How
Much are You willing to Pay for Product Safety?
By Edward Steiner
Across the country, newspaper headlines are full of news of tainted imports from China. Confetti bags are the latest culprit, but there have been recalls on a wide array of products: holiday ornaments, children's pencil pouches, children's jewelry, holiday baskets, plush toys. All of these items were recalled because of excessive levels of lead. All of these items were made in China. Congress is busily working on a solution to the problem. Ultimately, however, the solution is not with Congress, but rather the consumer. Whichever policy route lawmakers decide to take, the effectiveness of their action will be measured by consumer response.
There have been many proposals put forth by lawmakers. At one point, nine separate bills were moving through the legislative process. The White House, as well, has been intensively engaged in developing its own proposals. The President's Inter-Agency Working Group on Import Safety recently issued an 86-page report containing fourteen recommendations to change the way that products are brought into this country. While the proposals vary in their details, as well as in the items that they cover, their fundamentals are generally similar. They all deal with monitoring and/or regulating the international supply chain at one point or another.
The international supply-chain can be broken down into three components: the origin, where a product is produced and packaged; the transit, where products are carried from one country to another; and the destination, where the products are received by importers and sold to consumers. Product safety regimes target one or more of these components. A scheme targeting the origin attempts to ensure that products are produced to certain minimum standards, or, if they are not, are not packaged for export. Safety programs aimed at transit are designed to prevent an alteration in the products while they are en route which would compromise their safety, such as spoilage of food due to unsanitary conditions, or tampering by outside actors. Finally, import regimes that focus on the destination verify the acceptableness of products after they have entered the host country, but before they are distributed to consumers.
In addition to addressing where the supply-chain is targeted, legislation being proposed also answers the question by whom. In other words, which entity is going to conduct the inspection or issue the certification of the targeted product. Will the United States - government and consumers - have confidence in a certification made by foreign governments, or will it be necessary for U.S. officials to issue the certification themselves? Other options include engaging independent third parties to conduct the certification on behalf of the United States. Finally, there is the question of the inspection regime. Some have suggested one-hundred percent inspection of imported goods, others propose an increase in random samplings. Risk-based inspection is the preference of the Administration, which hopes to improve targeting through more extensive information sharing.
Regardless of the approach taken, all of these programs have one thing in common: cost. To pay for public-sector programs, the U.S. government can make an appropriation, although this would not be the product of any of the proposed pieces of legislation, as these are all authorization bills. An appropriation would have to be made during the appropriations cycle. The drawback to this approach is the government would have to take money from other sources to pay for programs, and implementation would be delayed until the appropriations are actually made available. A popular alternative is user fees, precisely because that provides the government an outside source of funding for the program. This approach, however, has a downside in that user fees can only be somewhat targeted and may end up funding related programs unless otherwise specified. Businesses might also be asked to shoulder the burden through requiring third-party inspections and certifications. This reduces the government's role and expense, but risks a conflict-of-interest perception with businesses paying for their own certification.
Whatever the specific funding method, the ultimate underwriter of such programs will be the consumer. If the funding for U.S. government-executed product safety programs is done through a general appropriation, consumers will face higher taxes. If it comes from user-fees on business, or through the direct expenditure of private enterprise, consumers will face higher product prices. The same is true of burdens or requirements placed on overseas producers; any increase in costs will be met by an increase in prices.
The consumer will also be the ultimate judge of the program's effectiveness. Congress and the President must strike the right balance between added safety and added cost. The government must also be careful not to create overly optimistic expectations about the success of a new import safety program. Large-scale importation of goods made overseas always presents a risk of contamination. Indeed, large-scale production of any type presents risk. The same headlines which warn of tainted imports, also remind consumers that domestically-grown produce has been found to carry e-coli and other harmful contaminants. In both cases, whether for imports or domestic produce, lower risk is not no risk. Creating the expectation of no risk will cause consumers to quickly lose confidence in any government program at the first instance of contamination. At which point, the government investment will have been for naught, and consumers will be no less confident in their purchases.
In the final analysis,
we must remember that headlines are not reality, and just as only a relatively
few number of products have been found to be contaminated, only a relatively
few number of consumers have been effected. Despite the headlines, the legislative
furor, and the anecdotes of parents going through their children's closest
to check for contaminated products, it remains to be seen how much consumers
are really reacting to the current import safety scare. So, while Congress
is getting ready to pass legislation on the matter, the real test will be
this holiday shopping season. That will give us a much better sense if consumers
are concerned more about product safety, or buying lower-priced toys which
happen to be made in China.
Edward Steiner is the Director of Trade and Legislative Affairs at Sandler, Travis & Rosenberg, P.A.