Hearing Of The Investigations Subcommittee Of The House Small Business Committee
Subject: How The Consumer Product Safety Improvement Act Impacts Small
Chaired By: Rep. Jason Altmire
Witnesses Panel I: Nancy Nord, Acting Chairman, U.S. Consumer Product Safety Commission; Panel Ii: Laurel Schreiber, Lucy's Pocket, Allison Park, Pennsylvania; Suzi Lang, Starbright Baby, Boalsburg, Pennsylvania; David Mccubbin, Mccubbin Hosiery, Llc., Oklahoma City, Oklahoma; Anthony Vittone, Vice President And General Counsel, Swimways Corporation, Virginia Beach, Virginia; Susan Baustian, Director, Once Upon A Child, Winmark Corporation, Minneapolis, Minnesota
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REP. ALTMIRE: Thank you all for being here. And as we discussed, there are going to be votes called on the House floor probably in 20 minutes or a half hour, so we're going to try to get through Ms. Nord's testimony at first, before we have those votes. And I will now call the meeting to order.
This subcommittee hearing is now called to order. When it comes to protecting our children, Americans take every possible precaution. We strap our kids into car seats when we're driving. We insist on training wheels when they're learning to ride a bike. We vaccinate them against chicken pox, polio, and countless other illnesses. In other words, we do everything we can to make sure our children are safe. And that's why it's so distressing when threats to their health go undetected, particularly when those threats come from inside our own homes.
In 2007, excessive lead levels were detected in a wide variety of children's toys and up until that point those products, which ranged from Thomas the Tank Engine toys to Winnie the Pooh play sets were assumed to be safe. But when it turned out they were not, the Consumer Products Safety Commission launched a massive recall. All told, 17 million products were collected and entrepreneurs played a critical role in getting them off the shelves.
Needless to say, these small business owners wanted to protect their customers. However, what they didn't want, and what they couldn't afford, were the economic consequences of doing so, and in the end they suffered heavy losses and economic consequences they could not afford. To help ensure this type of massive recall never happens again, President Bush signed the Consumer Products Safety Improvements Act into law in August 2008. While the law was intended to protect our children, it has done less to accomplish that than to hurt small businesses all across our country.
In today's hearing we're going to examine the impact of that law on entrepreneurs and discuss ways to ease that regulatory burden. Now, recalls are never easy. Small firms already operate on tight profit margins and additional outlays for destroying products and reimbursing retailers can often be devastating.
Under the new law, small businesses are required to conduct costly product testing and use pricey new tracking labels. These requirements are well-intended and good in concept, but their utility has yet to be seen and, what's more, they are extremely expensive for small businesses to comply with. Even the Consumer Product Safety Commission has admitted that the cost to small business might be crippling.
In fact, the Commission estimates entrepreneurs will end up paying billions of dollars just to comply with the new regulations. For small manufacturers, product testing alone can cost hundreds, if not thousands, of dollars per item. The process of testing the 233 various components in a child's bicycleone bicycle, might run close to $14,000, for one. Manufacturers are not alone in shouldering these costs. Small retailers from toy stores to clothing shops have already been affected. They are now saddled with countless items they can't sell and, according to the Toy Industry Association, the new law has led to inventory losses which will reach close to $600 million at a time when both the retailer and the manufacturing industries are struggling. These outlays might very well be the straw that breaks the camel's back.
Obviously, we need to protect our children. We all support that, but we need to do it in a way that makes sense and doesn't cripple our small businesses. Fortunately, the Consumer Product Safety Commission, we believe, does have the authority to be flexible with these small firms. This is critical, particularly when it comes to product testing. For instance, it allows the rubber for a toy doll to be pretested at the rubber plant rather than the doll factory. This would go a long way. This kind of component analysis could reduce costs without compromising safety.
Protecting our children is all of our top priority. It's extremely important for consumers to have confidence in the products they buy and how the Consumer Product Safety Act was intended, but rather than streamlining and improving the process, it added a crippling new level of complexity. As small firms continue to grapple with obstacles like restricted lending and tightening credit, we shouldn't be creating more roadblocks for those same small businesses.
I'd like to thank all of today's witnesses in advance for their testimony and whenMr. Thompson, do you have an opening statement? I will without objection allow ranking member Fallin the opportunity to provide her opening statement when she arrives, so at this point I will turn to the witnesses and our first witness -- thank you for being here -- is the Honorable Nancy A. Nord. She's the acting chairwoman of the United States Consumer Product Safety Commission. She was appointed by President Bush for a term that expires in October 2012.
Ms. Nord formerly served as General Counsel at the White House Council on Environmental Quality and as Counsel to the House Commerce Committee. Thank you for being here, Ms. Nord, and welcome.
MS. NORD: Thank you so much, Mr. Chairman, for calling this important hearing. I'm delighted to be here to talk with you about the efforts that my agency has made to implement the CPSIA. My written statement provides an overview of the agency and the details of the agency's activities in implementing the new statutes, so, therefore, what I'd like to do with my time that I have with you is to, first of all, tell you what we did to inform the public about the new law, second, what we learned along the way and, third, what we see as the issues going forward, especially as they impact small businesses.
First, what we did. I first have to say that the CPSC staff has just been tremendous since the Act was signed into law last August, and I can't praise their work highly enough, but they were operating in an extremely difficult environment right from the start. The Act was a very significant rewrite of our statutes and it required that we begin promulgating regulations very quickly. The first rule had to be finally promulgated within 30 days of enactment, so we really had to begin our implementation with absolutely no time to train our employees into the nuances of the new statute.
Even though the Act doubled the workload of the agency, we began with no additional funds, no new resources for a period lasting over seven months, which was the critical first period of implementation of the Act. We also already had a very full safety agenda that had been planned for this coming year, so the new Act requirements were layered on top of that important safety agenda.
We took very seriously our obligation to educate the stakeholders about the requirements of the new law. In the first month alone we began a series of public meetings, first providing an overview of the Act, with the later ones addressing specific topics that had fast- approaching deadlines for the testing and certification requirements, the phthalates ban, the lead ban, altering vehicles, work apparel, to give you just some examples.
We developed a special Website dedicated to the Act, which includes automatic updates to the public. We developed a plain English summary of the law and posted that summary on the Website. We began what is now a list of over 100 plain English answers to frequently asked questions. We've also issued guidance documents on numerous topics. Some of those are particularly targeted to small business resellers and home crafters. Our small business guide got 365,000 hits on our Website the first month that it was put up.
(Audio break) --- business resellers and thrift stores is caused by the lead and phthalates ban being retroactively applied to inventory. What I mean by that is that the law has not only products manufactured after the effective date but it impacts products sold after the effective date, and this retroactive effect makes it illegal.
On February 10th of 2009, inventory was sitting in warehouses -- (audio break) -- having met every single deadline that was in the statute over the first six months of implementation and having advanced over 40 rulemaking activities to date, we do know that much work lies ahead of us.
And let me just give you a bit of the flavor of some of the problems that we see on the horizon as they impact small businesses. The first is August 14th of 2009, when the issue of retroactivity will occur again, has even lower limits on lead content go into effect, pulling into the law's reach even more children's products, and this is where you're going to see the impact on books and bicycles. Permanent tracking label requirements also go into effect on August 14th, which will have a particularly hard impact on home crafters. Next February, small businesses will be facing testing and certification requirements when the stay of enforcement ends.
What can be done to improve the situation and still protect the consumers, which is what the law was intended to do and the mission of our agency and yet help small business owners survive under the law? Attached to my written statement is a list of legislative recommendations from the CPSC career staff that would go a long way towards helping small business people while maintaining the health and safety standards and enforcement activities that are at the core of our safety mission.
