Keeping imports safe: A proposal for discriminatory regulation of international trade

California Law Review

Volumn 96, Issue 6, 2008, Pages 1405-1446

  Bamberger, Kenneth A ^a,b   Guzman, Andrew T ^a,b  

^a Law ^*

^b UNIVERSITY OF CALIFORNIA   (United States)

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[No Author keywords available]

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EID: 58049136665     PISSN: 00081221     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (121)

1. See Parija B. Kavilanz, More Thomas & Friends Toys Recalled for Lead, CNNMoney.com, Sept. 26, 2007, http://money.cnn.com/2007/09/26/news/ companies/toy-recall/index.htm.
2. See U.S. Census Bureau, Current Population Survey, 2007 Annual Social and Economic Supplement, available at http://pubdb3.census.gov/ macro/032007/hhinc/new04-003.htm.
3. See Gardiner Harris & Walt Bogdanich, Drug Tied to China Had Contaminant, FDA. Says, N.Y. Times, Mar. 6, 2008.
4. See Diedtra Henderson, Chicken From China? Questionable Farming Practices Fuel Skepticism of US Plan to Import Poultry, Boston Globe, May 9, 2007.
5. See Nicholas Zamiska & David Kesmodel, Growing Concern: Tainted Ginger's Long Trip From China to U.S. Stores, Wall St. J., Nov. 19, 2007, at Al.
6. See Fed. Deposit Ins. Corp., Offshore Outsourcing of Data Services by Insured Institutions and Associated Consumer Privacy Risks 2-3 (2004), available at http://www.fdic.gov/regulations/examinations/offshore/ offshore-outsourcing-06-04-04.pdf (identifying increased forms of risk to consumer privacy); U.S. Gov't Accountability Office, PRIVACY: Domestic and Offshore Outsourcing of Personal Information in Medicare, Medicaid, and TRICARE 18 (2006) [hereinafter GAO Privacy Outsourcing Report] (noting that a substantial number of federal contractors and state Medicaid agencies reported privacy breaches involving personal health information, while admitting that many remain unreported); David Lazarus, Looking Offshore: Outsourced UCSF Notes Highlight Privacy Risk; How One Offshore Worker Sent Tremor Through Medical System, S.F. Chron., Mar. 28, 2004, at Al (detailing risks after medical information breach by Pakistani business process outsourcer); Larry Ponemon, SURVEY REPORT, Outsourcing: Privacy Data Protection and Security Considerations in Outsourcing Decisions, 6 BNA Privacy & Security Law Report, no. 42 (Oct. 22, 2007) [hereinafter Privacy Survey] (reporting mat 37% of respondents state that outsourcing partners have experienced data loss or theft as a result of negligence, IT glitches, or mistakes, and another 19% have outsourcing partners mat experienced data loss as a result of malicious insider activities).
7. See Robert Howse & Donald Regan, The Product/Process Distinction-An Illusory Basis for Disciplining 'Unilateralism' in Trade Policy, 11 Eur. J. Int'l L. 249 (2000).
8. For discussion of the variety of regulatory instruments see Kenneth A. Bamberger, Regulation as Delegation: Private Firms, Decisionmaking, and Accountability in the Administrative State, 56 Duke L.J. 377, 388-91 (2006) (discussing a variety of forms of regulation); Cary Coglianese & David Lazer, Management-Based Regulation: Prescribing Private Management to Achieve Public Goals, 37 Law & Soc'y Rev. 691, 696-700 (2003) (describing the use of management-based regulation in the areas of food safety, industrial safety, and pollution prevention); Cary Coglianese et al., Performance-Based Regulation: Prospects and Limitations in Health, Safety, and Environmental Protection, 55 Admin. L. Rev. 705 (2003) (summarizing a dialogue among regulators and researchers about performance-based regulation); Christine Parker, Reinventing Regulation Within the Corporation: Compliance-Oriented Regulatory Innovation, 32 Admin. & Soc'y 529, 547 (2000) (discussing "outcome-based" regulation); and Stephen D. Sugarman & Nirit Sandman, Fighting Childhood Obesity Through Performance-Based Regulation of the Food Industry, 56 Duke L.J. 1403, 1411-28 (2007) (setting forth a typology of regulatory instruments).
