CPSIA – Business Roundtable Torches Obama for Anti-Business Policies

In a scorching 54-page letter to departing OMB Chief Peter Orszag, the Business Roundtable and Business Council (via Ivan Seidenberg, CEO Verizon Communications, and James Owens, CEO Caterpillar Inc.) outlined the many problems caused by this Administration for the business community. I am pleased to say that the CPSIA made a cameo in this letter (see below), likewise TSCA reform. I am sure Mr. Waxman cares not, but it’s nice to know that our issues rank right up there.

The bubbling and surging frustration and despair I feel over the two-year CPSIA torture chamber is echoed by prominent business leaders in this letter. Business people are beyond exasperated after 18 months of Obama and his left wing allies who have never had to make a payroll. As I have said countless times now, our company has a sterling record for safety and the children’s product industry itself has an almost unassailable record for protecting children from injury from lead and from phthalates (according to the CPSC’s recall data itself).

How did we turn into public enemy number one? We are left to twist in the wind, and our regulators seemingly could give a damn. I have had enough . . . and that puts it mildly.

Here is the letter. You can read the report by clicking on the link above, it’s rather interesting. I have also reproduced the verbiage on TSCA and the CPSIA below the letter.

June 21, 2010

The Honorable Peter R. Orszag
Director
The Office of Management and Budget
725 17th Street, NW
Washington, DC 20503

Dear Director Orszag:

As a follow‐up to your request to both Business Roundtable and The Business Council for examples of pending legislation and regulations that have a dampening effect on economic growth and job creation, we surveyed our membership to get their views. Attached are an Executive Summary and detailed description of what they see as government initiatives that will cause slower rather than faster growth.

Obviously the list is long, but we believe the cumulative effect of these proposals will help defeat the objectives we all share – reducing unemployment, improving the competitiveness of
U.S. companies, and creating an environment that fosters long‐term economic growth.

As business leaders we are increasingly concerned that the political expediencies of the short‐term harm our ability to partner with government to create policies that foster growth. Now more than ever we need to work as businesses and as government to make the United States a place where we can attract the investment that is needed if we are to remain the strongest economy in the world. [Emphasis added]

We would be pleased to meet with you to discuss any and all of these issues.

Sincerely,

Ivan G. Seidenberg
Chairman & CEO
Verizon Communications
Chairman, Business Roundtable

James W. Owens
Chairman & CEO
Caterpillar Inc.
Chairman, The Business Council

Excerpts:

CPSIA: “Product Safety: The Consumer Product Safety Improvement Act (CPSIA) and the Consumer Product Safety Commission’s (CPSC) implementing regulations are more expansive than necessary to protect consumers and impose unjustifiable regulatory and economic burdens on the regulated industry.” (page 42)

TSCA: “TSCA Modernization: Compliance with the proposed safety standard appears to be nearly impossible and will result in a flood of litigation. It will gridlock American industry, ultimately stifling investment and costing valuable American jobs. Under the complex regulatory framework being proposed, EPA will be unable to meet required deadlines which will effectively bar new products from the market. Under these proposals, foreign manufacturers will have a distinct competitive advantage to produce new chemical solutions.” (page 12)

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CPSIA – Business Roundtable Torches Obama for Anti-Business Policies

CPSIA – McDonald’s Shrek Glasses Weren’t an "Imminent Hazard"

Some people apparently think I contend that product recalls can only take place if the CSPC insists. I have certainly argued that the CPSC has no authority to demand or even ask for a recall unless certain specific conditions are met. Hate to be the bearer of bad news, guys, but there are limits to the agency’s legal authority. Companies themselves can recall products for any reason. There need not be a safety reason – you can recall something from the market because the color’s wrong, the material is somehow less than expected, wrong size, wrong instructions, wrong packaging, whatever. A company’s ability to recall its own products is not limited by law.