Thank you for holding this hearing today. This is the very first hearing on the Act's implementation, and I want to have a dialogue with the Congress so that we can work together to address the law's real world problems by finding common sense solutions. Thank you so much.
REP. ALTMIRE: Thank you, Chairwoman Nord, and we know that you, like every member of Congress, have been inundated with questions about this and impact statements, and we're very happy to have you here to have this discussion.
At this point I would yield to the ranking member, Ms. Fallin from Oklahoma for her opening statement following which we'll do the questions.
REP. FALLIN: I want to just say thank you to our Chairman Altmire for holding this hearing and working with us on an issue that's very important to our small businesses around the United States and, Chairwoman Nord, I appreciate your comments today and I appreciate the awareness that you have at the situation facing so many of our businesses throughout our nation and the challenges that this Congress has given you with the law itself and some of the recommendations that you've made to try to resolve this issue. And, hopefully, within this panel and this group and our legislative body, we'll be able to draft legislation.
It's my hope, Mr. Chairman, that we'll be able to address these issues. We have called this hearing, of course, to examine the Consumer Product Safety Improvement Act on small business, and it is a very important issue for all of our manufacturers, distributors and sellers of goods aimed at children under the age of 12. The federal law and regulations adopted last year were meant to ensure that our children were safe and the toys that they play with and clothes that they wear; however, there are unintended consequences that this well- meaning legislation that do severely impact many of our small businesses, small businesses that produce children's products not only overseas in factories, but also right here in the United States.
And I'd like to extend a personal thank you to all the witnesses that have joined us here today for our subcommittee and to welcome you and we look forward to hearing all your testimony and your personal experience with how this law has affected your small business and manufacturing, and especially give a welcome to David McCubbin, who is from my home state, my hometown, a long-time personal friend of mine, and he is the owner and operator of McCubbin Hosiery in Oklahoma City.
In 2007, toy manufacturers had to recall over a million toys that violated standards concerning lead-based paint. The toys recalled included well known children's products associated with things like Thomas the Tank Engine, Barbie dolls, Dora the Explorer, and, obviously, parents were rightfully outraged about the danger to their children and prompted Congress to pass the Consumer Product Safety Act in 2008. Most of the lead in these cited toys came from overseas toy manufacturers, and although the law harshly affects many of the American businesses that also produce toys, the CPSA prohibits the sale or distribution of a product for children under the age of 12 if it contains more than 600 parts per million, as we've talked about, of lead in February of 2009 and, of course, that will drop to 300 parts August 14th. And to ensure its compliance, the Act requires the manufacturers to certify their products meet these standards through independent lab testing.
Given the many concerns of small businesses across the country and their ability to meet these strict requirements in a short timeframe, the Commission did ease the enforcement of the regulations for one year, but it will end February 10th, 2010. The stay, as you mentioned, is intended to ease some of the problems facing our small businesses, but it is by no means a cure-all. We do need a resolution to this, and though the Consumer Products Safety Commission may not take punitive action against anyone selling the products with more than 600 per million parts of lead, others may choose to enforce the law, as you also stated, so there's still liability to many of our manufacturers and small businesses.
An example of that is that a state attorney general may take legal action if they find a business has produced, distributed or sold a product for a child that exceeds the lead limit, so small businesses and owners are then forced to incur large costs for testing their products or risk punishment in the future if their products do not conform to these standards, and that has been exacerbated for small business retailers who, unlike manufacturers, are not required to certify lead content products. The retailers who do not test for lead are still subject to these restrictions on selling the products containing lead, even though they lack the ability and resources to determine if their products contain it.
The cost of testing is going to be upwards of tens of thousands of dollars for small retailers, just to make sure that only a few of the products don't fall below the minimum requirements, and, of course, at a time when our economy is suffering and a recession is here and people are watching their bottom lines to make a profit, keep their employees employed, this is certainly not good news for small businesses.
So I think it is very imperative that we look at federal law changes to ensure that we do have a healthy environment for our children and their toys and also to have a regulatory structure that can coexist and does not have unduly burdensome regulations on our small businesses and especially our manufacturers. So I look forward today to having our witnesses and their testimony and hearing their recommendations, Mr. Chairman, that they have.
Thank you so much once again. I look forward to working with you on legislation, and I yield back.
REP. ALTMIRE: Thank you. Ms. Fallin, we should be able to get through the core of our questions. We each have five minutes before the vote is called, which is good. I want to note the presence of Congressman Ellsworth from Indiana and Congressman Thompson from Pennsylvania. Thank each of you for being here as well.
I just first wanted to ask your opinion, as someone who is literally at the tip of the sphere on this issue, something that we've all heard so much about, and you think about this and work on this every day. Is it your opinion that the impact that this law has had on small businesses, the issue that we're talking about today, is this an unintended consequence of the law that was passed or is this what we were trying to achieve in passing the law?
MS. FALLIN: I cannot for a moment believe that Congress intended to make billions of dollars worth of products that were sitting on store shelves, sitting in warehouses, on container ships illegal even though nobody is alleging that they are unsafe. The biggest problem, I think, for small retailers and for resellers of products is the retroactivity effect of the law that sweeps into the products that were manufactured well before and for manufacturers to meet the laws as they existed at that time.
REP. ALTMIRE: We believe that the law specifically gives the Commission the authority to exclude products from the lead limits that clearly do not pose lead ingestion risks. So, do you agree with that and, if so, why hasn't the Commission taken specific action to exclude more products?
MS. FALLIN: I wish that the law did give us that flexibility. I think that flexibility is needed. Unfortunately, the law was written in a very deliberate way to not give us that flexibility. We brought this to the attention of committee staff during the drafting process and were told very specifically that that flexibility was not intended. The way the law is written we do not have the flexibility to exclude many products that really do not pose the risk of injury but which may have lead above the 300 parts per million content level.
REP. ALTMIRE: The small businesses, as we all know, bear a disproportionate share of federal regulatory burdens to begin with, before discussing this law, and yet they don't have the compliance resources of their larger counterparts. And I was wanting your opinion, Chairwoman, on this law. Is it placing small businesses at a disadvantage compared to their larger competitors and, if so, is the Commission doing anything to level the playing field, given what we have to work with, with the letter of the law?
MS. NORD: Well, I do think that this law is putting small businesses at a disadvantage. I have had informal conversations with many, many companies around the country. I do hear from large businesses that they are changing their ways to try to accommodate the law. I am hearing from large retailers that they are sending back products early to make sure that everything on store shelves complies with the law, so all these companies are working to accommodate themselves to the law, but there are some things in the law that have a particularly adverse impact to small businesses.
The retroactivity provision that I just mentioned, the fact that we do cannot really do risk assessments and tailor our regulatory approaches to look at real risk. That impacts small businesses, as well. There are a number of other things that are set out in my written testimony, but, yes, I do think we need to figure out a way to make sure that this law fulfills its objective to help consumers without undue adverse impact small businesses.
REP. ALTMIRE: Thank you. I will now turn it over to Ms. Fallin.
REP. FALLIN: Thank you. I appreciate your comments about the lack of flexibility to exclude products. Does the Commission have the sufficient authority under the law to exempt producers of textiles and textile products from the lead testing requirements in the Act? It's your opinion that you do not?
MS. NORD: Well, what we have done with respect to a category of products that includes natural textiles, like wool and virgin wool and cotton and that kind of thing, is we have rather pushed the limits of the law and said we are going to exclude them from the testing requirement, so that's natural -- (inaudible). We've also included certain kinds of other products that by definition don't and cannot have lead, but that's really as far as we can go.
REP. FALLIN: Okay. And how does the stay of enforcement on testing and certification requirements help the retail and wholesale industries since they are still liable under this Act if they do have goods that exceed the lead limits and are subject to reinforcement actions, say, of the Attorney General?
