CPSIA - WSJ's NINTH EDITORIAL Opposing the CPSIA

REVIEW & OUTLOOK
JULY 20, 2011

Toying With Deregulation
Another agency ignores Mr. Obama's executive order.

Here's a question for White House regulatory czar Cass Sunstein: Do Presidential executive orders mean anything? Only last week President Obama asked independent agencies to examine existing rules and get rid of the duds, but nobody is listening.

Within days of the executive order, the Consumer Product Safety Commission voted 3-2 that it is "technologically feasible" to impose a lower limit on lead content in children's products, reducing the level to 100 parts per million from 300 parts per million. The new limit, which will go into effect August 14, will mean one more round of hair-pulling for small business owners who will have to change their manufacturing processes and junk existing products that don't meet the new standard. The three votes in favor came from Mr. Obama's chairwoman Inez Tenenbaum and two other Democratic commissioners.

The Consumer Product Safety Improvement Act passed in 2008 in a frenzy of concern over lead content in toys from China, and it has since tormented anyone who makes or sells bicycles, books, children's jewelry and so much more. Its strictures have imposed costs for testing, recalls and other inconveniences without any reasonable correlation to the risks to children. "No sweetheart, don't eat that bicycle!"

According to the CPSC, the plan to require that products be 99.99% lead free is reasonable because manufacturers would still be able to find materials and because some products already comply. While the additional safety gain will be negligible, the change will do damage in other ways, causing companies to avoid recycled metal and plastic, which may contain higher amounts of lead. It will also raise costs for metal parts, potentially driving some businesses to substitute plastic for metal, or stop producing children's products. In the bicycle industry, a quarter of manufacturers have stopped making kids bikes.

Instead of fixing its manifest flaws, Congressional Democrats who wrote the law have shrugged off small business complaints and opposed any changes. Energy and Commerce Chairman Fred Upton and Commerce, Manufacturing and Trade Subcommittee Chair Mary Bono Mack introduced reforms earlier this year that would revise the law and give the CPSC greater authority to make regulation decisions based on actual risk. The bill is waiting for a mark-up at full committee but any reprieve would likely come too late for businesses facing the mid-August deadline.

Mr. Obama's recent executive order is voluntary, but the President told agency heads that getting rid of red tape was an opportunity to "forge a 21st-century regulatory system that makes our economy stronger and more competitive." Perhaps Mr. Sunstein will tell toy makers it's the thought that counts.

CPSIA - Letter to CPSC re Executive Order on Regulatory Review

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

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

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

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

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

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

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

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

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

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

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

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

Respectfully,

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

CPSIA - Do Accidents Happen?

Accidents happen. It's an old saying.

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

CPSC as Allocator

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

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

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

Is the Goal “No Injuries” Ever?

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

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

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

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

Recent Recalls Allocate Uncontrollable Costs to Manufacturers

Consider some recent recalls for perspective:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Conclusion

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

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

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

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

CPSIA - Dear President Obama

An Open Letter to President Obama:

Dear President Obama,

Tuesday's election results were a message to your administration. The "shellacking" you experienced was a referendum on your economic policies as well as a passionate call for smaller government.

Readers of my blog have heard all about these issues for two years. It is frustrating to me that you and your administration remain in the dark. You weren't listening.

My industry, children's products, suffered mightily at the hands of your administration. Admittedly the problem began on Mr. Bush's watch but it was your Democrats who refused to relent or admit their errors. Since passage of the Consumer Product Safety "Improvement" Act in 2008, your party has refused to consider our industry's increasingly pathetic pleas for mercy. The result has been utter market chaos and dramatic financial loss. This regulatory "railroad job" has driven many of us into politics against you and your party out of desperation and profound anger over this undeserved and insensitive treatment.

If you take the midterm election results seriously, you must reexamine the impact of this law on our industry and promptly offer sensible relief.

The problems with the CPSIA can be divided into four categories - Cost, Complexity, Risk and Intrusion. Please give up the idea that these problems can be overcome with tax relief or some sort of economic incentive. If you break my leg, I won't be able to get up and run like an Olympic champion no matter how many carrots you dangle in front of my nose. It's time to be accountable for the damage that the CPSIA wrought - and then directly address it.

Cost: The many ridiculous new rules in the CPSIA dramatically raise the cost of operating our businesses. It goes far beyond the asphyxiating testing costs that the CPSIA imposes. Wasteful administrative costs are skyrocketing in every direction. For instance, tracking labels do not magically appear on our products - we must hire people to redesign each of our products and our manufacturing processes, and we must hire yet more people to make sure we don't screw up these tasks. We sell or manufacture literally thousands of skus (items) - but have had only one tiny recall in the last 26 years. This is PURE UNADULTERATED WASTE. We nevertheless must incur these costs to keep the CPSC happy.

These well-documented costs come from somewhere. You may wonder why we're not hiring. [In fact, I have previously disclosed in this space that our head count continues to decline, an uninterrupted trend since 2007 to this very day.] Well, we must fund these unproductive costs from productive activities - sales, marketing, product development - you know, activities that produce new revenue. [Please note: your proposed tax increases will be paid from the same kitty.] Unlike you, we can't solve our money problems by printing more dollar bills - we have to EARN them. If you make us waste our money, we must shrink our business to pay these new costs. WE GIVE UP GROWTH TO PAY THESE WASTEFUL COSTS.

I find it exasperating to have to explain this to you.

Complexity: We now face perhaps 3,000 pages of new safety rules and laws applicable to our business. I have never included rules on childcare or infant items in this total. For those miserable companies who stubbornly persist in making this kind of item, their total is probably well in excess of 3,000 pages. Each word of those pages is a possible felony.

The pre-CPSIA total was about 100 pages of rules, most of which were inapplicable to our business. There was very little to remember - which made it easy for us to administer our business. We could teach the rules, we could remember the rules, we could follow the rules, we could set up sensible priorities oriented around safety (not merely compliance). This is no longer the case.

