Product Safety Summit Shows Value of Cooperation

The recent bilateral product safety summit brought the US-China dialogue to a new level, with both parties committing to a more comprehensive approach.by Michael J. WagnerThe US Consumer Product Safety Commission (CPSC) and the PRC Administration of Quality Supervision, Inspection, and Quarantine (AQSIQ) held the Third Biennial US-China Consumer Product Safety Summit in late October 2009. CPSC Chair Inez Tenenbaum led a delegation that included senior CPSC specialists in compliance, hazard analysis, injury reduction, and international relations, as well as industry stakeholders and business leaders from the United States. AQSIQ Deputy Director Wei Chuanzhong led a similarly high-ranking group of PRC officials. In the week-long series of meetings, the CPSC and AQSIQ delegations discussed the most pressing product safety issues confronting them, their constituencies, and the companies they regulate in the US-China supply chain. The delegations visited AQSIQ’s headquarters, toured and inspected Chinese factories and AQSIQ laboratories, negotiated areas of cooperation and common ground, and released a joint statement and plans for future cooperation.

The summit highlighted ways that Chinese manufacturers and US importers, retailers, and distributors can better comply with product safety rules in the United States and China—from importers playing a greater role in ensuring safe product design to manufacturers verifying that their raw material and component suppliers meet applicable safety standards.

Better cooperation and enforcement

The summit, which took place in Beijing, Shanghai, and Wuxi, Jiangsu, focused on the central theme of “promoting best practices by Chinese manufacturers and US importers to maximize product safety.” It built on the achievements of the 2007 summit in Washington, DC, which was held amid a series of highly publicized product recalls that prompted an array of legislative and regulatory changes, including the US Consumer Product Safety Improvement Act of 2008. Since the 2007 summit, CPSC and AQSIQ have worked to ensure that Chinese manufacturers understand the importance of meeting voluntary safety standards and US regulations. According to Deputy Director Wei, AQSIQ has responded to the recent recall crises by educating Chinese manufacturers about the importance of US safety requirements and by closing thousands of factories that failed to meet PRC product quality or safety requirements. Wei also stated that AQSIQ now performs more pre-shipment inspections so that non-compliant, potentially unsafe products are less likely to leave China’s ports.

CPSC and AQSIQ officials noted that they communicate with each other more frequently than ever before, conducting monthly video telephone conferences on specific product safety issues and discussing priority projects. They have also formed joint working groups to increase scrutiny of specific product lines, such as electrical products, children’s products, all-terrain vehicles (ATVs), drywall, fireworks, and cigarette lighters.

Regardless of the product involved, the bottom line for manufacturers, importers, retailers, and distributors is that CPSC and AQSIQ are rolling up their sleeves and delving more deeply into product- and industry-specific safety issues. Recall statistics indicate that this increased cooperation among the key stakeholders is improving Chinese manufacturers’ product safety track records. As noted by Tenenbaum and John Gibson Mullan, CPSC’s assistant executive director of the Office of Compliance and Field Operations, though the number of CPSC recalls of products manufactured or produced in China rose sharply from fiscal year (FY, October 1-September 30) 2000 to FY 2008, that number dropped dramatically from FY 2008 to FY 2009 (see Figure). In 2008, the number of CPSC recalls of products made in China hit an all-time high of 352. Within the next 12 months, the number of recalls of China-sourced products fell 42 percent—to 204—while the number of recalls of products made in the rest of the world rose 48 percent to 98.

The trend was equally noteworthy in perhaps the most highly publicized of all product safety areas—toys. According to CPSC data, in FY 2008, the CPSC and companies working with it announced recalls of more than 80 toy products, nearly half because of excessive lead levels. By the close of FY 2009, the number of recalls had dropped to 40, with only 15 related to lead violations. Many observers believe that the impending effective date of new, more-stringent US lead-paint limits played a key role in the dramatic fall in the number of lead-related toy recalls. In August 2009, the US lead-paint and total lead limits became far more stringent for products marketed to children age 12 and younger, dropping to 90 parts per million for lead paint and 300 parts per million for total lead content.

Stricter safety standards

Tenenbaum reiterated several times during the summit that she considers product safety enforcement a two-way street: CPSC expects Chinese manufacturers to meet tougher US standards, but it will also hold US importers to their obligations to meet US safety requirements and will vigorously pursue US importers that violate standards.

The implications for US importers are clear: They must have a safety or compliance program in place, conduct pre-market and production testing to minimize safety risks, and ensure that their China-based suppliers comply with all US safety requirements.

