CPSIA is sending us to China!

From the if-you-can’t-beat-them-join-them department is Jason Cheung. At least for him, CPSIA has been an unintended blessing. Did Congress intend for us all to move to China? They’ve certainly made the decision easier for Jason who writes:

With all the bad news and negativity surrounding the CPSIA. I’ve actually found a silver lining in it. Our family was recently able to purchase a new home! Unfortunately, that home is in Hong Kong China. How were we able to do that? Well, the rate we were offered is a low 3.5%. What’s even better though is that you can open a bank account and they will give you the same 3.5% interest rate for the money you put in there. Go ahead and read that again. Yes, that’s 0% financing on whatever you have in the bank. In addition to that, we’re also in the process of securing a 3% business loan that the Hong Kong government is offering as a stimulus. Where do you think Hong Kong gets the money for this? Maybe it’s coming from their 16% maximum income tax. How much money would you have left over if the government took only 16% of your wages? It’s actually less than 16%, if you’re married, own a home, etc. Now also imagine almost all the testing fees people are paying being funneled into one city … not a state, but one city. That has got to help. When the CPSIA went through, I never had to wait so long for someone to take my money.

More good news, our company taxes have gone down this year because I sent all my profits back to Hong Kong for safety testing! Hopefully the 8th largest economy in the world (California) can get through a budget crisis without my tax contribution.

Jason Cheung
General Manager
Huntar Company, Inc.

To put this in the proper perspective, here’s the first letter in this series he sent to his representatives in Congress:

My company is family owned, currently run by my brother and I.  We do toy design, wholesale and manufacturing for us as well as other companies.  While there may be good intention, the CPSIA is dangerous and ridiculous.  In today’s economy, this law has already cost my company over $50K.  This does not include any loss sales, potential opportunities, etc.  This is literally only from the cost of testing I’ve incurred as well as other costs, such as increases in insurance.  That in itself increased from $6K to $18K this year.  By the way, 20+ companies wouldn’t even give us a quote, even though we’ve never even had a claim.  Do you know where that $50K came from?   It came from my employee bonuses, money I would’ve used to purchase a new car, money I would have used on new product development with designers and engineers.  Instead, I sent the money to an overseas testing lab to tell me something I already knew.

Because of the manufacturing aspect of our business, we’re constantly exposed to new safety regulations both in the United States and Europe.  To be honest, we’ve already started cutting phthalates and opportunities for phthalates from our business two years ago as it began as an issue in Europe.  We also source paint from Germany to make sure it is consistently lead free.  In addition to these, we inspect supplier factories to ensure we receive safe product.  We also require they provide us with safety testing every 6 months for things such as paint and glue.  By the time I sent samples for CPSIA testing, I had already received tests stating materials were safe, conducted an in house test to verify the tests for lead, and had an existing test showing the completed product was safe.  Regardless, I had to test once again.  That’s correct, some of the inventory I hold has now been tested four times for the same thing.  The best part is, I’m not even finished yet.  I don’t have enough money to continue testing the rest of my line for phthalates in ABS.  FYI, phthalates is a softener used in PVC plastic.  It makes no sense to have it in ABS, but I’ll have to test it anyways.  It’s sort of like testing a rock for lead.  Wait … that’s actually not a good example, because testing labs have told me a rock would never pass.  I guess you can’t really sell rocks either.  Make sure you let playgrounds and schools know to clear their areas and classrooms of any rocks or pebbles.

While I enjoy what I do, if this continues to where it seems to be heading, I will have no choice to stop.  I am not financially able to do what is required by law.  I honestly do not care to be fined into bankruptcy or charged with felonies either.  I won’t go bankrupt, I’ll be ok.  I can still rent out our warehouse or find other means of income.  However, I’m not sure what my employees will do.  In today’s economy, I’m not sure they’ll be re-employed.  If anything, that’s why I think they were ok with paying for some of the required testing.  Then there’s also people we contract out to.  I wonder if the graphic artists we normally pay $20K+ each year will be missing our business.  I suppose the freight/shipping companies can always ship something else too.  To be honest, I don’t have the time to worry about them.  At this point, I’m just hoping I won’t get arrested.

Jason Cheung
General Manager
Huntar Company, Inc.