Face it, President Obama, NO ONE understands these new rules. I include the CPSC on that list. There are just too many rules, and they are riddled with inconsistencies, flaws and head scratchers. The rules are also a mess, existing in many forms, in many places, never correlated or conformed, and are certainly not indexed. The rules have no underlying logic, so it is not possible to anticipate how any rule should work or does work - you have to find the rule and study it, preferably with an expensive lawyer helping you. Even finding a particular rule is quite a treasure hunt.

We are pretty busy - this does not enhance our productivity.

I believe that unless one is a rabbinic scholar or some kind of savant, it is not possible to master 3,000 pages of dense and inconsistent rules. The CPSC has done little to make sense of these rules.

Consider the paradox of musical instruments - full-sized musical instruments are not considered "Children's Products" even if marketed EXCLUSIVELY to children. Does that make ANY sense to you? Remember, these are SAFETY rules so if musical instruments are unsafe for some reason, wouldn't logic suggest that we should not let children interact with them? And if they're safe, then they shouldn't be regulated at all. Right? Interestingly, the CPSC says that if you shrink the same instruments down for children, they WOULD BE considered "Children's Products" and subject to the CPSIA, even if marketed side-by-side with slightly larger, full-sized instruments which are not regulated. This makes absolutely no sense, is completely indefensible as public policy and creates a terrible quandary for any business attempting to interpret and apply these rules.

The complexity and opacity of the rules outstrips EVERYBODY'S abilities. We are completely stymied - and it's your fault. You and your team refused our advice on how to resolve these issues.

Risk: The CPSIA is a tort lawyers' dream. With the coming public database, our industry will be a feeding trough for these vipers. To say the least, you have permitted the government to set up a system DESIGNED to be gamed by lawyers and litigants.

How do you think business people will react to this massive expansion of the tort system? Please note that NO ONE contends that there are more injuries to address - it is absolutely clear that the effect of the CPSIA is to create many more claims of action. More cost, more risk - and as a result, there WILL be less economic activity.

Good job, guys!

Add to this misery the current practice of this CPSC to press for recalls that do not meet the CPSA's legal standards for recalls (substantial risk of injury or death) and to impose huge vindictive penalties. The agency is on the war path, trying with all its might to scare us to death. This is an especially powerful economic depressant for small businesses which typically lack the resources to resist these pressures. Small businesses are more conservative and tolerate risk less comfortably as they manage their own money and see themselves as having more to lose than mass market companies or public companies.

The aggression of the new CPSC is out of control. The current Chairman likes to BRAG about her big penalties. Trust has been utterly destroyed in the manufacturing community. In two short years, the CPSC squandered its reputation as a partner in safety, someone to be trusted. Who in their right mind would trust this CPSC? If you doubt me, ask McDonald's how they feel about being pressured to recall 12 million acknowledged safe Shrek glasses (and the ensuing media frenzy over cadmium - all without ANY documented injuries from cadmium in children's products EVER). Or ask Schylling Associates or Daiso how they feel about penalties imposed on them for rule violations without any injuries. By all appearances, those penalties reflected regulatory anger, not endangered public safety.

[While you're at it, ask the CSPC why they never completed their FOIA disclosure to me on the Schylling penalty.]

Seemingly, almost any violation of these rules can be twisted into a felony charge now. We joke in our office about visiting each other in jail - but it's not really funny at all. I simply cannot fathom conducting my affairs in a way that risks being charged with a felony. As a lawyer, the criminal risk imposed by the CPSIA is completely unacceptable to me and highly offensive. I often say that felonies cannot be committed accidentally - except in the Children's Product industry. The unavoidable accumulation of trivial infractions with heavy penalty risk gives the CPSC winning leverage in any negotiation. The game is FIXED. Everyone knows it, too.

This is no stimulus plan, by the way.

Intrusion: It's this simple - we have a new partner who showed up two years ago - the U.S. government. They don't know anything about our business and have never run any operation similar to ours but they now reserve the right to check all our work and to second-guess us. Mother May I? That's the new game in our business.


Could we live without ANY of this? Yes, most definitely. While the zealots behind this self-destructive law like to emphasize the POSSIBILITY of injury from lead and love to repeat the simple-minded chestnut that there is "no safe level of lead", they FAIL utterly to tie these claims of POSSIBLE injury to data of ACTUAL injury. There is no "nexus". Lead may be "bad" but it has no history of causing injury in children's products. Leaded gasoline, house paint and industrial pollution are the culprits that caused blood lead levels to rise materially - that's undeniably true. Congress missed the boat entirely with the CPSIA - it's all cost, no benefit.

Lead injuries from children's products are virtually unknown. My study of CPSC recalls in 1999-2010 totals one death (from a piece of jewelry) and three unverified injuries from lead in 11 years. Given the truly massive size of our industry and the children's marketplace, and the literally trillions of interactions with our industry's products each year, this injury total is statistically equivalent to ZERO. Instead of punishing our industry, you should give us a good citizenship award. We have earned the trust of U.S. consumers.

The path forward is clear but frankly, I Still don't think you get it. Trust has been broken. Until you and your administration DEMONSTRATE that you are taking a DIFFERENT path, we will continue to conduct a war against the CPSC and Congress. This defective law deserves a FULL repeal. It is misconceived and has cost countless jobs. I hope you and your associates will not continue to deny the obvious, to fly in the face of data and reason. The voters are on to this scam. They voted many Democrats out of work in midterm elections. If you and your team don't wise up quickly, in the over-regulation of our industry and other industries, they'll vote the rest of you out in two years.

The problem was never the law. Before Congress "improved" it, the CPSA was a powerful law that enabled the CPSC to closely supervise children's markets. Let's not forget that the recalls in 2007/8 were conducted under PRIOR law - the unamended CPSA had plenty of teeth. The recalls in 2007/8 were clearly a COMPLIANCE problem, not a problem with the rules themselves. For various reasons, some people weren't following the law closely enough. As objectionable as that may be, it is also important to remember that the 2007/8 recalls were associated with virtually NO injuries. So what should we have done, in lieu of all the tough new standards and venal penalty provisions in the CPSIA?

