A couple of years ago, I did an addition to my house. Everyone who has done this knows the steps. I sat down with an
architect to discuss exactly what I wanted to accomplish with the project. A rough design was done and then refined in a set of blueprints that was put out for bid. Since my budget was limited, the plans had to be readjusted to fit both my needs and my resources before they could be finalized. Only then did we go to the relevant regulatory bodies to seek the required permits and approvals to do the project.
I thought of this process last week while I listened to the CPSC Chairman and Commissioners describe their desire to greatly expand the agency’s import surveillance system at an oversight hearing before the Senate Commerce Committee. In 2011, in response to Congressional direction, the agency initiated a pilot program to identify imports that violate safety standards. The current pilot program subjects certain products from certain countries/suppliers to surveillance prior to import under a computer rule set that predicts the possibility of violations. In other words, the computer looks at what is coming in and, using the rule set, flags those products that should be further examined by CPSC personnel. As a pilot, it has worked well. The agency now seeks to extend the program to all imports under its jurisdiction. Such a program will be expensive and the agency has asked Congress for a significantly increased appropriation to build out the program and the authority to impose user fees on importers as a way to fund the program on a continuing basis.
The agency has a great deal of regulatory housekeeping to do before such a system is feasible. The program will only work if the agency has the statutorily-required certificates of compliance from importers available in an electronic form. These electronic certificates will provide the basic information to allow both the CPSC and its sister agency, Customs, to make initial judgments about compliance. In 2013, the agency proposed to update its rules governing the creation and filing of e-certificates (at 16 C.F.R. §1110). Unfortunately, the agency, in a good example of “wants” exceeding “needs”, proposed a rule that goes well beyond what is required by the statute, and, if finalized, would require importers to redesign reporting systems and impose many new and costly requirements. I looked at the cost of the proposed system when I was a Commissioner and using agency estimates, determined that it would cost annually over $400 million – that is almost $1/2 billion—for importers to compile the paperwork to document tests and generate the certificates that reflect those tests. That is a lot of money for paper!
This rule has been one of the most controversial in the history of the agency. Many comments have been filed and most of them have been critical of the proposed rule. The agency now proposes to establish a pilot program to see if the rule will work. Unfortunately, rather than establishing a pilot based on the learning found in the comments to the rule, the pilot will look much like the proposed rule. And because it is so tied to the expanded import surveillance system, this rule remains on the agency’s near-term agenda for completion.
At the hearing last week, several commissioners discussed the agency’s import surveillance activities. Chairman Kaye argued that seeking authority to expand its import surveillance activities is consistent both with Congressional desires expressed in the CPSIA and with the Presidential direction for closer coordination among agencies that handle imports. However, the ever-thoughtful Commissioner Beurkle pointed out that the agency has yet to undertake a requirements analysis to identify the capabilities of an expanded system. Both she and Commissioner Mohorovic expressed grave concerns about the status and substance of the agency’s proposed rule on electronic certificates with Commissioner Mohorovic suggesting that the agency was greatly underestimating the number of certificates that it would have to process. He also argued that the agency has yet to demonstrate how the rule would improve targeting of violators and suggested that a “trusted trader” program should be part of any final program. Commissioner Beurkle suggested that an “incremental” approach to building out the system was a more prudent one than what the agency proposed.
While the Senate Committee did not dwell on the subject of user fees, there were differences of opinion both on the Committee and among the commissioners. Again, Chairman Kaye voiced strong support for the notion of user fees to fund import surveillance activities while Commissioner Beurkle expressed concerns about the wisdom and the constitutionality of such a system.
It seems pretty apparent that the agency has much more planning to do before it should get the permits to build out this addition to its regulatory house. The fact that so much of the planning and preparatory work that needs to proceed such a program is still “under construction” should give policy makers pause. And the issue of how to fund the program does raise many policy issues. User fees have a certain attractiveness and have been used before. But the policy and legal implications of such an option should be more fully explored. In this regard, last month the George Washington University Regulatory Studies Center published a study looking at the on-budget cost of regulations. Among other things the study found that “in general, agencies that are at least partially funded by fees on the entities they regulate continue to grow at a faster rate than those that depend on appropriations from general funding” and that “agencies with independent funding authority will have significant increases in their outlays over the two-year 2015-2016 period.” While this may or may not be a bad or a good result, it is something that should be understood before Congress, the agency and its stakeholders go down this road.
Planning is important. It appears that the agency needs to work on its blueprint before it jumps into this new undertaking, not matter how important.