National Bankruptcy Day

tombstone_nbd

The heavens haven’t opened and rained fire today; the stay mitigated some effects which is in some ways, unfortunate, putting off for tomorrow that which will surely pass. The day will be all but seamless to consumers. However, over the coming months, I have little doubt consumers will increasingly complain there is little choice and selection in children’s products. They can’t buy things they took for granted such as replacement parts for bicycles. Prices will increase and product choices will decrease; even among used items. Unfortunately, consumers will look at the “evidence” on store shelves and blame manufacturers for being cheap and greedy. Consumers won’t know to blame the special interest groups behind this law, and since they certainly can’t blame all the manufacturers who went out of business, they’ll just blame what few remain standing. It all started with this law folks. If you’re a manufacturer, you can’t win. You just won’t.

No one expects this matter of the stay to rest unchallenged so we may be up and at it sooner rather than later. And that my friends, could be a very good thing.

Cautious Optimism: Stay of enforcement

A variety of news worth mentioning:

CPSC: The CPSC released a Stay of Enforcement of Testing and Certification Requirements; (pdf) dated January 30, 2009. A cursory examination shows they get it. As debated previously regarding the question of which definitions were likely to define a “small business”, they’re using the SBA’s. In the case of children’s wear apparel producers, this encompasses 99% of businesses. Also see the CPSC press release explaining the matter. Another legal source is The Smart Mama. Further updates are forthcoming.

Legislative: Senator Jim DeMint (R-SC) has announced he’s sponsoring legislation to amend the CPSIA. The bare bones of the plan are on his site; I’ll publish or link to final version once permitted to do so. Minimally, we extend a great deal of gratitude to Mr. DeMint and his legislative aides for crafting a proposal with the input of manufacturers. It is gratifying to be heard.

Retail: Anecdotal response from retailers has been mixed. Or rather, I should say one-sided. Retailers are concerned their liability has increased. All I’ve spoken to have said they intend to enforce existing CPSIA mandates on their vendors, requiring GCCs as previously stipulated.

Unresolved: Furthermore, extensive legal questions remain unresolved. There is little doubt special interest groups who promulgated this law’s passage will let yesterday’s stay of enforcement go unchallenged. Speaking of special interest groups, The National Association of Manufacturers (NAM) filed filed an emergency stay of effective date (pdf) on January 28th with 77 signatory associations.

Note: I will be going to Washington DC Monday February 2, through Wednesday February 4th. More news upon my return.

This fight is far from over.

Alert the media! The CPSC has a sense of humor

Thanks to a tip from Mark Riffey (via Jennifer Taggert), the tubes are awash with the news of a seven minute interview of Julie Vallese, former (effective today) spokesperson of the Consumer Protection Safety Commission with KBAL TV in Baltimore.  Most people seem to be upset by it but I found it hilarious, reminiscent of Sister Mary Ignatius explains it all for you. Between insulting mommy bloggers (moi?), back pedaling and outright obfuscation, the video made for an evening of levity and intellectually ribald entertainment. That was sorely needed considering the recent strategies of special interest groups who are responsible for passage of this law in the first place. Anyway, Mark’s link to the video inspired me to find the transcript of the interview so I could examine the content more closely. Luckily enough, I found one! Well, maybe not the actual transcript but what appears below is a fairly accurate facsimile (minor edits are mine):

The missile knows where it is at all times. It knows this because it knows where it isn’t. By subtracting where it is from where it isn’t (or where it isn’t from where it is) it obtains a difference or deviation. The guidance system uses deviations to generate corrective commands to drive the missile from the position where it is, to the position where it isn’t. The missile arrives at the position where it wasn’t, consequently the position where it was, is now the position where it isn’t. In the event that the position where it is now, is not the same position where it originally wasn’t, the system has acquired a variation, the variation being the difference between where the missile is and where the missile wasn’t. Moreover, the missile must now know where it was also. The “thought process” of the missile is as follows: Because a variation has modified some of the information which the missile had obtained, it is not sure where it is. However, it is sure where it isn’t and it knows where it was. It now subtracts where it should be from where it wasn’t (or vice versa) and by differentiating this from the algebraic difference between where it shouldn’t be and where it was, it is able to obtain the difference between it’s deviation and it’s variation, this difference being called the Error.