The agency should have been reorganized to work on compliance more effectively. The agency needed to invest in education, outreach to industry and more effective partnership with industry. This idea that we in the business community can't be trusted is revolting and completely untrue - it is a populist idea you and your allies flogged to get elected. If you want to keep your jobs for much longer, you need to drop this caustic idea. We are not bad people or incompetent people - we can be trusted and can be good partners (as our record proves). No, not everyone will be good or conscientious. Bad people and incompetent organizations cannot be legislated away (at a reasonable cost). Still, the data indicates that a lower cost approach of partnership and education will produce very good results.

Fixing this law will be a stimulus plan that creates JOBS. Please give us back control of our financial statements and we will find a good way to spend our own money to grow our businesses. We don't need your help - we need you to GET OUT OF THE WAY.

Yours sincerely,

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

CPSIA - Do We Need More Government? [No!]

796 days have passed since ANY Democrat in Congress did ANYTHING to help us on the CPSIA. There are only 14 days left until Election Day.

Hey, have any of you noticed that since I began a daily reminder of our abandonment by this Democrat-led government (reminders began on August 22nd when 738 days had passed without help), no Democrat has done a single thing to help us? Have you also noticed that as they weren't rising up to help us, the Dems were actually engaged in making things WORSE? Definition of Children's Products, the so-called "15 Month Rule", making carpets subject to testing, further implementation of a database certain to make our business environment FAR more hostile.

Do we need a lot more of this?

Mr. Obama says we do: "The basic idea is that if we put our blind faith in the market and we let corporations do whatever they want and we leave everybody else to fend for themselves, then America somehow automatically is going to grow and prosper." The implication is clear - more government is the solution, we can't trust markets. Corporations need overseers, heavy regulation.

This quote is from a remarkable WSJ article that appeared last week by Daniel Henninger entitled "Capitalism Saved the Miners". Beleaguered victims of the awful CPSIA should read this article. Let me sum it up with his concluding remarks:

"The U.S. has a government led by a mindset obsessed with 250K-a-year 'millionaires' and given to mocking 'our blind faith in the market.' In a fast-moving world filled with nations intent on catching up with or passing us, this policy path is a waste of time. The miners' rescue is a thrilling moment for Chile, an imprimatur on its rising status. But I'm thinking of that 74-person outfit in Berlin, Pa., whose high-tech drill bit opened the earth to free them. You know there are tens of thousands of stories like this in the U.S., as big as Google and small as Center Rock. I'm glad one of them helped save the Chileans. What's needed now is a new American economic model that lets our innovators rescue the rest of us." [Emphasis added]

I don't know about you, but I think we operated our company very well before Mother Government invited herself into our affairs. We knew the difference between right and wrong, and were pretty good at allocating our capital to its highest and best use. Now we must play "Mother May I" with the self-appointed experts who arrived to protect against "dangers" they can't accurately describe or measure. The vacuuming up of our money, our resources, our mind share, our energy, destroys our ability and will to compete.

Fine, ignore the reality. Wait for the bodies. Assert your superiority and your authority. But the facts are the facts. The case against the CPSIA is crystal clear and the only ones who don't "get it" are the Democrats. After two years of banging my head against the wall, I can only conclude that they don't WANT to get it.

It's no mystery - I know why the Dems refuse to listen. They are rather transparent about it. When I spoke to Rep. Jan Schakowsky (D-IL9) at a candidate forum eight days ago, I asked her why she called me a "cynical special interest" to the WSJ. She asked me who I was, and then told me she didn't know me. That fact didn't stop her from trashing me, a private citizen, to a nationally-prominent newspaper. Pointing the finger at me serves her interest in getting reelected - she's saving the populace . . . again. Who is in a position to argue with her? When I protested that our products had been safe for 26 years, she replied that she "didn't understand what the problem is" and turned to a voter standing nearby to assert that she just wants to protect children against lead. The higher moral ground . . . for people who don't know what they're talking about. Unfortunately, scare tactics sell very well.

I believe the Mob also sells protection. Do you want to buy some protection from them?

The Chilean miners were saved by companies that invested their money to make the world a better place incentivized by the opportunity to make a profit. Our industry, the one that serves children as our reason-to-be, is being depleted by a heavy tax - the intrusion of a heavy-handed government that treats us as "guilty-until-proven-innocent". The government REFUSES to listen to us.

Those of you with children will pay the consequences.

Thank you, Mother Government. The market saved the miners, but you will happliy kill us.

Vote on November 2nd for a fresh start.

CPSIA - Are Toys Supposed To Be Fun Anymore?

In a wonderful Op-Ed last week, Windsor Mann lampoons the ridiculous CPSIA by announcing his intent to not give any presents this year. His plan is as simple as the subtitle of his essay: "Giving children what they need most - nothing". Mr. Mann expands: "As someone who loves to be a wonderful person for a brief period of time, I enjoy this season of temporary giving. I am obsessed with helping people, especially children, and the best way to help children is by not giving them Christmas presents."

Sadly, Mr. Mann observes that "toys are not something to play around with", noting the recent recall of toy darts because an 8-year-old almost choked on a dart that he was chewing. This is a real case. [This recall is eerily similar to a life-imitates-art spoof on The Onion entitled "Fun Toy Banned Because Of Three Stupid Dead Kids".]

Mr. Mann recounts in hilarious fashion various recent recalls illustrating the fact that we seem to have lost sight of what constitutes safety. [He even mentions the unfortunate Timberland ankle-high boots recalled for the lead-in-paint logo on their insoles.] To make his point, Mr. Mann notes the useful instructions provided by the CPSC in its "The Super Sitter" manual for babysitters. Here's some tips the government felt the need to give babysitters:

• "Keep the youngsters safe by preventing accidents."
• "Running or horseplay on [stairs] can lead to falls."
• "In the event of accidental choking, apply first aid measures to clear the child's airway."

He quips: "(In the event of intentional choking, do not apply first aid measures.)"

The fear of everything, railed at in this essay, is the philosophical underpinning of the misconceived CPSIA. There is no solution to this disease short of changing the law. In a world dominated by the fear of everything, nothing is safe and everything must be feared. Mr. Mann's strategy of not giving gifts seems to be an appropriate response in this environment.

