CPSIA - My Testimony at the CPSC Hearing on 100 ppm Lead Standard 2-16-11

Here are clips from my testimony at the CPSC Hearing on 100 ppm Lead Standard on February 16, 2011. As noted in previous blogposts, there's much more to see and hear in this panel discussion. The clips focus on me and my testimony. I admire the testimony of the other panelists and especially the quality of the dialogue after the testimony under questioning by the Commission. If you want to see it unedited, check out the full video at the CPSC website.

I have already published the links from the morning session. Viewing those clips before watching these clips may help you understand the flow of the argument better.

My full testimony:

[Notably, Ms. Tenenbaum cut me a break and let me go over my 10 minute allotment. I appreciate that courtesy.]



Commissioner Bob Adler questions me on the future of small business under the CPSIA and the need for the Commission to "follow the law" and implement the new standard despite the known consequences. This may be the most interesting interchange on the troubling issues under the CPSIA that I have participated in over the past four years. Check it out!



Commissioner Anne Northup asks about the ability of small business to obtain exemptions from the lead standard:



Commissioner Nancy Nord questions me about recycled materials, the cost implications of the new standards and injuries:



My call for a Five Year Stay on the new lead standard to allow for development of real injury statistics:

CPSIA - House Hearing Testimony of Jolie Fay and Wayne Morris

Testimony of Jolie Fay, HTA Board Member:



Testimony of Wayne Morris, Association of Home Appliance Manufacturers (AHAM):

CPSIA - The Worm Continues To Turn

The day we all feared, the day we knew would come someday . . . well, the Federal Register says it's coming soon. According to a notice of "Final Rule Stage" published on December 20, the CPSC is moving forward on the so-called "15 Month" Rule.

You have to chuckle at the "15 Months" part. This rule was legally mandated to be enacted 15 months after the CPSIA was signed into law. The presumed date of enactment would then have been November 14, 2009, a mere 14 months ago now. They didn't even published a first draft until May 2010. If the agency can somehow finish this project by January 14, it could be called the "15 Months Times Two" Rule. Then again, it's basically inconceivable that they will make it. Eventually they'll need another name for this thing.

The urgency behind finishing up this rule is that the testing and certification stay expires on February 10, 2011. Remember that Bob Adler already said he wouldn't vote an extension of this stay because . . . he hates stays. Perhaps he prefers market chaos and economic depression instead. Anyhow, to avoid the showdown, they need to get their ducks in a row, hence the need to get this rule going.

I sent in comments on the first draft of this rule on August 3. I wasn't a big fan . . . and I guess other people had reservations, too. According to www.regulations.gov, the CPSC received 112 comments letters (that may overstate the number, because regulations.gov seems to have some duplicates). I haven't read them myself, but I assume I am the only one who saw any flaws in this rule. The rest of the letters are probably just "thank you" notes.

Anyhow, it's worth noting that the Chinese New Year occurs on February 3, 2011 so take my word for it, all the Chinese factories will be closed on Feb. 3rd and probably won't reopen until Feb. 10 at the earliest after a two-week holiday. Some workers are gone three or even four weeks for this holiday. In a "best case" scenario, the CPSC can't take action on this rule until they officially acknowledge the public comment "thank you" notes and hold a public Commission meeting. Do the math - if they choose to take action on this rule now, we will get about ten minutes notice to begin conforming. I can't see any risk of market chaos again . . . can you?

Here's a fairly obvious fact for you - we have not incorporated any of the pending rules into our supply chain or manufacturing processes. Why? You tell me what I'm supposed to do. The rule that has been published is deeply flawed and, basically, stupid. It is not a final rule. 112 comment letters were filed on it. It could change . . . it BETTER change. How am I supposed to implement rules that haven't been published or possibly even written? Telepathy? I don't read minds and I haven't implemented the unknowable, either.

If this does not make your blood boil enough, consider these excerpts from the notice of Final Rule Stage:

• "The U.S. Consumer Product Safety Commission is charged with protecting the public from unreasonable risks of death and injury associated with consumer products." [Emphasis added] The CPSIA makes consideration of RISK by the CPSC illegal. Bummer, huh? Someone should have told the CPSC because they still claim to be concerned with "risk" of injury.
• "When deciding which of these approaches to take in any specific case, the Commission gathers and analyzes the best available data about the nature and extent of the risk presented by the product." And then ignores it??? See also the final bullet below.
• "As for exemptions [from the "15 Month Rule"], the statute does not appear to give the Commission the authority to exempt firms from the testing or certification requirements, so it may not be possible to exempt firms within section 14 of the CPSA." In other words, HTA, you can lump it. And the CPSC is telling you who to blame - Congress.
• "The congressional mandate to issue this regulation does not require the Consumer Product Safety Commission to do a cost/benefit analysis for this regulation. Therefore, a cost/benefit analysis is not available for this regulatory action." Head-in-sand syndrome. I bet you'll be able to do a cost/benefit analysis pretty quickly when your costs go up again by 20x.
• "[It] is not possible to provide an analysis of the magnitude of the risk this regulatory action addresses." Ahem. And it's okay to put forward a rule of this complexity and far-reaching impact while flying entirely blind because . . . why???

Let's not forget that there's a new Congress being sworn in January 5th. The incoming Republican House majority has pledged to shrink the federal government and to closely examine how regulatory agencies are governing. Hmmm. Help may be on the way . . . soon.

CPSIA - The Great Set-Up

For those who had better things to do than wade through my comment letters last week, I want to highlight a few points.

The two CPSC rulemakings up for comment on August 3rd were on component testing and on the so-called "15 Month Rule". Both are very important rules and both have been long discussed. The "15 Month Rule" relates to testing frequency and defines a "reasonable testing program". The long controversy over these rules relates to their acknowledged potential to be TERMINAL to small businesses. This was the principal reason that Inez Tenenbaum delayed issuing these rules on time in November 2009 as required by law (they can vary from law when it suits their purposes, please note). She called a two-day workshop for December 2009 for the purpose of gathering the feedback of stakeholders. I was asked to appear as a panelist, as were two of my colleagues. These sessions were taped (they were able to hear all the feedback and digest it).

So here's a few things you should know:

a. Component testing will not be useful except for the largest companies and for those rare situations when everything falls neatly into place. The rules as written are too complex, too demanding (full traceability of all components is REQUIRED, which is delusional and completely unnecessary for such simple, innocuous products) and far too risky. The liability risk associated with these very challenging rules will scare off all but the most foolhardy or ignorant companies.

b. Component testing relies on a fantastic assumption, namely that component tests (if desired) will even be available. Why don't we assume they will be available for every paint and for every plastic pellet on the planet? Does that solve the problem? I dare say not. There are many convenient examples of likely missing test reports - think of aluminum foil in a science kit, for instance. If you are missing only a few component certificates, any benefit from the rule is lost.

c. The "15 Month Rule" was apparently NOT CHANGED from the draft discussed in December 2009. In other words, despite the agency's "misgivings" about the rule way back then, and even after two days of comments by more than 200 stakeholders, the agency ended up in the same problematic place - and put the rule out for comment now. Of course, they filled in some holes (see below). In my opinion, this means either that the "feedback" process was a complete sham (the agency gave the appearance of "listening" but did as it pleased anyhow) or else that the agency lacks the temerity to tell Congress that the CPSIA is simply screwed up. Having ducked that punch, the CPSC instead opted to put you and me out of business.

If they were unable or unwilling to listen in the last nine months, I have absolutely no confidence they will listen this time. That bodes badly for me and for you. Consider the following . . . .

d. Using the numbers from the CPSC's rulemaking, I derived that the agency wants me to spend $10,000 per item per year in testing costs (all-in). We have 1,500 items. Do the math - that's $15 million per year in testing. This is for a company with ONE RECALL OF 130 PIECES TO ITS NAME IN 26 YEARS. This is also the rule regulating a "risk" that killed ONE CHILD and MAY HAVE INJURED THREE CHILDREN . . . in 11 years. [You can review the math in my comment letter. It's their numbers, not mine.] Do you think this might be a touch excessive? No matter, that's our problem to resolve.

I can't get this $15 million number out of my head. Do you realize that this rule could become the law shortly? Hey, HTA members, do you get it yet? All that nuzzling up to the CPSC, all their tears over your plight - this rule shuts your doors. If they push forward on this rule (as I anticipate), we will all face a very daunting choice - do we close our doors, sell our companies, go into another business or, breath deep, knowingly break the law by ignoring this rule? Is this a surprise to anyone? This has to be the world's stupidest rule - and we are left with the ultimate Hobson's Choice. Thanks CPSC.

Let's not forget that Bob Adler spoke in stern tones last February when he said he would not vote to extend the stay on the testing and certification rules again. In the absence of further Commission action, the testing stay lapses on February 11, 2011. This rulemaking is intended to put the agency in position to let the stay expire. The next step would be enforcement of this new rule. Ms. Tenenbaum has publicly announced that 2011 will be all about enforcement - you have been warned, the pogroms are coming.

Do you get it . . . yet? IF the agency cannot wrap up this rulemaking in time, it will need to extend the stay. Arguably, that problem is on its doorstep right now. Even they understand that businesses need time to plan, and without final rules, no planning or preparation can take place. IF they cannot get this done in time (soon), they will have to extend the stay AGAIN. This would be incredibly damning of the agency, as it would be an apparent concession that the awful CPSIA cannot be implemented, perhaps ever. Of course, that only confirms what you and I have known for a long time - the law can't be fixed by this agency and is fatally flawed. In the absence of dynamic Congressional action, we're all toast (this is old news).

