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Safety Reform
By CJ Mittica
April2009

Paul Emmer thought he could trust his supplier to deliver a safe product. And why not? He recently was working with a large industry organization - a Counselor Top 40 supplier that was even trumpeting its dedication to product safety. So, Emmer figured his important client was ordering safe items.

It wasn’t safe. Emmer’s client did its own testing on an item it had purchased from Emmer. And the results were not good. This supplier’s product failed an independent safety test, and the client had to abandon the purchase.

The whole situation caught Emmer completely off guard. “I put my trust in these suppliers’ hands,” says the vice president of business development for Bamko Promotional Items (asi/131431), “Them saying, ‘Look, it’s safe, it’s going to be OK, this product is tested, here’s the documentation.’”

But it’s not always OK.

Think your company is unaffected by the rules of product safety? Think your company has all the bases covered? The lesson in Emmer’s story is that nobody – not top suppliers, not even distributors that do their homework – is immune. “Even if you’re on top of this stuff,” says Gemline (asi/56070) President Jonathan Isaacson, “these are treacherous seas we’re going through. There’s lots of ambiguity, the rules are changing. Compliance is hard. It is not an easy thing. You aren’t going to get there if you aren’t even trying.”

The beginning of the product safety age did not occur by happenstance. Like the butterfly in China that flaps its wings and causes a tornado to touch down in Texas, all it took was one child to swallow a magnet to get the American legal wheels turning. Of course, it wasn’t just one child – it was dozens. And it wasn’t just magnets, but lead paint and other health hazards. But consider that the smallest piece of the smallest toy has helped build a raging storm of recalls, lawsuits, protests and regulations – culminating in a swirl of total confusion.

Now, businesses are treading lightly in a time when government regulations have never been more stringent, when media attention has never been more attentive, when public outrage has never been more vocal to the issue. It hasn’t been the best of starts, given that small businesses are terrified of being boarded up and major changes have paralyzed American business in fear and uncertainty. The landmark Consumer Product Safety Improvement Act (CPSIA) legislation has been universally derided by the industry, with one product safety expert telling Counselor the act is “the messiest implementation of any legal requirement I think I have ever experienced.”

But legal requirements are, after all, legally required, which means this isn’t an option for the ad specialty industry. Not just with the CPSIA, but with a growing culture that demands safe products and wants the documentation to prove it. For many in the industry, the alarm has been sounded. “I think we’re all in the process of refining the best way to get the job done, and that’s where the focus is,” says Joe Cade, senior vice president and head of the product safety effort for Norwood Promotional Products, the third largest supplier in the industry. “It’s not whether you do it, because it’s here to stay.”

That means education. That means investment. That means commitment. Leaders in the industry say it’s on both distributors and suppliers to understand their roles in this process – and then communicate their expectations to everyone, from Asian factories all the way down to the end-user. They fear a single notable failure will wreck the perception of the industry in the court of public opinion. One swallowed magnet may be all it takes.

Testing The Limits Of Business

The CPSIA, enacted in August of last year, ushers in many changes, the most important of which is regulation of lead and phthalates in children’s products. Lead is a common product safety enemy, and its damaging effects have been known for decades. Phthalates, a chemical used to make plastics softer and more pliable, have been linked in recent years to a variety of health issues.

It’s no secret where the impetus for the legislation came from. Toy giant Mattel and others issued massive recalls in 2007 due to lead paint, and the groundswell of public outrage compelled Congress to vote in new legislation to better protect children. Along with lead and phthalate regulation, the CPSIA creates harsher civil fines and criminal penalties for knowing violators, requires more consistent tracking information for children’s products, enables whistleblower protection and significantly beefs up the funding for the Consumer Product Safety Commission (CPSC) so it can enforce all the new rules.

Sounds clear, sounds simple. It hasn’t been. “As far as CPSIA goes,” says Denise Fenton, a product safety expert of 25 years and executive director of the industry’s Quality Certification Alliance, “it’s a wonderful effort to protect children. On the other hand, because the underlying mechanisms for enforcing it weren’t properly in place, it’s led to a lot of confusion.”

Start with the lead and phthalate levels. According to the CPSIA, originally, not only was every children’s product available – regardless of when it was made – supposed to meet the substantive level requirements by February 10 of this year (600 parts per million for lead, .1% for certain phthalates), but each new product would have to be tested and certified by the U.S.-based importer or manufacturer.

Instead, less than two weeks before the regulations were supposed to go in effect, the CPSC issued a stay of enforcement that delayed the mandated testing and certification for one year, but kept the levels in place. Businesses breathing a sigh of relief did so prematurely, notes Bill McGrath, a partner with Wiley Rein LLP, a Washington D.C.-based law firm that advises corporations and manufacturers on product safety. “That’s a fairly empty promise because the substantive standards are still in place,” he says. “So the vast majority of manufacturers, in order to ensure compliance, are going to have to test.”

