Over the past couple of months, China’s response to expanding concerns over the safety of products manufactured there has ranged from the execution of the former head of China’s food and drug administration, to a complete disavowal of any responsibility for enforcing foreign standards.

The latter is evident in a quotation that caught my eye in an Associated Press article, “Toys just 1 danger imported from China,” published on August 18th in response to Mattel’s latest announced recall of 19 million toys manufactured in China. When the China National Light Industry Council trade group hosted a panel on toy standards, Zhang Yanfen, secretary of the panel, claimed that “the quality of Chinese-made toys with American brands should be the responsibility of the American brand owner, not the Chinese manufacturer.”

But if that is the case, why has a company like Mattel, a leader in its industry with respect to setting and overseeing health, safety and environmental standards, been forced to recall millions of children’s toys due to lead paint and other safety issues?

BusinessWeek’s August 15th article, “The China Code,” on the safety of goods manufactured abroad presents some eye-opening statistics along with an excellent discussion of the issues. For instance, US product recalls have increased by approximately 85% since 1990.

According to the Associated Press article, lax enforcement at the local level and the presence of a “thriving underground industry” mean that tightening standards at the national level may have little effect on goods manufactured in China.

Further complicating the issue is the widespread use of third- and fourth-tier sub-contractors. So while companies like Mattel might be vigilant about their subcontractors, they might not be aware or capable of monitoring their sub-contractors’ sub-contractors.

Gaining the cooperation of not just national, but local officials in countries like China is clearly a crucial part of ethical standards enforcement. If countries like China want to continue to attract foreign manufacturing jobs, ensuring the compliance of ethical standards will become a necessity.

Otherwise, costly product recalls, consumer lawsuits, increased monitoring and testing costs, and incalculable damage to companies’ reputations will siphon off much of the profits to be had from seeking a low cost manufacturer in a country with poor enforcement of standards.

Seeking redress from Chinese companies through US courts for these costs is also highly unlikely given that these decisions are often unenforceable in China, creating a big financial risk to US companies.

So how will US companies carry out the responsibility for setting and monitoring health and safety standards for products manufactured outside of the US?

Answering this question will be a crucial step in ensuring the safety of products manufactured outside of the US in a number of industries ranging from food to toys to consumer staples.

And as the controversies surrounding Chinese manufactured goods continue to heat up as retailers head into the critical back-to-school and holiday buying seasons, companies that have not taken advantage of low-cost manufacturing in countries like China may be looking at a significant competitive and cost advantage.

For the related topic of lead exposure in children, I recommend Darshak Sanghavi’s excellent article, “Getting the Lead Out,” Published on August 21, 2007.