In the case of the McDonald’s Shrek glasses, yes, McDonald’s declared a voluntary recall. That’s not unusual – the vast majority of recalls are voluntary. Only a tiny handful of recalls every year are “mandatory”. In any event, the critical issue here is NOT that McDonald’s made this choice. As we have discussed, the publicity from this event forced McDonald’s hand – they had to protect their brand at all costs. The issue here is that the CPSC apparently “urged” the company to “do the right thing”. [These words come from the OnSafety blog, the official blog of the CPSC, believed to be written by Scott Wolfson, Director of Public Affairs.] It was apparently the “right thing” to do although the agency conceded that the glasses were “not toxic”, in other words SAFE.

While companies are allowed to choose to recall safe products at their pleasure, the CPSC does not have the unlimited legal authority to reach out to American companies and tell them to take this kind of voluntary action.

The power to recall emanates from certain provisions of the CPSA and FHSA. Notably, Section 12(a) of the CPSA, the agency can’t go to court unless there is an “imminent hazard”. What might that be? “As used in this section, and hereinafter in this Act, the term ‘imminently hazardous consumer product’ means a consumer product which presents imminent and unreasonable risk of death, serious illness, or severe personal injury.” Given that the glasses have been acknowledged to be “non-toxic”, this standard is impossible to meet.

The relevant term in the FHSA is “banned hazardous substance”. In Section 2(q)(1)(A), it is defined as “any toy, or other article intended for use by children, which is a hazardous substance, or which bears or contains a hazardous substance in such manner as to be susceptible of access by a child to whom such toy or other article is entrusted”. [If a ban is done pursuant to subsection (B) of this clause as a "household item" because it is chemical in nature, it must be done by rule, subject to comment and so on. There was no rulemaking process involved in this case.]

“Hazardous material” is defined in Section 2(f)(1)(D) in relevant part as “Any toy or other article intended for use by children which the Commission by regulation determines, in accordance with section 3(e) of this Act, presents an electrical, mechanical, or thermal hazard.” And Section 3(e) refers only to electrical, mechanical or thermal hazards, clearly inapplicable here.

Bottom line, the McDonald’s glasses are outside the reach of the CPSC . . . if the wording of its principal empowering laws matter anymore.

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CPSIA – McDonald’s Shrek Glasses Weren’t an "Imminent Hazard"

CPSIA – Schylling Agrees to a $200,000 Fine for Lead in Paint

What is the principal goal of the CPSC – to protect consumers from unsafe consumer products, or to punish legal transgressors? If consumers haven’t been harmed, how should this aftect the agency’s decision to punish?

These questions come to mind when considering the most recent punishment meted out by the CPSC. In particular, on February 4th, Schylling Associates (“Schylling”) agreed to pay a $200,000 fine for lead-in-paint violations disclosed in 2007. How does this fine affect the CPSC’s mission?

Background: I have no personal knowledge of this situation, although I know the company and some of its principals, and I have had no contact with anyone associated with the fine. My summary of L-I-P recalls from 2007 shows five Schylling recalls, although the CPSC press release does not relate to all of them. The recalls total about 80,000 pieces sold from June 2001 to May 2003. The fine works out to about $2.50 per unit for violations almost seven years old or older. No injuries were reported since the sales began almost nine years ago.

Schylling apparently promptly recalled one of the items upon discovery of the infraction in March 2002 and also terminated the factory. Here is Jack Schylling’s letter to his dealers describing this incident. This item comprised a relatively small portion of the defects. Schylling apparently (mistakenly) believed that the other L-I-P problems had been resolved and therefore did not recall them until 2007 (see below).

In August 2007, a Chicago Tribune article featured a defective Schylling top purchased in an online auction; consequently, several additional L-I-P violations dating back to 2001-2003 were uncovered, promptly disclosed to the CPSC and recalled properly.

Judging from the press release and the settlement agreement, this is a messy fact pattern with some poor judgments. bad operational execution and some violations of serious rules. Schylling was a repeat offender, albeit by all appearances not because of bad intentions. No one was hurt.

