you consider that 24 days are comprised of 2,073,600 seconds, it sounds like a lot more time. Insiders admit the guidance, when we get to read it, won't answer all the questions. Hope those aren't your questions, that would be a shame.

Hey, did anyone consider that knowingly NOT applying tracking labels to your products after August 13 in violation of the statute is a possibly felony (Section 217(c))? That a failure to place tracking labels on your products in accordance with the new law and new guidance is IMMEDIATELY reportable under Section 15(b) of the CPSIA (24 hours, guys)? And that knowingly failing to report is ALSO a possible felony? [It's another "intentional" violation of the statute.] Of course, a felony charge would get your attention. Hey, business owners or business managers reading this blog, don't forget about the asset forfeiture provision in the CPSIA (Section 217(d)) - that comes into play for all the felonies you are probably racking up! Better get a lawyer lickety-split. [Good news - there may be room in Mr. Madoff's cell if you hurry. He probably won't make much trouble and may be interesting company, but keep your hand on your wallet to protect the $.40 an hour you will be earning making license plates!]

The cold detachment of the CPSC's guidance approval procedure, REGARDLESS of the wonders of the new guidance, leaves me speechless. Well, that's a lie, I am never speechless. Consider the betrayal in this initial handiwork of the Tenenbaum Commission. Here is a quote from her job application (her written testimony before the Senate Committee on Commerce, Science and Transportation on June 16): "I will ensure that the Commission is operated in an open, transparent, and collaborative way and in a manner worthy of the American people. . . . While emphasizing the life-saving mission of the Commission, I will also ensure that industry knows that their views will be heard and considered." Aha, so this is the new model of an "open, transparent and collaborative" process? Is this new procedure the way Ms. Tenenbaum plans to convince industry that "their views will be heard and considered"? Ms. Tenenbaum, we heard you in front of the Senate Committee - how can you justify this kind of leadership as Chairman of the CPSC?

It bears repeating that the tracking labels provision does NOT fix or even address a public health disaster - it is a made-up "crisis". There is no possible risk to life or limb from delaying the implementation of this provision - so why the apparent refusal of the Commission to do the right thing and admit that the CPSC has failed to give timely guidance? Needless to say, this is not OUR fault. With the recent invention of "enforcement discretion", the CPSC has a demonstrated ability to rewrite safety legislation. [It's unconstitutional, but who cares nowadays?] The CPSC has also been told by leaders in both Houses of Congress in no uncertain terms to use "common sense" in implementing the CPSIA, a tacit invitation to make all the problems go away. I do not see how the right response to these Congressional entreaties is to close the door on dialogue and shove this provision down the throats of struggling domestic industries. Why not push it off for a reasonable period of time and reinforce Ms. Tenenbaum's promise to be open to the ideas of industry?

The CPSC can do better. It knows how to protect the public without putting an end to commerce in this country. I hope they will exercise better and more caring judgment in the (near) future. There won't be any products to supervise if they manage to kill off all the companies.

CPSIA - Tracking Labels Guidance, Where is it?

Last Friday, Nancy Nord said (in a Tweet) that tracking labels guidance was coming: "nancynord update:#CPSIA We're trying to reach agreement on tracking label guidance; hope to issue soon. Watch for it, then take a look and speak up." This guidance has yet to be issued. Today is a momentus day - we now have only ONE MONTH to go before the tracking labels requirement becomes effective. Have you seen any guidance yet? I have not.

It's fascinating how the CPSC has handled the tracking labels issue. In this case, it's all the CPSC - Congress made the mess but the CPSC is clearly in charge of implementation and guidance. The CPSIA provides that tracking labels became law (prospectively, thank heavens) without further action by Congress or the CSPC on August 14th of this year. Gib Mullan made this quite clear at ICPHSO in February. The agency received well over 100 letters in April and had a tracking labels hearing on May 12 (see my testimony here and here). Since then, putting aside rejection of the NAM stay petition on May 14), zippo. Now with less than a month to go, the guidance is STILL forthcoming. Rumorville has it that it will be "final" as issued, no public comments will be solicited and it will receive the backing of the Commission (after which we will be entitled to read it). It is not clear what the guidance will be, but no doubt it will be constrained by the wording of the statute which limits the flexibility of the agency. Thus, your heart should not fly at the possibility of sudden and unexpected salvation. If it happens, great, but why expect it given everything else that has transpired?

Among the aggravations of this water torture process is that we in industry have asked reasonable questions about this provision, lots of them, and have received NO reply. We raised serious concerns and explained clearly that there are economic incentives here that are dangerous and will have real bite in our businesses and market. Silence. So what happened to dialogue? Yes, the CPSC asked for and received comment letters and yes, they had an open forum for businesses to speak out (one did, ours, plus some trade associations) - but what about give-and-take and discussion? Given the seriousness of this issue, why hasn't there been further conversations, brainstorming, exchanging of proposed rules and further comment periods? This was not such a bizarre idea a few months ago when we went through a similar cataclysm over advertising rules. Not only were letters exchanged but there were also off-line discussions, submissions and most importantly, dialogue AFTER the rules were proposed. The CPSC, as you may recall, changed its rules after they were issued in response to industry submissions (including mocked-up catalog pages). Indeed, a few months ago, the agency actually was still trying to listen. The well of dialogue has been lately poisoned by reactivity and evil politics since then, making it seemingly impossible to reach the CPSC on these issues.

And does the CPSC have any idea of how the delay is harming businesses? What do they think we are doing right now? We are guessing about tracking label requirements for production runs scheduled in less than a month and trying to deal with panicky retailers who won't take any "risk" on this issue. [For instance, we have one customer who reserves the "right" to return goods without further authorization NOW for lack of tracking labels.] Everyone is trying to figure out how to survive August 14. This is no small undertaking for many businesses. Today I spoke to a friend who has 60,000 skus at his companies. Hmmm, a few all-nighters ahead for him, I guess. This is no joke. I do not understand how the CPSC can be so heartless and insensitive on this issue. We should have not to beg for a sensible delay on this provision - yet the Commission is currently split 1-1 on the NAM stay petition and despite resubmission of the NAM petition for Ms. Tenenbaum's vote, no further vote has been docketed. No hurry, it seems. I fear that issuance of this "final" guidance may provide the necessary political cover to reject the NAM stay petition, which would be a shocking failure on the part of our government.

I will admit I am growing quite tired of this terrible game. We provide a lot of jobs and add a lot of value through our products in American schools. For this, we seem to be public enemy number one and are also treated like dirt. I fail to grasp what we have done so wrong to deserve this kind of discourtesy. It would be great if the agency would elevate its consideration of the impact of its actions, and inactions, and give law-abiding companies a reasonable opportunity to actually participate in an open process (with real listening on the part of the CPSC) and a reasonable opportunity to transition to new rules that are CLEARLY not an emergency. The game play of waiting for guidance until the 11th hour (or later) is no way to run a country. Well, maybe it's a good way to run a Third World country . . . .

