'Consumer Safety' Bill Could Boomerang Against U.S. Manufacturers

5 Pages Posted: 9 Mar 2013

See all articles by Daniel T. Griswold

Daniel T. Griswold

Mercatus Center at George Mason University

Sallie James

Cato Institute

Cato Institute

Cato Institute

Date Written: September 28, 2010

Abstract

Barriers to trade can be straightforward and transparent, even if wrongheaded, such as a 27.5 percent tariff that certain members of Congress threatened to impose on imports from China. Or barriers can take the form of rules and regulations proposed in the name of protecting public health and safety but that have a secondary effect of restricting trade. An example of such a non-tariff barrier is legislation now before Congress called the Foreign Manufacturers Legal Accountability Act (FMLAA). The sponsors of the legislation claim that their principal goal is to protect American consumers from unsafe foreign products, but there are warning signs that the bill may be more about restricting trade than protecting the public. Introduced earlier this year in the House and the Senate, the FMLAA would require any foreign producer selling goods in the U.S. market to designate a legal agent located in the United States who could be served papers in a product liability suit. The agent would be required to register in a state with a substantial connection to the importation, distribution, and sale of the product. By registering an agent, the foreign producer would agree to accept the jurisdiction of the state and federal courts of the state where the agent is located. If a foreign producer fails to designate a registered agent, the Act would ban the importation to the United States of any products made by the producer. Determining which foreign producers meet the minimum size requirements for falling under the Act would be left to agencies such as the Consumer Product Safety Commission and the Food and Drug Administration. As written, the bills would cover pharmaceuticals and cosmetics, biological products, consumer products, chemical substances, pesticides, and motor vehicles and their equipment and parts. The safety issues behind the bill are real enough. In 2007, the Consumer Product Safety Commission sought the recall of 473 different products. More than 80 percent involved imported products, and three-quarters of those products came from China.1 The concern raised by advocates of the legislation is that American consumers harmed by such products will not be able to collect damages if the foreign- based producer has no legal presence in the United States. Domestic companies by definition have a legal presence in the United States and can thus be sued for damages caused by their products, which arguably puts them at a competitive disadvantage against foreign competitors allegedly operating outside the reach of the U.S. legal system. Hearings in June 2010 highlighted the case of contaminated drywall imported from China and the inability of U.S. homeowners harmed by the product to seek damages from the producer. Americans damaged by faulty products, whether made abroad or domestically, should be able to seek compensation through the courts. But the approach advocated by supporters of the FMLAA would not solve the problem. It would create a false hope of collection for damages while bypassing existing procedures that have proven to work in most cases. The approach would potentially violate constitutional protections available to citizens and non-citizens alike as well as existing commercial agreements with other nations. It could potentially disrupt global manufacturing supply chains, putting American production and employment in jeopardy.

Keywords: barriers to trade, U.S. trade policy, American federal government, United States and China trade, Chinese exports, faulty products, dangerous products, World Trade Organization, WTO

JEL Classification: F10, F13

Suggested Citation

Griswold, Daniel T. and James, Sallie and Institute, Cato, 'Consumer Safety' Bill Could Boomerang Against U.S. Manufacturers (September 28, 2010). Cato Institute Free Trade Bulletin No. 42, Available at SSRN: https://ssrn.com/abstract=2230476

Daniel T. Griswold

Mercatus Center at George Mason University ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States

Sallie James

Cato Institute ( email )

1000 Massachusetts Avenue, N.W.
Washington, DC 20001-5403
United States

Cato Institute (Contact Author)

Cato Institute ( email )

1000 Massachusetts Avenue, N.W.
Washington, DC 20001-5403
United States

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