9. A somewhat extreme solution that has been mentioned would put in place border measures to block or slow trade with countries like China, the source of many of the tainted products. This remedy is problematic from both practical and legal perspectives. Because it is not possible to identify ex ante which products will pose safety risks, any categorical restraint on trade with these countries will inevitably discourage the importation of safe and valuable imports as well. Virtually every category of imported product can be dangerous if improperly made, which means no practical way exists to target only dangerous imports. The most salient concerns to date, for example, have been in the areas of children's toys, pharmaceuticals, and food products. But in March 2008 it was discovered that imported electronic devices may come with harmful viruses already loaded. See Jordan Robertson, Your Next Gadget May Come with a Pre-Installed Virus, USA Today, Mar. 13, 2008, available at http://www.usatoday.com/tech/news/computersecurity/2008-03-13-factory-installed- virus-N.htm. As a legal matter, it would likely violate the rules of international trade to erect barriers to imported products from China (or elsewhere) without evidence that specific products or lines of products are harmful. The erection of trade barriers also has a political dimension. If calls for increased safety become a pretext for protectionism, the gains provided by robust international trade will be undermined. 10. There would also be political challenges to implementing such a program of inspections. American taxpayers would bear the cost of ensuring the safety of foreign activity, while individual firms would reap the benefits of foreign production. The costs of monitoring and inspection would not be taken into account by firms making decisions about where to produce or purchase their products, and would not find their way into the price of products sold in the United States. In effect, a form of subsidy would be provided for foreign production, encouraging firms to over-invest in foreign, as opposed to domestic, production.
10. We have framed the discussion in terms of what American authorities ought to do. In fact, there is nothing uniquely American about our discussion or proposal beyond some of the specific examples used and statements about current law. The lessons of the article apply with equal force to any country with a well-developed system of production-based regulation applied to domestic producers.
11. See, e.g., 16 C.F.R. pt. 1303 (1978) (1978 CPSC standard banning the sale of paint containing in excess of 0.06% lead intended for consumer use, and banning toys and other articles intended for use by children that use paint with a lead content in excess of 0.06%); Consumer Product Safety Improvement Act of 2008, Pub. L. No. 110-314, § 101, available at http://www.cpsc.gov/cpsia.pdf (setting new lower lead limits).
12. See California Company To Pay $200,000 Civil Penalty For Importing And Selling Illegal Children's Toys, FDCH Regulatory Intelligence Database; Jan. 12, 2004, available at http://search.ebscohost.com/login. aspx?direct=true&db=buh&AN=32W0651393109&site =ehost-live; California Man Charged In Illegal Toy Importation Case, FDCH Regulatory Intelligence Database; May 17, 2001, available at http://search. ebscohost.com/login.aspx? direct=true&db=buh&AN= 00220019200003802&site=ehost-live.
13. See Consumer Product Safety Improvement Act of 2008, Pub. L. No. 110-314. § 217(a)(1)(B) (raising civil penalty cap to $15 million).
14. See Scott Berinato, Data Breach Notification Laws, State By State, CSO, Feb. 1, 2008, available at http://www.csoonline.com/read/ 020108/ammap/ammap.html (providing interactive map); see generally Paul M Schwartz & Edward J. Janger, Notification of Data Security- Breaches, 105 Mich. L. Rev. 913 (2007) (discussing laws); Cass R. Sunstein, Risk and Reason ch. 8 (2002) (discussing disclosure of information as a means of regulation).
15. See, e.g., Ron Sparks, Ala. Dep't of Agric. & Indus., Food Safety Editorial (May 6, 2007), http://agi.alabama.gov/press-releases/2007may06? pn=2 ("At the Alabama Department of Agriculture & Industries we take samples of all food products sold in Alabama and test them in our Food and Drug Lab in Montgomery in an effort to help protect consumers.").
16. See generally W. Page Keeton et al., Prosser and Keeton on Torts 677-724 (5th ed. 1984) (discussing the law of products liability).