MS. NORD: Well, as I mentioned, stays of enforcement are not the optimal way to regulate or to enforce the law, but it was really the only technique that we had available to us. We were hearing from many, many small businesses that they just were not ready to start issuing certifications, especially certifications based on the testing requirement of the law. That is a very stringent requirement. It is going to be very expensive and it was just very clear that people were not ready to meet the requirements in the timelines in the law, so we did stay enforcement. But we made very clear that we don't have the authority to stay the underlying requirement of the law, so they are still liable potentially if they sell something that has more than 600 parts per million of lead in it.
REP. FALLIN: Ms. Chairman, according to the authors of the legislation, the authors believe that the Commission has sufficient authority to rectify the concerns of small businesses, so what is the legal basis for the Commission to arrive at a different conclusion than theirs?
MS. NORD: I have heard that said. What isn't said is any examples of where in the law we have that flexibility. Instead, we can point to many examples where we explicitly don't have the flexibility and, again, as we worked through the drafting process during conference, it was made quite clear that flexibility was not what was being granted to the Commission. I can go through and give you any number of examples of where the Commission's authorities have been (cabined ?) so tightly that we really cannot fund the real world situations that are coming up, and I think that is unfortunate. It's impacting small businesses much more adversely than others and it really doesn't advance (privacy ?).
REP. FALLIN: Would you please provide the committee examples in writing where these restrictions keep you from doing that?
MS. NORD: I would be delighted to do that.
REP. FALLIN: That would be great for us to have that in this committee. Thank you. Thank you, Mr. Chairman.
REP. ELLSWORTH: Thank you, Mr. Chair, for holding this extremely important meeting. Thank you, Ms. Nord, for being here with us today.
You were talking about unintended consequences. If my information is correct, all but one member of the House of Representatives voted for this legislation. So I'd have to assume that, minus Dr. Paul, we all didn't have intended consequence of hamstringing small business, and large business, as a matter of fact.
I know that it wasn't directly after this vote that I went home and met with folks in my district, from shoe distributors that were concerned that children were going to be chewing on their parents' shoes, from a sporting-goods company that made foosball tables that the little men on the foosball table -- were afraid the two-year-old was going to crawl up there and chew on the foosball men and many other examples of that. That's not the intended consequence of this legislation, like you said. Everyone wants to protect our children, but we have hamstringed many businesses.
The other thing that concerns me, Ms. Nord, is what you said earlier, and it seems to be rampant here, is that we implemented this legislation and gave you no time to train. And I applaud you for doing the plain-English explanation, because that's another thing I hear a lot about is that when people deal with the federal government, our regulations, that it is in less-than-understandable terms, so I appreciate that.
I'd like you, at some point, to look at House Bill 1465. We filed that in March. And look at that, if you would, and see if that answers some of the questions and concerns. We filed that with the help of the NFIB to address some of these concerns, and I would encourage you, members of the committee, if they haven't -- to look at that. It has not received a hearing, but we hope to forward that.
What are some of the things, again in plain English -- if I can speak plain English -- that you're hearing from small businesses and large businesses, just bullet point the biggest concerns and how we might rectify that -- top three, top five, whatever you think you can do.
MS. NORD: The top thing that we hear is the rather perverse effect of the retroactivity provision, which renders existing inventory illegal. And we are then forcing people to either destroy inventory, test to determine what its contents are or violate the law. You shouldn't be putting business people in that position.
Secondly, the law does not really give us the flexibility to respond to real-world situations and real-world problems that we are hearing. Our flexibility was removed. We asked for, for example, certification and testing authority, but what we got was something so constricted that we really don't have the ability to move within the provisions of the law to structure something that makes sense for the business sellers and the small business people in this country, so more flexibility needs to be given.
I think if you address those two things as well as several of the other things that are in my written statement, you can have a law that really carries forward the principles that you wanted when you cast (ph) the CPSIA and that the agency wants.
Our mission is to protect consumers. That's what we're about. But we don't want to be putting people out of business for selling water wings with excess amounts of lead, when we all know that nobody is getting lead poisoning from swimming in a pool with water wings, or a bicycle tire valve that has excess amounts of lead, excess above the law limits, but where nobody is getting lead poisoning by filling their bicycle tires with air.
I mean, these things are preposterous. The law shouldn't operate in that way. And I think, if Congress would give us back the flexibility that was removed from -- agency, we could craft this in a way that -- (off mike.) And I'd like to work with you --
REP. ELLSWORTH: That would be great. And could you touch on -- briefly -- I know we're getting down to that where we can run over there in a few minutes. They might hold it open just a little bit longer than 15 minutes. I've seen that done.
Touch on the second-hand shops, the -- I guess the chain, when we're going to second-hand shops, flea markets. If you could touch on that and the implications there, as it goes beyond the chain, what your views are on that.
MS. NORD: The second-hand shops, charity shops, provide such a value to our society, especially right now. And they have been impacted by this law in a rather unique way. And, again, it's because of the retroactive effect making it illegal to sell things that don't meet the lead limits, as opposed to manufacturing products after the effective date -- lead limits.
So you've got charities and thrift shops that bring in unique products. They don't have any way of knowing if those products have lead -- We've given some guidance, but it has to necessarily be general guidance. So they are in the really unfortunate position of either having to decline to sell these things and remove them from inventory and destroy them or take their chances and possibly break the law.
And we are talking about useful products. We're talking about children's clothing. Nobody has ever brought to my attention a child being poisoned by wearing a pair of kids' dungarees with a metal zipper or wearing a shirt with a pearlized button. These things may have more than 300 parts-per-million of lead, but they don't necessarily pose a risk of injury. And we have put resellers at legal risk because of the retroactive effects of this law.
REP. ALTMIRE: Thank you.
MS. NORD: I just think that's wrong.
REP. ALTMIRE: Let me cut it right there, so we can give Mr. Thompson from Pennsylvania the opportunity. Mr. Thompson.
REP. THOMPSON (R-PA): Well, first of all, thanks, Chairman Altmire, Ranking Member Fallin, for putting this into the subcommittee for this very, very important discussion. And, Chairwoman Nord, really appreciate your being here, your testifying, and, frankly, your remarks reflecting kind of a common-sense attitude with this. I find that refreshing for this town.
You talk within your top five issues that were brought to you and one of those was existing inventory in terms of problems faced by small businesses. The folks I've been hearing from, however, in fact, is that a problem is being raised by a number of small businesses -- in fact, many on the next panel, I believe -- that the biggest problem involved the testing of components that have no lead in them or affixing permanent labels to children's headbands and hosiery.
How would you respond to those businesses? Any thoughts on that issue? I mean, the inventory, obviously, is significant. But, frankly, this is a problem going forward as well.
MS. NORD: Yes, I think component testing could be a very, very useful tool for us and for small businesses. The problem is that the way the law is written, the testing requirement falls on the producer of the children's product, not on the people that make the component parts, because buttons, by their nature, are not necessarily children's products. When you put them on the child's dress, then they become a child's product.
So the person who makes the dress is the person who is, under the law, required to do the testing. So I think that's one area where we could do some fine tuning of the law to clarify how we're going to deal with component testing.
The other issue is permanent-tracking labels. The law does require that they go on all children's products on August 14th. Now, the law was written in a very interesting way, because it interjected a bit of ambiguity into it because it says that they need to be put onto the extent practicable.
The agency had a hearing yesterday. We are in the process of developing guidance. I know it's somewhat late, but we are doing the best we can to get it out. But, again, we want to be reasonable here. I want to be focusing with respect to the tracking labels on products that are dangerous, that we've had a history of recalling, like baby cribs. We're, frankly, not real interested in kids' headbands and stockings, but the law doesn't allow us -- those cuts, and that's really what we need.
