Wednesday, May 23, 2012

The coming storm in regulation

I recently appeared at the first conclave for FJATA (Fashion Jewelry and Accessory Trade Association), which was held at Mohegan Sun in Connecticut.  My presentation was on the blurring lines between fine jewelry and costume jewelry, and maybe that is a subject for another post.  But more important is what I heard as I sat in on the morning's session.

The attendees, or most of them, are producers of the kind of products I only see when walking into a toy store or gift shop in a resort.  Cheap, and lacking any intrinsic value.  The presenters and listeners were all on the tech side, with a few principals sitting in.  The organization is only a few years old and its mission is to deal with the flood of governmental regulations confronting all manufacturers.

From the jewelry point of view, the outlook is very tough, and I am guessing that we on the "fine jewelry" side have only a faint idea of what is going on - and what we are going to have to deal with.

All heavy metals are going to become subject to regulation.  We already know about mercury, lead and cadmium.  Antimony is now on the boards, and we could be facing European style restrictions on nickel.  And then there is arsenic, cobalt, chromium, copper, manganese, and thallium, and probably a few more.  Some are actually needed in human diet, but the issue is in proper production, disposal, incineration and excess intake, especially for children.

Were it all up to national standards, the various stakeholders and communities could undoubtedly come to a resolution.  The problem is that states are taking it upon themselves to set their own standards, which will create (and already has to some extent) chaos for manufacturers.  Once confronted with a wide range of requirements (loaded, of course, with paperwork and procedures) the overload will be enough for many companies to abandon the business or stop selling in some states.  Even then there is a problem with selling legally in one state but being subject to suits when buyers move merchandise into other states.

In some cases, states have bills pending that will totally ban certain metals, which is simply impossible.  In Rhode Island, where many manufacturers and distributors of lower priced merchandise are resident, the legislature is considering total bans on lead, cadmium and mercury.  That state introduces 2,500 bills per session on average, and hundreds relate to the production of jewelry, toys, etc.  There are bills pending that will make retailers responsible for recycling paint, batteries, mattresses and other products that are potentially polluting if not disposed of properly.  The logistics for such requirements will be difficult and expensive.

Maryland passed a tough law, but made no provisions in terms of staff 
and financing, to enforce its terms.  Manufacturers who want to comply have no guidance on forms or who to deal with.

New York State, by comparison, introduces about 20,000 bills a year, again with hundreds that could impact the jewelry industry.

The issues can get quite complicated.  The chemistry for each heavy metal is different.  So, for example, cadmium "migrates" (that is where it leaches from an object to a human body) at one-eighth the rate of lead.  So negotiations in some states have centered around "total" content vs "migration rate".  California worked that out.  Other states have not.  If you use feathers in any way, testing has to verify that there is no bird flu present.

One attendant stood to relate that his company is very careful in their factory audits.  In his case, manufacturing is done in China (as is the case for many, if not most, other companies).  That means that independent labs show up unexpectedly at these factories to test and verify.  In the course of a year, this manufacturer spends $1 million on these audits.  (Several auditing firms were present to explain the great care they take to properly test, and to avoid any chance of bribery.)  This manufacturer proposed that a number of companies join together to test factories they use in common, thereby realizing huge savings in the audits.

There was much more discussed at the sessions, but suffice to say that what I heard was enough for me to realize that this is a storm about to break in the fine jewelry business.  Yes, fine jewelry manufacturers have had to comply with with various domestic regulations.  Now we have the Dodd-Frank legislation ahead, and that could very well require companies to audit foreign factories.  The first to react to new regulations will be the major chains, who will impose conditions on suppliers that may be near-impossible to fulfill.

I know from many conversations I have had, that small manufacturers and most retailers are totally unprepared to meet this major challenge. It will take a unified industry effort to assure workable conditions.

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