Toymaker Joe Sharp is worried his small business won't be able to untangle complicated new CPSIA rules and afford the compliance costs. A T-Rex teething ring from the Sharps' line of handcrafted toys. Quick Vote Are you cutting back on spending due to rising energy prices? Yes

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WASHINGTON (CNNMoney.com) -- For toymakers, the world changes on Aug. 14. That's the day a new regulation takes effect that small manufacturers say could force them out of business.

"I hear gut-wrenching stories every day, like the soldier's wife who doesn't think she can continue her homemade doll business or the Native American women who are worried that they'd run afoul of the law if they continue to make handcrafted authentic clothing for Native American children," says Rosario Palmieri, vice president of regulatory policy for the National Association of Manufacturers.

Last year, in the wake of several high-profile toy recalls, Congress passed the Consumer Product Safety Improvement Act (CPSIA). Intended to ensure that children's products are free of lead and toxic chemicals, the law has been taking effect in phases -- and each new rule that kicks in brings with it a raft of unintended consequences.

Amy Sharp is exactly the kind of parent the law is intended to reassure. Two years ago, she made multiple treks to the post office to return 10 lead-tainted Thomas the Tank Engine toys to their manufacturer -- toys her young son had repeatedly put in his mouth. The experience prompted Amy and her husband Joe, a trained carpenter, to launch a line of natural wooden toys for babies. Their venture, Little Alouette in Columbus, Ohio, has built a loyal fan base and helps keep the Sharps afloat financially.

But now the Sharps are worried that their popular Harper the Hippo teether will go the way of the dodo.

"We don't think the entire law is a bad law, but we are a small and new business," Amy Sharp says. "When it comes down to these testing and labeling expenses, we don't think we'll be able to thrive. I started this company to provide a safe alternative to mass junk out there, and here I am having to prove myself. It's definitely a monetary issue."

New rules

The Sharps are just two months away from a deadline Amy says could force their two-person shop to shutter. In mid-August, a new provision takes effect that requires children's products to carry a permanent label or mark with manufacturing details. The label is intended to ease recalls, but many toymakers are frustrated by the new requirement's rigidity and complexity. The Sharps don't fully understand the convoluted regulation and aren't sure they'll be able to absorb the costs of compliance.

Too many questions about implementation remain unaddressed by the law's overseer, the Consumer Product Safety Commission, critics say.

"What if it's a product that uses a lot of pieces and you decorate it yourself?" asks Palmieri of National Association of Manufacturers. "What if it's a screen printed t-shirt where someone makes the t-shirt but then someone else decorates it and then someone else sells it -- who's responsible for the labeling?"

"There's some critical questions that CPSC needs to answer on tracking labels," said Jonathan Gold, a vice president with the National Retail Federation. "The concern is that if a business goes off and does take some action, it might end up being wrong, and ultimately [incur] a penalty."

For toy manufacturers and sellers, this latest skirmish feels like d�j� vu. Earlier this year, the industry and the Consumer Product Safety Commission had a showdown about the CPSIA's stringent new lead testing and certification rules, which were slated to take effect in February. The backlash against the requirement was so strong that the CPSC backed off and delayed enforcement of its rule's most controversial aspects for another year, postponing them until February 2010.

Industry groups hoped for a similar stay on the labeling requirement, but the CPSC last month turned down a delay request made by a coalition of retailers and manufacturers. For now, Aug. 14 remains D-day.



Changing of the guard

That could change as the commission prepares for new leadership. Commissioner Nancy Nord stepped down as chairman June 1 after a four-year run as the organization's leader. She plans to continue as a CPSC commissioner until her term expires in 2012. Commissioner Thomas Moore is the group's acting head until the Senate confirms Inez Moore Tenenbaum, a former South Carolina superintendent of education picked last month by President Obama to lead the troubled agency.

While still the agency's chair, Nord told lawmakers that implementing the CPSIA law has been a "tremendous challenge" to the commission's 450-person staff because of the aggressive timetable. Congress's own analysts sounded an earlier warning: In a 2007 report, the Congressional Budget Office cautioned that implementing such sweeping legislation would impose significant new costs on manufacturers of children's products and on mom-and-pop shops.

But more help is on the way. The Obama administration requested that the agency receive $107 million in fiscal 2010, a big bump up from the $80 million it got in 2008 and a 71% increase from its fiscal 2007 levels. The legislators who wrote CPSIA, which was signed into law by then-President George W. Bush, had requested a funding level of $118 million for fiscal 2010.

Obama also announced his intention to expand the number of CPSC commissioners to five from three. Right now, one of those three spots is vacant, leaving critical judgments to be made by the slenderest margins -- the decision not to postpone the labeling requirement was a 1-1 vote, with the tie leading to the measure's defeat. In addition to Tenenbaum, Obama has nominated Robert Adler, currently a professor of legal studies at the University of North Carolina, to become a commissioner.

Barring more time, manufacturers are hoping for clearer rules to follow. A House Small Business Committee panel held a hearing last month at which a parade of witnesses criticized the CPSC's opaque communications.

"As entrepreneurs struggle in the current economic climate, the vagueness of important CPSC guidelines have left businesses in limbo," said Jason Altmire, D-Pa., chairman of the committee's investigations and oversight group.

Atlanta-based Tiffin Mills is among those who feels at sea. Mills sells lighting fixtures made out of vintage lamp parts though her online shop, LinwoodAvenue.com, and through Etsy, an online craft marketplace that has been a nexus of anti-CPSIA backlash. Mills has tried to understand the new rules but been frustrated by the "high-end legalese" of their wording.

"Everyone is getting their information from other crafters' interpretations," she said. "There's not much information from experts out there."

As the CPSC scrambles to pull together that information, small business proponents are looking for leadership in bringing the letter of the law more in line with its spirit.

"A lot of small businesses are asking Congress to refine the law," said Linwood Rayford, an assistant chief counsel at the SBA Office of Advocacy. "Nobody is saying this is a bad law, they're just saying it's overly comprehensive and too many people are caught in the net."

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