Toy Safety: Phthalates Still Problematic, Lead Under

UNCLAS SECTION 01 OF 02 GUANGZHOU 000315

SENSITIVE
SIPDIS

STATE FOR EAP/CM, EAP/EP, EEB/TPP
STATE PASS CONSUMER PRODUCTS SAFETY COMMISSION RICH
O'BRIEN /INTL PROGRAMS
STATE PASS USTR CHINA OFFICE
STATE PASS HOMELAND SECURITY COUNCIL
STATE PASS IMPORT SAFETY WORKING GROUP


E.O. 12958: N/A
TAGS: ETRD EIND TBIO ECON PGOV CH HK
SUBJECT: Toy Safety: Phthalates Still Problematic, Lead Under
Control

REF: A) HONG KONG 649; B) 2008 GUANGZHOU 618; C) 2008 GUANGZHOU 225;
D) 2008 GUANGZHOU 146

(U) This document is sensitive but unclassified. Please protect
accordingly. Not for release outside U.S. government channels. Not
for internet publication.


1. (SBU) Summary: Supply chain security is still the biggest
challenge for the south China toy industry, Hong Kong-based owners
of two top-tier toy manufacturers told Congen Hong Kong and Congen
Guangzhou officers in their Pearl River Delta factories. Phthalates
(an ingredient that increases plastic flexibility) have proven
difficult to eliminate from toy components, even as lead
contamination - the reason for the massive toy recalls of 2007 - has
become less of a concern for manufacturers. Product testing costs
continue to escalate, with some western brand owners asking Chinese
suppliers to set up internal testing laboratories and increase
testing during the manufacturing process. Toy makers said they are
most concerned about inconsistent U.S. state and federal laws as a
threat to their long-term compliance efforts. End summary.

Supply Chains Remain Greatest Risk
--------------


2. (U) Eliminating phthalates from toy manufacturer supply chains is
an ongoing challenge, according to representatives of a top-tier
Hong Kong-owned toy producer in Shenzhen. Toy makers told Congen
Hong Kong and Congen Guangzhou econoffs on a joint reporting tour of
Hong Kong and Guangdong testing facilities and factories that it had
not been difficult to adapt the production process to phthalate-free
materials, but finding suppliers who could provide the materials had
been more challenging. (Note: Discussions with testing companies in
Hong Kong will be reported septel by Congen Hong Kong. End note.)
Because the six phthalates in question are widely used in plastic
and other components across a range of manufacturing industries, the
company's ability to verifiably eliminate the ingredient from supply
chains has been more difficult than originally predicted. The
company's product safety manager said she was surprised to find
phthalate contamination in fabrics and other non-plastic components,
leading major toy companies to broaden the scope of their supplier
and safety testing requirements for these substances.


3. (U) Lead is no longer a major threat, according to the same
executives. They said that the major recalls that took place in
summer and fall of 2007 led to dramatic changes in both supply
chains and manufacturing processes. The risk of lead-related
problems is low among top-tier producers which have robust quality
control procedures. Paint suppliers have received the greatest
attention, including stringent supply chain control protocols and a
redundant testing system; moreover, lead has been eliminated or
reduced to government-mandated levels in electronic parts and other
toy components as well.

Increased Testing Costs and Complexity
--------------


4. (SBU) According to a top-tier toy supplier based in Dongguan, one
of Guangdong Province's major manufacturing centers, toy testing
costs have increased "10-fold" in the last two years. Toy makers
are conducting a higher aggregate number of tests in order to meet
government-mandated (China and destination countries) certification
requirements; there are also duplicative testing requirements
required by foreign buyers and toy brand owners. Executives said
the newest trend was for brand owners like Mattel and Hasbro to
request that original equipment manufacturers (OEMs) set up internal
testing labs and build more testing procedures into each step of the
toy production process.


5. (U) Both manufacturers visited by econoffs demonstrated the use
of their most expensive piece of testing equipment, the Inductively
Coupled Plasma (ICP) Optical Emission Spectrometer, which they
described as a USD 250,000 analysis machine that is often required

GUANGZHOU 00000315 002 OF 002


by western brand owners. Executives said the high fixed costs of
the ICP machine means that they spend a bit more upfront but are
able to set up a comprehensive internal testing lab that is actually
not much more expensive. The Shenzhen factory representatives said
their lab began operating a few months ago and subsequently applied
for certification by the China National Accreditation Service (CNAS)
for conformity assessment. Chinese certification will help enable
them to reduce outside testing.


6. (U) By reducing outside testing during the manufacturing process,
in-house labs can also cut costs and reduce production delays. They
emphasized that outside testing in accordance with government
regulations would continue, but pre-production testing and other
status checks could increasingly be handled by in-house labs in the
lead-up to final safety certifications from accredited third-party
laboratories.

Calling for Phased-In Enforcement
--------------


7. (SBU) The complexity of testing for six different restricted
phthalates, especially the substrate tests, is the greatest testing
challenge for manufacturers right now, according to the Hong
Kong-based toy executives. They complained that surface tests for
phthalates should have been enforced for a period of time before
requiring a comprehensive ban on both surface and substrate
phthalates. The executives claimed that a stay of enforcement for
substrate phthalates, as has been used for certain other children's
products, might be an acceptable alternative while the toy industry
fully implements the new safety requirements. Manufacturers said
they had no choice but to comply with the current regulations, but a
phased-in approach would help industry adapt more easily.

State Laws Scare Toy Businesses
--------------


8. (SBU) Illinois Public Act 095-1019 is one example of new state
laws that require toy companies to comply with quality standards
that are stricter than federal U.S. regulations, a situation that
Hong Kong-based executives said is their source of greatest concern
right now. According to the law, which will take effect on January
1, 2010, children's products sold in Illinois and containing more
than 40 parts per million (ppm) lead content must include a special
warning label about lead content. Manufacturers are concerned that
the Illinois lead limit is less than half the allowable limit in the
Consumer Product Safety Improvement Act (CPSIA). They fear a
growing number of state laws and regulations that differ from CPSIA
would make it difficult for companies to fully comply with each
jurisdiction's regulations.


9. (U) This cable was coordinated with Consulate General Hong Kong.


GOLDBERG