Shopping the Global E-Mall, Round 2

In my last post, I discussed the growing phenomenon of e-commerce sales directly to consumers from foreign (Chinese) manufacturers. My concern is that the regulatory stance of the CPSC—asserting that a foreign manufacturer is legally responsible for compliance with all U.S. safety standards when a U.S. consumer buys a product directly from that manufacturer—is both naïve and unenforceable.

Therefore, I was interested to see the announcement last week from the CPSC that it has entered into a voluntary agreement with Alibaba, the Chinese e-commerce direct sales company, to work with the agency to try to monitor its platforms for dangerous products.  Kudos to the agency for negotiating this agreement, as modest as it is.

According to press reports, Alibaba handles more e-commerce business than Amazon.com and eBay Inc. combined and, as a platform for third parties, it controls as much as 80 per cent of the Chinese e-commerce business.  Obviously, Alibaba can be a potent ally in policing the marketplace for unsafe products.

Looking at the reported details of the agreement, it is not clear whether it will prove to advance consumer safety in the global e-mall or merely serve as a fig leaf to which the parties can point to show they are doing something.  Alibaba has apparently agreed to block sales of up to 15 recalled products upon request from the CPSC.  Since a substantial number of the over-400 recalls the CPSC does each year are of products from China, there should be no problem finding candidates for this list.  All concede that this agreement is not enforceable. It remains to be seen how aggressive Alibaba will be carrying it out over time.

More interesting is the company’s agreement to make available information about safety requirements to importers into the United States.  U.S. safety requirements are not easily understood, especially those issued since 2009 in response to the CPSIA—see the labyrinthine regulations dealing with testing and certification for examples. Any way to get information to those who are honestly trying to comply can do nothing but help.

Whether this agreement is a modest, but effective first step or just another counterfeit product remains to be seen.  Stay tuned.

Shopping the Global E-Mall

While holiday shopping memories may have faded to a blur, holiday gift returns and shopping for bargains are very much a part of the January ritual.  That is why a Wall Street Journal article that showed up right at the end of the year has stayed in my mind.

The article, by Dennis Berman, examines the growing phenomenon of e-commerce sales directly between Chinese manufacturers and global consumers. Berman’s piece provides a fascinating peek at China’s ability to merchandize goods–ranging from electronics to household products to wedding dresses–directly to consumers anywhere in the world using the web, global transportation networks and consumers’ increasing comfort level with and demand for products that transcend national boundaries.

For those of us who are concerned about consumer safety, the implications of this change in consumer buying patterns are obvious.  And, as a former safety regulator, I am troubled by the U.S. Government’s awkward and clumsy approach to the issue.  The Consumer Product Safety Commission has outstanding a proposed rule to address the safety of imported goods but that proposal actually adds costs, burdens and bureaucracy to the import process while adding little if any added safety. While the proposal creates detailed new rules for manufacturers who import products for sale in the U.S. through traditional distribution methods such as retail stores, it treats foreign manufacturers who sell directly to U.S. consumers almost as an afterthought.

Here is some background.  Since 2008, the law has required that importers of consumer products certify that their products meet U.S. safety standards, including testing requirements. Those certificates must be available for inspection by the CPSC upon demand.  In addition, the agency established a program that targets shipments for inspection based on a risk assessment methodology that includes criteria (such as type of product, identity of shipper, and location of shipper) which, in the agency’s judgment, have proven to be indicative of high-risk shipments.  This program has been supplemented with aggressive work with the Chinese government to address the serious safety issues that were identified in the last decade.

The agency now proposes changes to this system but the changes focus almost exclusively on importers who bring product into the U.S. for sale through traditional distribution channels.  The agency seeks to establish a system under which every certificate of an imported product must be filed electronically with Customs at least 24 hours before the product is presented for entry into the United States.  The proposed regulation also expands the data requirements of the certificates, and imposes on common carriers, such as Federal Express and UPS, the requirement to file (and be responsible for the accuracy of) certificates when they act as importers of record for their clients. The agency also proposes to build the capability to “look” at every shipment entering the U.S. and would fund the increased staff that this will take by imposing a fee on importers.  I have discussed these issues in the past.

