Posts Tagged '1110'

Measure Twice; Cut Once

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

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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.

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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.

It Will Take More Than A Workshop

In an apparent fit of good sense, the CPSC staff has announced a workshop to explore with stakeholders issues presented by its proposal to require that importers of electonicfilingcabinetproducts under its jurisdiction file electronic certificates of compliance with CPB prior to importation.  This electronic filing requirement was only one of many controversial proposals found in the agency’s notice of proposed rulemaking to amend 16 CFR 1110 dealing with certifications of compliance.  The agency received many comments to the NPR, almost all of them very critical of the proposed amendments.

Here are the specifics as announced by the agency.  The workshop will be held on September 18 at the agency headquarters in Bethesda, MD.  Those who wish to present needed to notify the agency by August 8, so the dogs and the ponies have already been chosen.  If you wish to attend in person, as opposed to viewing the webcast, you must notify the agency before September 5.  However, if you wish to file written comments, you may do so before October 31.

It is pretty clear, both from the number and tenor of the comments received and from the announcement of the workshop itself, that the agency is really struggling with the details of implementing an electronic filing system.  No doubt part of the struggle comes from the fact that the agency is trying to do way too much in the proposal.

For example, the current pilot-scale RAM (risk assessment methodology) program allows the CPSC to analyze CBP import data to identify high risk cargo for inspection.  The agency seeks to expand this pilot program and apply the RAM analysis to all imports under its jurisdiction and sees electronic filing as essential to this expansion.  Perhaps a more gradual roll-out would be a more rational approach.  As another example, the NPR seeks to support the President’s Executive Order 13659 calling for the modernization and simplification of the trade processing infrastructure, but again, the details of the NPR add complexity rather than simplicity.  Many comments made the point that CPB processes do not align with the NPR requirements and will not for some time, if at all.  And there is still no explanation why common carriers are being required to take on the legal burden of filing certificates when they have no way of policing their accuracy.

The staff recognizes that the proposal presents both practical and logistical problems and asks for suggestions and solutions for solving those problems.  My advice to those participating is to honor this request.  While the agency staff is very good at many things, here they are operating in waters where they are not expert.  Unfortunately, the staff also listed a number of issues that are off the table for discussion during the workshop.  Many of those items touch on the topic of electronic filing so, by walling off the topic in this narrow way, the staff may not get the value they need from this exercise.  (Of course this is the same approach that was taken in the recent workshop on phthalates determinations.)

It is pretty apparent that it is going to take more than just a workshop for the agency to come up with a sensible proposal that works efficiently within the bigger trade processing picture.  It is unfortunate that the collaboration that use to exist between stakeholders and the agency has been so weakened over the past several years, because honest dialog between trusted partners is what is needed to solve the many problems in the NPR.  An ongoing effort, organized by a trusted third party with trade expertise, could perhaps work through the many issues raised by the comments so that what comes out of the process is–to paraphrase Mick Jagger—not necessarily what the agency wants but what the agency needs.

 

 

Certificates of Compliance: Speak Up!

Remember CPSC’s certificates of compliance? In 16 C.F.R. part 1110? Of course you do! If you’re reading this blog, that is, you should, because I wrote about the draft update the Commission approved in May and described a number of shortcomings that I saw in the draft and the process leading up to its adoption (including the draft’s excess breadth, the refusal of some of my colleagues to ask pertinent questions of the public, the needless expansion of paperwork requirements, and a few other issues). But I voted for the package because I believe our 1110 rule needs updating, and we needed get the public’s views on how best to do that.

Now we’re coming up on the end of the comment period. The public’s comments are due next Monday, July 29, 2013. If you have something to share with us, now’s the time to speak up. You can file your comments here.

1110: Now It’s Your Turn

Last week, we talked about the shortcomings of the Commission’s proposed amendment to its Part 1110 rule on product certifications—hidden costs, confusion on bans and testing exemptions, recordkeeping disharmony, and questions not asked. Today, I issued my formal statement on the vote, which delves more deeply into the history of our first attempt at this rule and what we should have done this go-round.

That being said, I supported the broad outlines of this package. One key reason I voted to move ahead? I believe it’s high time we asked the public what to do about certificates. So now it’s your turn to let us know how we could improve this rule. Talk to me here, but more importantly, talk to the all of us at the Commission by submitting comments here.

1110 Series: “I certify this is not illegal.”

A blanket is not a lawn dart.

Not a lawn dart.

Yesterday, I discussed how the Commission fell short in considering and presenting the costs of our 1110 rule (on certificates of compliance). Today, I examine how we (mis)handled the tricky question of how the certificate rule fits with banned products.

The Consumer Product Safety Improvement Act of 2008 handed us a seemingly strange mandate. We were to require any manufacturer or importer of a consumer product to issue a certificate specifying any “rule, ban, standard, or regulation applicable to the product” and certifying conformity thereto. For rules, standards, and regulations, that makes plain enough sense, but certifying that your product is not banned might seem a little odd. Read too broadly, requiring something to certify that it is not banned could lead to absurd results. Think of requiring baby blankets to certify that they are not lawn darts. Or a hammer needing to certify that it is not general apparel containing asbestos.

Congress left it to us to implement this requirement reasonably. Our proposal almost does so, but, as with the costs, we have buried the lede. Portions of the rule discuss how individual bans interact with the certificate rule, but the rule does not provide any general guidelines to help a company determine if a ban relevant to its products requires certifying, “this is not banned.”

Our staff strived mightily to give some reasonable content to the requirement. They looked through the CPSC’s bans and saw that some appear to ban whole categories of products, while others ban only part of a product category. In particular, if a product was subject to a specific test, it appears easier to identify the products to be tested, and those that could pass the test would have to certify to the ban. (Those that failed would, obviously, be banned.) Some of staff’s helpful language appears in the rule’s preamble, but preambles do not appear in the Code of Federal Regulations, where companies and their counsel will look in years to come. Following staff’s efforts, I proposed amending the draft NPR to include this principle in the rule.

Certificates are required for products which are subject to a ban when the banned characteristics defined by the language of the ban do not define the whole product category within which the banned products fall and the products are not specifically excluded from the ban.

I also wanted to ask, in our request for comment, if our ban certificate language was clear. My colleagues rejected both these ideas, though they did at least agree to ask the public about staff’s assessment as expressed in the preamble.  Where failing to include a required certificate could trigger civil or even criminal penalties, I think we owe a cogent explanation of the rule, and I hope you will tell us what you think of the principle, its application as staff indicated, and whether the principle belongs in the actual rule.

More of my thoughts on the weaknesses of our 1110 proposal tomorrow.


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