Extension of Time; Comprehensive Review of ``Made in USA'' Claims

FEDERAL TRADE COMMISSION

Extension of Time; Comprehensive Review of ``Made in USA'' Claims

AGENCY: Federal Trade Commission.

ACTION: Extension of time for filing public comments.

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SUMMARY: The Federal Trade Commission (``Commission'' or ``FTC'') is

conducting a comprehensive review of ``Made in USA'' claims in product

advertising and labeling. As part of its review, the Commission invited

representatives of consumers, industry, government agencies, and other

groups to attend a public workshop to exchange views. On December 19,

1995, the Commission announced that the public workshop would be held

on March 26 and 27, 1996, and invited interested parties to file

requests to participate in the workshop. The Commission stated that it

would hold the record of the proceeding open until April 30, 1996, to

allow participants and other interested parties to submit clarifying or

rebuttal information. The Commission conducted the public workshop on

March 26 and 27, 1996. In response to requests by participants during

the workshop, the Commission extends the period for submitting

clarifying or rebuttal information.

DATES: Written comments will be accepted until June 30, 1996.

ADDRESSES: Six paper copies of each written comment should be submitted

to the Office of the Secretary, Federal Trade Commission, Room 159,

Sixth and Pennsylvania Avenue, N.W., Washington, D.C. 20580. To

encourage prompt and efficient review and dissemination of the comments

to the public, all comments also should be submitted, if possible, in

electronic form, on either a 5\1/4\ or a 3\1/2\ inch computer diskette,

with a label on the diskette stating the name of the commenter and the

name and version of the word processing program used to create the

document. (Programs based on DOS are preferred. Files from other

operating systems should be submitted in ASCII text format to be

accepted.) Individuals filing comments need not submit multiple copies

or comments in electronic form. Submissions should be captioned: ``Made

in USA Policy Comment,'' FTC File No. P894219.

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FOR FURTHER INFORMATION CONTACT: Beth Grossman, Attorney, Division of

Advertising Practices, Bureau of Consumer Protection, Federal Trade

Commission, Washington, DC 20580, telephone 202-326-3019, or Kent C.

Howerton, Attorney, Division of Enforcement, Bureau of Consumer

Protection, Federal Trade Commission, Washington, DC 20580, telephone

202-326-3013.

SUPPLEMENTARY INFORMATION:

I. Introduction

As part of a comprehensive review of its legal standard regarding

the use of unqualified ``Made in USA'' claims in product advertising

and labeling, on October 18, 1995, the Commission published a notice

soliciting public comments. The notice also stated that the Commission

would hold a public workshop at a date to be announced in a later

notice. 60 FR 53922. On December 19, 1995, the Commission announced

that the public workshop would be held on March 26 and 27, 1996, and

that the Commission would hold the record of the proceeding open until

April 30, 1996 for workshop participants and other interested parties

to submit clarifying or rebuttal comments on the issues discussed at

the workshop.

The workshop was conducted at the Commission's headquarters

building in Washington, DC on March 26 and 27, 1996. At the conclusion

of the workshop, several participants requested that the Commission

extend the deadline for submission of clarifying and rebuttal comments

to allow participants to work together on joint comments, feedback, and

possible proposals.

In light of the complexities of the issues presented, the

Commission has determined that an extension of the comment period is

appropriate. Therefore, to allow all interested parties the opportunity

to supply the Commission with additional written data, views and

arguments, the Commission grants an extension of the comment period to

June 30, 1996.

II. Alternative Standards Addressed During the Public Workshop

Participants in the workshop were invited to discuss the

Commission's current legal standard regarding the use of unqualified

``Made in USA'' claims, alternatives to the current legal standard, and

how domestic content claims should be measured under any future

standard. The heart of the workshop was the participants' discussion of

three primary options that emerged for standards regarding unqualified

``Made in USA'' claims: (1) the All or Virtually All Standard; (2) a

Percentage Content Standard (e.g., 50%); (3) and the Substantial

Transformation Standard.

