CPSIA - Letter to CPSC re Executive Order on Regulatory Review

President Obama issued an Executive Order yesterday instructing the CPSC to institute "retrospective analysis of rules that may be outmoded, ineffective, insufficient, or excessively burdensome, and to modify, streamline, expand, or repeal them in accordance with what has been learned."   Notably, the order specifies "allowing interested members of the public to have a meaningful opportunity to participate in rulemaking".

In the White House blog announcing the Executive Order, Inez Tenenbaum is quoted as follows:  

"Earlier this year, I directed agency staff to reinvigorate CPSC’s voluntary review process, which is intended to look at ways to maximize openness and public participation, and effectively review substantive regulations that may require revision, repeal, or strengthening . . . . I believe this approach is consistent with President Obama’s call for a sensible and streamlined regulatory system that is protective of public health and safety, and I look forward to working with the President and Congress, as appropriate, as our review process moves forward."

As you know, I have participated in CPSC public forums numerous times in the last three years, in addition to testifying before a House subcommittee twice on the CPSIA.  I have testified at the CPSC at least five times by my count, several times at the invitation/request of the agency.  I have done so at my expense.  In each case, I believe my testimony was disregarded.  My positions on the CPSIA have been publicly documented, principally in my blog which I know you read.  My positions have been consistent and backed up by data open to anyone's review.  

Now that the CPSC is subject to an Executive Order demanding real public input, I call on the agency to break with its past of disregarding inconvenient opinions or those that may subvert a political agenda, and allow the public to participate MEANINGFULLY in this critical process.  Those of us who have attempted to stop the CPSIA train wreck have been thoroughly marginalized by a process that uses us to create an impression of public dialogue without actually taking any meaningful feedback or adjusting any preexisting plans.  The President did not order the agency to provide a public forum for VENTING.  He has ordered the CPSC to afford the public a "meaningful opportunity to participate in rulemaking".  

To me, the Executive Order means that when we present reasoned arguments with actual data, the agency has NO OPTION other than to listen and take into account our views.  There is nothing in the Executive Order that indicates that consumer groups speak for the public or should be accorded extra weight in your deliberations, nor that manufacturers are somehow excluded from the group considered to be "the public". It is time to recognize the legitimacy of the views of those of us who create much-needed jobs.   

With that in mind, I call your attention to a blogpost I wrote on cost/benefit analysis of CPSC decisions and policies under the CPSIA.  Please see my post "Do Accidents Happen?" dated June 29th.  In this post, I explain that, as a matter of accepted economic theory and legal theory, the policies and decisions of the CPSC in the wake of the CPSIA have crossed the line into inefficiency and bad public policy.  This is PRECISELY the issue that the President has charged  the agency with investigating and resolving.  Speaking as a business owner in the field of children's products, I can assure you that time is of the essence.  Every day counts at this point  as the cumulative impact of three years of CPSIA duress has taken a terrible economic toll with virtually no identifiable public health benefit.

Writing a law with noble intentions does not ensure that it will be good law or one that benefits society.  In the case of the CPSIA, the issue has never been "What price safety?"  A failure to effectively enforce the law prior to the CPSIA never constituted a need for new safety rules anymore that a failure to enforce traffic laws means that we need lower speed limits.  New approaches to enforcement, perhaps, but new standards, no.  The question today is "What price survival"? Businesses and markets have been punished mercilessly in service of the CPSIA but to what end? President Obama's order comes after years of public outrage over regulatory excesses and significantly, was issued shortly after a House Oversight hearing featuring two CPSC Commissioners examining the question of economy inefficiency in rulemaking.  I fully believe that the agency can never fix this mess without taking a strong stance on real CPSIA reform.

The CPSIA took away the agency's right to assess risk, not its ABILITY to assess risk.  This is a truly counterintuitive approach to safety, as safety is all about risk management.  There is no logic to this approach which sadly renders the expert opinions of the CPSCs legions of Ph.D.s meaningless at critical junctures for my market.  I am frustrated, to put it mildly, that ALL CPSC Commissioners do not regularly protest this subversion of process and responsibility.  This problem is at the core of the issue with the CPSIA and should be offensive to Democrats and Republicans alike.  The failure of any Commissioner to demand the right to exercise his/her honest judgment is akin to acknowledging that they do not trust themselves to act prudently and in the interest of the public.  Do the Commissioners really believe that taking away their authority is necessary to ensure sound decision-making?  That reasoning never worked with my teenagers.  

Resolving the issues that the President has ordered the CPSC to examine will certainly require the exercise of judgment.  It is inescapable that the Commission must be prepared to deliver this unpleasant news to Congress for better or worse.  

I look forward to a meaningful public process investigating these issues, and pledge my support and engagement in this process. I want to be helpful but ask in return that the agency turn over a new leaf and let rational arguments supported with data influence outcomes in CPSIA rulemakings and policies.

Please do not hesitate to contact me with your comments and questions.  Thank you for considering my views on this important subject.

Respectfully,

Richard Woldenberg
Chairman
Learning Resources, Inc.
Vernon Hills, Illinois

CPSIA - Do Accidents Happen?

Accidents happen. It's an old saying.

Once upon a time acts of fate were no one’s fault and we each bore the risk individually. Today, things seem different – when bad things happen, the search begins for someone to blame. The media and politicians feed this trend in hysterical tones (they profit by doing so). Individual responsibility is passé. In the case of children’s products today, blame is often laid at the feet of the product or its manufacturer by the CPSC. In some cases, the fault is clear (the hazard is “substantial”); in other cases, it’s not nearly as clear. In this article, I am only interested in those more ambiguous cases where there is an element of fate or other factors outside the control of the manufacturer. Should we be satisfied with how the CPSC draws the line?

CPSC as Allocator

The CPSC’s assignment of responsibility for injuries (in the form of recalls) is an inherently “legal” process. Our laws allocate risk and responsibility in society in the form of rights. About 75 years ago, legal theorists developed a field of inquiry known as “law and economics” which held that legal systems incorporate economic principles which ensure efficient allocation of resources and promote economic activity. “Rights” are essentially factors of production in economic terms. Ronald Coase of the University of Chicago Law School won the Nobel Prize in Economics in 1991 for his seminal work on law and economics over the preceding 50+ years. Notably, Obama regulations “czar” Cass Sunstein is an ex-University of Chicago Law School law professor, as is President Obama himself.  Sunstein is closely associated with the study of law and economics.

The issues confronting the CPSC over injuries to children are not emotional in nature at all. They are actually purely economic issues because the CPSC is a market regulator. It is an objective fact that injuries to children or other consumers are a cost we bear in exchange for the benefits of economic activity (availability of innovative manufactured products, the provision of jobs, etc.). Naturally, as a community we want to bear as few such costs as is efficient, again to promote growth, hence a societal interest in reducing injuries. The interest in reducing injuries is economic, however; we are not indifferent to cost and judge them in light of corresponding benefits. For instance, this explains why you do not wear a crash helmet on the way to work despite your awareness that fatal auto accidents happen every day. The costs outweigh the benefits.

As a regulator, the agency brokers costs among a large group of parties. Consumer costs related to injury (including emotional loss and lost income, among other things) are weighed against manufacturer and market costs (recall costs, damage to brands, decreased growth, lost jobs, etc.). Whether the CPSC does the math properly or not, their decisions allocate resources by directing that one party incur costs to protect other parties from incurring costs. These decisions are purely economic even if stated in emotional terms. It is therefore clear that CPSC regulators have the capacity to promote economic growth or stifle it.

Is the Goal “No Injuries” Ever?

The CPSC has a legal responsibility to differentiate between a product hazard that causes accidents and accidents caused by the hand of fate. Congress limited the authority of the agency to regulate only those product hazards deemed “substantial” (a term of art under the CPSA and FHSA). As stated here many times previously, I believe the CPSC under current leadership regularly exceeds its legislative authority in this regard. The CPSC acts as though its role is to move society toward a Utopian ideal in which children are never injured or die prematurely. While I certainly don’t endorse injuries to children, the Utopian ideal of injury-free childhoods is illusory. In fact, an injury-free childhood could only be achieved at a very high cost. If the CPSC attaches an almost infinite value to preventing injuries, their allocation decisions will always constitute a transfer (a tax) and cause economic inefficiency (depress economic activity).

This over-appraisal of the cost and consequence of childhood injury is illustrated by recent remarks of Chairman Inez Tenenbaum about a recall of one million pool drain covers. Ms. Tenenbaum appears to justify the recall on the possibility of injury despite media reports confirming that no deaths had occurred since 2009:

"I want to make it clear that this recall announcement does not mean that one million drain covers will need to be replaced or repaired. The recalled covers were marked with the wrong flow rating . . . . Now for those public pools and spas that need their covers replaced or fixed, I have an obligation to advise that those facilities be closed at this time. They should reopen as soon as the work is completed that addresses the recall and brings the facility into compliance with the law. I know this is a very difficult message for many communities to hear so close to Memorial Day weekend, but we cannot risk a child becoming entrapped in a recalled drain cover." [Emphasis added]

This unstated policy attaching infinite value to childhood injury is much more than a strict liability standard because the CPSC only acts after an assessment of fault (rather than simply assigning responsibility). Isn’t the agency saying that the actions or inactions of manufacturers cause accidents?

Recent Recalls Allocate Uncontrollable Costs to Manufacturers

Consider some recent recalls for perspective:

a. Big Lots recalls bunk beds recalled after a three-year-old child died when caught under a futon.
b. Maclaren recalls one million strollers sold over 11 years because of more than a dozen fingertip amputations caused by a hinge.
c. Mattel recalls more than 7,000,000 children’s trikes sold over 14 years because of genital injuries to ten young girls jumping on the trike.

While it may be hard to look past these sometimes grisly childhood injuries, each of these cases calls into question whether the injuries were really the fault of the manufacturer. It’s not worth defending the product designs – let’s concede that in retrospect the products could have been better designed. Parental supervision appears to be an issue in each case. Manufacturers are typically unwilling to resist CPSC recalls by blaming consumers for injuries incurred using its products. That route is very risky and may in fact be more costly than going along with the CPSC’s dictates. As a result, the record in these cases is usually very one-sided – the CPSC has the first and last word on the subject, often on TV. Why would anyone stand up for these companies in public? There’s no incentive to do so; after all, the costs are paid by only one party, and that party isn’t talking.