CPSC also promised to clamp down on companies that fail to do so. Mullan highlighted the agency’s stepped-up enforcement activities: In 2006, CPSC assessed civil penalties on 6 companies, but by the October 2009 summit, the number topped 40 in 2009 alone.

Communication and transparency are key

At the summit, CPSC and AQSIQ officials agreed to improve consumer product safety, but they did not always agree on how to achieve that goal or on the root cause of the product safety problems. For example, Tenenbaum and Wei agreed on the need for “fact-based, science-based” investigation and analyses of specific product safety challenges. Wei, however, defended the quality and safety of Chinese products and stated that, after Chinese products are exported to the United States, China “faces unfair treatment” because of strict “technical barriers.” Tenenbaum countered that CPSC applies its product safety requirements to all companies importing products into the United States and does not hold Chinese companies to a different set of standards. In the end, Tenenbaum and Wei agreed that cooperation and communication could help overcome these obstacles.

A summit day devoted almost exclusively to ATV safety demonstrated that steady progress can be made even in the face of differing Chinese and American perceptions. To reduce the number of fatalities that occur in ATV-related accidents, the US and PRC delegations jointly toured an ATV factory and testing facility and conducted an industry outreach session attended by several dozen Chinese ATV manufacturers. The session’s open, town hall question-and-answer format conveyed that CPSC’s transparent approach is making headway—not only by answering Chinese manufacturers’ technical questions about product safety requirements but also by demonstrating that the US agency is encouraging Chinese manufacturers to contact CPSC directly. (Mullan repeatedly provided his contact information and requested that manufacturers contact him with questions.)

Room for improvement

China’s product safety legal regime, which was almost nonexistent a few years ago, now contains national- and local-level laws and regulations on product safety issues in various industry sectors (see Overview of China’s Product Safety Regime). These developments demonstrate the PRC government’s efforts to establish a comprehensive product safety legal regime.

Despite these significant improvements, China must still catch up to the United States and Europe in terms of legislation and enforcement. Compared with the product safety regimes in those two regions, the PRC regime lacks detailed implementing rules or guidance. In addition, China’s product safety industrial standards are incomplete and unable to support the country’s fast-developing product safety legal regime. The PRC government must also improve enforcement of the country’s product safety regime, including by clarifying the divisions of responsibility between relevant government agencies and improving cooperation and coordination among these agencies. Over time, China will likely bring its product safety regime closer to international practice.

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Beyond the Summit: Product Safety Best Practices

The US-China Consumer Product Safety Summit highlighted the steps that companies selling products in the United States can take to reduce their legal exposure and their brand and reputational risks. The US Consumer Product Safety Commission (CPSC) cited some of these steps during the summit; others are the result of years of evolving good-manufacturing practices and solid risk-management and compliance policies. A few of the many best-practice tips that manufacturers, importers, retailers, and distributors navigating this changing legal and regulatory landscape should consider follow.

• Always conduct due diligence on potential partners. Ask for written confirmation of supply sources, subcontractors, and subcontractors’ supply sources. Companies should also require suppliers to document, and share information concerning, their supplies of raw materials and components, as well as all outsourcing of manufacturing. One defective component can put an entire product line at risk.
• Have a solid product safety compliance policy in place. CPSC expects companies to have and implement compliance policies, and companies without them face much higher civil penalties if a product safety problem occurs.
• Exercise audit rights often and retain the right to conduct audits of all suppliers without advance notice or announcement.
• Implement a robust, state-of-the-art, product-safety testing program and require copies of all results from suppliers. Companies should follow up promptly on adverse results to address problems early.
• Ensure that products are adequately identified when made, so they can be traced and tracked if a recall becomes necessary. Failing to do so greatly complicates recalls, often making them much broader than would otherwise be necessary. Companies should be familiar with new CPSC labeling and tracking requirements for children’s products in particular.
• Require others in the supply chain, especially manufacturers, to preserve all documentation and to cooperate fully if a recall or product safety investigation is initiated.
• Consider appropriate indemnification and insurance coverage to mitigate risks and ensure that the responsible parties are held accountable.

—Michael J. Wagner
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[author] Michael J. Wagner ([email protected]) is a partner in Baker & McKenzie’s Chicago office. He participated as a stakeholder delegate in the US-China Consumer Product Safety Summit in China in October 2009 and is a co-editor of the second edition of Baker & McKenzie’s Global Product Recall Handbook. [/author]