In the end, is CPSIA is the missile and Julie is the Error? Ah, that could explain why she’s the former CPSC spokesperson.

Survey Results: Economic Impact Study

Welcome to visitors from the Wall Street Journal!

Following is a summary analysis of the interim results from the Economic Impact Study collected between 31 Dec 2008 and 10 Jan 2009 which measured the responses of manufacturers, component suppliers and retailers. The cut to the chase summary shows over 70 million dollars worth of inventory must be destroyed on February 10, 2009 (National Bankruptcy Day) and of those enterprises that expect to survive the fall-out (61% will not), over 40 million dollars in lost product sales are anticipated.

The “average” respondent of this survey shares the following characteristics:

80% of their products are children’s goods. They expect to lose their business (61%). If a retailer, they can’t get testing services due to accessibility, logistics or finances (71%). They will have to close their business (34%) and destroy product (28%). If they have any full-time employees, they have 5, and if any part-time employees, they have 3. On average, they spend $112,843 on wages and salaries and $13,366 on contractor services annually. If they are going to destroy goods, they expect to destroy about $7000 worth. Most of them think (51%) it would take over a year to sell off inventory, especially in the current climate. Most of them (66%) think this is the last nail in the coffin, they won’t survive.

Most retailers (66%) think that only 0-30% of their vendors know about the law. Most retailers (64%) report that 0-30% of their vendors think they are exempt. Most manufacturers (66%) think that only 0-30% of their retailers know about the law. Most respondents (56%) believe that 0-30% of their competitors are informed about the law. They also believe (45%) that 0-30% of their competitors intend to continue with business as usual and hope for change or think they won’t get caught.

So something like 0.65 x $71.708M = $46.6 M in lost wages, .65 x $8.824M = $5.6M in lost contracting business, and .65 x $63,242M = $41.1M in lost product sales per year, and about $72.4 M worth of goods that need to be destroyed in the next few weeks.

I will forward more in depth results upon request. Also available is a survey of testing costs which are dramatically costlier than special interest groups claim.

CPSIA vs Science Round 3; Congress wins by a KO!

The easy winner in round three of Congress versus science, Congress wins by a knock out! Yeah Congress! Boo Science!

To: judith.bailey@mail.house.gov, Christian.Fjeld@mail.house.gov, brian.mccullough@mail.house.gov, shannon.weinberg@mail.house.gov, william.carty@mail.house.gov, nnord@cpsc.gov, jmartyak@cpsc.gov, MToro@cpsc.gov, tmoore@cpsc.gov, Cathy.hurwit@mail.house.gov

Judy and Christian,

I thought you would be interested to know that I was informed today that one of the leading U.S. suppliers of science educational materials has suspended sales of all light bulbs (principally microscope light bulbs) owing to the little dot of solder found on the bottom. Apparently this little dot of solder makes those bulbs just too dangerous to sell into schools, despite the fact that no microscope bulb has ever harmed anyone from exposure to its little dot of solder. To my knowledge, there is no available substitute on the market for this ten cent item. This is EXACTLY what I predicted in my CPSC presentation on November 6. As my email from Friday indicated, it is no longer economic to sell telescopes either. Can someone explain to me what Congress had in mind with this law? Has Congress decided to delegate scientific pursuits to the Germans, Japanese or Chinese so Americans can be “safer”? Or is Congress hoping we will all move back into caves to adopt a “safer” lifestyle?

I still have kids in school. Your law makes illegal or uneconomic those implements they need for an adequate education. I can’t escape the reach of the CPSIA by sending my children to private school – the ridiculous strictures of the CPSIA follows them everywhere in this country. Will I have to send them to boarding school in another country so they can look through a microscope or a telescope? What’s Congress’ master plan?

Richard Woldenberg
Chairman
Learning Resources, Inc.

Astronomy is boring anyway, who needs it?

Now we can thank Congress for eliminating the drudgery of astronomy curriculum. Yeah! No More Telescopes!

