CPSIA - You're Only SAFE if It's 99.99% Lead-Free . . . But Don't Tell the EPA

Last week, the Democrats took action to protect you and your kids from the perils of lead.  As we have been relentlessly reminded by non-scientists, there is "no safe level of lead" - just ask Bob Adler and Inez Tenenbaum.  Now, in the wake of the conclusion that reducing lead content from 300 ppm (lead-in-substrate) to 100 ppm will produce "minimal" health benefits (read, none), the CPSC Commission voted three Democrats to two Republicans to reduce the lead limit to 100 ppm. 

Reducing lead standards from 300 ppm to 100 ppm can be expressed a different way mathematically.  This is a reduction from 99.97% lead-free to 99.99% lead-free.  [Credit to Anne Northup for the mathematics!] This will cost billions and the economic devastation was ALSO documented by the CPSC Staff in their analysis on the 100 ppm standard.  Nevertheless, the non-scientists who rule the roost at the CPSC saw nothing but health upsides in this technologically feasible but economically absurd feat.  And, as we know, injuries to children have an infinite value when you are unable to assess risk.  The numbers work out - yes, the cost may be in the billions and the reduction in incentives will cost yet more, but the savings are infinite!  Even one avoided injury is an infinite savings.  Queue the tears . . . .  What-a-deal!

Ironically, last week the EPA bowed to political pressure and in an exercise of common sense, eased up on precautions against lead-in-paint in housing stock.  Hello?  Did you catch that one?  Twelve Senators signed a letter in April to protest this proposed rule as excessive and damaging to small business, and bingo, something good finally happened.  Olympia Snowe was so delighted that she put out a press release to celebrate it.  Please note that the EPA acknowledges that lead-in-paint in housing stock is the principal source of lead poisoning in the United States.  [It sure ain't toys.]  They have previously acknowledged in writing (lucid writing, actually) that their rules on lead need to be measured and that the economic impact of their rules must also be carefully assessed. The EPA does not attach an infinite value to injuries, even to children.  They aren't idiots.  Draw your own conclusions.

Hello, Senators, anyone home?

The foundation of the "no safe level of lead" slogan has been laid by the American Academy of Pediatrics, a political organization masquerading as a professional organization.  This organization was aggressively and justifiably attacked by Anne Northup during the 100 ppm Commission meeting.  It is rare to see anyone attack these people, perhaps besides me (not a fan . . .), but do they ever deserve it.  Here is what Dr. Dana Best of the AAP told a House Subcommittee on April 7, 2011:

"Exposure to lead is amply documented to cause the loss of intellectual capacity. On average, children whose blood lead levels (BLLs) rise from 10 to 20 micrograms per deciliter (mcg/dL) lose two to three IQ points. More recent studies have shown an even greater impact on IQ of BLLs under 10 mcg/dL. Key studies reported a loss of 4 to 7 IQ points in children whose lead levels rose from 1 mcg/dL to 10 mcg/dL. These studies suggest that “low” levels of exposure – meaning BLLs less than 10 mcg/dL – cause proportionately greater harm than higher levels. . . . The medical and scientific literature are in substantial agreement that an increase of 1 mcg/dL in blood lead level is capable of causing the loss of approximately one IQ point in children whose blood lead level is under 10 mcg/dL."  [Enphasis added]

Dr. Best, well-known for her fear of children licking bicycles, has previously posited "millions" of victims of lead-in-substrate.  Despite taking such a dramatic stand, Dr. Best cannot seem to name even ONE victim or lead-in-substrate or provide a single case history demonstrating that such a victim has ever been located . . . anywhere.  Not even one.  Doesn't matter, apparently.  When you're right, you're right.

But is Dr. Best actually RIGHT?  Fascinatingly, when Dr. Best plugs the notion that driving lead concentrations below 10 mcg/dl will have some defined (definite) health benefits, she flies in the face of the official AAP Policy Statement on Lead Exposure in Children (recently restated on May 1, 2009).  The Policy Statement does NOT support her assertions - and she is on the committee that wrote/approved the statement.  You might say she got it wrong, or you might just say she's a liar.  Is it really possible to be that incompetent?  Here's what the Policy Statement says:

"Canfield et al recently extended the relationship between blood lead concentration and IQ to blood lead concentrations less than 10 g/dL. They observed a decrease in IQ of more than 7 points over the first 10 g/dL of lifetime average blood lead concentration. . . . To confirm the adverse effects of lead on IQ at these concentrations, however, more children whose blood lead concentration has never been more than 10 mcg/dL should be studied. A reanalysis of the primary data from several of the prospective studies is underway to help resolve this issue. At the moment, however, these data have not yet been incorporated into policy, and the CDC16 and AAP24 both currently use 10 mcg/dL (Table 2) as the blood lead concentration of concern."  [Emphasis added]

The Canfield study is the study Dr. Best cites in her Congressional testimony above.  Canfield predates the restated Policy Statement (obviously, or else it wouldn't be cited), and thus forms part of the basis of the recommendation for further study.  The AAP recommends further study to confirm its suspicions - and those studies aren't done.  Dr. Best certainly didn't cite them.  The AAP Policy Statement goes on to recommend:

"RECOMMENDATIONS FOR GOVERNMENT:  Fund studies to confirm or refute the finding that blood lead concentrations of less than 10 mcg/dL are associated with lower IQ. The next important step in lead research is conducting of studies in which confounding by socioeconomic factors is not so strong. Funding of studies in this area needs to be given high priority, as was done in the early 1980s when the question of effects of blood lead concentrations less than 20 mcg/dL was raised."  [Emphasis added]

So the AAP acknowledges in its policy statement that the case is not exactly open-and-shut.  Dr. Best, a member of the AAP's Committee on Environmental Health, continues to bash away on the hustings with her hyperbolic and conclusory message.  Perhaps she feels that no one will likely check her work or contest her blather, so why not?

Senators?  Congressmen?  Does anyone care about the effects on business when it comes to the out-of-control CPSC? 

There are now 25 days until the 100 ppm standard goes into effect retroactively.  Starting packing up, guys.  Will Congress act?  I have no idea - this is not, and never has been, a question of doing the right thing for you or me or for anyone, really.  The Dems have an agenda, a political agenda, and your problems are beneath their consideration.  I can't say who will be the winners, but the losers are well-known by now. 

CPSIA - In Defense of Lead

Perhaps you have been expecting it. After all the "heat" in this blog over the past year, finally, my defense of lead. Hope you're happy now. . . .

Last Friday, Commissioner Bob Adler posted his long-awaited position paper on lead and related CPSIA issues. Weighing in at 21 pages and 89 footnotes, Mr. Adler's paper includes a thorough recitation of facts as well as his recommendations about the law. Among other things, he recommends making the lead exemption process more flexible and allowing clothing to be sold through charity resale shops. He also left the door open to changes that would ease the economic burden of the CPSIA on small businesses and low-income consumers. I agree with all of these changes - but I also think many other and more extensive changes are needed, too. I do not agree with the basis of Mr. Adler's reasoning, however, and that makes all the difference.

Mr. Adler devotes about half of his statement to a detailed analysis of lead safety, reciting many facts that are not in dispute. Unfortunately, he then leaps to familiar conclusions that we have seen in recent Commission meetings and which are also found in many of his written statements. He does signal some extremely limited flexibility on lead, more or less hewing to the line put forth by Central Casting.

