Kayla has done a fabulous job breaking down the Safe Cosmetics Act of 2011. We are starting at the end of the bill and working our way to the beginning. Here is the post that breaks down SEC 612 Registration of Establishments and Registration Fees.
NOTE: All Plain Text is directly from H.R. 2359 as it is written and Green is my commentary
‘‘SEC. 612. REGISTRATION OF ESTABLISHMENTS AND REGISTRATION FEES.
‘‘(1) IN GENERAL.—Beginning 1 year after the date of the enactment of this subchapter, and annually thereafter, any establishment (except for micro-businesses) engaged in manufacturing or packaging cosmetics for use in the United States shall register with the Secretary and pay to the Secretary the applicable fee, as established under the fee schedule in subsection (e).
I know this micro-business exception was added since the last draft of this bill, however, I fully expect this to be lobbied against by big businesses. I seriously doubt this exception will remain after final mark-up. It was added to gain the public support of small businesses for this new bill. It will thoroughly divide our industry and pit big against small, instead of all of us working together to defeat this unscientific piece of legislation. I watched the Food Safety Modernization Act of 2011 do the exact same thing within the food industry and now you can see how food prices are being impacted by the additional regulation they face.
This concession to the very loud, very powerful social media engine of the small business industry was simply added to get cheers and accolades from all of us. But I’m not cheering.
Here are the problems:
It pits small business against big business.
Leaves small business open for criticism down the road from the EWG, CFSC and big businesses for being the only unsafe cosmetics on the market because small business now become the new “wild west” of unregistered cosmetics on the market place.
Leaves small businesses without the instantly updated information on the safety of ingredients that all the registered business will have automatically sent to them.
Gives consumers that impression that big businesses make safer cosmetics.
Big and small businesses will all have to comply with all the rest of this bill and none of it is good for business, consumers or the size of government.
Will drastically raise the price of ingredients for all businesses whether they register or not because the manufacturer of the ingredient will have to pass on cost of registration and fees to their customers who in turn will pass it on to theirs.
Will drastically raise the cost of cosmetics to the consumer.
Cosmetics already have an incredible safety record and these regulations will do nothing to improve upon them but instead becomes a funding vehicle for the FDA and nothing more.
‘‘(2) RULES FOR DOMESTIC AND FOREIGN ESTABLISHMENTS.—To be registered under paragraph
‘‘(A) as a domestic establishment, the owner, operator, or agent in charge of the domestic establishment shall submit a registration to the Secretary; or
‘‘(B) as a foreign establishment, the owner, operator, or agent in charge of the foreign establishment shall—
‘‘(i) submit a registration to the Secretary; and
‘‘(ii) include with the registration the name of the United States agent for the foreign establishment.
‘‘(3) NEW ESTABLISHMENTS.—Any establishment that begins to manufacture or package a cosmetic after the date on which the requirements of paragraph (1) apply shall, not later than 60 days after the date on which the establishment began to manufacture or package such cosmetic, register with the Secretary and pay the applicable fee, as required under paragraph (1).
How does a new establishment have 2 million dollars in sales within the first 60 days of beginning to manufacture or package? If you project that your sales will be under 2 million and then in March or April when your accountant finishes your taxes and you went over 2 million are you in trouble for not registering within 60 days?
Who is going to police all of this? How big will the FDA need to be to do so? How much will this cost the taxpayers to create? And we are just at the early part of what the FDA will need to do. Based on this bill, the FDA will need to hire scientics and more inspectors to be able to enforce these regulations. This is government growing bigger with no real benefit to the people, just more out of everyones pockets.
‘‘(b) SUBMISSION OF REGISTRATION.—
‘‘(1) IN GENERAL.—In order to register under subsection (a), an establishment (referred to in this section as the ‘registrant’) shall submit to the Secretary, with respect to any cosmetics that the establishment manufactures or package, all of the following:
‘‘(A) Any information necessary to notify the Secretary of the name, address, and legal status of each establishment at which, and all trade names under which, the registrant manufactures or package cosmetics.
‘‘(B) A description of the establishment’s activities with respect to cosmetics, including a list of all cosmetic products manufactured or packaged by the establishment and the functions of such cosmetics.
For private label and contract manufacturing companies this will be a massive amount of paperwork requiring more people to handle the work load and thereby driving up prices. In addition to the paperwork it will force them to break non-disclosure agreements.
‘‘(C) The gross receipts or sales for the establishment from cosmetics.
‘‘(D) The name and address of any company that supplies the establishment, if the establishment manufactures cosmetics, with any ingredient and the name of the ingredient supplied to such establishment by such supplier.
Private businesses will be required to disclose their supplier sources to the government and pray that there never is a WikiLeaks sort of breach in the security at the FDA of their confidential, proprietary information. It is enough for the government to know that a cosmetic company buys and uses a given ingredient that is identified by INCI name and CAS#. They do not need to know our sources too.
