For those of you who aren’t experts in the field of administrative law, when an agency issues a significant new rule, it has to do what’s called a Regulatory Flexibility Act analysis, also known as “Reg Flex”. That’s not Calisthenics for Commissioners (though that’s not a bad idea). It’s a report that examines the impact a new rule will have on the economy, and specifically on small businesses.
The Reg Flex analysis for the testing rule we will vote on tomorrow looked at the costs of this rule, especially on small businesses. Here is some of what our staff is telling us:
- This rule “will have a significant impact on all firms” making children’s products. For example, the staff estimates that for large firms, increased testing costs will be approximately 1.2% of revenues. For small firms, testing costs as a percent of revenues could be expected to increase to a staggering 11.7%.
- The rule will have this financial impact on all manufacturers and importers of children’s products. While we do not have a good handle on precisely how many firms this may be, it will be in the hundreds of thousands of firms.
- The testing rule “could be a barrier that inhibits new firms from entering . . . the market.”
- Impacted companies may “forgo or delay implementing improvement to products’ design or manufacturing processes in order to avoid the costs of third party testing.”
- Firms may be able to mitigate “the adverse impacts if they are able to raise their prices to cover their costs.”
- “The impact is expected to be disproportionate on small and low-volume manufacturers.”
At a recent briefing on this rule, one of my colleagues suggested that we already have done everything we can to reduce the costs of this rule. What I believe he was saying is that we have done everything three Commissioners are willing to do to reduce the rule’s cost. There are a number of things we could actually do to bring down the testing costs imposed by this rule. Some of those things are even suggested in the Reg Flex analysis. And we could still have a robust testing rule to address safety concerns.
We know that this rule will burden our economy. Our staff says so. Because Congress was concerned about the high costs of testing, it recently told us to seek out ways to reduce the testing costs in this rule. Therefore, before issuing this rule, we should do as Congress asked and look at ways to reduce the costs of testing consistent with assuring compliance with our safety standards.
Unfortunately, politics often trumps good policy here at the CPSC, so tomorrow we will issue a final testing rule and then look for ways to reduce costs of the rule we are issuing. Talk about putting the cart before the horse! And this approach certainly raises the question of how sincere the effort to reduce costs will be.
While we all agree on the goal of child product safety, I am convinced we can achieve that without incurring the staggering costs identified by our staff.