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.