While this proposal certainly increases the regulatory reach of the CPSC, I am not certain that it actually increases the safety of the marketplace. I question the effectiveness—and the fairness–of imposing on UPS the job of policing the safety practices of the global supply chain.  I do not understand why billions of certificates for perfectly safe products need to be retained under penalty of law for years when much of the same information is required to be retained under other CPSC regulations.  I do not understand why expensive new computer and administrative systems have to be established by importers to file these certificates with Customs when it is unlikely that the vast majority of certificates will ever be looked at by the CPSC.  I do not understand why the agency wishes to upset a system that seems to be working—except to scratch the itch to push its regulatory boundaries (and, perhaps, its budget as well).

But none of these measures address what happens when a foreign manufacturer sells a product directly to a U.S. consumer.   While the proposed rule recognizes that, in this case, the U.S. consumer is technically the importer of the product, it would be impossible to impose a requirement on the individual consumer to certify the safety of the product that is being purchased.  Therefore, the regulation solves the problem by putting onto the foreign manufacturer the legal requirement to certify that the product it is selling meets all U.S. safety standards before shipping it to the U.S. consumer.

How this requirement can be enforced, especially against a company that may have no presence in the U.S, is conveniently left unaddressed.  But the arm of the U.S. government is neither long enough nor strong enough to reach so far.  As an enforcement device, this requirement seems to be an illusion.

The regulation fails to adequately address many of the issues that are implicitly raised in Berman’s article.  First, and right out front, is the question of personal choice and responsibility:  if I knowing chose to purchase a product from China, do I assume the risk for any safety defects that may exist?

The nimble quality of the e-commerce marketplace means that little inventory is stored, that product is sourced from suppliers as needed and send to consumers around the world.  That is the economic reality.  Unfortunately the regulatory reality has not kept pace with that economic reality.  And, in large part, that is the fault of regulators.

Here is an example.  Assume that Europe and the United States have similar but not identical safety standards for the same product (a very real-world assumption).  If the Chinese company gets an order for an identical individual product from both an American and a European consumer, is it likely that the Chinese factory will do two separate tests and certify that the same product being shipped to the European and American consumers satisfy the two regulatory requirements?  What if the order came from Mexico? Or Australia? Can they realistically be expected to know, and certify to, the differing requirements around the world?  At what point will the Chinese factory just ship the product out without thinking about safety?  If safety standards were aligned, would there not be more market incentive to design products that meet those standards? Perhaps so. Yet, practical and realistic efforts to harmonize safety standards have not been encouraged by U.S. regulators.

These companies are selling products to consumers in countries all over the world—countries with differing safety standards and legal requirements. Rather than imposing a legal requirement that cannot be enforced, would it not make more sense to try to reach consensus with other stakeholders, including the Chinese, about what should be required?  The CPSC has made good strides in working with the Chinese Government but these efforts can be greatly enhanced—to the benefit not only of U.S. consumers but also of Chinese consumers as well.  Minimal standards for commonly recognized hazards such as exposure to heavy metals, flammability of fabrics, and choking hazards to children could be established and these standards would find their way into the products that are shipped around the world. Then we could build on that progress.

If a global e-commerce marketplace is our reality, then we need to rethink how our country’s safety regulations fit within that reality.  So far the CPSC has not shown itself at being very adept at thinking globally.

‘Tis The Season

While perhaps you can ignore the holiday decorations that sprout up all over America’s malls right after Halloween, you absolutely know the holidays are here when the various citizens groups and media outlets begin publishing their lists of “deadly”, “dangerous” or “toxic” toys pulled from reports 635515781002297417-D12-PRIMES-GRINCH-30-3881065with ominous titles like “Trouble in Toyland!”.  Like much about the holidays, these lists are annual traditions.

The holidays must be here because this week has seen a spate of such news stories, with one national network story declaring “that toys are becoming more dangerous”.  Since this conclusion runs counter to my recollections from my days as a CPSC commissioner, I checked out the latest CPSC report on toy-related deaths and injuries, published last month.  The study concluded that there was no statistically significant upward trend in the number of toy-related injuries in 2013, or indeed for the proceeding five years.

