Thanks to the Consumer Product Safety Improvement Act (CPSIA), small businesses like Baby Sprout Naturals and Whimsical Walney have already closed their doors. And some 40% of companies responding to a Toy Industry Association survey planned to eliminate jobs this year because the cost and complexity of compliance with this law is too great. For manufacturers and sellers of children's products, perhaps a renewed interest in saving small businesses comes in the nick of time.
The safety legislation, which passed with overwhelming bipartisan support in 2008, is a study in the law of unintended consequences. The new law reduced the Consumer Product Safety Commission's longstanding discretion to act in response to genuine risks, substituting instead the rigid, broad-brush, and unscientific judgment of Congress.
Though written in response to dozens of recalls of Chinese-made toys with lead paint, the law goes well beyond lead paint (which poses an undeniable risk to children) to ban all children's products that contain a component with more than three one-hundredths of 1% lead. This means such ordinary items as zippers, buttons, belts, the hinge on a child's dresser—and even that bicycle from Santa Claus—are outlawed.
These products often contain lead in excess of the new legal limit, but unlike lead surface paint, this lead is contained within the metal or other substrate material. The lead can rub off these items in miniscule amounts detectable only with sensitive lab equipment, but it is not "bioavailable"—meaning it is unable to be extracted and absorbed into a child's bloodstream. By failing to distinguish between easily absorbable lead in paint and not easily absorbable lead in other materials, the legislation was a dramatic overreach.
It gets worse. In addition to banning components that do not create a lead hazard for children, the law also imposes onerous product testing by outside labs that smaller manufacturers and handicraft makers simply cannot afford. Instead of spending money to expand and create jobs, companies have diverted billions of dollars so far to destroy innocuous but noncompliant inventory, as well as to understand and meet complex new compliance obligations.
Major charities, like Goodwill Industries and the Salvation Army, have publicly estimated lost inventory and disposal costs at $100 million to $170 million in secondhand children's clothing—such as winter coats with metal snaps—that's not affordable to test for compliance, yet still needed by many families.
Bicycle manufacturers have re-engineered dozens of parts from more expensive and less environmentally friendly materials to replace handle bars, spokes, tire valve stems and other harmless metal parts that contain lead.
To cope with annual testing costs running to half a million dollars or more, domestic retailers and manufacturers like Challenge & Fun, Inc., Constructive Playthings, and ETA Cuisenaire (a maker of educational tools), have reduced payrolls or limited product lines. Many small apparel companies, including JenLynnDesigns, have either closed shop or exited the children's apparel market completely.
In just the first eight months after enactment, the Consumer Product Safety Commission estimated that the 2008 safety law cost businesses in the "billions of dollars range," including: more than $2 billion in losses to the toy industry; $200 million in potentially violative inventory for members of one apparel industry group (the California Fashion Association); and an estimated $1 billion in annual losses reported by the Motorcycle Industry Council for lost sales of youth model motorbikes and off-road vehicles. Several popular German toymakers such as Selecta Spielzeug, whose products comply with stringent EU regulations, have stopped selling their toys in this country. Consumers are facing higher prices for a smaller variety of products that are no safer than before.
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