REP. THOMPSON: Thanks for your remarks. I yield back the balance of my time, Mr. Chairman. Thank you.
REP. ALTMIRE: Thank you. I recognize the gentlewoman from Pennsylvania, Ms. Dahlkemper.
REP. DAHLKEMPER (D-PA): Thank you, Chairman Altmire. And in the interest of time, and the fact that votes are being called, I have a statement that I would just ask that there be unanimous consent to place in the record along with a letter that I had written to Chairman Waxman and the Honorable Joe Barton.
REP. ALTMIRE: Without objection.
Thank you. Thank you, Ms. Nord, for being here.
MS. NORD: Thank you.
REP. ALTMIRE: We are going to adjourn for votes. We have a series of five votes. So we're going to recess the committee until 11:30 a.m. Thank you.
REP. ALTMIRE: We will reconvene the hearing. I ask the witnesses for the second panel to come forward.
To explain the voting system, you will each have five minutes to give your remarks, as indicated by the lights that are in front of you. When you see the yellow light come on, you will have one minute. So please start to summarize your remarks at that point. And the red light means you have exceeded your time. Please wrap up your thought at that moment. And then we will move to questioning after all of you, as a group, have spoken.
So I will introduce the first witness, Ms. Laurel Schreiber, who is my constituent and friend. Ms. Schreiber is owner of Lucy's Pocket in Allison Park, Pennsylvania. Lucy's Pocket sells a variety of children's clothing, as well as embroidered baby items, such as bibs and blankets. Ms. Schreiber sells her products both on line and in her store. Welcome, Ms. Schreiber. Please turn your microphone on.
MS. SCHREIBER: Thank you for the opportunity to speak before you today about the effects of the CPSIA on my business. My name is Laurel Schreiber, and I have a small, home-based business called Lucy's Pocket. I sell monogrammed gifts for children through my website.
As the CPSIA now stands, I, as well as thousands of crafters, seamstresses, artists and others that market safe, hand-made items for children under the age of 12, will be put out of business. As small- business owners, we are looking to you to make the legislative changes that will allow those of us that have been creating safe items to continue doing so.
As it relates to my business, there are two major and substantial problems with the CPSIA as written, the redundant testing requirements and the comprehensive labeling mandates. All the items I sew onto or make myself are made from commercially-available textiles, ribbons, thread and other materials. They come from wholesale suppliers as well as retail stores.
A majority of the items I have purchased from wholesale suppliers have General Certificates of Conformity, which attests that the items have been tested for lead and/or phthalates and have passed those tests. I also purchase items from large retail stores, who are unable to provide GCCs, although they have tested their products prior to placing them on their shelves.
Basically, with CPSIA, I will have to test each individual item prior to selling it, and though an enforcement stay for testing has been issued for textiles, there is no guarantee it will not be rescinded at a later date. The enforcement stay does not include items with buttons, snaps, zippers or other non-textile parts.
In order to have my one-of-a-kind items tested, I'll need to create two identical items. The wet method used to test for lead destroys the original. From the testing companies I have contacted, the cost to me is about $75 per component. A component includes the fabric, the thread and any other material that makes up that product.
I brought several examples of my work to show you how this expensive, redundant testing will put me and those like me completely out of business for good. One of my most popular items is appliquéd bib-and-bloomer sets. The basic set contains, at a minimum, 12 components. The components include four threads, two dyed fabrics, a two-part Velcro closure, elastic, poly-cotton fabric, 100-percent terry cotton fabric and 100-percent cotton binding.
To test those 12 components will cost me $900 to prove the bib- and-bloomer sets don't contain lead. If I use a plastic-backed bib purchased from a retail store, then I will need to add an extra $375 to prove that it doesn't contain the illegal phthalates. The testing for that set will range from $900 to $1,275, and it sells for $20.
I also create monogrammed hair bows. They consist of a metal clip, two types of thread, and ribbon. I have GCCs on file showing that the importer has tested the clip and it is free from the lead levels. It will cost $300 to test that bow, which sells for $5.
And I also -- I create monogrammed headbands, which we had talked about earlier. The headband is made of plastic, so it has to be tested for phthalates, as well as the other components, for lead. As with my other items, I have GCCs on file from the importer showing the headband does not contain the illegal phthalates. To test the components of the headband, plus the phthalates, will cost $675. It sells for $9. Because each of my items is unique, I'm unable to batch test.
Redundant testing is not necessary. The air in my house, the sewing table I work at is not lead infused. It's not lead filled. Items coming out of my home will not be contaminated with lead. A safe material coming in will go out as a safe product. If the redundant testing requirements can send me out of business then the labeling mandates would. As of this August, each and every item going out of my studio must contain a permanent label that contains information like the source, date of manufacture, and batch.
For business that creates one of a kind item in less than 5,000 or so a year, this is an unnecessary hardship. Permanent labels are not technically feasible for many of my items and procuring permanent labeling supplies is an incredibly expensive proposition. My business is a way that if I were to find out there were problem or issue, I could pick up the phone and call my costumers.
I and many others like me start creating handmade items as an antidote to mass produced possibly unsafe toys and clothing or (drink ?) from China. Many of us have young children. We are very aware of the dangers of lead poisoning so we use safe materials and we create safe products. We are willing to alter our methods to ensure compliance but with the -- (inaudible) -- laws written, we will be forced to shut down completely.
We are asking for comments since the law. We've written letters and faxes and made calls that we are safe and we just wanted to be legal. But the unintended consequences of CPSIA are showing this will be absolutely impossible. I'll have to close my doors, and once I close I will not be supporting my suppliers or other businesses. And they may not be affected hugely by my loss but their --(inaudible) -- like me. So once you start multiplying the effects it becomes really apparent. The CPSIA is going to absolutely kill the handmade industry and the ramifications are going to be beyond definition.
REP. ALTMIRE: Perfect timing.
MS. SCHREIBER: Thanks.
REP. ALTMIRE: Thank you, Ms. Schreiber. The next witness will be introduced by Representative Thompson.
REP. THOMPSON: Thank you, chairman. Two actually weeks after I came to Congress, I had a meeting in my District Office in Dalton, Pennsylvania and the woman who I met with described her entrepreneurial aspirations and really a unique and innovative start up comment that she created. When her company was growing there was an unfortunate set back that had her doubting the future of her business.
It was brought to my attention that the Consumer Product Safety Improvement Act, which passed unanimously in 110th Congress as result of lead contaminants in children's toy, had unintended regulatory consequences that placed undue restraints on everything from the product development to expansion. And my constituent went on to explain that if the material she used to make her products were not tested by a third party laboratory, she could be in violation of law and this testing would have great financial ramifications on the product line. And this seems to be kind of productive mainly because her source of material are purchased from retail outlets that already had certified the goods. And my constituent explained that as a mother she wanted our children to be safe and she did everything to ensure that with her business.
I am certainly confused as to how this law and internal regulation is set into place by the Consumer Product Safety Commission to place such a burden in this concern of our budding entrepreneur.
Mr. Chairman, I really appreciate your assistance in having Suzi Lang, owner of Starbright Baby Teething Giraffes join us today, one of my constituents. Suzi Lang is a former kindergarten through 12th grade art teacher, also trained as a graphic designer and photographer and she produces this stuff teething and toddler giraffes that are sold online in wholesale to baby boutiques in both United States and Canada. And welcome Mrs. Lang and I look forward to your testimony.
MS. SUZI LANG: Thank you very much for having me here today. As the mother of a 2-year-old, I admire Congress' efforts to draft a law that protects the children from excessive amounts of lead in toys. Unfortunately, the law as it is currently written will heavily damage small businesses and entrepreneurs who make and sell items for children in this country.