17. See Eugene Bardach & Robert A. Kagan, Going by the Book: The Problem Of Regulatory Unreasonableness 64-66 (1982) (arguing that most regulated enterprises are "good apples," agents for whom conformity with the law derives from "bottom-up" commitments, which legal sociologists credit for much, if not most, legal compliance).
18. See, e.g., ASTM, Standard Consumer Safety Specification for Toy Safety, http://enterprise.astm.org/REDLrNE-PAGES/F963.hrm (last visited July 29, 2008).
19. See Bamberger, supra note 8, at 388-91 (describing such contexts, including data privacy protection).
20. See Neil Gunningham, Robert A. Kagan & Dorothy Thornton, Social License and Environmental Protection: Why Businesses Go Beyond Compliance, 29 Law & Soc. Inquiry 307 (2004) (identifying visibility of harm and natural communities of interest as key components in social license constraints).
21. It is possible to debate the desirability of using production-based regulation either in general or in specific cases. For the purposes of this article, however, we simply take the use and effectiveness of this form of regulation as given. We do so because reviewing the full debate about the merits of production-based regulation would serve only to distract from the focus of this Article.
22. See Cary Coglianese, Reducing Risk with Management-Based Regulation, Notes on the Columbia/Wharton-Penn Roundtable on Risk Management Strategies, at 2 (2002), http://www.ldeo.columbia.edu/chrr/documents/meetings/ roundtable/pdf/notes/coglianese-cary-no te.pdf (last visited Aug. 4, 2008).
23. Pub. L. No. 106-102, 113 Stat. 1338 (1999) (codified at 15 U.S.C. §§6801-6827 (2000)).
24. 16 C.F.R. §314.3(2006).
25. Paul M. Schwartz & Edward J. Janger, Notification of Data Security Breaches, 105 MICH. L. REV. 913, 920 (2007) (summarizing Interagency Guidelines Establishing Information Security Standards, 69 Fed. Reg. 77,610 (Dec. 28, 2004)).
26. See Pathogen Reduction: Hazard Analysis and Critical Control Point (HACCP) Systems, 61 FED. REG. 38,806 (July 25, 1996); Procedures for the Safe and Sanitary Processing and Importing of Fish and Fishery Products, FED. REG. 60: 65,096-202 (Dec. 18, 1995); Coglianese & Lazer, supra note 8, at 696-98 (discussing HACCP food safety programs).
27. See id.
28. See Federal Meat Inspection Act, 21 U.S.C. § 604 (2000); Poultry Products Inspection Act, 21 U.S.C. §455(2000).
29. See 21 C.F.R. §210.1(2008).
30. U.S. Dep't of Health and Human Servs., HHS Task Force on Drug Importation, Report on Prescription Drug Importation 21 (Dec. 2004), available at http://www.hhs.gov/importtaskforce/Report1220.pdf [hereinafter HHS DRUG IMPORT REPORT].
31. Id.
32. See Donald C. Clarke, The Enforcement of United States Court Judgments in China: A Research Note, (Geo. Wash. Legal Studies Research Paper No. 236, 2004), available at http://ssrn.com/abstract=943922.
33. See Marc Kaufman, FDA Scrutiny Scant in India, China as Drugs Pour Into U.S., WASH. Post, June 17, 2007, at Al, available at http://www.washingtonpost.com/wpdyn/content/article/2007/06/16/ AR2007061601295.html.
34. See Alexei Barrionuevo, Food Imports Often Escape Scrutiny, N.Y. TIMES, May 1, 2007, http://www.nytimes.com/2007/05/01/usiness/ 01food.html.
35. Public Citizen, Santa's Sweatshop: "Made in D.C." with Bad Trade Policy (2007), available at http://www.citizen.org/documents/ Santas%20Sweatshop.pdf.
36. See Harris & Bogdanich, supra note 3.
37. See id.
38. HHS Drug Import Report, supra note 31, at 21.
39. See Kaufman, supra note 34.
40. See id.
41. See 21 C.F.R. § 207.20 (2008); 21 C.F.R.§ 207.37 (2008).
42. See 21 C.F.R. § 210.1(2008).
43. See 21 C.F.R. § 207.40 (2008).
44. See Kaufman, supra note 34.
45. See id.
46. Procedures for the Safe and Sanitary Processing and Importing of Fish and Fishery Products, 60 Fed. Reg. 65,096, 65,111 (Dec. 18, 1995) ("FDA must be able to verify the existence of the evidence of compliance by the foreign processor.").