It's a funny article, but it's not a funny problem for those of us stubborn enough to remain in the children's product market. I don't know how it comes as a surprise to anyone that misuse of products or the absence of individual responsibility may result in injuries, but that plague has descended on our industries. The issues inherent in this shift away from common sense are many:

• Fear of liability creates a perception of COST that deters investment in products and markets. Random costs feed the fear.
• Unjustified fear of injury by consumers translates into lower sales or higher costs in making sales. Markets shrink. Consumer needs become difficult to meet.
• An atmosphere of fear affects regulators, who tend to recall more often and to assess more penalties (even if non-monetary) because it's politically-expedient or follows the trend. In other words, it's "safer" for regulators to err on the side of caution - but that cost is borne by somebody . . . businesspeople.
• Rules tighten illogically, diverting attention from real issues, increasing the cost of participating in the market. All parties suffer from the consequences of complexity, including regulators.
• Misallocation of resources (expending too much energy on unimportant things) leads eventually to true crisis, fueling the fire of the original proponents of the legislation. The obvious solution - even MORE government.

And the joke will be on you and on us, if we don't do something about it. Mr. Mann takes a lighthearted swipe at the silliness of your Congress, but it's really no laughing matter.

CPSIA - CPSIA Casualty of the Week for November 2

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

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

CPSIA Casualty of the Week for November 2:

The Final Adventure of Whimsical Walney:
CPSIA Claims another Home Crafter

Dana Lardner started Whimsical Walney in 2004 to showcase handmade products with the theme "let children play." She sold items such as kids' fabric books, foreign language-focused clothing, and outdoor blankets on her website. Dana always focused on product designs that promoted a child's imagination. In April 2009, almost a year to the day that she reintroduced Whimsical Walney with new branding and a new website, Dana shut down her business because of CPSIA.

"I decided to close my business because I had planned to introduce a new line of products. I was going to sell off existing inventory and then discontinue several of my old products to focus my business and build my brand. Because all my products would be defined as “children's products” under the CPSIA, I would be required to test everything for lead and some for phthalates. It would have been cost prohibitive not only to test products that I don’t intend to continue selling, but also to test yet-to-be-released products whose acceptance in the market is unknown. I know that there was a stay of the testing requirement, but the writing was on the wall for businesses like mine. From the tracking label requirements to the prohibitive penalties, I just could not take the risk of staying in the children's product market."

Dana has shifted her business to focus on products specifically designed for adult consumers such as handmade housewares and accessories. Unfortunately for kids, Whimsical Walney is yet another product line and small business that has left the children's product market – not because any of the products were unsafe, contained dangerous levels of lead, or could anyway harm a child, but because of the inability to concurrently market and build her business while also managing the undue overhead of the irrational provisions of CPSIA.

Dana started a CPSIA blog at her website: www.WhimsicalWalney.com.

Do not accept the status quo! Tell Congress and the CPSC to restore "common sense" to our nation's product safety laws. Click here for instructions on how to contact the CPSC and your representatives in Congress.

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

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

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

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

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

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

So, who will pay for this folly?

You.

Some myths need to be dispelled:

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

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

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

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

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

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

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

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

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

CPSIA - Unanswered Tracking Labels Questions ("Clear as Mud")

The recent tracking labels guidance by the CPSC was greeted with relief by some commentators who interpreted it as signaling flexibility and "common sense" implementation of Section 103 of the CPSIA. Is that true? Common sense and flexibility reigns supreme again? At the anniversary of the CPSIA, these are critical questions to answer.

Introduction

I have tried to make sense of the guidance for several days now. Frankly, this exercise is frustrating as the guidance is vague and misleading in many ways. I have argued at length with lawyers over the "plain" meaning of the guidance and was still left guessing. Some of these questions have a real economic impact on our company.

As with other guidance documents, the tracking labels guidance was written without regard to economics or how business decisions are made. The rationale for this approach is simple - you cannot place a price tag on safety, ergo “it follows” that the CSPC cannot take money into consideration in its interpretation of the new law. There is some basis for the understanding of the CPSIA, as the law took pains to eliminate money as a consideration (for example, look at the definition of “technological feasibility” in Section 101(d) which will bite us in two years).

This is naive, of course. Aside from raising the likelihood that their recommendations will be impractical or even impossible to achieve, the CPSC is taking a chance that they are creating remarkably negative economic incentives that will drive companies away from the children's market. Of course, if product availability declines, so will recalls, which in turn will make the CPSC look good. Your kids won’t have the same choices in warm clothing and your school won’t have access to enough good school supplies, but the regulators will feel the warm glow of a job well done!

I believe the "relief" granted by the tracking labels guidance, particularly for small businesses, is a mirage. It seems apparent that the intention is to impose the Section 103 requirements on one and all. As the guidance says, "The Commission believes that the purpose of Section 103(a) is not to impose significant additional burdens on manufacturers who already make available the required information for their products, but to bring those who do not up to a higher standard." In other words, the CPSC conjured up the notion that somebody was already doing this in the children's product market to justify their guidance. While this may be true in limited cases (I have no idea but likewise have never seen it myself), it is hardly a common practice, much less driven by market demand. [Full disclosure: we have for many years put serial numbers on a small number of high value electronic products to help us diagnose quality problems if they occur.] The imaginary companies providing this information are now put forth as a justification for getting the rest of us up to the "higher standard". In the case of our company, that higher standard is to address the “problem” of one recall of 130 pieces (all returned) in 25 years. Oh yes, I buy the argument.

I also believe the guidance has been tailored to relieve any future constraints on the behavior of the CPSC, leaving it open to put on its jackboots if political winds shift in that direction. Clear and binding limits on their regulatory discretion cannot be found in the guidance. The lack of constraint on these regulators is truly frightening to business people. Congress wants you to think our fear is good for consumers. I think you might understand the problem differently if you were on the butt end of that one. What if your local traffic cops had the same coercive power over you? Would you drive more – or less?

In order to make clear the nature of my concerns, I have prepared a list of "unanswered questions" for your consideration. It's not a short list. Rather than provide a shorter list and provide the full list upon request, I have decided to publish them in full below. I apologize for a very long post (even for me). I have organized them by category and italicized each question that I consider critical. I hope you find this useful.