Ironically, Mr. Adler's statement sometimes leaves you wondering where he stands, since he seems so sympathetic to both sides. It is frustrating to not have a clear picture of how he really sees the world. I fail to find persuasive his argument that the lead rules are good for us when they lead to ridiculous results like the banning of brass bushings on toy cars. Mr. Adler himself noted in the Learning Curve hearing that the brass bushings pose NO risk to children at a hypothetical tipping point with blood lead levels (in other words, the toys were incontrovertibly safe) - and then voted to ban them because the law compelled it. This should trigger a sense of outrage in the Commissioner . . . but it doesn't.

To me, as an ex-lawyer, the illogical results documented in the Learning Curve case are intolerable. It is proof of a defective law and a defective system. Banning acknowledged safe products is a SIGN of problems, not something to rejoice in. As you know, it costs money to toss away perfectly good product. It also costs a lot of money to employ CPSC staff and Commissioners to decide silly cases like the brass bushing case. Something's quite wrong if we are celebrating a system so obviously broken.

i believe there are fundamental flaws in Mr. Adler's views on lead which prompt him to make recommendations basically defending a broken, illogical and self-destructive legislative system. Let me start by stating what I considered to be incontrovertible facts:

• Lead is bad
• Lead can be dangerous to children
• Harming children is bad, and unacceptable if reasonably foreseeable.
• Lead poisoning in children is largely if not entirely the fault of lead house paint and leaded gasoline

Mr. Adler makes the latter point in his footnote 83: "Clothing is not a significant source of lead poisoning. Far and away the greatest source of lead poisoning is lead paint in older housing, lead-saturated soil from gasoline emanated over the years from automobile exhausts, and lead-saturated dust (both from paint and gasoline)." [Other citations omitted] It is important to remember that Mr. Adler KNOWS that blood lead level problems stem from house paint and the long term consequences of years of leaded gasoline use (particularly in the inner city).

Mr. Adler tries to prove that lead is bad - but that fact is beyond dispute. He goes further and builds the case that there is no "safe" level of lead, providing citations. Thus established, he then seems to justify the legislation's strict terms based on the logic that if science hasn't identified a safe level for lead, every instance of lead is therefore dangerous: "We may have currently reached the outer limits of our ability to measure negative effects of exposure to small amounts of lead, but that does not mean that no adverse effects are occurring. It basically means that we do not know." Scary stuff. . . but what does he really think?

It's hard to tell. Notwithstanding his assertion that no level of lead is safe, Adler seems oddly reassured by the permitted levels set by Congress: "[Given] that lead remains ubiquitous and often unavoidable, policymakers who are fully aware of lead's risks, have sought to determine some level of lead that would be acceptable - at least until new information becomes available." And these all-knowing policymakers (Congress) set a retroactive scheme of rapidly declining permitted lead levels. In other words, what was considered "safe" (meaning legal) on February 9, 2009, was "unsafe" on February 10, 2009, and what was considered "safe" on February 10, 2009 became "unsafe" on August 14, 2009, and what was "safe" on August 14, 2009 promises to become "unsafe" on August 14, 2011. Mr. Adler analyzes retroactivity under the CPSIA in his statement and then endorses it. Huh?

I fail to grasp the logic of either Congress or Mr. Adler here. Is lead in substrate dangerous or is it not? Is there a safe level for lead or is there not? Is lead safe on one day, and not safe on the next day? If so, can someone explain the science of that safe/unsafe trigger to me? I believe Mr. Adler's accommodative attitude toward the lead standards and retroactivity is best explained by politics than by any notions of safety or risk.

It is even harder to take Adler's stern tones on lead seriously when you consider the volume of lead elsewhere in a child's life. Will regulation of lead in substrate in children's products have any material impact on blood lead levels? Can anyone prove that it will, or that the cost of getting rid of all the lead is worth the cost? Remember that we could redeploy the same money for more impactful projects, like eliminating high lead levels in drinking water in schools or remediating soil contaminated with lead. We have already covered the fact that Mr. Adler knows that blood lead levels are fundamentally tied to exposure to leaded house paint and contaminated soil. It is also well-known that cars are coated in lead paint, legally under our laws. Lead is also in our food chain, is found in nature - and enters our bodies every day. [For data on this topic, see "Eat My Dust".] By obsessing on children's products in the face of these facts, Congress ensured that its new legislation would fail to deliver measurable results.

In essence, the slogan "no safe level for lead" connotes a risk-free condition. "Risk-free" is an unrealistic standard and FAR too expensive as public policy. Mr. Adler uses this formulation in his lengthy analysis of used clothing sales: "In sum, I cannot state with certainty that a "safety" threshold of, say, 1 µg/dL blood level change would never occur from zipper sucking. . . . The fact that I cannot say there is no risk is why I characterize the choice [between allowing and banning resale of used clothing] as between bad and worse." [Emphasis added] Mr. Adler is not following a legal principle here, he is asserting one. This is the precautionary principle, the famous Nanny State being implemented before your very eyes.

It is difficult to diffuse an argument based on the elimination of all possible risk. If we wish to organize our society around the elimination of risk, rather than the management of risk, we are doomed. All of us, not just the children's product industry. The sad truth is that no one in the Federal government can prove that the policies of the last 35 years on lead caused injury. Mr. Adler implicitly asserts that our inability to prove that it DIDN'T is enough justification to throw the old system out. This is a belief system, not science.

The fear of risk is fanned by the threat of undetectable dangers. Mr. Adler notes: "To say the effects [of lead on healthy children] are not directly observable is not to say that that they are minor." He amplifies this point by implying a link to children's products to lead injuries without any proof of a relationship: "[MRI] technology has permitted us to identify permanent damage in adults stemming from childhood lead exposures." Exposure to what, precisely? ABC blocks or the soil next to an inner-city apartment building in the leaded gasoline era? Mr. Adler's assertion that we just don't know what the harm is dodges the real question - how do you know there is any harm resulting from THESE USES OF LEAD? No answer is supplied because no one can answer that question.

The Adler statement paints a pretty compelling picture and the 89 footnotes were presumably intended to add academic gravitas to his arguments. However, not all academics agree with Adler. Here are videos of the presentations of two Ph.D.s who specialize in risk assessment in children's products and lead issues taking an opposite view: Richard Reiss of Exponent and Barbara Beck of Gradient. They both note that the dose makes the poison and that only through true risk assessment will a sensible safety system be possible.

A couple brief notes:

- Mr. Adler talks a lot about retroactivity in the CPSIA. At the end of the day, he comes down . . . get ready for it . . . in favor of retaining retroactivity, but also for the recommendation of the Commission to make the pending 100 ppm lead standard prospective. I am not commenting on his arguments other than to say that I think relaxation of this provision would bring considerable economic relief without any possibility of physical harm to anyone. That's enough reasoning for me.

- In calling for change to the lead exemption process, Adler is apparently willing to support only "a modest expansion in the amount of discretion granted to the Commission". I find this rather curious and unexplained - he only wants a little discretion. Why? Does he worry that the Commission can't handle the responsibility for full discretion? Again, why? I wonder if greater powers suggested this very limited recommendation out of a lack of "trust", namely trust of future Commissions not hand-picked by this Dem-dominated Congress. No matter the explanation, it is curious indeed to see a Commissioner ask Congress to extend his Commission limited discretion.

- Adler devotes considerable space to sale of children's clothing at resale shops. He ultimately recommends that charity resale shops be allowed to sell children's clothing (possibly subject to posted Proposition 65-like warnings, see footnote 88). Adler's logic in this section is puzzling to me. Is Adler trying to defend children or defend the CPSIA? He concedes that clothing has no history of causing injury from lead but is apparently troubled that it cannot be proven that a child couldn't be harmed by clothing. Incredibly, he resolves the dilemma by distinguishing between resales made by charity shops and by for-profit shops, leaving the latter out of his proposed exemption. So is he approving the sale of unsafe products by charity resale shops to poor people so they can stay warm? Or is he saying that the clothes are probably safe, but can't be sold by for-profit stores for . . . what reason? If the clothing is safe to sell, sell it . . . and if it isn't, don't. WHO sells it shouldn't matter. But apparently it does.