There is a fundamental error in routinely blaming manufacturers for accidents or fate. It is widely accepted that laws operate efficiently when they allocate responsibility for risk to the party in the best position to address the risk. Manufacturers can efficiently bear many such costs – but not all. For instance, product safety is best assigned to manufacturers rather than consumers. This is fairly obvious – manufacturers know their own products better than consumers do and are best able to take steps to keep products safe at the lowest possible cost (most efficient). This is the reason why the common law tort system assigns product liability costs to manufacturers.

So who is in the best position to control costs associated with accidents or fate? Risks associated with acts of fate are difficult to control.  In fact, many foreseeable risks leading to childhood injuries are completely outside the control of manufacturers:

1. Fate
2. Failures of adult supervision
3. Product abuse or misuse
4. Mental deficiencies or mental illness (e.g., pica)
5. Risks well-known to the user (e.g., knives are sharp).

I would advance that good adult supervision is the lowest cost way to prevent accidents with children’s products. There are significant limitations to what a manufacturer can achieve on behalf of consumers who don’t adequately supervise their children. Of course, drawing the line is a big issue here. But can’t an argument be made that adult supervision of the toddlers using the Mattel trike could have prevented foreseeable injuries from jumping on the trike? That a parent must carefully supervise the location of a child’s hands before closing a stroller? This is a simple point – manufacturers cannot control these factors from their offices or warehouses. The cost for a manufacturer to do so would be excessive.

Some people might argue that assigning blame for matters of fate to manufacturers of consumer products is a neat way to efficiently spread cost among the community. Why not make the manufacturer pay the uncontrollable cost of fate relating to their products, and let them pass the costs along to consumers in the form of higher prices? Manufacturers can be converted into involuntary insurers by public policy, risk intermediaries for events of misfortune. The appeal is irresistible; after all, it doesn’t cost tax dollars to pay for these losses if we force responsibility on manufacturers. Of course, if you are a careful consumer, you might resent paying more to subsidize free-riding consumers who don't take appropriate precautions.  But money aside, doesn’t it reflect a hardening of our society if if we ignore heart tugs when kids are injured? Is this heartless . . . or sensible? Is the CPSC doing the American public a favor by increasingly pushing responsibility for uncontrollable risks to manufacturers?

The Important Role of Economic Efficiency in Laws Governing Children’s Products

I believe bad things do sometimes happen to good people. What is the economic effect of assigning these costs to manufacturers by default? Unfortunately, this invariable result is not economically efficient and will have the effect of a tax on the children’s market. In other words, the economic incentive to participate in markets will shrivel as manufacturer returns on investment decline because of legal risks (costs) they cannot control. This is basic stuff, folks – the reduced economic incentive causes market participants to withdraw, just as high taxes cause people to stop taking risks (trading).

Ronald Coase addressed this subject in two articles that led to his Nobel Prize. In a 1937 paper on the nature of the firm, Coase articulated what became known as the Coase Theorem which holds that if trade in an externality is possible (in this case, childhood injuries) and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights. Translated into English and applied to the facts here, Coase theorized that it would not matter which party was responsible to pay the costs of an injury (victim or tortfeasor) if there was no cost to bargaining between the parties. This of course is not the case in the real world. Coase returned to the subject in a 1960 article entitled “The Problem of Social Cost” and explored the role of regulations in achieving economic efficiency when economic activity creates social costs. This eminently readable article is a foundation stone of modern legal theory.

Considering the social costs of human activity (such as pollution or injuries from the use of children’s products), Coase concluded that efficient allocation of resources would be achieved regardless of allocation of rights relating to social costs (responsibility to pay those costs) provided that trading can be conducted without transaction costs. In other words, in an efficient market, economic factors (resources) will always be put to their highest and best use through allocation of resources and bargaining. Through bargaining in an efficient market, the party with the most productive use of economic factors will ultimately possess the resources, thus ensuring compensation for social costs regardless of who has been assigned legal rights.

Coase cites numerous examples (including torts) in making this point. Coase notes the symmetry of these disputes in his analysis. When cattle overrun crops causing economic losses, there would be no damage without the cattle, and likewise no damage without the crops! Causation is not black-and-white to an economist interested in efficient outcomes. As he notes, a smoothly operating pricing system ensures that “the fall in the value of production due to the harmful effects would be a cost for both parties.”

Nevertheless, Coase recognized that there ARE transaction costs in the real world (e.g., legal expenses, bargaining holdouts, etc.). These costs of altering and recombining rights allocated by the legal system can interfere with the ability to bargain and thus prevent the efficient allocation of resources in the market. He argued therefore that regulations are justified to the extent they allocate rights to the most efficient risk-bearer. Regulations can supersede market transactions by imposing the most efficient outcome. This is presumably the underpinning of President Obama’s call for more federal regulation. According to him, this will be good for us.  Coase might demur, noting that it all depends on the facts as we shall see below.

Coase was realistic in his assessment of the inherent dangers of regulation: “But the governmental machine is not itself costless. It can, in fact, on occasion be extremely costly. Furthermore, there is no reason to suppose that the restrictive and zoning regulations, made by a fallible administration subject to political pressures and operating without any competitive check, will necessarily always be those which increase the efficiency with which the economic system operates. Furthermore, such general regulations which must apply to a wide variety of cases will be enforced in some cases in which they are clearly inappropriate. . . . It is my belief that economists, and policy-makers generally, have tended to over-estimate the advantages that come from government regulation.” Coase’s solution: perform a cost-benefit analysis to make sure that regulations increase economic output (the all-in costs must be less than the all-in benefits when reduced to dollars).

We encounter situations regularly in which the party causing a legal nuisance does not bear the consequential costs. For instance, a home remodeler does not have to pay compensation to neighbors for noise and debris that may adversely affect them. He may feel a social obligation to give them freshly-baked cookies but is under no legal obligation to do so. This is one of many legalized nuisances. Why is this the legal rule? The allocation of rights takes into account that as a society, we want to encourage investment and capital improvements. The small cost of dealing with these inconveniences is considered a cost we all should bear in exchange for the benefits received from the economic activity. This rule does not apply to exceptional cases of nuisance where the costs outweigh the benefits. Not every instance of damage is remediable under our legal system for good reason.

Coase cites a fascinating real world example of this rule carried to a surprising extreme: under traditional English law, railroads are protected from liability for fires caused by sparks from their engines. Coase devotes considerable ink to prove that this legal rule creates an efficient allocation of resources (a positive effect for society) notwithstanding that there are “winners” and “losers”. This result would be very difficult to achieve through bargaining. Clearly a railroad would have a very difficult time working out a deal with every landowner along its lines as a precondition to laying down track.

Importantly, Coase points out that the opposite rule (where the railroad must pay for the fires its engines cause) does much more than just transfer liability. It also shifts incentives to everyone’s detriment. A farmer along the track now can gamble with the railroad’s money – he can get a market price from market buyers if he can harvest his crops or from the railroad if there is a fire. The farmer’s return is thus guaranteed, the incentive to take care is removed, and he will be rewarded for planting crops likely to be burned. This alternative rule’s transfer of costs to the railroad will simultaneously reduce the potential reward for constructing tracks and likely result in fewer train lines, reducing the broadly-distributed economic benefits that come with the expansion of the rail system. In other words, shifting liability in this case makes everyone along the train line poorer.

Coase notes that “nuisances” are not always against our interest: “[Pigou] is wrong when he describes these actions as ‘anti-social’. They may or may not be. It is necessary to weigh the harm against the good that will result. NOTHING COULD BE MORE ‘ANTI-SOCIAL’ THAN TO OPPOSE ANY ACTION WHICH CAUSES ANY HARM TO ANYONE.” [Emphasis added] CPSC, are you listening?

Placing the cost for nuisances on the producers’ shoulders may be well-intentioned but it is not necessarily the right result because it does not provide any incentive to consumers to take steps to prevent injury. “A tax system which was confined to a tax on the producer for damage caused would tend to lead to unduly high costs being incurred for the prevention of damage.”  The CPSC’s tendency to blame products via recalls and bans is the equivalent of a tax in this case. The “unduly high costs” leads to a reduction or suspension of economic activity. We can observe this in the children’s market over the past three years – the agency and Congress have both received considerable testimony on this topic (and seemingly ignored it). Coase won the Nobel Prize for pointing out that regulators often neglect to look at the full economic picture and thus fail to achieve optimal social results.

It goes without saying that the regulators may nevertheless achieve optimal newspaper headlines.

Conclusion

Why is it inefficient to invariably push costs to manufacturers for injuries associated with children’s products? As Prof. Coase notes, in a raucous marketplace, transaction costs can distort the allocation of resources. In this case, the prospect of liability and uncontrollable losses are a high transaction cost that affects the efficient allocation of resources by trade. Coase posits that a cost-benefit analysis must be performed to make sure that efficiency is achieved. The rule for such analyses is quite clear – the all-in cost of the regulation must be less than the all-in economic benefits achieved.

The best way to understand the formula in this case is to look at all marginal children’s recalls as a class. Let’s agree that there actually are some “substantial” product hazards out there and exclude them from our analysis.  [Manufacturers are in the best position to evaluate and prevent "substantial" hazards on behalf of consumers.]  We must also assess all the money spent as a result of CPSC action as a group. It does not matter who spends the money – we want to tote up all the costs and lay them off against all the benefits. The benefits are easy to calculate – there is an economic value to a life and also to injuries. This type of analysis is not only common, it is a requirement of federal law (as a result of Coase’s work outlined above). The government has tables of these values. Likewise, the costs are pretty easy to tote up: out of pocket costs for the recall, replacement of inventory, damage to reputation and brand, legal and regulatory costs, lost jobs, reduced investment, etc.

In the case of accidents or other uncontrollable factors leading to injury, the CPSC’s calculus is defective. It is quite telling that the regulators are not interested in my point that no victims have been identified. Lead-in-substrate victims – NONE. Phthalates victims – NONE. The ledger on the benefits side is undocumented, vague and untested, but the regulators' indifference suggests that they place an almost infinite value on injury or even the possibility of injury. On the cost side, the regulator also seems to largely ignore the impact on markets. As noted by Coase, the regulators are not subject to competitive pressures so they can easily overlook these costs. The math does not add up, and as a result, their decisions inevitably will choke the market. The CPSC acts as though not subject to the laws of economics.