CPSIA - NAM Tracking Labels Stay Petition Refiled

I am delighted to report that the National Association of Manufacturers refiled its petition to stay the Section 103 tracking labels provision for 12 months on July 1 for urgent reconsideration by the CPSC Commission. In its letter, NAM called the lack of CPSC implementing guidance on tracking labels "an unconscionable dilemma for industry". The tracking labels fiasco creates enormous burdens for industry and is in many ways pointless and unjustifiable. See my earlier posts (here, here, here and here) on this topic and my testimony before the CPSC for background (here and here). To allow this provision to stand, without having given ANY guidance or answered ANY of the legitimate and appropriate questions of industry, would be shamefully irresponsible of the CPSC Commission. [Unfortunately, Congress seems immune to shame when it comes to the CPSIA and will not act to delay this provision. As its leaders will tell you, Congress has already acted with great "common sense".] The notion that it is okay to induce widespread economic convulsions as part of some kind of jolly "learning process" must be REJECTED.

I call on the CPSC Commission to not only grant this well-stated petition for a stay but to exceed it by granting a stay of more than 12 months. The tracking labels stay should be for a period to extend for one year beyond the promulgation of FINAL rules on tracking labels. It will take time to draft and fine tune common sense rules (which implies a serious effort to dialogue with industry and other stakeholders). Furthermore, it is abundantly clear that industry needs a full year to implement known rules. Thus, 12 months just isn't enough, even in a perfect world. In addition, it is important to recall that there has NEVER been a claim that the new tracking labels requirement solves a pending human health or safety "crisis". Tracking labels are certainly no emergency. Don't forget that the CPSC always had the regulatory power to impose tracking labels and has, in fact, done so in the past where appropriate. The CPSC has declined the opportunity to implement tracking labels in an across-the-board fashion for more than 30 years. Is it possible they chose not to act for good reason?

It hardly needs reiterating that the CPSC in its "enforcement discretion" can issue a stay for longer than a year. The Commission has done so for bikes and ATVs. Notably, in both cases, the CPSC has not only offered stays to permit the manufacture of these goods in violation of the CPSIA but has practically encouraged industry to resume making the now-illegal goods. In the case of pens, the Commission more or less told industry that it knew pen manufacturers would continue to make pens that violate the law - with no end in sight. Commissioner Moore promised not to be the "pen police" - in other words, that "stay" is tantamount to a permanent "don't ask/don't tell" policy.

Clearly, the concept of a "stay" is flexible. It therefore cannot be denied that the Commission, if it saw fit to do so, could grant a longer (and more sensibly-designed) stay to permit not only a thorough dialogue with all interested parties, but to issue rules with enough implementation time for law-abiding companies to transition smoothly to the new rules. That sounds right and sensible - here's hoping the Commission can muster the courage to do the right thing this time.

CPSIA - Making "Sense" of It All . . . .

The last week featured numerous important events:

a. The CPSC Public Meeting on Tracking Labels (May 12)
b. The CPSC Commission Decision to Reject the Bicycle Industry Application for Exemption and Call for a Two-Year Stay (May 12)
c. The CPSC Commission Decision to Reject the NAM Petition to Stay the Tracking Labels Provision (May 13)
d. The House Small Business Committee Hearing on the CPSIA (May 14)

These events are all over the map but can be correlated. It boils down to this (no surprise): the CPSIA is a rigid and inflexible law designed to remove discretion from the CPSC Commission. The CPSC is not free to decide what is safe and what is not anymore. The twisted logic of the CPSIA creates legal conundrums that have no possible solution under the law, leaving the Commission little choice but to legislate with stays (see the bicycles decision, for example). Small business remains a pawn in this dirty game of politics.

When faced with the request by the Bicycle Product Suppliers Association for an exemption, the CPSC staff correctly concluded that although the lead intake from bicycle use was absurdly low (as any sane adult would acknowledge), they had no choice under the law but to reject the request because SOME lead is absorbed. Less lead than absorbed by eating your daily dietary requirement of dirt, but more than zero. Under the CPSIA, this is an irresolvable dilemma. [I will spare you the silly comparisons between the intake from bikes and candy.]

The Commission, stuck with this law, utilized its only remedy to avoid a plainly stupid result for bikes - it authorized a two-year stay on a basis to be determined. Yes, they need a reason to grant the stay, to at least maintain the appearance of staying within their legal authority to protect the public. As in the case of ATVs, the Commission needs a safety excuse to permit the resumption of manufacturing and sale of bicycles in violation of the lead standards. [N.b., this decision is an illegal act under the Constitution (legislation by a Federal agency is against the law).] In the ATV case, the Commission noted the need to keep kids safe by keeping them off adult-sized ATVs. And in the case of bikes, the CPSC intends to protect against what dangerous alternative? Spraining your ankle while walking? Not being able to reach the pedals on adult bikes? Ms. Nord, in her statement accompanying the bike decision, comments: "This course of action is becoming all too frequent for the CPSC. It is needed to avoid market disruption and to protect consumers. However, it is not an optimal way to implement a statute." It doesn't take much to reduce a legal system to a shambles.

The Commission's helpful spirit didn't last long. In an incredible irony, on the very next day the Commission split 1-1 over a tracking labels stay in its first deadlock over the CPSIA. Despite overwhelming evidence of market damage provided in testimony at the CPSC's public meeting on Tuesday, as well as in more than 130 comment letters, the Democratic Commissioner decided he had given out enough justice for one week. Mr. Moore commented: "While the Commission has stayed enforcement of a few sections of the CPSIA for certain products, it has not granted a blanket stay of enforcement from a provision for every affected product, which is what this request seeks." Ummm, other than the stay on testing and certification you voted for, Mr. Moore. No matter, Mr. Moore notes that "[this] will be a learning process for all of us. . . ." Something to look forward to.

One can only wonder how Mr. Moore's vote was regarded by the backers of the CPSIA agenda. First, we hear again and again that the CPSC must toe the line of the law. Then, when ATV'rs and the like begin to flex their political muscle and embarrassing articles about library books crop up, some Congressional venom flows and 28 Senators plead for "common sense". The Democrat on the Commission was positioned as the "good one" with "common sense" and Republican Nancy Nord set up as the "bad guy" standing in the way of progress. Now it again looks like Mr. Moore hasn't been reading his script. Of course, this is the guy who called for sequestering library books.

Mr. Pryor in his April 9 letter with 27 Senator friends instructs: "We confirm that the Congress provided for agency discretion . . . to implement the Act in a manner that would recognize anomalies in implementation and to work with businesses, institutions, and consumers to establish the protections of the Act without undue impact on the stream of commerce." [Emphasis added] Ah, but surely they didn't mean twice in ONE WEEK! With his "we'll all learn a lesson on this one" decision, Mr. Moore punctures the illusion (shaky at best) that the Republicans are the ones who lack common sense. Live by the sword, die by the sword. . . .

These decisions were bookended by a tracking labels hearing at the CPSC which set out extensive industry concerns over the cost and consequences of the new label rule, and a House subcommittee hearing that documented the terrible impact of the CPSIA on small business. After the polite and unusually civil hearing in the House, the Democrats nevertheless recharacterized it for their political purposes, ignoring clear ebidence provided by the witnesses.

Pardon me if the week left my head spinning.

So what happens next? An interesting perspective was offered by DNC Chairman Gov. Howard Dean on the CNBC Power Lunch program on May 7th: "[We've] had quite enough capitalism in the last eight years and I think we need some regulation now." That seems to sum it up.

