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I am sorry to hear about the concerns you are experiencing. It is not out of the ordinary for a 3 year old child to not be potty trained yet. Thoughts have changed about potty training over the years. Keep in mind that the more pressure he feels about this the more he may resist. Ideally potty training should be your grandson's accomplishment, not something he is forced into. All efforts at potty training should be positive; praise him when he is successful, make a game out of it, give attention when he is doing what you want (sitting on the potty), and give little attention (be very matter of fact) when he has an accident. Remember that any behavior that gets attention is likely to keep repeating. You and his parents may find the books by Dr. T. Berry Brazelton to be very helpful. He has a wonderfully child centered and caring style with good advice about potty training. Brazelton says, "Don't rush your toddler into toilet training or let anyone else tell you it's time. It's got to be his choice."
While you may not agree with his parents' philosophy about toilet training, the wonderful thing about being a grandparent is that you can refuse to change diapers or pull ups and leave the work of parenting to his parents while enjoying the fun things with your grandson. I hope this answer is helpful. Please let me know if I can clarify further.
Would it not be appropriate to just take him into the bathroom and sit him on the potty every half hour or so? He doesn't put up any resistance to this and sometimes he pees or poops, which seems to be something they could try when I'm not there to do it. We always praise him when he does either one and he seems very proud of himself and we give him a small treat. I think that's how I trained my 4 a long time ago, altho I didn't use treats. I think we have to train ourselves to remember to do this so he just gets in the habit of feeling good about his successes. It does bother me a little when they talk to him like a baby, calling it a "diapey", altho I've never mentioned this to them.