The CPSC must not allow this situation to persist. While I have repeatedly expressed sympathy for the CPSC, I feel likewise that the CPSC is not adequately resisting this very misguided law, and is moving forward with a bit more enthusiasm than is appropriate. The guidance and other recent emissions from the CPSC read like something out of Mr. Waxman’s marketing department. While the new Chairman has stated her intention to “vigorously” enforce the new law as written, her job description does not extend to providing justifications for laws she did not write. Just because the laws are on the books doesn’t mean they make sense. The CPSC knows this, too. Notably, the CPSC has had the power to impose tracking labels for decades yet consistently declined to do so except in specific cases. To pander to Congress with trumped up justifications for this law is to reset safety administration to meet current political preference - and that's wrong. Lillian Hellman said it best: "I cannot and will not cut my conscience to fit this year's fashions." This is not naïveté on my part – it IS wrong.

Readers: If you think of other relevant unanswered questions, please leave them as a comment to this blogpost. Thank you!

My "unanswered questions":

Violations

a. In setting penalties or defining the scope of recalls, how will the CPSC balance the consequences of imperfect Section 103 compliance and the cost of perfect Section 103 compliance? In other words, if the interest of the public is met with an appropriately-defined recall and the reasonable expenses of such recall is met by a manufacturer, will a technical or inconsequential violation of Section 103 be the subject of a significant penalty or other remedies?

b. The guidance states that the CPSC will initially focus on compliance with Section 103 in the context of recalls. I interpret this to mean that the CPSC will NOT presently take action on labels EXCEPT in the circumstances of a recall. Is this correct? If not, what does this policy signify? How will manufacturers know when the enforcement policy changes? Will it require a vote of the Commission?

c. If the Guidance means that enforcement will only take place when a product is recalled, does that mean that the agency will not investigate tracking label issues beyond the recalled products once it becomes aware of a violation on a recalled item?

d. How will the agency deal with reports of violations of Section 103 in the absence of a recall? After all, these are presumably violations of law. Will the agency use the new consumer database to find offenders? Does the guidance mean that the CPSC will NOT take preemptive action upon actual knowledge of problems other than in the context of a recall? [This question could be extended to the CPSC's other partial enforcement stays, such as with decorative stones. If a report is made of rhinestones in jeans for nine year olds, clearly a violation of Federal law but outside the stated enforcement focus of the agency, will the agency tell the person making the report that they will not bring the offender to account? What if the person making the report is a “whistleblower” – will the whistleblower be refused for exposing this “crime”? Will the CPSC intervene in opposition if a State AG takes action to enforce the statute against such an "offender" for a violation that is covered by its commitment to not enforce?]]

e. How will the agency coordinate its policies with the U.S. Customs Service? In other words, if importers bring in product in compliance with the CPSC's stated enforcement policy, can Customs stop the product anyhow? Who will make these decisions? How will/can the CPSC prevent this activity by Customs? Will Customs set its own priorities for enforcement in its responsibilities to guard the borders from “unsafe” products? Likewise, what steps will the CPSC take to bring State AGs in line with its enforcement policy? Does the CPSC contemplate hosting a meeting of State AG offices to create this kind of enforcement alignment?

f. In exercising "discretion" in assessing penalties for violations of Section 103, the guidance specifically cites that "inadvertent omission" is "unlikely" to be assessed penalties. What does "inadvertent" mean? Pure error? Pure error combined with good intentions? Pure error made by reasonable people acting with due caution? Reasoned and intentional omission based on an erroneous understanding of the law, CPSC enforcement policy or both? Will "inadvertent" omission of essential information also be considered a "forgivable" infraction? How will the agency handle apparently widespread "inadvertent" omissions by a single company?

g. What is the boundary between respecting "good faith efforts" and determining what is and is not an "inadvertent" omission? If a manufacturer can establish "good faith efforts" or the use of "reasonable judgment", will ALL errors be considered "inadvertent"? In other words, has the CPSC established a safe harbor where good behavior will be accorded preferential penalty treatment?

h. Does the CPSC intend to moderate penalties based on the “no harm, no foul” principle? Or, if the agency is concentrating on penalizing only in the context of a recall, won’t the necessary outcome be that every violation will be deemed serious since it may appear that the absence of tracking labels somehow makes the recall less-than-optimal? Will the company subject to recall be entitled to any defenses? Will the failure to properly or effectively label products be considered an irremediable offense in a recall context, as it follows logically that without tracking labels, any subsequent recall will be "less effective" than a recall conducted with proper tracking labels? If that's the case, why not set the penalties right now? [Please note that while the presence of recalled items remaining in the marketplace presents a theoretical risk of injury, in many cases the incidence of injuries associated with recalled products is basically zero, suggesting that a negligible impact from the tiny percentage of unreturned product that might otherwise have been returned. Of course, in the case of certain hazards, it is certainly possible that the calculation of the probability of injury is materially greater – these items are the ones which are the best and most appropriate objects of tracking label legislation.]

i. Will the manufacturer's ability to mitigate consequences, perhaps by expanding a recall, be considered by the CPSC in assessing the seriousness of a tracking labels problem?? Is a manufacturer ever empowered to make an economic judgment about the value of compliance, or is that always an intentional violation of Section 103 (felony)?

j. If a manufacturer discovers that it has made a violation of the Section 103 requirements, must it file a Section 15(b) report? If it does turn itself in, will it get penalized? If it gets penalized as a consequence of turning itself in, why would anyone turn themselves in?

k. Must companies provide tracking labels information if the CPSC says they won’t enforce? If they are never subject to recall (say the maker of plain white cotton t-shirts), why should they expend the money to label when the CPSC states they will not enforce except in the context of a recall? Then again, this is an intentional violation of law, subject to severe penalties under the CPSIA. If then it follows that everyone must always fully comply with the law, regardless of the CPSC’s statement of its enforcement discretion, isn’t it true that this guidance lets no one off the hook?