An aside: Mr. Adler uses some strong language to discuss those of us who have pushed back on this law: "As I have waded into the debate, I have encountered many thoughtful, sincere, and anguished concerns about the CPSIA. I have also heard numerous overheated arguments, scanned many bloviating blogs, and read great numbers of error-laden emails (and letters) commenting on the law." For those of you who don't know this SAT word, "bloviating" is defined as "[to] discourse at length in a pompous or boastful manner" on dictionary.com. I wish our government officials would stick to the issues and avoid attacking the exercise of Free Speech by U.S. citizens. This is particularly the case here, since after a long fight, many of those bloviaters have been proven right. I don't expect thanks, but I think this is out of line.

I could go on, but I won't. Mr. Adler's voice in the debate is an important one and I appreciate his efforts to set the record straight. I don't agree with him and appreciate the opportunity to reply.

You be the judge!

CPSIA - The Votes Are In . . . (The Stay Was Extended)

The CPSC Commission ballot votes were announced today with the five Commissioners' statements released as well (Adler, Moore, Nord, Northup, Tenenbaum). The Commission made three decisions:

1. Adopted the interim enforcement policy allowing the use of component tests (5-0)
2. Lifted the stay on testing for bike helmets, dive sticks, bunk beds, and rattles (5-0)
3. Extended the stay on testing for lead content to February 10, 2011 "date certain" (4-1, Adler dissenting)

These votes reflect a considerable effort by the Commission to pull together. Other than Mr. Adler's principled decision to opt out of the endorsement of a longer extension of the stay on lead content, the Commission managed to find common ground. The unification of the Commission, if it sticks, would be a positive development. I hope this is a sign of recognition that safety is not inherently political and therefore Democrats and Republicans can work cooperatively and productively together.

The extended stay ("Stay") will be of value to manufacturers without endangering consumers. This is helpful . . . but is not a complete solution. It's a compromise and may have to be revisited again. I believe the Commission was not able to agree on Ms. Northup's formulation of the extension (six months after the issuance of the so-called "15 Month Rule") because Mr. Adler's objected to it as too open-ended and expressed a concern that it might be pushed out indefinitely. So now we have a stay expiring on a "date certain" and an agency with another artificial deadline to meet. The 15 Month Rule was not made an explicit condition of the decision, which means that more market chaos is probable.

Let's step back at this point and think about the issues that this vote raises:

A. The notion that another year will be enough to tidy up the details on lead content is probably a pipe dream. A few points of reference:

• Today is the one year anniversary of my first comment letter on civil penalty factors. When they finally came out in September, I sent in a second comment letter. To date, the new penalty factors have not been announced. We are in our second year of waiting.
• The phthalate test standards are also in limbo. The agency has had two cracks at that one. The first one allowed testing of the entire product as a single part (based on statutory interpretation) and after a storm of protest from among others the CA AG, the CPSC reversed course and reissued the test standard requiring that each component, even internal inaccessible ones, be individually tested. No doubt this pleased Jerry Brown, candidate for governor of California, but it created (brace for it . . . ) another storm of protest. Yet more comment letters were submitted. And . . . nothing. Please NOTE that the phthalate ban was SO urgent that the CPSC allowed it to become effective RETROACTIVELY with exactly TWO BUSINESS DAYS NOTICE. Obviously, phthalates must be a serious problem right??? Well, the CPSC has twice investigated phthalates and given them a pass both times. A third CHAP is currently grinding away. You get the picture. Hurry up and wait - just like the Army.
• On January 30, Nancy Nord issued her statement in support of the original stay. In that letter, she called for the issuance of the component testing rule. Have you seen it yet? The interim enforcement policy is the closest thing we have to a component testing rule. The birthday party for Ms. Nord's call to action is about a month away. Get the cake ready.

I am skeptical that the "15 Month Rule" will come out anytime soon. As Ms. Northup notes, it is going to be wickedly complicated. EVERY such rule when issued has been a major speed bump in the implementation process. See above . . . . The CPSC is also not without its other challenges or little projects. There is, of course, the day-to-day business of the agency like hunting for shoes with lead-infused insoles. There are also unexpected emergencies like Chinese drywall. And then there's that endless time sink, the CPSIA, with its many unfolding requirements. Why just today, the CPSC announced yet another two-day workshop on the public database. Didn't we just have a hearing on this? Perhaps I should buy a condo in Washington . . . . Anyhow, these other obligations will get in the way of the master plan here. That's a certainty.

The consequences of these artificial deadlines for businesses are pretty severe. Our problems are largely with the "regulatory compliance exuberance" of our larger and more risk-averse dealers/retailers. This risk-aversion is principally driven by the excessive liability of the new law and the apparent predilection of the CPSC to hand out whopping fines. It is also related to speculation that it is only a matter of time before the agency or one of the State AGs decides to give the felony provisions a road test. Who will be first in line? Our larger customers have no interest in finding out. This may be why we have one customer who insists on testing EVERY item for lead-in-paint . . . even if it has no paint on it. And another customer who wants us to test EVERY item for flammability, even if the products are exempt (like paper-based items).

How do you think these customers will react to a "hard" deadline on testing? With little sympathy and a great deal of advanced planning. They will not want to speculate on whether we will get relief if the CPSC runs late on something important. Likewise, they will not want to stop and start. Some companies are ALREADY incorporating the August 2011 100 ppm lead standard into their requirements NOW - even though the CPSC has made NO determination that it will impose that (ridiculous) standard yet. A one year extension of the Stay means that the testing requirements will take form for us much sooner than February 10, 2011, and once started, will be hard to stop.

B. Some of the remarks of Commissioners at the hearing and in their statements seem detached from market realities. This is worrisome. The denial by certain Commissioners of information they have been provided (Adler: "While there will be some disruption in the marketplace no matter which date is chosen, no hard evidence has been brought to my attention that would require an even longer extension of this stay than two years from the passage of this landmark legislation") and the misconstruction of the impact of their decisions (Adler: "I know of no company that has indicated that it will withhold production until the 15-month rule becomes effective.") erodes confidence.

It's time to abandon pretense and role-playing. The decisions being made have very serious consequences for many people (perhaps this is why I am still up at 1 AM writing this blog) and must be handled with the utmost sensitivity. If the Commissioners seem to be stuck in a tunnel with no end, believe me, so are manufacturers. Let's not make the situation worse - particularly since there is NO crisis to resolve right now.

C. Of particular concern to me is that the agency seems to have lost its ability to determine what is safe and what is not. Today's recall of Timberland scuffproof boots is just an illustration of our broken compass. The CPSIA's famous "precautionary principle" holds that we cannot trust anything until it is proven safe upfront. Thus, the CPSIA subjects every product and every component in every children's industry to new regulation, and requires the CPSC to carve out exceptions. This MAXIMIZES workload, chaos and confusion because it requires in-depth inquiries into EVERYTHING. This approach multiplies complexity as regulations devolve from common sense guidelines into endless lists of exceptions. Look around you - this entire mess, the last 18 months of misery and the coming months of new misery, is the inevitable outcome of this defective way to regulate our markets.

The mounting exceptions are only part of the mess. Then there are the interpretations. There is simply no way to catalog all of these decisions. Every nuance needs a regulator's okay. Ms. Northup highlights the determination that a children's water slide is NOT a "children's product" because it must be designed to withstand the weight of an adult. Very good, quite a helpful decision, but HOW are manufacturers supposed to replicate that reasoning without taking undue liability risk? Isn't it obvious that such determinations are quirky and hard to apply? The trend to greater opacity is unstoppable under this regime.