47. See FDA, CFSAN/Office of Seafood, FDA's Evaluation of the Seafood HACCP Program for Fiscal Years 2002/2003 (May 13, 2005), http://www.cfsan.fda. gov/~comm/seaeva13.html.
48. U.S. Consumer Prod. Safety Comm'n, Frequently Asked Questions, http://www.cpsc.gov/about/faq.html (last visited July 30, 2008) (explaining that "CPSC doesn't have the legal authority" to "test or certify products for safety before they can be sold to consumers").
49. See Agence France-Presse, U.S. Senator Calls for Inspection of All Imported Chinese Toys, INDUSTRY WEEK, Aug. 15, 2007, http://www.industryweek.com/ReadArticle.aspx? ArticleID=14805; text and citations at nn. 53-57.
50. Foreign Trade Statistics, U.S. Census Bureau, available at http://www.census.gOv/foreign-trade/balance/c0015.html#2008.
51. Andrew Martin, Cabinet Study Says Safety Must Precede U.S. Border, NEW YORK TIMES, Sept. 11, 2007, available at http://www.nytimes.com/2007/09/11/business/11 foods.html? scp=2&sq= andrew+martin+cabinet+study+&st=nyt.
52. See id.
53. See More Inspectors a Top Priority far FDA, MQN WKLY. BULL., Mar. 14, 2008. available at http://www.fdanews.com/newsletter/article?issueId=l 1400&articleld= 104906.
54. See Marc Kaufman. FDA Says It Approved The Wrong Drug Plant. WASH. POST. February 19, 2008, at Al.
55. Science And Mission At Risk: FDA's Self Assessment: Hearing Of The Oversight And Investigations Subcommittee Of The House Committee On Energy And Commerce, 110th Cong. (2008), available at http://energycommerce. house.gov/cmte-mtgs/110-oi-hrg.012908. FDASelfAssessment.shtml (including statements of Catherine Woteki, former Under Secretary for Food Safety, U.S. Department of Agriculture, and Peter Barton Hurt, former Chief Counsel for the Food and Drug Administration).
56. See Import Safety, http://www.importsafety.gov (last visited July 30. 2008). The Working Group included the Secretaries of the Department of Health and Human Services, the Department of State, the Department of the Treasury, the Attorney General, the Secretaries of the Department of Agriculture, the Department of Commerce, the Department of Transportation, the Department of Homeland Security, the Director of the Office of Management and Budget, the United States Trade Representative, the Administrator of the Environmental Protection Agency, and the Chairman of the Consumer Product Safety Commission. The Food and Drug Administration, Customs and Border Protection, and the Food Safety and Inspection Service were active participants in the Working Group as well.
57. See INTERAGENCY WORKING GROUP on IMPORT SAFETY, ACTION PLAN FOR IMPORT SAFETY: A ROADMAP FOR CONTINUAL IMPROVEMENT 49-57 (2007), available at http://www.importsafety. gov/report/actionplan.pdf [hereinafter ACTION PLAN]; INTERAGENCY WORKING GROUP ON IMPORT SAFETY, PROTECTING AMERICAN CONSUMERS EVERY STEP OF THE WAY: A STRATEGIC FRAMEWORK FOR CONTINUAL IMPROVEMENT IN IMPORT SAFETY: A REPORT TO tHE PRESIDENT (2007), available at http://www.importsafery.gov/ report/report.pdf; see also Michael O. Leavitt, Sec'y, Dep't of Health & Human Servs., Developing a Comprehensive Response to Food Safety, Testimony Before the Committee on Health, Education, Labor and Pensions, U.S. Senate (Dec. 4, 2007), available at http://help.senate.gov/Hearings/2007-12-04/ Leavitt.pdf.