Under the ``all or virtually all'' standard, sellers may label

their products ``Made in USA'' only if all or virtually all of the

component parts of their goods were made in the United States and all

or virtually all of the labor in assembling their goods was performed

in the United States. A ``percentage content'' standard is a cost-based

or value-added standard that focuses on the percent of domestic content

and labor of a particular good. Under this type of standard, a product

could be labeled ``Made in USA'' if it was made, for example, with at

least 50% domestic parts and labor. The ``substantial transformation''

standard is based on the U.S. Customs Service's test for the marking of

foreign goods. Substantial transformation occurs when, as a result of

processes performed in a particular country, a new article emerges with

a new name, use and character. Once the Customs Service considers an

article to be substantially transformed in the United States, the

article need not be marked with a country of origin.

III. Supplemental Questions for Comment

During the extended period for submitting written clarifying or

rebuttal information, the Commission invites interested parties also to

comment on the following supplemental questions. The Commission

appreciates that, in response to its October 18, 1995 notice, a number

of commenters submitted evidence of consumer perceptions in support of

their comments. In commenting on particular standards, definitions, or

approaches to ``Made in USA'' claims and on terms that might be used to

denote a lesser or different level of domestic content than a broad

``Made in USA'' claim, comments should explain how such standards,

definitions, approaches, or terms relate to consumer perceptions.

1. All or Virtually All Standard

A. At the workshop, some participants suggested that for the ``all

or virtually all standard'' to be practical, it would have to be more

clearly defined. One possible definition of ``all or virtually all''

that was suggested would require that marketers look only one step (or

two steps) back in the manufacturing process to determine the origin of

the components of a product, and would exclude raw materials. Would

that formulation be appropriate and practical? Would it provide

adequate guidance to marketers? What are the advantages and

disadvantages of such a circumscribed standard compared with simply

requiring that all or virtually all of the components and subcomponents

of a product be made in the U.S.? Are there other formulations that the

Commission should consider?

B. How far back in the manufacturing process is it appropriate to

look to determine the origin of the components or materials comprising

the product?

i. What constitutes a ``step'' back in the manufacturing process?

ii. Is there a single definition of a step back that can be used

across products or industries?

iii. Is the nature of a step back different for products that are

comprised of separate components than for products that do not have

separate parts but instead go through stages of processing?

iv. Does how far back it is appropriate to look depend upon the

nature of the product, e.g., whether the product is simple or complex?

v. If the Commission were to adopt an ``all or virtually all''

standard, would it be appropriate to permit marketers to look only one

step back in determining the origin of components? Are there products

for which this approach would mask a significant amount of foreign

content? If so, what products or types of products? Alternatively, is

there a point in the production process, e.g., one step, two steps, or

further back, at which most of the domestic content of a product would

be included?

vi. What would it cost firms to support an ``all or virtually all''

standard if they were only required to look back one step in the

manufacturing process? What would the cost be with a two step back

approach or one that required the producer to look even further back in

the manufacturing process?

C. Should raw materials be excluded in calculating domestic

content?

i. If so, how should ``raw material'' be defined? Should it include

only those items that are naturally occurring? Is steel, for example, a

raw material, or only iron ore? How about leather versus a tanned cow

hide versus a raw hide?

ii. Does it matter if the raw materials constitute a significant

percentage of the product's value?

D. Should ``virtually all'' be further defined? One alternative

would be to quantify it as a percentage of the product (e.g., 90% or

95%). Another alternative would be to consider it equivalent to ``de

minimis'' foreign content. Which approach is preferable?

[[Page 18602]]

Are there other alternatives that should be considered?

2. Percentage Content Standard (e.g. 50%)

A. What specific percentage threshold for domestic content should a

product have to meet to be considered ``Made in USA''? What is the

basis for choosing that threshold? How does it relate to consumer

perception?

B. What costs should be included (and which excluded) in

calculating a product's domestic content?