I urge you to take this battle to the political arena. The CPSC and the Dem-controlled Congress have shown that they just won't listen. They don't care about our problems. I say that if they are intent in putting us out of business, all of our productive businesses making contributions to our community and our markets every day, then it's time to return the favor. We need to put THEM out of business first.

Time's a-wastin'.

CPSIA - Comment Letter on the "15 Month Rule"

August 3, 2010

Todd A. Stevenson
Director, Office of the Secretary
Room 820
U.S. Consumer Product Safety Commission
4330 East West Highway
Bethesda, Maryland 20814

Agency: Consumer Product Safety Commission (CPSC)

Re: Docket No. CPSC–2010-0038 Testing and Labeling Pertaining to Product Certification.

Dear Mr. Stevenson:

I am hereby submitting comments in response to the Solicitation of Comments on Testing and Labeling Pertaining to Product Certification (Docket No. CPSC–2010–0038) published in the Federal Register on May 20, 2010 (the “Proposed Rule”).

The End of (Business) Life As We Know It:

As I sit down to record my comments on this rule, I take comfort in knowing that the CPSC admits what it is doing here. In a section entitled “Caveats and Possible Market Reactions to Third Party Testing Requirements”, the agency acknowledges the severe impact of its new rule on manufacturers:

a. Significantly increased costs,
b. Incentive to redesign (presumably successful) products,
c. Incentive to reduce features on products,
d. Incentive to eliminate (presumably useful) components in finished goods,
e. Incentive to reduce product lines,
f. Exit the market altogether,
g. Go out of business,
h. Create barriers to entry for future business expansion, especially in specialty markets (non-mass market),
i. Devastate niche markets (noting particularly the “special needs” educational market – sorry, blind kids!), and
j. Incentive to delay or forgo product or manufacturing process improvements (to avoid testing costs).

Quite a stimulus program! Of course, the CPSC knows we can’t meet this challenge alone. In “The Potential Effects of the Proposed Rule”, the agency advises us to hire a few helpers:

a. Lawyers to review CPSC regulations,
b. Engineers and chemists to develop product specifications, conduct tests and design a program for production testing,
c. Statisticians or consultants to determine the frequency, sample size and collection method for production testing, and
d. Technicians, “perhaps working under the supervision of an engineer, chemist or similar professional”, to perform production tests.

This certainly is a Brave New World for us. Luckily we have the CPSC to tell us what to do. Unfortunately, we can’t afford an in-house legal department or teams of engineers, chemists or statisticians. We don’t even have technicians. Incredibly, somehow we bumble on in our blissful, almost charming ignorance, having had only one recall of 130 pieces (we recovered every unit) out of perhaps 1,000,000,000 units sold in the last 26 years. No doubt all the pain the CPSC is promising us will be worth it . . . gotta keep everyone so safe.

Seriously, Is Anyone Listening?

On page 28338 of the Federal Register, the Proposed Rule reproduces the “reasonable testing program” as it stood before the December 10-11, 2009 workshop at the CPSC. The workshop (which we attended with three people who were each asked to appear as a panelist) was ostensibly for the purpose of giving “stakeholder feedback” on the so-called “15 Month Rule” (the Proposed Rule) and the component testing rule (also up for comment today, posted under separate cover). We gave detailed feedback on these rules – none positive – yet the Proposed Rule seems to have preserved the original, deeply-flawed concepts intact.

It is difficult not to conclude that the process of providing feedback to this CPSC is a sham. While Chairman Tenenbaum has long touted her “policy” of seeking feedback from all stakeholders including industry, judging from this rule, the commitment to seeking feedback does not involve maintaining an open mind. It appears that the most likely feedback to be well-received is feedback that ratifies what the agency already plans to do. Other feedback is “wrong”, I guess. I doubt you will find this letter useful.

As time ebbs on and as the drumbeat of a CPSC bent on our destruction becomes more and more clear, the incentive to waste a few days preparing detailed comments also ebbs. Nevertheless, owing to the importance of this Proposed Rule, I am hereby submitting comments. I have no reason to be optimistic that you will consider my point of view with an open mind. This rule has all the earmarks of a fait accompli.

Deeply Flawed Economic Analysis.

The Proposed Rule devotes pages and pages to a tortured analysis of its purported compliance with the Regulatory Flexibility Act (“RFA”). This section of the Proposed Rule is a virtual admission of how unworkable the rule is (and the CPSIA testing scheme in general). As a starting point, the rule states: “The objective of the rule is to reduce the risk of injury from consumer products, especially from products intended for children aged 12 years and younger.” In my recent study of CPSC recall data posted on its website, I have found exactly ONE DEATH and THREE ASSERTED INJURIES from lead or lead-in-paint from 1999-2010. Please keep this statistic in mind as I review the economics of your “injury reduction” effort.

The flaws in the RFA analysis are clear in its discussion of testing costs for toys. The analysis acknowledges that it only accounts for out-of-pocket testing costs, nothing else. Significant additional (and ignored) costs include samples destroyed or damaged in testing, transportation of samples, administrative costs for managing testing, administration costs for managing the testing data, administrative costs for managing recordkeeping, an allocation of general management time, legal expenses relating to testing and so on. Depending on the scale of the business, I estimate that these costs (and distractions) will add 15%-50% to the out-of-pocket testing costs.

The RFA analysis concludes that testing a typical toy will cost $1,262 per product. As an average, this might be a good number for our business. I would note, however, that the Proposed Rule posits that we will test multiple samples, sending in perhaps four separate samples per item to satisfy the bizarre “required high degree of assurance” standard. [The rule states clearly that testing one sample is never enough. Interestingly, we have never had the experience in the last 20 years that multiple safety tests of the same product reveals anything useful other than rapidly approaching poverty.] The rule’s four-sample regime takes the testing cost per toy up to $4,848 (by the calculation in the document) plus another $2,500 for mechanical tests (because the rule posits that we will submit FIFTY samples for mechanical tests). That brings us up to $7,348 per item, plus 54 destroyed samples. This implies a rough “all-in” cost of $10,000 per item. We have 1,500 catalog items in our product line. Without a “reasonable testing program” in place (see below), we will have to test each item annually. This is a cost of $15 million for our company EVERY YEAR. [We also sell custom items, a business that would presumably be terminated by this testing rule. That’s several jobs down the drain.]

Does it surprise you to know that $15 million in testing costs exceeds our annual profit? By far?

The RFA analysis is deeply flawed in other ways, too. The rule duly reports that “[a]ccording to a representative of a trade association, there are an estimated 50,000 to 60,000 individual toys on the market.” Oh, really? Perhaps the CPSC shouldn’t have consulted the International Hubcap Manufacturers Association for this information. A quick visit to the Amazon.com website reveals listings of 808,465 toys and games on August 3rd (http://amzn.to/djtTVX). Amazon is a customer of ours – I estimate that they list about one-third of all toys and games sold in the consumer market. Call it 2.5 million toys and games available to consumers in the U.S. But that’s not all – the category also includes specialty items not present on consumer sites. For instance, our industry, the education industry, is largely invisible on consumer sites. I estimate that about one million SKUs are available to purchase at the annual convention of the International Reading Association. Millions of other SKUs are displayed at the national math show, the national science show and the national early childhood show. Add in special needs and other sub-markets – and you get well in excess of 4-5 million toys and games. So the RFA analysis might be off by 100x in its assessment of the toy market ALONE. That’s not close. . . .

The RFA analysis goes on to conclude that the ENTIRE MARKET of products affected by the rule is 100,000–150,000 products. This includes “wearing apparel, accessories, jewelry, juvenile products, children’s furniture, etc.”, plus non-children’s products and other children’s products like ATVs, bikes, bunk beds and so on. It is hard to dignify this ridiculous data with a retort, except to note that it is absurd on its face. The apparel industry ALONE offers as many as 8,000,000 different children’s SKUs for sale. The RFA analysis is fatally flawed.

At $10,000 per SKU, the projected children’s product testing costs will easily exceed $50 billion per year. Remember the 11-year CPSC statistic on lead deaths and injuries – one death and three ASSERTED injuries? [There are no recorded injuries from phthalates or cadmium, by the way.] The 11-year compliance cost will exceed $550 billion (in 2010 dollars), expended by U.S. companies to “reduce” this risk of injury. It would cost a lot less to wrap every American child in bubble wrap.

Small Businesses CANNOT SURVIVE THIS RULE.

Assuming we are supposed to take this rule seriously, the Proposed Rule is perhaps the best friend of the mass market yet invented by an agency seemingly bent on the destruction of the small business community. This letter documents again and again the unrealistic expectations and assumptions made by the authors of this rule with respect to businesses in general and small businesses in particular. Thousands of small businesses of every stripe and color will be affected by this rule. Are you seriously thinking that they will all hire statisticians, chemists and engineers to prepare the reams of data, plans and reports the CPSC expects? Once this massive, herculean effort is completed, who will be safer anyhow? I can think of someone – mass market companies who have been handed a game-ending cost advantage on a silver platter by the CPSC. This, combined with mass market companies’ ability to create certified firewalled in-house labs, favors the big guy dramatically. No wonder the rule states again and again how prejudicial this rule is to small business. The CPSC knows what it’s doing.

