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In a Twist: Industries Looking to be Regulated

September 18, 2007


The recent problems with food and toys coming out of China have created a situation where some industries that normally eschew regulation are calling for more of it [“In Turnaround, Industries Seek U.S. Regulations,” by Eric Lipton and Gardiner Harris, New York Times, 16 September 2007].

“After years of favoring the hands-off doctrine of the Bush administration, some of the nation’s biggest industries are pushing for something they have long resisted: new federal regulations. For toys and cars, antifreeze and fireworks, popcorn and produce and cigarettes and light bulbs, among other products, industry groups or major manufacturers are calling for federal health, safety and environmental mandates. Some of those industries are abandoning years of efforts to block such measures, often in alliance with the Bush administration, which pledged to ease what it views as costly, unnecessary rules.”

This doesn’t mean that big industry suddenly got religion. They understand that new regulations are in their best interests.

“The tactical shift by industry groups is motivated by a confluence of self-interests: growing competition from inexpensive imports that do not meet voluntary standards, and a desire to head off liability lawsuits and pre-empt tough state laws or legal actions that were a response to laissez-faire Bush administration policies.”

The article points out that industry’s timing is also critical. They would rather have regulations passed under a Republican administration than a Democratic one. Apparently, industry doesn’t hold out much hope for Republican presidential candidates in the next election.

“But industry officials, consumer groups and regulatory experts all agree there has been a recent surge of requests for new regulations, and one reason they give is the Bush administration’s willingness to include provisions that would block consumer lawsuits in state and federal courts. Such pre-emption clauses were included, for example, in a drug label rule issued by the Food and Drug Administration in 2006 and in a new fire-prevention standard for mattresses imposed by the Consumer Product Safety Commission in July, said David C. Vladeck, a professor at the Georgetown University Law Center. The pre-emptions bar consumers from filing liability claims in courts and supersede any tougher state regulations, extremely valuable protections for a major manufacturer, Mr. Vladeck said. ‘This is Christmas,’ he said of industry, ‘this is their wish list.’ A number of businesses are seeking such pre-emptions, though the clauses are being challenged in many courts.”

There are other reasons that industries want regulations besides clauses that provide them exemptions from lawsuits.

“Some industries and consumer groups are aligned in seeking the same regulations, though perhaps for different reasons. ‘It’s definitely a strange-bedfellow situation,’ said Sarah Klein, a lawyer at the Center for Science in the Public Interest, which is seeking, along with grocery stores and produce growers, new requirements to prevent food-borne illnesses. ‘The voluntary system is not working from a food-safety perspective, and it’s creating real problems for the industry.’ Other industries, though, are endorsing mandated government standards that fall well short of what consumer advocates want or what tougher state rules require. Trade groups representing makers of antifreeze, upholstered furniture and all-terrain vehicles, for example, had long opposed federal regulations, but are now pushing the Bush administration for rules that consumer advocates say inadequately address safety or environmental concerns. … Concerns about competition have led to other proposals. As imports from China have grown in recent years, low-priced Chinese products that do not meet voluntary industry standards have motivated trade groups to seek new safety mandates.”

I’ve noted before that internationally recognized standards are important for ensuring that products are safe and workers protected. Industry is just beginning to realize that doing business with unregulated or poorly regulated industries can be a real liability. They may like the freedom that unregulated environments provide, but moving products made in such an environment into the global economy is problematic. In his Weblog, Tom Barnett wrote this about the article:

“Interesting dynamic with Chinese competition: because the Chinese undercut on both price and safety, U.S. industries see regulation as salvation. Oddly enough, so will the Chinese over time. The better our regs work upstream on the Chinese, the more we help their economy become more rule-bound. Good stuff for both sides.”

There will always be a tension between regulators and those regulated, but that’s not a bad thing. The big winners should be consumers and workers, both of whom should be safer as a result of good regulations around the world. How companies deal with regulations can make compliance either an asset or a liability. Enterra Solutions was originally founded to deal with compliance, security, and business optimization challenges. Whenever routine processes can be automated, especially those associated with regulatory requirements, time, resources, and manpower can be optimized giving the company a competitive edge. As companies learn that they must embrace a certain level of regulation, they will search for better ways to ensure compliance.

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