The legislative fix for this misguided regulatory effort is clear – mandate economic analyses as a justification for any CPSC regulation. It is also necessary to restore (actually, to mandate the use of) risk assessment by the CPSC. Risk is all about cost allocation and cost management. By removing the ability to assess risk, Congress essentially removed the wiring necessary for the CPSC to make an intelligent assessment of the economics of their decisions. While the CPSIA was clearly written and passed into law in anger, enough time has passed to expect cooler heads to prevail. Congress, it’s time to act!

CPSIA - NSSEA Calls for Letters on ECADA

The NSSEA (National School Supply & Equipment Association) is calling for letters in support of the pending CPSIA Amendment legislation (ECADA).  Please send the below letters BY FAX to your House Representative and to members of the House Committee on Energy and Commerce.  You can get the fax numbers off each Representative's website.  The mark-up may happen as soon as Monday June 20th (but is not scheduled yet to my knowledge).

Now's the time to stand up and be counted!!!  There are two forms of letter below (Manufacturer and Dealer/Retailer).  Please modify as appropriate.


Letter from Manufacturers:

Dear XXXXXX:

I am writing as a constituent and concerned member of the National School Supply & Equipment Association (NSSEA) to express my support for HR 1939, the Enhancing CPSC Authority and Discretion Act of 2011 (ECADA). We urge you to support this important bill that fixes problems created by the Consumer Product Safety Improvement Act (CPSIA) while maintaining the core provisions of this law that ensures the safety of consumers.

[INSERT INFORMATION ABOUT YOUR BUSINESS, INCLUDING NUMBER OF EMPLOYEES]

The safety of our products and the safety of our customers are our top priorities. Unfortunately, we have encountered many problems in trying to comply with the well intentioned but overly burdensome CPSIA. We have been forced to spend thousands of dollars for unnecessary lead and phthalate testing and continue to deal with compliance programs that change multiple times to meet constantly changing rules. ECADA provides common sense reform to sections of CPSIA which have burdened our industry during these challenging economic times. Given your strong record as a friend of small business and manufacturers, I hope that I can count on your support for this bill.

A costly new rule mandating a burdensome, unreasonable testing regime, the lifting of the stay on third party testing for lead substrates, and the retroactive application of a tighter lead standard despite overwhelming evidence showing that this new limit is not technologically feasible are just several challenges that my company will face this year if the reforms in ECADA are not approved by Congress soon. ECADA reduces the most excessive regulatory burdens created by CPSIA while maintaining protection for consumers. The bill enhances the Consumer Production Safety Commission’s (CPSC) ability to investigate complaints and prioritize testing based on cost-benefit analysis, and improves the CPSC’s public database by ensuring more accurate information.

As manufacturers and small business struggle to recover from the worst recession in decades, it is vital that government does not impose costly and unnecessary regulations that have no positive impact and hinder the fragile recovery. I urge you to vote for ECADA to ensure that companies like mine can continue to provide quality products and services that are so important to our children's education.

Sincerely,

XXXXXXXX

 
Letter from Dealers/Retailers:
 
Dear XXXXXX:
 
I am writing as a constituent and concerned member of the National School Supply & Equipment Association (NSSEA) to express my support for HR 1939, the Enhancing CPSC Authority and Discretion Act of 2011 (ECADA). We urge you to support this important bill that fixes problems created by the Consumer Product Safety Improvement Act (CPSIA) while maintaining the core provisions of this law that ensures the safety of consumers.

[INSERT INFORMATION ABOUT YOUR BUSINESS, INCLUDING NUMBER OF EMPLOYEES]

The safety of our products and the safety of our customers are our top priorities. Unfortunately, we have encountered many problems in trying to comply with the well intentioned but overly burdensome CPSIA. As a distributor, we fear that the range of products offered by our suppliers will continue to narrow due to the costs manufacturers incur for unnecessary lead and phthalate testing. In turn, the needs of American students will be unmet, including those children with disabilities and special learning needs, because fewer specialized products will be available to our customers.

CPSIA has caused considerable confusion in the marketplace due to the constantly changing rules and regulations associated with the law. ECADA reduces the most excessive regulatory burdens created by CPSIA while maintaining protection for consumers. The bill provides common sense reform to sections of CPSIA which have burdened our industry during these challenging economic times. The bill enhances the Consumer Production Safety Commission’s (CPSC) ability to investigate complaints and prioritize testing based on cost-benefit analysis, and improves the CPSC’s public database by ensuring more accurate information.

Given your strong record as a friend of small business and manufacturing, I hope that I can count on your support for this bill. As small business struggles to recover from the worst recession in decades, it is vital that government does not impose costly and unnecessary regulations that have no positive impact and hinder the fragile recovery. I urge you to vote for ECADA to ensure that companies like mine can continue to provide quality products and services that are so important to our children's education.

Sincerely,

XXXXXXXX

CPSIA - Nancy Nord Points Out the Unpleasant Truth

In the June 1st edition of the WSJ, Nancy Nord was featured in a Letter to the Editor about over-regulation.   Commissioner Nord has had a front seat for the baloney "effort" by the Obama Dems to "reduce" burdensome regulation and to eliminate "uneconomic" regulations.  As Ms. Nord points out, the CPSC has been an oasis of normalcy during this period of regulatory introspection.  Certainly no such deregulation project has been started at the CPSC.  As she notes, she has lost vote after vote requesting cost-benefit analysis for CPSIA and other regulations - all on a party line vote.  Yes, the Dems are voting AGAINST a cost-benefit analysis again and again on the CPSC Commission.

It's your money they are spending.  It's your business that is crumpling under the burden of their over-reaching laws and rules.  There's nothing we can do to stop it - except to vote ALL Democrats out of office, including the big guy.  Since they won't play ball, this is their just desserts.

Here is Nancy Nord's letter:

Administration Isn't Serious About Regulatory Reform

I read with interest Cass Sunstein's assertion that federal agencies are working to eliminate excessively burdensome regulations ("21st-Century Regulation: An Update on the President's Reforms," op-ed, May 26). As a commissioner at the U.S. Consumer Product Safety Commission (CPSC), I can attest that no such activity is happening at this agency. We certainly have not combed through our regulations to eliminate those that are "out-of-date, unnecessary, [or] excessively burdensome," as he suggests is being done across the government. Instead, we are regulating at an unprecedented pace and have pretty much abandoned any efforts to weigh societal benefits from regulations with the costs imposed on the public.

The CPSC is an independent regulatory agency and therefore, technically, it is not required to follow the president's executive orders such as the one Mr. Sunstein refers to mandating a "cost-effective approach to regulation." In past administrations, the agency has always followed the lead of the Office of Information and Regulatory Affairs, which Mr. Sunstein heads, in such matters. However, under this administration, we have ignored the recent direction to look for and eliminate burdensome regulations. We are just too busy putting out new regulations.

I have repeatedly requested that the agency do cost-benefit analysis on our various regulations only to have that request voted down by my fellow commissioners on a party-line basis. Consequently, we are issuing regulations without having done the necessary work to understand the impact of our actions both on those being regulated and on the public. As a result we have imposed regulatory burdens and caused people to lose their livelihoods without a real payback in terms of safety. At the CPSC, common sense regulation doesn't even get a head-nod.


Nancy A. Nord
Commissioner
Consumer Product Safety Commission
Washington

CPSIA - CPSC's Shameful Failure of Leadership

On Monday, the CPSC will decide whether or not to extend the testing and certification stay that has been in place for two years. The 16-page document which sets out the parameters of the decision does not mention risk anywhere. That's because the law prohibits the CPSC from considering safety in its work under the CPSIA. [Ironically, the CPSC warns users that use of its http://www.saferproducts.gov/ website is at their own risk (see par. no. 2 in the user's agreement) - and ironically, we're talking about a "dot gov" website, too!]

The CPSC explains that extension of the stay is only one of its options. It can do nothing, it can roll all the existing stays forward, or just some of them (to heck with the ATV'rs and the bike industry). Presumably, they will choose to roll all of it forward to September 14, 2011. We can all be screwed on the same day. I like the symmetry of that!

The CPSC has not lost sight of the issues. They know they haven't finished their work. They note that two years ago on February 9. 2009 when the Commission first extended the testing stay. it was because delaying implementation of the testing requirement by a year "give[s] us the time needed to develop sound rules and requirements as well as implement outreach efforts to explain these [new] requirements of the CPSIA and their applicability."

How time flies! That didn't happen, so the Commission again extended the stay by another year on December 8, 2010. Why? Chairman Tenenbaum: "I voted to extend the stay on lead content testing and certification until February 10, 2011, in order to allow component testing adequate time to develop and to give our stakeholders adequate notice of new requirements." Commissioner Robert Adler: "One of the primary rationales advanced for extending the stay is to await the effective date of the so-called 15-month rule."

Where does the time go?? None of that ever happened. Hey, CPSC, take all the time you need!

So now the Commission is poised to kick the can down the road until September 14, 2011. Why that date? The CPSC Staff report notes that this gives the Commission time to sort out the new, lower lead standard due to be imposed on August 10, 2011. The CPSC is holding a hearing on February 16 on the feasibility of the 100 ppm standard. As Staff notes, if the Commission doesn't determine that 100 ppm is feasible, then they will have to set a standard between 300 ppm and 100 ppm that is feasible. "Feasibility" was defined in the CPSIA, lest there should be any disagreement, to exclude ANY consideration of economics. In other words, if it's possible at any price or under any condition, it is considered "feasible" and thus mandated by the law. I can save the CPSC some time - under that definition, it's definitely feasible. Completely unreasonable and unnecessary but "feasible".

The idea promoted in the Staff memo is that we will time to get used to all this if the stay lifts a month after the implementation of the new lead standard. [The concept of "learning disability" floats through my head. Have we heard this song before?] "Staff recommends that the Commission extend the stay to allow time for the Commission to determine whether it is technologically feasible to lower the amount of lead in children's products to 100 ppm." I guess once the Commission makes up its collective mind, the CPSC will wave a magic wand and make your business, your supply chain and your sales channel comply with the new rules in a matter of days. The fact that the rules are hazy after almost three years is no concern of theirs. Is it a concern of yours?

I love magical rules and magical plans! It must be a job requirement for Commissioners to be wizards, too.