Small businesses will strain to even understand what is expected of them. The rule is obtuse, long-winded and full of arcania. Small business people may not have the time or skills to master this complex rule. When the CPSC turns to its attention to enforcement (as promised for 2011) and selects a few small businesses to whip into shape, the market will take note of the pain and a mass exit will result. I realize, however, that Cassandra-like predictions haven’t influenced the CPSC in recent times. One of the Commissioners has even been quoted as saying that “anecdotes aren’t evidence”. It feels like we have to die to prove we were right. A few small businesses might just do that, if the agency waits long enough.

The Commission has asked for feedback on how to address these issues. The complexity of the CPSIA safety rules proves that they are unworkable. To repair this damage, the Commission must ask Congress to restore its ability to assess risk. I am assuming that the Commission would exercise this discretion with more common sense than is embodied in this rule. CPSC rules should be trimmed back to things that MATTER, only. Second, the agency should build its rules and its enforcement activity around DATA. Injury statistics tell the agency what is important. If a particular hazard generates ONE DEATH AND THREE ASSERTED INJURIES OVER 11 YEARS, you can safely relax your rules quite a bit (there are worse problems out there). Education might make a difference, however.

Finally, the Commission should NOT take ANY step if there is EVEN A SHRED OF DOUBT about the impact on small business. Small business is the major jobs creator in America. When you promulgate rules that choke the life out of small business or sharply reduce their incentive to invest, you are killing our economy. You have a heavy responsibility to keep this place running, even if it’s an imperfect world. While it’s sad that a child ever dies, the pain and suffering imposed on countless families from lost jobs, lost capital, lost access to needed products, and so on likely far exceeds it.

Reasonable Testing Program – Busy Work to Keep Us From Running Our Businesses.

The “Reasonable Testing Program” (“RTP”) represents a choice presented to manufacturers of children’s products under this rule. If we endure the expense and disruption of a RTP, we can cut our testing frequency (read, testing costs) in half. A very tempting prospect but the cost of a RTP seems too high, leaving us with a Hobson’s Choice. We can’t afford annual testing and we cannot afford a RTP. What should we do? What will anyone do?

Owing to the burden and complexity of RTPs, I predict EVERY REGULATED COMPANY will violate these rules. Since Ms. Tenenbaum has promised to turn to enforcement in 2011, the CPSC regulators should have a pretty easy time finding juicy targets. Every company will provide wonderful enforcement opportunities.

Although our testing program has been highly-effective over the last 26 years, our program would never meet these standards. We do not maintain the volume of paperwork that the new CPSC rule now requires. We know what we’re doing, but we have not organized our files into a how-to manual. Perhaps the agency thinks every company in the country is an ISO 9001 company. They’re not, and this kind of documentation is rare and breathtakingly expensive to prepare.

Having endured the CPSIA spectacle for two years now, I do not trust the seemingly flexible definition of necessary documentation. The pattern is that these seemingly open-ended terms (which may or may not describe our current recordkeeping) will mature into something rigid down the line. Even if they don’t, we still face the risk that we will not measure up to the expectations of the CPSC enforcement officer at the time of reckoning. The feeling that we are being set up is inescapable. As noted above, given our record of performance, the agency should have NO concerns about how we go about our business. Nonetheless, I feel certain that these rules will bite me in the future.

Sample selection under the rule should not be based on any statistical formula (per the baffling presentation of Dr. Michael Greene at the December 2009 workshop). If the overall safety results of the company are strong, the choice of samples by the company or factories should be presumed compliant without further inquiry. Random selection (taking one off the shelf . . . without the assistance of a statistician) works just fine in our experience, and there is no evidence that testing multiple samples will accomplish anything but will certainly raise costs. Better sampling won’t lower injury rates that already approach zero.

We currently do not use production testing and have zero production testing plans in place. With one recall in 26 years, I would assert this kind of testing is superfluous in our business and basically useless from a safety standpoint. It will significantly raise costs, however. The tedious exercise of preparing a pallet load of production testing plans to meet the new requirements is just plain busy work. One must ask what the CPSC was thinking when it penned this description of a production testing plan: “A production testing plan may include recurring testing or the use of process management techniques such as control charts, statistical process control programs, or failure modes and effects analysis (FMEAs) designed to control potential variations in product manufacturing that could affect the product’s ability to comply with the applicable rules, bans, standards or regulations.” Fancy words but . . . what planet are they from?

The requirement to list all the tests applicable to our items, again and again, to satisfy the RTP requirements is typical of mindless busy work asked of us. Does the CPSC think this will make ANY difference? Most businesses confirm safety tests with their testing lab partners anyhow. More bureaucracy, taken to new heights.

We don’t have any remedial plans in place either. We are quite familiar with how to appropriately resolve compliance and quality issues, and have never had a problem with regulators in the exercise of our business judgment. The requirement to prepare a detailed written plan, just in case we have another recall in the next 26 years, is pure officiousness. This is yet another waste of our time, our money, our resources and our intellect.

The recordkeeping requirements of a RTP is well beyond our ability or interest to preserve for 1500 products produced in thousands of lots over the course of a year. Taking a “Dear Diary” approach to how we source, test, move, remediate, repair, investigate and otherwise manage children’s products is completely unreasonable. This is especially ridiculous given our track record.

The Commission has asked what a RTP might cost us. I have a hard time estimating it because all the fun in our business would be gone. If we had to endure the bureaucratic nightmare this rule envisions, if anyone actually expects us to do all this to make simple plastic toys for schools, I would have to seriously consider our alternatives. So it might cost us our entire company. That’s the whole enchilada, guys.

Remember, we don’t have to make children’s products, nor do we have to stick around for the next act of this tragedy. If the CPSC persists in ruining what was once a rather safe industry with a strong track record, the cost will be the entire market for children’s products.

Is that a high enough price to give you pause? I know, I know, more anecdotes . . . .

The Requirement to Document Procedures against Undue Influence is Unreasonable.

The “Undue Influence Procedures” requirement (“UIP”) is essentially a requirement to document efforts to avoid fraud. If you’re not inclined to commit fraud, there’s little reason to set out your plan to not commit fraud. Here’s our current policy – “Don’t break the law or commit fraud”. This has worked well for us, as we have never exerted undue influence in the last 26 years and have no plans to start now.

I am really sorry that there are bad people in the world, some small number of which may have at one time attempted to exert undue influence over one or more test labs. Perhaps the CPSC should concern themselves with the bad guys and leave the rest of us alone.

Material Change Rules Place Too Much Risk on Manufacturers.

The CPSC’s rule on when to test after a “material change” is sufficiently open-ended to render the judgment on when to test fairly obvious – ALWAYS TEST. Deep within the Proposed Rule, Section 1107.10(b)(2)(ii) instructs “A material change is any change in the product’s design, manufacturing process, or sourcing of component parts that a manufacturer exercising due care knows, or should know, could affect the product’s ability to comply with the rules . . . .” “Due care” is defined as “the degree of care that a prudent and competent person engaged in the same line of business or endeavor would exercise under similar circumstances.”

In other words, the agency’s 20-20 hindsight can construct a case for testing for a material change for just about anything that “might” or “could” affect results or that a hypothetical “prudent person” might think of investigating. Of course, this issue only comes up in the context of an injury or a recall, so what are the odds that any judgment to NOT test would withstand inquiry by an angry CPSC? Zilch. So either you always test or you take a big risk. This is completely unfair and unreasonable.

Testing Frequency Must Be Left to the Manufacturer and to the Market.

A rule requiring manufacturers to test according to these standards every year is going to kill us and many other businesses. No one can afford the testing scheme outlined above, we least of all. If we must test according to these standards, we will be out of business quickly. It is equally unrealistic to imagine that testing cost savings from maintaining a RTP will hold much appeal since that project is so wasteful and gargantuan. Of course, a firewalled in-house lab would be nice for all of us small businesses, but that’s unrealistic, too (not to mention undesirable). We have no realistic way to moderate these costs. Please see my other August 3 comment letter for an explanation of why I believe component and composite testing will likewise provide no relief.

Testing is supposed to assure product quality and compliance. If we have a good, long term record of safety, why can’t we just carry on as we have, and deal with issues as they arise? That worked for 26 years. The new way is just unaffordable.

The “High Degree of Assurance” Standard is Unreasonable and Not Derived from the CPSIA.

The rule seems to conclude that a “high degree of assurance” is a necessary element of any “reasonable testing program”. The importance of the “reasonable testing program” which was incorporated into the CPSIA as an alternative to third party testing for non-children’s products, has been imputed to the children’s product area as a way to reduce testing frequency, and with it, the “high degree of assurance” standard (“HDA”) was likewise imputed. Thus, sliding down this slippery slope, the HDA standard has become part and parcel of the “15 Month Rule”. Abracadabra.

The Commission has requested feedback on the meaning of the definition of HDA in Section 1107.2. Happily, the agency has rejected a strict statistical interpretation requiring “95% probability” of compliance. What should the definition be interpreted to mean? The “high degree of assurance” should be based on an overall assessment of the safety record of the company. It should NOT be based on the results of an individual product, even if recalled or deemed dangerous. In our case, we have done business for 26 years, had one recall of 130 pieces of out of about 1,000,000,000 pieces sold. All of these units were recovered. Thus, we believe there is zero probability that a recalled product is in the market. Our historical recall rate is approximately 130/1,000,000,000 or 0.00001% over a 26-year period.

With this record over so many years, our company should be deemed to have satisfied this HDA requirement and be endorsed as having a reasonable testing program without further inquiry. And if we DON’T deserve the HDA designation, then the CPSC should articulate what level of safety achievement would earn the designation.