Unless and until the new Commissioners okay a change in the law, unless and until a Democrat has the nerve or good character to admit a fundamental mistake in the drafting of the CPSIA (as the Republicans have conceded) and Congress takes action, there is little to hope for but time. The brunt of the impact of the law will be felt by small businesses and family businesses, a group with a great record for patrolling safety and staying close to the details. It's a shame that this strong group of corporate contributors will be sacrificed to satisfy the "better safe than sorry" crowd. We'll see whether they will feel safe or sorry when the consequences of their handiwork are known.

CPSIA - Updates!

Sorry for my short absence. Here's the latest:

a. Tomorrow is the scheduled CPSC Tracking Labels meeting. There will be two panels of speakers, one of which includes me. The meeting runs from about 1 PM - 5:30 PM EST and can be viewed online. Interestingly, the vote on the NAM petition to stay the implementation of Section 103 (tracking labels) has been delayed from last Friday until Wednesday after this meeting, supposedly at the request of Commissioner Thomas Moore. This move is quite sensible as it made NO sense to vote on the NAM petition two days before having an open meeting on the topic. That would have really been thumbing the Commission's nose at industry, a very unnecessary slight. Comments were finally made available online at http://www.cpsc.gov/ and are hundreds of pages long. There were perhaps 150 comment letters filed, impressing the folks at the CPSC. Let's hope they listen hard tomorrow. The big issue is how long is needed for a stay. My comment letter stated that two years are needed.

b. As if May 12th wouldn't be interesting enough, it is also the day docketed for the Commission decision on the bicycle exemption request. The CPSC staff properly recommended voting the request down because, although no sane person would believe that bicycles are dangerous because of lead, the leaden CPSIA says that if any lead can leak into the human body from a bicycle (i.e., one atom of lead), no exception can be made. Thanks, Congress! Apparently, it would be much better to get in our lead paint-encrusted cars and drive to our destinations, kids. Cap and trade that, Mr. Waxman!

The Commission has no easy out on bikes like they did on ATVs. That is, there is no excuse to legislate this time, never mind that legislating is illegal for an agency of the U.S. government. With that door seemingly closed, we are either about to venture off even further into legal netherworld OR the Commission will ding the bike folks as the Staff recommends. I hope they do ding the bikers, not because I have anything against bikes or the bicycle industry, or even because I don't want the CPSC to continue the new tradition of secret laws (I don't like secret laws, in fact). No, I want them to deny the bike request because this law has to be changed. The worse it gets, the better it gets for opponents of this law. And, with bikes finally outlawed, we ought to have more people available for a march on Congress . . . .

c. The interesting week continues on Thursday when, heavens-to-Betsy, an actual House committee holds hearings on the CPSIA! Yes, at least as of today, the House Committee on Small Business Subcommittee on Investigations and Oversight will hold hearings on Thursday at 10 AM EST. See the Committee's website for more details. Despite my pleas, I have not been invited to appear as a witness. That being said, this is progress. Let's hope for good questioning and thoughtful inquiry.

d. As you all know by now, Mr. Obama has appointed two new Commissioners, Inez Moore Tenenbaum as Chairman and Bob Adler as Commissioner. Ms. Tenenbaum appears to be new to the safety gig and is considered to be a bit of an unknown. Let's hope that her background as a South Carolinian leaves her open to the notion that not all industry objections to the dreaded CPSIA are self-interested and "evil". One can always hope . . . . We need open-minded and curious leadership to help mend fences and restore common sense to safety regulation.

I have previously written about Mr. Adler, reporting on his keynote speech at ICPHSO earlier in February. As you will see, he gave very sensible and even-handed remarks and seems to be open to a dialogue with all parties. I hope his optimistic vision is achievable. I would also note that he is a Professor of Strategy and Entrepreneurship at UNC Business School. This would suggest that his mission in life is not put all of us out of business . . . . I am actually looking forward to having Bob Adler on board at the CPSC. Please don't make me sorry I said that!

The appointment of Tenenbaum and Adler has positive implications for the CPSIA saga. Okay, perhaps I am a giddy optimist. For one thing, I think that everyone (EVERYONE) knows that this law is seriously screwed up. The issue now is how to dig our way out of this mess. [Start by turning the bike petition down, Commission!] The Dems in Congress would rather eat dirt than hand a "victory" over to Republican Nancy Nord by admitting that anything is wrong with their precious law. Thus, no movement can be expected on the law itself while she remains the sheriff in town. That being said, desperate Senators have instructed the CPSC to operate with "common sense", meaning that the CPSC is being given free rein to disregard the law and do as it pleases. Thus, the ATV stay. There are limits to this kind of giddy disregard of law (the Constitution, blah blah blah, oh-what-a-killjoy) and in time, the Commission will define how far they are willing to go to fix things for Congress. The next step in this saga on behalf of Congress (barring some surprise on Thursday at the Small Business subcommittee hearings) is to confirm the two new Commissioners and then in due course, hold a showy hearing of the House Committee on Energy and Commerce (Bobby Rush's Subcommittee, actually) where the new Chairman can give her diagnosis of the law's issues, what's working and what's not. This message will shock and amaze the Dems who were previously "unaware" of any problems . . . . They will then set about liberating the agency now that it is in safe Democratic hands again. Will the world be safe for democracy after this? Who knows, but let's hope we can survive long enough to find out.

Btw, for those of you keeping score at home, the two new Commissioners cannot BOTH serve prior to August 14, when authorization of the reduction of the size of the Commission from five to three Commissioners legally expires. Thus, if no one resigns before August, presumably Mr. Adler will have to sit out the fun for a few months while he works on getting his handicap down. The Republicans have another vacancy to fill as well, also to serve after August 14. Each Commissioner gets their own staff, and soaks up perhaps $1 million per annum in funding. Your tax dollars at work!

CPSIA - NAM Stay Tracking Labels Petition Up for a Vote on Friday

Remarkably, the CPSC has docketed a vote on the NAM Tracking Labels Emergency Stay petition for this Friday. The requested 12 month delay, which would be the fourth stay issued under the CPSIA, facilitates a rational exploration of the many tracking label issues and at least arguably allows manufacturers time to transition appropriately to the new rules. The Commission should vote to implement this stay request. Not only is it unacceptable to impose this kind of burden on such short notice without implementing rules (a practical impossibility for many industries with long leadtimes, like apparel), but frankly, the provision is overly-burdensome and could be fatal to many businesses (without compensating benefit to consumers). Myself, I have always felt the tracking labels provision was the worst part of this bad law. These issues need further exploration with industry input.

With President Obama's appointment this week of two new Commissioners at the CPSC (subject to Senate confirmation), hearings are likely to occur (eventually) under the auspices of the House Committee on Energy and Commerce. It will be interesting to see if any semblance of open dialogue is permitted at that time. In any event, the testimony of the new Chairman (and perhaps others) will be an indicator of whether further relief will be allowed. The speculation from Rumorville is that the message of a Democratic Chairman will be much better received by Congress, even if the message is exactly the same as less-palatable previous witnesses have delivered. The current situation where the CPSC must keep issuing stays to resolve safety dilemmas, leadtime issues or basic fairness and equity is completely intolerable and even the consumer groups and legislators are admitting it (privately). One hopes, perhaps naively, that at the time of a hearing, Congress will find the resolve to address these issues openly and with an open mind.