All concerns over the "15 Month Rule" seem to have evaporated. This is presumably Robert Adler's doing (see his statement above, which is a rant that the 15 Month Rule and the stay are separable issues). The Staff report intones: "While a Commission decision to extend the current stay of enforcement will give industry an opportunity to test and certify finished products and components according to the final rule and provide the Commission time to clarify any confusion regarding the new rule, it is not necessary for the testing rule to be complete to lift the stay as to the initial test for lead compliance." Can't see any problem there, can you???

The CPSC doesn't want you to worry, however. They have apparently promulgated several documents that set out their policy and whatnot on lead, namely "Statement of Commission Enforcement Policy on Section 101 Lead Limits" (February 6, 2009) (6 pages); "Children's Products Containing Lead: Interpretative Rule on Inaccessible Component Parts" (August 7, 2009)(32 pages); "Statement of Policy: Testing and Certification of Lead Content in Children's Products" (October 2009)(5 pages); and "Interim Enforcement Policy on Component Testing and Certification of Children's Products and Other Consumer Products to the August 14,2009 Lead Limits" (December 28, 2009) (4 pages). If these four documents totalling 47 pages don't clear up everything, the CPSC is ready for you. "Manufacturers of children's products can seek guidance for what the Commission considers reasonable and representative testing in these rules."

You may have to wait a few years for a reply, but darn it, they're going to answer your question. And that's because they really CARE. We're the government and we're here to help!

A few more cock-ups aren't deterring the agency. The phthalates standard is still undrafted, likewise the certification procedures for phthalate testing labs. Oopsie! Well, they've been busy . . . and the much fantasized-over component testing "market" has failed to materialize. Imagine that, businesses that inadvertently serve the children's market with components or which derive a small percentage of sales from children's products aren't volunteering to test their items and expose themselves to the ravages of a crazy and out-of-control federal agency. Shocking!

Those of you who live in the past may recall my mentioning this very issue on November 6, 2008 (yes, 2008) when I addressed the CPSC Lead Panel. [It's a safe assumption no one was listening at the agency - opportunities for stakeholder feedback is not for listening, it's for venting.] I talked about the futility of expecting our suppliers of aluminum foil (widely used in schools in science kits) to test their products. After all, they are allowed to sell it for use with food without testing, so why should they test for me? If I asked them for a test for compliance with the CPSIA, they would certainly refuse and then ask in outrage why I was selling aluminum foil to kids anyway. As I said, who could see this coming? No one . . . .

For all the outrages that this sick situation brings to mind, NOTHING is as shameful as the CPSC's refusal to admit that this is all administrative, bureaucratic nonsense (or use your own word for "nonsense") that has nothing to do with SAFETY. Oh yeah, safety - isn't that word in the name of this agency - the Consumer Product SAFETY Commission. What about safety, guys? Are you concerned about that anymore? This failure of leadership is the basic issue I have with the folks running the agency today. There's a reason that bureaucrats are called "soul-less".

The fact is that this administration at the CPSC (Democrats) will not stand up for what's right - they are prepared to go down with the ship. It's ironic that they remain so strident and so stubborn. Mr. Obama can smell change in the air and even he has called for reconsideration of the deluge of regulations. The Republicans in the House have declared war on over-regulations and the House Energy and Commerce Committee has made reform of the CPSIA the top priority of Mary Bono-Mack's subcommittee.

As I have said again and again - this is YOUR government at work. Their shameful acts which are harming your markets and your business are destroying jobs, discouraging innovation and hurting children by impairing the activities of businesses devoted to children's welfare. This intolerable situation will only be fixed when you MAKE it change. You can do it and you must. There is a new Congress in town and they need to hear from you. Don't let the Democrats keep on wrecking your industry. This isn't about safety and never was. This is politics, pure and simple.

Make them pay for their sins. Call your Congressman.

CPSIA - My Remarks at House Working Session on CPSIA

STATEMENT OF RICHARD WOLDENBERG
Subcommittee on Commerce, Trade, and Consumer Protection
Committee on Energy and Commerce
United States House of Representatives
January 6, 2011

Thank you for the opportunity to present my views today. My name is Richard Woldenberg. I am Chairman of Learning Resources, Inc., a Vernon Hills, Illinois-based manufacturer of educational materials.

Despite its lofty goals, the CPSIA has had little impact on safety while severely disrupting markets and sharply raising operating costs. I have previously testified that our testing costs rose 8 times between 2006 and 2009 and are expected to multiply again. We have also cut back on our marketing and sales expenses to pay for the increase in our QC department from one to five.

This so-called “toy law” was designed to solve a problem that frankly didn’t exist. In 2007/8, there were some notorious toy recalls for lead-in-paint violations – yet there were almost no injuries. The CPSIA was an almost hysterical over-reaction to a simple compliance issue concerning a small number of companies.

Ironically, the CPSIA has already “cured” the compliance problem in the toy industry despite the glacial pace of implementation. Today, 30 months after passage of the law, lead-in-substrate testing is still not mandatory – yet toy recalls have fallen dramatically. How did it happen? I believe publicity, industry outreach and the commitment of new resources by industry improved compliance. Revised lead standards had NOTHING to do with it.

The CPSIA is causing a lasting trauma in our market. Small businesses left the market in droves. For instance, we decided not to enter the toddler market with new educational products. While foregone business opportunities don’t produce a pile of bodies, the economic damage is still severe. In an efficient marketplace, capital is redeployed and products and companies just move elsewhere. We need to fix this problem pronto.

The solution to the CPSIA problem lies in fixing the four horsemen of this apocalypse: (a) cost, (b) complexity, (c) risk and (d) government intrusion.

The worst CPSIA cost impact relates to needless and repetitive testing. Mandatory testing for everything but lead-in-paint should be dropped. An amended CPSIA should apply ONLY to those products specifically identified as presenting a substantial risk of injury or death from lead or lead-in-paint at the specified mandatory standards. This will sensibly knock out the vast majority of products subject to this law. The CPSC Commission should be mandated by law to rigorously apply this rule – the agency should bear the burden of proof.

The excesses of the current “precautionary principle” era cannot be allowed to continue. Lax application of the “substantial product hazard” law has created real doubt about the meaning of our safety laws. Strict adherence to this rule should be mandated by Congress to eliminate the many artificial crises spawned by the CPSIA. Discretion to set age limits, the applicability of the phthalates ban, tracking labels and the reduction of the lead standards should be subject to the same rigorous rule.

To preserve the competitiveness of American schools, special exemptions must be made for educational products (particularly science and special needs items).

The phthalates ban should be limited to products for children three and under to sharply reduce CPSIA compliance costs. This is a reasonable compromise pending resolution of any remaining doubts over the safety of these specific chemicals.

Complexity must be sharply reduced. The old rules were a manageable 100 pages or so but now top 3000 pages and growing. We need to return to a “keep it simple” set of rules with limited reporting requirements. Congress or the CPSC must choose top priorities, and promulgate limited and focused rules. I can assure you that no one understands the moving target of CPSC rules anymore. This MUST be remedied in any amendment of the CPSIA.

Needless bureaucracy should be eliminated, such as CPSC certification of labs, including in-house labs. Fraud and/or incompetence in testing have always been rare. Customs involvement in the CPSC supply chain should be shaped by a cost-benefit basis. Dealing with product safety like the prevention of terrorism is absurdly disproportionate to the risk and far too costly.

Implementation of the public database should be delayed until reasonable protections of due process rights of manufacturers are in place. Congress never intended to create an indistinguishable mixed bag of truths, half-truths and falsehoods – that’s what we have the Internet for. The adopted “anything goes” rules went way too far, and will accelerate market exits.

Government intrusion and excessive government power casts a pall over the children’s product market now. Open-ended penalty provisions allow for emotional and disproportionate punishments. The Commission has also asserted unprecedented powers to retroactively ban products and to mandate their replacement. Clearly, strict procedural controls and protections are missing. The era of “death penalties” without oversight must end.

Some CPSIA fixes are not legislative. Among other things, the CPSC needs to embrace industry as its partner in safety. As the past two years demonstrates, engaging industry is the key to long term improvements in safety.

Notwithstanding the media’s misrepresentation of our industry, we have an enviable record of safety. This is not a case of bad people, venal companies or lazy regulators. The problem is one of misapplied resources and ineffective regulatory strategy. The solution doesn’t require more money or more chest thumping. A well-designed law, combined with good education and industry outreach practices, will create the safer market that everyone wants.

Thank you for considering my views today. I would be happy to answer any questions you may have.

CPSIA - Obama Doesn't Get It . . . .

In response to the release of yet more terrible jobless claims numbers this AM, President Obama renewed his call to lower taxes on small business and to ease the small business credit crunch. The legislation, which promises to lower certain taxes on small business and to increase federal funding of loans to small businesses through various means, is "stuck" in Congress. Mr. Obama blamed the Republicans for "blocking" the bill: "'There will be plenty of time between now and November to play politics,' Obama said. 'Let’s put aside the partisanship for a while and work together.'”

I think this is rich, personally. We run a small business and I know what it feels like to be a small business in the Obama-cized children's product market. We are facing skyrocketing costs nicely matched with soft revenues and mounting taxes (funded by the company, too). Cost increases include $300K in new medical plan expenses to accommodate the terms of the Obamacare initiative, plus astronomical all-in costs for increased safety testing under the new CPSIA rules and related manias. The increased testing has yet to reveal any useful information of identify any health threat that constitutes a human safety risk - so all that money is wasted.

These costs have a common link - they are both a result of increasing regulation. I know, I know, Mr. Obama has lectured us that we really need all these new regulations. Well, I don't agree, but in any event, we see these regulations as major impediments in our business. These high costs affect our cash flow and our business outlook - to the bad. Do the Democrats think we maintain our sunny disposition when we face a shaky market lacking confidence (soft revenues), higher costs (a lot higher) and mounting cash needs from higher taxes and other federal regulatory expenses? This is rather a recipe for managers who want to hide until the storm passes. Who will spend money on new investment now? While we are not cutting our product development efforts, we haven't bought new equipment, fixtures or additional office/warehouse space in several years now. And we have no plans to do so. Welcome to the Dems' economy. No wonder new jobless claims are over 500,000 in the last month.