As long as we ignore this fundamental problem, we will face a worsening environment at the CPSC. The cohesiveness of this Commission today will degenerate quickly. The morale of CPSC staff will decline further. The rules and interpretations will pile high into the sky and manufacturers will start to ignore them - or just leave the marketplace for sunnier climes. Ridiculous demands of retailers for testing will drive more companies from the market or just cripple the ability of U.S. companies to compete internationally. The flaws in the CPSIA will also likely spark a consolidation trend toward bigger and bigger companies as this kind of environment is deadly to small businesses and entrepreneurs.

Not a pretty picture. Thanks Congress!

So with this stay decision, I conclude that little has been accomplished to address the basic problems. We kicked the can down the road, which is fine, but the fundamental issues remain and will pop up again in short order. Until we put them to rest, the fighting will intensify, the agency will descend into gridlock and personal reputations and legacies will be harmed.

There is no need to stand idly by and let this carnage happen. As has been pointed out by many in recent days, the CPSC needs to tell Congress honestly what needs to be done to fix the law. Mr. Waxman has conceded a fix is necessary. We need now must tell Congress where they went wrong. I disagree with Ms. Northup that the CPSIA's flaws were mysterious in July 2008 - but whether or not that's true, they are pretty obvious now.

I wish the Commissioners and all my readers a restful holiday season, but after you have had a nice nap and a chance to catch up with the relatives, it's back to work. We need to put together the list of fixes and march over to the Hill.

CPSIA - News Round-up

What a day for news on our favorite subject!

a. A sad, almost pathetic, illustration of the ill-effects of the CPSIA is found here: "Police Switch To Handing Out Books To Children" (WISC-TV, Channel3000.com). Be SURE to check out the embedded video, too. In this article, this Wisconsin television station shares the news that police cannot give out teddy bears anymore to children who witness traumatic events like a robbery or the arrest of a parent. For years, the police had been trying to soften those blows with comforting teddy bears. But no more! The CPSIA straightened them out: "The new Consumer Product Safety Improvement Act . . . has law enforcement officers rethinking handing out stuffed animals because of the chemicals they might contain. . . . Mueller said that he used to hand out Teddy bears or other stuffed toys to children. Now, Middleton police are using the books to make sure they're in compliance with new federal regulations."

The local police are scared of the consequences of breaking this law: "'One of the reasons for that is we get older toys that come in and they're perfectly fine to give out, but we don't know if they were made under the new requirements,' [Middleton police Sgt. Don Mueller ] said. . . . The new federal law is retroactive so the departments like Middleton are no longer using any stuffed animals as they can be held liable."

How charming! The CPSIA is actually taking teddy bears away from traumatized children, nice. At least we know the kids will be so, so safe now.

Btw, as you all know, our company makes educational products, including readers, so I am hardly opposed to giving books to kids. I would observe, however, that there are a couple obvious issues here. First of all, it's an odd message to a kid that just saw a parent being arrested to receive a book. Hey, kid, go read this book and try not to think about where we're taking your folks. Not much solace in that, certainly compared to a teddy bear. A second objection is, here's a shocker, not everyone speaks English. Giving a book in English to a traumatized child who does not speak English or has poor reading skills could even be seen as a kind of insult.

b. For a view from the scary people behind the law, check out: "Toxic Toy Law Criticized For 'Lack Of Enforcement" (WBZ Boston). In this alarming article full of inaccuracies, fear of the unknown is given a great deal of unquestioning credibility. "'They don't really know if lead or phthalates are in their products, so we don't know either,' said [Environmental activist Laura Spark]. Her daughters have a playroom full of toys that she can only hope are free from lead and other toxic chemicals." In other words, Ms. Sparks doubts everything about everyone, and feels free to spread this doubt among the populace. The grounds for this latest libel of the toy industry: HealthyStuff.org's recent spot check of pet products, automobiles and women's handbags.

HealthyStuff.org (formerly known as HealthyToys.org) has been the subject of criticism in the past for its shoddy field work. Among other things, the Wall Street Journal published an article entitled "Guerrilla Toy Testers Take Aim at Lead" on December 16, 2008 documenting their maligning of a toy company. Now the presence of "dangerous chemicals" in pet products is enough to convince a TV station that the entire children's products industry can't be trusted?

To compound the sense of fear, the article also completely misstates the Target fine, asserting that it was a "knowing" lead-in-paint violation, which is patently untrue. See my recent blogpost on Target.

c. For a glimpse of the future of litigation under the CPSIA, check out "Mattel Settles Suit Over Lead in China-Made Toys " (WSJ). Mattel has already paid big settlements in California and Arizona, as well as a serious CPSC fine, and paid many millions more for the expense of its mega recall. It's not enough, apparently: "Co-plaintiff lead counsel Whatley Drake & Kallas said in a statement the settlement provides 'tens of millions of dollars in monetary relief as well as significant injunctive relief.'" That'll teach ya!

While my heart does not bleed for Mattel ("The world's largest toy maker previously recorded charges to reserve for the litigation. The company, based in El Segundo, Calif., said final settlement won't be material to its operating results. . . . Mattel shares were up 2.9% to $19.41 in recent trading amid a broad market rally."), this case is at the heart of one of the worst risks embedded in the CPSIA - the possible onslaught of litigation opened up by recalls under the new law.

This problem will continue to bite the children's product industry HARD. My previous blogpost highlighted the snarling lawyers poised at the gate, eyeing us eagerly. Oh joy.

CPSIA - Rob Wilson's Op-Ed in PSL on Resale Guidance

October 9, 2009

Consumer Confusion Comes From CPSC Guidance, Not the Media

By Rob Wilson

Product Safety Forum recently published an article by Consumer Product Safety Commission (CPSC) Chairman Inez Tenenbaum intended to reassure thrift stores and families holding garage sales that the CPSC will not punish them with million dollar fines for sales of recalled items in violation of the Consumer Product Safety Improvement Act (CPSIA). Those of us who manufacture children's products support the CPSC's effort to rid the market of recalled products, but Ms. Tenenbaum's essay vividly illustrates her misunderstanding of the fears generated by the new product safety law.

Why are families and resale shops pulling children's products from their stores and garages? It's not for fear of selling recalled products; after all, it's relatively easy to go on the CPSC website and learn which items have been recalled.

It's not the media causing confusion and panic in the marketplace, as Ms. Tenenbaum asserts in her article. In fact, the fears were caused by the CPSC itself, originating in its recently published guidebook, CPSC Handbook for Resale Stores and Product Resellers.

The handbook explains that the new law not only prohibits the sale of recalled products at yard sales or by thrift shops, but also any product that doesn't meet the CPSIA's strict new lead standard, contains any one of six prohibited phthalates (found in plastic), or violates any other CPSC standard, ban, rule, or regulation. The possibilities for violating the law seem endless.

The handbook lists many products that may fall into this category: painted products, wood products with any varnish or paint, clothes with rhinestones, metal or vinyl/plastic snaps (including buttons), zippers, grommets, closures or appliqués, inexpensive children's metal jewelry (ie. children's jewelry not made from gold, platinum, sterling silver, precious stones, pearls, or other absurdly expensive materials), books printed in 1985 or earlier, or any book that can be played with. In a nutshell, the items that you typically see at a family's garage sale or a thrift store.