Several of the news stories have focused on ride-on toys, such as wagons, tricycles and, in particular, scooters as being especially dangerous and a growing risk to children.  But, the CPSC report did not find any upward trend in the injury numbers for these products over the past few years.  Scooters became wildly popular with children in the mid- to late-1990’s and, as usage of the product grew in these years, so did injuries. From 1999 to 2001 there was an alarming increase in the number of scooter injuries and deaths.   The injury rate for these products, however, has stabilized since the early part of the century, and the CPSC does not see a statistically significant increase in its numbers.  Parsing through all these statistics does not make for a good news story so the viewer is left with an entirely different impression—that injuries caused from scooters and other ride-on toys are on the rise.

My point is not to suggest no child will ever be injured playing with a toy or riding on a scooter.  To the contrary, the statistics show that injuries do happen.  And, of course, we all need to be on the lookout for toys that do not meet federal safety standards or are defective; the CPSC is always vigilant in removing such products from the market.  But we should also keep two other things in mind. First, as the CPSC itself notes, the injuries it complies may be related to but are not necessarily caused by the toy—a big difference. And more importantly, how toys are used, rather than how they are made or designed, more often than not determine whether an injury will occur.  It is this aspect of toy safety—consumer education–which the media and consumer watchdogs seem to leave to others, and that is a shame.

In one of the media reports, one of the groups publicizing its dangerous toy list said that until we can trust that toys are safe, “parents need to watch out for common hazards when shopping for toys.”  Oh, please . . .until we can trust that toys are safe?!.  My response, as a parent, is that I will never cede to others my responsibility to think about whether something I give my child is a hazard.

Since toy-related injuries have remained relatively stable over the years, my challenge to those who make up these lists and report on them is this:  Rather than seeking attention through scare tactics, why not spend more time talking with consumers about the safe use of toys, about buying age appropriate toys for children, about keeping toys with small parts and other choking hazards out of the reach of small children and about using appropriate safety gear when getting on that scooter.  Why not work affirmatively and constructively to push the injury trends downward?

The CPSC will soon vote on its spending priorities for the current fiscal year. Perhaps an effort to channel the creativity of the toy industry, the media and those who say they represent the public into a public education effort to remind all of us that safety—especially with respect to children– is a shared responsibility would be a worthwhile undertaking.  Perhaps such a sustained joint effort could actually reduce the number of toy-related injuries.  And wouldn’t that be a happy holiday?

Seeking the Promise in Compromise

In an especially insightful column this past week, political analyst Michael Gerson noted that often policy-making is as much about methods as it isimages about outcomes. The manner in which things get resolved can often leave them unresolved or at least leave them festering.   He, of course, was talking about the dynamics between the President and the Congress and the brewing ideological storm looming on the horizon about to be seeded to the saturation point by aggressive use of executive orders. Yet, as I read his column, I could not help but wonder what would happen if, in one small corner of government, public servants actually worked hard and honestly to seek compromise rather than steamroll through an ideological result because they can.  Of course I was thinking about the CPSC.  Oh, how naïve of me.

After four years when little effort was made to accommodate differing views in order to reach consensus, new leadership and a roster of four out of five commissioners new to the agency offered the potential for real change. And an early effort by Chairman Kaye and Commissioner Mohorovic gave hope to the notion that perhaps that new territory—the elusive middle ground—could be profitably explored.  Kaye and Mohorovic were both asked by Senator Thune during their confirmation hearing for concrete plans to reduce testing costs and burdens currently being imposed by the agency, and the two put their heads together and came up with a joint response to the Senator.  Up to this point, the Commission has done nothing except talk about how hard it is to do anything—neatly forgetting that when it put the testing rules in place that are now driving those costs, its own economists told it that the costs of those rules would be unsustainable for many businesses.  Even when asked by Congress to address these costs, the Commission’s activities have consisted of foot-dragging tactics cloaked in enough bureaucratic jargon to make even the most cynical panjandrum shake his head in wonder.