To: Judith.bailey@mail.house.gov, Christian.fjeld@mail.house.gov
Cc: nnord@cpsc.gov, jmartyak@cpsc.gov, tmoore@cpsc.gov, jmullan@cpsc.gov, Brian_hendricks@hutchison.senate.gov, david@commerce.senate.gov, Shannon.weinberg@mail.house.gov, Brian.mccullough@mail.house.gov, Cathy.hurwit@mail.house.gov, “Larry Lynn” <LLynn>, MToro@cpsc.gov, william.carty@mail.house.gov, patrick.magnuson@mail.house.gov

Subject: No More Telescopes – Congress Wants You To Squint Instead

I am writing to follow up on the below email on the cost of testing under the CPSIA. The attached document is a quote we received to test ONE telescope product under the CPSIA. The cost of the testing is a mere $24,050 for this single item. The average annual sales of this item are approximately $32,000 over the past two years. Needless to say, we cannot afford to spend $24,050 to test this (or any) item. I presume that Congress intended this result and wants us to stop selling telescopes to keep everyone safe. I guess kids can see the planets by squinting from now on. Thanks, Congress!

This absurd result is increasingly common under the destructive and poorly-conceived CPSIA. It is not surprising to me that a law born out of anger and written in a spirit of retribution has created market chaos and many unintended consequences. In my prior correspondence, I have set out many dangerous and unacceptable effects that are wreaking havoc among law-abiding companies. Good corporate citizenship is no help when facing a law which markets itself as “pro-safety” but cripples companies with unbearable financial burdens and pointlessly complex compliance requirements that redirect safety investments into bureaucracy. The CPSIA is simply an invitation by the Federal Government for all children’s products companies to find something else to do.

My letters to you are of public record. We are posting them on the Internet for all to see and read. These letters have put you on notice of many problems the CPSIA is creating. When the damage takes place, there will be no way for legislators to disclaim responsibility. I don’t want to see the destruction happen, which is why I keep writing you. It is unnecessary and will have lasting effects if not arrested now. I call on you and on Congress to act promptly to convene hearings on the effects of the CPSIA on commerce and markets, and to take immediate steps to partner with industry and the CPSC to rebuild a truly effective CPSIA to address real (not imaginary) children’s products safety issues. A stripped down, but focused, CPSIA could add a great deal of safety value without weakening companies, markets and the economy. A vindictive CPSIA salted with bitter distrust and enmity toward industry will simply gut markets and weaken the regulators’ ability to patrol markets for real safety issues. The choice is obvious – I urge Congress to choose the right path for our country.

Sincerely,

Richard Woldenberg
Chairman
Learning Resources, Inc.

CPSIA is saving our schools, one kindergardner at a time

From: Rick Woldenberg
Sent: Wednesday, November 26, 2008 12:34 PM
To: Mary Toro (MToro@cpsc.gov); Nancy Nord (nnord@cpsc.gov); Joe Martyak (jmartyak@cpsc.gov); ‘tmoore@cpsc.gov’; ‘jmullan@cpsc.gov’; ‘Judith.bailey@mail.house.gov’; ‘Cathy.hurwit@mail.house.gov’; ‘Christian.fjeld@mail.house.gov’; ‘Brian.mccullough@mail.house.gov’; ‘Shannon.weinberg@mail.house.gov’; ‘Brian_hendricks@hutchison.senate.gov’; ‘david@commerce.senate.gov’

Subject: Cost of Testing

Mary,

I want to continue our dialogue over the issues presented by the CPSIA. I realize you are swamped with inquiries from many sectors, so I thought I would send this comment in via email.

I have previously raised the serious issue of the high cost of testing under the CPSIA. To be clear, the issue is not about the testing per se, rather it is the cost of the testing to prove compliance with the CPSIA. It is our legal obligation to produce products that comply with the law, of course. Financing proof of that compliance is the problem that confronts industry right now.

The attached lab test is a great example of the dilemma caused by the CPSIA testing requirements. The item in question is a new item called Let’s Tackle Kindergarten. This item is similar to other items in our product line and is quite uncontroversial from a safety standpoint. Because of our experience testing virtually identical items, we know this item is in compliance with the CPSIA on phthalates, lead and its other requirements. Nevertheless, to prove compliance, we will apparently have spend $6,144.06 on myriad tests. The product will be no more or less safe after this expenditure. No child will be safer or better protected. Our company will simply be much poorer.

