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Global Developments in Consumer Products Regulation (Updated 5/29/2009)

January 29, 2009

We have recently seen an unprecedented increase in global regulation respecting design, purity, integrity and safety of consumer products. While many factors are at play, recent highly-publicized enforcement actions in connection with lead- and melamine-contaminated products have been especially formative. Recent regulatory efforts of note include proposed revisions to the EU Toy Safety Directive (88/376/EEC, May 1988), bans on certain chemicals in electronic products and control of waste material resulting from the same, the EU chemicals inventory and testing requirements under REACH, California consumer protection legislation (Proposition 65) and a new California Green Chemistry law that requires "green product design" to mitigate against waste generation and assure against deleterious consumer exposure. Some of these developments are treated in separate, recent OMM Client Alerts (see links provided below).

http://www.omm.com/eu-waste-electrical-and-electronic-equipment-weeerohs-directive-07-28-2008/

http://www.omm.com/eu-adopts-reach-chemical-regulation-law-07-03-2007/

http://www.omm.com/recent-developments-in-californias-green-chemistry-program-12-09-2008/

There have been parallel regulatory developments as well in connection with the manufacturing, testing, marketing and distribution of food products, drugs, dietary supplements and medical devices as regulated in the U.S. under laws like the Federal Food, Drug and Cosmetic Act, 31. U.S.C. Sections 301-395, 31 C.F.R. Parts 1-1050 (as amended). It is especially noteworthy that the FDA has this year opened offices in China (Beijing, Guangzhou and Shanghai) in order to facilitate local review of pharmaceutical manufacturing and to help instate information sharing workshops with the China State Food and Drug Administration (in 2007, the US FDA was able to complete site visits to only 13 of the 700 Chinese manufacturing facilities). The FDA has also recently opened offices this year in Mumbai and New Delhi, India, and plans to establish comparable projects in the EU, Mexico, the Middle East, and South America by the end of 2009.

U.S. Consumer Product Safety Improvement Act

Perhaps the most dramatic current event is the enactment of the U.S. Consumer Product Safety Improvement Act of 2008 which will enter into force in February of 2009, Public Law 110-314, Aug. 14, 2008, 122 Stat. 3016-3077 (the “Act”). Heretofore, the Consumer Product Safety Commission (CPSC) has been limited both in resources and statutory authority in its efforts to oversee an estimated 15,000 types of products in commerce. The Act will double funding of the CPSC over the next five years with an immediate increase in staff. The Act also establishes stricter standards for lead and phthalates in products marketed to children. Key aspects of the Act include: 

   • Heavier Penalties and Stricter Enforcement

On the enforcement side, the Act increases civil penalties from $8,000 to $100,000 per violation, with maximum total penalties increased from a maximum of $1.825 million to $15 million. The Act also permits the state attorneys general to file separate federal court actions on behalf of affected state residents after providing thirty days advance notice to the CPSC (allowing CPSC to appear as intervener), creating some significant risk that states attorney generals will "pile on" in high publicity products cases. The CPSC is also required over the next several years to establish a public database to house product report postings by any interested parties (including citizens and NGOs), the same to be scrutinized by the CPSC for comment and/or possible action: some commentators believe that this will be a hunting ground for the plaintiffs bar. The Act also adds a whistle blower provision to protect employees which provide information to the CPSC.

   • Retroactive Application of Stricter Lead Content Standards to Children’s Products

Under the CPSC’s interpretation of the Act, children’s products that do not meet new lead limits as of February 10, 2009 would be treated as a “banned hazardous substance” under the Federal Hazardous Substances Act, and cannot be lawfully sold even if they were manufactured before that date. The impact on unsold goods in inventory has been controversial, but the CPSC has already twice refused requests for reconsideration.

The Act establishes more stringent lead content limits for children’s products under a “phase-in” schedule. On February 10, 2009, the lead limit will be 600 parts per million by weight for any part of the product (ppm). On August 14, 2009, the limit will be lowered to 300 ppm. And, if technically feasible, the limit will be 100 ppm as of August 14, 2011.