Ironically, the greatest outcast in this "safety war" has the greatest ability to contribute to a solution. Corporate America doesn't deserves its title of Public Enemy Number One and wears the crown with unease. If the new Commissioners can foster a renewed environment of trust on Capitol Hill, perhaps industry input can finally be considered constructively. Since far less than 1% of companies affected by the CPSIA have ever had a run-in with the CPSC or are known to have caused torts because of lead or phthalates, it seems likely that their expertise in their businesses and their products can be useful in crafting rules that facilitate better safety while not choking off commerce. I continue to believe this is possible.

Step one: vote for the tracking labels stay!

CPSIA - "Joe Consumer" and Consumers Union

"Joe Consumer" strikes again, this time spreading misinformation by quoting a misleading Consumers Report Blog about the CPSIA Rally. Joe posted a comment on my blogpost below about http://www.thepoptort.com/, the misleading blog he "authors" on behalf of The Center for Justice and Democracy, and directed readers to his blog on the Rally. Joe presumably knows he is spreading misinformation, as the 12 comments on the CR Blog make clear the many issues that post. I hardly know what to say - this is Justice and Democracy? Not in my book.

Consumers Union was honorable enough to post my comment, along with 11 others similarly critical of their work. To blunt Joe Consumer's nonsense campaign, I reproduce here the actual CR Blogpost and my reply.

Rick

http://blogs.consumerreports.org/safety/2009/04/businesses-rally-against-cpsia-consumer-product-safety-improvement-act.html


April 02, 2009

Businesses rally against CPSIA

We’ve reported many times on the Consumer Product Safety Improvement Act of 2008, a vital new law that helps ensure the safety of children’s products and revitalizes the beleaguered Consumer Product Safety Commission. The Act was signed into law last August by then-President George W. Bush after receiving overwhelming bipartisan support in Congress. It was created in response to the millions of toys, cribs, and other children’s products recalled for dangerous design flaws or dangerous levels of lead that injured and even killed children. But this week, more than seven months after the bill’s signing, some members of the business community staged a rally to ask that the CPSIA be amended.

Many who participated in Wednesday’s rally in Washington D.C. were industry lobbyists and representatives of large companies and of trade organizations that protested the effect of the bill on their businesses. Some who spoke at today’s rally, including Toy Industry Association President Carter Keithley, claimed that there are no health impacts from lead in toys. Others who spoke suggested that adult clothing was covered by the law, which is not the case. The lead testing restrictions apply only to children’s products. Further, some of the members of Congress who criticized the CPSIA voted in favor of the bill last summer.

The takeaway: The implementation of this law, which changes the way companies do business and makes a broad category of children’s products safer, has not been handled well. Congress expressly provided the CPSC, the agency charged with making the law work, the authority to address legitimate questions about its application. Unfortunately, the CPSC has been slow, if not downright reluctant, to provide timely exemptions or give clear guidance about the law’s actual requirements.

Folks with legitimate questions about the new law can and should certainly speak their minds, but it’s not okay when industry challenges the effects of lead on children’s health. It is absurd and flies in the face of good science. The American Academy of Pediatrics has repeatedly said there is no safe level of lead. That lead-tainted products crept their way back into the marketplace—even though lead paint was banned 30 years ago—is a clear indication that former laws and the agency that enforces them weren’t strong enough. It’s also disappointing that organizations such as TIA and the National Association of Manufacturers (NAM), which formerly embraced the new law, are now calling for widespread changes.

One point of agreement did surface today. Apparently, NAM agrees with consumer groups that the current leadership at the CPSC is responsible for the problems regarding the failure to issue timely guidelines or appropriate exemptions based on sound science. This is a major problem. Nancy Nord has held the position of Acting Chair since June 2006, after the resignation of Hal Stratton. The agency desperately needs new, more effective leadership at the helm—someone who will put consumer safety first, while also guiding the industry in its compliance efforts.

My comment on the CR Blogpost:

The Rally against the CPSIA on April 1 in Washington was no April Fool's joke. Efforts to marginalize the clear message of the Rally will not work. The CPSIA is misguided and misconceived in its precautionary "guilty until proven innocent" design. The ill-effects on industry and the children's products market cannot be jusified with vague assertions that the law solves some sort of public health emergency. The "emergency" does not exist.

Please note that you have made some serious mischaracterizations and factual errors in this "fact-checked" blog. First of all, you claim that the speakers were "industry lobbyists and representatives of large companies and of trade organizations". In fact, of the 20 Rally speakers (other than legislators), there were three speakers from trade organizations, namely the Presidents of the TIA, AAFA and NAM, and NO lobbyists. Every other speaker but one (the representative of Reckitt Benckiser) was from a small business or an individual. In other words, the Rally featured speakers from 16 small businesses or individuals, one large business, three representatives of industry organizations and no lobbyists. Your statement is misleading and untrue.

Second, you indicate that a "takeaway" of the meeting was that the problem was poor implementation of the CPSIA. In fact, that must be your opinion, but not the stated opinion of the speakers at the Rally. The message was clear and consistent among the Rally speakers that the problem is the law itself. Implementation was not the focus of these remarks. We were not pointing fingers at the CPSC either - but you are. In describing the Rally and then characterizing your opinion as the "takeaway", you suggest that we hold that view - which we do not.

Third, you mischaracterize the message of the scientists who appeared at the Rally, Dr. Barbara Beck, Dr. Rick Reiss and Dr. William Waddell. Each of these toxicologists reinforced the common wisdom quoted by Dr. Waddell: "The dose makes the poison." Dr. Beck clearly stated that we ingest more lead daily in our food than is likely ingested from use of many regulated children's products. You are welcome to review their remarks at our website www.AmendTheCPSIA.com. Again, you state your opinion as though it were a fact. This is misleading to your readers who trust your fact-checked blog for accuracy.

There are other, more minor errors or mischaracterizations, such as your assertion that some speaker claimed that the CPSIA applied to adult clothing (the President of the AAFA was the only speaker from the apparel industry and made no such claim), and your assertion that the 2007/8 recalls "injured and even killed children" (an analysis of recalls in this period from lead in children's products showed one death from swallowing a lead bangle on a bracelet, and one reported injury from lead-in-paint).

Finally, you also mischaracterize the remarks of the Rally speakers as endorsing YOUR view that Nancy Nord is at fault for the delays and failures to issue exemptions that you assert. I do not recall Ms. Nord's name or role being mentioned during any speech, and she was certainly not a focus of the day's events. Speaking for myself, I do not agree with your statement at all, and would observe that the data shows that Acting Chairman Nord and Comm. Moore have voted 2-0 in their last 23 decisions. It is hard to understand the reasons behind the finger pointing at Ms. Nord or at Republicans in general if the Commissioners are apparently acting in bipartisan unison. Is it because attacks on Ms. Nord make a nice diversion from an examination of the law itself?

