The Unfortunate Politics of Import Safety: As Congress and the White House Squabble over Strategy, the Objective of Protecting the Public Remains in Peril

By MARK ALLENBAUGH

Monday, Nov. 12, 2007

The "Summer of the Recall" has now extended into the Fall, with no end in sight. Moreover, as the list of problem products continues to grow, the resulting injuries have become even more surreal.

Just this past week, for example, a popular new toy, Aqua Dots -- a set of colored beads that fuse together when sprinkled with water -- was recalled when it was discovered that if ingested, the glue breaks down to form gamma-hydroxybutyrate, otherwise known as GHB (the "date rape" drug).

At least two children known to have swallowed the dots suffered temporary comas as a result. Officials here in the U.S. -- as well as in Australia, Canada and Great Britain, where Aqua Dots also was distributed -- are now scrambling to get it off store shelves before the Christmas shopping season moves into full swing.

Aqua Dots, not surprisingly, is made in China.

And as is so often the case with the recent rash of problem products, it appears that a subcontractor to the China-based manufacturer switched the glue from a non-toxic substance to a cheaper but, unfortunately, toxic one without having notified the U.S. importer, and without having conducted appropriate testing.

Also this past week, and coming none too soon, the President's Interagency Working Group on Import Safety--created this past summer to address the growing recall crisis--released its Action Plan to address safety issues with respect to imported products. The Plan contains "14 broad recommendations and 50 specific action steps" to improve import safety.

Legislation also is moving forward to improve import safety. On October 30, the Senate Commerce Committee approved the "CPSC Reform Act of 2007," S. 2045, to "reform the Consumer Product Safety Commission to provide greater protection for children's products, to improve the screening of noncompliant consumer products, [and] to improve the effectiveness of consumer product recall programs."

While both the Action Plan and the CPSC Reform Act share the same goals and propose some of the same strategies for improving import safety, the Reform Act has met stiff resistance from the White House and, ironically, from the Consumer Product Safety Commission itself.

In this column, I will briefly review the major proposals of both the Action Plan and the Reform Act and concludes that, unfortunately, both fall short of achieving their shared goals. Moreover, I will argue that continued squabbling between the Executive and Legislative branches on strategies for improving import safety will only allow the continuing crisis to grow.

The Action Plan: Why It Still Falls Short of Providing a Clear, Concrete Plan for Preventing Defective and Dangerous Imported Products from Reaching U.S. Stores

As I have written previously in this column of September 18 and this one of August 7, the key to minimizing defective and dangerous imported products from reaching store shelves must focus on prevention at the source, and not just detection at some point along the extended supply chain. While detection certainly is a necessary component of any import safety program, it is by no means sufficient.

Although the Action Plan purports to speak to "Prevention with Verification," the main focus is on the "[c]reation of mandatory and voluntary third-party certification programs for foreign producers that are based on product risk, to verify compliance with U.S. safety standards."

The first problem with this proposal is that there are few such third-party entities competent to perform such certifications, which also would include auditing and monitoring services. In fact, during a public conference call on the day the Action Plan was released, the Working Group could not identify one such entity.

The second problem is that, presumably, these third-parties would also have to be accredited somehow and themselves trained on the appropriate testing procedures for the plethora of products and manufacturing processes they may encounter. While testing, monitoring, and auditing firms do exist in China, many of them are relatively new or are mere trading companies -- thus placing their objectivity in question.

In all events, who would do such accreditation and training of such third-party certifiers for foreign-based manufacturers? The Action Plan is silent on this important point.

Prevention at the source can best be achieved through direct training of China-based suppliers by their U.S.-based importers on internal compliance, ethics, auditing, testing and reporting programs and procedures, as well as relevant U.S. laws and regulations. In short, the importers themselves must take direct responsibility to develop strategies focused on prevention

The Action Plan also discusses the development "of good importer practices" and the "[u]se of strong penalties against bad actors." While the former may in fact work toward a prevention model, certainly the latter does not, inasmuch as it is focused on deterrence and punishment.