The Act allows the CPSC some latitude to exempt certain children’s products from lead content limits. On January 15, 2009, the CPSC preliminarily exempted products made of natural materials, such as wood, cotton, and wool, as well as certain metals and alloys. On February 6, 2009, the CPSC also exempted the following product classes on the basis that they have consistently low lead content[1]: 

    • Ordinary children’s books printed after 1985
    • Dyed or undyed textiles (not including leather, vinyl or PVC) and non-metallic thread and trim used in children’s apparel. The exemption does not apply if the materials have undergone treatment that may impart lead, have ornamental objects, or have plastic or metal fasteners.

   • Lead in Paint Restricted to 90 Parts Per Million

The Act also establishes, effective August 14, 2009, a lead in paint limit of 90 ppm (the current limit is 600 ppm.) This lead paint limit applies to paint and other surface coatings, toys and other children’s products, and furniture intended for consumer use. It does not apply to printing inks or materials actually bonded to the substrate like electroplating or ceramic glazing. However, unless otherwise exempted, children’s products that could have lead content bonded to the substrate still have to be tested for lead under the new lead content standards.

   • Retroactive Application of Phthalates Standards

Beginning on February 10, 2009, the Act permanently bans the phthalates DEHP, DBP, and BBP, and bans DINP, DIDP, and DnOP pending further study, for children’s toys or child care articles. The maximum allowable concentration for any of the banned phthalates will be 0.1%. On November 17, 2008, the CPSC’s General Counsel indicated that the phthalate ban was prospective only. However, on February 5, 2009, a federal court struck down the General Counsel’s advisory and held that the phthalate ban, like the lead content ban, must be applied retroactively.[2] The CPSC has not yet responded publicly to the Court’s ruling.

   • New Certification and Testing Requirements

The Act requires manufacturers and distributors to furnish a certificate of compliance with applicable standards for any product subject to regulation by the CPSC under the Act or any other regulation enforced by the CPSC. The certificate must be based on a reasonable testing program, and for certain products, such program must be conducted by an accredited independent testing lab. The importer must issue the certificate for products manufactured overseas. Foreign manufacturers and private labelers are otherwise exempt from the certification requirement.

On January 30, 2009, the CPSC issued a one year stay as to the implementation of some testing and certification requirements.[3] Because of the stay, children’s products will not require either certification or testing for conformity to the lead content limit or the phthalate limit, until February 10, 2010. However, the lead content and phthalate limits are not suspended. Thus, it will still be unlawful to sell products above the applicable limits.

Some products and requirements are not affected by the stay. Most importantly, children’s products must still be certified and tested by a third party for lead in paint, a product standard that is distinct from the total lead content standard discussed above. Product requirements unaffected by the stay, as stated by the CPSC, are listed below:

    • the ban on lead in paint and other surface coatings effective for products made after December 21, 2008;
    • The standards for full-size and non full-size cribs and pacifiers effective for products made after January 20, 2009;
    • The ban on small parts effective for products made after February 15, 2009; and
    • The limits on lead content of metal components of children’s jewelry effective for products made after March 23, 2009.
    • Certification requirements applicable to ATV’s manufactured after April 13, 2009.
    • Pre-CPSIA testing and certification requirements, including for: automatic residential garage door openers, bike helmets, candles with metal core wicks, lawnmowers, lighters, mattresses, and swimming pool slides; and
    • Pool drain cover requirements of the Virginia Graeme Baker Pool & Spa Safety Act.

Questions regarding the lead testing program to be utilized by toy manufacturers and importers were recently resolved as part of a collaborative effort between the CPSC and the Toy Industry Association. Manufacturers and importers should now have sufficient time to test their products and demonstrate compliance with the law before the February 2010 enforcement date. The new testing program will include composite testing of like paints from several like parts or products to obtain a sufficient sample size for analysis. Laboratories are to apply a safety factor to account for weighing inaccuracy and other errors in the analytical procedure to ensure compliance with the CPSIA. The CPSC has cautioned that composite testing may fail to detect excessive lead in one individual paint sample because of the effects of dilution, and so manufacturers and imports should understand and take into account the risk for error.

