Request for Public Comment on Proposed Guides for the use of U.S. Origin Claims
Federal RegisterMay 7, 1997
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FEDERAL TRADE COMMISSION
Request for Public Comment on Proposed Guides for the use of U.S.
Origin Claims
AGENCY: Federal Trade Commission.
ACTION: Request for public comment on proposed Guides for the Use of
U.S. Origin Claims.
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SUMMARY: The Federal Trade Commission (``FTC'' or ``Commission'') has
been conducting a comprehensive review of ``Made in USA'' and other
U.S. origin claims in product advertising and labeling. Historically,
the Commission has held that a product must be wholly domestic to
substantiate an unqualified ``Made in USA'' claim. As part of its
review, the Commission, by Federal Register notice dated October 18,
1995, requested public comment on various issues related to the
evaluation of such claims and, on March 26 and 27, 1996, held a public
workshop and invited representatives of industry, consumer groups,
unions, government agencies and others to attend and exchange views. On
April 26, 1996, the Commission published a Federal Register notice
extending the deadline for post-workshop public comments until June 30,
1996.
The Commission now announces proposed Guides for the Use of U.S.
Origin Claims and seeks public comment on these guides. Under these
proposed guides, a marketer making an unqualified claim of U.S. origin
must, at the time it makes the claim, possess and rely upon a
reasonable basis that the product is substantially all made in the
United States. To assist manufacturers in complying with this standard,
the proposed guides also set out two alternative ``safe harbors'' under
which an unqualified U.S. origin claim would not be considered
deceptive. The first safe harbor encompasses products whose U.S.
manufacturing costs constitute 75% of total manufacturing costs and
were last substantially transformed in the United States. The second
safe harbor applies to products that have undergone two levels of
substantial transformation in the United States: i.e., the product's
last substantial transformation took place in the United States, and
the last substantial transformation of each of its significant inputs
took place in the United States.
The proposed guides also address various qualified claims, claims
regarding specific processes and parts, multiple-item sets, and changes
in costs and sourcing. They also authorize specific origin claims for
certain products that are both sold domestically and exported.
Throughout, the proposed guides address the interaction of FTC
deception law with U.S. Customs Service requirements.
DATES: Written comment will be accepted until August 11, 1997.
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. (If possible, documents in WordPerfect 6.1 or Word 6.0, or
earlier generations of these word processing programs, are preferred.
Files from operating systems other than DOS or Windows 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.
FOR FURTHER INFORMATION CONTACT: Beth M. Grossman, Attorney, Division
of Advertising Practices, Bureau of Consumer Protection, FTC,
Washington, DC 20580, telephone 202-326-3019, or Kent C. Howerton,
Attorney, Division of Enforcement, Bureau of Consumer Protection, FTC,
Washington, DC 20580, telephone 202-326-3013.
SUPPLEMENTARY INFORMATION:
I. Introduction
The Commission has been conducting a comprehensive review of its
standards for evaluating ``Made in USA'' claims in advertising and
labeling. The Commission now proposes to issue Guides for the Use of
U.S. Origin Claims, set out at the end of this notice, and seeks
comment on these proposed guides. The comment period will remain open
until August 11, 1997.
The Commission regulates claims of U.S. origin, such as ``Made in
USA,'' pursuant to its statutory authority under Section 5 of the
Federal Trade Commission Act, which prohibits ``unfair or deceptive
acts or practices.'' Cases brought by the Commission beginning over 50
years ago established the principle that it was deceptive for a
marketer to promote a product with an unqualified ``Made in USA'' claim
unless that product was wholly of domestic origin.1
Recently, this standard had been rearticulated to require that a
product advertised as ``Made in USA'' be ``all or virtually all'' made
in the United States, i.e., that all or virtually all of the parts are
made in the U.S. and all or virtually all of the labor is performed in
the U.S.2 In both cases, however, the import has been the
same: unqualified claims of domestic origin were deemed to imply to
consumers that the product for which the claims were made was in all
but de minimis amounts made in the United States.
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\1\ See, e.g., Windsor Pen Corp., 64 F.T.C. 454 (1964); Vulcan
Lamp Works, Inc., 32 F.T.C. 7 (1940).
\2\ This language was first used in the cases of Hyde Athletic
Industries, File No. 922-3236 (consent agreement accepted subject to
public comment Sept. 20, 1994) and New Balance Athletic Shoes, Inc.,
Docket No. 9268 (complaint issued Sept. 20, 1994). In light of the
decision to review the standard for U.S. origin claims, the
Commission later modified the complaints in these cases to eliminate
the allegations based on the ``all or virtually all'' standard.
Consent agreements based on these revised complaints were issued on
December 2, 1996 (New Balance) and December 4, 1996 (Hyde).
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In a July 11, 1995 press release, the Commission announced that it
would undertake a comprehensive review of U.S. origin claims and
examine whether the Commission's traditional standard for evaluating
such claims remained consistent with consumer perceptions and continued
to be appropriate in today's global economy. On October 18, 1995, the
Commission published a notice in the Federal Register formally
soliciting public comment for 90 days on various issues related to this
review, including the costs and benefits of continuing to use the ``all
or virtually all'' standard, and announcing that Commission staff would
conduct a public workshop on this topic. 60 FR 53922. A follow-up
notice published on December 19, 1995, announced that the public
workshop would be held on March 26 and 27, 1996, and indicated that the
record would be held open for post-workshop public comment until April
30, 1996. 60 FR 65327. In response to these notices, the Commission
received approximately 294 written comments. Contemporaneous with the
solicitation of public comment, Commission staff also commissioned a
two-part study to examine consumer understandings of U.S. origin
claims. The results of this study are discussed below.
As noted, Commission staff conducted a two-day public workshop on
issues related to U.S. origin claims. Thirty-three individuals,
representing corporations and trade associations from a variety of
industries; labor unions; federal and state government agencies;
[[Page 25021]]
and consumer groups, participated in the workshop, and a number of
other interested individuals attended the workshop as observers. At the
workshop, which was moderated by a neutral, third-party facilitator,
results of the Commission's consumer perception study as well as
consumer studies conducted by several other participants were
presented, and there was an extended round table discussion of the
costs and benefits of the various alternative standards under
consideration for the evaluation of U.S. origin claims. Following the
workshop, the Commission, in a notice published on April 26, 1996,
extended the period for clarifying or rebuttal comments until June 30,
1996, and set forth additional questions for comment. 61 FR 18600.
Approximately 49 additional comments were received in response to the
April 26 notice, including a proposed set of guidelines submitted by
the ``Ad Hoc Group,'' a coalition of industry groups that had
participated in the public workshop.
After reviewing the public comments, the consumer perception
evidence, and the workshop proceedings, the Commission now proposes to
adopt Guides for the Use of U.S. Origin Claims, which appear at the end
of this notice in Section IX, and seeks comment on the proposed guides.
Section II of this notice discusses the relevant country-of-origin
marking rules applied by the U.S. Customs Service and how these rules
relate to the FTC's regulation of U.S. origin claims. Section III
summarizes the comments received by the Commission. Section IV contains
a discussion of the factors considered by the Commission in its
formulation of a policy on U.S. origin claims, including evidence of
consumer perception; consistency with other statutory and regulatory
requirements; and practical issues of implementation. Section V
provides an overview of the proposed guides, and Section VI provides a
section-by-section analysis of the proposed guides. Section VII
addresses the Commission's policy with respect to goods without any
country-of-origin marking. Section VIII requests public comment on the
proposed guides. The proposed guides themselves are set out in Section
IX.
Information related to the Commission's review of U.S. origin
claims, including the public comments received, a transcript of the
workshop proceedings, and consumer perception studies conducted by the
Commission and other interested parties, are available in the Public
Reference Room, Room 130, Federal Trade Commission, 6th and
Pennsylvania Ave., N.W., Washington, DC 20580. In addition, the public
comments, the workshop transcript, and previous Federal Register
notices related to this review are available on the Commission's Home
Page on the World Wide Web, which can be reached through the internet
at http://www.ftc.gov.