58. See, e.g., Susan Heavey, U.S. Mulls Private Drug Checks Despite Device Lessons, REUTERS (June 12, 2008), available at http://www.signonsandiego.com/news/business/20080612-0943-fda-inspections.html (quoting Janet Woodcock, head of the FDA's Center for Drug Evaluation and Research: "It's very difficult to see how we could actually cover the entire globe.").
59. See, e.g., Janet Woodcock, Deputy Comm'r for Scientific and Med. Programs, Chief Med. Officer and Acting Director of FDA's Center for Drug Evaluation and Research, U.S. Food and Drug Administration, Statement Before the House Agriculture, Rural Development, Food and Drug Administration and Related Agencies Appropriations Subcommittee (Feb. 27, 2008), http://www.fda.gov/ola/ 2008/drugsafety-budget022708.html (describing the "fundamental challenges of many different languages and protocols" arising from "the globalization of the supply chain [to include] an ever-growing number of brokers, traders, distributors, repackagers, and other players involved in the import of pharmaceuticals").
60. Kaufman, supra note 55 ("The Chinese facility that supplies the active ingredient of the widely used blood thinner heparin was never inspected . . . because the [FDA] confused its name with another just like it, agency officials said yesterday,").
61. Of course, foreign producers sometimes have sufficient presence in the United States to satisfy relevant subject matter and personal jurisdictional requirements. Where that is the case, some use of the production lever may still be possible. However, the other challenges with regulating foreign production remain.
62. We do not make this assumption because we believe it to be true. Each of us has views on how existing regulatory approaches could be improved. See Bamberger, supra note 8; Andrew T. Guzman, Is International Antitrust Possible?, 73 N.Y.U. L. Rev. 1501 (1998); see also Kenneth A. Bamberger, Global Terror, Private Infrastructure, and Domestic Governance, in 2 THE IMPACT OF GLOBALIZATION ON THE UNITED STATES: LAW AND GOVERNANCE (Beverly Crawford, et al., eds.), (forthcoming 2008); Stephen Choi & Andrew T. Guzman, Portable Reciprocity: Rethinking the International Reach of Securities Regulation, 71 S. CAL. L. Rev. 903 (1998). Rather, we make this assumption because it allows us to emphasize the ways in which imports differ from domestic production.
63. Once eligibility is established, however, the Animal and Plant Health Inspection Service's restrictions determine the specific types of products that can be imported from the country. See generally USDA Food Safety and Inspection Service, Foreign Countries and Plants Certified to Export Meat and Poultry to the United States, http://www.fsis.usda.gov/Regulations-&- Policies/Eligible-Foreign-Establishments/index.asp (last visited Aug. 4, 2008).
64. Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. 108-173, 177 Stat. 2066.
65. Id. at § 1121(1)(1)(A), (B), 177 Stat, at 2468.
66. HHS DRUG IMPORT Report, supra note 31, at 10.
67. Id. at XI.
68. Id.
69. See, e.g., United States v. Rx Depot, Inc., 290 F. Supp. 2d 1238 (N.D. Okla. 2003) (supporting FDA finding that storefront pharmacy was illegally importing drugs from Canada); Vermont v. Leavitt, 405 F. Supp. 2d 466 (D. Vt. 2005) (prohibiting state from importing drugs from Canada).
70. Parliament Directive 95/26, On The Protection of Individuals with Regard to the Processing of Personal Data and on the Free Movement of Such Data, 1995 I.J. (281) 31 (EC), available at http://ec.europa.eu/justice-home/fsj/ privacy/docs/95-46-ce/dir1995-46-part1-en.pdf.
71. See id. at art. 254.
72. Agreement Between the Department of Health and Human Services of the United States of America and the General Administration of Quality Supervision, Inspection and Quarantine of the People's Republic of China on the Safety of Food and Feed [hereinafter Agreement on Food and Feed], available at http://www.globalhealth.gov/news/agreements/ia121107a.html.
73. Agreement Between the Department of Health and Human Services of the United States of America and the State Food and Drug Administration of the People's Republic of China on the Safety of Drugs and Medical Devices [hereinafter Agreement on Drugs and Medical Devices], available at http://www.globalhealth.gov/news/agreements/ia121107a.html (last visited Aug. 5, 2008).