CPSIA - CPSC Commissioners Speak Out

From: Rick Woldenberg
Sent: Sun 2/8/2009 3:09 AM
To: 'Christian.Fjeld@mail.house.gov'; 'robin.appleberry@mail.house.gov'; andrew_grobmyer@pryor.senate.gov; james_reid@rockefeller.senate.gov
Cc: 'brian.mccullough@mail.house.gov'; 'shannon.weinberg@mail.house.gov'; 'william.carty@mail.house.gov'; 'mjg@brown-gidding.com'; Etienne Veber; 'challengeandfun@gmail.com'; 'kathleen@fashion-incubator.com'; 'Stephen Lamar (slamar@apparelandfootwear.org)'; 'Nancy Nord (nnord@cpsc.gov)'; 'Joe Martyak (jmartyak@cpsc.gov)'; 'Mary Toro (MToro@cpsc.gov)'; 'tmoore@cpsc.gov'; 'Patrick Magnuson (patrick.magnuson@mail.house.gov)'; 'Carter Keithley (ckeithley@toy-tia.org)'; 'Rick Locker (fblocker@LockerLaw.com)'; 'Desmond, Edward'; 'David Callet (calletd@gtlaw.com)'; 'ravitz.georgia@arentfox.com'; 'Pamela Gilbert (pamelag@cuneolaw.com)'; 'Robert Adler'; 'Dan Marshall (dan@peapods.com)'; 'erik.lieberman@mail.house.gov'; 'cfalvey@cpsc.gov'; Judy Bailey (judith.bailey@mail.house.gov); adele@narts.org; kmchugh@astratoy.org; richard.goldberg@mail.house.gov; matthew.abbott@mail.house.gov; 'Brian_hendricks@hutchison.senate.gov'; 'david@commerce.senate.gov'; 'Cathy.hurwit@mail.house.gov'; pweller@cpsc.gov; mgougisha@cpsc.gov; bridget_petruczok@boxer.senate.gov; michael_daum@cantwell.senate.gov; bill_ghent@carper.senate.gov; hap_rigby@demint.senate.gov; frannie_wellings@dorgan.senate.gov; david_quinalty@ensign.senate.gov; james_chang@inouye.senate.gov; jonathan_becker@klobuchar.senate.gov; michelle_schwartz@lautenberg.senate.gov; lee_dunn@mccain.senate.gov; sonya_wendell@mccaskill.senate.gov; matthew_hussey@snowe.senate.gov; brendan_plack@thune.senate.gov; hugh_carroll@wicker.senate.gov; elissa.levin@mail.house.gov; christopher.schepis@mail.house.gov; theresa.lavery@mail.house.gov; greg.louer@mail.house.gov; brian.diffell@mail.house.gov; amy.ingham@mail.house.gov; laura.vaught@mail.house.gov; matt.johnson@mail.house.gov; saul.hernandez@mail.house.gov; aaron.shapiro@mail.house.gov; rick.axthelm@mail.house.gov; steve.plevniak@mail.house.gov; scott.cleveland@mail.house.gov; jonathan.smith@mail.house.gov; pat.cavanagh@mail.house.gov; rachelle.wood@mail.house.gov; michael.gaffin@mail.house.gov; angela.manso@mail.house.gov; dana.lichtenberg@mail.house.gov; derrick.ramos@mail.house.gov; elizabeth.stack@mail.house.gov; lori.pepper@mail.house.gov; david.bahar@mail.house.gov; mark.bayer@mail.house.gov; Neeta.Bidwai@mail.house.gov; kyle.victor@mail.house.gov; chris.debosier@mail.house.gov; morgan.jones@mail.house.gov; matthew.dockham@mail.house.gov; tuley.wright@mail.house.gov; cade.king@mail.house.gov; betsy.christian@mail.house.gov; chris.herndon@mail.house.gov; Mike.Ward@mail.house.gov; laura.abshire@mail.house.gov; randi.meyers@mail.house.gov; Greta.Hanson@mail.house.gov; liz.muro@mail.house.gov; jamie.euken@mail.house.gov; jon.oehmen@mail.house.gov; brad.schweer@mail.house.gov; michael.beckerman@mail.house.gov; valerie.henry@mail.house.gov; Becky.Claster@mail.house.gov; tiffany.guarascio@mail.house.gov; jeff.mortier@mail.house.gov; Christopher_day@billnelson.senate.gov; john_phillips@kerry.senate.gov; Kerrie Campbell (kcampbell@manatt.com); bryan_hickman@hatch.senate.gov; Ben.Kershaw@mail.house.gov; tom_jones@commerce.senate.gov; Lisa Brown (lbrown@who.eop.gov); csunstein@who.eop.gov; stacy_ettinger@jec.senate.gov; csunstei@uchicago.edu; rpalmieri@nam.org; dbrown@muchshelist.com
Subject: CPSIA - CPSC Commissioners Speak Out

Have you read the statements of Commissioners coming out of the CPSC lately? The statements of Commissioners Nancy Nord and Thomas Moore of the CPSC given after the rejection of the NAM petition for a stay of the new lead standards under the CPSIA (https://mail.learningresources.com/exchweb/bin/redir.asp?URL=http://cpsc.gov/library/foia/ballot/ballot09/nam.pdf), as well as their statements given in support of the new interim final rule exempting certain items from the lead standards (https://mail.learningresources.com/exchweb/bin/redir.asp?URL=http://cpsc.gov/library/foia/ballot/ballot09/101lead.pdf) are very revealing.

Rejection of the NAM Petition. As my recent letters confirm, the NAM petition decision was a foregone conclusion, as the CPSC is prohibited under Sections 101(b)(1) and 101(e) of the CPSIA from changing the new standards in any way for any product. Thus, the CPSC was legally prohibited from staying the new lead standards and the Commissioners made the legally proper decision to vote down the petition under your CPSIA. Interestingly, as another of my recent letters notes, after Acting Chairman Nord made this very point in writing to Representative Waxman et. al. in her letter of January 30, those House and Senate leaders responded on February 3 by demanding that she resign. Some great open dialogue there!

The NAM petition, it should be noted, focused on the retroactive CPSIA lead standards because the NAM letter preceded the NRDC phthalates case decision last Thursday. Presumably, had NAM known that the phthalates ban would become retroactive instantaneously two business days before its February 10 effective date; their request would have included a stay request on the phthalates ban, too. Alas, we cannot wind back the clock, so the Commissioners did not consider this issue. They would have been legally prohibited from taking any action on the phthalates standard, of course, but the Commissioners would have been free to comment on it. In the below discussion, I believe you can safely read between the lines and infer parallel references to phthalates in the Commissioners discussion of the issues.

The statements of Nord and Moore are quite informative. After reiterating the fact that the Commission is prohibited from staying the lead standard, Ms. Nord notes: "Rather than applying the lead content provision to products manufactured after the effective date, Congress applied it to all products out in the stream of commerce on February 10, sitting in container ships, in warehouses, and on store shelves. CONGRESS HAS NEVER BEFORE ENACTED SUCH A SWEEPING CONSUMER PRODUCT PROVISION IN A RETROACTIVE MANNER AND THE DISRUPTIVE RESULTS OF THIS PROVISION ARE NOW BEING SEEN IN PAINFUL WAYS." [Emphasis added] Of course, Ms. Nord overlooks the Prohibition as a precedent for this dramatic legislative overreaction.

Ms. Nord goes on to note several impacts on trade, including removal of product from store shelves out of fear, disrupted buying by retailers and the prospect of widespread loan defaults. All old news, if you read my emails. Importantly, Ms. Nord states in conclusion: "CONGRESS SPOKE CLEARLY IN SETTING OUT A REGULATORY REGIME THAT APPLIES TO ALL CHILDREN'S PRODUCTS IN COMMERCE REGARDLESS OF EXPOSURE TO ACTUAL RISK. CONGRESS SPOKE CLEARLY ABOUT THE LIMITED NATURE OF THE EXCLUSIONS AND EXEMPTIONS AVAILABLE UNDER THE LAW. CONGRESS SPOKE CLEARLY ABOUT THE LIMITED NATURE OF OUR ENFORCEMENT DISCRETION AFTER FEBRUARY 10. THE AGENCY CANNOT AMEND OR CHANGE THE STATUTE." [Emphasis added] Happy days, indeed.