Yet resellers and families holding garage sales have no idea whether the buttons on a child's shirt contain lead above or below the new standard, or whether a plastic toy contains phthalates. The only way to tell is by testing it, and families aren't going to spend hundreds of dollars per product to test a $5 tinker toy. In many cases, including tests for phthalates, the product must be destroyed. If families could afford to test products, even the most entrepreneurial might find it difficult to sell the product once it's turned to dust. The CPSC's handbook offers a good solution: don't sell the children's product if you are not sure.

But perhaps you are thinking, "this doesn't apply to me." Back to the handbook for guidance: "You are not required to test your products for safety. However, resellers (including those who sell on auction Web sites) cannot knowingly sell products that do not meet the requirements of the law. You can protect yourself by screening for violative products. Ignorance of the law is not an excuse." The handbook then goes on to advise: "If you should happen to sell or offer for sale a product in violation of the CPSIA or other law, CPSC's response will vary depending upon the circumstances, including the nature of the product defect, the number of products, the severity of the risk of injury associated with the product and the type of violation. The Commission's response would also take into account the fact that you may be a small business."

In other words, the "guidance" is clear as mud. You don't have to test, but you better not sell products that don't meet requirements of the law, which you can only determine if you test. If you do violate the law, CPSC may take it easy on you if you are a small business or a family holding a garage sale . . . unless they decide not to.

The heart of the problem for the resale community is the retroactive nature of the law. If the law were not retroactive, all items manufactured according to the rules before February 10, 2009 would be deemed safe, and anything made after the implementation would be certified compliant (and safe). Without retroactivity, thrift stores must follow CPSC guidelines and eliminate most of their children's products, since most fit the profile of a "risky" product (meaning there is even a slight chance they might not meet the new standard), they must be presumed not compliant unless proven otherwise.

If Chairman Tenenbaum wants coats, toys, books and children's products to remain in thrift stores this Christmas season, she needs to stop being a mouthpiece for the authors of the legislation who claim the law is absolutely perfect. If she wants families to be able to sell their kids' old clothes and toys on the weekends and remain law abiding citizens, she must start being an advocate for a common sense approach to implementing CPSIA. If she wants consumers to still have access to handmade, natural or educational products, she needs to take a serious look at why this law is hampering their availability.

Chairman Tenenbaum vowed at her Senate confirmation hearing to bring a common sense approach to CPSIA implementation. We are still waiting for signs of common sense from the agency regarding CPSIA. Now is the time for the Chairman to end the confusion and dysfunctionality in the marketplace by advocating for common sense changes to the CPSIA.

Rob Wilson is vice president of Challenge & Fun, an importer of natural toys, founder of CPSIA-Central, and a board member of the Handmade Toy Alliance. Contact him at rob@challengeandfun.com

CPSIA - AAFA Op-Ed in Roll Call on Anniversary of CPSIA

Paper Is the Right Choice for Clothes and Shoes: Marking One Year of the CPSIA

Aug. 14, 2009, 9:52 a.m.
By Kevin Burke
Special to Roll Call

On Friday, we are marking the one-year anniversary of the Consumer Product Safety Improvement Act, landmark legislation that provided needed resources to the Consumer Product Safety Commission to improve consumer product safety. We are also commemorating the second of three phase-in dates for reductions in lead standards for children’s products.

As tradition holds, the first anniversary gift is paper. For our anniversary gift, Congress should consider giving the producers of children’s clothing and shoes a thoughtful piece of paper: legislation allowing the U.S. apparel and footwear industry the opportunity to continue making safe clothing and shoes.

The CPSIA was an effort to adapt consumer product safety to the changing manufacturing landscape. While well-intentioned, the CPSIA has unduly burdened businesses by shifting focus away from risk toward legal compliance. As a result, companies that manufacture and sell safe products have been forced to shut down.

The legislation went far beyond its intended purpose of keeping unsafe and dangerous toys off store shelves by creating a “guilty until proven innocent” compliance environment — even for products that have always been safe. As a result, manufacturers of children’s products are spending tremendous resources in duplicative testing of their products simply to comply with the legislation. These extra costs are doing little to improve public health or provide safety, and they are adding enormous pressures to companies already scrambling for ways to cope with the economic downturn.

The U.S. apparel and footwear industry has been a victim in this unfortunate debate that pits compliance against safety. We believe we have a strong safety record. While any recall is one too many, the amount of recalls in our industry in 2008 equaled less than 0.0082 percent of total merchandise sold. To give you an idea of that figure: If a football player were to stand at one end of a football field and run 0.0082 percent of the way to the other goal line, he would travel only a small fraction of an inch.

For us, product safety is engineered into clothing and shoes from the start. That is why we need strong and clear product safety rules that can be communicated and understood up and down the supply chain. However, the CPSIA’s rigid parameters have eliminated key “flexibility” and “risk assessment” tools that are needed for the product safety system to work efficiently. And with some rules implemented retroactively or being announced only a few days before they take effect, the system falls apart.

We will always work with the CPSC and consumer interest groups to determine what, if any, product safety problems exist in the industry and how to best rectify them. Congress should encourage this cooperative environment because it alleviates many of the current burdens the CPSIA imposes on industry — burdens that do not improve consumer safety. This transparent process creates a risk-based, common-sense product safety regulatory network that is agreeable to all stakeholders.

The current regulatory framework has made even the most low-hanging fruit nearly unreachable. When the legislation first passed, our industry began the process of seeking out a rule exempting fabric and textiles from the lead standard because the materials are inherently lead-free. Due to strict statutory language, the tedious process involved hearings, comments, thousands of test reports and several meetings. The final rule came out on Aug. 7, almost one year since the law was enacted. In the meantime, the industry has spent millions of dollars to demonstrate what it already knows — your plain white cotton T-shirt does not have lead in it.

Other exemption requests posed by our industry and others have not been so successful. Crystals and rhinestones on children’s clothing, shoes, princess costumes, dance uniforms, cell phones, jewelry, accessories and eyeglasses are now banned hazardous substances despite a CPSC staff determination that this “bling” does not pose a health risk to children. Furthermore, data shows crystals and rhinestones would leach less lead than some jewelry that is compliant with the strictest CPSIA lead standard that goes in effect two years from now. However, as new CPSC Chairwoman Inez Tenenbaum stated, “A decision to grant the exclusion by using compliant metal jewelry as the baseline for assessing the acceptable level of exposure will reintroduce risk analysis back into consideration. ... Such an interpretation of the exclusion section of the CPSIA appears to be in direct conflict with the statutory language, which does not allow for the consideration of risk.”

Last week, the Senate moved quickly in confirming the two remaining nominees to complete the slate of commissioners at the CPSC. For too long our nation’s product safety regulatory system had been underserved because of long-standing vacancies in vital leadership positions. Fortunately, the recent batch of confirmation hearings has renewed the discussion aimed at restoring common sense to our product safety rules and regulations. Through the appropriations process, chronic underfunding issues are swiftly being resolved as well.

Now that we have five commissioners providing leadership at the CPSC, the commissioners should begin following through on commitments made during confirmation hearings to quickly issue comprehensive and unmistakable guidance to fashion designers, manufacturers and retailers to resolve the immense confusion that has held our industry back.

Congress has an important role to play as well. Hearings are urgently needed to provide all stakeholders an opportunity to document the early successes and failures of the CPSIA. More importantly, with the one-year anniversary behind them, key Members of Congress should take a hard look at the legislation to see what fixes can be made — technical or otherwise — that will make this law work better and as intended. In answer to Chairwoman Tenenbaum’s appeal last week, one urgently needed legislative clarification would provide the CPSC with needed tools to grant common-sense exemptions based on risk.

The Consumer Product Safety Improvement Act was a historic piece of legislation that should have been lauded but instead has become known as the law of unintended consequences. For our one-year anniversary, Congress should give American consumers and businesses a piece of paper that makes it easier to buy and sell safe and compliant clothes and shoes.