II. Background: Country-of-Origin Marking Requirements for Imported
Goods
A. Relationship Between the Requirements of the U.S. Customs Service
and the Policies of the FTC
In the course of the Commission's review, there has been much
discussion of the relationship between the policies of the U.S. Customs
Service (``Customs'' or ``the Customs Service'') and those of the FTC
with respect to country-of-origin marking. As a general matter, the
Customs Service regulates mandatory country-of-origin markings on
imported products, while the FTC's policies govern voluntary U.S.
origin claims, whether in advertising or labeling, about domestic
products.3
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\3\ The Commission also has had policies relating to unmarked
goods and disclosures to supplement those required by Customs. These
policies are addressed in Section VII.
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Specifically, Section 304 of the Tariff Act of 1930, administered
by the Secretary of the Treasury and the Customs Service, requires that
all products of foreign origin imported into the United States be
marked with the name of a foreign country of origin. Where an imported
product incorporates materials and/or processing from more than one
country, Customs considers the country of origin to be the last country
in which a ``substantial transformation'' took place. A substantial
transformation is a manufacturing process that results in a new and
different article of commerce, having a new name, character and use
that is different from that which existed prior to the processing.
Country-of-origin determinations using the substantial transformation
test are made on a case-by-case basis through administrative
determinations by the Customs Service. 4
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\4\ For goods from NAFTA countries, determinations are codified
in ``tariff shift'' regulations, as noted below.
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Where Customs determines that a good is not of foreign origin
(i.e., the good undergoes its last substantial transformation in the
United States), there is generally no requirement that it be marked
with any country of origin. For most goods, neither the Customs Service
nor the FTC requires that domestic goods be labeled with ``Made in
USA'' or any other indication of U.S. origin.5 Where a
marketer chooses voluntarily, however, to make a U.S. origin claim in
an advertisement or on a label, the marketer must conform with the FTC
Act's general prohibition on ``unfair or deceptive acts and
practices.'' Thus, a ``Made in USA'' claim, like any other advertising
claim, must be truthful and substantiated.
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\5\ For a limited number of goods, such as textile, wool, and
fur products, there are, however, statutory requirements that they
disclose the U.S. processing or manufacturing that occurred. See,
e.g., Textile Fiber Products Identification Act, 15 U.S.C. 70(b).
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B. Other Relevant Information on Country-of-Origin Determinations
In addition to the Tariff Act, two international agreements provide
a further backdrop to the discussion of country-of-origin labeling.
North American Free Trade Agreement (NAFTA)
Goods imported from NAFTA countries are not subject to the Customs
Service's case-by-case determinations of substantial transformation.
Instead, marking requirements for such goods are governed by a change
in tariff classification or ``tariff shift'' approach. This approach
relies on an enumerated list of changes in tariff classification. In
determining the country of origin for NAFTA marking purposes, one looks
to whether a foreign article has changed sufficiently as the result of
processing in another country that it would fit within a different
tariff classification than it would have prior to that processing.
Where the ultimate article undergoes one of the enumerated shifts in
tariff classification as a result of processing in a particular
country, the country of origin is the country where that processing
took place.6
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\6\ For example, assume that a product is partially manufactured
in a non-NAFTA country, then sent to Canada for its remaining
processing, and the finished product is exported to the United
States. Upon import into the United States, the product would be
appropriately marked ``Made in Canada'' if the tariff classification
assigned to the finished product when it is exported from Canada to
the United States is different from the tariff classification that
would be assigned to the product in the state in which it was
brought into Canada, and that difference in tariff classification is
on a specified list of tariff shifts enumerated in the NAFTA marking
rules.
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Although the NAFTA tariff classification scheme was intended by the
Customs Service to be merely a codification of its traditional
substantial transformation test, there continues to be controversy over
perceived differences between the tariff shift standard and case-by-
case rulings under the traditional standard. A decision on a proposal
by the Customs Service to
[[Page 25022]]
extend the NAFTA marking rules to all imported goods was recently
deferred to an indefinite later date.7
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\7\ In addition to its marking rules, NAFTA also specifies
separate rules of origin that are used to determine whether a
product qualifies for preferential tariff treatment under NAFTA.
These rules of origin are based on a different set of tariff shifts
than are the marking rules and, in many cases, also incorporate a
value-added requirement. For purposes of this notice, these rules of
origin will be referred to as ``NAFTA Preference Rules'' to
distinguish them from the ``NAFTA Marking Rules'' described above.
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World Trade Organization (WTO)
Pursuant to the Uruguay Round Agreements, the WTO is currently
engaged in an effort to harmonize international rules of origin. The
goal of this effort is for all participating countries to use the same
rules for determining country of origin for all non-preferential
purposes, including country-of-origin marking. The WTO Agreement on
Rules of Origin (ARO) adopts substantial transformation as the basic
standard for determining country of origin, and expresses a preference
for a tariff shift approach as the method of determining whether a
substantial transformation has taken place. The WTO's initiative does
not generally extend to determinations of domestic origin.8
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\8\ The ARO does provide, however, that standards for
determining the origin of domestic goods may be no longer than for
determining the origin of imported goods. In doing so, it implicitly
recognizes that standards for determining domestic origin may be
higher than those for determining foreign origin. ARO, Annex 1A,
Article 3(c).
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The WTO's harmonization program is scheduled to be completed three
years from its commencement in March 1995. The U.S. Government, through
the office of the United States Trade Representative and other
agencies, has participated actively in the WTO's effort. In order to
take effect in the United States, however, any rules published by the
WTO would have to be legislatively enacted by Congress and current
Customs rules harmonized with them. 9
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\9\ For further information on U.S. and international country-
of-origin marking, see U.S. International Trade Commission, Country-
of-Origin Marking: Review of Laws, Regulations and Practices,
(Publication 2975, July 1996) a report issued by the U.S.
International Trade Commission (ITC) in response to a request from
the House of Representatives Committee on Ways and Means (``ITC
Report'').
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III. Summary of Comments
A. General Information
The Commission received a total of 342 written public comments in
response to its announcement on July 11, 1995 that it would conduct a
comprehensive review of consumers' perceptions of ``Made in USA''
advertising claims and conduct a public workshop, and to its Federal
Register notices that specifically solicited public
comments.10 The commenters included approximately 182
individual consumers, 55 manufacturers and other corporations, 37 trade
associations, 7 labor unions and union-affiliated organizations, 26
members of Congress,11 26 state and Federal Government
agencies (including a coalition of 22 state attorneys general), 2
consumer groups, 2 nonprofit organizations, and 5 others.
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\10\ The comments have been filed on the Commission's public
record as Document Nos. B18354900001, B18354900002, etc. The
comments are cited in this notice by the name of the commenter, a
shortened version of the comment number, and the relevant page(s) of
the comment, e.g., Stanley, #59, at 5. A complete list of commenters
is appended to this notice. Comments #1 through #200 and #332
through #343 were submitted following publication of the
Commission's October 18, 1995, and April 26, 1996, Federal Register
notices soliciting public comment. Comments #201 through #281 and
#283 through #331 (there is no comment #282) were submitted in
response to media coverage prior to the October 18, 1995 notice, but
have been added to the public record of this matter because they are
relevant to the Commission's consideration). The transcript of the
public workshop on March 26 and 27, 1996 has been placed on the
Commission's public record as Document No. B199403. References to
comments made during the workshop are cited by the name of the
speaker, the speaker's affiliation, and the relevant page(s) of the
transcript, e.g., Sarah Vanderwicken for IBT, Tr. at 80-81.
Twenty-six commenters filed two comments each, in response to
the two notices soliciting public comment, and several comments were
signed by more than one commenter. Nonetheless, the total number of
commenters is, coincidentally, the same as the total number of
comments: 342.
\11\ In addition, five other members of Congress forwarded
comments from their constituents.