Commissioner Moore takes a different tack when discussing the NAM petition. After reciting various administrative activities of the Commission relating to lead over the years, he attacks the integrity of the business community: "It would have been hard for a manufacturer of children's products to miss the clear message that they needed to get the lead out of children's products well in advance of final congressional action." It’s always helpful to have a “bad guy” to bash. Other than the fact that lead poisoning is virtually unknown in children's products outside of lead-in-paint (illegal for decades) and that the CPSC has always administered safety matters by examining the actual quantifiable risks, Mr. Moore might be right. However, responsible businesspeople concentrate on real consumer risks, and have no reason to concern themselves with the ebb and flow of possible arbitrary movements in the nation's regulatory scheme. Until recently, safety administration in this country was rational – is it really “foreseeable” that the legal standard would detach itself from risk so profoundly? In truth, periodic CPSC administrative activity over many years in relation to very specific circumstances is hardly a damning fact pattern revealing a dim-witted, oblivious or pernicious business community.

Further rationalizing his condemnation of protests against the CPSIA, Commissioner Moore states his belief that "certain Hill staffers were assured by various segments of the children's product industry, that there would NOT BE A PROBLEM with meeting the 600ppm standard as most already were." [Emphasis added.] What a wonderfully open and accountable process Mr. Moore recites. It's a shame that Commissioner Moore chose not to attach names, dates or written testimony to such hazy assertions. In any event, it’s really not the standard itself that is the business community issue, but instead the breadth of the definition of products subject to the standard and the costs associated with PROVING COMPLIANCE with the standard and otherwise complying with the law.

Mr. Moore clarifies that "[t]his does not mean I am not sympathetic to resellers and home crafters who are trying to figure out how to comply." Mr. Moore gives the impression that he believes opposition to this law comes only from marginal groups of unsophisticated people. In fact, the businesses impacted by the CPSIA are big and are small, and span industries like footwear, apparel, publishing, thrift stores, online marketplaces like eBay, toys, housewares, school supplies, furniture, bicycles, office supplies, sports equipment, novelties, incentives - and yes, crafters. Notably, this wide group of businesses certainly understands business law as a general matter. The law speaks for itself, and we have read it.

Interim Final Rule Exempting Certain Electronics Items. In her statement on this decision, Ms. Nord notes that the hurry-up process used to issue the complex policy Congress demanded was driven by the agency’s inability to stay the lead standards: “This is not a procedure that I anticipate the agency will use in the future, except under the most demanding circumstances.” Could something important have been missed? Apparently Congress only wants true, peer-reviewed science utilized when opponents attack its bill. Interestingly, Ms. Nord also notes that the CPSC no longer controls how safety is policed in the United States because there are now 50 shadow CPSC’s to dog the business community: “I also HOPE the state attorneys general will follow our lead and adopt similar enforcement policies.” [Emphasis added.] In our business, we say “hope is not a strategy”. I take little comfort in Ms. Nord’s plea.

Commissioner Moore adopts a more conciliatory posture in his statement, as though we might not have read his other attacks on business: “The Commission will take a measured, reasonable approach to administering the new law. We will be patient with businesses working to come into compliance . . . .” I would note that every communication that the CPSC has put out in recent weeks has asserted the importance and inflexibility of the new standards, including the need to self-report for seemingly any known violation. Does this mean that the CPSC won’t force recalls for these self-reported violations? That seems contrary to everything I have read from the CPSC and Congress lately. I take cold comfort in Commissioner Moore’s soothing words – the CPSC’s stated policies are otherwise. He goes on: “We have always focused on protecting the consumer over penalizing the inadvertent missteps of small businesses. I see no reason for that approach to change under the new laws . . . .” This might be true (I certainly hope so), except that now the safety rules are absolute and the agency has little discretion left in its administration of these rules, so whether missteps are “inadvertent” won’t matter AS A MATTER OF LAW. Furthermore, the range of legal requirements has spiraled out of control, leaving the task of compliance beyond the capability of 99% of all companies (in the real world). There will be plenty of missteps to review and consider.

The concerns of the business community are legitimate and are URGENT. You MUST take action right now to stay this "awful law" (see WSJ Editorial dated February 6 https://mail.learningresources.com/exchweb/bin/redir.asp?URL=http://online.wsj.com/article/SB123388626627155299.html). You have been notified AGAIN AND AGAIN about the many problems created by the carefully crafted language of the CPSIA. The financial consequences to many businesses will begin to become apparent in just a few short days without your action. Whether you agree or disagree with my position, sufficient doubt has been created to merit “hitting the pause button” allowing for further hearings and open discussion of the impact of this law. The public health “crisis” is imaginary and does not justify the horrifying risks you are taking with the U.S. economy.

Sincerely,

Richard Woldenberg
Chairman
Learning Resources, Inc.
rwoldenberg@learningresources.com
Follow my blog at https://mail.learningresources.com/exchweb/bin/redir.asp?URL=https://mail.learningresources.com/exchweb/bin/redir.asp?URL=http://learningresourcesinc.blogspot.com/ or at https://mail.learningresources.com/exchweb/bin/redir.asp?URL=http://www.twitter.com/rwoldenberg

CPSIA - National Bankruptcy Day Redux

From: Rick Woldenberg

Sent: Fri 2/6/2009 3:14 AM

To: 'Christian.Fjeld@mail.house.gov'; 'robin.appleberry@mail.house.gov'; andrew_grobmyer@pryor.senate.gov; james_reid@rockefeller.senate.gov