C. Is the percentage of domestic content of a product likely to

fluctuate significantly over time because of currency fluctuations or

because of routine changes in sourcing for certain inputs? If so, is

there a way to address, for marking purposes, any uncertainty caused by

such fluctuations? Does the impact of such fluctuations change with the

level of permitted foreign content? For example, is the impact of such

fluctuations greater or lesser if 50% foreign content is permitted than

if only 10% foreign content is permitted?

D. How should the computation issues raised in Questions 1B and IC,

above, be resolved in the context of a percentage content standard?

3. Substantial Transformation Standard

A. A substantial transformation standard was extensively discussed

at the workshop. However, the exact form of this standard that should

be considered was not resolved.

i. Should the FTC adopt an existing form of this standard already

applied by the U.S. Customs Service--i.e., the substantial

transformation test that the Customs Service generally applies or the

tariff classification shift rules that the Customs Service uses for

North American Free Trade Agreement (``NAFTA'') goods?

a. Which of these two Customs Service approaches should the FTC

adopt? Why?

b. If the FTC chooses to adopt either of the existing Customs

approaches, what are the implications if these approaches are changed?

(1) What should the FTC do if the World Trade Organization

(``WTO'') establishes (and Congress adopts) rules for determining

whether substantial transformation has occurred that are different than

those applied by the Customs Service?

(2) If the Commission chooses to employ the Customs Service's

general substantial transformation analysis, and the Customs Service

subsequently chooses to apply the NAFTA tariff shift approach to goods

from all Most Favored Nation (``MFN'') countries (as has been

proposed), should the FTC then switch to this approach for domestic

origin claims?

ii. A number of participants at the Commission's workshop suggested

that the substantial transformation (or tariff shift) test should be

adopted, but with minor alterations to assure that a product labeled

``Made in USA'' in fact had a meaningful amount of domestic content.

Should the FTC adopt a modified version of the substantial

transformation test applied by the U.S. Customs Service?

a. Are there certain products or types of products for which

application of a substantial transformation standard is unlikely to

ensure that the product contains a meaningful amount of domestic

content?

b. Some participants suggested that the Customs Service's

substantial transformation test be altered to exclude transformations

that amounted only to ``simple assembly.'' An alternative proposal is

that there be a supplemental requirement that, to be promoted as ``Made

in USA,'' a product not only be substantially transformed in the U.S.,

but also contain a certain percentage of domestic content or have

certain of its key components made in the U.S. What are the advantages

and disadvantages of these approaches? Are there other modifications to

the substantial transformation test that the Commission should

consider?

c. If the FTC were to adopt a modified substantial transformation

test, what costs, if any, would result from the fact that the FTC's

standard would not be precisely consistent with that applied by the

Customs Service?

iii. Should the FTC adopt the standard ultimately adopted by the

WTO for country-of-origin determinations? Because the WTO process is

likely to take some time, should the FTC adopt an interim standard, and

if so, what standard?

B. How does a substantial transformation standard in any of the

variations discussed above relate to consumer perceptions of ``Made in

USA'' claims? Does empirical evidence suggest that consumers think

about the phrase ``Made in USA'' in terms of the process by which parts

or materials are transformed into a finished product? Does empirical

evidence suggest that consumers think the phrase ``Made in USA'' refers

both to the transformation process and the origin of the parts and

materials themselves?

C. Is there evidence as to whether consumers' understanding of

``Made in USA'' claims is the same or different than their

understanding of foreign origin claims (e.g., ``Made in Japan'')? Is

there evidence as to whether claims of foreign origin are as material

to consumers across all or most products as are claims of domestic

origin? Please provide any supporting documentary evidence or

citations.

D. Are there process-oriented standards other than substantial

transformation that the Commission should consider adopting?

E. What are the country-of-origin marking requirements of other

countries, including the United States' major trading partners? (For

the questions below, supporting documentary evidence or citations would

be particularly helpful.)

i. Do other countries require that all imported goods be marked?

