August 21, 2007
Tuesday

First pet food. Then toothpaste and tires. Now toys.

The cascade of defective imports from China in recent months reached a peak last week when toymaker Mattel Inc. recalled nearly 1 million Chinese-made toys coated with toxic lead paint. The move prompted governments and corporations on both sides of the Pacific to scramble to fix the problem without slowing down the surging process of globalization or triggering a trade war between the United States and China -- major powers whose economies are increasingly intertwined.

The stakes are high. There are billions of dollars in U.S. investment in China, rich contracts between U.S. corporations and Chinese contractors to produce goods for export, and the health and safety of millions of consumers in the balance.

It can even be a matter of life and death. China executed the head of its State Food and Drug Administration last month for taking bribes, and the head of a Chinese contractor for Mattel reportedly took his own life last week after the massive toy recall.

Worries over product safety and other issues such as labor standards have spurred some U.S. companies to act.

Apparel-maker and retailer Gap Inc. severed its contracts with five Chinese factories in fiscal 2005-06 when the factories failed to meet the company's product safety, environmental or labor standards, according to a report issued by the company last week.

Gap does about 20 percent of its manufacturing in China using local contractors and subcontractors, according to Dan Henkle, Gap's senior vice president for social responsibility. The company has 90 inspectors, most of them locals who know the language and customs of host countries, he said. They inspect factory working conditions, according to Henkle, who added that Gap also tests export products for the presence of toxic materials.

Some companies and wholesale importers were reluctant to answer questions about their operations in China.

"The factories named by Mattel in relation to their recalls are not used in the Leapfrog supply chain," read a statement issued Thursday by Leapfrog, an Emeryville, Calif., toy producer. In the statement, Leapfrog said its "ongoing testing and auditing processes exceed the industry's strict manufacturing requirements." When a San Francisco Chronicle reporter asked the company to detail the methods its uses to ensure safety standards in China, Leapfrog declined to comment.

Heightened international scrutiny and the threat of lost business have driven the Chinese central government to announce a series of measures intended to clean up the manufacturing of a range of exported products, from cosmetics to apparel, toys and food.

On Sept. 1, China will introduce a China Inspection and Quarantine label on packages of food exported after the items have been screened by Chinese authorities. The step is intended to prevent illegal food exporters from entering the overseas market, Chinese officials say. Manufacturers will be required to provide detailed manufacturing information and registration numbers. China and the United States are also drafting a memorandum of understanding on food safety to be signed by the end of this year.

Last week, Homeland Security Secretary Michael Chertoff said customs, border protection and other agencies within his department will do more to ensure the safety of imported food and other products.

Chertoff and Health and Human Services Secretary Mike Leavitt provided an update on the work of President Bush's Import Safety Working Group, which is to deliver its final proposals in mid-November.

Such measures are welcome, but Beijing must get tough with Chinese companies that refuse to meet international safety standards, said John Frisbie, president of the U.S.-China Business Council, a group of American companies that do business with China.

"Standards are a piece of the solution," Frisbie said. "Enforcement is another piece. And we need criminal penalties in China."

Frisbie said his association is urging that export safety be taken up as part of the ongoing strategic economic dialogue conducted by Treasury Secretary Henry Paulson and senior Chinese officials, and that the jumble of governmental organizations in the United States and China that oversee product safety work much more closely together.

In order to deliver on its promises of reform, China will have to radically alter its supervision system, observers say. There are five government departments responsible for overseeing food and product safety in the Asian giant, which boasts a population of 1.3 billion people. Coordination and data sharing among these agencies is a problem, and corruption is endemic among officials willing to bend the rules in exchange for bribes.

Additionally, the sheer number and variety of Chinese companies make oversight difficult. There are, for example, 8,000 toy companies in China. Just 3,000 of them have export licenses. Toys produced for the international market are usually safer and of higher quality than goods for strictly local distribution. However, many Chinese firms outsource some production to local subcontractors, many of them notorious for violating basic labor rights and applying low quality-control standards.

The scare over product safety in China has created a business opportunity for testing laboratories, including some operated in China by international firms. Germany's biggest private testing company, TUV, has opened in 15 locations in China and set up laboratories where shoes, toys or car parts for export are chemically tested. One of TUV's prime customers is Ikea, the globally minded Swedish furniture manufacturer.

Such operations could become more common in China if concern about the safety of exports persists -- and if U.S. authorities do insufficient testing and inspections once Chinese exports make landfall at American ports.

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