I do not believe the law is fatally flout; however, I think the injection of some common sense provisions would more effectively ensure safe products for children and prevent irreparable damage to small business. The reason I am giving my testimony is because that I along with several business owners are afraid for what the CPSIA means for our business and the important amount of income it brings into our families. Specifically my business consists of fabricating and selling this soft little teething giraffes for babies.
I am not affiliate of any groups. I am here on behalf of my own business. However, I'm using the resources that I have to advocate for small businesses many of whom rely in this income to sustain their families. A few of the major problems that this law presents to my business are unit testings, the tracking and labeling requirement, and the fallacy of assuming that everything is toxic until proven safe.
Unit testing is cost prohibitive for many small businesses including my own. I make very small batches of these giraffes usually about 10 per fabric choice. I also make one of a kind and custom items for my costumers using their own fabric or fabric from my collection. My giraffes would be required by this law as of February 10, 2010 to be tested for both lead and phthalates. I contacted a lab close to my home in Harrisburg to quote for lead and phthalate testing.
For the lead testing, I was quoted $50 per component and for each giraffe there are four to five components. Cumulatively, the total cost for testing one fabric line of giraffes would be anywhere from $1800 to $2200, that's also adding in the $400 per component for the phthalate testing. My giraffes usually sell for about $14 to $18 each depending on the kind of fabric that I use and the added cost of testing would add an additional $180 to $225 per giraffe. For a one of a kind item the price would have an additional $1800 to $2200 price tag tacked on to a $14 charge.
This is extremely cost prohibitive for my customers considering that the law specified that if I change any component it will need to be tested again. I create 36 different patterns of giraffes in 2008, so the total cost of lead and phthalate testing would be $64,000 to $81,000. I actually only made $4500 of gross last year. The deficit the testing would create is more than put me out of business, it would bankrupt my family.
Another aspect of the law that affects my business is the tracking and labeling. The law says that it is to be to the extent practicable but I questioned how this could be done by any home craft seller or small business. Each lot needs a new tag and it would force me to have to make my own labels because I would never be able to meet the minimums for the label companies that I used to print the labels that I have now. Because my giraffes are only 10 or fewer or sometimes a one of, it would never be practical.
But the most disheartening thing for me as a small business is the assumption of the law is everything bad and dangerous until proven safe. Especially since many of the materials I used are proven to have no phthalates, no lead. Fabric is all I am using, clothing fabric, cotton fabric. Many small businesses do not purchase their fabric wholesale but instead buy from local fabric or clothing shops. In this setting, I can buy one yard of fabric from my local shop, make my giraffes, have to have them all lead and phthalate testing and my neighbor can go buy the very next yard off the vault of the fabric, makes baby bibs, try to sell them and she would also have to lead and phthalate test because they are very same fabric from this very same vault, which is not very pretty much nonsense.
The most problematic thing for me is to have to phthalate test this item. Since this is a teething item, it is required under the law to be phthalate tested but it is entirely made up of cotton fabric. When I contacted the labs to get quotes, they asked me how they would have to be able to do this since the CPSC said to grind the toy to get a sample to test but there is no grinding on a fabric giraffe. I do not think he would survive. There are so many unattended consequences of this law. That thousands of small businesses and crafters will be put out of business in this already tough economic climate. Thank you very much.
REP. ALTMIRE: Thank you, Ms. Lang. Ms. Susan Baustian is Director of the Franchise Once Upon A Child located in Minneapolis, Minnesota. Once Upon A Child are independently owned resale businesses that purchase and sell used and new children's clothing and merchandise. Franchised in 1993, these stores have become a rapidly growing component of the Winmark Corporation Family of Brands. Welcome, Ms. Baustian.
MS. SUSAN BAUSTIAN: Thank you, Chairman Altmire for having me here to testify today. My name is Susan Baustian. I am the Director of Once Upon A Child stores for Winmark Corporation. Today, I am speaking on behalf of our hundreds of stores in what we called the industry of gently used products. Winmark Corporation owns two franchises that have been in business for over 20 years. Once Upon A Child, a store selling used children's goods and Play It Again Sports, they buy and sell new and used sporting goods that had been significantly impacted by this bill. Although our company headquarters are based in Minnesota, we have over 520 franchises across the country but that amounts to over 500 storeowners worrying about whether or not they comply with the law. Five thousand employees scrambling to figure out how to comply and over 200 vendors feeling they do not have the resources to test their products to ensure that they comply with these new standards.
Last year alone our two brands serviced over 7 million parents that are now confused as to what is safe or not for their children. The ill-executed implementation of this legislation has brought fear into the industry and that fear, especially in economic times like this, can bring a halt to successful and productive businesses. Our franchises have a lot on the line that is driving this fear. Most of them have business loans where their homes are on the line. They have a family in which their business provides for and they have a strong sense of giving back to the community and that they are being at the forefront of recycling. They buy and sell product that children no longer use or have outgrown.
They are fearful that the CPSIA will force them to give up their American dream, which is owning their own business. I think what is really unfortunate about this debate over the CPSIA is it has lead to finger pointing on an issue that we really all agree. That we want to ensure the safety and protection of our children. Our store owners have dedicated their lives to providing safe, fun, educational products for children of all ages and are now having to rethink how they can continue to offer these products without violating the law. We want to work with the Consumer Product Safety Commission to comply with this law but the guidance issues thus far has been difficult to understand for many of our store owners.
We do not want to have to shut our doors over legislation that we all agree could help children if implemented in an effective and productive way but we need the help of CPSC and Congress to clarify what is required for our store owners. The CPSC has come out and stated that resellers such as Once Upon A Child, Play It Again Sports as well as Goodwill Salvation Army, our church organizations, garage resellers, consignment stores, anybody that has a small business that does resell items, do not have to test products but our businesses are still liable if those products with band substances are sold.
The CPSC recently produced a handbook for resell stores and product resellers with the purpose being and I quote "to help identify the types of products that are affected and to understand how to comply with the law so you can keep unsafe products out of the hands of consumers.
" Unlike the information that the CPSC supplies regarding recalls, which is a very specific list by brand, model number, the handbook is too general, and to effectively determine which products are safe to buy and sell. For example on page 7 in the handbook, it indicates and I quote "that items made of wood without paint surface coating or hardware are okay to sell" and I unquote. It also indicates that and I quote again "clothes with rhinestones, metal or vinyl plastic snaps, zippers, grommets, closures or appliques are best for us to test." We could either contact the manufacturer or we should choose to not sell them.
Unlike retailers of new products our franchisees across the country really have no idea how they determine if the painted blocks, toy trucks, dolls, stuffed giraffes or anything else that they are bringing in and they are buying and reselling contains lead paint or made up of dangerous lead components or toxic plastics. It will be a violation of the Act to sell an item that is known to have more than the acceptable limit. This violation can be a fine of $5,000 for each violation and that fine increases to a $100,000 on August 14th.
Being the handbook gives us only guidance on determining what items are safe. The only way to be certain would be to test the product. However, being each piece that is bought and sold as unique would be very costly to do that. With the house on the line, a family to care for and a potential liability to deal with, fear has really taken over for many of our retailers. Last year alone, Once Upon A Child paid families $45 million for children items that we purchased for resell, which generated a 120 million in sales for our franchisees.
For families, the money that they receive from selling these children's items can be used to supplement the parent's income or maybe used to buy items for the children that they may, otherwise, can't afford. For business owners, this income help provide for their family but now many business owners and parents are worried that they won't know when a snap or zipper contains lead and like toys they have no way to test these items.