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The written comments, as well as the discussion at the public
workshop, focused primarily on three alternative standards for
evaluating U.S. origin claims. One group of commenters favored
retaining the Commission's current standard, under which a product
promoted as ``Made in USA'' would have to be ``all or virtually all''
made in the United States. A second set of commenters favored a
percentage content standard. Under this standard, a product could be
promoted as ``Made in USA'' if a set percentage (generally 50%) of the
cost of manufacturing that product was attributable to U.S. production,
and the product underwent final assembly in the U.S. A third group of
commenters favored some version of the substantial transformation test
applied by the U.S. Customs Service, such that any product
``substantially transformed'' in the United States could be labeled
``Made in USA.''
The discussion below summarizes the commenters positions on the
costs and benefits of each of the primary standards. It also briefly
summarizes comments proposing other standards, as well as comments
supporting and criticizing the guidelines proposed by the Ad Hoc
Group.12
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\12\ Because the Ad Hoc Group's proposed guidelines (comment
#183) were submitted to the Commission on the last day of the
comment period, they were not generally available for comment and
some interested parties may not have had the opportunity to review
them before submitting their own comments.
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B. ``All or Virtually All'' Standard
In its October 18, 1995 Federal Register notice, the Commission
sought comment on the costs and benefits of its current ``all or
virtually all'' standard. In response, most of the comments received by
the Commission discussed this standard, either to support it or to
criticize it.
1. Comments Supporting the ``All or Virtually All'' Standard
Approximately 147 individual consumers and 73 other commenters
supported the current ``all or virtually all'' standard.\13\ These
include a coalition of 22 state Attorneys General,\14\ 13 members of
Congress,\15\ 6
[[Page 25023]]
trade associations,\16\ 7 labor unions or union-affiliated
organizations,\17\ 23 manufacturers and other corporations,\18\ a
consumer group,\19\ and a local political club.\20\
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\13\ Although not expressly identifying themselves as supporters
of the ``all or virtually all'' standard, at least two commenters
urged the Commission to adopt a percentage-based standard that would
require that products be made with at least 90% domestic parts and
labor in order to be called ``Made in USA.'' Bill Haley &
Associates, Inc (``Haley''), #128; G.G. Bean, Inc (``Bean''), #36
(submitted by the American Pet Products Manufacturers Association,
Inc., of which G.G. Bean is a member; the trade association itself
took no position on the appropriate standard for Made in USA
claims). For purposes of this summary, the Commission has treated
these comments as supporting an ``all or virtually all'' standard.
\14\ The comment originally submitted to the Commission on
behalf of the Attorneys General was signed by the Attorneys General
of the states of California, Connecticut, Florida, Hawaii, Iowa,
Kansas, Maryland, Michigan, Missouri, Nevada, New Hampshire, New
York, Ohio, Rhode Island, Washington, and West Virginia (``AGs''),
#43. Following the submission of comment #43, the Attorneys General
of the states of Illinois, #185, New Jersey, #138, North Carolina,
#114, Pennsylvania, #134, Tennessee, #122, and Wisconsin, #151,
joined in the coalition comment. A follow-up statement by the
Attorney General of Connecticut on behalf of the coalition was
submitted at the opening of the public workshop, and is included in
the public record as comment #343.
\15\ U.S. Rep. John D. Dingell (``Dingell''), #153; U.S. Rep.
Peter Deutsch (``Deutsch''), #340; U.S. Rep. Dale E. Kildee
(``Kildee''), #333; U.S. Rep. Jerry Kleczka (``Kleczka''), #337;
U.S. Sen. Carl Levin (``Levin''), #332; U.S. Rep. Donald A. Manzullo
(``Manzullo''), #334; U.S. Rep. Carlos J. Moorhead (``Moorhead''),
#339; U.S. Sens. Carol Moseley-Braun and Paul Simon (``Moseley-
Braun/Simon''), #341; U.S. Rep. Glenn Poshard (``Poshard''), #163;
U.S. Rep. James H. Quillen (``Quillen''), #168; U.S. Rep. Charles H.
Taylor (``Taylor''), #169; U.S. Rep. James A. Traficant, Jr.
(``Traficant''), #144.
\16\ Alabama Textile Manufacturers (``ATM''), #12; American Hand
Tool Coalition (``American Hand Tool''), #91, #186; American Textile
Manufacturing Institute (``ATMI''), #92, #171; Crafted With Pride in
USA Council, Inc. (``Crafted With Pride''), #35, #176; National
Knitwear & Sportswear Association (``NKSA''), #53; Tile Council of
America, Inc. (``TCA''), #161.
\17\ Jefferson, Lewis & St. Lawrence Counties Central Trade &
Labor Council, AFL-CIO (``AFL-CIO/Jefferson''), #146; Union Label &
Service Trades Dept., AFL-CIO (``AFL-CIO/ULSTD''), #48; Engineers
Political Action Committee (``EPAC''), #335; International
Brotherhood of Teamsters (``IBT''), #107; International Leather
Goods, Plastics, Novelty & Service Workers' Union, AFL-CIO/CLC
(``ILGPNSWU''), #80; United Auto Workers (``UAW''), #93, #174;
Retired Workers Council, Region 1-A, UAW (Buy American Union Label
Committee) (``UAW/RWC''), #33.
\18\ Bean, #36; Capital Mercury Shirt Corp. (``Capital''), #9;
Steel Technologies (``Steel Technologies''), #152; Centerville
Lumber Co. (attached to submission of U.S. Rep. Ed Bryant)
(``Centerville''), #145; Deere & Co. (``Deere''), #57; Diamond Chain
Co. (``Diamond Chain''), #55; Dynacraft Industries (``Dynacraft''),
#45, #173; Estwing Manufacturing. Co. (``Estwing''), #179; Hager
Hinge (``Hagar''), #160; Haley, #128; Impress Industries
(``Impress''), #308; Laclede Steel Co. (``Laclede''), #143;
Porterco, Inc. and Megasack Corp. (``Porterco/Megasack''), #132;
Precision--Kidd Steel Co.; (Precision-Kidd''), #142; Summitville
Tiles, Inc. (``Summitville''), #162; Tileworks (``Tileworks''),
#156; Tompkins Brothers Co., Inc (``Tompkins''), #157; Vaughan &
Bushnell Manufacturing (``Vaughan & Bushnell''), #97, #191; Weldbend
Corp. (``Weldbend''), #190; Werner Co. (``Werner''), #129; Western
Forge Corp. (Western Forge''), #49; Wright Tool (``Wright''), #40.
\19\ Citizen Action (``Citizen Action''), #181
\20\ Jefferson Democratic Club of Flushing, NY (``Jefferson
Democratic Club''), #61.
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The large majority of consumer comments supported the current
standard or some other, similarly high standard. Typically, individual
consumer commenters stated that ``Made in USA'' should mean ``Made in
USA.'' Many also stressed that they wish to buy American products, and
expressed concern that if the standard is lowered, they may be deceived
into buying a product that was not really made in the USA. The
following comments capture the flavor of many of the individual
consumer comments:
Please do not change the definition of ``Made in USA.'' ``Made
in USA'' means precisely that--manufactured on American soil, by
American workers, with American-made materials--100%21
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\21\ Virginia Hoover (``Hoover''), #5, at 1.
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How will we know what country made part or all of any item, or
what was completely made here, including raw materials? Can anything
be done to stop this action [changing the standard] on the part of
the FTC? 22
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\22\ Helen Menahen (attached to submission of U.S. Sen. Dianne
Feinstein) (``Menahen''), #200.
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American consumers who wish to purchase goods which are
domestically made will clearly be hampered from doing so if the
labels on those goods are ambiguous and may not mean what they say.
Please do not allow this to happen.23
\23\ Gloria Gonzalez (``Gonzalez''), #113.
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Other supporters of the ``all or virtually all'' standard warned
that altering the current standard will lead to consumer deception, or
at least consumer confusion, because the current standard is most
consistent with consumer perception. Citizen Action, for example,
stated:
Should the FTC [change the ``all or virtually all'' standard],
it is clear to us that a situation would exist in which the `Made in
USA' label means one thing in regulation and something very
different in the minds of consumers. The confusion that would be
created would directly contradict the primary purpose of utilizing
labels to provide an effective consumer information
tool.24
\24\ Citizen Action, #181, at 2.