"Reasonable Judgment"/"Best Judgment"/"Good Faith Efforts" of Manufacturers

a. How will the CPSC Enforcement Staff determine if a manufacturer exercised "reasonable judgment"?

b. How is "reasonable judgment" different from "business judgment"?

c. Does "reasonable judgment" include ANY concepts of economic rationality?

d. What constitutes a "good faith effort" to comply? Will errors discount claims of good faith efforts?

e. Will concepts of the imputed knowledge of a reasonable man using reasonable care be incorporated into the definition of "reasonable judgment" or "good faith efforts"?

f. Are there indicia of "good faith efforts"? For instance, does the presence of full-time quality control staff satisfy this requirement? Supply chain agreements? Random inspections? Routine testing? Database of complaints? Review of current product recalls? Record of product modification? Employment of outside counsel? Participation in industry activities relating to safety (i.e., webinars, seminars, industry meetings, etc.)? Participation in COC/ICTI-CARE programs on corporate conduct? Compliance with mass market retailer requirements?

g. What recordkeeping requirements are implied in the need to prove up "good faith efforts" or "reasonable judgment"? If a manufacturer doesn't have the records to support their claims, will it be impossible to demonstrate good faith or reasonable judgment? In other words, is this a factual inquiry based on PROCESS or OUTCOME? If the answer is "outcome", how can any manufacturer defend their judgment if the outcome is deemed "wrong"?

h. Does the CPSC intend to respect the judgment of companies in determining whether it is impractical to mark a product? If not, how can a manufacturer feel secure in its decision-making without obtaining the prior approval of the CPSC?

i. The guidance states that the CPSC "expects that manufacturers will use their best judgment to develop markings that best suit their business and product." What are the limits to this "discretion"? How far can they exercise that discretion and what are the lines that they cannot cross? If Section 103 defines the limits, is the discretion simply limited to HOW the information is provided, not whether it is supplied? [That appears to be a theme of the guidance document.] If manufacturers have this "discretion", is the CPSC giving up the right to second guess these choices?

August 14

a. Will the date of manufacture of goods determine whether items require the Section 103 information?

b. If the date of manufacture is not known, as might be the case in imported products sourced from a trading company, would a manufacturer be justified in using a date prior to August based on the assertion of its source?

Private Label Goods

a. What are the obligations of component manufacturers on labeling? If a product is known to be a component in another product, what are the labeling obligations? Whose obligations are they? What if the product is only occasionally used as a component, or is known to be used as a component without the permission of the manufacturer? Does that affect the answer on labeling?

b. If a product is a "blank" for later downstream modification, what are the labeling requirements?

c. If a domestic company, importing from China, provides or manufactures private label goods for another domestic company, which company name should appear on the product? The guidance speaks only about the clear question of a manufacturer or an importer, but does not address the case of an intermediary between the factory and the company branding the imported product. I believe the logic of the guidance would suggest that the company branding the company should be named on the product, NOT the confidential intermediary source. This is a critical, if not THE critical, question for many business dependent on the confidentiality of their sources. Would the CPSC be willing to define "importer" to be the final branding reseller of private label imported goods to address this issue?

d. What are a manufacturer's obligations if it becomes aware of labeling problems downstream, such as the omission of labeling information required under the guidance by the downstream supplier?

Commodities/Unbranded Products

a. The tracking labels guidance seems to ban unbranded products. Is that the intention?

b. If you are a marketer or manufacturer of commodities, such as plain painted bar magnets, must you label your products? What if you sell only through dealers, and for those dealers, the confidentiality of the source is considered a commercial necessity? Can the obligation to label be transferred as a matter of contract between the supplier and the dealer, so that the distributor/dealer takes on responsibility for labeling the product? Will the CPSC respect contractual transfers of responsibility under Section 103?

c. We market commodities that have an appearance demanded by the market. Does the new guidance require that we mark these commodities to distinguish sources? What if marking the product makes it unmarketable? What if it costs so much to mark it that it becomes unprofitable? Is it the intention of the CPSC to force manufacturers in that situation to choose between making the product and labeling it in accordance with Section 103? What if the design of the commodity has educational or other tertiary value that would be diminished by markings or change in design? What if no similar product has ever been recalled in the records of the CPSC?

d. Many commodities, particularly those used in the educational business, come from industries which do not cater to children and may not be aware of the CPSIA. For instance, aluminum foil is used widely in science kits but is clearly produced for the food industry and for household use. Products like this will not be designed to comply with the CPSIA and given the low volume of sales in our specialty market, are unlikely to cater to our need to comply with the CPSIA. If the item was not intended for children by the manufacturer, will the product therefore be exempt from the labeling requirements? Who makes this determination?

Exempt Products under Section 101

a. Are manufacturers exempt from the Section 101 lead standards still subject to Section 103 labeling requirements? Many such items have earned these exemptions by submitting proof of their non-toxicity. Must they also incur the costs of labeling despite the official acceptance of their products’ safety? If not, this would presumably mean that the expectation is that ALL consumer products designed or intended for children twelve years of age or younger will require tracking labels, and further that there are NO exceptions possible. The CPSIA notably does not provide an exemption process for products subject to Section 103.

Small Business Exceptions

a. If Small Businesses do not have to create "lot, batch or run number" systems, what are the "reasonable practices" required of such companies to "keep records of components used in their products"? How is this different than creating a system to track lots? .

b. If Small Businesses do not have to create "lot, batch or run number" systems, isn't that inconsistent with a requirement to put a date on the products? Most small companies, if not all small companies, have a one-to-one relationship between date of production and lots. If you number a lot, it is effectively a batch number. If there is no obligation to create a batch numbering system, what "common sense relief" is the guidance offering to small manufacturers with this requirement?

c. Further to the last point, if you must be able to identify each piece back to its production run, how does the CPSC believe this will be done in the absence of a batch numbering system (dates or whatever)? Isn't this an explicit requirement to create a comprehensive data collection system documenting batches and relating them to each unit sold? If so, how does this guidance provide ANY relief to ANYONE? If not, please clarify what steps you believe have been eliminated for small businesses ill-equipped to comply with this rule?