Notably, the entire children’s product industry also meets this requirement. Of the 899 recalls of children’s products from 1999-2010, only one death and three asserted injuries from lead were recorded by the CPSC. Thus, the probability of being injured from lead by a children’s product is nearly zero, given that literally billions of children’s products are sold every year. [The apparel and footwear industry claims annual sales of about 4 billion units ALONE.] Industry recall rates are likewise well under 1% per annum. With injury statistics and recall rates in hand, the CPSC should GREATLY loosen the strictures of the “high degree of assurance” standard to focus its resources on activities that might actually injure someone.

One-to-One Product Testing Will Punish the Smallest Companies.

The prophylactic approach to testing adopted by the CPSC will inevitably put many small or micro businesses into bankruptcy, or drive them into unregulated markets to avoid the CPSIA’s wasteful bureaucratic costs. If the law does not permit the agency to adopt sensible rules that allow businesses to manage their compliance risk as best they can (where the standards remain in place, but the government stops trying to tell businesses HOW to comply), then the Commission must finally tell Mr. Waxman what he doesn’t want to hear – that his law is broken and can’t be fixed. [Notably, these mini businesses most at risk have an exemplary record of safety and very low recall rates. NOTHING is gained by rules that crush the little guy.]

We in the small business community have suffered for two solid years while regulators have sought any possible way to avoid delivering this “unpleasant” message. I get the impression that the demise of our businesses would not be too great a cost for the agency to incur to avoid telling Congress what it doesn’t want to hear. If the Commission is genuinely interested in a fix, it must take action with Congress. I do not believe the agency can devise sensible regulations to fix this problem short of a legislative change.

Ban on Retesting Will Unnecessarily Create Crises at Small Businesses.

In our experience, test labs are neither infallible nor definitive in their understanding of U.S. safety laws and regulations. It is not unusual to experience failed test reports for reasons besides safety problems. In addition, children’s products are not so pure and perfect in their composition that every test produces the same result. The CPSC itself instructed manufacturers to audit their test labs in the ironically-dated April 1, 2010 version of the Proposed Rule in response to industry complaints that test results varied from test lab to test lab. By forbidding retesting, the Proposed Rule removes discretion and appropriate problem resolution techniques from a commonplace quality event. You don’t need to manage a very large portfolio of products before the probability of an ordinary course testing problem rises exponentially. This is a matter of mathematics. If retesting is banned, the CPSC is legislating a crisis of the week.

Again, CPSC injury data informs us that the nature of the problem is extremely modest. Historical injury rates are VERY low. This retesting rule is completely unnecessary and penal to all companies except perhaps mass market companies with greater resources. Small businesses won’t have teams of engineers or statisticians around to save the day. Many small businesses will naively call the CPSC for “help”, only to find out that they have created a worse crisis. Some small businesses may miss this point in the Proposed Rule and continue to retest, only to be punished later when the CPSC finds evidence of retesting at the time of a recall. Is this really how you want to regulate?

I would note that the justification for all this is bad acts: “[Retesting] may tempt unscrupulous parties to attempt to ‘test the product into compliance’. . . .” To my knowledge, this behavior has little precedence and even so, it is an abuse that can be dealt with other ways. If honorable and law-abiding companies use retesting to resolve honest problems, no harm is being done. Punishing good guys because you are afraid that otherwise bad guys might benefit is excessive and inappropriately harsh.

The 10,000 Piece Limit for One-Time Testing is Arbitrary and Unfair.

The CPSC has failed to persuade that the 10,000 limit is an appropriate break point for testing. First of all, the limit is cumulative, not related to sales in a period or per annum. Second, the threshold bears no relationship to risk of injury. In other words, it’s completely arbitrary. Why 10,000? Why not? In my view, that’s not enough to justify this rule. Many of the micro businesses that might benefit from this rule have NEVER had a recall. These are the people this rule will restrict. And the logic of this is . . . what, exactly?

Even more remarkable is the rule’s insistence that these low volume items be tested annually after passing the 10,000 piece threshold. Small companies will never have a RTP so annual testing (or more frequently, if for instance the item is hand-assembled) will be mandated. Consider a product selling 2,000 piece per year. Under these rules, the incentive to drop it once it crosses the 10,000 threshold will be powerful. This reminds me of the incentive on small businesses to not hire a 26th employee to avoid an onslaught of Obamacare obligations. A tacit cap on sales will be imposed by this rule. Nice!

The solution to this problem is to require one-time testing before sale, and thereafter according to the business judgment of the manufacturer. Remember, the retailers that buy from the manufacturer will also have something to say about testing frequency, too. Not all solutions are better if imposed by the government.

Alternative Testing Technologies.

The ability to test at low cost with XRF is attractive. For our business, it is tempting to use an XRF gun but for two reasons: (a) cost, and (b) health risk. XRF guns cost $30,000 each and have high annual maintenance costs (several thousand dollars a year). We might need several guns to manage our inventory volumes, a very costly prospect. XRF guns are portable x-ray machines. Notwithstanding the assurance of XRF gun manufacturers, I am quite reluctant to place an x-ray machine in the hands of a warehouse worker in our facility. This is an invitation to disaster. We likewise have no interest in hiring a highly-paid technician to wield the gun, or technicians to wield the guns. In any event, we cannot expose our employees to a possible risk of x-ray genetic damage. I am surprised that the CPSC doesn’t take this risk more seriously. Is lead a worse problem than x-rays?

In any event, I fail to understand what would be accomplished by a XRF solution for small businesses. The process of XRF testing may be inexpensive, but would be disruptive. In any event, I don’t see a connection to safety so I prefer a solution that restores sanity to our safety practices. Burning in a wasteful and disruptive process will only bog down our economy and our competitiveness. Until the CPSC can point to a risk factor relating to the little guys, one cannot rationally conclude that XRF makes this regulation better, just somewhat less worse.

In sum, the Proposed Rule is a dangerous rule with the acknowledged prospect of doing severe market damage. The CPSC knows this, having admitted it in writing in the text of the rule. There is no excuse to push forward with a defective rule on this scale. The Commission must talk honestly with Congress . . . before it’s too late.

Thank you for considering my views on this important subject.

Sincerely,

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

CPSIA - Component Testing Rule Comment Letter

August 3, 2010

Todd A. Stevenson
Director, Office of the Secretary
Room 820
U.S. Consumer Product Safety Commission
4330 East West Highway
Bethesda, Maryland 20814

Agency: Consumer Product Safety Commission (CPSC)

Re: Docket No. CPSC–2010-0037 Conditions and Requirements for Testing Component Parts of Consumer Products.

Dear Mr. Stevenson:

I am hereby submitting comments in response to the Solicitation of Comments on the Conditions and Requirements for Testing Component Parts of Consumer Products (Docket No. CPSC–2010–0037) published in the Federal Register on May 20, 2010 (the “Proposed Rule”).

This request for comments comes after, among other things, a two-day workshop held at the CPSC on December 10-11, 2009. Our company incurred the expense of sending three people (all panelists on multiple panels) to attend this “sold out” event which was purportedly to solicit stakeholder feedback on this rule and the so-called “15 Month Rule” (also up for comment today). There is little evidence from the Federal Register that any of our feedback was taken or possibly even heard. I have lost track of how many comment letters I have filed, panels or hearings I have appeared at and essays or letters I have written about the CPSIA and these issues. So far, my comments have added up to . . . nothing. Nevertheless, I am filing this letter in the vain hope that perhaps this will be my lucky day and you may listen to me, finally.

I would like to make some general comments first.

a. Some Positives in the Proposed Rule. I am in favor of the concept of component testing and applaud the Commission for taking steps to make it a reality, however flawed. In addition, I am also enthusiastic about composite testing. Regrettably, however, the devil is in the details.

b. CPSC Data Demonstrates that Risk is Low, so the Proposed Rule does not Need to be so Strict. I have analyzed the recall data published on the CPSC website and determined that from 1999 – 2010, the CPSC can account for ONE DEATH and THREE ASSERTED INJURIES from lead or lead-in-paint. If the goal of these rulemakings is to reduce deaths and injuries from lead, then these data must be borne in mind. With so few incidents involving lead injury of any kind in children’s products (less than occurs on AN AVERAGE DAY from swimming pools and spas in the U.S.), there is no justification for building such an ornate rule for something simple and logical like component testing or composite testing. Likewise, incidents of fraud in testing are equally infrequent and in any event, already addressed by other statutes. Congress did not require this complicated regulatory scheme, and the data cannot justify it.

c. The Proposed Rule Puts Compliance First, Before Safety. This rule seems to place a very high emphasis on the need to comply, as opposed to the need to make children safer. One is not necessarily the equivalent of the other. My favorite example is our company’s record of compliance. Founded in 1984, our company has recalled a grand total of 130 pieces in its history, all recovered, out of perhaps one billion pieces sold. Not bad. Were we to meet the myriad requirements of this rule, I cannot fathom that our products would be safer. Does all that extra compliance benefit anyone? It certainly will cost a lot (we pay, you don’t). As I read your rule, I wondered why you didn’t list the wire transfer instructions for the top testing companies. You might as well . . . . Still, the casual waste of our resources cannot make anyone safer – they were already completely safe.