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These commenters argued that the consumer perception evidence
before the Commission demonstrates that many American consumers
interpret a ``Made in USA'' label consistent with the ``all or
virtually all standard.'' Consumers, according to these commenters,
believe that a product that is labeled ``Made in USA'' is entirely made
in the USA, not merely assembled in the U.S. of foreign
parts.25
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\25\ See, e.g., Deere, #57, at 2 (citing FTC 1991 consumer
perception study showing that 77% of buying public believed that
``Made in USA'' claims mean ``all or nearly all'' of a finished
product was manufactured in U.S.); AGs, #43 at 2-4 (citing 1991 FTC
consumer perception study), #343 Dynacraft, #45, at 1-2 (citing 1991
FTC consumer perception study), #173, at 2-3, 5, 7; American Hand
Tool, #91, at 6; #186, at 2, 7; Diamond Chain, #55, at 1; NKSA, #53,
at 2; Western Forge, #49, at 1; Vaughan & Bushnell, #97, at 3;
Laclede, #143, at 11; Dingell, #153, at 2.
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Many commenters favoring the current standard further asserted that
consumer perception surveys demonstrate that ``Made in USA'' is a
material claim to the vast majority of American consumers. For example,
the American Hand Tool stated that all of the surveys presented at the
public workshop indicate that consumers consider a ``Made in USA''
label to be important when making purchasing decisions.26
Accordingly, these commenters concluded consumers want to know if a
product is made entirely, or only partially, in the United States and
choose to purchase products fully made in the United States for quality
reasons, to ensure that the product was not made by exploited workers,
and to support the U.S. economy and U.S. workers.27
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\26\ American Hand Tool, #186, at 6, n.2.
\27\ See, e.g., AGs, #43, at 4 (1991 FTC consumer perception
study showed respondents preferred U.S. products because buying USA
supports economy and keeps Americans working); Vaughan & Bushnell,
#97, at 2 (consumers look for make in USA label to assure themselves
of a high-quality tool and to express support for domestic
manufactering); Wright, #40, at 1 (enlarging Made in USA definition
would no longer strictly convey U.S. workmanship); Crafted With
Pride, #35, at 2 (consistent and corroborative research confirms
consumers' positive perception of the quality of Made in USA apparel
and home textiles; UAW/RWC, 33, at 1-2 (Would be sacrilege to allow
any part of any product to be sanctioned by Made in USA label if
made in foreign nations by exploited workers under deplorable
conditions).
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Several advocates of the ``all or virtually all'' standard
acknowledged that today's marketplace is a more global one, but argued
that this has not caused consumers to change their perception that
products advertised or labeled ``Made in USA'' contain all or virtually
all domestic materials and labor. Indeed, some of the supporters of the
current standard maintained that the fact that consumers may be aware
of increased globalization of production makes unqualified ``Made in
USA'' claims more, not less, significant. The coalition of Attorneys
General explained it thusly:
As the perception grows that America is losing jobs due to a
shrinking manufacturing base, and the availability of truly U.S.A.
products declines, the fact that a product is Made in the USA
becomes increasingly valuable to consumers who wish to buy American.
In such a climate, we believe it becomes more, not less, important
to ensure that manufacturers are not using deceptive claims * *
*.28
\28\ AGs, #43, at 2. See also International Brotherhood of
Teamsters (``[i]n the face of globalization, consumers can
appreciate even more the determination of a company to retain
American jobs and use American materials''); IBT, #107, at 4;
Poshard, #163, at 1.
---------------------------------------------------------------------------
A number of supporters of the ``all or virtually all'' standard
disputed critics' assertions that it is nearly impossible to comply
with the standard. They emphasized that some companies can and do
produce products that are ``all or virtually'' made in the
USA.29 These commenters argued that lowering the standard
would penalize producers who are able to label their products as ``Made
in USA'' under the current standard, and would reward companies who
purchase foreign materials or use foreign labor. Diamond Chain Co., a
U.S. manufacturer of precision roller chains, for example, wrote:
---------------------------------------------------------------------------
\29\ See, e.g. Diamond Chain, #55; Vaughan & Bushnell, #97, at 2
(manufacturers hand tools that meet standard); Tileworks, $156, at 1
(only 5% of its raw materials are procured abroad); Welbend, #190
(makes fittings in U.S. without depending on foreign materials or
labor); American Hand Tool, #91, at 5 (Coalition members have made
and continue to make hand tools that meet current standard), #186,
at 2-3; Dingell, #153, at 2-3; Dingell, at 2; UAW, #174, at 1.
---------------------------------------------------------------------------
Being able to make an unqualified Made in USA claim for a
product with as little as 50%
[[Page 25024]]
domestic content benefits the manufacturer of that product by
allowing customers to believe that manufacturer contributes much
greater support to the domestic economy than is actually the case.
The manufacturer of a product with 95% domestic content is penalized
because he or she has incurred the cost of finding and developing
domestic sources of supply that the manufacturer of the lower
---------------------------------------------------------------------------
domestic-content product has not.30
\30\ Diamond Chain, #55, at 2. See also Michael S. Hinshaw and
Ernest R. Rollins (attached to submission of U.S. Sen. John D.
Rockefeller IV); (``Hinshaw), #66 (franchisees of U.S. company that
sells products truly made in U.S. will be at a great disadvantage
selling against competitiors who will be able to claim that imported
products they sell are made in the United States); Bean, #36 (use of
Made in USA label where product is not 100% manufactured in U.S.
increases profits of companies using inaccurate labeling); Dingell,
#153, at 2; Poshard, #163, at 1; Estwing, #179, at 1.
---------------------------------------------------------------------------
Many supporters of the current standard asserted that the standard
furthers investment in U.S. manufacturing and creates secure jobs in
this country. Accordingly, lowering the standard would lessen the
incentive that companies have to use U.S. labor and U.S. product
components. American jobs, these commenters concluded, would be
jeopardized as companies rely more and more on less expensive foreign
sources. The United Auto Workers noted:
The increasing globalization of production has led to the
incorporation of foreign materials, parts and components into most
of the products made by UAW members. In too many cases, U.S. firms
use foreign inputs solely to increase their profits, which comes at
the expense of American jobs. When foreign procurement comes from
the subsidiaries of the U.S. firm, the adverse impact on American
jobs is a direct substitution of foreign labor for
domestic.31
\31\ UAW, #93, at 1. See also AFL-CIO/ULSTD, #48, at 4 (those
that want to dilute Made in USA claim are companies that have
destroyed jobs in U.S. moving all or part of their manufacturing
operations to the Third World for lower wages and higher profits);
Estwing, #179, at 1 (lowering standard would force domestic
manufacturers to import components to remain competitive,
effectively shipping U.S. jobs overseas; Traficant, #144, at 1
(diluting the standard would have a negative impact on U.S.
workers); IBT #107, at 3 (consumers will not use power to buy
products that are ``Made in USA'' if they do not know what that
means; would cost U.S. jobs); Quillen, #168, at 1; Taylor, #169, at
1; Vaughn & Bushnell, #97, at 4, #191. at 1; American Hand Tool,
#91, at 5, 10; Precision-Kidd, #142, at 1; Centerville, #145, at 1.
---------------------------------------------------------------------------
Other commenters contended that the ``all or virtually all''
standard should be maintained because it gives clear guidance to those
wishing to make a ``Made in USA'' claim. The coalition of Attorneys
General, for example, commented:
Due to the increasing relevance and popularity of Made in the
U.S.A. claims, consumers, manufacturers and law enforcement agencies
need clear and authoritative guidance regarding their meaning. . .