And what about the fact that most manufacturers have multiple sources for raw materials that are constantly changing. Think of a million cosmetic companies submitting just 20 ingredients, 3 suppliers per ingredient that are changed or added to each year. That equates to hundreds of millions of changes per year for just one part of this overreaching legislation. They don’t have enough bodies or money to handle just this one new aspect of control.
‘‘(2) NOTIFICATION OF CHANGES.—When submitting the annual registration, the registrant shall notify the Secretary of changes to the information described in paragraph (1).
‘‘(c) PROCEDURE.—Upon receipt of a completed registration submitted under subsection (a), the Secretary shall notify the registrant of the receipt of such registration and assign a registration number to each registered establishment.
‘‘(d) LIST OF REGISTERED ESTABLISHMENTS.—
‘‘(1) MAINTENANCE OF LIST.—The Secretary shall—
‘‘(A) compile, maintain, and update as appropriate, a list of establishments that are registered under this section;
‘‘(B) make such list publically available; and
‘‘(C) remove from such list the name of any establishment that fails to register in accordance with this section.
‘‘(2) APPLICATION OF FOIA.—
‘‘(A) REGISTRATION DOCUMENTS.—Any registration documents submitted pursuant to this section shall not be subject to disclosure under section 552 of title 5, United States Code.
‘‘(B) OTHER INFORMATION.—Information derived from—
‘‘(i) the list under paragraph (1); or
‘‘(ii) registration documents submitted pursuant to this section, shall not be subject to disclosure under section 552 of title 5, United States Code, except to the extent that such information discloses the identity or location of a specific registrant.
You can read the FOIA the Freedom of Information Act here.
‘‘(e) FEE SCHEDULE.—A schedule of fees shall be developed by the Secretary to provide for oversight and enforcement of this subchapter. The fee structure shall—
‘‘(1) be prorated based on the establishment’s gross receipts or sales; and
‘‘(2) only be assessed on companies with annual gross receipts or sales of cosmetics that exceed $10,000,000.
The fee is based on a percentage of gross sales. So if a $10 million company has to pay 1% of gross sales annually in a fee that would equal a $100,000 fee per year. I know of a local company here that did $80 million in sales last year and barely cleared $80,000 in profit. In this model that $80 million at 1% would be $800,000 — if it was 0.1% it would be $80,000 so barely break even.
A fee that is based on gross sales is dangerous because it doesn’t take into account the COGS or expenses of the business. If there is going to be a fee it needs to be based on net profit or a fixed scale that is set in advance like PCPC or ICMAD offers to their members. Recently in Oregon the voters passed a bill that added a new extra fee/tax based on gross sales and companies have been going out of business or fleeing Oregon ever since. But the neighboring city across the river in Washington state is seeing an increase in new businesses, jobs and tax revenue. Of course those that championed that bill still see no connection there.
Assessing a fee on gross receipts without subtracting the cost of doing business is a business killing fee, it is a not so well hidden sales tax. Businesses go through ups and downs and accessing an additional fee on any size business could be crippling it especially in this economy which is expected to take 5 to 10 years to recover.
‘‘(f) SUSPENSION AND CANCELLATION OF REGISTRATION.—
‘‘(1) CRITERIA FOR SUSPENSION.—Registration under this section is subject to suspension if the Secretary finds—C:\DOCUMENTS AND
‘‘(A) the information submitted by the establishment for registration under subsection
(a) is incomplete, inaccurate, or out of date;
‘‘(B) the establishment fails to notify the
Secretary of changes required under subsection (b)(2);
‘‘(C) the establishment fails to pay registration fees, as required under subsection (a), in a timely manner; or
‘‘(D) the establishment violates any portion of this chapter.
‘‘(2) SUSPENSION OF REGISTRATION.—If the Secretary determines that an establishment is subject to suspension under subsection (f) and that it is appropriate to suspend the registration of such establishment, the Secretary shall—
‘‘(A) suspend the registration of such establishment; and
‘‘(B) provide a notice of suspension to such establishment.
‘‘(3) CANCELLATION.—If the establishment fails to correct the issue that resulted in the suspension under paragraph (2) before the last day of the 30-day period beginning on the date that the establishment receives notice under such paragraph, the Secretary may cancel the registration of such establishment.
Hope you don’t have a bad year and can’t pay your fees…or the FDA will be in the position to put you out of business. I understand that fees are part of the cost of doing business and that a fee for a trade organization that is optional and that offers a benefit for your company is one thing but forcing companies to pay a fee just because the government decides they want to grow is what some might call “taxation without representation”.
The fact is that this industry has done well policing itself for give or take 100 years and now that the world has began to change to a nanny-state mentality where the government must do everything for the people, we are now seeing them attack our industry because and only because they see dollar signs and low hanging fruit where they have not yet plucked dry.