Economy

What lies beneath

How Chinese-sourced products floored a US firm

Traders wait for shares of Lumber Liquidators to begin trading on the floor of the New York Stock Exchange

Liquidating their stock positions

What do the following everyday items exported by China to the US have in common: kohl mascara, dry-walling, electronic batteries, car tyres, toothpaste, toys, frozen fish, fruit juice and pet treats?

The answer is that they have all been the subject of US government product warnings or bans because they were faulty or contained health-threatening chemicals and additives.

The latest item to be added to the list is laminated floor-boarding. Lumber Liquidators, America’s largest retailer of hardwood flooring, has seen its share price decimated over the past three months following an exposé by CBS on Chinese-sourced products.

In March, the programme 60 Minutes tested 31 laminated board samples from China at five locations across the US. Only one was found to be compliant with the California Air Resources Board (CARB) labelling they had all been using.

Some of the samples contained 13 times more formaldehyde than the CARB standards. When questioned by undercover reporters, officials at three Changzhou-based factories admitted they had been deliberately using false labelling to legitimise their products.

At issue is the amount of formaldehyde the factories were using as a bonding agent in the underlying fiberboard and in the glues, which bond multiple layers together to create laminated flooring. Formaldehyde is classified as a volatile organic compound because it emits a vapour when it reaches room temperature. Scientists say the vapour is a carcinogen, which can trigger asthma and even cancer over the longer term.

Lumber Liquidators initially dismissed the CBS claims, counter-arguing that 60 Minutes had used an improper testing method.

However, it was soon dispatching 13,000 kits so that worried customers could test the air quality in their homes.

At the time of its first quarter results in late April, Lumber Liquidators revealed it had spent more than $15 million dealing with the issue, leading to a net loss of $7.8 million. One month later it was also facing a Justice Department investigation and lawsuits from more than 100 individual claimants. Its CEO Robert Lynch then resigned over the fiasco.

As of early June, the company’s share price had fallen nearly 70%, while sourcing of Chinese laminated flooring products had been cut back from 52% to zero. In a statement it said: “Despite the initial air quality testing results we have received, we believe it is the right decision to suspend the sale of these products.”

China’s newspapers have reacted with dismay to the latest safety scandal. The Chinese Herald says it is awful that a company, which had been “flourishing for two decades,” has now been “poisoned because of its business dealings with China”.

And yet the unfolding saga also highlights an issue besetting the American political system as well – the power of lobbyists. For as the New York Times points out, the US government has been well aware of the potential dangers posed by formaldehyde since Hurricane Katrina in 2005.

Residents from Florida and Louisiana that had been evacuated to hastily built trailers soon started complaining about respiratory problems and burning eyes.

Tests subsequently confirmed high levels of formaldehyde and led to California’s restrictions on the amount of the chemical that could be used in building materials.

In 2010, public health advocates wanted the Environmental Protection Agency to issue federal rules mirroring those from California. But it has yet to do so after numerous attempts to block the changes.

The New York Times cites the role of Louisiana Senator David Vitter, or Senator Formaldehyde as some environmental groups have called him. The paper says his re-election campaigns have been funded by donations from the chemical industry and that he is well known for arguing against any link between the compound and cancer.

America thus lacks nationwide legal restrictions on the amount of formaldehyde that can be used in flooring and furniture materials. But as the Chinese Herald concludes it does at least have “the power of media supervision”.


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