.Accordingly, we urge the FTC to promulgate a regulation, or an
enforcement guideline, incorporating the FTC's current standard that
requires products unqualifiedly represented to be Made in the U.S.A.
to be assembled all, or virtually all, within the U.S.A. using all,
or virtually all, U.S.A. component parts.32
---------------------------------------------------------------------------
\32\ AGs, #43, at 12-13. See also UAW/RWC, #33, at 1-2. (current
standard is ``simple and honest'' and cost to domestic commerce in
maintaining standard is minimal); Deere, #57, at 2; Vaughan &
Bushnell, #97.
---------------------------------------------------------------------------
Finally, several supporters of the ``all or virtually all''
standard contended that it is not necessary to change the standard in
order to permit sellers of products made with some foreign parts or
labor to inform consumers of their products' U.S. content. These
commenters argued that sellers are free to make qualified claims for
such products. As U.S. Representative Traficant stated, the ``FTC and
Congress have not precluded any manufacturer with such foreign content
or involvement from choosing to advertise or label their products as
Made in USA so long as they qualify that claim (e.g., `Made in USA of
foreign and domestic components').'' 33 Deere & Co. further
stated that if such alternatives are not acceptable to these companies,
``that is reflective of the importance of the claims based on consumer
expectations.'' 34
---------------------------------------------------------------------------
\33\ Traficant, #144, at 1, See Also Dingell, #153, at 1;
Taylor, #169, at 1; Citizen Action, #181, at 2; Levin, #332, at 1;
Jeanne Archibald for American Hand Tool, Tr. at 231-232 (``people
seem to be ignoring . . . that there is a choice. You can make an
unqualified claim if you meet that standard, but you have full
discretion to make qualified claims and, in fact, to tell the
consumers whatever is the domestic content of your product. So it
isn't as if it's an either/or choice. There are many variations that
you can develop.'').
\34\ Deere, #57, at 2. See also, AGs, #43, at 6 (manufacturers
can still take advantage of fact that a significant portion of
product is made in U.S. under FTC standard; manufacturers'
insistence that consumers understand that products represented as
made in USA have substantial foreign content cannot be reconciled
with their separate claim that disclosure dilutes the attractiveness
of the made in USA claim); American Hand Tool, #186, at 5 (qualified
claims protect consumers' interests, while accommodating companies'
desire to advertise the U.S. content of their products); UAW, #174,
at 1; AFL-CIO/ULSTD, #48, at 4. But see Vaughn & Bushnell, #97, at 4
(supporting current standard, but stating that qualified claims
would generate confusion among hand tool consumers).
---------------------------------------------------------------------------
In a similar vein, Diamond Chain Co. maintained that, although it
is more difficult and expensive to make qualified claims for products
that are not wholly domestic, it is also ``a substantial sales benefit
to be able to make unqualified Made in USA claims,'' so that the issue
is reduced to a ``legitimate cost vs. benefit business decision.''
35 Thus, Diamond Chain Co. asserted that, if a producer
wants the advantage of the lower cost of foreign-produced materials and
components, the company should balance that benefit against the cost of
not being able to make an unqualified ``Made in USA'' claim.
Conversely, if a producer wants to take advantage of making an
unqualified ``Made in USA'' claim, the company should balance that
benefit against the cost of finding and developing the domestic
source.36
---------------------------------------------------------------------------
\35\ Diamond Chain, #55, at 2.
\36\ Id. Some commenters did not explicitly support the ``all or
virtually all'' standard but nevertheless cited the benefits of
qualified claims. See, e.g., Brother International Corp. and Brother
Industries USA, Inc., (``Brother''), #109 at 2 (qualified claims
``provide an effective and nonburdensome alternative for advertisers
who do not wish to undertake whatever burdens may apply now or in
the future with respect to unqualified claims for products that are
not made entirely with U.S. labor and U.S. components.'') BGE, Ltd.
(``BGE''), #60, Exhibit A, at 3 (in most cases, ``there would be
little difficulty in making truthful comparative or qualified
claims'' that reveal a product is not entirely made in the U.S.,
provided that the claims are simple and that all relevant government
agencies have the same requirement); Cranston Print Works Co.
(``Crantson''), #38, at 3 (foreign custom officials would not
prohibit qualified ``Made in USA'' claims, and even if they did,
different label systems, one for domestic sales and one for export
sales would not be problematic); U.S. Customs Service (``Customs''),
#29, at 5-6, 7 (suggesting qualified claims may be appropriate for
goods substantially transformed in the United States from imported
components and noting that Canadian Customs accepts various forms of
marking for goods of NAFTA parties, including ``Made in USA with
foreign components''); American Advertising Federation (``AAF'')
#100, 5-6 (a flexible standard ``whereby a manufacturer has the
ability to make specific, qualified, and substantiated claims about
a product'' would ``further competition based on American content of
products, as well as increase consumer knowledge by allowing more
qualitative information into the marketplace.'') See also Office of
the District Attorney, County of Santa Cruz, CA (attached to
submission of National Association of Consumer Agency Administrators
(``Santa Cruz DA''), #137 (clear, short disclosures such as ``USA
80%'' on labels would be preferable; consumers most likely view
``Assembled in USA'' as suggesting a product with a majority of
foreign content; print ads logically would have more complete
disclosures of percentages and where a product is assembled).
---------------------------------------------------------------------------
2. Comments Opposing the ``All or Virtually All'' Standard
Many of the comments received by the Commission criticized the
``all or virtually all'' standard as being too strict and urged the
Commission to lower it. In addition to those commenters who argued in
favor of the other standards discussed below, at least 15 commenters
who did not indicate a preference for a specific alternative standard
nonetheless expressed their dissatisfaction with the current
standard.37
---------------------------------------------------------------------------
\37\ American Electronics Association (``AEA''), #87; American
International Automobile Dealers Association (``AIADA''), #85; BGE,
#60; Johnson & Murphy (``Johnston''), #324; Korea Fair Trade
Commission (``KFTC''), #141; Processed Plastic Company (``Processed
Plastic''), #167; U.S. Sen. William S. Cohen (``Cohen''), #199; U.S.
Reps. Joseph P. Kennedy, Edward J. Markey, and Richard Neal
(``Kennedy''), #67; U.S. Reps. Neil Abercrombie, Peter Blute, Marty
Meehan, John Joseph Moakley, and John W. Olver (``Abercrombie''),
#25.
---------------------------------------------------------------------------
[[Page 25025]]
Several of the commenters opposing the ``all or virtually all''
standard asserted that the standard is no longer consistent with
consumer perception. According to these comments, consumers understand
that, in today's globalized marketplace, there are few purely domestic
products, and that therefore, consumers do not perceive products
advertised or labeled ``Made in USA'' as containing all or virtually
all domestic materials and labor.38 For example, the
Footwear Industries of America, Inc., stated:
\38\ See, e.g., Brown and Williamson Tobacco Co. (``B&W''), #96,
at 2 (current standard is inconsistent with consumer expectations);
Compaq Computer Corp. (``Compaq''), #62, at 2 (consumers of
electronic products tend to be both technologically savvy and
reasonably well-informed about the globalization of the electronics
industry); Caterpillar, Inc. (``Caterpillar''), #104, at 2;
Minnesota Mining and Manufacturing Co. (``3M''), #98, at 14.
---------------------------------------------------------------------------
We believe that the modern American consumer does not assume
that a ``Made in USA'' label means 100 percent domestic content.
There can be no doubt that such consumers realize that the United
States imports a large variety of raw materials and components for
use in the manufacture of finished goods. They obtain this knowledge
from information available in the media and from their own
experience working in industries more and more reliant on foreign
parts.39
\39\ Footwear Industries of America (``FIA''), #52, at 1, #177,
at 2-3. See also 3M, #98, at 10, 14; Automotive Parts Rebuilders
Association (``APRA''), #30, at 5; Footwear Distributors and
Retailers of America (``FDRA''), #27, at 2, #172, at 1-2; National
Council on International Trade Development (``NCITD''), #89, at 3;
New Balance Athletic Shoe, Inc. (``New Balance''), #44, at 3;
Sunbeam Corp. (``Sunbeam''), #39, at 2; Toyota Motor Sales USA, Inc.