d. Federal law (The Small Business Act) defines a "small business" as one with 500 or fewer employees (as a general rule). If we have 500 or fewer employees in our company, are we entitled to rely on the exception granted to "small volume manufacturers"? Would larger companies also be entitled to rely on this exemption under certain circumstances? If so, please describe those circumstances?

e. Section 103 of the CPSIA requires that the date of manufacture be "ascertainable" by a consumer. If small companies do not have an obligation to create lot records or lot markings, how are they supposed to meet this requirement? Is the date requirement considered part of the lot marking rules under your guidance?

f. You have stated that "Although Section 103(a) does not require manufacturers that do not use lot, batch or run numbers to create such a system, the Commission believes that compliance with this Section generally will require that manufacturers have in place a reasonable means to ascertain detailed production information, including the means to distinguish products made from different factories, made with different components, at different times or have other material differences that make the product non-identical from previous products." What are examples of "reasonable means" that fall short of a new system to retain lot or batch records? The guidance seems to require that a system be created to retain detailed records of production runs despite the fact that you have explicitly acknowledged that no new system is required. What exactly is a manufacturer supposed to do to meet this guidance?

g. The guidance states that "The business and recordkeeping practices of peer manufacturers should be considered." We are in an industry comprised almost entirely of private, independently-held companies. How are we supposed to consider the private, confidential practices of competitors? Wouldn't it be a violation of antitrust rules to compare competitive practices with our competitors and possibly align them?

h. In a FAQ aimed at "crafters", the CSPC states: "If someone handed you one of your products sold last year, what would you be able to tell them about the materials used? Keeping your receipts and purchase orders will help you to better know the source of your product and its components and when you began using them. Ask your fellow hand crafters if they have any tips or ideas that can help. . . . Compliance with the new requirements will call on a number of small hand crafters to rethink the way they maintain their records and mark their products." This guidance seems to contradict your instruction that a lot marking system not be developed. Can these statements be reconciled, or is the CPSC speaking out of both sides of its mouth? The clear implication of this guidance is that crafters must be able to prove up components and lot information for individual units in the marketplace. This means that they have not received any relief whatsoever.

i. Again, in a FAQ, the CPSC gives the following Q&A: "Is the information ascertainable if I mark my product and packaging with a code and website address where all the required information can be found? Yes, provided the name of a manufacturer or private labeler is also identified so a consumer without access to the internet can know whom to contact directly to also obtain the required information." Thus, the guidance seems to state that web address is NOT enough and that the safe harbor only exists if there is ALSO a code, presumably identifying the lot. Is this correct?

Markings

a. If it is reasonable for bulk vending products to be marked on their shipping case, which would presumably not be "ascertainable" to consumers, can other manufacturers satisfy the requirements of Section 103 by marking the exterior of the shipping carton rather than the product itself? It is worth noting that the largest recall in the history of the United States occurred in the bulk vending industry. If it is acceptable for that industry to mark its shipping cartons rather than its products, why should industries or companies with a strong safety record be held to a higher standard?

b. We understand that the CPSC has been telling “crafters” that if contact information like a web address or phone number is on their product, they will be deemed to have met the requirements of the tracking labels. Can all manufacturers rely on this advice, or just “crafters”? If only certain companies can take that approach, which companies are “in” and which are “out”? Will the agency put out rules so that companies can safely rely on written guidance, rather than rumor? In the marketplace, dealers do not feel comfortable relying on a manufacturer’s assurance that oral guidance has been given to bless their approach to labeling.

c. Will the agency respect the judgment of a company in determining what “ascertainable” means for purposes of Section 103? If the agency will not define “ascertainable” and reserves the right to second guess companies’ exercise of judgment, how do you expect companies to proceed on markings, given multi-level distribution and the demands of dealers for assurance that labeling is compliant? Is it your expectation that we must pay a testing laboratory to give us a certificate blessing our labeling practices? Please note that a precedent for tracking labels is the law on safety labels, which was bright line and clear. The CPSIA tracking labels provision is hardly bright line and clear.

d. Will the agency respect the judgment of companies in determining that certain products fit within the “impractical to mark” guidance? What is the possible liability exposure for a company who makes the “wrong” determination? In other areas of the law, the process involved in making a “business judgment” absolves liability, even if the decision is “wrong”. In this case, the guidance seem to suggest that the CPSC wants to have it both ways, where companies are responsible to make a good decision without specific guidelines but if they make an incorrect judgment, then the CPSC reserves the right to “teach them a lesson” with penalties. What would you advise a company to do under these circumstances? Make products for adults?

e. We make a variety of kits which contain small parts or numerous parts of equal importance. You have given guidance on games which include game boards and small pieces, but have not addressed other kinds of kits. What if the kit is comprised of crayons or pencils? What if the contents are consumables (such as a craft kit comprised of felt, buttons, feathers, and so on)?

f. We sell products that are often taken out of its permanent packaging so that components can be sold separately. We know this happens but do not advertise it as a feature of our product. It is also not our intention that dealers do this, but we know they will do it from time to time. Since we deem the products to be a set to be sold together, we do not believe we must mark every item. To do so would be prohibitively expensive. Your guidance says that if a set is separated and the parts sold separately, then each part must be separately marked. Notably, none of these products have every caused an injury or resulted in a failed test report. What are we supposed to do on marking the components of these sets? If we are obligated to mark the parts, are we also obligated to stop sale and mark components of other products if we become actually aware of one dealer separating the products? If not one dealer, how many? Will we be held to a “reasonable man” standard where we will be subject to imputed knowledge that we in fact do not have? Will the dealer be responsible for these markings?

g. The guidance says that the name of the “manufacturer” or private labeler be “ascertainable” from the marking. The CPSA definition of manufacturer includes both the manufacturer and the importer. Does this mean that the guidance will allow the importer to put its name on the product and leave off the factory identity?