Cc: 'brian.mccullough@mail.house.gov'; 'shannon.weinberg@mail.house.gov'; 'william.carty@mail.house.gov'; 'mjg@brown-gidding.com'; Etienne Veber; 'challengeandfun@gmail.com'; 'kathleen@fashion-incubator.com'; 'Stephen Lamar (slamar@apparelandfootwear.org)'; 'Nancy Nord (nnord@cpsc.gov)'; 'Joe Martyak (jmartyak@cpsc.gov)'; 'Mary Toro (MToro@cpsc.gov)'; 'tmoore@cpsc.gov'; 'Patrick Magnuson (patrick.magnuson@mail.house.gov)'; 'Carter Keithley (ckeithley@toy-tia.org)'; 'Rick Locker (fblocker@LockerLaw.com)'; 'Desmond, Edward'; 'David Callet (calletd@gtlaw.com)'; 'ravitz.georgia@arentfox.com'; 'Pamela Gilbert (pamelag@cuneolaw.com)'; 'Robert Adler'; 'Dan Marshall (dan@peapods.com)'; 'erik.lieberman@mail.house.gov'; 'cfalvey@cpsc.gov'; Judy Bailey (judith.bailey@mail.house.gov); adele@narts.org; kmchugh@astratoy.org; richard.goldberg@mail.house.gov; matthew.abbott@mail.house.gov; 'Brian_hendricks@hutchison.senate.gov'; 'david@commerce.senate.gov'; 'Cathy.hurwit@mail.house.gov'; pweller@cpsc.gov; mgougisha@cpsc.gov; bridget_petruczok@boxer.senate.gov; michael_daum@cantwell.senate.gov; bill_ghent@carper.senate.gov; hap_rigby@demint.senate.gov; frannie_wellings@dorgan.senate.gov; david_quinalty@ensign.senate.gov; james_chang@inouye.senate.gov; jonathan_becker@klobuchar.senate.gov; michelle_schwartz@lautenberg.senate.gov; lee_dunn@mccain.senate.gov; sonya_wendell@mccaskill.senate.gov; matthew_hussey@snowe.senate.gov; brendan_plack@thune.senate.gov; hugh_carroll@wicker.senate.gov; elissa.levin@mail.house.gov; christopher.schepis@mail.house.gov; theresa.lavery@mail.house.gov; greg.louer@mail.house.gov; brian.diffell@mail.house.gov; amy.ingham@mail.house.gov; laura.vaught@mail.house.gov; matt.johnson@mail.house.gov; saul.hernandez@mail.house.gov; aaron.shapiro@mail.house.gov; rick.axthelm@mail.house.gov; steve.plevniak@mail.house.gov; scott.cleveland@mail.house.gov; jonathan.smith@mail.house.gov; pat.cavanagh@mail.house.gov; rachelle.wood@mail.house.gov; michael.gaffin@mail.house.gov; angela.manso@mail.house.gov; dana.lichtenberg@mail.house.gov; derrick.ramos@mail.house.gov; elizabeth.stack@mail.house.gov; lori.pepper@mail.house.gov; david.bahar@mail.house.gov; mark.bayer@mail.house.gov; Neeta.Bidwai@mail.house.gov; kyle.victor@mail.house.gov; chris.debosier@mail.house.gov; morgan.jones@mail.house.gov; matthew.dockham@mail.house.gov; tuley.wright@mail.house.gov; cade.king@mail.house.gov; betsy.christian@mail.house.gov; chris.herndon@mail.house.gov; Mike.Ward@mail.house.gov; laura.abshire@mail.house.gov; randi.meyers@mail.house.gov; Greta.Hanson@mail.house.gov; liz.muro@mail.house.gov; jamie.euken@mail.house.gov; jon.oehmen@mail.house.gov; brad.schweer@mail.house.gov; michael.beckerman@mail.house.gov; valerie.henry@mail.house.gov; Becky.Claster@mail.house.gov; tiffany.guarascio@mail.house.gov; jeff.mortier@mail.house.gov; Christopher_day@billnelson.senate.gov; john_phillips@kerry.senate.gov; Kerrie Campbell (kcampbell@manatt.com); bryan_hickman@hatch.senate.gov; Ben.Kershaw@mail.house.gov; tom_jones@commerce.senate.gov; Lisa Brown (lbrown@who.eop.gov); Jamie Dimon (jamie.dimon@chase.com); csunstein@who.eop.gov; Cass Sunstein (csunstein@uchicago.edu); Amy R. Fahey (amy.r.fahey@chase.com); laura.m.burkhead@chase.com; Michael J. Gawne (michael.j.gawne@chase.com); Marilou Menezes (marilou.menezes@chase.com); Stacy.ettinger@jec.senate.gov

Subject: CPSIA - National Bankruptcy Day Redux

Yesterday, two events took place that ensure the devastation of many American businesses, namely the decision by Judge Paul Gardephe of the U.S. District Court for the Southern District of New York (08 Civ. 10507 PGG) to overturn the legal opinion of Cheryl Falvey and establish a virtually immediate retroactive nationwide ban on phthalates on February 10 (the NRDC Case), and the rejection of the National Association of Manufacturers’ petition to stay the new lead standards by a vote of the CPSC Commissioners 2-0. While the latter outcome was expected (see the legal analysis in my email dated February 4 entitled “CPSIA – The Blame Game”), the NRDC Case decision was unexpected and is a huge setback to any rational implementation of this law. The decision raises anew the prospect of a National Bankruptcy Day on February 10.

On November 7, I wrote an email to Cheryl Falvey, General Counsel of the CPSC, documenting the potential of her retroactivity opinion (on lead) to cause widespread loan defaults among American businesses. I have reproduced the November 7 email below and in an attachment. My warnings of dire consequences from the lead ban have been ignored, but courtesy of the NRDC Case, we will soon find out if I was right. With two business days to go, and no advance warning, American retailers and manufacturers will be caught with massive inventories of product which they had been assured was legal to sell (opinion of Cheryl Falvey dated November 17, 2008) but which will now become contraband on February 10. The ability of such companies to comply with their asset-based loan agreements is now in question. Likewise, the decision in the NRDC case creates an overnight Sarbanes-Oxley disaster for the SEC as countless public financial statements instantaneously become materially misstated. It will be most interesting to see how the banks respond to this Congressionally-induced crisis. I am cc’g this email to Jamie Dimon, the CEO of JPMorgan Chase, whose loan documents are abstracted in the attachment, so the bank can begin to review its options. Another financial crisis for American banks, how exciting for the American public!

You have demonstrated that you are not interested in contrary opinions of your law. In my February 4 email, I explained how the mechanics in your law, the CPSIA, prevents the CPSC from using its judgment and discretion to implement the new law. Interestingly, the letter of Acting Chairman Nancy Nord to Representative Henry Waxman et. al. dated January 30 (see attached) echoes my analysis of the law. As she notes:

“[We] are struggling, and impacted industries are struggling, with the requirements of the CPSIA as they relate to various products, such as bicycles, car seats, shoes and books, that may or may not have been intended to be so broadly impacted by the legislation. We are also working hard to find common sense solutions to some of the scenarios that have been raised in cases where public health is not endangered. As we work through these many issues, the staff has found that the requirements of the new law are inflexible, are not sequenced to maximize effectiveness and generally limit our options. Action by BOTH the Commission and the Congress is needed to address these issues. . . . It especially should be emphasized that because we cannot change the retroactive effect of the lead ban to existing inventory, [the stay on testing and certification] will not provide relief to the charities, thrift stores and other small retailers who must still meet the standards enacted by Congress. [Ed. Note: With the decision in the NRDC Case yesterday, this warning now applies to phthalates, as well.] To effect this change, Congress will need to amend the statute.” [Emphasis added]

The response to this letter was swift – by letter dated February 3, Representative Waxman et. al. requested that President Obama urgently replace Ms. Nord. Thus it appears that silencing Commissioner Nord is the preferred response to her comments on the inner workings of the CPSIA. The Congressional leadership’s intolerance of dissent is outrageous. As stated in Representative Waxman et. al. state in their February 4 letter (see attached), “everyone agrees” that the new standards are “critical” to protect children. See no evil, hear no evil . . . . The substance of Commissioner Nord’s arguments, and my arguments, remain entirely unanswered.

The business losses from the implementation of the CPSIA will make February 10 a dark day in American economic history. I have no idea how many business closings will result or when they will happen, and have no interest in promoting that sort of speculation. It is, however, NO speculation that business losses will be severe and entirely the responsibility of Congress during a time of severe financial and economic crisis. House and Senate leadership made certain that businesses will be hobbled, crushing the employees, customers and communities of the affected companies. The gloating self-satisfaction of supporters of this bill (see, e.g., http://www.nrdc.org/media/2009/090205a.asp) will soon backfire as the American public comes to recognize the carnage done by “do-gooders”. As before, I assert that this law will touch an estimated 60% of the U.S. economy in one way or another.