The testing requirement has caused much anguish for small businesses that feel they can’t devote resources to comprehensive testing. Their outcries have been compounded by several confusing issues. Consider that:

• The lead levels must decrease sequentially to 300 ppm in August and 100 ppm two years later - the last figure a standard that even the CPSC admits may not be technologically feasible.
• The CPSC changed its mind in November on phthalate levels for all products (instead of just new products), before a federal court ruling four days before Feb. 10 caused them to revert back.
• The CPSC has still not received its additional funding, and as such remains so understaffed that it cannot issue clarifications or offer guidance quick enough for waiting industries.
• CPSIA calls for mandatory third-party testing, but must rely on companies to self-test until it accredits testing labs. In addition, the CPSC only finalized testing procedures for lead and phthalates right around the deadline. Third-party testing for those requirements is therefore stayed until further notice.
• Civil penalties for failing to report violations to the CPSC are now greatly increased – jumping from $8,000 to $100,000 for each violation, and going as high as $15 million for a series of repeated violations. Criminal penalties have
escalated to a maximum of five years imprisonment.

Not Aging Gracefully

What exactly constitutes a  children’s product? It’s not just toys. “Toys are the number one thing that people are concerned about for a while now. But it’s also children’s products,” says Artistic Toy (asi/37122) President Jim Socci.

Under the CPSC’s guidelines, that consists of any product designed for children 12 and under. In a perfect world, that wouldn’t affect much of the industry, simply because children’s products only make up a certain percentage of sales. Greg Muzzillo, co-CEO of Counselor Top 40 distributor Proforma (asi/300094), believes that limits the CPSIA’s impact for most of his distributors, who don’t deal in children’s products and don’t care about the new provisions. “However,” he adds, “for a few of our folks who deal with Disney, the Girl Scouts, etc., with products that are absolutely children-focused, it’s everything.”

CPSC has delivered guidelines for age grading, with specifications stating that items marketed to children, packaging featuring children (and not adults) or “commonly recognized” kid items all fall under the guidelines. In practice, it means that family-friendly items like a basketball won’t apply, but a “Superball” will.

It’s a dangerous proposition for the ad specialty industry, which relies on adapting normal items for targeted audiences. Rick Brenner, president and CEO of Prime Line (asi/79530), cites the hypothetical of a standard pen that wouldn’t fall under the purview of the CPSIA. Adding a kid-friendly imprint, however, changes everything. “They’re basically saying to our industry, do not personalize pens for children unless CPSC provides an exemption or you find a lead-free [replacement],” he states. “Or if you do so, just be aware that there could be consequences. That’s a pretty serious issue.”

The guidelines don’t appease major suppliers like BIC Graphic USA (asi/40480), which is waiting out an exemption filed by the Writing Instrument Manufacturers of America for pen points, all of which are made out of metal alloys that contain lead. “It will likely take several years for writing instrument suppliers to develop substitute alloys for use in producing pen point components,” says Lori Bauer, trade marketing manager for BIC, a Counselor Top 40 supplier.

The legal language also says any toy, not just those “primarily intended” for children, will be regulated. A stress reliever is a good example. Toys fall under the ASTM963 standard, which was voluntary before but now is mandatory under the CPSIA and requires a whole legion of additional tests. “Why is it a big deal when it’s mandatory?” asks Brenner. “Because it’s expensive.” In the gray area of what constitutes a toy, that would mean significant added costs on certain items.

Basically the interpretation of the law could leave promotional products open to criticism, as they can be intended for adults but end up in children’s hands – think of the mug given out at work that ends up in the family pantry. The law as it’s spelled out right now doesn’t clearly address how items like these will be dealt with. How strictly will the CPSC interpret the guidelines? “I don’t know if we can predict what the government’s going to do,” says Norwood CEO Paul Lage, whose company relied on outside agencies to age-grade its products so his company wouldn’t define them too narrowly. “I think they’ve already proven that safe products are a requirement.”

Addressing The Issue

Out of all the hysteria about the CPSIA, the literal truth is that it does not affect all products. But maybe that viewpoint is simply too reductive, and not just because there are countless other regulations like California’s Prop 65 (a law that regulates toxic chemicals for in-state business) to contend with. The CPSIA is not solely about what it regulates, but also about what it represents – a culture of fear regarding the safety of products. An “adult product” will get no more leeway from disenchanted customers and consumers for testing high in lead than a child’s toy will.

The possibility of a bad product tainting the public perception of the industry – or inciting terrible publicity – is something both suppliers and distributors are all too aware of. “All of us,” says Lage, “are working to the same end. It’s not just the individual companies, it’s for the good of the industry to make sure that we supply safe products. Nobody wants to have the perception of ‘Oh, there’s a risk in buying promotional products.’”