74. Agreement on Food and Feed, supra note 74, at Annex § II.B.4-5; see also U.S. Gains Access to Chinese SFDA Inspection Information, INTERNATIONAL PHARMACEUTICAL REGULATORY MONITOR, Jan. 15, 2008.
75. Agreement on Food and Feed, supra note 74, at Art. IV.3.
76. Agreement on Drugs and Medical Devices, supra note 74.
77. Memorandum of Understanding between the U.S. Consumer Prod. Safety Comm'n and the General Admin. of Quality Supervision, Inspection and Quarantine of the People's Republic of China, available at http://www.cpsc.gov/CPSCPUB/ PREREL/prhtm104/04124mou.html. Paradoxically, some have noted that the certification regime detailed in the MOU may actually lead to a reduction in border inspections of Chinese products, a measure that the United States has declined to implement with regard to imports from Canada and Mexico. While the proposed certification program is limited to certain enumerated product categories, and neither party would be obligated to make decisions on imports based on certifications, the MOU leaves open the possibility that U.S. inspectors could waive inspections on the basis of certifications. See U.S.- China Food Safety Deal Could Give China Preferential Treatment, INSIDE US-CHINA TRADE. Dec. 19, 2007.
78. HHS DRUG IMPORT REPORT, supra note 31, at 21.
79. See Richard McCormack, China Replaces U.S. As World's Largest Exporter: Trade Imbalances Could Cause Financial Upheaval: MAPI Analyst Implores U.S., IMF To Act Now On Chinas Yuan, MANUFACTURING & TECH. NEWS, Sept. 5, 2006, available at http://www.manufacturingnews.com/news/06/0905/art1.html.
80. See India Controls 44 Percent of Outsourcing, FORBES.COM, June 12, 2005, http://www.politicahoje.com/politica/ indiacontro144ofoutsourcing.pdf (reporting that the main infotech trade body said that revenues for Indian companies reached $17.2 billion in U.S. currency in the year that ended in March 2005).
81. For a similar argument in the context of antitrust and the regulation of competition policy, see Guzman, supra note 63.
82. See ANDREW T. GUZMAN, HOW INTERNATIONAL LAW WORKS: A RATIONAL CHOICE THEORY 42-45 (2008) (discussing and analyzing reciprocity in international law).
83. The process of determining which foreign regulatory systems should be accepted as substitutes raises a host of further issues, many of which are outside the scope of this Article. Inevitably this decision will be influenced by political concerns as well as the nature of the foreign system. Even where the system is not politically driven, one would want to consider who makes the decision, what sort of review is available to a producing state that feels its regulatory system should be considered adequate, whether there should simply be a binary determination (under which a foreign system is either adequate or inadequate), or a system with several categories (where systems are graded to reflect their adequacy as a substitute and the result affects how the United States treats imported products), and so on. For present purposes it is enough to point out that identifying jurisdictions whose regulatory system is accepted as a substitute has high stakes for American producers, foreign producers, importers, and foreign states. The same is true for the establishment of a metric with which to evaluate foreign regulatory practices. These facts make the process of approving a foreign regulatory system complicated and difficult.
84. See Harold Furchtgott-Roth et al., The Law and Economics of Regulating Ratings Firms, 3 J. COMPETITION L. & ECON. 49, 88 (2006).
85. See Underwriters Laboratories, http://www.ul.com/about/(last visited July 30, 2008).
86. See Export.gov, Welcome to the Safe Harbor, http://www.export.gov/ safeharbor/(last visited July 30, 2008).
87. See generally Margaret M. Blair et al., The New Role for Assurance Services in Global Commerce, 33 J. CORP. L. 325 (2008) (discussing the emergence of a private-sector compliance and enforcement infrastructure in global commerce).
88. See GLOBALG.A.P., http://www.globalgap.org; see also John W. Miller, Private Food Standards Gain Favor: Wal-Mart, McDonald's Adopt European Safety Guidelines, WALL ST. J., Mar. 11, 2008, at Bl (last visited Oct. 13, 2008).
