Saturday, April 4, 2009

There's Something Rotten in ... Daytona?

In an article titled, Tainted drywall from China is driving owners from their homes, the Christian Science Monitor is reporting today yet another scandal in which toxic imports are making Americans ill.

I say "yet another," because just in the last year and a half there have been reproachful stories about poisonous Chinese baby toys, tainted Chinese animal feed and toothpaste, hazardous Chinese high-chairs, and infant formula from China contaminated with melamine.

The Monitor reports that toxic sulfur compounds have been discovered in the Chinese drywall, which may affect as many as 100,000 homes, mostly in Florida:
Over 500 million pounds of drywall were imported from China between 2004 and 2007 when the construction boom was at a peak and domestic materials in short supply, with demand exacerbated by the reconstruction programs that followed hurricanes Katrina and Wilma.

Laboratory tests carried out for Florida's Department of Health showed that samples of Chinese-made drywall contained strontium sulfide, which gives a rotten egg odor when moistened and reacts with hydrogen in the air to take on corrosive powers capable of eating through metals and electrical wires.

How would you like to live in a house that had this danger hidden in the walls?
"This is a noxious, pungent chemical compound. If it can corrode metals in your house, I hate to think what it's doing to residents and their children and pets," said Jordan Chaikin of Florida legal firm Parker Waichman Alonso, which has launched a federal class-action lawsuit against Knauf in the US District Court in Fort Myers.

Why is the government reacting after the fact?
Amid questions as to why it has not done a better job of screening imports for dangerous defects, the US Consumer Product Safety Commission, a federal body charged with protecting the public from such risks, is now mounting an investigation into the drywall issue. It has dispatched toxicologists, electrical engineers, and compliance staff to Florida to speak with victims and take samples from their homes.

While I am not a protectionist -- I consider myself a committed free-trader, in fact -- the problems surrounding the importation of goods from China make me realize that there is a role for government intervention when it comes to importing products in which the manufacturers and other intermediaries cannot be held liable.

What the U.S. needs to do is to discriminate between two kinds of imports: certifiably safe; and not safe. Certifiably safe products, obviously, pose no problem. The cargo containers in which they arrive here need to be identified as safe abroad, make it plain who is responsible in case of a problem, and treated in the same manner they now are by US Customs. However, when no party can vouch for the safety of cargo and no party is willing to be held fully liable in case it is later proved unsafe, that cargo needs to be presumed unsafe by US Customs. In those cases, every container needs to be opened up by US government inspectors and not allowed in until it is found to be free of dangerous chemicals and other hazards. The bill for inspection of this merchandise should fall fully on the importers.

Because inspection at the ports would take a lot of time and cost a lot of money, the foreign exporters and American importers of these products would have a strong incentive to voluntarily get a safe certification abroad. One good way to do that would be for the manufacturers to hire a reputable third-party inspection company which would observe the manufacturing process in the factories, randomly check the products for hazards and make suggested changes if needed. The inspection companies -- which would have to be licensed by the U.S., highly capitalized and carry enough insurance to assume a large liability -- would be held fully liable if products they deemed safe later proved to be dangerous.

There is a good model for voluntarily using third-party inspectors inside manufacturers' facilities: seafood. Although it is a government agency, seafood companies all over the world hire NOAA to certify that their processes are safe. NOAA inspectors visit the companies periodically, unannounced, and check equipment for safety violations, cleanliness and quality controls. NOAA will randomly pick out cans of fish, for example, and test them for quality. The seafood processors do not have to be inspected. It is their choice. The reason most choose to do so, however, is because a line of seafood labeled "NOAA Certified Safe" commands a higher price on the world market.

As things now stand, almost no products at our ports are inspected at all. Even since 9/11/01, not much has changed. My guess is that the importers lobby in the US is blocking reform. Yet if we want to live in safe homes and eat safe foods, we need to know that the goods coming to us from places like China are not hazardous.

Once a child eats poisonous milk or a family gets sick from toxic drywall, it's too late; and all too often the responsible parties cannot be held liable. The Chinese manufacturers in many cases are unreachable. The installers (as in the case with the drywall) are often small companies which had no way to know the products they were using would be harmful. The parties which end up paying often had no way of preventing the crisis, and thus the lawsuits reward a lot of lawyers, but don't prevent similar episodes in the future.

The liability question looms large, now, in the drywall case. But it sounds as if most of the guilty parties, especially in China, will not have to pay:
"People are stuck with these homes, they can't afford to leave, they put their life's savings into them or they're mortgaged and they're turning to builders for help," he said. "But in some cases builders have filed Chapter 11 bankruptcy so there can be no claims against them. Some homes need to be bulldozed, in other cases gutted entirely, and that's very expensive for builders."

The crisis has woven a tangled economic and legal web.

Insurance companies "don't know what to do," he says, since contaminated drywall counts neither as a covered peril nor as an exclusion. "Meanwhile you've got the manufacturer, the supplier, the builder, the installer ... a whole chain of custody, so for an attorney it's a case of 'Woo-hoo, we've got all these layers we can sue.'"

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