Kevin Burke is president and CEO of the American Apparel & Footwear Association.

CPSIA - WSJ Publishes Fifth Editorial Against the CPSIA

REVIEW & OUTLOOK

AUGUST 11, 2009, 7:31 P.M. ET

Consumer Product Destruction
Congress's lead in toys panic is set to ruin more businesses.

Congress has the power to destroy, and that's precisely what it has done with its needless 2008 panic over lead in toys. More suffering is on the way for thousands of private businesses because Democrats refuse even to acknowledge, much less fix, their mistake.

Last year, Congress whooped through the Consumer Product Safety and Improvement Act to soothe fears about lead paint on toys from China. In its hurry, it imposed draconian lead limits that have ravaged businesses in industries from childrens books to thrift stores to ATVs since the law went into effect in February. This week, the screws are tightening further, as products directed at children under 12 must meet stricter lead standards, and companies face higher penalties for any mistakes. Because the rules are retroactive, toys or other items that are legal to sell on Thursday will be banned on Friday.

And this time Dick Durbin and Henry Waxman won't have a Republican to blame. Last spring, Congressional Democrats pounded the CPSC's Republican Chairman Nancy Nord for the law's failings. In an April letter to Ms. Nord, 28 Senators, including Mr. Durbin, Mark Pryor, Jay Rockefeller and Dianne Feinstein insisted that "Congress provided for agency discretion" and anticipated the CPSC would use that discretion in a way that "would recognize anomalies in implementation."

That was an attempt to dodge blame for the mess Congress created. The problem is that the law itself explicitly bars the CPSC from making judgments on product safety risks when handing down exclusions. In a July decision denying a petition by jewelry makers to exempt crystal and glass beads, new Obama Chairman Inez Tenenbaum cited the same issue that Nancy Nord did. To wit, for the agency to grant an exemption would mean using risk analysis, which is forbidden by the law. Such an interpretation "appears to be in direct conflict with the statutory language," Ms. Tenenbaum wrote.

Jewelry makers now join the legions of other businesses on the hook for millions of dollars in lost sales, inventory or testing costs despite products that pose little to no risk of lead poisoning to children. In the spring, thrift-store operators like Goodwill and the Salvation Army predicted that without regulatory relief they would have to destroy more than $100 million of inventory. Toy stores expected some $600 million in playthings that would have to be trashed and another $2 billion in losses across the industry. Motorcycle and ATV makers predicted total losses and business disruptions around $1 billion. Children's clothing stores have suffered huge losses, with Gymboree losing 40% of its market value overnight after reporting losses related to the House's lead-paint panic.

Eight bills have since been introduced in the House to remedy the problems, only to stall in the ideological quicksand of Mr. Waxman's Energy and Commerce Committee. He has so far failed even to hold hearings. Texas Senator Kay Bailey Hutchinson wants hearings in the Senate, but Democrats are too busy trying to nationalize the health-care industry.

Commissioner Tenenbaum says she favors a "common sense approach" to regulation, but she needs Congress to rewrite the law. Until Congress acts, products that pose no risk to consumers will continue to be recalled and destroyed while businesses struggle with additional costs in a recession.

CPSIA - Op-Ed in Louisville Courier-Journal

The following Op-Ed written by Jennifer Upton, the owner of a seasonal children's consignment sale, was published in today's Louisville Courier Journal:

Louisville Courier Journal
August 5, 2009

Small business looks to Northup

By Jennifer Upton
Special to The Courier-Journal

When the Senate approves Anne Northup as the newest commissioner of the Consumer Product Safety Commission (CPSC) following her confirmation hearing today, the former member of Congress will discover that her new job has been made quite difficult by her former colleagues. Under the Consumer Product Safety Improvement Act (the CPSIA) passed in August 2008, the CPSC is no longer permitted to decide whether a product is safe based on common sense or even consider the potential risk to a consumer.

Kentucky businesses that serve the market for children's goods, along with thousands of other small businesses across the country, have learned the hard way that our nation's new product safety law — the CPSIA — is teeming with over-reaching provisions creating a host of unintended consequences for honest businesses struggling to comply with the law.

Passed by Congress following the high profile lead-in-paint toy recalls, the law's problems stem from Congress' overly broad definition of children's products that swept in products well beyond toys such as books, pens, bicycles and clothing.

For consignment and resale businesses like mine, the fact that Congress and the CPSC decided to apply the law retroactively made products that were considered perfectly safe one day into banned hazardous substances the next. This makes no sense to me — or to my customers. It is not that these products are in any way unsafe, but that the costs of reconfirming their safety are so prohibitive.

The new product safety law has narrowed the selection of goods we can prudently offer our customers at a time when consignment businesses offer an important lifeline to needy families during a deep recession. Because of the lack of clear guidance and the prospect of criminal and civil penalties for any legal misstep, my sale has stopped selling books printed before 1985 (per the guidance from the CPSC), children's jewelry, and many toy and clothing items.

New CPSC Chairman Inez Moore Tenenbaum pledged to take a “common-sense” approach to addressing the countless problems with the CPSIA. Yet just last week, Chairman Tenenbaum learned how slippery “common sense” gets around the CPSIA. In her first vote, she denied a petition to exclude rhinestones, crystal and glass beads from the lead restrictions even though the CPSC professional staff admits these stones pose no real risk of injury from their presence in children's products like jeans, footwear or jewelry. Ms. Tenenbaum acknowledged that the CPSIA forbids Commissioners from using risk assessment when considering how to implement the law.

Imagine my frustration as a small business owner. We face a situation in which Congress effectively makes it risky for us to continue to serve our market while large corporations who can afford the cost of testing benefit from all the “little guys” going bankrupt. As a mother of two, I agree that all items with which our children come in contact should be safe. However, this law apparently cannot distinguish between products that pose a danger and those that do not. What kind of “safety” law outlaws consideration of risk?

Product safety is not achieved by denying access to safe products to those in need. If Ms. Northup is confirmed, let us ask her and the other commissioners to persuade her former colleagues in Congress to restore the agency's ability to make sensible decisions based on which products truly pose dangers to consumers.

Jennifer Upton is the owner of Kentucky Kids Consignment Sales, www.kentuckykidssale.com, a seasonal children's consignment event located in Elizabethtown and Louisville.

CPSIA - Rob Wilson Answers Nancy Cowles in Roll Call

Rob Wilson of Challenge and Fun, Inc. and http://www.cpsia-central.ning.com/ published an Op-Ed in Roll Call yesterday in reply to Nancy Cowles. In this article, Rob explains how the consumer advocate outlook on children's product safety harms small and micro businesses that have an outstanding record of safety.


Small Businesses Are Being Hurt by New Toy Safety Law

By Rob Wilson
Special to Roll Call
June 17, 2009, 2:25 p.m.

Nancy Cowles’ recent Mission Ahead piece, New Toy Regulation Act to Further Protect Children, resembles the new safety law she defends: overreaching and misguided.

I should know. As a board member of the Handmade Toy Alliance, made up of small toy stores and small-batch toy and children’s product manufacturers from across the country, I am acutely aware of the onerous burdens our members now face as a result of the Consumer Product Safety Improvement Act. This alliance was formed in reaction to the threat the CPSIA poses to consumer access to our unique handmade toys, organic clothing and children’s goods.

Despite Ms. Cowles’ implication that big money interests are leading the opposition to this law, our members are small or micro businesses, including many parents — even grandparents — who work out of their homes. Our members have based their businesses on safe, natural products, and our product quality and safety record is second to none.

