Keeping Consumers Safe from Defective Imported Products: After a Year of Executive and Congressional Investigations, Testimony, and Posturing, Are We Any Safer?

By Mark H. Allenbaugh

Wednesday, Jul. 30, 2008

By now, most Americans are well aware of America’s difficulties with ensuring the safety of imported products – a problem that a string of high-profile product recalls highlighted. The recalls sparked government scrutiny, but are imports today any safer than when the recalls – some, disturbingly, of children’s products -- occurred? In this column, I’ll consider that important question.

America’s Increasing Propensity for Importing

America has an enormous appetite for imports. According to government estimates, in 2007, over 825,000 U.S. companies imported more than $2 trillion of products through 300 ports of entry. That’s an average of over $63,000 of product imported into the U.S. every second of every day -- and the number is growing. By the time you finish reading this article (assuming it takes you ten minutes), nearly $38 million of products will have been imported into the U.S.

This staggering amount equates to over 20% of the U.S.’s GDP (ranked #1 in the world), nearly half of Japan’s GDP (ranked #2), over 60% of Germany’s (ranked #3) and China’s (ranked #4), and nearly all of the United Kingdom’s (ranked #5). If the value of our imports alone represented the GDP of a single country, that country would rank eighth in the world -- above Spain, Canada, and Brazil.

Of the $2 trillion in imports last year (including oil), a total of $321.5 billion (16% of total imports) came from China. (That’s a huge expansion from 2006, when the figure was $240 billion. The change represents an increase of 34% from 2006 to 2007). Of the China imports, over $56 billion comprised computers and accessories; $27 billion, toys; and $25 billion, video and telecommunications equipment. Unfortunately, China-manufactured products continue to top the list of recalled consumer products and that list has grown.

The President’s Interagency Working Group on Import Safety’s Action Plan Update

Last July, in reaction to the massive recalls of consumer products manufactured in China, President Bush created a cabinet-level Interagency Working Group on Import Safety (www.importsafety.gov). Its mandate was to review the problem and provide suggestions for improving the security and safety of the international supply chain. The Group recently issued an “Action Plan Update” after a year of investigations, testimony, and trips to foreign countries that export consumer products to the United States.

According to the Update, the Working Group has largely spent the last year traveling to several foreign countries—including China—to discuss bilateral or multilateral agreements to improve import safety. In addition, the Working Group has met with some industry associations to obtain insight into ways to improve product quality control.

The Update proudly boasts that between November 2007 and May 2008, about 8,500 products were refused admission into the U.S. due to appearances of unsanitary conditions. Likewise, the government “detected and took action” against approximately 2.4 million pounds of meat that appeared to violate health standards (a drop in the bucket compared to the 180 million pounds of meat we consume a year). And, about half a dozen companies have been federally indicted for violating various importing regulations.

All these efforts apparently come under the rubric of the Department of Homeland Security’s (little-known) Operation Guardian, which “represents a multi-agency approach to import safety operations.”

Frankly, Operation Guardian appears by its own reporting to be a woeful failure at improving import safety. All the MOUs, MOAs and other three-letter acronyms cited throughout the Update amount to little more than puffery. Worse, they obfuscate the critical need to work directly with overseas manufacturers, and especially to understand the rather unique dynamic that businesses encounter when importing products from China.

The Consumer Product Safety Commission Reform Act

Unfortunately, Congress seems to have succumbed to the same fundamental misunderstanding of the primary issue facing import safety that has plagued Operation Guardian. Congress, too, has failed to focus on the need for U.S.-based importers to travel to China and train their overseas manufacturers in China as to how to comply with U.S. safety regulations.

The bipartisan Consumer Product Safety Commission Reform Act, H.R. 4040 (“the Act”), is set to pass any day now. The law is intended to “establish consumer product safety standards . . . and to reauthorize and modernize the Consumer Product Safety Commission.” Among the many action items the Act proposes to improve safety are these three: (1) require third-party certification of children’s products, (2) require the placement of tracking labels on children’s products, and (3) require U.S. importers, retailers and distributors to identify their manufacturers.

Will these measures be effective? They are not really “carrots” – for they do not incentivize importers to improve their import safety processes and procedures. Nor are they really “sticks,” imposing penalties --although many importers will have concerns about revealing their manufacturers out of concern that their key suppliers of imported goods may then quickly be usurped by their competitors and even by customers who want to cut out the middle-man.

