China Seeks to Improve Image of Exports

Over recent years, there have been several scandals over the safety of goods imported from China, most notably toys tainted with lead paint, poisonous pet food, and defective drywall. The latter (also known as plasterboard) has been widely used in new-build homes in the United States and is being blamed for numerous health and structural problems. The homeowners' plight is particularly severe as the properties tend to be located in parts of the country affected most severely by the property market collapse. Insurers have been resisting costly claims, and relief from mortgage payments is also very hard to come by. These and the other safety issues have been seized on by those who are alarmed at the surge in Chinese imports, and the huge publicity has damaged the image of Chinese goods in general. The Chinese government has protested that the scandals have been blown out of proportion, and has highlighted problems other exporters and U.S. manufacturers have had. It nonetheless recognises now that it needs to improve confidence in its exports and tighten its domestic safety regime.

The two countries yesterday agreed to new consumer safety measures following the third joint Product Safety Summit in the Chinese capital Beijing. The U.S. Consumer Product Safety Commission (CPSC) and China's General Administration of Quality Supervision, Inspection, and Quarantine (AQSIQ) signed a memorandum of understanding that focuses on standards covering toys, all-terrain vehicles, electrical products, lighters, and fireworks. Going forward, both countries have pledged to exchange reviews and information when drafting new consumer product safety rules. They will also maintain close co-operation in the form of working groups. The agencies released a joint-statement, saying that the "systematic improvement of practices in the supply and distribution chain will be the most effective means of enhancing product safety". CPSC and AQSIQ have also pledged to pursue an investigation into Chinese drywall, but so far China is resisting calls to contribute to the costs of righting the problems. CPSC chair, Inez Tenenbaum, said that the United States was greatly appreciative of China's offer of assistance. The Beijing meeting has taken place in the run-up to U.S. President Barack Obama's first visit while in office to China, during which he will be keen to trumpet progress on safety standards.

Domestic Food and Drug Safety Push Continues

China may receive regular bashing over its safety standards, but it is clear that the United States also needs to get its own house in order. The Food and Drug Administration (FDA) plays a key policing role, but scandals and subsequent investigations have shown that the organisation is not keeping up with the mass of products that enter the market. Recent food safety scandals have concerned peanuts, spinach, and hot peppers. There have also been many allegations of manipulation by politically connected producers. After prompting from the administration and the approval of a draft in the House of Representatives in July, the Senate is currently working on legislation that would overhaul the FDA. This is a complex political process, with inevitable disagreements over the desirable scope of government influence. The agency itself has been lobbying hard in recent days to secure what it deems to be adequate funding and authority. The legislation that emerges from Congress is expected to mandate more frequent inspections of food facilities, and to focus more on preventing rather than reacting to safety breaches. The FDA would be given greater powers to inspect safety data and would be able to apply stiffer penalties. The House bill intends to fund this in part with annual registration fees for food production facilities. Many in the food industry have now endorsed the House proposal, recognising that it is pointless to resist at this stage. On pharmaceutical safety, there is a similar picture. Reforms were introduced in 2007 that granted the FDA greater powers to require safety studies, but new research shows that the system is still plagued by long delays. The FDA argues that it is making progress and fixing the system. It is also struggling to crack down more effectively on fraud conducted during drug trials. There have been a number of scandals over falsified data that the FDA has been slow to act on.

Even without reform, the FDA has been emboldened lately to flex its muscles more visibly. It is moving ahead with hiring 350 new employees for its food programme, and 125 for field inspections. This should increase the number of annual inspections from 7,000 to 9,000. Last week, it emerged that the food industry has bowed to FDA pressure over its flagship labelling campaign that the regulator said was misleading consumers. The Smart Choices branding is intended to highlight the nutritional benefits of food, but it was being applied liberally to many sugary and fatty products, such as cereals and mayonnaise. The industry had hoped that the introduction of Smart Choices would see off the threat of stricter labelling being imposed from the FDA, but the effort appears to have back-fired. Leading manufacturers are discontinuing their participation in the programme, and the Smart Choices organisation is no longer recruiting new members. The FDA requirements are expected to be much more stringent, and the agency says it is accelerating its preparation.

Outlook and Implications

Momentum behind a product safety overhaul has been building for some years, but it has taken a change of administration in the United States for a more concerted regulatory push. The last administration was by nature reluctant to increase the size and power of government bureaucracy, but the succession of scandals became impossible to ignore. It seems the FDA overhaul will make it safely through Congress before long, but the fine print of funding and scope of authority will make a big difference to the future effectiveness of the agency. The agreement with China, meanwhile, shows that the latter country recognises the need to improve standards and bolster confidence in its export markets. It has also been on the defensive domestically as numerous safety violations receive greater media prominence. It will never be possible to police all products, but the new push will hopefully heighten safety awareness among manufacturers and encourage investment in more modern facilities and processes. The huge damage that a safety scandal can do to the image and bottom line of manufacturers has been made all too clear by the lead paint and drywall scandals.

Global Insight (Reino Unido)