In the case of the CPSIA, the Dems are only too happy to whack us with heavy regulations, all justified by imaginary benefits. The imaginary benefits of the new CPSIA regulations are as invisible as the imaginary problems they are designed to solve. The absence of data on effectiveness is matched by the absence of data suggesting that there was a problem in the first place - the "know nothing's" jacked up your costs and destabilized your business to no purpose. Now Mr. Obama wants to fix it all with another handout. Throwing money at the problem is new style. And after that handout is parcelled out, the Dems will proceed to raise taxes on higher income individuals (read, small business owners, particularly S Corp owners) to attempt to staunch the hemorrhaging Federal deficit, and then express "shock" at the sluggish economy. No doubt the next step will have to be more handouts and perhaps Cap-and-Trade to raise more costs. What a great cycle. . . .

Is there another way? Well, as for small businesses in the children's product market, I would note that the voluminous new CSPIA rules (two feet high and growing) impose massive costs on industry (to comply) AND on government (to enforce). I think of the stupid health official bent on enforcing his food handler's license rule against the little girl in Portland operating a lemonade stand - many of the new CPSIA rules are pointless from a safety standpoint and cost big money to administer as well as to comply with. If the Dems seriously want to stimulate the economy and add jobs, here's an efficient way to do it for NO out-of-pocket cost - DROP your boundless regulations and go back to something more modest and manageable. This also means that the Obamite idea that life is better with lots more government needs to be shelved. I submit the recent rules on testing frequency and "reasonable" testing programs as evidence that inviting bureaucrats to become involved in operating businesses brings nothing but trouble, inefficiency and devastation. There must be a better way.

Hey, I figured out some time ago that I am talking to myself here. The CPSC certainly doesn't care or understand what I am talking about (or else they might have done something about it perhaps 300 blogposts ago). The Democrats in Congress likewise are deaf and disinterested. I cannot name a single Democrat, NOT ONE SINGLE DEMOCRAT, who will stand up in front of their peers and demand significant amendment or revocation of the CPSIA. The Dems are in lockstep agreement - no light shines in if your head is in the sand, after all.

You can't work with people like this.

I urge you (URGE YOU) to select the CPSIA perpetrator of your choosing and WORK to knock them out of Congress in this election cycle. Remember - they are trying to put YOU out of business. You need to return the favor.

Return the favor . . . this is my theme song until polls close on November 2. Then the party begins.

CPSIA - USA Today Highlights Damage Inflicted by CSPIA

Lead testing can be costly for mom and pop toy shops

By Eileen Blass, USAT
European toys line shelves in Randy Hertzler's Lancaster, Pa., basement. The small, family-owned business has been directly affected by the crackdown on lead in toys as many of the European brands that he has sold have now left the U.S. market.

By Jayne O'Donnell, USA TODAY
When other toy retailers and manufacturers were feeling a backlash against their made-in-China products in late 2007, Randy Hertzler was riding high. He imports and sells only European-made toys, which, like those made in the U.S., were all the rage when recalls of toys with lead paint dominated the news.

The tide has turned against Hertzler, however. He can't afford to do the testing that larger chains can to meet the sweeping child-safety law enacted in response to the recalls. And the companies he buys from have stopped selling him about a quarter of the products they used to, because of costs.

"Now Mattel is testing and making toys without any trouble at all, and those of us who were never the problem are in danger of losing our businesses," says Hertzler, who runs EuroSource, based in Lancaster, Pa., with his wife and two sons.

Nearly two years after the safety law was enacted, Congress and the Consumer Product Safety Commission are still struggling to reduce its burden on small businesses while eliminating the risk of lead and phthalates in children's products. The law limits lead in products intended for children and requires third-party testing for certification. It also requires testing to prove products are free of phthalates, chemicals found in plastics that may harm the hormonal system.
Many small manufacturers say the testing is cost-prohibitive. But its proponents say the Consumer Product Safety Improvement Act of 2008 was long overdue, as the U.S. has been far behind Europe in addressing lead and has been slow to recognize the effects even very low levels can have on children's IQs.

A coalition of small businesses and manufacturers, the Alliance for Children's Product Safety, has been aggressively fighting the law, saying it is threatening the livelihoods of mom and pop shops like Hertzler's and costing larger manufacturers billions in lost sales and compliance. The efforts have had some results, but the alliance is far from satisfied. For example, CPSC delayed enforcement of stringent new testing until February 2011, but the group says most retail chains are already requiring the testing.

House Energy and Commerce Committee Chairman Henry Waxman, D-Calif., has drafted legislation to exempt most children's clothing and some products sold by thrift stores and allow less costly testing methods for very small manufacturers. In a written response to questions, Waxman said the measure would "grant significant and meaningful relief to many businesses while still protecting our children from dangerous products" but "does not represent a full satisfaction of anyone's wish list."

The American Academy of Pediatrics and the Center for Environmental Health say drastic changes were needed for U.S. laws to catch up with the research and to recognize the extent of the lead problem. And some advocates of the law question whether it's nearly as burdensome as suggested.

Helen Binns, a pediatrician, professor and chair of the academy's environmental health committee, says it's only recently become accepted that low levels of lead exposure have a proportionally higher impact than larger amounts. "The research keeps moving ahead and pointing us to the fact that to protect children, we have to take some new stances on what's safe and what isn't."

As early as 1996, the Center for Environmental Health was finding lead in everything from diaper cream to women's handbags and filing lawsuits against the companies that sold and made them.

"Every time we would find lead in some new kids' products, we'd get hundreds of calls from parents asking, 'Why do I have to worry about lead in this? Isn't stuff on shelves safe?' " says Center spokesman Charles Margulis. "We were making up the standards by our lawsuits. It was a terrible way to do it."

Margulis says every time the group would bring a case, businesses would say prices would go up and that they might have to close their doors. California environmental laws require hefty fines — as much as $2,500 a day per violation for each product — and Margulis says to avoid fines, "In every single case, companies changed the way they did business, and the price of the product didn't go up."

The Alliance for Children's Product Safety releases what it calls a CPSIA "casualty of the week" underscoring the effect the law has had on businesses. Among the recent victims: Colorado-based American Educational Products reports it is overwhelmed by paperwork related to the law and recently had a $5,000 rock order for a geology lesson canceled because of concerns about CPSIA compliance. Minnesota toy shop The Essence of Nonsense closed its doors because suppliers were limiting what it could sell because of the law.

"What the law should be about is ensuring safe products," says Edward Krenik, a spokesman for the children's product alliance. "We've crossed over into ridiculousness."

CPSC spokesman Scott Wolfson says Chairwoman Inez Tenenbaum believes the "marketplace has made adjustments" and that the law is having positive effects. He notes global suppliers are choosing lead-free buttons for adult and children's clothing, which is safer for everyone and helps shift the burden from small businesses to suppliers up the line. He says Tenenbaum is trying "to find the right balance between compliance and not putting companies out of business."

"You're left with two serious problems: The economy and children's health, and at some point you have to make really hard decisions," Binns says. "I'm just hopeful that some sound minds will prevail."

CPSIA - The Madness Continues . . . .

The stress and strain of complying with the frustrating and destructive CPSIA hit a new low today when we were informed that a major customer had imposed their own new “safety” standard mandating a 40 ppm standard for lead in SUBSTRATE. This impossible-to-meet standard exceeds all legal standards considerably and is even more unreasonable than Illinois’ misguided lead labeling law applicable only to lead paint. No health or safety reasons were provided. This move was presumably an effort to keep things “simple” for this retailer. Not so simple for us. Will anyone care?

This is a result of the junk science feeding frenzy induced by the CPSIA. The CPSIA itself is divorced from science reasoning, taking an arbitrary and absurd stance against anything and everything with any lead in it. The health risks are utterly conjectural in substrate in the affected products and could never meet the "substantial hazard" standard, but scientific studies taken out of context provide handy justification of a fear of everything, paranoid approach to safety regulation. The loathsome penalties imposed by a perpetually angry CPSC have stoked a race to the bottom. Thus, a 40 ppm lead standard for substrate.

Common sense. Anyone remember what that is?

CPSIA - Thank You Sir, Please Give Me Another . . . .

Today I was assaulted with the news that our company had just received a bill for more than $4,000 to test one of our older items as required by one of our major retail clients. This particular retailers requires that we test every shipment to them using their lab, their prescribed assortment of tests and their pricing - at our expense. There are no exceptions to this rule and no negotiations are tolerated. It's said to be "a cost of doing business", and we are supposed to take this cost into account when we price our products to them.

This item has been tested I don't know how many times. Many times in many forms. Every test was a pass. This latest $4,000 test told us NOTHING we didn't already know. Had we done the tests ourselves using our primary test lab, we would have spent a fraction of the $4,000 we were required to pay by our retailer client. The product is no safer with this latest test. Most of the money (60%) went to phthalates testing.

Although there is nothing about this test that does NOT irritate me, proving the absence of the six banned phthalates is BY FAR the most offensive. We use materials that do not contain the banned phthalates. This is something that our supply chain management is supposed to address. Even more to the point, since these chemicals have been banned for almost two years for use in toys (for better or worse), they are largely absent from the supply chain without our doing anything at all. Yet, the geniuses who wrote the CPSIA require that we test each product, over and over, to prove they're not there. Phthalates cannot spontaneously generate themselves - they are an ADDITIVE. Having jacked up penalties to the sky and hit several retailers with highly-publicized irrational and vindictive penalties, the CPSC has created a caustic environment in which testing is not negotiable with large retailers. Hence, we must prove again and again that the phthalates that weren't there, aren't there. This costs BIG MONEY. It accomplished absolutely nothing.

And the $4,000? We were theoretically supposed to charge the customer for the testing in our product pricing, but in fact, in most cases, we must absorb the cost. That's the real world. So we make $4,000 less in profit. We have $4,000 less to invest in our business, $4,000 less to pay health care costs, $4,000 less to pay for innovative product development, $4,000 less to pay bonuses. No one is safer, either. And this is good for all of us? A good way to run a country?

And where did the $4,000 go? To China. The lab which our client requires we use is a public company, and the chosen lab is located in China. Notwithstanding the lab's low operating costs, the prices we pay for this testing are full boat, un-discounted, nosebleed pricing. They simply vacuum up as much of our money as they are allowed, and your wonderful Democrat Congress shrieks with delight.

We're so safe now . . . .

I can only hope that the jobs of the Democrats who are keeping us in this CPSIA hell aren't as safe come November. That seems to be the only recourse we have left.

