Chinese Drywall Maker Held Accountable without Congressional Meddling

This summer, the House Energy and Commerce Committee approved a bill that would require foreign companies that import goods to the United States to appoint a legal representative in the United States who could be sued if their products caused injury. Exhibit A in the push for the bill was the case of contaminated drywall from China.

Advocates of the bill, titled the “Foreign Manufacturers Legal Accountability Act,” say it is necessary to ensure compensation for American consumers injured by faulty foreign-made products. Without a designated domestic agent, foreign companies could escape liability by dodging efforts to serve them with papers in a lawsuit. Hearings earlier this year highlighted the case of the drywall, in which damaged homeowners were finding it difficult to sue the Chinese producer.

The trouble with this approach, as my colleague Sallie James and I pointed out in a recent Cato Free Trade Bulletin, is that it would impose an additional burden on importers without adding significantly to the ability of consumers to gain compensation. We argued that sufficient remedies exist without adding a new law that looks suspiciously like a non-tariff trade barrier designed to protect U.S. manufacturers from foreign competitors.

As Exhibit A on our side, it was announced this week that a group of affected homeowners has struck a deal with the Chinese drywall company for compensation. As The Wall Street Journal reported in today’s edition:

Knauf Plasterboard Tianjin, along with suppliers and insurers, agreed to remove and replace the company’s drywall, as well as all the electrical wiring, gas tubing and appliances from 300 homes in four states.

They also agreed to pay relocation expenses while the houses, in Alabama, Mississippi, Louisiana and Florida, are repaired. The cost of fixing the houses, expected to take several months, is estimated from $40 to $80 per square foot per home. At $60 per square foot for a 2,500 square-foot home, the cost would be about $150,000.

Although the settlement involves a fraction of the homeowners who have file claims over the past few years, it is seen as a possible model for the resolution of other pending state and federal lawsuits …

The deal for compensation shows that the existing system works reasonably well for foreign-made as well as domestic-made goods. Congress should give up its efforts to place needless obstacles in the way of imports in the name of solving a problem that does not exist.