Safety is the reason the CPSC exists. This document fails because it confuses the desire to powerfully enforce the CPSIA with actually making people safer. The only thing that may be accomplished is business death for many companies, principally small ones. Swashbuckling enforcement may make great headlines but no one will be any safer. Compliance is not safety.

d. Science Has Apparently Been Rendered Moot at the CPSC. While I accept that Congress has banned certain phthalates in toys, I do not accept that the ban is a SCIENTIFIC CONCLUSION. It is legislation, not science. Notably, the CPSC has twice investigated phthalates and held that phthalates were safe in toys. Yet, on page 28213 in the Federal Register, the Proposed Rule discusses the “risk” presented by a product that might have a violative concentration of phthalates in a component, but with an overall concentration that wouldn’t violate the ban. It goes on to assert that a component-based rule is “more protective of human health”, as though the agency had reached the scientific conclusion that phthalates were dangerous – which is not true. Re-characterizing the legislative ban as an assessment of “risk” may appear to legitimize your rule, but it is certainly not an accurate statement of the historical position of the agency. I object to the rule’s equating of a ban by politicians to a scientific judgment. Science is under enough assault without the stamp of approval of the CPSC announcing its death.

My specific comments on this proposal:

1. Component Testing Looks Better Than It Is. I wish I felt we (or anyone else) would use component testing extensively in the future. There are several reasons why this option will be of little use to anyone, particularly the small companies that it was intended to benefit. [Companies with enough scale may find the Proposed Rule useful – one of the many ironies of the CPSIA is that its principal beneficiaries may be the companies that prompted its passage.]

a. Limited Market Availability for Component Certificates. While some high volume components of children’s products may quickly be tested to meet these requirements, many other kinds of components are not likely to be tested:

i. Low volume components
ii. Components made in small lots
iii. Components made by small suppliers (many fabrics)
iv. Components which derive only a tiny percentage of revenues from regulated products or which principally cater to other industries (e.g., paper clips or aluminum foil in a science kit)

Unfortunately, it appears to me that the logic of this rule is that if we can be certain that some certificates will be widely available (e.g., paint, plastic pellets), therefore all other certificates will be available. That’s plainly ridiculous.

b. Complexity. The subdividing of compliance testing into component parts and the whole, some tests done on parts and some on the whole, with tests of varying dates substituting from time to time, is simply a mindboggling mess. I cannot imagine that this can be successfully managed on any scale (how many products need to take advantage of this rule before test reports develop big and inconsistent holes?). And how will retailers be able to interpret this patchwork quilt of tests? This scheme will be self-defeating on all levels.

Add to this the requirement that components need to be traceable, and you basically rendered the component testing opportunity moot. Of course, I am presuming that industry will take your rules seriously. To me, it’s completely inconceivable that anyone will build your traceability system. [Traceability will not raise revenues, only mindless complexity, and as noted above, cannot conceivably improve safety.] If you take these rules seriously, you will cry, laugh/scream – or walk away. The paperwork required for this exercise is well beyond almost all companies’ capabilities. [Does the CPSC have ANY tangible evidence that its requirements can be met by anyone . . . other than Mattel and Wal-Mart? Presumably, no one at the agency living in the real world thinks that traceability rules can be met by the typical Handmade Toy Alliance member, or other small businesses like ours.]

c. Unrealistic Expectations on Manufacturing Control and Traceability. To take advantage of this rule, a manufacturer must take responsibility at the sub-micro-level for manufacturing quality. Let’s recall for a moment that we are not making drug treatments here, nor are we building the Space Shuttle. We are making simple plastic toys and games, children’s shoes, pens, shirts, books, educational materials and so on. Consider this instruction from your new rule: “The manufacturer must exercise due care that the manufacturing process does not add a prohibited chemical from an untested source, such as the material hopper, regrind equipment, or other equipment used in the assembly of the finished product.” Our company has several hundred vendors producing thousands of SKUs – do you honestly believe we could possibly manage how all these independent companies wash out their molding machines or manage their regrinding operations? Is this some kind of sick joke?

By the way, this verbiage will end the use of recycled materials in children’s products. This is completely unjustified for safety reasons and is certainly very unfriendly to the environment. As noted above, your agency’s responsibility is to manage safety. You have no basis in fact for asserting that these theoretical sources of lead are or could constitute a public safety risk.

d. Liability Risk. The Proposed Rule goes to great length to ram home the message that all the risk is on our shoulders. The monotonously repetitive use of the term “due care” throughout this document makes abundantly clear that the CPSC is perfecting a myriad of claims to be made against any and all manufacturers of children’s products when it suits the purpose of the agency. Many of the claims may be perfected with the agency’s 20-20 hindsight. The Proposed Rule minces few words on this preservation of rights: “The above information is needed so that, if noncomplying products are found, the Commission can use this information to determine whether a finished product certifier, component part certifier, or third party conformity assessment body is not complying with the appropriate requirements.” Under the Proposed Rule, even a missing piece of paper can be the basis of charge of failed due care. A fear of criminal charges seems realistic.

Will aggravating letter writers be the first to suffer under this hammer? The answer is – it’s entirely up to YOU under your rule. Small companies will see how the deck is stacked against them and steer far from the component testing option (if they understand the obtuse wording of the rule).

2. If Few Companies Can or Will Use Component Testing, Has the Agency Provided “Relief”? Of course, the answer is NO. The Proposed Rule may look like good policy, but if the practical impact of the rule is that few people can or will take advantage of it, it is simple window-dressing. The impact on small businesses, exemplified by the well-known and sympathetic Handmade Toy Alliance, will be severe. They are not the only ones in need of help, either. If small companies like HTA members cannot take advantage of these rules in large part or would be too scared to take a chance in the face of the awesome display of governmental power in the rule’s terms, then they will suffer and shrink. I would note that the Notice on the “15 Month Rule” explains how a failure to protect small companies could play out badly (see “Caveats and Possible Market Reactions to Third Party Testing Requirements” on page 28358). Those negative impacts could result from a failure of policy here, too.

3. Maintenance of Records for the Life of a Product Plus Five Years Is Unduly Burdensome (Not to Mention Pointless). Please consider our case: We still produce certain items from our original product line in 1984. Clocks don’t go out of style in education, even if Tickle Me Elmo and Furby last only one year. The requirement that we must retain records for the life of the product plus five years could theoretically be forever in our case. Perhaps the CPSC can provide us free unlimited warehouse space for all these records. In any event, our case also makes clear how pointless this requirement is. We have only had one recall in 26 years, which we successfully administered without the assistance or guidance of the thousands of pages of rules and legislations that befell us under the CPSIA. How, precisely, will decades of records improve the public weal in OUR case? Your rule is very good at spending our money, our resources and our time, but doesn’t make a reasoned connection to safety in any way. We are not Mattel and in any event, they don’t define the market. Had you listened to us in December 2009 at your workshop, you would know this already.

4. Composite Testing Rule for Paint LOWERS the Lead Standard to Sub-trace Levels. In yet another example of overly risk-averse rulemaking, the agency’s new composite testing rule for paints requires that lead content must never exceed that for any individual component paint in the composite. This slices the 90 ppm limit by two-thirds for a three-paint sample and by 75% for a four-paint sample. This super-stringent rule ensures that it is literally a gamble to use composite testing – so why would anyone bother? Even more bothersome, since the new policy of the agency is to impose strict liability for lead-in-paint violations, this new rule demonstrates the ascendency of the debunked notion that there is “no safe level for lead”. If the agency really wants to take this position, it should not permit composite testing for paints. Too risky . . . .

5. The Regulatory Flexibility Analysis is Flawed and Self-Justifying. The analysis justifying this Proposed Rule is a “best case” scenario, and takes none of the foregoing into account. If in fact the rule will hard or impossible to use, or will create too many legal risks or recordkeeping burdens and thus go largely unused, the reasoning in this section will be completely inapplicable.

6. The Burden of Recordkeeping is FAR GREATER than Asserted in the Proposed Rule. At our company, we produce about 1500 “catalog” items and several thousand other SKUs and custom products through a network of hundreds of factories in various countries. We do not control these factories – they are generally family businesses like our company, and are independent of us. Typically, we provide only a small share of annual revenue of any of our factories and thus have limited leverage over their business practices. Like many small businesses, we have a very limited infrastructure in place to supervise factories “on the ground”, although it is worth noting that our safety record indicates that our business methods have worked well for more than two decades.

To implement the recordkeeping set forth in this rule, I estimate that we would have to spend $50,000 - $100,000 in software development expenses to store and manage the desired records. In addition, we would need to expand our staff significantly. To reach out to all of our factories, negotiate and monitor many new business practices, will take a significant increase in staff. I posit that we would need to open an Asian office with as many as 5-10 local employees. A Chinese office would cost us at least $500,000 per annum. In addition, we would have to increase our clerical and management staff in the U.S. to help with data input, software management, project management, audits, vendor relations and general management. This would cost us at least $250,000 per annum. We anticipate that this intrusion on the business practices of our vendors would cost us business relationships and would lead to significant cost increases. The total cost of these disruptions would add another $500,000 or more per annum. It is not inconceivable that we ALONE could incur annual expenses of $1.5 million and certainly at least 10 man-years of labor (more than 20,000 hours) to comply with these rules. There are THOUSANDS of companies affected by this rule. We estimate that the assessment of cost and man-hours in the Paperwork Reduction Act section of the Proposed Rule is LOW by a factor of 100x-5,000x.

