Just when you thought it could not get any worse on the regulatory front, on the eve of the New Year, PHMSA released another clarification on its fireworks approval policy. In the process, it appears that PHMSA has both upended and compromised certain accepted industry practices of businesses located in the United States and, at the same time, handed manufacturers located in China a distinct advantage.
PHMSA’s December 30, 2011 release attempts to respond to “questions” it received since the release of its prior clarification, dated June 29, 2011 (relating to cessation of the practice of issuing approvals to non-manufacturers). The questions, none of which were submitted by this author, apparently ask PHMSA to explain how it intends to implement the terms of its June 29, 2011 clarification “with respect to: (1) EX classification approvals with expiration dates; (2) applications from non-manufacturers that seek to add new items names to existing EX classifications approvals; and (3) applications from non-manufacturers that were denied prior to June 29, 2011. We have also received questions about our policy regarding the transfer of EX classification approvals, which were not addressed in the” June 29, 2011 clarification. Thus, a total of four subjects are discussed in PHMSA’s December 30, 2011 clarification and guidance:
As of December 30, 2011, all EX Approvals with expiration dates will expire by no later than December 31, 2015, and some will begin to expire as early as January 1, 2013, unless something is done to stay the dates of execution.
As of December 30, 2011, only the manufacturer (or its designated agent) may request adding fireworks devices to an existing EX approval (maintained by the manufacturer), and all others must submit a new application for EX approval but through a manufacturer only.
As of December 30, 2011, all applications that had been re-submitted by non-manufacturers due to a previous denial occurring before June 29, 2011 are, essentially, null and void.
As of December 31, 2011, EX Approvals are non-transferable; accordingly, they cannot be acquired through sale for value, or exchange, merger or acquisition. Additionally, PHMSA reserves the right to penalize any manufacturer using an EX approval that it had obtained from a third-party; instead, the manufacturer must submit an entirely new application for the fireworks device and, presumably, obtain a new EX approval. Woe is the person that had paid value for EX approvals since they are effectively rendered worthless by the PHMSA edict; your only recourse may be a claim for recission of all or a portion of the applicable contract of sale.
Readers of this column are not likely to have been surprised by PHMSA’s actions by virtue of the fact that Fireworks Business first began publishing articles on this topic as far back as November 2010; it has been on the radar for some time and many readers, correctly and wisely, made appropriate preparations well in advance of June 2011. PHMSA’s clarifications, however, may be a rude wake-up call for those individuals that operate under the principle that it is lawful to engage in a course of conduct whenever the law does not prohibit it; wise counsel would advise you otherwise.
It is this author’s opinion that PHMSA’s December 30, 2011 “document” appears in many respects to be an amplification of, as opposed to a strict clarification to, current policy relating to fireworks approvals. This is a distinction with a difference. A clarification implies a nexus, or connection, between the two subjects. Here, for instance, the status of non-manufacturers in terms of obtaining approvals is a consistent topic throughout the June 29, 2011 and the December 30, 2011 documents. However, the topics of the newly-described regime relating to expiration dates of EX approvals, as well as the determination of non-transferability, was neither previously discussed nor mentioned, and its introduction as of December 30, 2011 effectively eviscerates any leverage and expectation of value the industry had associated with ownership of EX approvals.
Further, PHMSA’s current policy for fireworks approvals greatly favors Chinese manufacturers at the expense of US industry, without justification and reasonable compensation. Accordingly, the manner and timing of this taking, through PHMSA’s actions, mandates closer examination by interested affected parties, to the extent that PHMSA’s actions may be found to be arbitrary and capricious and may be set aside. It appears from PHMSA’s clarifications that the custom and practice of the fireworks industry to
work cooperatively with the executive branch is not a rewarding endeavor and, given its preoccupation with the upcoming elections, the legislature is now too distracted to merit consideration, leaving only the judicial branch for a fair adjudication, if any, of the merits of the issues. Caution: Equity aides the vigilant, not those who slumber on their rights, according to a well-worn legal maxim (legal remedies).