CPSIA - Good News Finally, Two Toy Companies are Doing Okay

Don't despair, everyone - there are at least two toy companies who have found a way to weather the CPSIA storm. Yes, both tiny Mattel and minuscule Hasbro were able to eek out a nice profit jump this quarter. Mattel reported earnings of $24.8 million in the first quarter, instead of a $51 million loss last year, and Hasbro had to make due with earnings of $58.9 million this quarter, up over winnings of $19.7 million in the same quarter last year.

The CPSIA is obviously crushing these companies. They are so brave!

Don't worry though - Waxman has a few morsels for us small fry, too. To ease the burden on us, his new amendment authorizes the CPSC to make special testing rules for us, provided (it's complicated) our revenue is under $500,000 per year. Oh goodie! Unfortunately, if we happen to be bigger than that, we face the exact same rules as Mattel (revenue of $880.1 million in the last QUARTER) and Hasbro (sales of $672.4 million in the last quarter).

That seems fair to me. Really fair . . . .

CPSIA - CPSIA Casualty of the Week for April 9

The Alliance for Children's Product Safety's "CPSIA Casualty of the Week" highlights how the Consumer Product Safety Improvement Act (CPSIA) is disrupting the U.S. marketplace in order to draw attention to the problems faced by small businesses, public institutions, consumers and others trying to comply with senseless and often contradictory provisions of the law. These provisions do nothing to improve product safety, but are driving small businesses out of the market.

Congress and the CPSC need to address the problems with CPSIA implementation to help small businesses by restoring "common sense" to our nation's product safety laws.

CPSIA Casualty of the Week for April 9, 2010

CPSIA EXPELS EDUCATIONAL PRODUCTS FROM SCHOOL

The approximately 1,500 businesses that comprise the National School Supply and Equipment Association (NSSEA) are dedicated to providing educational supplies, equipment and instructional materials to schools, parents, and teachers. This small industry serves a vitally important market – American schools – providing specialized products that form the backbone of the American educational system. Without the support of this small business-dominated industry, the needs of many American children would be left unmet, including children with disabilities and special learning needs.

The Consumer Product Safety Improvement Act (CPSIA) has had a negative effect on nearly every NSSEA member company, says a recent NSSEA survey of manufacturers/suppliers and dealers.

According to the findings, 64% of surveyed NSSEA suppliers, and almost half of the dealers (46%), have been negatively affected by CPSIA regulations. About 47% of dealers surveyed have removed items from inventory, and 40% of manufacturers have either removed items or discontinued production. Almost 80% have incurred additional testing costs. Unfortunately, all this expense and disruption has served no purpose - the CPSIA has imposed economic turmoil on an industry that has a great safety record. Recalled educational products have been responsible for a total of three reported injuries in the last ten years, one from an overheating battery compartment and two relating to a defective hinge on a changing table.

A NSSEA manufacturer wrote, "We have been forced to discontinue safe products because the testing costs have not justified keeping them in the line. This has had a very negative impact on our bottom line by destroying very good and safe product. Teachers who have been using these products for decades will not have access to them anymore. Going forward, we will not be able to develop niche products that are specific to education because the testing costs will not justify anything with low sales."

"From delayed orders to confusion regarding the requirements, members have been left with eroding margin, increased labeling and testing expenses, and a decrease of education products available to the marketplace," wrote NSSEA Vice President Adrienne Dayton in a recent association newsletter.

CPSIA - CPSIA Casualty of the Week for November 16

The Alliance for Children's Product Safety's "CPSIA Casualty of the Week" highlights how the Consumer Product Safety Improvement Act (CPSIA) is disrupting the U.S. marketplace in order to draw attention to the problems faced by small businesses, public institutions, consumers and others trying to comply with senseless and often contradictory provisions of the law. These provisions do nothing to improve product safety, but are driving small businesses out of the market.

CPSIA Casualty of the Week for November 16:

“Pockets of Learning” Emptied by CPSIA
Special Needs Products Being Driven from Market By Testing Costs

Pockets of Learning is a Rhode Island-based company that for 20 years has designed, manufactured and sold unique heirloom-quality cloth toys and gifts, many of which offer skill-building experiences to children such as tying, matching, buttoning and counting. The company helps fill niche markets, including special needs, religious and independent retailers. Pockets of Learning has an impeccable safety record, and has never offered a product to the marketplace that had not been tested according to CPSC requirements.

On November 10, 2009, Pockets of Learning informed its customers that thanks to CPSIA, it will no longer sell its "How Do I Feel Today?" wall hanging, a bear-themed product sold for young children with special and emotional needs. The company told its customers that it "can no longer afford to manufacture and offer these products, due to the over 500% increase in safety testing cost…The annual volume of the product does not allow for the investment required to properly safety test under the new CPSIA guidelines."

The loss of this item was made known to us by a leading distributor of therapy tools and other products for educational professionals and psychologists who had his order cancelled.

Pockets of Learning President Jack Grant told us in an e-mail that this product loss is only the "tip of the iceberg." Due to the financial impact of CPSIA testing, Pockets of Learning is planning to reduce its product line from about 65 products to approximately 22 because of "the reality that CPSIA testing would typically add 30% or more to the cost of each item" made in small production runs.

Large multinational manufacturers who make high volume items can absorb higher testing costs imposed by CPSIA. But the thousands of small businesses across the country that fulfill specific, niche markets are the untold casualties of this law. Worse yet, kids in need are losing access to essential teaching materials. "How Do I Feel Today?", indeed!

For more information, please contact Caitlin Andrews at (202) 828-7637 or e-mail caitlin.andrews@bgllp.com

CPSIA - More New Standards to Help Put The Fork Into Small Business

Perhaps you are aware that the Retail Industry Leaders Association (RILA) and British Retail Consortium (BRC) are working on new "Global Standards for Consumer Goods". RILA presented this new construct to the CPSC on October 5 and were warmly greeted for their efforts. According to the Product Safety Letter: "Tenenbaum termed the effort 'encouraging' and urged the group to include details in upcoming comments on CPSIA-related reasonable testing programs. She said it is good that the release of the RILA program and the pending comment period (slated to open in November) are likely to coincide. 'The timing could not be better,' she told the visitors. She also noted the power of retailers to push standards: 'The way that you all could fan out in China would really facilitate the process exponentially.' Adler said, 'What I heard is terrific. You're all ferocious competitors and will remain so. But you're not going to compete on safety.' Also pointing to the power of retailers to impose standards, he called regulators and retailer allies.

A quick glance at these standards makes clear that they are a death sentence to small businesses. The practical impact of the rules will be to bifurcate the market for importers and factories - suppliers to mass market and suppliers to the rest. You won't be able to be in the mass market camp without complying with these standards. There won't be any halfway point - it will be like a pregnancy test, you comply or you don't (pregnant or not pregnant). Of course, this also means that you must incur a HUGE cost to sell even one product into the mass market. This barrier to entry will make the mass market off-limits to small fry. Goodbye American Dream?

I find it interesting that the CPSC jumped at the chance to support these standards. Where did the standards come from? The mass market, of course. RILA is a mass market enterprise, designed to represent the interests of a few large (LARGE) retailers. Ditto for the BRC. Notably, when the CPSIA was in gestation in 2007/8, the folks behind the law reached out to the likes of Wal-Mart to ask about the feasibility of their brilliant safety innovations. By several reports (to me directly), Wal-Mart and their ilk expressed little concern about their ability to comply. Case closed. Ahem, what about the rest of us? Congress overlooked that little detail, figuring that what Wal-Mart can do, the rest of us can do, too.

Have we learned NOTHING in the last 18 months? Please don't make me answer that one.

A quick glance at the standards reveals that they are really only suitable for mega-businesses, particularly those that have committed to ISO 9001 and the like. This group does NOT include EVERYONE. The sections on Risk Management and Management (check out 3.8 Traceability - yeah, FULL traceability is required) are particularly out of reach for small businesses. Some of the new standards have already been addressed by initiatives in recent years to address "Code of Conduct" issues, like ICTI-CARE, and will probably be okay (within limits). But the RILA/BRC standards go much, much further. The cost implications of these standards for small business are breathtaking.

If a "damn the consequences, don't bother me with the details" rush to implement these new standards takes hold, there will be little reason left to try to be a small business in America. After all, standards like the RILA/BRC global standards are a classic glass ceiling to growth. I hope somebody takes note of the impact of these awful standards on small business, the largest creator of jobs in America. Small business needs an advocate, and these days, it's hard to identify anyone in Congress that gives a darn. If no one will rise to the occasion, I guess we can always open up a sandwich shop. That's about the only option that will be left for small business. Making products, besides sandwiches, has become a very unrewarding pastime.

CPSIA - Rumorville CPSIA Casualties

We recently spoke to a candidate for a customer service position here who works for a nationally-prominent brand of toys. This brand is a division of a large and well-known company, and is renowned for its high quality and expensive products. You have heard of this brand. What we were told was that they are suffering from widespread backorders owing to the CPSIA. The explanation we were given is that the factories were refusing to take risk under the new law and that the brand itself was cancelling a wide range of accessories sold with their principal products. [This brand is well-known for the nicknacks it sells to accompany its flagship products.] The accessories cannot carry off the testing costs, largely because they are low -volume items, and neither the famous brand company nor the factories will bear the new testing costs. No doubt some of the problem is also an inability to meet the demanding new standards.

The candidate did NOT tell us that these discontinued products were unsafe or had ever hurt anyone. Hmmm - no apparent issue with safety, amazing! And you thought the new law was NECESSARY to keep everyone safe. It turns out that a number of these products are found in my home and I can say from personal experience that they are of the finest quality and deserve their reputation for outstanding design and strong educational content. Shame no one will be able to buy them anymore.

Boy, Mr. Waxman has really made life better for everyone! Obviously, there's no reason to change THIS law.

CPSIA - How Much Should We Pay to Prevent "Cheating"?

I was contacted today by an ex-CPSC'r who read my blog on Section 102(d)(2)(B) and wanted to point out that sometimes people lie and cheat when it comes to disclosure to the agency.

So the question is: if people might pull the "switcheroo" or otherwise commit intentional fraud, wouldn't the right solution be to make everyone test under much more controlled and regulated circumstances? This might make things much harder for cheaters. Isn't that good?