Chairman Kaye and Commissioner Mohorovic, however, did come up with three specific additional recommendations that, if implemented, actually might reduce the testing burdens now being imposed by the Commission.  Admittedly, what the two proposed is still quite modest—thin gruel but still some nutrition.  Yet I cannot help but think that if each had written an individual letter, those letters would have been quite different—one more expansive and one less so.  The point is that, presumably, the two were able to accommodate their differing views to get to a consensus.   (But since nothing substantive has been done to drive forward the ideas articulated in the letter, it remains to be seen whether they are merely words on paper, like the rest of the agency’s burden reduction efforts, or whether there is anything real behind them.)

My hope in thinking that perhaps a new effort at consensus building was alive and well at the CPSC was dashed a couple of weeks ago when the agency voted to propose a rule to regulate recreational off-road vehicles (ROV’s). The agency and the industry have been working on safety issues associated with ROV’s for many years. These issues are perhaps the most complex that the agency has ever been presented with and, hence, are not easily resolved.  The industry has developed and recently revised a voluntary standard even as the agency staff worked to write a proposed mandatory standard.  When the proposed standard was made public shortly before the Commission was scheduled to vote on whether to issue it for public comment, the industry engineers met with the staff to discuss various technical issues presented by the draft, an effort which staff agreed was productive. Rather than make further attempts to work through these technical issues, three Commissioners chose to vote to issue the notice of proposed rulemaking. The result was a 3 to 2 vote, along party lines, to issue a proposed rule that is probably not the best work product the agency could have put out.  An amendment to delay the vote by 90 days to give the technical experts the opportunity to work through the issues raised was defeated, again along party lines.

If the leadership of the agency was serious about trying to compromise, then agreeing to this amendment would have been a no-brainer.  If issues could have been resolved, or at least clarified, in that 90 day period, then efficiencies would have been gained. If not, then the industry’s hand would have been called.  Either way, no one can make a credible argument that a rulemaking this complex and potentially lengthy would be so delayed as to jeopardize safety.  A controversial issue would have been diffused, the dissenting commissioners would perhaps have a harder time voting against the NPR; complex technical issues may have been clarified with a resulting better proposed rule—all around a win-win.

Finding consensus and reaching a compromise is very hard work.  If you are in the minority, sometimes achieving small wins may not feel as satisfying as keeping to your principles.  Yet small wins can still be wins.  But when you are in the majority, compromise means that you have to be willing to try to reach common ground even your vote count says you do not need to and when the temptation to jump on the steamroller is strong.  As we are seeing, finding the promise in compromise is not an easy thing to do.

Connecting Corporate Counsel

Readers who are in corporate law departments may be interested in a conversation I had recently with the editors of Corporate Counsel Connect, a Thomson Reuters publication focusing on corporate law departments.  The focus of the piece was the development and 30 year history of the Association of Corporate Counsel (ACC), where I served as its first executive director.  You can find the interview in the October issue of Corporate Counsel Connect, here.  In a separate article I discussed with the editors the challenges that corporate counsel face in the current regulatory environment.

Corporate counsel who are not members of ACC may want to check out the resources it offers.

 

Questionable Recalls–Will Consumers Just Tune Out?

Through all the controversial statutory and regulatory changes that have occurred at the CPSC over recent years, the product recall has remained the most reliable mechanism to provide consumers protection from hazardous products that find their way into the marketplace and into their homes.  When I was a commissioner, I was both impressed and proud of the herculean work that the agency compliance staff did to identify the true hazards warranting recalls and to winnow out the incidents that did not warrant further investigation or action.

But a recall will not accomplish its purpose unless the consumer pays attention and either takes advantage of the remedy being offered or otherwise alters behavior to avert the risk.  And consumers will not pay attention if they think that recalls do not affect them, are of no consequence, or, worse, are just silly.  And, if they think that, they will be less likely to pay attention in the future.

This past week, I was traveling abroad, and being stuck in an airport with limited reading material, I read the recent CPSC recall press releases.  One caught my eye, but because I was several time zones away from Bethesda, MD, I could not call anyone at the agency or any practitioners in Washington to ask about it. In other words, I was just an average consumer reading the recall notice.