If there is really one thing that's become clear through this process is that we as an industry need more guidance and we need more time to (slip?) through inventory, understand new regulations, and find cheaper more efficient ways for testing products. For my industry, it is critical that we are able to understand how we can better sort through the inventory and confidently buy and sell children's items without fear of selling something that is unsafe for a child or facing consequences of violating the Act. We need to know specifically what items are deemed unsafe for our children. I thank you for calling this hearing today on the impact of this bill.
REP. ALTMIRE: Thank you. Mr. Anthony Vittone. Mr. Anthony Vittone is Vice President and General Counsel of Swimways Corporation in Virginia Beach, Virginia. Swimways Corporation manufactures leisure and recreational water products. The Swimways Brand has been around for over 35 years and can be found at major retailers and individual pool dealers alike. Welcome Mr. Vittone.
MR. ANTHONY VITTONE: Mr. Chairman, ranking member Fallin and members of the committee, thank you for holding this hearing and giving me the opportunity to talk with you about the issues small businesses are facing as a result last year of a passage of the Consumer Product Safety Improvement Act. My name is Anthony Vittone and I am the Vice President and General Counsel of Swimways.
Swimways is a small privately held, family-owned company, headquartered in Virginia Beach. Where we employ about 70 hardworking Americans. Swimway is designed to make pool toys for the water. We offer 120 different products to customers ranging from nine months through adulthood. The Swimways brand of products is sold in 40,000 store fronts with major retailers and individual pool dealers alike. For the past 15 years, Swimways has enjoyed an average rate of growth of 15 percent a year until 2008. Unfortunately, we took a step backwards last year and that was directly attributable for two factors: the state of the economy and the passage of the CPSIA. The CPSIA together with the economy, created a perfect economic storm for us. Swimways' main issue with the CPSIA involves the phthalate restrictions. While we would agree that there are issues with other provisions in the Act, I plan to focus my testimony today on four issues regarding the CPSIA and the new phthalate restrictions. The first issue that we have is the timing of the phthalate ban was, in our opinion, the single biggest disaster in the CPSIA. When the European Union and the State of California passed a similar phthalate bans, they gave manufacturers and retailers 13 months and 15 months respectively to move through their inventories.
Conversely, the CPSIA as written only gave manufacturers and retailers five months. For any consumer product company, this would be wholly inadequate. For a seasonal company like Swimways, the time frame was essentially nonexistent. I'm sure that the members will understand that there are not a lot of pool toys being sold in the fall and the winter. People buy pool toys when it is hot. Furthermore, whatever time was granted in the CPSIA, was completely wasted by the back and forth interpretation of the Act's retroactivity on existing inventory. The industry relied on the CPSC's General Counsel's opinion that the new regulations would only apply for inventory manufactured after February 10th.
When the New York court in February overruled that interpretation, retailers went into a complete panic. They had four days to review their inventory to determine which products weren't compliant with the CPSIA and remove that merchandise from the shelves. As a result of this fairly compressed timeline, broad brush reactionary decisions were made and manufacturers like Swimways were expected to absorb the cost. The same product if sold by a retailer on February 9th, 2009 was perfectly acceptable and safe by government and industry standards. The next day that same product became a toxic and dangerous weapon of mass destruction.
Our second issue with the phthalates restrictions, the CPSIA included a specific legislative exemption for imbedded lead. However, no such exemption was given for the significantly more benign phthalates. Swimways makes a number of products where there is no ability to access the phthalates unless the costumers essentially destroy the product. These products present no risks for the consumer and should be available for sale.
Third, both the CPSIA and the California Legislation permit the use of three phthalates DINP, DIDP, DnOP depending on the age grade of the product. The California legislation only prohibits these three phthalates for childcare articles and toys that are capable of going in the mouth if they are intended for children three and under while the CPSIA forbids them for children up to 12 months. We manufacture a product called the Rainbow Reef Fish. These are battery-powered fish that swim in a swimming pool. We've sold over seven million units of this product. Prior to 2009, the fins of these fish were made with phthalates. Even though this Rainbow Reef Fish's age is grade five- plus, there are nearly 15,000 units of this product that are now useless and will have to be destroyed. The only reason is, it is because those fins are capable of going into a child's mouth. They are not going to come off but they are capable of being chewed on.
Adding further confusion to the marketplace is the exemption for sporting goods in the CPSIA. It is not clear what the definition of sporting goods is, and what the definition of toy is. The CPSC has offered limiting guidance but more detailed criteria are needed. And our experienced retailers are not willing to take a chance and are using a broad brush approach "if it's for a kid, it's a toy."
We manufacture another product called the Spring Jam basketball and I've sold over 750,000 units of this product since 2005. This product here. A large retailer had approximately 10,000 units of these products on their store shelves and they immediately removed them on February 10th. We reviewed the item with them or that was a sporting good, offered to sort through the inventory because some of the inventory was 2009 inventory and was phthalate free. They destroyed it all, all 10,000 units, even though less than 15 percent of that inventory of those 10,000 units had phthalates in them. All of them are put into the shredder.
Under the California Act, these goods would have been compliant. If there had been an imbedded phthalate exemption, these goods would have been compliant. Had the CPSIA allowed more time to move through existing inventory, this problem wouldn't have occurred. The retailer is now insisting on a $100,000 credit for the destruction of the Spring Jam inventory and other retailers have destroyed other copies of the same.
I'll wrap up. I'm already over but if I should say, Mr. Chairman. Swimways Corporation has incurred about a million dollars in expenses as a result of this Legislation.
We ask for your help. Thank you.
REP. ALTMIRE: Thank you. For the video record of the proceedings for our colleagues, can you hold that basketball --
MR. VITTONE: Sure.
REP. ALTMIRE: -- up again just for the camera? And that's what you are talking about with just 10, 000?
MR. VITTONE: Yeah, 10,000 units.
REP. ALTMIRE: Thank you. I would yield now to the ranking member to introduce our -- (inaudible).
REP. FALLIN: Thank you, Mr. Chairman. It is my pleasure to introduce a gentleman from my home state, David McCubbin who is the President of McCubbin Hosiery in Oklahoma City. He has been president of the company since 1982 but it is a family-owned business that has been a business for 57 years so, it is a long time. They design, market, and distribute children and lady's hosiery. And their products are sold in a number of national and regional retail outlets including Nordstrom, Dillard's, Stride Right, Kmart, Payless ShoeSource and many other small independent retailers.
And Mr. McCubbin started e-mailing me as a fellow parent, both of our children go to school together, and said "Mary, you got to help me on this. This is really hurting my business and I'm scared to death about the laws that has been passed here in Congress and help us out." And so, we were able to do something David. It is fun when you can complain to your congressman and we can actually have you up here and hear from you and try to resolve the issues. So thank you all for coming and David we are pleased to have you here.
MR. DAVID MCCUBBIN: I want to thank you for inviting me to address this Committee. The Consumer Product Safety Improvement Act of 2008 is wellintentioned to enhance the level of safety in the products Americans purchase for our children has had massive consequences. The legislation's broad scope has impacted thousands of products for which the measured concerns are not material. Their willingness to review the implications for small businesses in particular is very much appreciated. I was specifically asked to comment regarding the impact of the law on our business today, the implications we anticipate in the upcoming year, and recommendations I would have regarding the CPSIA. Thus far, we have been most impacted by the lead content testing requirements.
Initially, we are told by industry experts both in the U.S. and internationally that there was no reliable lead content test for textiles, engineering a scramble to execute any test that would work or be considered reliable. Reputable testing labs throughout the U.S. and Asia differed on their interpretations of what should be tested consequently, retested all yarns in every sock at considerable expense. The sudden overwhelming demand in the testing labs resulted in delayed shipments, increased transportation cost and strained relations with costumers and suppliers. The implications for the upcoming years stated on Section 101 which is the lead content limits. This section classifies children's products containing more than the allowable limit of lead as band hazardous substances. This is a worthy and reasonable proposition. However, it has been laid upon the apparel industry in such blanket fashion without regard to any historical evidence or suggested likelihood the harmful amounts of lead are found in the products.