My response is NO. First of all, I hope it is no surprise to you or anyone that some people cheat. I believe this was discussed in the Bible and frequently thereafter. This MIGHT be the reason we have a criminal code and JAILS. Some people are also incompetent. They don't cheat, they just fail repeatedly but goodnaturedly. The rest of us work hard and get our jobs done. As for me, although some people might cheat, I do NOT. If all the honest people must pay a high certain price in order to squeeze out the bad guys, we will all be crushed. This is akin to being treated like a murderer - just because there have been murders in your town. The CPSIA punishes the many for the sins of the few.

The dispiriting idea underlying the lunkheaded Section 102(d)(2)(B) is that no one can be trusted, and that unless the government gets involved in regulating the minutia of safety testing, we cannot be sure that everything will be okay. [Did you ever think about why the CPSC must now accredit testing labs? We never needed it before - what precipitated the change? I am not aware of a single recall that was blamed on an incompetent or fraudulent lab. This is all the more troubling when you consider how much money has been wasted on this pointless and growing devotion of CPSC resources.]

The economics of over-regulation are poor. Investment incentive is crushed by excessive regulatory costs as a profit motivation is rendered moot. In this case, we are CERTAIN to bear excessive costs for needless and pointless testing, all because a panicked Congress' felt an urgent need to "do something" about recalls. What costs will be eliminated as a result? If our company has to pay 2-5% of our revenue for compliance with this new law (my estimate), can we save that much or more in avoided costs? Not based on our 25-year track record (recalled 130 pieces out of a billion in 25 years, or 0.000013% per annum). We now must trade an annual cost increase of 2-5% for an annual savings of 0.000013%. What about the costs to society? Well, in our case, all 130 pieces were recovered and there were no known injuries. Cost to society: zero. This is not so crazy, as less than 0.01% of all children's products are ever recalled. Consider the famous lead-in-paint recalls of 2007-8: 125 recalls, no deaths and only one claimed injury (from a crib).

So, who will pay for this folly?

You.

Some myths need to be dispelled:

a. America pays the costs of the CPSIA. This is simple economics. The law of land regulates us a community. We pay for all recalls and we incur the costs of all injuries. Although costs may be shifted (reallocated) among us by law (some winners, some losers), ideal laws lower our net societal costs by incentivizing the most efficient allocation of resources. Thus, a law might assign one party to bear a responsibility because they can manage it at the lowest overall cost, thus avoiding significant and greater costs by a less efficient party. Common examples of this are torts (the law places strict burden for product liability on manufacturers) and railroad crossings (railroads must pay for safety of the crossings). Manufacturers and railroads are in the best position to protect against safety dangers, as opposed to consumers acting individually. If manufacturers and railroads weren't allocated this responsibility, consumers would bear too much cost (inefficiently) in the form of injuries or losses. This is nothing more than a law-and-economics explanation of how legal systems work. See "The Problem of Social Cost" by Ronald Coase (Coase received the Nobel Prize for this theory). In the bargaining world hypothesized by Mr. Coase, costs would be borne by the party best able to bear them efficienlty, which might be manufacturers . . . or might be consumers.

[It also is clear that no matter what happens to the CPSIA (be still, my heart!), manufacturers will still have a strong incentive (by law) to make their products as safe as possible. Tort law provides this economic incentive quite well.]

b. NOT all recalled items are "deadly". Some recalls have the potential to kill, but most do not. Of the simple "risk of injury" recalls, many are technical violations (immaterial threats of injury), theoretical risks, or worst of all, self-imposed (sometimes companies insist on recalls over the objection of the CPSC). It is plainly WRONG to contend that recalled items are "deadly" (Ahem, Ms. Tenenbaum).

c. We cannot simply "raise" our prices to cover the new costs. Products have a strong "perceived value" which cannot be overcome with marketing. Some items are quite price sensitive. How much would you pay for your Starbucks latte? If the price went over $5, would you change coffee shops? $6? $8? No one is indifferent to price. How much would you pay for napkins at McDonalds, given that you probably think you are entitled to free napkins? Most people would cut their napkin use by 90%+ if the cost was as little as 1 cent each. This reasoning applies to ALL products and ALL services, no exceptions (even medical care). In the case of toys, many toys are commodities and have essentially a known "market value". If you price them too high, you will lose business. "Perceived value" is set or heavily influenced by the mass market, precisely the part of the children's market most able to absorb new CPSIA costs. Those of us in the specialty markets are toast as a consequence.

d. The right way to measure recall effectiveness is in their economics. As noted above, we Americans will bear the net cost of this law. Is it worth it? We know that some items subject to recall present "unacceptable" risks of injury and others do not. It has always been the common sense practice of the CPSC (until recently) to exercise judgment when imposing a recall. They used to recognize that recalls come at a cost.

There are many factors to assess in determining that a recall is merited. Having never been a CPSC manager or a legislator (heaven forbid!), please take my amateur's list of factors with a grain of salt: (i) nature and severity of the risk of injury, (ii) number of units in circulation, (iii) age of the child subject to the risk, (iv) public policy [Is there a reason to justify strict liability? This would presumably be infrequent.] and (v) durability and value of the recalled item. Common sense dictates that you must weigh the benefits of a recall against the economic damage wrought by the recall. Since we finance both sides of the ledger, we Americans have an incentive to behave rationally and take the lowest cost route. [The Coase Theorem again.]

If you think about the case where one "dangerous" children's product (say, a pair of shoes) is in circulation somewhere in the United States, it probably wouldn't be worth the significant expense of recovering that special pair of shoes unless we knew that one or more lives were DEFINITELY at risk, a very high cost. [Exploding shoes, perhaps.] Thus, if some situations present low grade risk of injury and a high expense for a recall, it may sense to NOT expend the money on a recall, but perhaps to engage in other activities to keep costs down (like education or a "running" change in product design). Let's also not forget that manufacturers that go through a CPSC process incur meaningful "transaction" costs even if there is NO recall (i.e., legal expenses, possible inventory loss, embarrassment, etc.). Thus, even without penalties, there is an incentive to do better next time - a recall is not needed to get most companies to straighten up.

Given my estimate that we will expend 2-5% of revenues to comply with this awful law, could the economics ever justify that expense to save "injuries"? You already know that we incur an anticipated annual expense for recalls of 0.000013% of revenue, all to avoid a 25-year injury rate of zero. This annual "CPSIA tax" of 2-5% is entirely "inefficient" in a Coase sense, as the imposition (and allocation) of costs is irrational. This completely explains why the law is misconceived. Since the CPSC is not allowed to exercise judgment under the CPSIA, and since economics are not allowed to be considered either, it is by definition an irrational and shamefully inefficient law. Mr. Coase would be outraged.

I happen to be outraged, too. Cheaters frustrate me but that's no justification for treating everyone like they are cheaters. It's time to rewrite the law to permit the cheaters to be treated like cheaters, and leave the rest of us ALONE.

CPSIA - Phthalates Test Standard Comment Letter 9-16-09

[As submitted 9-16-09]

To Whom It May Concern:

I am hereby submitting comments in response to the Notice of Availability of a Statement of Policy: Testing of Component Parts With Respect to Section 108 of the Consumer Product Safety Improvement Act [CPSC Docket Number: CPSC–2009–0063] dated August 17, 2009.

1. Applicability of Component Testing. We believe the clear language of the CPSIA provides that TOTAL WEIGHT OF THE PRODUCT be the basis of any calculation of phthalate content. Sections 108(a) and 108(b)(1) state that “it shall be unlawful for any person to manufacture for sale, offer for sale, distribute in commerce, or import into the United States any children’s toy or child care article that contains concentrations of more than 0.1 percent of [certain phthalates].”

Notably, in the August 7, 2009 Statement of Policy on the Phthalate Testing Standard (the "Statement"), justification for component level testing is based on an argument that Section 108 of the CPSIA uses the term "children's product" incorporates the term "consumer product" which is defined in Section 3 of the CPSA as "any article, or component part thereof, produced or distributed . . . ." The Statement concludes: "Because the term consumer product includes components of an article, the Commission believes that the phthalate limits in section 108 of the CPSIA apply to each component part of any article." This reasoning overlooks the fact that the CPSIA also uses the same term "children's product" in Section 101 in regard to the new lead standards but clarifies it in the following terms: " . . . the lead limit referred to in paragraph (1) is 600 parts per million total lead content by weight for any part of the product." [Section 101(a)(2)(A)] [Emphasis added] Rules of statutory construction require that the words of a statute be interpreted to give meaning to all the words used. Therefore, apparently, Congress did not impute an obligation to test components for the term "children's product" in Section 101 and felt it necessary to state plainly that the lead standard applied to "parts", whereas no such limitation was incorporated into Section 108. The reasoning used to justify component testing on this basis is thus faulty. Without further action by Congress, the July revision revision of the March standard previously announced by the CPSC should be revoked and total toy phthalate concentration testing protocols be restored.

2. The Apparent Paradox of a Component in a Hypothetical Toy Containing Phthalates. The introduction to the July 27 Test Method (the "Standard") refers to a hypothetical toy containing a teether with phthalates in excess of permitted levels. The introduction refers to this as a "paradox". In fact, it is hardly paradoxical. The law does not prohibit parts containing phthalates, as illustrated above. In addition, the CPSC has on two occasions (CHAPS in 1998 and 2001) concluded that phthalates do not present a material health risk to children. Thus, I do not understand how the CPSC can express concern that a part in a hypothetical toy contains phthalates that might violate the standards IF the part were a stand-alone toy as the CPSC itself has stated publicly that this would not present a health risk. The apparent meaning of the "paradox" referred to in the Standard is that Congress outlawed six phthalates as a health risk in contravention of the reasoned and well-researched opinion of the CPSC scientists. This conflict does not justify reading the law more broadly than it is written.

Many companies and many valued products will be sacrificed to this "paradox" if the meaning of the underlying law is not respected. I think it is highly unlikely that any parts in a hypothetical toy will contain the six "bad" phthalates when they are outlawed all over the world. The economic incentive to use them is too low, and legal and uncontroversial substitutes are too readily available. Needless to say, the very existence of the CPSIA (not to mention the EU ban) cuts the market for the six phthalates substantially, if not entirely. With much lower volumes, these chemicals will rise in price and will become harder to find. In due course, manufacturers will literally have to work to obtain supplies of the six phthalates and take considerable risk to use them, all for no economic incentive. In a nutshell, right or wrong, the CPSIA will have the effect of ridding the market of these chemicals as long as they are illegal (which is not the same thing as saying that they are dangerous). YET under the test standards, we must forever test each and every component to prove that these hard-to-find chemicals are not present. That is the true "paradox" of the Standard's example - it is paradoxical that our safety system requires that we prove the absence of chemicals that are not economically or functionally advantageous nor easy to find.