I would suggest that this rule be greatly simplified by making the following changes:

a. Eliminating the Requirement for Traceability Recordkeeping. As noted above, this ornate rule architecture is completely inappropriate for the minimal, almost non-existent threat, demonstrated by the CPSC’s own injury data. Recordkeeping requirements should minimized or dropped altogether.

b. Encourage the Exercise of Business Judgment. The presumption that only the CPSC (or Congress) can make sound judgments when considering safety issues is simply not supported by the data. Again, our company is a good example of that – we scrupulously maintained our safety record without the CPSC’s oversight, coercion or even encouragement since 1984. The concept of “business judgment” is well-defined in U.S. common law and has real meaning under the law. I think the concept of using components supported by GCCs is simple enough. Given that the restrictions on lead are clear under the CPSIA, why not let businesses exercise their judgment on how to meet those requirements and then measure them on their success in doing so? What is to be gained by inserting the CPSC into all aspects of how we conduct business? We were doing just fine before you arrived on the scene.

Given the few lead injuries noted in the CPSC’s historical data, the agency could save its scarce resources and remain effective as a safety administrator by focusing on known safety issues and incidents and leave the vast majority of law-abiding and safety-conscious companies ALONE. The data suggests that higher and higher mountains of regulations will never reduce injuries from the historically miniscule levels documented on the CPSC website.

c. Allow Composite Testing Using the Overall Concentration as the Pass/Fail Measure. Again, this is justifiable based on the historically minimal risk posed by the regulated substances. The already low lead levels specified in the CPSIA have not reduced injuries or deaths from the negligible levels that predated it. Since the number of recalls is so dramatically affected by agency policy (e.g., strict liability or not, how recalls are accounted for, etc.), the only reliable measure of the effectiveness of policy is injuries. Composite testing holds the promise of real savings to the many law-abiding companies affected by the CPSIA. Loosen the noose and they may actually save some money.

Component testing can be a simple and effective way to lower costs, but a different approach is necessary to get to that result. A sharp reconsideration of the Proposed Rule will be required to achieve this goal.

Thank you for considering my views on this important subject.

Sincerely,

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

CPSIA - It's Raining Paper . . . Again

At the April 29th CPSIA hearing, I testified that the CPSIA and associated rulemaking had exploded into more than 2500 pages in new CPSIA laws, rules and documents that pertain to my business. I also noted that 608 pages had been issued in the 30 days preceding the hearing and that the rulemaking process continues unabated. Well, the CPSC just spewed out another ream of paper (396 pages) for you to absorb this week:

1. Publicly Available Consumer Product Safety Information Database, Notice of Proposed Rulemaking, DRAFT Federal Register Notice, May 7, 2010. [150 pages]
2. Testing and Labeling Pertaining to Product Certification, Notice of Proposed Rulemaking, DRAFT Federal Register Notice, May 7, 2010. [164 pages]
3. Conditions and Requirements for Testing Component Parts of Consumer Products, Notice of Proposed Rulemaking, DRAFT Federal Register Notice, May 7, 2010. [82 pages]

At a mere 396 pages, this week's new rules increases the total paper released in the last 45 days to at least 1,004 pages. In its usual helpful fashion, the agency issued these rules to replace other documents recently released and that you may have already read. Gotta read these pupies from the top, since they aren't redlined against prior drafts. This doubles the fun of the new rules - you need to master them to run your business PLUS you get to go on an exciting treasure hunt as you try to figure out what has changed! And we get all that fun for free!

Good thing time grows on trees or else I might get frustrated.

Happy reading! Just remember, if you don't comment on these rules and the CPSC imposes final rules that are unreasonable or crush your business, you will have no one to blame but yourself.

As I said, happy reading!

CPSIA - Video Clips from Q&A at CPSIA Hearing

I am working on getting you access to the entire video file of the hearing, stay tuned. To whet your appetite, however, here are three clips from the Q&A session. Dan Marshall of HTA, Rachel Weintraub of Consumer Federation of America and yours truly fielded some important questions about the excesses of the CPSIA. There are some really good nuggets in here, but my favorite is this exchange between Rep. Joe Pitts (R-PA), Dan Marshall and Rachel Weintraub:

Rep. Pitts: "Let me ask you then, do you think American toy distributors should be able to sell European toys that are compliant with the European [EN71 safety] standard?"

Dan Marshall: "Yes. I don't think anyone here is going to argue that a toy that's been tested to EN71 standards is not safe for the American market."

Rep. Pitts: " Does anyone disagree with that? Ms. Weintraub?"

Rachel Weintraub: "This is a complex issue, one of trade issues and harmonization of standards and I am not an expert on those issues. But there are reasons why the absorbability concept of lead has been rejected. And for those reasons, and I could get into them, but for those reasons, the U.S. has rejected looking at lead from that perspective."

[Ed. Note: To quote Ralph Kramden of the "The Honeymooners": "Hamana-hamana-hamana-hamana"]

Rep. Pitts: "So you do not think the EU adequately protects their children?"

Rachel Weintraub: "Umm, no, I'm not saying that but in terms of looking at how the test is conducted, it's very different than how the CPSC does."

Priceless!

Enjoy the clips.

CPSIA - But Who Will Test the Test Lab Testing Testers???

Demonstrating that creative, innovative flair we look for in our regulatory agencies, the CPSC has just announced its discovery of a much-needed new testing protocol, the test lab testing tester. Okay, so you say someone's been playing with their clacker balls a bit too much, but heck, they gotta know what they're doing, right?

Embedded deep in the impressively long 160-pager entitled "Proposed Rule: Testing and Labeling Pertaining to Product Certification, April 1, 2010", the CPSC reveals that there's trouble in La-La-Land over variances between lab tests performed at different certified labs: "Another comment noted that variations in sample preparation by conformity assessment bodies can and do lead to differing test results. One comment, noting lab-to-lab variations in test results for the same product, suggested that CPSC should require CPSC-recognized third party conformity assessment bodies to conduct blind correlation studies and lab audits."

Oy vey, what do people EXPECT? The CPSC can't help out on every niggling problem: "The Commission's limited resources preclude CPSC from directly conducting verification of the numerous CPSC recognized conformity assessment bodies. Additionally, the activities and requirements for accrediting conformity assessment bodies are outside the scope of this rulemaking."

Case closed?

Au contraire, Pierre! This CPSC will face down every challenge! They ain't no teething tiger any more, they are a Lion of Safety now, so they came up with the perfect rule to resolve this dilemma. After all, lest we forget, you CAN'T be too safe! Here's what they came up with:

"Proposed § 1107.24(a) would state that a manufacturer is responsible for verifying that its children's products, as tested by a third party conformity assessment body, comply with applicable children's product safety rules. For purposes of proposed § 1107.24, "verification" would mean testing that demonstrates that the test results from one third party conformity assessment body are consistent with the test results from another third party conformity assessment body for a particular children's product. Proposed § 1107.24(a) would require a manufacturer to send samples of a previously certified children's product or a children's product that previously has been tested periodically pursuant to proposed § 1107.21 to a third party conformity assessment body for verification.

. . . . Proposed § 1107.24(b) would require verification to occur on a reoccurring basis and be conducted at a frequent enough interval to provide a high degree of assurance that the children's product that had been certified previously continues to comply with the applicable children's product safety rules or that the periodic test for the children's product was performed correctly."

]Emphasis most enthusiastically added.]

This is GENIUS! Thank heavens we have the CPSC to protect us. Who else would have spotted this terrible and threatening gap in our consumer safety network? But having added this new layer of "protection", aren't other safety holes now visible? I call on the CPSC to bring out rules clarifying:

• Certification of testing testers;
• Certification of testing tester testing testers (you need those, too);
• Certification of testing tester testing certifiers;
• Rules for tolerable variances among testing labs for each certified test, record keeping on all test results and variances for at least 100 years, and plans of remediation for every conceivable variance for each possible test under all conceivable circumstances;
• Rules for a new agency to check all the work of the CPSC and to reconsider and rewrite every rule they have ever written, plus record keeping and hearings and comment periods for this new agency;

I think the new agency to check the work of the CPSC should be called the Consumer Product Safety Commission Checking Commission for Safety Enhancement and Verification Processes (CPSCCCSEVP), you know, for simplicity. Gotta keep it simple and efficient. That's my motto!

[For more pleasure reading on this important topic, don't miss the 110-page Staff briefing or the equally riveting 29-page Slide Presentation for the April 15 Commission meeting on the same topic. Happy reading!]

CPSIA - New Waxman Amendment Draft Issued Tonight, Mark-up Set for Wednesday Morning

The third draft of the Waxman Amendment 2.0 was released this evening. I have attached a clean copy of the legislation, as well as a redline for your convenience. The powers-that-be also released a draft of their "report language". The report language is interpretative language and is not included in the law mainly to keep future law clerks busy doing research. It should also give us something new to argue about.

This is the Committee Briefing Memo accompanying the draft legislation.

Consistent with past practice, this draft was issued with the usual coercion. A mark-up has been scheduled for Wednesday AM 10:00 a.m. in Room 2123 Rayburn House Office Building BUT the Dems will decide tomorrow if they will proceed with that process. All talk of a hearing to vet this legislation has been quashed by the Dems who are scrupulous in managing the record. [I will never get to testify, that's for sure.] There will be a meeting on Tuesday at 4 PM to discuss this draft, at which point the Dems will either pull the plug or move forward. Presumably, this depends on the enthusiastic response to this draft. The Dems say they want a bipartisan bill and further want to send it to the Senate with the news that the bill is "supported by industry". In other words, Mr. Waxman is not interested in negotiating with the Senate, just wants their rubber stamp. He's not big on "jawboning" if that means he has to listen to others and make concessions . . . .

You are right to consider this another patented Waxman "take it or leave it" offer.