The economic impact of the CPSIA making will become manifest over time, not with a Big Bang on February 10 but slowly building and revealing itself long after the damage is irreversible. Those who arrogantly dismissed the protests of the MANY responsible and law-abiding people subject to this unfair law as “misguided” or “misinformed” will be held to account when the wreckage becomes clear. As you vote this week to print up a quick $800 billion to resurrect the economy, please remember to take ownership of your simultaneous action to destroy an important part of it.

You have brought this disaster on your voters, and we will remember how you responded to our pleas. I hope you will finally listen to the substantive and legitimate criticism of this disastrous law and use this last opportunity to stay the effectiveness of the CPSIA, thus allowing more time for hearings, further debate and rulemaking, and a rational, fair and orderly implementation of your groundbreaking safety program. There are two business days to go – the time to act is NOW.

Download legal analysis from 2/4/09: CPSIA - The Blame Game >>>

Download 1/20/09 letter from Chairman Nancy Nord to Representative Henry Waxman >>>

Sincerely,

Richard Woldenberg
Chairman
Learning Resources, Inc.
Rwoldenberg@learningresources.com
See my blog at http://learningresourcesinc.blogspot.com/ or at www.twitter.com/rwoldenberg



*****************************************************************************


From: Rick Woldenberg
Sent: Fri 11/7/2008 1:16 AM
To: cfalvey@cpsc.gov
Cc: Michael Gidding (mjg@brown-gidding.com); nnord@cpsc.gov; jmartyak@cpsc.gov; judith.bailey@mail.house.gov

Subject: The Financial Consequences of Retroactive Application of the CPSIA

Dear Ms. Falvey,

Per our conversation today, I am writing you to express my deep concern over the dire financial consequences of your office's September 12th legal opinion ("September 12th Opinion") that the new safety standards of the CPSIA apply retroactively to existing inventory.

It is unfortunate that so many people misread the issue of "financial consequences" to refer simply to the cost of the inventory. Yes, as covered in detail in today's panel discussion, companies in the chain of commerce (manufacturers, distributors and retailers) have little practical ability to make existing inventory "go away". In that sense, the retroactive application of the CPSIA is in fact disastrous. Yet, the implications of the September 12th Opinion are far deeper and more threatening. A necessary result of the purported retroactive effect of the CPSIA on existing inventory will be (a) widespread defaults under loan agreements as of February 10, 2009, (b) widespread failures to obtain audited financial statements for 2008 (another loan default issue), and (c) for public companies, an immediate Sarbanes-Oxley disclosure issue stemming from these problems. Defaults under loan agreements may result in the reduction or termination of available credit to operating companies. It can also trigger cross-defaults among related entities or related agreements, causing even more far-flung financial destruction. For many family businesses, this could result in a total wipeout of all family wealth in one fell swoop.

While these financial consequences have received little attention to date, their potentially highly toxic effect should not be ignored.

Loan Defaults: The typical American company finances its operations with asset-based loans. In this kind of loan, lenders agree to advance a percentage of "Eligible Inventory" as a revolving loan. In other words, the loan floats up and down over its term as the borrower meets its daily cash needs, but overall availability is limited by the value of inventory. The size of borrowing availability is determined each month based on representations called "Borrowing Base Certificates" in which the borrower attests to the value of its inventory, and then makes various representations relating to the definition of "Eligible Inventory". I have attached a typical definition of "Eligible Inventory" for your review. Please note subparts (b) and (e), as well as the final paragraph. Subparts (b) and (e) cannot be attested to after February 9, and under the terms of the last paragraph of the definition of "Eligible Inventory", an undetermined amount of inventory would no longer be "eligible". In addition, the ongoing representation of the typical borrower that they are operating in compliance with law can no longer be made. This has implications for the Borrowing Base Certificate, see below.

In a typical Borrowing Base Certificate, the following language typically appears:

"Pursuant to the terms of that certain [Loan Agreement], we submit this Borrowing Base Certificate to you and certify that the information set forth below and on any attachments to this Certificate is true, correct and complete as of the date of this Certificate. . . . The undersigned hereby certifies that the above information and computations are true and accurate and hereby represents and warrants that as of the date hereof, (i) no Event of Default or Unmatured Event of Default under the Credit Agreement has occurred or is continuing, (ii) the representations and warranties of the Borrower set forth in the Credit Agreement are true and correct in all material respects as of the date hereof, and (iii) the Borrower is in compliance with the covenants set forth in the Loan Agreement."

Any Borrowing Base Certificate with such language after February 9 may not be executed by anyone intent on selling or placing a positive value on inventory existing on February 9. An inability to sign a Borrowing Base Certificate or signing a Borrowing Base Certificate with fraudulent intent is clearly a serious default under any loan agreement.

Consequences of Loan Defaults: Even a technical default must be resolved between borrower and lender. In this case, lenders will have three basic options for action: (a) levy fees to cure or waive the default (this is a typical provision in many loan agreements), (b) insist that the loan agreement be renegotiated, likely to reduce borrowing availablility based on a new, lower advance rate on Eligible Inventory, and/or (c) an outright and possibly immediate refusal to lend. Notably, if existing inventory continually becomes contraband under the September 12th Opinion as lead and lead-in-paint standards ratchet down over time, this cascade of defaults will repeat again and again.

It can be anticipated that many companies will find credit declining or terminated as a result of these defaults. This will have a dramatic effect on these companies' investable capital and their ability to maintain a stable workforce.

Audited Statements: Many loan agreements require audited financial statements at the end of every year. All public companies provide audited statements. In preparing audited statements, independent accountants will insist on "testing" inventory valuations. Furthermore, they will take into account events occurring after the close of the period, as such events could expose misleading information in the financial statements for the current period. In the case of retroactive effect on existing inventory, the pending change in valuation of inventory as of February 10, 2009 will make it impossible to certify 2008 financials without serious and negative qualifications (if at all). This failure would have an immediate effect on any company under its loan agreement (and in the public markets, if applicable), resulting in reduction or termination of available credit. Recent events on Wall Street demonstrate the serious threat posed by sudden losses of available credit, and the consequential financial destruction and loss of jobs.

Sarbanes-Oxley: The financial implications above clearly constitute a material financial event and create immediate issues under Sarbanes-Oxley for any public company. The fact that this issue has not yet been disclosed by any public company is troubling and potentially creates personal liability for many public company officers, including possible criminal liability.

The conclusion that the CPSIA applies retroactively to inventory is an inherently technical legal matter, involving detailed analysis of unbending rules of law. It should be no surprise then that equally technical financial issues emerge in its wake based on precise readings of unbending contracts and GAAP rules. In this case, the above financial/contractual issues are real and will get the attention of the financial community. Lenders have no incentive to be "understanding" in their appreciation of the CPSIA or its good intentions. Good intentions don't repay loans, and contraband inventory makes for poor collateral. And once lenders are provided with an incentive to act (to preserve their own capital), the dominoes will start to topple - ending where? ending how?

The CPSC needs to reconsider its opinion urgently and to render a clean, clear and well-publicized opinion that the CPSIA does NOT apply retroactively to existing inventory. Time is of the essence.

Thank you for considering my view on this important topic.

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Sincerely,

Richard Woldenberg
Chairman
Learning Resources, Inc.
380 North Fairway Drive
Vernon Hills, IL 60061