89. See News Release, U.S. Pharmacopoeia-India Site Inaugurated at ICICI Knowledge Park, Hyderabad (Feb. 8, 2006), available at http://www.usp.org/aboutUSP/media (follow "News releases" hyperlink; search "Site Inaugurated" in "Headline"); News Release, U.S. Pharmacopoeia Inaugurates New Facility in Shanghai (Sept. 6, 2007), available at www.usp.org/aboutUSP/media (follow "News releases" hyperlink; search "Inaugurates New Facility in Shanghai" in "Headline").
90. See NASSCOM, About NASSCOM, http://www.nasscom.in/Nasscom/ templates/NormalPage.aspx?id=5365 (last visited July 30, 2008) (discussing trade organization).
91. See NASSCOM, Data Security Council of India (DSCI): A Self Regulatory Initiative in Data Security and Privacy Protection, http://www.nasscom.in/Nasscom/templates/NormalPage.aspx?id=51973 (last visited July 30, 2008).
92. See id.; Moumita Bakshi Chatterjee, Nasscom Working on Data Security Council, BUSINESS LINE, June 11, 2007, available at http://www.thehindubusinessline.com/2007/06/11/stories/ 2007061101150200.htm (discussing standards, auditing, and certification proposal).
93. See ACTION PLAN, supra note 58, at 15-26.
94. Consumer Product Safety Improvement Act of 2008, Pub. L. No. 110-314, § 102, available at http://www.cpsc.gov/cpsia.pdf.
95. See generally Guy Halfteck, Legislative Threats, 61 STAN. L. REV. (forthcoming 2008), available at http://ssrn.com/abstract=1113173 (discussing the phenomenon of "non-use of legislative power" in return for firms' commitment to change their conduct).
96. See Kaufman, supra note 34 ("FDA officials say that they are not aware of any health problems caused by drugs imported from India or China and that the American companies that import them usually do their own quality and safety testing.").
97. 21 C.F.R. 123.12(a)(2)(ii) (2008).
98. Interagency Guidelines Establishing Standards for Safeguarding Customer Information, 66 Fed. Reg. 8616, 8624 (Feb. 1, 2001) (to be codified at 12 C.F.R. pt. 30).
99. DELOITTE CONSULTING, SUPPLY CHAIN'S LAST STRAW: A VICIOUS CYCLE of RISK 3 (2007), available at http://www.deloitte.com/dtt/cda/doc/content/us- consulting-suppchain-wp-090107.pdf.
100. Parija B. Kavilanz, Blame U.S. Companies for Bad Chinese Goods, CNNMONEY.COM, Aug. 14, 2007; see also Zamiska & Kesmodel, supra note 5 (documenting California firm's failure to identify, let alone monitor, the supply chain that produced Chinese tainted ginger).
101. See U.S. DEP'T OF AGRIC, OFFICE OF FOOD SAFETY & TECHNICAL SERV., FOOD AND AGRICULTURAL IMPORT REGULATIONS AND STANDARDS REPORT (FAIRS) (1999) available at http://www.fas.usda.gov/itp/ofsts/us.html.
102. See Zamiska & Kesmodel, supra note 5.
103. See Harris & Bogdanich, supra note 3.
104. See GAO Privacy Outsourcing Report, supra note 6, at 18; Ponemon, Privacy Survey, supra note 6 (While 56% of respondents experienced data loss or theft, only 55% of respondents say they evaluate the outsourcer's data protection practices before engaging them or transferring information).
105. Importantly, we do not here advocate changes to substantive safety requirements. Our focus instead is on the penalties assessed when stated requirements are not met. 107. More precisely, only those participants within the reach of American authority and operating in a context where other substitutes for the production lever are insufficient should be subject to such liability. 108. One could also eliminate production-based liability for domestic producers, but because we assume that this liability is efficient in achieving governmental objectives, eliminating it would also present significant costs. 109. See Part II.
106. To be precise, the resulting level of safety would not necessarily be identical to that in the United States because the costs of compliance with both production and outcome-based regulation will differ from place to place.
107. Or perhaps penalties can be set even higher to account for the tainted products that may never be identified or penalized.
108. If one believes that consumers must be protected against their own judgment and decisions-say because they are myopic, for example-then some additional constraints on the choices consumers face might be justified.