h. The guidance says that the name of the manufacturer must be part of the ascertainable information in the marking, and the definition of manufacturer includes importer. The implication of the guidance is also that private labeler is included in the definition of “manufacturer”. Assuming this is true, is it also therefore true that the location to be placed on the product (city and state) are of the importer, rather than the factory? It is our assumption that this is probably the intention of the guidance. This kind of information is found on many consumer goods, and is also required by EN71 to help consumers find the source of children’s products. If the meaning is that the city and state of the factory is instead required as part of the markings, it will be much more disruptive since this conflicts with the requirements of EN71 as well as U.S. Customs laws on country of origin, and is very uncommon in product markings. Isn’t the purpose of this requirement similar to the advice to include a web address or phone number, to facilitate contacting the source? If so, the city and state requirement is meant to help distinguish between businesses with similar names located in various places around the U.S., rather than to disclose the factory address. This needs clarification.

i. If we discovered a tracking label error in our inventory, is that a reportable "offense" under Section 15(b) requiring a report within 24 hours to the CPSC? Will we have to recall improperly labeled goods after discovery? Will we be penalized later if the item is recalled? Will we be compelled to relabel the goods in our inventory? Send out replacement labels to our dealers? Follow up with them and collect documentation about the proper relabeling of this merchandise in their stores and/or warehouses? [They will charge us for this service.] Will we be required to recall these items to fix the labels? Will you decide these questions based on scale? Based on your investigations?

j. Is it your intention to spot-check tracking labels in the marketplace? Is it your intention to send information requests to children's product companies about tracking labels? Spot or unannounced site inspections? What are our rights if you request this information or show up unannounced at our place of business?

k. Some commentators believe that the Guidance is ambiguous on whether the name of the actual manufacturer (factory) must appear on the package. Since the definition of the manufacturer in the guidance is EITHER the manufacturer or the importer, we interpret this to mean that the identity of the importer will satisfy this requirement. Please confirm. If a consumer calls up to learn the identity of the factory, are we obligated to provide it? This is a critical question – the answer must be “no” or else the confidentiality of sources will be compromised with devastating impact, particularly on small businesses.

l. For an assembled item, is the assembler invariably considered the "manufacturer"? Is this driven by the fact that the date of assembly is considered the relevant date for purposes of lot identification? This would also suggest that if the assembler is the manufacturer for purposes of this regulation, then the manufacturers of the components are NOT the manufacturer. Please confirm.

m. The need to make products in different lots "materially different" or "non-identical" begs many questions. For example, how are we to manage this responsibility for a multi-part kit where the main component is marked but the other items are NOT marked? Will your answer depend on whether there is (or was) a recall? Even more pertinently, will your answer change if there is a recall of an unmarked (not primary) component in the kit? This could happen, for example, if a low value magnet is recalled that appears as a component in many kits. In addition, the guidance requires that we be able to "distinguish products made by different factories". Does this apply to components in a kit? Has the CPSC carefully considered the implications of a positive answer to the foregoing question? Frankly, the business of making kits for kids will become ensnarled in so many gratuitous distinguishing marks (all in the off-chance that a recall might happen) that the products will become utterly uneconomic. Please explain the details of this requirement.

n. If new books are deemed lead-free based on worldwide standards for printing inks today, why do they need tracking labels? Particularly in the case of "ordinary books", what is the tracking label meant to accomplish if effectively the CPSC has acknowledged that the only conceivable safety issue (lead in the ink) is absent by definition?

o. What if it's feasible to mark the product but not its packaging, owing to short runs?

p. What if the code on the packaging does not match the product? What if packaging and products are made separately and are only combined when assembly is completed? What if hand working the packaging either destroys its aesthetics or makes it too expensive to sell?

q. What steps will the CPSC take to find those companies faking tracking labels to gain competitive advantage? How can law-abiding companies rely on a level playing field?

r. When assembling a kit using components without lot markings, how is a manufacturer supposed to maintain sufficient records to satisfy the guidance? Will there ever be an obligation under the guidance to mark these components to identify them to the kit?

s. If I make a product for users over 12 years of age, such as laboratory items, and a dealer catering to schools wants to buy and resell the product, the new dealer may refuse to sell it if we do not provide labels to meet your specification. This is ironic, as we are outside the law given our intent. However the activity of other people, namely our dealers, brings us back into being subject to the law. Is this what you intended? What am I supposed to tell the dealer?

t. The guidance states: “The question of what should be ascertainable is a different question than whether that specific information can be marked on the product or packaging.” Thus, it appears that the CPSC will not permit ANY manufacturers to sell ANY children’s product for which the specified Section 103 information is not “ascertainable”. In other words, if a consumer calls up to inquire about the Section 103 information for any unit of a children’s product made on or after August 14, regardless of whether made by a small lot manufacturer, that information must be available – or less. Correct? Crafters, take note.

I would observe that the free pass given to bulk vendors violates this principle as a consumer will not be able to ascertain the Section 103 information as defined in the guidance. While I don’t object to the bulk vending solution (it’s sensible), I do not think the message is coherent. Hence my “unanswered question”.

u. If the product is deemed appropriate for no tracking labels, how precisely is the Section 103 information supposed to be “ascertainable”? Remember, the rationale for not marking products may equally well exclude the other suggested (and impractical) ways suggested to distinguish products made in different production runs. [Think of a dot of red paint on that beautiful necklace you want to buy for your daughter. Hmmm.] The CPSC should explain that one in detail. I presume magic is not part of the solution.

Recordkeeping

a. What are our obligations on recordkeeping? The guidance speaks in terms of no need to create a numbering system but also speaks about keeping detailed production data so that the lot for each item may be determined. Without an existing lot numbering system, we have no recordkeeping for components presently. [The absence of that recordkeeping is no indictment of our practices as we have never had need for them in 25 years owing to our many other activities to maintain quality and compliance.]

b. How long must we retain these records? Normal statutes of limitations are three, five and seven years. Recalls can take place years later. Must we retain these records "forever"? Is that fair?

c. For those of us who do not make the Space Shuttle or somehow do business without becoming a Six Sigma company, retaining detailed records on the source and lot designation of components is well-beyond our ability to manage. It is also going to be extremely expensive and potentially of no real value. Yet, your guidance seems to hold us accountable for this information, regardless of these economic issues. Is this what you expect of small companies? Will you stick to this interpretation even if the necessary solution of this dilemma is a massive reduction in our product line, or abandonment of the specialty markets that we currently serve?