In any event, in the cited hypothetical example, a teether is at issue. Why not simply require testing for all components which are suitable for children up to 36 months old and which can be placed in the mouth? In the past, the CPSC has asked industry to take certain phthalates out of products like this (without controversy, I should add). Companies can certainly test teethers, pacifiers and rattles without testing each other component that is not likely to be placed into the mouth. Given that this test procedure includes items suitable for children up to 12 years old, the Standard will impose widespread economic harm apparently in order to catch teething rings. I think this is unwise and unnecessary and will harm markets.

3. The Rationale Offered for Component Testing. In the Statement, the following rationale for the change to component testing is offered: "Given that testing the phthalate content of an entire children’s toy or child care article presents certain difficulties, may lead to dilution of the phthalate concentrations compared to that in one or more of its component parts, differs from similar regulations issued by other jurisdictions, and can be prohibitively expensive, the Commission believes that phthalate testing should be limited to those plastic parts or other product parts which could conceivably contain phthalates ('plasticized component parts')." I have previously addressed the inapplicability of component testing under Section 108. I will now address the other rationales offered in this statement.

Regarding "dilution", it can only be considered an issue here if component testing is required under the law. At the moment, the law as written (as explained above) specifies phthalate levels for the entire toy. Dilution would only be an issue if the law read differently, requiring certification by part, which it does not. As the CPSC has already ruled out in two previous CHAPS that the six phthalates present a material health risk to children, it lacks the legal authority under the FHSA to impose restrictions on products containing them as "banned hazardous substances". It is therefore entirely dependent on Section 108 to justify this new Standard. Dilution is therefore legally irrelevant as a consideration.

It has not been our experience in testing for phthalates that testing the whole toy presents any "difficulties". Testing for phthalates is, in general, prohibitively expensive. The right way to moderate that expense is to run fewer tests. Testing an entire toy is definitely cheaper than testing every component because it requires fewer tests. If a manufacturer encounters "certain difficulties" or finds that testing the entire toy is somehow more expensive than testing components, your rule should permit the manufacturer to opt for component testing. This simple solution will preserve the benefit those of us who have discovered that testing the entire toy is cheaper.

The concern expressed for coordinating test requirements with other jurisdictions is commendable, but which jurisdictions are the CPSC attempting to align with? If the Statement is referring to a state (like California), the Standard and Federal law should preempt the state standard. I think that industry action can be used to help bring different jurisdictions in line on testing standards. If that is not sufficient, legislative action is the next step. [It is ironic, actually, that this justification for the phthalate standard has been offered, as for many years the CPSC has stood pat and refused to align its testing procedures with European standards, causing U.S. manufacturers to test repetitively to two standards.] In this case, the alignment justification is going to cost industry millions of dollars in excessive and ineffective component testing. Unless the law requires that the CPSC correlate its testing standard, I think the March Standard should be remain in place (toy-level testing).

The Statement also notes: "Testing component parts to the phthalates limits established in section 108 is more protective of human health . . . ." As noted above, the CPSC has twice rejected the notion that phthalates are dangerous in CHAPS in 1998 and 2001. This statement should be struck from the Statement for that reason alone. The fact that Congress outlawed six phthalates does not invalidate the scientific conclusions reached in the agency's two CHAPS.

4. Inaccessible Components. The Statement and Standard do not differentiate between accessible and inaccessible components. Without meaning to contradict my comments above on the invalidity of component testing requirements, I believe there MUST be a distinction in the rules between accessible and inaccessible parts in any testing standard for phthalates. Inaccessible parts should be exempt from testing, whether on a component or whole toy basis, as there is no known health risk possible from inaccessible parts (whether or not the results of the two CHAPS are respected). This is a rather self-evident concept, as phthalates do not have the ability to "leap" from inside a toy into the human body. There is only one mechanism that can transport phthalates from a toy into the human body, namely mouthing or chewing. Inaccessible parts cannot be mouthed or chew without unforeseeable and substantial toy abuse, and thus should be excluded entirely from the testing requirements.

5. Vague Standards. In the Statement as quoted above, the test standard now requires that any "plastic parts or other product parts which could conceivably contain phthalates" be tested. This expansive definition is not only vague and undefined but it is also subject to second guessing. Vague terms like this also tend to cause disagreements in the supply chain, leading to loss of revenue and unnecessary testing. The Standard does not let the manufacturer make this judgment definitively, either. The inability of a manufacturer to rely on a "safe harbor" rule, short of testing every component of every product, is a major economic disincentive and will certainly disrupt markets. The CPSC has already received MUCH data from companies documenting this kind of market disruption. Although the CPSIA may have been cleansed of any reference to money or economics, the CPSC has no legal or moral obligation to promulgate rules that are devoid of sensitivity to market considerations. In this case, please consider that the financial implications of the new Standard making new products too expensive to develop, manufacture or distribute will stifle innovation, reduce the diversity of products available in specialty markets, stunt new company formation and reduce jobs - all to enforce a law which is directly contravenes the results of two CPSC CHAPS. To do so will severely disrupts markets regulated by the CPSC and disproportionately harm Small Business. In light of the CPSC's stated opinion on the safety of phthalates, this is unacceptable as a matter of public policy.

The Standard should specify which materials are known to contain phthalates and restrict it to known materials meeting physical examination criteria. In other words, it should not be sufficient that it is "conceivable" that phthalates have been used in a particular plastic or component. The part or material itself must also exhibit the characteristics of a plastic or part containing phthalates (in other words, it is pliable). This is a highly effective and low cost way to differentiate between plastics that have phthalates and those that do not. The presence of phthalates is not hard to detect with a physical examination.

De minimus risk of phthalates used in low mass components or materials, especially noting the function of the parts, should be exempt from testing. As an example, coatings on parts that are not likely to be mouthed (in other words, they are not intended for children under three years old or cannot be placed in the mouth) should not require testing. In addition, the mass of the possible phthalates in such coatings is likely completely immaterial. The repetitive testing of low value, low risk items or parts will bankrupt companies still remaining in this devastated market. Some exercise of regulatory judgment is necessary to save the children's market here.

6. Multiple Components. If component testing is required in the final standard, the standard should not require repetitive testing of the same component. If a component is used in multiples in a particular product or is used in more than one toy, the testing standard should permit use of a single test on a single component to apply for all of its uses in applicable toys.

It is also our recommendation that raw material testing be accepted in lieu of component testing. That said, raw materials testing is not likely to resolve testing problems under the CPSIA except for the simplest products. While I have consistently written that raw materials testing is an appropriate and effective supply chain management technique, raw materials test reports when compiled for a complex product will tend to raise questions (they will form an unreconcilable, incomprehensible mass of seemingly meaningless reports) and will in fact, detract from assurances that the final product actually complies with law. This flaw, which is highly likely to cause expensive delays at the border when U.S. Customs begins to examine test reports under the CPSIA, will again tend to force companies to test whole products at high expense, simply to keep products moving across borders and to make it easier to sell them into retailers who do not want to accept such reports for legal liability reasons or spend the time or money trying to reconstruct a passing test report on a toy from a pile of raw material test reports.

7. The Phthalates Standard is Effectively a Requirement to Test Every Component in Every Toy. The Statement does not rule out testing of ANY material as far as I can tell. The standard even leaves open the possibility that natural sand, glass, crystal, unfinished metal, cotton textiles or even natural wood might need testing under some circumstances. This is particularly perplexing because the CPSC knows that phthalates are an additive and do not exist in nature. They are also an organic chemical that would not survive the heat necessary to forge steel or melt sand into glass. To suggest that these items "might" have phthalates is quite a stretch - and all manufacturers using these materials will pay dearly for this stretch.

As if that wasn't bad enough, the Statement goes on to note: "Manufacturers either know or should know what materials and components go into the products they make, and if the product or its components contain one of the plasticizers specified in section 108 of the CPSIA, the manufacturer or importer certifying the product must test the component or product to ensure that it complies with the CPSIA. Failure to comply with section 108 of the CPSIA is a prohibited act under section 19 of the Consumer Product Safety Act (CPSA) and can result in civil and criminal penalties. Likewise, failure to have a product subject to section 108 of the CPSIA tested by an accredited third-party laboratory and have the appropriate certification for that product is also a prohibited act under section 19 (CPSA)." Such remarks are guaranteed to create insatiable demand among risk-averse retailers for complete suites of tests on every component in every toy, no matter what. The Statement could not be clearer that ALL mistakes, oversights or judgments invalidated with 20-20 hindsight by the CPSC will be held against the supply chain selling the product. As the CPSC penalties and saber rattling of the agency have been widely publicized, this rule is certain to depress trade and shrink markets. No one will be willing to take the risks outlined in this paragraph.

I would note also that a standard that puts the onus on manufacturers to make judgments on whether to test or not, and then attempt to get their customers (and testing labs) to go along with their judgments, seems particularly impractical and unrealistic. The scenario is apparently that manufacturers must prove to all of their trading partners, again and again, that their judgment to not test certain components or materials is legitimate. That judgment will not be accepted lightly, with or without documentary proof, by trading partners who have read the Statement's stern warning about liability. In any event, a long inquiry by trading partners and testing labs into any such manufacturer's judgment can be anticipated with a high degree of certainty. While some manufacturers may be looking forward to spending the rest of their working lives arguing with customers to accept a decision to save $500 in testing costs, I personally find it quite unappealing and unworkable. We have a business to run and cannot spend all day on test reports - we have to make some sales (to pay for the tests). If this is how the rules will work, we will either have to test everything comprehensively or drop the products. Please think realistically about the commercial implications of the rules you are promulgating.

If it is the intention of the Commission to require comprehensive testing of every component of every toy with no exceptions, I think the standard should be rewritten to say so directly and unambiguously. Writing a standard that uses vague language stating that incomplete testing is permissible under some circumstances, but only at high risk of civil or criminal liability, is disingenuous, as the agency knows full well the impact and meaning of those words.

Thank you for considering my views on this important topic.

Sincerely,

Richard Woldenberg
Chairman
Learning Resources, Inc.
380 North Fairway Drive
Vernon Hills, IL 60061
Tel 847-573-8420
rwoldenberg@learningresources.com