On August 14, 2008, President Bush signed into law the Consumer Product Safety Improvement Act of 2008 (CPSIA). Speaker of the House Nancy Pelosi said of the new law “[t]his landmark law will strengthen our ability to prevent unsafe toys from being sold, remove from the shelves more quickly products that are found to be harmful, and increase fines and penalties for violating product safety laws.”

Unfortunately, the law of unintended consequences is working overtime on the CPSIA. A law intended to protect children from harmful products will do so partly by driving literally tens of thousands of small businesses and craftspeople out of business, and those businesses that survive will be saddled with tens of millions of dollars of unsellable inventory on their shelves and in their warehouses. Just as the U.S. needs an economic stimulus to create jobs, the CPSIA will add tens of thousands of people to the rolls of the unemployed.

The CPSIA is yet another example of a good idea – protecting children from toxic materials – gone horribly wrong.

The Consumer Product Safety Improvement Act of 2008

The CPSIA is divided into two sections, one concerning mandatory safety testing and certification of all children’s products and the other concerning regulatory reforms of the Consumer Product Safety Commission (CPSC). The first part (Title I) makes a a number of previously voluntary guidelines for the safety of children’s products mandatory and also requires testing and certification that the products are safe for children under 12. The maximum amount of lead in a children’s product is set to 600 parts per million (ppm) by weight and plasticizers known as phthalates are limited to 1000 ppm after not being regulated at all (CPSIA Section 101(a)(2) and Section 108(a)). The CPSIA does grant the CPSC authority to grant exemptions to products or components that are known to not carry lead (CPSIA Section 101(b)). For example, if natural fibers and if no known dies that could be used on the fibers contain lead, then there’s no reason to require textiles made from dyed natural fibers to be tested.

But it’s not that simple. The CPSIA requires that the mandatory safety standards for testing and certification go into effect 180 days after enactment. 180 days to certify that every component of every product manufactured by every manufacturer world wide that is sold in the United States is compliant with the new law. Furthermore, that 180 days also includes the time allotted to the CPSC to determine any and all exemptions, if there are any, and until those exemptions are defined, manufacturers won’t know if their products even need testing in the first place. Assuming 30 work days to determine that an exemption is warranted, 30-60 more work days for a mandatory comment period, another 30 work days to incorporate the comments into the final exemption, and 20 work days for it to become official in the Federal Register, that’s 110 to 140 work days, or between 154 and 196 calendar days. Per exemption.

180 days after enactment is February 10, 2009, leaving not nearly enough time for manufacturers to develop a testing and certification plan following any determination of non-exemption for their products.

In addition, while the CPSC may grant exemptions if it determines that an exemption is warranted, the CPSIA says that the new mandatory safety regulations go into effect for all products even if an exemption is pending (Section 101(e)). Failure to do so opens the manufacturer to both criminal and civil penalties. According to 15 USC 1264, breaking this law is a misdemeanor subject to a fine of $500 and/or up to 90 days in jail for the first offense and $3,000 and/or up to one year in prison for additional offenses (adjusted for inflation). Civil penalties could be much greater, however – $5,000 per violation and $5,000 per day per violation for on-going violations, up to a maximum of $1.25 million (also adjusted for inflation).

While the CPSC has granted a stay of enforcement of the testing and certification requirements for a year in order to give themselves and manufacturers more time to create the regulations and exemptions, the stay only affects some of the CPSIA’s requirements. Specifically, manufacturers and importers are no longer required to test and certify that their products are below 600 ppm lead by weight or 1000 ppm phthalates, but will still have to test and certify that any paint on the children’s product is lead-free, abide by the new crib and pacifier standards, certify and test that their products are free of any dangerous small parts that can cause a choking hazard, and test and certify that the metal components of children’s jewelry are below the 600 ppm lead limit.

And while testing and certification is no longer required, sales of products that exceed the lead and phthalates limits are still considered “banned hazardous substances,” and so the production, distribution, or sale of such product would still be illegal.

So while the CPSC has granted some relief to manufacturers of children’s products, the CPSIA remains a disaster scheduled for February 10. And the fallout will affect literally everyone in the supply chain.

How the CPSIA affects manufacturers and component suppliers

Manufacturers of children’s products are going to be the most affected by the CPSIA. While enforcement of the testing and “general conformity certificate” requirements has been temporarily stayed by the CPSC, this only delays the economic pain felt by manufacturers of children’s products. Ultimately, manufacturers will have to have their products tested by a third party and then issue a certificate with every product that it’s safe. The certificate must include a detailed description of the product, a list of all the regulations it’s been tested to, the name and address of the importer or domestic manufacturer, the name and address of the third-party testing facility, and the date and city/country of manufacture.