What does function like a very heavy stick – indeed, a lead bat – are the penalties for violating relevant provisions of the Act.

As is typical with so much fix-it legislation, Congress has shown in the Act that it is addicted to addressing problems through threats of onerous punishment. Many civil fines have increased by orders of magnitude -- rising from, in some cases, $1.25 million to a massive $20 million. Likewise, the Act increases criminal penalties from misdemeanors to federal felonies potentially triggering five years’ imprisonment.

These penalties, however, will have very little real-world effect. Very few violators ever will be caught, let alone prosecuted or fined -- as the statistics cited by the Working Group’s Update regarding the massive volume of imports clearly indicate. The sheer flood of products being imported into this country is simply beyond the means of any government agency or network of agencies to effectively police.

Why True Product Safety Starts and Ends with Compliance and Ethics Programs

As I have previously written in a column for this site, the hyperbole must stop. Rather, simple, commonsense initiatives must be supported. Companies must educate and train overseas manufacturers on relevant U.S. laws and regulations, and must assist and encourage them to build the proper infrastructure for effective internal auditing programs. These practical, specific measures will help to improve import safety far better than empty threats and vague MOAs ever could.

In short, transparent, effective, on-the-ground actions must take place if we are to permanently improve the safety of our imported products. Only through the concerted efforts of the private sector to develop robust compliance and ethics programs can long-term product safety be achieved. Moreover, efforts must occur both state-side with respect to supply and demand chains, and on-site with overseas suppliers.

Perhaps the most commonsensical way of doing this is at trade shows. Every October and April in Guangzhou, China, the world’s largest trade show occurs, taking place over the course of two weeks. Tens of thousands of manufacturers from all over China looking to find customers for their products and potential customers roam the gargantuan halls looking for the right product to import. Could there possibly be a better opportunity to provide compliance and ethics training? The same point also applies, of course, here in the U.S. With several major tradeshows going on at any given time whose exhibitors primarily are U.S. importers, the U.S. also boasts a great parallel venue for training.

Though Tradeshows, Here and Overseas, Are Ideal Arenas for Training, the Government Has Failed to Take Advantage of Them

But our government remains silent -- or, worse, unaware of these opportunities. Nowhere in the Working Group’s three reports on in H.R. 4040 is any such training or cooperation mentioned. That’s a serious omission: While meetings with government officials and trade groups provide excellent photo ops, they do nothing to assist the actual manufacturer or importer in improving the safety of products along the entire supply and demand chain.

With the Olympics just days away, now would be the perfect time for our current administration -- as well as both Republican and Democratic presidential nominees -- to make clear and vocal commitments supporting the assistance of U.S. importers with exporting compliance and ethics programs to their overseas vendors, and to working with the Chinese government at the grassroots level to assist Chinese companies in improving their manufacturing prowess and develop internal compliance and ethics programs. Only through such solutions will we stem the tide of recalls and meaningfully increase the safety of American consumers and their children.

While China remains largely mysterious to the average American, the Olympics most certainly will help shed light into the Middle Kingdom for what it is quickly becoming—a junior-varsity America. Our trade with China will soon become far more bilateral than it is now, as its middle class continues to grow (now outnumbering the entire U.S. population), and as the renminbi continues to grow in value relative to the weak U.S. dollar. By working with overseas manufacturers as partners and in a spirit of camaraderie (as opposed to a necessary evil), U.S. importers will come to far better understand the enormous potential of the Chinese market, and the opportunities that lie there for U.S. businesses as exporters.

In sum, The Great Wall need not remain impervious to U.S. business’s best practices – but at the rate we are going, the U.S. will neither keep consumers safe, nor benefit to the greatest extent from what could be tremendously productive and constructive alliances with Chinese business.


Mark H. Allenbaugh is a partner with the law firm of Allenbaugh Samini LLP, with offices in Newport Beach, California, Washington, D.C., and Guangzhou, China. He heads the firm's China Trade and Risk Assessment Practice Group and is a member of its White Collar Crime Practice Group. Mr. Allenbaugh also serves as CEO for MAG Manufacturing, a manufacturing, importing, and distribution company. He is a former Staff Attorney to the U.S. Sentencing Commission and has taught Business and Professional Ethics at the George Washington University. The views expressed herein are his own and do not necessarily reflect the views of any of the named organizations.



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