Dec. 19, 2007          

New Report, ‘Santa’s Sweatshop: Made in D.C. with Bad Trade Policy,’ Documents Root Causes of Imported Toy Crisis

Report Provides New Data, Analysis Showing How U.S. Toy Corporations’ Push to Send Production Offshore Boosted Profits at Price of Children’s Safety

WASHINGTON, D.C. – Although China and inadequate U.S. safety systems are often blamed, U.S. toy corporations’ decisions to shift production to countries without adequate safety systems – and trade policies companies pushed through Congress that limit import safety standards and inspection – are the root causes of the imported toy safety crisis, according to a report released today by Public Citizen. Improving toy safety will require changes to trade policy as well as U.S. product safety policies, the report concludes.

"Our children’s safety has been the price for soaring profits and CEO pay of major U.S. toy companies that have chosen to relocate their production to venues in which they cannot ensure the safety of their products,” said Lori Wallach, director of Public Citizen’s Global Trade Watch division, which produced the report. “The main villains in this unhappy holiday story are the CEOs of major U.S. toy and retail companies who spent millions lobbying to lock in race-to-the-bottom offshore production strategies with trade agreements that protect their overseas investments while limiting import safety and inspection.”

The report, “Santa’s Sweatshop: Made in D.C. With Bad Trade Policy,” features new analysis of four decades of data on toy imports, production jobs and wages, toy firm profits, CEO pay and toy recalls. The analysis illustrates how the surge in recalls has coincided with the wholesale relocation of toy production offshore as U.S. toy firms have employed a long-term corporate strategy of seeking ever-cheaper wages and raw materials offshore while avoiding oversight and legal liability.

Major U.S. toy firms have cuts costs dramatically by moving production to sweatshop venues where they cannot ensure the safety of products. Toy worker wages in China, where 74 percent of U.S. toy imports are made, are as low as 36 cents an hour – half that of other developing countries and 2.5 percent that of U.S. toy workers.

When pushing various trade pacts, toy and retail interests claimed that the deals were needed to keep consumer prices down. Yet, a Barbie doll that costs around $9 to manufacture in China retails for more than $29 – a mark up of 222 percent. The money manufacturers have saved through labor arbitrage has gone to soaring profits and CEO salaries at an enormous cost to children’s safety.

In 1970, 86 percent of U.S. toys were produced domestically, employing 60,000 American workers; average U.S. toy firm profits were $50 million; CEOs made 58 times what their production workers made; and annual recalls never exceeded 12 per year. Today, 87 percent of U.S. toys are produced overseas, toy firm profits have soared 1,750 percent to $930 million annually, and CEOs make 500 times what the remaining 9,000 U.S. toy production workers make and more than 21,000 times the average 36 cent hourly wages earned by Chinese production workers, who produce 74 percent of U.S. toy while recalls have skyrocketed with 120 recalls in 2007 alone.

“Anxiety levels about toy safety this holiday season are as high as the U.S. trade deficit, and the two trends are not unrelated,” said Todd Tucker, research director of Public Citizen’s Global Trade Watch division and a lead author of the report. “Toy and retail companies have systematically pushed for ‘trade’ agreements that provide new investor protections and safety limits to protect their ‘low road’ offshoring business strategies. Our kids and families are paying the price.”

Noting that goods produced in China by foreign-owned, not Chinese-owned, corporations, account for 60 percent of ‘Chinese’ exports to the United States, the report examines how toy import surges are linked to various U.S. trade policy decisions.   U.S. toy production employment have declined 70 percent alone since establishment of the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO), and more than 500 percent from 1970s levels, with U.S. toy corporations wholesale outsourcing and sending production offshore. The report also presents new data on the political spending of major toy and retail firms who have pushed Congress for trade pacts that underwrite their low-road strategy.

“Congress has outsourced its oversight of trade and safety policy to President Bush and developing nations’ inadequate safety systems, both of which have proved either unwilling or unable to protect kids’ safety,” said Public Citizen President Joan Claybrook. “The outcome: Our most vulnerable citizens – children – are exposed to avoidable risk of injury or death from their imported playthings.”

The report unpacks the specific trade agreement provisions that have promoted offshoring and set limits on import safety standards and inspection rates. The report explains how WTO and NAFTA investor protections have eliminated the risks normally associated with relocating to a developing country while instituting a system where U.S. public interest policies can be and have been challenged in foreign tribunals as “barriers to trade,” with U.S. policies being ruled against at the WTO more than 80 percent of the time.

Despite non-stop media exposés about dangerous toy imports, little attention has been given to the underlying cause of the crisis. Nor have recent attempts by Congress to reform the Consumer Product Safety Commission (CPSC) focused on import safety. While imports have soared more than 400 percent since 1980, pro-corporate legislators pushed by anti-government ideologues have cut the CPSC’s budget by a third in real terms. Meanwhile, the agency that is supposed to ensure our nation’s product safety has authorities and a structure that are based on the 1970s premise that U.S. toys are produced domestically. Recent CPSC bills fail to remedy this mismatch.

“It is outrageous that in the midst of this imported toy safety scandal, Congress is producing legislation that fails to deal with import safety while simultaneously passing more trade pacts that promote offshoring of production and expose U.S. safety standards and inspection improvements to attack as illegal trade barriers,” said Wallach.

The report also provides other data not previously compiled or analyzed:

·   From 1972-1982, there were never more than a dozen toy recalls a year. From 2003 to 2007, the period examined in a new database created for this report, the frequency of dangerous toys sold in the United States skyrocketed, with imports comprising almost all toy recalls. In 2003, there were 37 CPSC toy recalls worth $44 million. In 2007, there were 120 toy recalls worth $384.8 million – an astonishing 224 percent jump in recalls and a 773 percent jump in the dollar value of recalls;

·   Toys made in China will account for 94 percent of recalls in 2007. However, an analysis of the recall data shows that this phenomenon is driven almost entirely by lead problems. Lead paint and other raw materials are being used increasingly in part because of U.S. companies’ efforts to procure sweatshop goods from China at the same low prices even as Chinese wages continue to slowly increase. Leaded paint costs two-thirds less than paint with lower levels of lead.

·   China accounts for a roughly proportionate share of design flaw recalls, which continue to be at a troublingly high level, but are as likely to be found in recalled goods made in the United States, China or elsewhere. These data show that a global response is needed to address the high level of built-in design flaws. Congress must act so that companies cannot avoid liability and deny injured consumers’ right to redress in our court system by sending production offshore;

To effectively remedy the imported product safety crisis, Congress must:

1) Alter various provisions of U.S. trade agreements described in the report, which provide special protections and benefits for manufacturers to produce goods in other countries and limit border inspection and imported product safety standards; and

2) Provide new authority focused on import safety and greater funding for domestic agencies responsible for product safety, including measures outlined in the report.

“The toy import safety crisis did not happen over night, and it did not come out of nowhere,” said Wallach. “But Congress – and a future president – can turn the situation around by renegotiating decades of bad trade policy so that it serves the public interest and protects our kids.”

The report also provides information for concerned consumers about what they can do to protect themselves from dangerous imports.