Who Decides What's In Your Product?

On August 14, 2008, President Bush signed into law the Consumer Products Safety Improvement Act of 2008 (the Act). While the Act applies to consumer products only, it is a harbinger of future legislation limiting the use of chemicals in a wide range of products. In fact, such regulations have already been adopted in Europe, and several U.S. states are contemplating following the European example.

In combination, these efforts could spell a dramatic increase in regulation of the manufacturing sector -- particularly in how products are made, what substances are used in production, packaging and labeling requirements, and in distribution both in the U.S. and overseas.

In response to numerous reports of children's toys being imported into this country with excess levels of lead, and a spate of recalls of children's toys and products, Congress took action to regulate certain substances used in the manufacture of such products. The Act focused most prominently on lead and phthalates used in the manufacture of toys or other products designed for use by children. However, proponents of this legislation already are calling for Congress to look at other products to reduce the levels of human exposure to similar substances used in a wide range of products.

Indeed, the Act requires the Consumer Products Safety Commission to establish a panel that will, among other things, "examine the likely level of children's, pregnant women's, and others' exposure to pthalates . . ." and "consider the cumulative effect of total exposure to pthalates, both from children's products and from other sources, such as personal care products;..." Consumer Products Safety Improvement Act of 2008, Section 108(b)(2)(B).

The Act also prohibits the sale, manufacture, distribution or import of products or substances regulated under the Consumer Product Safety Act that are (1) not in compliance with consumer product safety standards; (2) subject to an order related to imminent or substantial product hazards; (3) designated a banned hazardous substance; or (4) subject to voluntary corrective action by the manufacturer. Such prohibitions could be expanded to prohibit the sale, manufacture, distribution or import of products not subject to regulations by the Consumer Product Safety Act that are not in compliance with product standards that have been developed by other regulatory authorities. These requirements not only apply to products sold in the United States, but also to the export of products that are not in compliance with the consumer product safety requirements.

The European Union has already taken steps to regulate the use of all chemical substances through its REACH directive (Registration, Evaluation, Authorisation and Restriction of Chemical Substances) enacted in June 2007. Under REACH, manufacturers, suppliers and users of chemicals are required to register all chemical substances and their use. For certain chemicals deemed "substances of very high concern," the chemicals will only be authorized for use under specific conditions for a limited time period when substitutes are not available. A primary intent of the REACH directive is to completely eliminate the use of potentially hazardous chemicals that have been widely used in industry for decades.

In the United States, a number of states, including Massachusetts and California, are considering following the European Union's lead. For example, Massachusetts is considering legislation that would require the manufacturer or distributor of a product containing a priority toxic substance to notify the state and pay a tax on such product. As currently proposed, the Massachusetts legislation would require the study of safer alternatives to all priority toxic chemicals and, where technically and economically possible in the view of the government, the substitution of an alternative for the priority substance.

The intent of this type of legislation is to limit human exposure to toxic or hazardous substances. While the purpose is laudable, the impact of such legislation on manufacturers may be far-reaching. Under the chemical management system that the United States has used for years, information is not provided regarding the chemicals contained in finished products. Rather, material safety data sheets are only required for chemical substances. Thus, a manufacturer who buys components from a distributor or sub-tier supplier has no knowledge of what, if any, chemical substances have been incorporated into the finished product. Existing supply chain communication procedures, ERP systems and purchase order requirements are not designed to handle product content inquiries and responses. While some organizations such as ANSI and SAE have begun to develop standards to obtain such information, this process will be expensive, time-consuming, and painful as manufacturers will have to seek information down several levels of the supply chain.

Additional potential impacts of legislation restricting the use of certain chemicals in the manufacturing include:

The absolute banning of certain traditionally used chemicals;
State and federally-mandated research by manufacturers to find alternatives to the prohibited substances;
State and federally-mandated development and implementation of new manufacturing techniques;
More stringent packaging, labeling and advertising requirements for products; and
Third-party testing and certification of products to ensure compliance with standards.

Legislation regulating the substances that may be used in the manufacture of products has the potential to touch the entire supply chain. Manufacturers subject to these requirements will need to work with their suppliers to ensure compliance with such regulations. In some cases, information regarding the substances used in the manufacture of a specific component may be a trade secret, making it difficult to determine whether the amount of a specific substance in a product or product component will trigger the requirements.

The additional regulation of consumer products found in the Act, various state legislative proposals and REACH are leading the way to more stringent regulation of the manufacturing, distribution and sale of a broad range of products and product components. Such requirements will require manufacturers, retailers, suppliers and distributors to be informed about the substances used in the manufacture of their products. More importantly, manufacturers need to begin considering investment in research and development to find alternatives for substances that may become regulated in the future.

Susan Harty and Nina Web-Lawton are partners in the Vorys Columbus office and members of the litigation practice group. Summer Plantz is a staff attorney in the Cincinnati office practicing in the energy, environment and utilities group and the commercial and real estate group.

Vorys, Sater, Seymour and Pease LLP has offices in Columbus, Cleveland, Cincinnati and Akron, Ohio, as well as in Washington, D.C. and Alexandria, Va. Vorys was recently recognized as a Cross Practice Powerhouse in a survey of corporate America and one of the top 25 national firms serving the industrial manufacturing and retail industries. www.vorys.com/services