(``Toyota''), #26, at 3.
---------------------------------------------------------------------------
Similar views were voiced by United Technologies Carrier:
Consumers recognize that the globalization of production and
assembly is so far advanced today, that it is difficult to recognize
any one particular country as parent to that product. Consequently,
consumers realize that it is rare, and virtually impossible, for a
product to be ``100% Made in U.S.A.'' 40
\40\ United Technologies Carrier (``UTC''), #94, at 2.
---------------------------------------------------------------------------
A number of commenters further cited consumer perception studies as
indicating that consumers do not believe that ``Made in USA'' refers
only to products made with all or virtually all domestic labor and
materials.41
---------------------------------------------------------------------------
\41\ See e.g., FIA, #52, at 1 (1991 FTC consumer perception
study found that approximately one half of respondents believed
``Made in USA'' claim meant less than 80% of parts and labor were
domestic), #177, at 2 (1995 FTC consumer perception study indicates
that only an insignificant minority of consumers understand ``Made
in USA'' claims to mean that all or virtually all of a product's
labor and materials are of domestic origin); Rubber and Plastic
Footwear Manufacturers Association (``RPFMA''), #178, at 1 (1995 FTC
consumer perception study found that a majority of participants were
willing to accept a ``Made in USA'' claim on products that contained
a significant amount of foreign parts, provided the product was
assembled in the U.S.); Bicycle Manufacturers Association of America
(``BMA''), #195, Appendix, at 1 (1995 FTC consumer perception study
indicates that only an insignificant minority of consumers
understand ``Made in USA'' to mean that 100 percent of a product's
parts and labor are of U.S. origin).
---------------------------------------------------------------------------
Several commenters argued that the current standard does not
reflect current manufacturing and global sourcing practices of U.S.
firms.42 These commenters maintained that, because the
standard requires such a high degree of domestic content and domestic
labor, few companies are able to meet it in today's world market.
Packard Bell Electronics, for example, highlighted the problems
associated with trying to obtain U.S.-made components for its products:
\42\ See, e.g., Compaq, #62, at 2; Kennedy, #67, at 2; U.S. Rep.
Glen Browder (``Browder''), #119, at 1; U.S. Sen. John Kerry
(``Kerry''), #68, at 1; Toshiba America Electronic Components, Inc.
(``Toshiba''), #34, at 2-3.
---------------------------------------------------------------------------
In many industries, and particularly in the consumer electronics
area, some types of components are not manufactured at all in the
U.S., or are domestically manufactured in such small quantities that
it is impossible to obtain the volume of U.S.-made components
necessary to support large manufacturing operations.43
\43\ Packard Bell Electronics (``Packard Bell''), #64, at 2.
---------------------------------------------------------------------------
These commenters contended that a standard that is unattainable for
so many industries no longer makes sense.44
---------------------------------------------------------------------------
\44\ See, e.g., Polaroid Co. (``Polaroid''), #90, at 4-5;
Toyota, #26, at 5 (no motor vehicle sold in the U.S. would meet the
``all or virtually all'' standard); Sunbeam, #39, at 2 (while
manufactured or assembled in the U.S., a number of its products
cannot be advertised as ``Made in USA'' because some small component
is sourced from overseas); AIADA, #85, at 2 (no vehicle in mass
production today is made with virtually all U.S. parts); U.S. Rep.
James B. Longley, Jr. (``Longley''), #118.
---------------------------------------------------------------------------
Many of the commenters opposed to the ``all or virtually all''
standard asserted that the strictness of the standard deprives
manufacturers of a selling tool that could help preserve American jobs
and that qualified claims are not an adequate remedy to this problem.
Manufacturers who assemble products here of foreign and domestic
components, they argued, cannot sufficiently distinguish themselves
from manufacturers with lower (or zero) domestic content unless they
are permitted to use ``Made in USA'' claims. In its comment, Stanley
Works contended that imposing the current standard would require many
companies to stop claiming their products are ``Made in the USA'' and
thereby mislead consumers, who would be unaware that important
attributes of tools, such as fit and durability, were attained in
American plants through the labor of American workers. 45
Similarly, the American Electronics Association maintained that the
current standard ``produces a result contrary to the Commission's goal
of creating informed consumers.'' 46
---------------------------------------------------------------------------
\45\ Stanley Works (``Stanley''), #59, at 5, #194, at 1 (current
standard deprives consumers of information that all the physical
qualities and performance characteristics that make the product
desirable to them are a result of American labor, technology, and
capital equipment). See also Sunbeam, #39 (current standard makes it
hard for consumers to distinguish between a product that consists of
an insignificant amount of foreign components or materials from one
that is mostly of foreign origin and imported into the U.S.).
\46\ AEA, #87, at 1. See also AIADA, #85, at 3 (current standard
would only serve to limit the flow of meaningful consumer
information); Balluff, Inc. (``Balluff''), #69, at 1 (current
standard does not help in decision-making process; only hinders
manufacturer from labeling product appropriately).
---------------------------------------------------------------------------
Some opponents of the standard further argued in their comments
that the current standard penalizes companies committed to maintaining
production facilities in the United States. Companies that use some
foreign components or labor in manufacturing may be forced to move
production abroad if they are unable to get the benefits of an
unqualified ``Made in USA'' label. As a result, the commenters
contended, the ``all or virtually all'' standard can have the perverse
effect of moving high-paying jobs overseas, and shrinking the American
manufacturing base. 47
---------------------------------------------------------------------------
\47\ See e.g., Abercrombie, #25, Kennedy, #67; Luggage and
Leather Goods Manufacturers of America (``LLGMA''), #23, at 2.
---------------------------------------------------------------------------
Another criticism of the Commission's ``all or virtually all''
standard is that it is inconsistent with the country of origin rules
applied by other federal agencies and foreign governments.48
The federal standards most frequently cited by commenters in support of
this point were the Buy American Act, which requires that to be
eligible for federal procurement certain
[[Page 25026]]
products must contain 50% domestic content and be subject to a final
act of manufacture in the United States, and the regulations of the
U.S. Customs Service, which look to the country in which the product
was last substantially transformed. These commenters asserted that the
Commission's standard imposes yet another regulatory burden on
manufacturers.49 For example, the National Electrical
Manufacturers Association stated:
\48\ See, e.g., Cohen #199; Gates Rubber Co. (``Gates''), #50,
at 2-3; International Electronics Manufacturers and Consumers of
America (``IEMCA''), #99, at 2-3, #189, at 2; Kerry, #68; Longley,
#118; NCITD, #89, at 2; Polaroid, #90, at 1, 10; Seagate Technology
(``Seagate''), #95, at 2 (Commission should implement Buy American
standard). Cf. General Services Administration (``GSA''), #106, at 1
(Commission should ``explore the viability'' of standardizing its
standard with one or more of the federal government's procurement or
trade standards).
\49\ See, e.g., Caterpillar, #104, at 2; Seagate, #95, at 2.
---------------------------------------------------------------------------
The Commission's labeling standard is inconsistent with other
Federal government programs requirements, resulting in greater
inefficiencies and costs for the American manufacturer. An American
product should be an American product no matter the market in which
it is sold. Under today's conflicting rules, however, NEMA member
companies face high administrative costs associated with compliance
to numerous calculations.50
---------------------------------------------------------------------------
\50\ National Electrical Manufacturers Association (``NEMA''),
#102, at 3.