Ms. Cowles’ assertion that toys might actually be “toxic” smears our years of hard work making safe handmade toys and children’s products. By calling our integrity and good corporate citizenship into question, she irreparably damages our reputations by planting seeds of doubt with the general public. Her charges are groundless, but because Ms. Cowles dares us to prove a negative, we are forced unfairly to defend ourselves.

We have been very supportive of risk-based testing. In contrast, the CPSIA creates a rigid regimen of testing that ignores risk and is unaffordable, particularly for small businesses. We have suggested a system of component testing, but the law permits the Consumer Product Safety Commission little flexibility to design such a system. It is a hallmark of the new law to leave the CPSC with no room for discretion. This is one reason for the numerous enforcement stays and stay requests — this is the CPSC’s only tool to blunt the impact of the new law.

Likewise, the CPSC is no longer permitted to determine what presents a real safety risk. Is an organic cotton T-shirt really something we should worry about? If testing of T-shirts is enforced (as anticipated), many of our members will be forced to stop making them. Will anyone be safer as a result?

I do not believe that consumer advocates set out to put our members out of business, but they have succeeded in creating the conditions for our demise. Retroactive application of the new standards against our inventory, unnecessary testing and the nearly impossible one-size-fits-all tracking label requirements are driving our members to shutter their activities in the children’s market. We are not the only victims of this law. It is well-known that resale shops and charities are closing their children’s departments at a time when there is a chronic need for these products.

Sadly, politics has taken over the debate about safety. Those politics depend on branding children’s products as dangerous — and that makes our businesses an endangered species. Ask yourself if you will feel safer when you find your local dressmaker unwilling to make a custom flower girl dress for your daughter because of a “safety” law or when your nephew can’t get the special-needs educational products he needs.

While Ms. Cowles accuses small businesses of “hindering progress” under the new law, nothing could be further from the truth. The law itself has done plenty to hinder progress by paralyzing the CPSC with unrealistic deadlines, conflicting priorities and inflexible requirements. Real progress will only happen when the CPSC has the right and ability to focus its energies on real product safety risks.

We have previously reached out to consumer groups, and we renew our call for consumer advocates to join us in urging Congress to make common sense changes to the law.

There is reason for hope. Congress can still change this law to stop the carnage. We are hopeful that CPSC Chairwoman-nominee Inez Tenenbaum will lead the way. Congress needs to restore sanity to safety administration by allowing the CPSC to regulate based on risk assessment.

The days of deciding whether library books or ballpoint pens present a mysterious danger to the public must come to an end. Our right to make handmade baby teethers and wooden pull toys must be reinstated.

Rob Wilson is vice president of Challenge & Fun, an importer of natural toys, and a board member of the Handmade Toy Alliance.

CPSIA - Rereading the Phthalates Decision

As my head continues to spin from the CPSC's new "anthing goes" notion of their "enforcement discretion", I had occasion to reread the decision in the phthalates case. In that case, the CPSC apparently cited 15 USC §2058 to justify its conclusion that the phthalates ban should be interpreted to apply prospectively. The court pointed out that Section 2058 only applies to rules promulgated by the CPSC, NOT by Congress. The ruling states: "Finally, section 2058 provides that the CPSC 'may by rule amend or revoke' any consumer product safety standard. Id. §2058(h). None of [the Section 2058] provisions could apply to a consumer product safety standard mandated by Congress. . . . And absent express Congressional authorization, the CPSC does not have the power to override Congress and revoke or amend the phthalate ban through a rulemaking."

Apparently, the Southern District of New York doesn't know about the mysterious power of the CPSC to exercise "enforcement discretion"!

The court had other things to say on this subject: "In the CPSIA, Congress made it unlawful for any person to 'offer for sale' or 'distribute in commerce' children's products containing phthalates after the effective date. . . . The CPSC decision purports to allow exactly that. The specific phthalate ban in the law must control; otherwise, Congress' express prohibition on sale or distribution in commerce would have no meaning." Where have I heard that before???

Side note: Dearest Senators, you may be interested to know that the law of the land applies to you, too. While in your letter, you float the wishful thought that the CPSC may exercise its "discretion" to override the parts of your terrible law that you have come to regret, but, ahem, the laws that govern us all, even you, prevents the CPSC from saving you. You have to do the dirty work of changing the law yourself to avoid the terrible result you have wrought. And, in a delicious irony, your pals the consumer groups, helped make the law which compels you to act. For once, I applaud the assistance of the consumer groups!

Read in light of the ATV "enforcement discretion" decision, the phthalates court decision is downright humorous. Consider this footnote: "The Supreme Court has also noted that Congress 'does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions - it does not, one might say, hide elephants in mouseholes.' . . . 'The language of the statute may not be distorted under the guise of construction, or so limited by construction as to defeat the manifest intent of Congress.'" You have GOT to be kidding! And what if Congress changes its mind after it does something dumb? Can it send a letter and retroactively reset its intent to justify some different outcome . . . or must it tediously go through that awful legislative process with all that embarrassing visibility, debate and so on to fix it? A letter would be quicker, of course.

I find it fascinating that the CPSC used arguments in the phthalates case that the retroactivity of the lead standards was different (and unyielding): "The CPSC argues that Congress should have designed products with phthalates as 'banned hazardous substances' [under the FHSA] if it wanted the ban to operate 'retroactively'". Presumably, the CPSC arguments were crafted before the discovery of "enforcement discretion". Had only the CPSC presented arguments to the court that it was exercising "enforcement discretion" on the retroactivity of the phthalates ban, it would have . . . been laughed out of court?

One last thing: it's probably worth a quick re-read of Cheryl Falvey's famous September 12, 2008 opinion letter on the retroactive effect of the lead standards. I hope the CPSC takes care to distinguish the reasoning in this letter and the court case above to help us all understand how the rules of the game are being administered rationally and predictably. I think that would realy help us all.

CPSIA - Keynote Speech of Nancy Nord at ICPHSO 2-26-09

At last week's ICPHSO conference (see http://www.icphso.org/), Chairman Nancy Nord of the CPSC gave the keynote address about the CPSIA on Thursday February 26. Her remarks give a good snapshot of the new reality facing the regulators - and you.

While noting the importance of not challenging the motives of parties on either side of this debate, Ms. Nord pointed to one-sided media coverage from important outlets like the New York Times. As you may know, in the days preceding her address, the New York Times published a blistering attack on the CPSC and Ms. Nord in an editorial. [See http://www.nytimes.com/2009/02/18/opinion/18wed3.html?_r=1&scp=1&sq=fabulous%20toy&st=cse.] Ms. Nord correctly pointed out that the New York Times had neglected to publish virtually any news on the CPSIA for numerous weeks prior to the editorial and had never addressed the issues confronting small businesses under the law. [Ed. Note: All the News That's Fit to Print, huh?]

Ms. Nord defended the ongoing activities of the CPSC while attempting to process the massive burden of the CPSIA, including implementation of other sweeping new legislation on pool safety and gas cans, various investigations and important enforcement activities. [Ed. Note: In other words, while Rome burned, the CPSC wasn't just fiddling - like some people . . . .] This is an important point, as Chairman Nord observes, the burdens on this agency skyrocketed without the receipt of ONE ADDITIONAL PENNY of new funding. Their tasks were overwhelming and they received no help whatsoever.

In her remarks, Nord reminded the audience that the problems of the CPSIA are being ignored by Congress which is leading to ridicule overseas. [See http://www.guardian.co.uk/books/booksblog/2009/feb/20/kalder-childrens-books-lead-panic.] [Ed. Note: It is happening here, too. See http://learningresourcesinc.blogspot.com/2009/03/cpsia-chicago-tribune-is-making-fun-of.html.]