Which countries? For countries that do not have universal marking

requirements, are there specific categories of goods that are required

to be marked?

ii. Where goods are required to be marked with their country of

origin, what standards do other countries use to determine that country

of origin?

iii. To what extent do (or would) other countries permit

alternative or qualified country-of-origin labels on imported goods--

i.e., not simply ``Made in USA,'' but, for example, ``Product of USA,''

``Assembled in USA,'' ``Assembled in USA of domestic and imported

components,'' or ``80% Made in USA''?

iv. What are other countries' standards for their own domestic

origin claims (e.g., France's requirements for ``Made in France''

claims)? Do these standards differ from those countries' standards for

foreign origin claims?

4. Other Issues

A. Are there other standards or approaches not encompassed by the

three alternatives set forth above that the Commission should consider?

B. Are there terms that are, or can be, used to denote some lesser

or different level of domestic content than a broad ``Made in USA''

claim, e.g., ``Assembled in USA,'' ``Product of USA,'' ``Processed in

USA,'' etc. What are the costs and benefits of using such alternative

terms to label products that would not meet a standard for ``Made in

USA'' claims but nonetheless involve some significant domestic inputs?

C. Some participants at the workshop suggested consumers interpret

the absence of country of origin labeling as an indication that a

product is made in the United States. Historically, the Commission has

employed a rebuttable presumption that goods that were not labeled with

any country of origin would be understood by consumers to be made in

the United States. As a result, the Commission traditionally

[[Page 18603]]

required that foreign origin be disclosed if unmarked goods contained a

significant amount of foreign content.

i. Do consumers generally believe that unlabeled products are

domestic? Does consumer perception of the origin of unlabeled products

vary by type of product?

ii. Is a failure to disclose foreign origin for unmarked goods that

contain a significant amount of foreign content material to consumers?

Does the materiality vary by type of product?

Commenters are urged to limit their additional comments to

clarifying or rebuttal information, to the supplemental questions, or

to specific new proposals, and not merely to resubmitting views or

information previously submitted or expressed during the workshop.

Comments proposing or addressing a particular standard should address

how it protects consumers against deception 1 and why adopting a

particular standard is in the public interest. All written comments

submitted will be available for public inspection in accordance with

the Freedom of Information Act, 5 U.S.C. 552, and Commission

regulations, on normal business days between the hours of 8:30 a.m. to

5:00 p.m. at the Public Reference Room 130, Federal Trade Commission,

6th and Pennsylvania Ave., N.W., Washington, D.C. 20580.

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\1\ A deceptive act or practice is one that is likely to mislead

consumers acting reasonably under the circumstances. See Cliffdale

Associates, Inc., 103 F.T.C. 110 (1984), reprinting as an appendix

letter dated Oct. 14, 1983, from the Commission to the Honorable

John D. Dingell, Chairman, Committee on Energy and Commerce, U.S.

House of Representatives (``Deception Statement''). The Commission

considers a claim deceptive if even a ``significant minority'' of

consumers are misled. ``An interpretation may be reasonable even

though it is not shared by a majority of consumers in the relevant

class, or by particularly sophisticated consumers. A material

practice that misleads a significant minority of reasonable

consumers is deceptive.'' Kraft, Inc., 114 F.T.C. 40, 122 (1991),

aff'd 970 F.2d 311 (7th Cir. 1992), cert. denied, 507 U.S. 909

(1993).

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In addition, the Commission will make this notice and, to the

extent technically possible, all comments received in response to this

notice available to the public through the Commission's Home Page on

the Internet. Interested parties can access the Commission's Home Page

on the World Wide Web at the following address: http://www.ftc.gov.

Authority: 15 U.S.C. 41 et seq.

By direction of the Commission, Commissioner Starek

dissenting.\2\

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\2\ Commissioner Starek dissented for reasons previously

stated. See 60 FR 53930 (1995).

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Donald S. Clark,

Secretary.

[FR Doc. 96-10364 Filed 4-25-96; 8:45 am]

BILLING CODE 6750-01-P