In response to complaints that this bill ignores the many legitimate concerns of the small business community, Waxman staff has advised that they "can't help everyone". That means you, guys.

Changes in this Draft:

a. Functional Purpose "Exception" - Minimal changes, mainly reverting back to the "public health or safety" test formulation. References to "all foreseeable users" is gone now. The "town hall" provision allowing "interested parties" to intervene in every proceeding has been eliminated. The "Previously Denied Petitions" provision is unchanged and still makes no sense.

The report language clarifies the meaning of "practicable", noting that excessive or unreasonable costs should be considered not "practicable". Specifically, they note: "The Committee does not consider a mere increase in the cost of manufacture or production, in itself, to be excessive. The Committee does expect that the Commission will consider compliance to be impracticable where compliance would place the viability and continuation of a class of products or materials in jeopardy, such as youth All Terrain Vehicles or youth bicycles made with recycled steel." [Emphasis added]

In case you were wondering about the purpose of the functional purpose exception, it is a gift to the noted industries. It's not for you. Remember, this relief is only available to those who are capable of mounting an exception application. Not a small undertaking.

Remember that the applicant for a functional purpose exception must apply for relief for a "specific product or material". You must also PROVE that your costs are not "practicable". Can you see some wiggle room there? A true believer Commission might have very little incentive to interpret these terms permissively. [You can count on that one with the Dems in charge.] This will be a costly and technical process. Think of this in the context of your business - is this realistic? With our 1500 products, it's just inconceivable. Too bad for us. Let's also not forget the stringency of the three-prong test.

The report language specifies that a "measurable adverse effect" on public health or safety refers to changes in blood lead levels. The language is pretty specific and will require a toxicologist's report to justify any exemption. Here are the magic words: "Given that there is no current blood level at which the scientific community considers lead exposure to be 'safe,' the Committee understands that a very small adverse effect may theoretically occur at any level of exposure. The Committee intends, however, for the Commission to deny requests for exception under this section as having a 'measurable adverse effect' on health or safety only in the case of those adverse effects that the Commission determines to be empirically, as opposed to theoretically, measurable. At present, the Committee understands that there is scientific consensus to interpret the phrase 'measurable adverse effect' from lead exposure to mean a measurable increase in blood lead levels."

This is a form of legislative filter to make sure that the exception is only for the chosen industries or companies. Again, this isn't meant for small fry, just big business. That's equity these days, I guess.

Anyone remember how hotly the Dems defended the inclusion of ATVs and bikes in this law back in '08 and '09? It was intentional, they insisted, necessary to protect the public against deadly lead. There's no safe level of lead, blah blah blah. Guess they got over that one . . . after they received 170,000 emails from ATV'rs.

b. Thrift Store Relief: Virtually no change, other than minor clarifications.

Not unlike the workings of other parts of the CPSIA, this new provision will be good for large scale thrift organizations like Goodwill or Salvation Army who are presumably able to centrally evaluate complex laws and implement system-wide responses to changes in law. i wonder how the smaller independent Mom-and-Pops will react to this provision. In any event, the provision tacitly bans resale of children's jewelry, painted toys and vinyl children's products. Stores will have to keep straight which items are in and which are out. With many resale stores staffed with minimum wage workers, I question how effectively most owners can prevent violations without just avoiding the category (at least in part).

Resale of childcare articles, including cribs, seems unaffected. The real gotcha is the risk the stores will bear from recalls. For that reason, I think many stores will stay away from reselling this category of goods. Clothing may make a reappearance in resale shops, finally.

It is incredible that the Democrats let this industry flap in the wind for almost two years before acting to save them from CPSIA oblivion. Think of the economic devastation these insensitive legislators wrought on small businesses all America, not to mention the patrons of this important industry - through two cold winters. This is just inexcusable, a true demonstration of stubbornness or being completely out of touch. Those who suffered at the hands of the Dem inaction have no recourse, either. Shame, shame.

c. Relief for Small Batch Manufacturers: The sham of this "relief" is perpetuated in this new draft. The definitions of "covered products" and "Small Batch Manufacturer" were left structurally intact but the thresholds were tweaked upward meaninglessly to 7500 units or $50,000 sold per item per (calendar) year, with an overall cap of company sales of $1 million. "Covered Products" oddly continues to refer only to manufactured items but Small Batch Manufacturers are defined by sales of manufactured OR imported goods. Go figure.

As I pointed out earlier today, Mattel and Hasbro have quarterly revenues of $880 million and $672 million, respectively. The so-called relief here is for companies with annual revenue of under $1 million. If these little companies pop over that revenue hurdle, they will be held to the same standard as Mattel and Hasbro. Don't worry, the CPSC plans to coach the little guys! Now if only they could provide non-recourse financing . . . .

Even if you are salivating over this pathetic crumb of "relief", I encourage you to reread what goodies Mr. Waxman is giving you. Here's the meat of it: "Any such alternative requirements shall provide for reasonable testing methods to assure compliance with the relevant consumer product safety standards." The reasonable TESTING METHODS must ASSURE COMPLIANCE. You tell me what this English sentence means. I think it means the small fry will be testing. I know the rest of us will, too. Testing and testing and testing and testing. It's time to buy stock in Intertek, I think. Later on, the bill instructs the Commission to work "cooperatively" with the little guys to "impose the least burdensome testing requirements . . . consistent with goals of statute." And those goals are, what exactly? Comprehensive, prophylactic testing.

Oh, the bounty of this relief!

d. Phthalates and Inaccessible Components: No material changes.

e. Subpoena Power: No changes whatsoever. Somebody's going to be sorry someday that this procedural speed bump was removed. Unfettered power of government was always un-American . . . until we met these Democrats.

Conclusion:

I wish I could recommend this bill. It has some good stuff in it. Unfortunately, it is utterly ineffective to arrest the damage being inflicted by the CPSIA. It is a gift to large industries but leaves the hammerlock on American small businesses catering children's markets. It sustains the fantastic notion that those of us in this business have somehow been poisoning kids for years or decades. That's a slanderous notion, something deeply offensive to me, but for the Dems to admit otherwise would mean a mea culpa. And there's no chance of that.

If the Dems manage to tempt enough corporate entities to sell out for this low price, it will be the biggest gift ever given by the corporate community to Mr. Waxman. He should host a champagne party for himself if he buys off the resistance. There will be no remaining organized opposition to the bulk of his CPSIA handiwork, and the focus will shift to surviving a manic CPSC bent on enforcing voluminous but ineffective safety rules and ladling out massive penalties for infractions without injuries. And once the action moves permanently to Bethesda, we'll see finally how much Cassandra got right.

I'm not looking forward to finding out. Vote NO on Waxman.

CPSIA - A Quick and Incomplete Analysis of New Draft Waxman Amendment 2.0

With only a few hours to look over the new draft of the Waxman Amendment 2.0 before tomorrow's meeting, I guess the idea is that we are supposed to drop what we are doing to complete an analysis fire drill. Power trip for the Waxman staffers? Possibly. Still, what choice do we have? I thought I would outline my preliminary comments to contribute to the debate.

It goes without saying that this is entirely my own work without the benefit of discussing it with others similarly situated and without the opportunity to compare notes. It is therefore likely that I have missed something important or made other mistakes. Sorry . . . . This post is also painfully long. Again, given that Mr. Waxman hardly cares about your problems or mine, I have little choice but to post this as one essay. Again, sorry . . . .

a. Modifications to Section 101(b)(2) Exemption Process:

• The idiotic post-exemption warnings provision has been deleted.
• The three-pronged exemption test remains in place, as does the ambiguous and troubling term "practicable". "Practicable" is a sneaky Waxman approach to providing an escape hatch for big industries with narrow product definitions like ATVs and books. You're not supposed to know this. Our laws aren't for the little people anymore.
• The third prong of the exemption test has been clarified from no effect on "public health or safety" to no effect on "the user’s health or safety, taking into account normal and foreseeable use and abuse by all foreseeable users." This change seems like new belts and suspenders to make it easy to deny an exemption. The Dem zealots want to be sure no one gets an exemption but ATVs and books, wink-wink-nudge-nudge.
• Poor applicants for exemptions are still obliged to wait hungrily by the door of the CPSC for the leavings of rich supplicants. Yes, small business owners who want exemptions like the big guys but can't afford to pay the big bucks can reuse the big guys' consultant's reports provided the evidence is considered non-proprietary. [Whatever that might be.] Nice . . . if someone else has already paid for it and submitted it in an exemption process, and if you have access to it (and have found it), you can use it. Noblesse oblige, I guess. Thank You, Kind Sir. I speak for all the little people . . . . Oddly, this concept reappears in a confusing provision called "Previously Denied Petitions" that only refers to previously denied petitions in its title (I don't get it).
• In another "how closely are you watching me?" change, the grounds for decision provision now permits the Commission to consider "only" evidence presented by "interested parties", rather than the evidence presented by the party seeking such exceptions. So if you ever get as far as an exemption hearing, this provision turns it into a town meeting. How would you like it if anyone could enter and participate in your litigation without your consent . . . like your competitors or your business enemies? I have a good idea - why not just write into the law that Rachel Weintraub will be considered a party in interest to every action at the CPSC?
• The Narrowest Scope provision has been modified to clarify that you must not only address each component but also each material. The paranoia you sense in this legislation is just the precautionary principle at work. The staffer-gnomes who have been crafting this legislation are not thinking about how our markets work or should work - they are simply obsessing over how we business people might find loopholes. Of course, it is in the nature of business people to try to avoid laws, we are all so evil. Oh yeah, I forgot . . . .
• The Limitation of Exception provision now is framed in terms of "all foreseeable users" which I can only assume is meant to make the burden of proof higher for supplicants. After all, if you can foresee a so-and-so using the product (I won't supply the colorful example), then the Commission must limit the exception. No possibility of risk can be tolerated by the precautionary principle folks.