---------------------------------------------------------------------------
Several commenters maintained that the current standard also
conflicts with other foreign countries' marking rules and thus imposes
significant costs on American companies, making American products less
competitive abroad. For example, 3M asserted that many countries
require that imported goods be marked with the country of origin, and
would accept a product labeled as ``Made in USA'' if it satisfied
Custom's NAFTA Marking Rules. 3M stated, however, that, in many cases,
under the Commission's current standard, it cannot sell that same
product in the United States with a ``Made in USA'' label and must
therefore either develop two inventories of product, one with a ``Made
in USA'' label for export and another with no origin mark for the
United States, or relabel its products.51
---------------------------------------------------------------------------
\51\ 3M, #98, at 5. See also Joint Industry Group (``JIG''),
#88, at 2 (the ``multiplicity of origin rules'' has resulted in
increased costs for U.S. manufacturers, requiring them to establish
special packaging and re-labeling facilities and to design and
manufacture multiple forms of packages for different destination
markets), #196, at 3-4; Okidata (``Okidata''), #42, at 3 (it is
expensive and cumbersome for a company to have to apply different
labels to the same product depending on the product's destination;
different labels and boxes must be printed, the product must be
segregated in inventory, and tracking systems are needed to ensure
that a product is sent to the specific country destination to which
the product is labeled); Longley, #118, at 1 (the Commission should
``consider a standard that conforms to that articulated by other
government agencies so that domestic manufacturers are not
disadvantaged by: (1) having to meet one standard for their exports
and another for their goods sold within the U.S.; and (2) having to
provide more information on labels than what is required to be
placed on the labels of imported goods. U.S. industry must not be
placed at a competitive disadvantage.'').
---------------------------------------------------------------------------
A further criticism raised by some opponents of the ``all or
virtually all'' standard was that the standard is not adequately
defined and therefore fails to provide sufficient guidance to industry.
Commenters noted, for example, that the standard as it currently exists
gives no guidance as to how far back in the production process a
manufacturer must go in determining U.S. parts, material, and labor
content. 3M contended that the current standard does not provide a
clear method for determining permissible foreign content, and argued
that, as a result, many manufacturers are unable to properly determine
when they may mark a product ``Made in USA.'' 52 Moreover,
the Joint Industry Group stated:
\52\ 3M, #98, at 4. See also NCITD, #89, at 2 (because there is
no reliable definition, the current standard is difficult to follow;
not clear how far back in the manufacturing process a company must
go to meet the standard--for example, whether the iron ore that
became the steel tubing for a bicycle must have been mined in the
U.S. before the bicycle can claim to be made in the U.S.); Paul
Gauron for New Balance, Tr. at 162; Balluff, #69, at 2.
---------------------------------------------------------------------------
The multiple questions asked in [the Commission's April 1996]
request for comments regarding what constitutes a `step' back in
manufacturing is indicative of the complexity and subjectivity of
this yet to be defined methodology. In a practical business sense,
this complexity and subjectivity can only evolve into a standard
that is equally cumbersome.53
\53\ JIG, #196, at 2.
---------------------------------------------------------------------------
Finally, some of those commenters opposing the current standard
specifically rejected the utility of using qualified claims. Qualified
claims, they contended, will not solve the problems with the ``all or
virtually all'' standard, but would instead be costly, impractical, and
confusing to consumers. One commenter suggested that a qualified claim,
such as ``Made in USA with domestic and foreign parts,'' would not
allow consumers to distinguish between goods made with significant or
minimal foreign parts and would not assist with their decision-making
process. 54 Another commenter argued that consumers
examining a qualified claim would not be informed that a manufacturer
was unable to obtain all of a product's components domestically, and
that, without the cost savings realized from sourcing some components
offshore, the manufacturer could not continue to maintain its U.S.
factory and price its products competitively. 55
---------------------------------------------------------------------------
\54\ FIA, #52, at 3, #177, at 7.
\55\ New Balance, #44, at 22-23. See also BMA, #86, at 6 (a
claim that a bicycle was ``Assembled in the USA from 75% US parts
and labor'' would fail to ``communicate the simple, accurate `Made
in USA' message that Huffy, Murray, and Roadmaster are entitled to
convey: that their bicycles are produced in American factories and
represent the highest commercially feasible level of American
materials, labor and craftsmanship at a certain price level'').
---------------------------------------------------------------------------
Some comments also contended that qualified claims put U.S.
manufacturers at a disadvantage relative to importers who, in most
instances, can indicate a single country of origin, regardless of the
origin of a product's components.56 Other commenters
expressed concern that space limitations may prevent a lengthy
disclosure on the labeling of small consumer items,57 and
that such labeling may not comply with the customs requirements of
foreign countries, which, they asserted, generally require a simple,
clear ``Made in USA'' label. 58 Some comments noted that,
because sourcing requirements and parts costs change continually, any
specific qualifier based on percentages, such as ``Made in USA using
65% U.S. parts,'' would have to be constantly changed at great expense
to the company.59
---------------------------------------------------------------------------
\56\ E.g., New Balance, #44, at 22-23.
\57\ E.g., FIA, #52, at 3: 3M, #98, at 17 (manufacturers may
have to increase a product's packaging size to accommodate a
lengthier qualified marking).
\58\ E.g., #52, at 3; JIG, #88, at 11 (qualified origin claims
are often not recognized as legitimate claims resulting in customs
delays or denied entry of merchandise); 3M, #98, at 19-20 (it is not
certain that other foreign governments would accept a qualified
mark, thereby requiring costly relabeling of products); Polaroid,
#90, at 8.
\59\ E.g.,Electronic Industries Association (``EIA''), #84, at
4, #193, at 4: NEMA, #102, at 5 (qualified claims are unrealistic
due to the complex nature of electrical products and the
administrative costs associated with calculating comparative or
qualified claims).
---------------------------------------------------------------------------
C. Percentage Content Standard
1. Comments Supporting a Percentage Content Standard
Approximately 13 individual consumers and 21 other commenters
favored the adoption of a specific percentage content standard for
unqualified ``Made in USA'' claims. Supporters of this standard include
4 members of Congress; 60 6 trade associations;
61 10 manufacturers and other corporations, 62
and 1 nonprofit organization.63
---------------------------------------------------------------------------
\60\ Kerry, #68, Browder, #119, U.S. Rep. Barney Frank
(``Frank''), #140 (favoring permitting manufacturers to use a ``Made
in USA'' label when they have achieved ``a certain minimum amount of
domestic content,'' but not specifying a specific minimum
percentage); Longley, #118.
\61\ APRA, #30, BMA, #86, at 2-3; FIA, #52, at 3-4, 6, 8-9,
#177; LLGMA, #23, Packaging Machinery Manufacturers Institute
(``PMMI''), #56, RPFMA, #32, at 2,6, #178.
\62\ American Export Association, (``American Export''), #291;
B&W #96; Conair Corp. (``Conair''), #155; Cranston, #38; New
Balance, #44, #197; Packard Bell, #64; Seagate, #95; Secant
Chemicals, Inc. (``Secant''), #247; Sunbeam, #39; UTC, #94. See also
Whirlpool Corp. (``Whirlpool''), #54 (supporting adoption of the
NAFTA preference rules or, alternatively, a 50% content standard.)
\63\ Made in the USA Foundation (``MUSA Foundation''), #28.
---------------------------------------------------------------------------
[[Page 25027]]
Of those commenters supporting a standard based on a percentage
content, approximately 3 supported an 80% domestic content standard for
unqualified ``Made in USA'' claims and at least 6 others supported a
75% standard.64 Most, however, favored a standard permitting
``Made in the USA'' claims for items that undergo final assembly in the
United States and consist of more than 50% domestic content.
---------------------------------------------------------------------------
\64\ American Export, #291 (supporting an 80% standard); MUSA
Foundation, #28, at 4, 14 (supporting a 75% standard; in addition,
would permit a product to be labeled ``Assembled in USA'' if it has
50% or more U.S. content); APRA, #30, at 5 (supporting a 75%
standard and asserting that this would allow items ``substantially
processed or assembled'' in U.S. to claim ``Made in USA'' without
diluting message to consumers); Sunbeam, #39, at 2 (supporting a
standard requiring at least 75% of cost attributable to component
parts made in U.S., and at least 75% of cost of labor performed in
assembling the product into the form in which it is introduced,
delivered, sold offered, or advertised, to be incurred in U.S.). In
addition, approximately two individual consumers supported an 80%
standard; three supported a 75% standard; two supported a 70%
standard; and one supported at 65% standard.
