A new law has turned billions of dollars worth of inventory into unsalable junk and a headache for retailers. The Consumer Product Safety Improvement Act, which passed last year and went into effect on February 10, was supposed to assure consumers that products for kids contain only safe levels of lead and phthalates (a component of plastic). Instead, the new law’s more rigorous standards may leave consumers looking at empty shelves. That’s because the standards apply not only to newly manufactured items, but to existing inventories, too. Merchants, afraid of being hit with newly bolstered criminal penalties for non-compliance, are now discarding the merchandise on their shelves. At the blog Overlawyered, Walter Olson tracks the daily reports of impacted retailers, which include bookstores, dealers of kids motorcycles and ATVs, consignment shops, thrift stores, craft suppliers, and toy dealers. The law will even apply to ballpoint pens intended for use by children. Some shops are shutting down. A trade association estimates that the law will yield $1 billion in lost inventory for dealers of kids motorcycles and ATVs alone.

In addition to creating rigorous new standards, the law also mandates that new products be tested for lead and phthalate content by third parties. Each item must also be stamped with a lot number. Small manufacturers and makers of handcrafted items argue that complying with the lot-number and testing requirements would be prohibitively expensive and force them out of business. Recognizing how draconian these requirements could be for some manufacturers, the Consumer Product Safety Commission voted to put off the law’s testing and certification requirements until February 2010 for a number of products, including toys and garments. Still, the requirements have caused German toymaker Selecta to pull out of the U.S. market. Selecta, which complies with European standards on phthalates, says compliance with the U.S. standards would cause a 50 percent increase in the price of its products. Honda, Kowasaki, and Yamaha have also announced they will stop selling motorcycles and ATVs for kids in the U.S. market. Olson comments: “of all the imaginable safety hazards posed by the existence of youth motorcycles and ATVs, the danger that kids will eat the darn things must rank at the very bottom.”

The CPSC has also advised bookstores to remove any books published prior to 1985, because the inks commonly used before that time contained too much lead. The law would especially impact book mongers whose stock is more likely to contain older volumes, such as second-hand dealers, Internet sellers, and libraries. The American Library Association has announced that unless the CPSC says otherwise, it will assume the law does not apply to libraries. Olson thinks CPSC will have to tell the ALA otherwise, since “the law bans the ‘distribution’ of forbidden items, whether or not for profit.” Unless an old title is still in print, destroying it means making that title extinct. The testing requirements may also make publishing in small lots uneconomical, which would undercut publishers’ print-on-demand efforts to keep more titles in print.

Congress had scheduled a hearing this week to listen to concerns about the law, but cancelled the event. Olson speculates: “Someone must have realized that letting people from around the country get in front of a microphone and talk about the effects of this law would not exactly do wonders for the image of Henry Waxman, Public Citizen, PIRG, or Consumer Federation of America.”

CHECK Overlawyered for daily updates on the Consumer Product Safety Improvement Act.