As the provision for exclusions has not changed much, here is my analysis of the original language for your reference.

b. Treatment of Resale Shops by the Waxman Amendment:

• The provision defining a "used children's product" seems to now mean (a) an actual used children's product, and (b) new goods donated for a charitable purpose. This would seem to protect resale shops from liability for sale of items violating the lead provisions (but not the phthalates ban, notably) unless the seller or the person who supplied it to the seller knew it was in violation of the lead provisions. If that seems somewhat circular, it is. In this case, the law as drafted encourages resale shops to remain as ignorant as possible. This is Waxman's "Don't Ask, Don't Tell" policy. Nice.
• There has been no clarification about the application of this provision to consignment shops. Do they "obtain" goods for resale if they never take title? Something fun to speculate about!
• In a little-noticed provision, the definition of "seller" includes lenders or donators of used children's products. Thus, for lending libraries, they will be in the clear if they lend used goods, but will be on the hook if they lend new product. Does it become "used" after one loan, and if so, what does this mean? The legal department in your local children's library will figure this out. Sure. As to people who donate, the provision is circular again. As best I can figure out, you are not subject to the lead rules (only) if you are donating something used for charitable purposes, but if you give away something new, you are on the hook. At least, that's how I read it. So the bottom line is - don't give anything new to a charity, just give them junk. This is what Mr. Waxman wants. And that means this is what Congress wants.

While these changes may be an improvement, they are sadly improvements without much impact. This provision remains convoluted and hard to understand. The definition has numerous exceptions and also avoids giving the same shelter to resale shops for all the other picayune provisions of the law, like the phthalates ban. Frankly, without a clean exemption for this industry, resale stores are all going to avoid this class of goods. The complexity alone will kill this exemption except for the most sophisticated participants in an industry not known for its legal skills or resources. These stores won't hire lawyers to check their work. They can't afford it.

This is my original criticism of this provision, which is still applicable.

c. Prospective Application of 100 ppm Lead Limits - this provision was not changed in the new draft.

d. Low Volume Manufacturer "Exceptions":

• Thank heavens, they changed the term of art for these small fry to Small Batch Manufacturers. This was done at the insistence of the HTA. What a victory! Someone please explain this to me.
• The "In General" provision is basically unchanged, other than the fancy new name for the supposed beneficiaries of this largess. Notably, the last sentence was clarified to make sure no one could contend that Waxman inadvertently gave the Commission the power to grant "alternative testing methodologies" for ANYONE but the small batch guys. There's so much trust and love flowing here . . . .
• The truly non-existent "relief" of this provision remains EXACTLY the same. Here it is, bask in its wonderfulness: "The Commission . . . may, by regulation, provide alternative testing requirements for covered products manufactured by small batch manufacturers in lieu of those required under subsection (a) or (b). Any such alternative requirements shall provide for reasonable testing methodologies to assure certification based on compliance with the relevant consumer product safety standards." [Emphasis added] Standing ovation? These lucky micro-businesses must meet alternative TESTING methodologies that ASSURE compliance with the standards. In other words, they gotta test. They even added a "savings clause" to forbid any relief here (such as it is) if any foreseeable user might be foreseeably at risk. Some relief.

Notably, the reach of this section has now been limited to "covered products". This new term, which incorporates a three-prong test (this is the second three-pronger of this amendment so far, but not the last). [See below.] Please NOTE that this new term means that the ONLY relief the CPSC can grant is to these small fry products. A product that exceeds the limits of a "covered product" will NOT enjoy any theoretical testing relief, even if made by a business qualifying for relief overall. Should you care? Well, in my view, if you have to endure the burden of full compliance with one product, you have to build the full infrastructure and bear the related liabilities. Thus, these micro-businesses supposedly being saved here are actually at substantial risk of suffocation if even ONE product sells well. Too bad for them.

The absurd and utterly inappropriate definition of a "low volume manufacturer" has been completely jumbled and incorporates the new concept of "covered products", too. Let me try to sort out this for you.

- As noted above, only "covered product" enjoy any potential relief under this section. The "covered products" test is a three-prong test: (i) manufactured not more than 5,000 "units" of the product in the prior fiscal year, (ii) had not more than $30,000 in sales of the product in the prior fiscal year, AND (iii) had no more than $500,000 in total sales in the prior fiscal year. [Do you feel vines growing over your brain yet?] Dollars are indexed for inflation. Notably, the definition ONLY applies to the manufacture of these items, NOT importation. Too bad, importers. GOTCHA!

The implication of this definition is that if you grow to over $500,000 in total sales, all exemptions applicable to any of your low volume items goes up in smoke instantly. That last dollar is gonna HURT. You also cannot get relief for any individual product if your sales of THAT item are greater than 5,000 "units" per year or $30,000 in sales. Here's another compliance tip: don't grow your business! Too hard? Don't worry, the other policies of this government should help you meet this goal . . . .

- The definition of a "small batch manufacturer" defines who should be treated with special charity by the CPSC under this marvelous section of the amendment. It's not going be a long list. Who wants to see another three-prong test?! Okay, break out your calculator so you can figure out if they are referring to you: (a) AT LEAST TWO-THIRDS of "the manufacturer's products" (I love that term) meets this two-part test: (i) the manufacturer manufactured or imported not more than 5,000 units of the product in the prior CALENDAR year, AND (ii) the manufacturer had not more than $30,000 in sales of the product in the prior CALENDAR year, AND (b) the manufacturer had not more than $500,000 in sales in the prior CALENDAR year.

This is getting fun! Okay, first we need to decide - is it a two-prong test with one prong having two sub-prongs, or is it a three-prong test? This is a rather metaphysical question . . . but I say it's our third three-prong test of this short amendment. [Imagine how many three-prong tests are in the health care bill.] I welcome your insights on this question.

There are some interesting quirks in the Small Batch Manufacturer definition. First, this provision applies to imported products, but the "covered products" definition does not. Gotcha! What does this mean? Who knows. The head spins . . . . Even better, the definition of "Small Batch Manufacturer" is based on calendar year calculations and the definition of "covered products" is based on fiscal year calculations. Love it. I learn so much from Mr. Congress. Apparently, Congress wants it to work this way because there must be some sort of dangerous loophole for people who have fiscal years which are not the calendar year. Mr. Waxman is onto your game, you desperadoes! There's no escape!

At least the Waxmanis kept it simple. Good job, guys, it's artful!

Btw, they added a little provision to make sure that the Commission investigates the structure of your business' "affiliations". Clearly, the Commission needs to make SURE they correctly tote up your revenues for this ornate determination. [Little known fact: the CPSC uses clacker balls for this work.] The reach of the Obamist/Waxman government into your private affairs, in ways completely and utterly unrelated to public interest or safety, apparently knows no bounds. Get your files ready, little businesses - the CPSC wants to take a peek. Perhaps check out your tax returns and . . . oops, it appears you took a few deductions that you weren't entitled to. We can just let our sister agency know, you don't have to do ANYTHING, we're just here to help.

Small business people, you should be flipping mad over this pathetic attempt to "help" you. My original criticism of this provision is still largely applicable.

e. Phthalates Ban Exception for Internal Components: This is largely intact from the prior draft although they did add a provision modifying the Commission's right to adopt the definition of an internal component from the lead accessibility standard. The Commission must now, "as appropriate", consider whether the component can be placed in the mouth. We are talking about internal components here.

I wish I had a laugh track for my blog . . . .

f. Removal of CPSA Section 6(b) Due Process Rights of Manufacturers: has been eliminated from the draft.

g. Voluntary Recall Standards to be Matched to Mandatory Recalls: has been eliminated from this draft.

h. Imminent Hazard Panic Attacks by the Commission: has been eliminated from this draft.

i. Subpoena Power for Underlings at the CPSC: This provision was trimmed back partially to apply only to physical and documentary evidence. This modest restructuring of this new right does not in any way address the issues I have pointed out in the past (here and here). This new subpoena power is not essential to the operation of the CPSC, regardless of their assertions, and represents a significant degradation of procedural protections that encourage business people to invest. When all trust is destroyed among the regulated community and its safety regulator, who will want to invest? Hello, Congress?

CONCLUSIONS:

The Waxman Amendment has been improved mainly by deletions of several truly awful and duplicitous provisions. Many defective provisions in the original draft survived the revisions. What's left provides little substantive relief to the unwashed masses, but promises some sub rosa relief to the book industry and ATV'rs without giving the appearance of favoritism. There is little to cheer here for resale shops, small businesses (even micro-businesses, hello HTA, are you there?), education companies, apparel companies, you-name-it.

And many important issues are left completely unaddressed. I have previously provided my most discrete list of CRITICAL missing elements that must be part of any meaningful amendment of the CPSIA:

• Risk Assessment by the CPSC and/or the Commission.
• Changes in age limits for the lead standards and phthalates ban.
• Narrowing of the scope of "Children's Product" to eliminate many categories of products unthinkingly pulled into this law by its overly broad language.
• True reform to protect small businesses.
• Tracking labels relief.

My full list of needed changes is found here.

More fun to follow tomorrow, I am sure.