Ms. Nord moved on to address the problems in the new safety law. She bristled at the removal of discretion from the CPSC in administering safety issues, and noted importantly that concepts of risk and exposure have been removed from our legal system FOR THE FIRST TIME. The retroactivity provisions of the law are threatening the future of many companies, BUT the Commission no longer has the legal authority to change the rules. The deadlines and rulemaking demands are going to be impossible to meet as well. [Ed. Note: And the rulemaking deluge is also impossible to keep up with - for businesses subject to these new rules. See http://learningresourcesinc.blogspot.com/2009/02/cpsia-information-overload.html.]

After reciting a list of the agency's under-appreciated implementation achievements since the CPSIA descended upon it, Ms. Nord noted chillingly that the CPSC cannot change the law and WILL enforce it as written. But she wants a law that both protects children and allows businesses to grow and prosper.

Step One, she says, is for Congress and CPSC to have an open and honest dialogue. Congress has stated publicly that the CPSC isn't doing its job to implement this law. She noted that, amazingly, a Congressional staffer had actually (incorrectly) asserted to her that small businesses won't be held liable under the CPSIA if they don't know they are breaching it. [Ed. Note: I have had this EXACT interaction TWICE with the same key staffer, who asserted this point INCORRECTLY with some energy. I addressed this serious misreading of the law in a letter dated January 12. See http://learningresourcesinc.blogspot.com/2009/01/cpsia-confusion-and-chaos.html.]

Nord calls for a more constructive dialogue with Congress which addresses the urgent need to change the law in fundamental ways. In particular, Ms. Nord calls for revocation of the retroactivity provision and a sharp revision of the exclusions/exemption process. In the 35-year existence of the CPSC, there has been a clear, consistent and unambiguous understanding that new standards apply PROSPECTIVELY. She also notes that in the wide net of the CPSIA, far too many products are being pulled into the law that NO ONE would contend are unsafe or in any way dangerous. She wants the authority to exclude such items from the law. She mentioned obvious cases like ATVs and motorbikes, which even CPSIA Congressional conferees have begged to be excluded. [Ed. Note: Sorry, guys, read your law next time before you sign it.]

In her vision for the future, she believes the agency should work toward better recall effectiveness and a stronger overseas presence. A China office for the CPSC is going through the approval process, which will help a great deal. All the agency needs now is some $$$. Data mining will help spot problems earlier, and a new lab will modernize their investigation processing and technical capabilities.

In closing, Chairman Nord noted the sad case of the school library in Nebraska that is cordoning off books produced before 1985 (http://www.ncnewspress.com/articles/2009/02/20/news/doc499ed094480fd323904423.txt) and called for action on the law with a sense of urgency.

The significance of Chairman Nord's speech is clear. We are not all dreaming - the problems in this law are very real and they are severe. Ms. Nord could not in the course of a keynote speech tick off every serious problem under the law - trust me, there's more -but she went to some trouble to clarify the agency's dilemma under the CPSIA. The CPSC is stuck writing rules to implement a distasteful law that does not work and will not lead to better "safety" (translated: fewer incidents of injury and lower risk of injury). Congress is deaf to her pleas - and our pleas - preferring, like the New York Times, to use her as a whipping boy. Apparently, Shakespeare had it right - don't kill the messenger! As Congress whiles away the hours waiting for a new Chairman to tell them what Ms. Nord already told them and as we have put into print time and again, the economy falters (Dow under 6700 and Citibank is currently trading under a buck) and the vitally important businesses supporting the children's product industry are going down . . . the . . . drain.

Guys, this is a call to action. We need to rouse our Congressmen, let them feel your pain. It's really now or never. If your business is your life's work, or your income pays your mortgage, or you love your kid's dirt bike or desperately need educational products to homeschool your children, there's no time to lose. Get out there and be heard!

Rick

CPSIA - Phthalates Legal LUNACY

Okay, let's recap here: on Thursday, February 5, a District Court in the Southern District of New York decides in the NRDC case against the CPSC that the phthalates ban in the CPSIA is, in fact, retroactive in effect as of February 10, three business days later. This overrides the legal opinion of the General Counsel of the CPSC from two months prior. On Friday, February 6, the CPSC indicates in a press release that it will abide by the court ruling (it won't appeal the ruling) and therefore apply the phthalate retroactively as of February 10 to all inventory in the United States. Two days later, bingo, phthalates in children's products (for children up to 12 years old) are banned. Much clucking from self-satisfied consumer groups for their great work protecting consumers . . . .

Not that it matters, but is this fair? Essentially, ON TWO BUSINESS DAYS' NOTICE, the U.S. government imposed a retroactive ban on a broad class of merchandise brought into this country in compliance with law and which had not previously been the subject of product recalls or reported injuries. In fact, the scientific staff of the CPSC had previously rejected claims that phthalates were unsafe. What's the precedence for this kind of thing?

A clear comparison can be made to the Prohibition. The Prohibition was made effective with the ratification of the 18th Amendment of the Constitution on January 29, 1919. The text of the 18th Amendment is as follows:

Section 1. After one year from the ratification of this article the manufacture, sale, or transportation of intoxicating liquors within, the importation thereof into, or the exportation thereof from the United States and all territory subject to the jurisdiction thereof for beverage purposes is hereby prohibited.

Section 2. The Congress and the several States shall have concurrent power to enforce this article by appropriate legislation.

Section 3. This article shall be inoperative unless it shall have been ratified as an amendment to the Constitution by the legislatures of the several States, as provided in the Constitution, within seven years from the date of the submission hereof to the States by the Congress.

Notably, the 18th Amendment, the ONLY Amendment to the U.S. Constitution to be repealed, gave a one-year grace period to sell off inventory. This grace period was designed to cushion the blow to the liquor industry. It is worth considering that the campaign for the ban on alcohol was brewing for NEARLY 100 YEARS in the United States. Even the process of ratifying the 18th Amendment took 13 months from passage by Congress to its certification of ratification by the States. Implementation took place another 12 months later. All this for a consumable food product that was the subject of a prominent, national movement linked with obvious moral problems. The Volstead Act which created the enforcement mechanism for the Federal government, took effect immediately on October 28, 1919 (after Congress overrode the President's veto), in advance of the effectiveness of the 18th Amendment. See http://www.answers.com/topic/national-prohibition-act-1919.

In the current mania, apparently our Congress has decided that the phthalate "crisis" is SO urgent that they have endorsed a scheme far tougher and much less sensitive to industry than even the Congress that approved the ill-fated 18th Amendment and infamous Volstead Act. With the outcome in the NRDC case, the advance warning provided to industry on phthalates can now be measured in HOURS. It is worth noting that this ban is based on asserted "links" to various health issues. There is considerable scientific debate over these "links" which many people think are not proven. Whether or not the "links" are real, it is abundantly clear that there is nowhere near universal agreement that this is a national health crisis. It goes without saying that the application of the ban on all products intended for children up to 12 years of age far outstrips the target zone of babies and toddlers who are known to mouth toys and other objects. Is it appropriate to impose such massive losses on industry in the face of such a fuzzy threat that is not universally accepted?

In a self-justifying environment of legislators who congratulate themselves for "protecting children" without comparing cost (certain) and benefit (quite uncertain and tentative), it is not just business interests that are being disenfranchised. Let's not forget that all those businesses have customers (you) who need or value their products and services. The notion that this law only adversely affects a limited group of Americans or businesses is, in my opinion, loopy. This affects us all, and will deprive us of diversity of products and vitality in our local economies. Is it time to tell your government that you have had enough - and will remember them and their actions when you next step into the voting booth?

Tell Congress how you feel - before they bankrupt your business.

Rick

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