High testing costs will have a significant effect on our business and businesses like ours. First, the cost of testing has increased about 5x – 20x under the new law. We do not believe these costs can be recovered because under current economic conditions, raising prices is not an option. Thus, the breathtaking increase in cost becomes part of our overhead.

The testing costs cannot be absorbed by small and medium-sized businesses. At typical net profit levels prevailing in the children’s products industry, the $6,144 cost of testing probably exceeds the anticipated total net profit derived from three or more years’ sales of the item. This does NOT take into account the cost of development, the cash expense of buying the inventory or the cost of owning inventory (usually estimated at 2.5% per month). Given that children’s products have finite commercial lives (three years is a good life for a consumer product), the CPSIA test costs might exceed the present value of creating a new item for many, if not most, businesses. So, will this product ever come to market? Not under the CPSIA. The only products left for sale will be mass market items where the scale of their production runs can support this wasteful expense. I believe this “mass market world” is not in the national interest as specialty companies like Learning Resources are an important means by which consumers obtain the products and services they need in our economy.

Notably, the gross cash expense required to finance these tests right now is literally unbearable. The law requires that all of this testing must be completed on all products in our line all at once. Several years of “catch-up” testing must be financed in just a matter of a couple months, bunching up the vast expense into one or two financial statements. Together with other excessive costs suddenly imposed by the CPSIA (for instance, lot traceability infrastructure), the economics of producing children’s items are being distorted into an unrecognizable form. If children’s products companies cannot produce a fair profit, they won’t be able to attract financing or risk capital, and the jobs (and products) will disappear. This problem needs a solution fast, and if we can’t come up with one, no one in Congress or the CPSC should be surprised to see bankruptcies rise inexorably as a result. The price will be paid.

I would appreciate the opportunity to dialogue with you on these rules and other negative incentives under the CPSIA. I am confident that through a partnership with industry, the CPSC can develop a common sense approach to safety rules and enforcement that will reward those companies committed to compliance while discouraging the bad actors who give the children’s products industry a bad name. The time to act is now. My associates in the business community are under intense pressure to pay these exorbitant testing bills – and once the money is shipped to the Chinese testing companies, there will be no getting it back.

Thank you for considering my views on this important topic.

Sincerely,
Richard Woldenberg
Chairman
Learning Resources, Inc.

Watch the CPSC FAQs

From Mike Lee owner of Sarah’s Silks. Item #3 is particularly important for kindred.

I just spoke with Mary Toro, of the CPSC. She gave me quite a bit of specific information regarding our own products and compliance, but also some general information that I think would be useful for other manufacturers.

  1. suggested I check CPSC web site FAQ’s on CPSIA on a daily basis at this time as she expects a lot decisions to be posted this week. These are very specific answers to questions such as are shoes and socks subject to Phthalate regulations.
  2. discussion on exemption for textiles from phthalate standards. She definitely does not see CPSC granting an exemption for textiles due to the problem of those little plastic footsie things on baby and toddler pajamas which have used phthalates. So perhaps a case could be made for pushing for uncoated textiles.
  3. she is expecting a ruling or at least a posting on FAQ on the issue of component testing vs whole product testing in the next few days.

Congressional hearing canceled!

The Rush hearing (chaired by Bobby Rush, D-IL) we’d been pinning our hopes on to make our case before Congress next Wednesday, has been canceled. Rick Woldenberg (the guy in the YouTube videos) says:

I admire the work you are doing, and hope you will stick to it. I was due to testify at the Rush hearings next Wednesday but they were canceled which is an opportunity missed. I think our message is being heard, but there is no conviction to do anything about it -yet. I have some thoughts on further correspondence to move the ball down field, but frankly, time is working against us now. So this is a great time to step up the pressure. Your contacts should keep the pressure on Congress, especially members of the House Energy and Commerce Committee. I will send you many emails with lots of relevant info. I will also add you to my mailing list, so you can see what I am up to.

The wiki entry for the United States House Committee on Energy and Commerce lists all the members of the committee and subcommittees with links to their respective pages. The less useful official US government site is here. Feel free to contact members of the committee, more so if they represent your district.