China product safety concerns have high stakes, far-reaching effects

by David Armstrong, Sabine Muscat, San Francisco Chronicle

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 a 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.

The import safety scare has rattled both consumers and retailers.

While creating awareness and setting up efficient mechanisms in China
will take time, consumer rights groups are urging the authorities to
become more active on this side of the equation. "Rather than focus too
much on China we should think about what kind of rules we should set up
in our country", said Zack Kaldveer, spokesman of the Consumer
Federation of California.

Activists recommend action on three levels: They are calling for
pressure on the Chinese government to recognize its duties. The US
complaint against China before the WTO for copyright violations and
unfair subsidies is seen as a testcase.

But Kaldveer also calls on the government to provide more funds for
import control. 100 food inspectors nationwide can staff less than a
third of the nation’s ports. The port of Oakland for example is not a
permanent duty station, according to Scott Wolfson, spokesman of the
Consumer Products Safety Commission.

In San Francisco’s Chinatown, shopkeepers are on the defensive. "People
know where things come from. Why should they ask? Have you ever seen a
toy that is not made in China?" snapped the owner of a souvenir shop
who did not want to give his name.

Martina Cheesman, 36, visiting from Austin, Texas, would still go for
the plush Hello Kitty on display in the window of the Rainbow Station,
but she is less sure about other products made in China. "We are mostly
worried about food," she said.

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

San Francisco 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 in the Bay Area 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 toy producer. In the statement, Leapfrog said
its "ongoing testing and auditing processes exceed the industry’s
strict manufacturing requirements." When a 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.

On Friday, 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. 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

International aid may help improve the situation. The European
Commission has sent officers from its own consumer protection
department to China to share their methods with Chinese counterparts,
and the commission has given China access to its rapid alert system
that notifies inspectors about possible dangerous products in the

But it is not just a problem of having the right regulations, said
Kathy Li, a native of China who works with San Francisco’s Consumer

"It will take a long time to educate producers and the general public,"
Li said. She attributes the lead paint scandal partly to the Asian
preference for using very colorful paint. And she points out dangerous
Chinese traditions when it comes to food: "During food production in
China, chemicals or herbs are used to make certain products keep
better, look better, or a have a better consistency when you bite into

While governments consider how to rectify the problem, U.S. and Chinese
companies act on their own, or don’t, to clean up production.

While some companies involved with Chinese products were hard to reach
for comment, others were very forthcoming with their experiences.

Billy Poon, president of the Oriental Food Association, based in South
San Francisco, said he encourages Asian importers to set up their own
policies to ensure their products are safe. The trade association also
plans to send representatives to two forums scheduled for next month
with Food and Drug Administration staff in Oakland and Los Angeles,
Poon said.

There is good reason to do so: Poon estimates that sales at his food
importing company, Prince of Peace, have dropped by up to 15 percent
since the scandal over tainted toothpaste and other products from China
first hit the news.

The Oriental Food Association is encouraging members to get their
products certified according to international standards such as the
U.S. Good Manufacturing Standards or the International Organization for
Standardization norms used in Europe. Since 2004, Poon’s company has
monitored tea products that the firm sources from vendors in northern
China for heavy metal and pesticide residues.

"We take samples and send them to labs in the United States to verify," he said.

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

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. Budget cuts at the FDA and the Consumer Product Safety
Commission have heightened fear in this country that hazardous imports
are continuing to slip through and endanger American consumers.

Consumers in China face an even greater, more direct risk than overseas customers, pointed out Consumer Action’s Kathy Li.

"My family back home in Guangzhou is extremely frustrated with these
issues. They say, ‘You are so lucky to live in the USA, where basic
rules are in place to keep consumers safe.’ "