This is data that all major manufacturers of childrens products should be able to produce easily, although not necessarily at a small cost. Every product sold in the U.S. is already stamped with a “Made in” identifier and most products have a serial number that can be tracked back to the location and date that the product was manufactured. But small businesses and hobbyists who create small numbers of products, or even unique products, may have a difficult time adapting to this requirement. Hand-made children’s clothing may need to be tested and certified as meeting the lead requirement (pending any exemptions for textiles) where previously such certification and associated labeling was voluntary.

Similarly, a hand-made wooden block set must now have a date, location, etc. permanently affixed to at least one block, and possibly to each individual block. In addition, every product manufactured by the small business or hobbyist will now need to be tracked by date of manufacture, location, testing facility, etc. when previously small businesses may have only tracked products for cost/payment accounting purposes. These requirements may add significant time to the creation of hand-made toys, and will add significant time in bookkeeping, and so, at a minimum, will raise the costs of the products (or lower profits) by some small amount.

It’s the testing itself, however, that may well drive many hobbyists and small businesspeople out of business, whether as of February 10, 2009, or
February 10, 2010. An article in the LA Times on the CPSIA on December 23, 2008, interviewed a number of small businesspeople about how much the testing will cost them:

The tests for each of [TAG Toys CEO Larry Mestyanek’s] 175 toys run about $2,000, he said. That’s a $350,000 hit to his bottom line, or close to what he makes in annual profit….

[Nick Christensen, owner of Little Sapling Toys says] his wooden rattles and building blocks, which retail for $20 to $40, would cost at least $1,500 per model to test, he said. Because he makes 20 models, his testing bill would be at least $30,000….

Other manufacturers say they’ve been quoted testing prices of $24,000 for a telescope, $1,100 for a wooden wagon and $400 for cloth diapers, according to the [Handmade Toy Alliance].

At these high costs, it’s entirely likely that many manufacturers will be forced to go out of business rather than manufacture their products.

That said, however, the CPSC is permitted to grant exemptions to products (a stained wooden toy) and components of products (the wood, the stain used to color the wood, the lacquer used to give it a nice shine, etc.). And the CPSC is in the process of doing that, having solicited comment on granting exemptions to certain natural materials and held public hearings on exemptions for apparel (including doll clothing and cloth diapers) and books. Additionally, the CPSC is still looking into whether it will permit certification of all components of a product in lieu of the certification of the final product (ie whether certification of all the thread and fabric in a doll dress is good enough or if certification of the entire dress is required). The comment period for this rule ended on January 30, while the comment period for the natural materials exemption doesn’t end until a week after the lead ban was slated to go into effect.

The CPSC stay of enforcement gives itself time to work through all the exemptions and to clarify rules for testing and certification throughout the supply chain. The stay also gives manufacturers time to think through how they’ll comply with the CPSIA’s testing and certification requirements after the rules have been finalized. But barring a significant change in the overall nature of the requirements, or the development of a much less expensive testing system, the stay will only delay the inevitable business closures.

How the CPSIA affects wholesalers, retailers, and resellers

Once children’s products are declared “banned hazardous substances,” the sale of said products will become illegal in many cases. The federal law that regulates banned hazardous substances is the Federal Hazardous Substances Act (FHSA), and it technically applies only to products involved in interstate commerce and to U.S. protectorate areas (such as Puerto Rico and the District of Columbia). However, many states use the FHSA as the baseline for state law, so when a product becomes banned federally, the state bans that product as well. What this means for wholesalers and retailers is that any product on the shelves as of 11:59 PM, February 9, may be illegal to sell as of midnight, February 10.

According to a survey created by the webmaster of the product ban could result in the destruction of at least $72.4 million worth of existing inventory, along with the attendant loss of revenues for the retailers. However, this doesn’t include the fact that existing inventory also has to be treated as hazardous waste, and that it will cost the retailers money to properly dispose of the presumably hazardous inventory they’re destroying.

Stores who resell used children’s products are not required to certify their inventory, but could still be liable for criminal and/or civil penalties if they’re found to be selling used products with greater than 600 ppm by weight lead content. For this reason, the CPSC has published guidance for resellers that specifically warns them to “pay special attention to certain product categories,” specifically cribs and play yards, children’s jewelry and painted toys, toys that are easily breakable or that lack the mandatory age warnings, et al. However, one consignment business owner S&R talked to was still concerned for her business even after that release.