109. Some disagreements about safety and imports relate to different views of social costs. We take no position on how such costs should be calculated.
110. Again, this requires clear labeling of other efforts to inform consumers about the relative dangers of the two drugs.
111. Tort law, for example, recognizes this trade-off explicitly. The "primary" test for design defect in tort asks "whether a reasonable alternative design would, at reasonable cost, have reduced the foreseeable risks of harm posed by the product and, if so, whether the omission of the alternative design by the seller or a predecessor in the distributive chain rendered the product not reasonably safe." RBESTATEMENT (THIRD) OF TORTS: PRODUCTS LIABILITY § 2, cmt. d (1998); see, e.g., Ford Motor Co. v. Miles, 967 S.W.2d 377, 386 (Tex. 1998) ("[A] manufacturer is not required to design the safest possible product. ...").
112. The increase in prices need not correspond exactly to the increase in costs felt by the importer or seller. Depending on the market structure, the importer or seller may simply absorb some of the increased cost in the form of lower profits. It may also be able to force producers to accept lower profits themselves. At least some of the increase in costs, however, will be passed along to consumers.
113. General Agreement on Tariffs and Trade (GATT), art. III.4.
114. Id. at art. XX(d). One could also advance arguments about exceptions provided by Article XX(b) and the Agreement on Sanitary and Phytosanitary Measures (SPS Agreement), both of which address health and safety concerns. We omit these because the exception in GATT XX(d) is more appropriate for this situation and, in any event, to the extent the other exceptions might apply the reasoning would be quite similar to the discussion of GATT XX(d).
115. See, e.g., Appellate Body Report, European Communities- Measuring Affecting Asbestos and Asbestos-Containing Products, ¶ 100, WT/DS135/AB/R, (Mar. 12, 2001) [hereinafter Appellate Body Report, EC-Asbestos], available at http://www.worldtradelaw.net/reports/ wtoab/ec-asbestos(ab).pdf; Appellate Body Report, Korea- Measures Affecting Imports of Fresh, Chilled and Frozen Beef, ¶¶ 135-36, WT/DS161/AB/R, WT/DS169/AB/R, (Dec. 11, 2000) [hereinafter Appellate Body Report, Korea-Various Measures on Beef], available at http://www.worldtradelaw.net/reports/wtoab/korea-beef(ab).pdf.
116. Appellate Body Report, Korea-Various Measures on Beef, supra note 119, at ¶¶ 162-63.
117. Indeed, one of the reasons that the production lever works poorly for imports is that the trading rules generally do not allow importing states to demand specific production methods.
118. Appellate Body Report, EC-Asbestos, supra note 120, ¶ 172 (2001) ("In this case, the objective pursued by the measure is the preservation of human life and health .... The value pursued is both vital and important in the highest degree.").
119. GATT, supra note 118, at art. XX.
120. Importantly, to be compliant with the trading rules, the use of discriminatory regulation must be used only when other alternatives are not available. Thus, for example if reliance on foreign regulatory systems will achieve a state's safety objectives, discriminatory regulation may well be forbidden by WTO rules. Similarly, if the safety of domestic production is determined by outcome-based regulation, and if that outcome-based regulation can be applied to foreign production, there is no justification for discriminatory regulation under either our proposal or the rules of international trade. Using the language of the WTO, discrimination in penalties would not be "necessary" in that context.
121. Readers with some familiarity with the WTO system might wonder why the Agreement on the Application of Sanitary and Phytosanitary Measures (known as the "SPS Agreement") is not discussed. The SPS Agreement deals with measures put in place to protect against risks arising, inter alia, from "additives, contaminants, toxins or disease-causing organisms in foods, beverages or feedstuffs," and "disease carried by animals, plants or products thereof, or from the entry establishment or spread of pests." SPS Agreement, Annex A.l.b-c. Though some of the safety concerns that are relevant to our discussion might fit within these definitions, we are interested in a much broader array of potential safety concerns. To the extent that a measure does meet the definition of an SPS measure it would have to be consistent with the SPS agreement. The requirements therein, however, are similar to those present in GATT XX(d), and would be satisfied for essentially the same reasons as are discussed in the context of that exception.