Posts Tagged 'imports'

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

OLYMPUS DIGITAL CAMERA

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.

Advertisements

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.

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.


Enter your email address to subscribe to my blog and receive notifications of new posts by email.

Join 969 other followers

Archives

RSS CPSC Breaking News & Recent Recalls

  • An error has occurred; the feed is probably down. Try again later.

Let’s keep the conversation going on Twitter. You can find me at @NancyNord.

Nancy's Photos

  • 85,573 visits
Advertisements