“That press release basically says nothing,” says Jennifer Upton, owner of Kentucky Kids Consignment Sales. “It says that resale entities do not have to test for lead, but they can still be fined $100,000 for selling items over the limit of 600 ppm. How can I know whether an item has 599 or 601 ppm lead without testing?” (emphasis original)

How the CPSIA affects other organizations in contact with children’s products

The CPSIA defines products that don’t meet the lead requirements to be a “banned hazardous substance”, as defined according to the Federal Hazardous Substances Act (FHSA). Among other things, banned hazardous substances may not be introduced or delivered for introduction into interstate commerce, nor be delivered for receipt from interstate commerce (15 USC 1263(a)). This puts shipping and delivery companies who ship interstate or who deliver products to be shipped between states into a similar bind as manufacturers of children’s products. Essentially, if a shipping company knowingly delivers a children’s product that doesn’t have a general conformity certification or that has a higher lead level than 600 ppm by weight, that company faces up to a $5,000 civil fine per violation. It’s possible that simply asking “does this package contain any hazardous substances” will immunize the shipping company from liability, and if so, the CPSIA will not significantly affect shipping and delivery. But if shipping companies have to verify that a general conformity certification exists for any children’s product they ship, then the CPSIA will likely drive up the cost of shipping for children’s products.

A likely unintended side effect of the CPSIA is that libraries who check out children’s books could be forced to remove children’s books from their shelves, at least temporarily until the CPSC releases new rules regarding books in libraries. While the American Library Association (ALA) has submitted comments requesting exemption from the CPSIA for libraries, a legal opinion regarding book publishers by the General Counsel suggests that at least several of the ALA’s arguments may not ultimately win the day.

The ALA makes a number of claims: books should be exempted since they’re not specifically mentioned in the CPSIA, books at libraries are not involved in commerce and so “distribution” and “production” doesn’t apply to library books, and retroactivity wasn’t specifically called out by Congress and so doesn’t apply. In several letters to the Association of American Publishers, General Counsel Cheryl A. Falvey has made it clear that it is her legal opinion that “without question, any chlidren’s book must comply with the new lead limits” and a prior opinion detailed the Counsel’s legal rationale for why Congress intended retroactivity – since Congress specifically made other requirements non-retroactive, any requirements not specifically exempted were assumed to be retroactive (the link above has references to federal judiciary precedents as well). Which leaves the “library books aren’t sold or distributed in commerce” argument as the only one of the three that is likely to stand up to legal scrutiny.

And finally, elementary and middle schools will also be affected by the CPSIA. Textbooks intended for students in 7^th grade and lower, blocks that teach elementary motor control to young children, child-sized tables and chairs used in elementary school classrooms, possibly even microscopes for use in middle school science classes stand to be declared “banned hazardous substances” as of February 10. If all these products have to be replaced, the costs to school districts nationwide will be significant. And many parents could elect to keep their children at home rather than risk exposing their children to lead in the classroom, regardless of the fact that the threat is no different on February 10 than it was on February 9.

The CPSIA and Congress – what should have happened, and what needs to happen now

I doubt there are many people in the U.S. who would argue that we shouldn’t protect our children from lead and other dangerous chemicals. The problem with the CPSIA is not that it’s trying to protect children, but rather the way that Congress tried to do it. Instead of carefully thinking through the ramifications of the CPSIA, Congress elected to act quickly and give the CPSC a great deal of flexibility to implement regulations and grant exemptions. This would have been fine if Congress had similarly granted enough time to the CPSC to actually research, gather comments, and then intelligently regulate all the products that will be affected by the CPSIA. But the CPSC claimed in their stay of enforcement:

Commission staff have been unable to respond… due to the press of its usual regulatory and compliance activities and the additional burdon of the very early, multiple statutory deadlines imposed on the Agency by the CPSIA, including those necessitating issuance of 14 proposed and final rules in the six months since CPSIA was signed into law on August 14, 2008.

It probably doesn’t help that the 2009 budget for the CPSC is the same as the 2008 budget even though the CPSC has three new major pieces of legislation that it must make rules for and enforce….

Congress should either have given the CPSC more time to intelligently write the new regulations or have taken more time itself in the writing of the CPSIA. Congress did neither, so the CPSC has been forced to take more time as best it can. However, there is always a chance that either Congress or a children’s product safety organization might take the CPSC to court to block the stay of enforcement.

The CPSIA will cause significant economic hardship nationwide as it is presently written, whether it goes into effect on February 10, 2009 or at some later date. The CPSC has done the right thing in staying the enforcement of the rules as they apply to manufacturers. Now the CPSC should do something similar and grant libraries, distributers, wholesalers, retailers, and resellers of used children’s products some level of immunity to the new standards, at least until such time as the rules have been finalized.

Image credits:
Woodtoyshop.com
Moonstonecrafts.com