In short, we're asked to search at a considerable expense for something that does not exist or has been alleged to exist. We anticipate this redundant testing will cost an excessive half a million dollars to our company in that first 12 months.
Section 102: General Conformity Certification also known as GCCs. This section of law has been interpreted to mandate that every time we make a shipment, each article contained therein must be accompanied by a GCC, identifying each rule, band, standard, or regulation applicable to the product and certifying each product complies with all regulations. Ensuring accuracy and availability of a GCC for every incoming order from our factories and matching that information to a GCC for every item on every order shipped to our costumers will result in creation of tens of thousands of certificates annually. This is the dawning prospect for any small business.
Section 103 On Tracking Labels: The apparent intent of this section provides for the identification of the specific manufacturing facility for every given item and to maintain transparency through to the end consumer. Although this appears innocuous, we believe actually it will be harmful for our business. Most hosiery is exempt from the Care Labeling Rules enforced by the Federal Trade Commission due to utility or appearance of being substantially impaired by permanently attached label.
My recommendations are as follows: Regarding Section 101 on the lead contents. I believe based on the evidence a (motion?) should be made to exclude textile products from lead testing requirements. At the CPSC's public hearing in January, credible and overwhelming evidence was presented demonstrating statistically negligible levels of lead existed in textiles. Our industry has done its due diligence on lead and textiles. The only possible outcome is higher cost to a consumer. We can't make the product any safer.
Section 102 on the GCCs. Allowing this document to be prepared on an annual basis, for each style it accompanies. And the company's offering were vastly simplified compliance with the law. Regarding Section 103 on the tracking labels. The CPSC should follow the precedents established by the GCC with regard to consumer labeling laws.
We move that all hosiery items be excluded from tracking label requirements, socks are all -- (inaudible). The country of origin and the company's RN number are already on the packaging of item. There is no need for any additional information. Small businesses applaud the efforts of the United States Congress to ensure the safety of all citizens. In this instance of the CPSIA, however, unclear and belated interpretation is causing unattended punitive consequences for our business and thousands like us. Children's products existing in commerce for years should be judged based on the history at the consumer's safety. Where there is no history of problems, common sense exclusions from the regulations should apply.
Your willingness to review the implications for small businesses in particular is very much appreciated. My comments today are very consistent with the sentiments expressed last week by the distinguished Chairwoman of the House of Small Business Committee, the humble representative, Nydia Velazquez. All too often federal agencies overlook the unattended impact the regulations have on small businesses, she said. To create an environment that fosters entrepreneurship, the regulatory system must be responsive to small business needs. I hope you (grade?) my testimony underscores her message. Thank you.
REP. ALTMIRE: Thank you. I now move to the questioning. Each member will have five minutes to question the witnesses. I will begin with Ms. Lang. Thank you for being here again. I know you talked about in your testimony that your business makes very small batches of that particular product line that you sell. And with this limited quantity, testing each line is obviously very expensive. And if you could rely on test conducted by your component suppliers rather than by you, would that provide significant relief and can you give me an example of cost reduction that you would see?
MS. LANG: If I could rely on component testing and just getting GCCs from my suppliers that would significantly reduce the cost of testing for my product. I wouldn't need to send it for the third party lab lead testing and the phthalate testing. I am unsure however if, since fabric is an item that is not intended for always a teething item, I am not sure if that would be tested for phthalates. But however since there aren't any and fabric is not a plastic, if there could be an exemption for items that aren't plastic written into the law or exempted by the CPSC, that would be wonderful.
REP. ALTMIRE: Okay. Thank you. Ms. Schreiber, the product testing requirements of the law are obviously some of the most burdensome for small businesses and the test can be very expensive. Can you quantify for us how much exactly would it cost you to test your products?
MS. SCHREIBER: If just the set would cost up to $1200 with what I make it would be conservatively in a $100 to $1,000. I mean because everything I use is made once, it is a one-off item. Everything is personalized so, therefore, everything I make would have to be tested.
So it would actually boggle the mind how much it would cost.
REP. ALTMIRE: So it's an amount that you couldn't even consider to quantify?
MS. SCHREIBER: Yeah, I wouldn't be able to. It would be 75 times the number of threads I have in my house, the number of ribbons I have, the number of products I have, the number of products that make up the products I get from my wholesalers.
REP. ALTMIRE: Would anybody else on the panel like to comment on that issue? Okay. Ms. Baustian, second hand stores like Once Upon A Child are generally selling items manufactured years earlier long before the new law was even considered by Congress. And I know that Consumer Product Safety Commission Guidance has been vague to resellers. Do you feel that there is any economically feasible way for resellers to determine which products could be legally sold and lawfully sold?
MS. BAUSTIAN: Economically, I believe there is not. For us to test the product if we so chose that, you can purchase an XRF technology type done. Cost of that for an individual owner would be around $20,000. Let alone the labor included to be able to test each of the components of each of the unique items that they are purchasing for re-sell in their store.
REP. ALTMIRE: Thank you. And for Mr. Vittone and Ms. Schreiber overly burdened some regulations can place small businesses on an uneven playing field, small businesses simply don't have the compliance resources that their larger competitors do. So could each of you talk about how these, from a business perspective, these regulations have put you at a competitive disadvantage? Start with Mr. Vittone.
MR. VITTONE: Sure. Thank you. I would say they do put us at the competitive disadvantage not just with our other competitors but also with the retailers that we sell to. We sell to large box retailers. And when a large box retailer tells us that they just shredded 10,000 units of our product and wants a $100,000 credit, we don't have much choice but to comply. We have to sell to that retailer next year if we want to stay in business. So it puts us at a competitive disadvantage not just to them but then those resources take us away from growing our business and, you know, hopefully selling more product the next year.
MS. SCHREIBER: And for me the -- (inaudible) -- that I have here is really who would fall under, who is going to try and be legal under the law and who is not. You know, many of my competitors probably feel the same way that I do. That we are making safe products and we want it to be legal. There is also many people that believe it doesn't apply to them. They are not going to fall the ladder of the law. So at that point, the competitive difference goes from 0 to 60 because I'm done. I'm closing my doors. I'm selling off my sewing machines and they are continuing to make what they already have. You know, on the assumption that they are never going to catch me. So I do not know if that --
REP. ATMIRE: It does.
MS. SCHREIBER: -- clarifies.
REP. ATMIRE: Thank you very much. Ms. Fallin.
REP. FALLIN: Thank you, Mr. Chairman. I just have a question for any of you to answer and maybe I will start with Mr. McCubbin. How does the (stay ?) of the enforcement in the testing and certification requirements on the retail and wholesale industry, how does that affect you, since you still could be liable under the Act by like attorney general? Does the (stay ?) really help? Or are you still worried about the liability under some other area of enforcement?
MR. MCCUBBIN: Well, honestly I am not that worried because our products are so low risked and there are no lead in our products. So I'm not that worried and I'm not testing currently. However, a lot of my town associates, they sell children's clothes while they are still having to test and they are concerned. They've got lead in the zippers and, you know, he can change a button. You know, he can have new buttons flown over from Asia and he can change them. But the zippers, he has got to have to cut them out and that runs the product. So, you know, our business is okay until the (stay ?) goes away. And then that's when our cost would be just on the (less ?) half million dollars.
REP. FALLIN: Okay.
MR. VITTONE: Be going to have Swimways. We appreciate Chairman Nord's efforts. She has done as best as she can to reduce the effects of this legislation. But the (stay ?) really hasn't affected us frankly. We've gone ahead and moved forward with compliance. We are really more trying to deal with the aftermath of what to do with the products that we have sold to our retailers that are still on their shelves or that are still in our warehouse or in the warehouses of our manufacturers overseas.