In any event, as the Action Plan itself recognizes, "[a]lthough some members of the importing community have established and met their own best practices, the importing community does not have available Good Importer Practices focused on ensuring product safety throughout the supply chain." So, unfortunately, the suggestion that good importer practices be developed is, thus far, an empty one.

The CPSC Reform Act of 2007: A Realistic Solution? Some Important Objections Suggest It is Not

Introduced by Senator Pryor (D-AR) and Senator Inouye (D-HI), the Chairman of the Senate Commerce Committee, the CPSC Reform Act of 2007 seeks to substantially increase funding for the CPSC and to provide for more personnel to assist in monitoring the compliance of consumer products with relevant safety laws and regulations. It also seeks to significantly increase civil and criminal penalties for violations of product safety regulations. And like the Action Plan, it too calls for third-party certification of imported products.

So why would Nancy Nord, the Acting Chairman of the CPSC, object to this legislation?

In a letter dated October 24, 2007 to Senator Inouye, Nord noted that, despite the increased funding and allocation for additional personnel, the Act "would impose a number of substantial new missions" that would hamper the effectiveness of the agency and would otherwise be impossible to implement in the timeframe given."

For instance, the Act would provide for whistleblower protection, which Nord believes "represents a colossal and wholly unfamiliar new mission for the CPSC. . . [which] has neither the resources nor the expertise to administer such a complain and appeal system."

Furthermore, the Act would "grant state attorneys general a cause of action in federal court to effectively enforce the statutes that [the CPSC] administer[s] [and] would invite nothing short of product safety chaos."

And while Nord agrees with an increase in penalty caps, as does the Working Group, she does not agree with an increase from the present $1.825 million to the $100 million the Act proposes. Instead, she suggests an increase to only $10 million.

Finally, Nord believes the criminal penalties proposed against company officials "for mere knowledge of an act at issue. . . without the requirement that the act was done in willful violation of the law" are excessive and "a very significant departure from current law."

Likewise, Allan B. Hubbard, the Assistant to the President for Economic Policy and Direct of the National Economic Council, opposes the Act on the grounds that the Act dictates "mandatory compensation for whistleblowers between 15 and 25 percent of any civil penalty imposed."

According to Hubbard in a letter dated October 29, 2007 to Senator Inouye, this would provide "significant financial incentive[s]" to employees and others to bring "meritless claims" in hopes of being awarded up to $25 million. Such potential for "bounty hunt[ing]" could produce "an adverse impact on our economy."

Unfortunately, the criticism leveled against the Reform Act by Nord, a Bush appointee, and Hubbard, has led to calls for Nord's resignation by Democratic members of Congress, including Nancy Pelosi, the Speaker of the House. Such apparent bipartisanship in favor of a flawed Act certainly will not help to address import safety concerns.

The Crucial Remedy the Action Plan and Reform Act Omit

Still missing in the Action Plan and the Reform Act is any discussion of fostering internal ethics and compliance programs within foreign-based factories themselves. As China-based manufacturers continually are pressed to produce higher quality products at ever lower prices (and in an economic environment with an ever-weakening dollar), incentives for cutting corners will remain. Only internal ethics and compliance programs can effectively address and counteract those incentives.

In sum, until our government officials recognize the necessity of developing programs that will assist U.S. importers in getting their foreign-based manufacturers to adopt internal ethics and compliance programs, the wave of recalls likely will continue for the foreseeable future. The Action Plan and the Reform Act, in other words, will be far from enough to proactively prevent imported products from putting consumers in danger. Much more, therefore, must be done.


Mark H. Allenbaugh is a partner with the law firm of Allenbaugh Samini LLP with offices in Newport Beach, California, and Guangzhou, China. He heads the firm's China Trade and Risk Assessment Practice Group. Mr. Allenbaugh also serves as CEO for MAG Manufacturing, an importer and distributor of Chinese manufactured products to major national retailers. He is a former Staff Attorney for the U.S. Sentencing Commission and former Adjunct Professor at the George Washington University where he taught courses in Business and Professional Ethics. The views expressed herein are his own and do not necessarily reflect the views of any of the named organizations.

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