The recall involved a small folding table that was being recalled because it collapsed when sat upon. The company reported that four consumers sustained injuries after the tables collapsed when the consumers sat on the table tops.  Note that the recalled products are tables, not chairs or benches; they are designed to hold plates and glasses, not people’s derrieres.  From the picture in the press release, these are the kind of small tables that are pulled up beside a chair to hold a plate or glass and then are folded away when not needed.

Apparently four consumers misused the product and were injured as a result.  Foreseeable consumer misuse can be a justification for a recall.  The agency has not really defined when consumer misuse will justify a recall but hauls that rationale out when needed.  Is four consumers being injured by sitting on what is clearly a small table foreseeable consumer misuse or is it just four consumers acting without care or perhaps negligently?  Does this matter in the agency’s eyes?

And why would the company agree to do such a recall?  Perhaps given the hostile climate at the agency right now, it is easier and cheaper to just do a recall than to risk an investigation and the threats of seven or eight figure penalties because four people were injured sitting on a table you sold.  But while this rationale may be understandable, it leads to recalls of dubious merit.  And consumers may stop listening.

It used to be that the agency did not accept such recalls but times have changed.  With this recall, it would appear that now almost any misuse can justify a recall and this seems to be a pretty broad expansion of the notion of foreseeable consumer misuse.  But that is only how it looks to this average consumer.

Import Workshop–Searching for Answers

Since 2008, consumer product manufacturers and importers have been required by law to certify that their products meet applicable safety standards. The CPSC now proposes to answers sign_Resized_300x239require the electronic filing of those certificates with Customs and Border Protection (CBP) prior to import and to expand the information that must be included on the certificates.  At a workshop two weeks ago, the agency explained its proposal and heard from various stakeholders about the impact of its proposal.

The workshop certainly gave participants much substantive information. But it also left the distinct impression that there is much misunderstanding of the proposal among the various parties, much misinformation within the agency about many aspects of the import process, and much back-to-the-drawing-board analysis that needs to be done before this proposal goes live.

The session started with the agency explaining the need for the proposal.  While the agency did not exactly say, “we are from the government and we are here to help you,” the agency did say that the intent of the proposal was to facilitate trade and make the import process more efficient as the agency carries out its regulatory function.

The agency then heard from importers who told it in some detail how its proposal grossly underestimated the numbers of certificates that would need to be processed and the burden and costs of complying.  They questioned the need to change a system that was working now to target unsafe cargo and criticized the lack of flexibility in the proposed system.  Common carriers and custom brokers noted that they had no way of efficiently taking on the burden of filing certificates since they had no knowledge of applicable regulations or products.

Several other government agencies that have certification programs discussed their experiences but it was obvious that those programs are of a narrower scope or not apposite to what is being proposed by the CPSC.  The CBP asserted, in spite of what stakeholders had earlier said about CBP’s capabilities, that it was ready to handle the data that would be coming in from the electronic filing of certificates, although, should those certificates come in PDF form, that might cause a hiccup.

Finally at the end of the presentations, several pragmatists from the audience suggested that the agency rethink its objectives, giving concrete suggestions for simplifying the approach the agency was taking.  The meeting concluded with vague suggestions of a pilot program sometime in the future.

What the agency did not address at the workshop was how this proposal relates to its current budget request to Congress for millions of dollars to expand its risk assessment methodology (RAM) project to cover all imports under its jurisdiction and its proposal to charge importers user fees to pay the down-stream costs of this expansion.  Obviously electronic filing of certificates is a required first step before the expanded RAM and user fees can be put into place.

It may be that expansion of the RAM to assess the risk of all imports in the way the agency proposes makes sense.  Or it may be that an expansion can be better accomplished, if it needs to be done, by a staged process.  Perhaps user fees assessed against importers to pay for the system is the fairest way to assure that those whose products are subject to the system pay for it.  On the other hand, virtually everyone imports these days so user fees have a taxation aspect to them that needs to be considered.  These are all questions that the agency has not asked stakeholders.  Instead they will be debated through the appropriations process in the Congress. Rather than the agency first trying to educate and then get consensus on important policy issues, real potential for divisive debate now exists.

Would not the agency have been wise to tee up some of these important issues for discussion as well?  Many people asked why the agency wants to change a system that seems to be working well.  They deserve the full answer.


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