That Schylling was in the wrong is only part of the story. Was the fine the right move by the CPSC?

The Schylling Fine is Excessive and Unrelated to the CPSC’s Mission to Protect Consumers. The CPSC is not the Department of Justice. They are the Consumer Product Safety Commission – the agency “is charged with protecting the public from unreasonable risks of serious injury or death from thousands of types of consumer products under the agency’s jurisdiction.” I do not believe this fine is consistent with their mission.

In this case, the fine is removed from the protection mission, as all defective pieces were recalled from the market voluntarily and pursuant to voluntary disclosure. This is “good behavior” since the company sought to mend its ways and fix the problem. In addition, because the offenses lasted two years ending almost seven years ago, this matter is old and cold. Addressing it now seems to unfairly reach back in time. Finally, the amount of the fine is arbitrary and therefore unfair. The size of the fine cannot be related to other fines for similar offenses.

Manufacterers Are Likely to React Badly to Fines Intended to Make Examples. If the mission of the agency is to protect consumers, all of its activities must be judged against that mission. In this case, the fine for Schylling would need to make consumers safer to be consistent with the mission. Ironically, I think it is quite possible that this excessive fine may endanger consumers by discouraging manufacxturer cooperation.

The striking thing about this fine is not simply its excessive size – it is that the fine seems motivated by retribution, not consumer protection. This company appears to have tried, perhaps ineptly or even improperly, to do the “right thing”. They turned themselves in voluntarily. The product was removed from the market voluntarily, although not with all the required CPSC disclosure or as timely as possible.

Ultimately, to be successful, the CPSC needs manufacturers to come forward. The trust factor is crucial. When the CSPC acts to squish people who turn themselves in, perhaps to set an example, businesses may conclude that they cannot afford to throw themselves on the mercy of the CPSC. The Schylling action reinforces the notion that the CPSC is not a trustworthy partner. And this is a very damaging notion for consumers.

Here at the Nuremberg Toy Fair, the tradeshow is abuzz with several examples of companies who suffered grievous losses by disclosing problems to the CPSC. These issues were never of a life-threatening nature. However, the CPSC defaulted to remedies that placed the maximum risk on the manufacturer. Now, to make matters worse, the CPSC is adding large, arbitrary penalties for companies that come forward. Do the math – manufacturers may well see disclosure as a bad deal. Highly publicized punishments like Schylling destroy trust. While some manufacturers may be “scared straight”, many others may simply drop off the radar altogether.

Other agencies in the U.S. government see things more clearly. Customs, for instance, grants full immunity from penalties if you confess your sins before official notice of an investigation. While this too is painful, at least you control you control your own fate and pay no penalties. Customs’ policy encourages disclosure, which is what Customs wants. I contend that disclosure is what the CSPC should want, too – it needs to know what defectivce products are “out there” to protect the public.

A big fine was not the agency’s only possible remedy here. It did not have to hit Schylling with a huge penalty, or any penalty at all. Schylling could havc agreed to implement new safety procedures or to conform to certain standards for future behavior. The CPSC also could have agreed with Schylling on some sort of public service. These options would have sent a strong message to Schylling about the consequences of future infractions, while encouraging openness and cooperation with the manufacturing community.

Unfortunately, a reasonable approach would not satsify a ravenous pack of Democratic members of Congress, consumer groups and newspaper editorial boards who are demanding blood. Giving in to populist outrage buys the CPSC time . . . but at a high cost. A punishment-oriented CPSC will be defeated by its own shortsightedness. As more and more people slink into the shadows, this CPSC might accuse the manufacturing community of venality and launch even stronger actions against bad behavior. A safety police state is possible. Is that what we want?

If the CPSC persists in this approach, it will soon eat its own cooking. It’s time for the mania and blood lust to end, and for rationality to return to safety administration. Fear does not have drive regulation of these markets.

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CPSIA – Schylling Agrees to a $200,000 Fine for Lead in Paint