Taking actual steps to achieve that? That’s another story. Suppliers can’t just rely on the word of their Asian partners. Distributors can’t tune out all the product safety mumbo-jumbo that they wrongly believe doesn’t apply to them. “Sourcing the old way, hoping it is compliant, that’s not an option anymore,” Fenton says.

That thinking is a major reason behind the formation of the Quality Certification Alliance. Announced in January, the QCA was formed by a collection of major suppliers and distributors, including BDA (asi/137616), Broder Bros. (asi/42090) and many more. Under Fenton’s guidance, the group has sought to establish a “gold standard” in the industry for product safety, social compliance and other issues. Member companies are undergoing a rigorous self-assessment with the goal of increasing inter-company communication and meet ing legal requirements.
 
“We’ve always been believers in sharing best practices,” says Gemline’s Isaacson, whose company belongs to the QCA. “And there are some people in this industry who also believe strongly in this and are attempting to get it right. The QCA fits in with that concept.”

With companies addressing and promoting their product safety efforts, the ramifications could be disastrous for those who refuse to follow. “I think suppliers who can’t put the proper protections in place are going to disappear,” predicts Gregg Emmer, vice president and chief marketing officer of Counselor Top 40 distributor Kaeser & Blair (asi/238600), “because I as a distributor can’t take the risk of dealing with them.”

How do you learn about the proper protections? For a company like Artistic Toy, it means relying on the help of industry organizations and outside testing agencies for help. And yet, everyone cannot simply “farm out” product safety; they have to educate themselves. “Within the level of expertise that we have, yes we will assist the customer,” says Steven Dorry, senior vice president and general counsel for SGS North America, one of the world’s leading inspection and testing companies. “But ultimately the customer has to define what standards they are being held to.”

Implementing the proper procedures is a whole other set of issues. Particularly for those suppliers sourcing overseas, it pays to have people on the ground, like Norwood does with its three offices in Asia. Other companies without that luxury need to have sourcing agents they can trust. Lack of knowledge about your off-shore partners is a dangerous proposition. “In today’s world, there is a significant risk with any company doing business with some company they don’t understand,” says Isaacson. “It is different than it was five or 10 years ago when these regulations didn’t exist.”

It may turn out for the better for suppliers, who have watched the slow creep of distributors going direct to Asia. Not anymore, says Kaeser & Blair’s Emmer, who forecasts trouble for those distributors. “Suppliers’ level of importance has just gone higher than it’s ever been in the history of our industry,” he says. “I think the idea that distributors are going to be making end-runs and working with suppliers directly from Asia has dramatically decreased.”

Communication Is Key

That doesn’t mean distributors can just stick their heads in the sand, believing their suppliers will take care of everything. It is incumbent on all distributors to do their own research on product safety and to ask suppliers about their testing and certification procedures. Unfortunately, many simply aren’t yet spending the time on this issue.
But there are things distributors can do without spending months in research. Norwood and Artistic Toy, for example, offer seminars to educate distributors about the new rules. “The best way for a distributor to handle product safety in lieu of reading all the new safety bulletins and press releases from the CPSC, is to spend time talking with your supplier,” Socci says.

It’s all part of the chain of communication, where distributors shouldn’t hesitate to ask for documentation or make clear what their expectations of compliance are with a supplier. Adds BIC’s Bauer about distributors: “In the end, distributors need to be selective when they choose a supplier and demand documentation on product safety testing. They need to be educated on the law, know the right questions to ask and hold suppliers to those standards.”

At What Cost?

The timeless battle of quality versus price has received new legs in the product safety battles. “It’s not just about sourcing the least expensive product over in Asia,” says Lage, whose company launched an online library of product safety reports called Safety Search. “It has a lot more rules and conditions to it. Ultimately the end-users demand it.”
 
Consumers demand safer products, greener standards, less destructive practices, but sometimes hedge over paying the bill to make it a reality. Will they pay a steeper price for safer products? Will increasing costs result in increased compliance?

Easy answers are hard to find. Norwood takes the position that product safety is simply one factor in the cost of a product. BIC points out that because it has been doing product testing for years, the burden is not a new cost. Still, experts agree that testing is getting more expensive – in part because the demand for independent testing agencies has skyrocketed with the CPSIA, Prop 65 and other regulations. Labs can simply afford to charge more. Confesses SGS’ Dorry: “I would say we would definitely anticipate it having a very positive impact on our business.”

Top suppliers like Gemline and Norwood reveal that they’ve invested hundreds of thousands of dollars (and more) on product safety.

And Isaacson believes that compliance falls under the realm of the price of doing business. “The problem with compliance is it’s not free. But in many ways we feel like there’s no choice on this, because these are the regulations that are out there now,” he says. “There’s a lot of confusion out there in the marketplace, and customers are coming to us and looking for us to be the experts. The only way to do that is to invest.”

C.J. Mittica is a staff writer for Counselor.

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