Regulatory and Enforcement Developments in China

The Chinese government is in the process of implementing rigorous regulatory and enforcement reforms in response to the above-noted product integrity matters. This is especially apparent in the Government's response to dairy and toy industry product issues.

   • Dairy Products

The Chinese dairy industry is currently embroiled in a scandal that started in September 2008 over baby formula and other dairy products tainted by melamine. The melamine problem is one of several recent Chinese product quality incidents, including toy safety problems that caused a series of product recalls in the United States in 2007 and 2008.

The Chinese government introduced a product standard on October 8, 2008 imposing a melamine limit in food products of 2.5 ppm. Under prior law, food additives had to be approved before being used as such, and melamine was not on the approved list. Thus, it was previously illegal to add melamine to milk at any concentration. Melamine was not previously included on the list of quality testing parameters.

In 2008, the General Administration of Quality Supervision, Inspection and Quarantine dispatched inspectors around the country to supervise milk producers as they performed mandatory quality checks either in on-site laboratories or at accredited third-party laboratories. The government claims that every dairy product producer has now been inspected by GAQSIQ personnel.

On October 9, 2008, the Chinese government issued Regulations on Supervision and Administration of Dairy Product Quality and Safety. These dairy product regulations specify conditions for the breeding of dairy animals, establishes guidelines for animal husbandry including restrictions on antibiotics use, regulate the purchasing of raw milk, and establishes systems of oversight in the production and sale of dairy products. One important new requirement is that only dairy product producers, dairy farms and farm cooperatives may operate raw milk purchasing centers, and these centers must be licensed by local government and frequently inspected.

   • Toy Products

The Chinese government established new toy recall system as quality issues attracted increasing attention in 2007. Product recall regulations are new in China and were first established in 2005 in connection with defective automobiles. Under the toy recall system, manufacturers are required to stop production and sales, notify vendors and customers to recall products, and report to quality control authorities when defects are found. Vendors are also required to stop sales and notify suppliers or producers if they discover product defects. Manufacturers are subject to fines up to triple the value of the product if they fail to comply, and vendors can be fined up to 50,000 yuan (approximately $7500). Manufacturers and vendors are required to take action whenever a product is found to be defective, even if it met existing product regulations and standards at the time. This recall system was used for the first time on April 10, 2008 to recall 18,000 sets of rubber squeeze toys based on choking hazards risk for infants.

The Chinese government also imposed additional regulations on toy exporters in August 2007. Toy exporters must first register with the quality regulatory authorities beginning and obtain approval to export. For every shipment of toys, the exporter must supply laboratory proof that the shipment complies with the standards and regulations of the importing country. Where the toy uses paint, testing must be done by an accredited laboratory using the testing methods specified by the importing country. Customs will not accept shipments without such proof. In addition, where a toy manufacturer is sourcing critical supplies such as paint, ink, and plastics for the first time, the supplies must first be tested by the quality control authorities, or the manufacturer must supply proof by an accredited laboratory that the supplies meet relevant product standards.

Conclusion

Product manufacturers, distributers and importers will need to be attentive to increasingly stringent regulatory and enforcement requirements, especially where multiple jurisdictions are involved in product design, manufacture and delivery to market. Retailers have already begun to seek new agreements (including indemnity agreements) assuring compliance with these emerging regulatory schemes.

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Eric Rothenberg is a partner in the New York office, specializing in products and environmental disputes and diligence respecting such disputes in the context of business and financial transactions.


1 See CPSC’s “Statement of Commission Enforcement Policy on Section 101 Lead Limits” at http://www.cpsc.gov/library/foia/ballot/ballot09/101lead.pdf
2 See National Resources Defense Council, Inc. v. U.S. Consumer Product Safety Commission, opinion available at http://www.cpsc.gov/about/cpsia/nrdcopinion.pdf
3 See CPSC press release at http://www.cpsc.gov/cpscpub/prerel/prhtml09/09115.html