REP. FALLIN: Okay. Anybody else want anything?
MS. BAUSTIAN: I mean certainly from a resell standpoint. For us, it does not really affect us because either way we still have to comply on the sale side that all items are deemed safe. So our owners certainly are very concerned with complying but have no way to really ensure that they are doing that.
MS. LANG: The (stay ?) has kept me in business. I was going to shut down on February 10th of this year, kept me in business until February 10th the next year. If that expires, I'm out of business. The thing that concerns me the most is that, since it is a one year stay, I am not putting the money into my business that I would if I knew that I was going to be able to continue to grow my business. I'm not probably making the efforts that I would as far as on the wholesale side of selling my product and growing my business that I would, if I knew that I was going to be able to keep operating.
MS. SCHREIBER: And I think I'm in a sort of similar situation with Mr. McCubbin's because I worked mostly in textiles. You know, I've had to discontinue some products because those wholesalers won't provide me with the GCC because it's a bib that doesn't contain leads. So they are not going to test for it because it does not contain lead. So I dropped them because, you know, I want to have proven products. It has affected me a little bit but again, you know, if it's not sort of (re-up?). I'm done.
REP. FALLIN: So all of you, you are saying basically that if nothing changes in the law and the stay in the one year moratorium runs out, that there's a possibility you could shut down your business?
MS. LANG: It's not only a possibility --
REP. FALLIN: You will?
MS. LANG: -- I can't afford $84,000 in testing when I make $4500 only.
REP. FALLIN: And I thought Mr. Chairman the other comment that she just made was that she could be investing more money and adding to her product line and creating more opportunities and buy more products but she has decided to hold back. And that's what we see a lot in our economy right now especially during this recession time. People who have money are scared to invest and so we have one more thing that is causing concern for investment. I have another question for Mr. Vittone.
MR. VITTONE: Yes.
REP. FALLIN: You said that you took a step back because of this Act? In taking a step back, what did you do?
MR. VITTONE: Well, what I meant was that we had a rate of growth about 15 percent a year for the last 10 years. And we went backwards last year and our profitability for 2008 was reduced by about 46 percent as a result of all of the inventory and the charge backs from the retailers. So it was a significant impact last year.
REP. FALLIN: And you talked about one company with the hoop that you showed to me awhile ago about how they destroyed their products. Are they coming back after you to get a credit?
MR. VITTONE: Yes, $100,000.
REP. FALLIN: A $100,000 and so --
MR. VITTONE: They want credit not only for the price they paid for the inventory but also for the destruction charges.
REP. FALLIN: You know legal matter with them on that or --
MR. VITTONE: No, no. I mean like I mentioned, we are in discussions with them on how to resolve it.
REP. FALLIN: Alright. Well, thank you all so much for coming today. We sure appreciate you. Thank you, Mr. Chairman.
REP. ATMIRE: Mr. Thompson.
REP. THOMPSON: Thank you, Chairman. First question I have for Mrs. Schreiber. If one of the problems that the CPSIA tried to resolve was lead in toys from overseas manufacturing, does it make sense to you that most of the laboratories, they can do your testing overseas?
MS. SCHREIBER: It doesn't. That's a little ironic, isn't it? And that's were some of the most cost effective testing goes to. But you know I have people that order things for a specification. And with my time frame to get things done between, you know, family issues and everything else. And then you are tucking on another two weeks to get it shipped to China, to have them tested when you know, maybe the clip originated from China six months ago. And I have the testing that says it's good so, I am sending it back. I mean, it's sort of an Alice fell down the rabbit hole sort of situation. Really. I mean, I won't be sending it to China but I quite feel I won't be sending it anywhere because I cannot afford it.
REP. THOMPSON: It's not affordable to do it. Thank you. Ms. Lang, the Food and Drug Administration has manufacturing guidelines that accepts certain food additives and chemicals to be generally recognized as safe. With the similar generally recognized as not having any lead content standard be useful to your business in the implementation of the CSPIA?
MS. LANG: I think it would be probably be useful if it were written into the law or if it were -- the thing that I'm afraid of is that the 50 state attorney generals are each deputized to go after businesses. I sell in every state and so I would hate to not know if I am going, if somebody is going to come after me for my product. I would need something more cut and dry. I think it would need to be more set in stone than just a wavy guideline.
REP. THOMPSON: Okay. Thank you. Mr. McCubbin, in your opinion has the Commission provided sufficient guidance to industry on how to implement the CPSIA?
MR. MCCUBBIN: No it has not. A lot of the problem is the confusion that all companies have as to what the guidelines are and, you know, our customers, as Ms. Fallin mentioned, you've got Dillard's, you've got Nordstrom, you've got Coles, we got Kmart, we got Payless. They all interpreted differently and so, you know, as I said we are going forth with that to stay is good for the socks, but let's just say Kmart says no but it's the law and you have to abide by the law. Forget the stay. So we'd have to test the products from Kmart. So, you know, it's very confusing.
REP. THOMPSON: How will your firm ensure the suppliers meet the certification requirements of the Act?
MR. MCCUBBIN: Is that addressed to me?
REP. THOMPSON: Yes please.
MR. MCCUBBIN: Okay. Say it again, I'm sorry?
REP. THOMPSON: How will your firm ensure the suppliers meet the certification requirements of the Act?
MR. MCCUBBIN: Well, we actually have the products tested over in Asia. You know, after they are made they have to be sent off and, you know, as I said you might have a children's tight that have six different colors in it at $40 a color. It gets tested for $240, the whole section of tights for Kmart. I got 49 packs. Now, do a quick math on that. That's very expensive just for that one run. So, they'll tell us that it has passed, they will send us the certificate, and we are trusting that that is accurate.
REP. THOMPSON: Seems like this Act is not a good economic stimulus for China.
MR. MCCUBBIN: It has been good for the testing labs, I have to say that.
REP. THOMPSON: Mr. Vittone, in terms of numbers, do you have an estimate of the total number of employee hours devoted to the implementation of this rather than more productive work associated with growing the Swimways business?
MR. VITTONE: It would be hard to count them all up but it's been thousands upon thousands of hours to spend on complying with this Act. It touches everybody in the company so everybody has to deal with it from the art department to the product development department to the finance department to sales. Everybody has been having work to comply with this Act and with the tracking labels and that brings in IT and then all of our manufactures in China. So, it's hard to put a number on it.
REP. THOMPSON: Prefer to say the other side of pre-significant negative impact on productivity.
MR. VITTONE: Absolutely. One of the points on my written testimony is that all of the time that was spent on complying this could have been spent on us growing our business.
REP. THOMPSON: Very well. Mr. Chairman, I thank you for the time. Thank you.
REP. ALTMIRE: Thank you. Thanks to everybody. Thank you for the audience for sticking it out through the long both series. I apologize for that. I just wanted, before we adjourn, to make a point about what we've done here today. You heard the chairwoman say that this is the first hearing that's been held on this issue in Congress. And this came about because each one of you took the time to contact your representative as thousands like you have done. All 435 of us have heard from small businesses and you're the reason that this happened. You are the reason that we held this hearing.
This is just the first step, we're going to adjourn the hearing now but we're going to continue the work to try to find the solution to this problem. But I just want to thank you for taking the time, making the trip, all the expenses and the time commitment that that entails. You made a big difference with your advocacy both today and leading up to today. So, be proud of what you've done and we're going to try to carry forward and get a solution to this problem. So with that, I ask unanimous consent that members will have five days to submit statements and supporting materials to the record without objections, so ordered. This hearing is now adjourned.