---------------------------------------------------------------------------
Many of those commenters favoring a 50% standard argued that it is
more practical than the ``all or virtually all'' standard in today's
world. The Bicycle Manufacturers of America, for instance, suggested
that requiring a domestic contribution of at least 50% would be ``more
commercially realistic'' given the globalization of the economy.
65 The Rubber and Plastic Footwear Manufacturers Association
stated: ``Any formula which deviates to a considerable degree from this
proposal would have the effect of defeating consumers' desires for
American-made rubber footwear or slippers, since the domestic plants of
most such manufacturers are competitively dependent on the need to use
one or more imported components.'' 66
---------------------------------------------------------------------------
\65\ BMA, #86, at 2.
\66\ RPFMA, #32, at 6.
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Some comments suggested that adoption of a 50% standard would take
into consideration that particular components or raw materials may be
unavailable in the United States. Packard Bell Electronics stated that,
to the best of its knowledge, no personal computers sold in the United
States currently are able to carry a ``Made in America'' label because
none is made with all or virtually all U.S. components and labor. In
part, this is because in many industries, particularly in consumer
electronics, some types of components are not manufactured at all in
the United States, or are domestically manufactured in such small
quantities that it is impossible to obtain the volume of U.S.-made
components necessary to support large manufacturing
operations.67 Other commenters agreed.68
---------------------------------------------------------------------------
\67\ Packard Bell, #64, at 2.
\68\ See e.g. Seagate, #95, at 3; Whirlpool, #54, at 1-2.
---------------------------------------------------------------------------
In addition to being more realistic than an all or virtually all
standard, some commenters also argued that a 50% standard would ensure
that a ``Made in the USA'' claim would be limited to products with
substantial U.S. content. The Rubber and Plastic Footwear Manufacturers
Association concluded that a 50% standard ``requires a `substantial'
share of components and labor to be of American origin,'' and provides
``consumers who prefer American-made products because of their desire
to preserve American jobs and/or quality'' with the information they
need to choose between competing products and manufacturers with an
``effective way of distinguishing between the output of American plants
and that of foreign plants.'' 69 By contrast, it asserted
that ``a final assembly, substantial transformation or significant
processing test, standing alone without a required percentage of
domestic value and/or labor, would so dilute the significance of a Made
in USA logo * * * as to be virtually meaningless.'' 70
Seagate Technology similarly maintained that a standard that requires
that more than 50% of the value of the parts and components be
domestically produced and that the final act of ``manufacture'' take
place in the U.S. is sufficient to protect consumers' expectations
concerning the ``Made in USA'' mark.71
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\69\ RPFMA, #32, at 2, 6.
\70\ Id., #178, at 2-3.
\71\ Seagate, #95, at 6 (citing with approval the Buy American
Act).
---------------------------------------------------------------------------
Some commenters further argued that a 50% U.S. content standard
also would support the creation or retention of U.S. jobs. New Balance
Athletic Shoe, Inc., for example, asserted:
For industry, given that there are strong economic incentives to
move offshore and dramatically reduce labor and other costs,
whatever advantage might accrue from use of the ``Made in USA''
label provides at least some incentive to stay in the U.S. to
counterbalance the clear economic benefits of locating elsewhere. *
* * A standard allowing the use of ``Made in USA'' claims when a
manufacturer uses a majority of domestic materials and labor would
help to level a very uneven playing field.72
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\72\ New Balance, #44, at 21-22, #197, at 3.
---------------------------------------------------------------------------
Footwear Industries of America agreed, stating that a 50% U.S. content
standard ``would have the advantage of encouraging American companies
to do more domestic sourcing so that they could proclaim their American
content,'' while still giving them sufficient flexibility to maintain
their labeling even if their sourcing changed somewhat during the
manufacturing process.73
---------------------------------------------------------------------------
\73\ FIA, #52, at 3-4.
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Some commenters supporting a 50% standard pointed to the wide
variety of regulations governing domestic content claims both within
the U.S. and internationally (e.g., Customs' rules, FTC standards, the
Buy American Act, the North Atlantic Free Trade Agreement, the World
Trade Organization's potential standards), and suggested that the
Commission adopt a standard that is consistent with an existing
test.74 Seagate Technology urged the Commission to adopt the
50% standard of the Buy American Act, arguing that this is an
established standard with which the industry is well-versed and
knowledgeable, and that it would avoid burdening U.S. manufacturers
with yet another new and different standard.75
---------------------------------------------------------------------------
\74\ E.G., Seagate, #95, at 3, 6; B&W, #96, at 2-3; American
Association of Exporters and Importers, (``AAEI''), #37, at 2, 4-5;
Balluff, #69, at 2.
\75\ Seagate, #95, at 2-3.
---------------------------------------------------------------------------
Seagate Technology, along with several other commenters, further
maintained that the Buy American Act's 50% U.S. content standard,
coupled with a requirement for final assembly in the U.S., would be
consistent with consumers' expectations and the need for accurate
product information. Thus, Seagate asserted:
The Buy American Act standard has been in existence for more than
60 years and is well understood in the computer industry. It is
sufficient to protect consumers' expectations concerning the ``Made in
USA'' mark because it both requires (1) a significant amount of U.S.
content, i.e., more than 50% of the value of the parts and components
must be domestically produced and (2) that the final act of
``manufacture'' take place in the United States. If clear guidelines
are developed concerning the elements of value that are considered in
the 50% test as well as the meaning of the term ``manufacture,'' the
Commission can be assured that it has protected consumers''
expectations that significant U.S. labor and jobs were involved in the
creation of the product that is being purchased.76
---------------------------------------------------------------------------
\76\ Id. 2. See also RFPMA, #32, at 6; New Balance, #44, at 26-
27; B&W, #96, at 2 (supports adoption of a Buy American Act 50%
domestic content standard because it will provide certainty to
manufacturers and still properly protect consumer expectations);
FIA, #52, at 4, #177, at 3 (1995 FTC consumer perception study
supports view that 50% U.S. content plus final assembly in U.S.
would satisfy consumer perception of significant processing in
U.S.), at 6-7 (50% U.S. content plus final assembly in U.S. would
generally ensure that product would have a new name, character and
use as a result of U.S. operations would fulfill Customs'
substantial transformation requirements, and would comport with
consumer perceptions).
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[[Page 25028]]
2. Comments Opposing a Percentage Content Standard
Commenters who specifically opposed adopting a percentage content
standard for unqualified ``Made in USA'' claims generally fell into two
groups. One group, composed of at least 14 commenters 77
(and generally supportive of a substantial transformation-type
standard) was concerned that the calculations required by any
percentage standard would be onerous. The other, composed largely of
those who supported the current standard, 78 was primarily
concerned that a 50% standard was too low and unlikely to result in an
appropriate level of U.S. content.
---------------------------------------------------------------------------
\77\ AAEI, at 346-347; Balluff, #69; Caterpillar, #104; Compaq,
#62; Gates, #50; IEMCA, #189; International Mass Retail Association
(``IMRA''), #46; JIG, #88; NCITD, #89; Polaroid, #90; Red Devil,
Inc. (``Red Devil''), #139; Stanley, #59; 3M, #98 U.S. Watch
Producers in the U.S. Virgin Islands (Watch Producers''), #192;
Writing Instrument Manufacturers Association, Inc. (``WIMA''), #133.
See also AAF, #100 (advocating a case-by-case approach and
criticizing a bright-line percentage standard).
\78\ E.g., AGs, #43; American Hand Tool, #186; Deere, #57;
Jefferson Democratic Club, #61; Vaughan & Bushnell, #191; Weldbend,
#190. Most of those supporting a 100% standard, of course, either
explicitly or implicitly rejected adoption of a lower percentage.
---------------------------------------------------------------------------
A number of commenters opposing a percentage content standard
stated that adoption of any such standard would be arbitrary and
emphasized that a single percentage would not be appropriate for all
manufacturing processes. In the International Mass Retail Association's
view, the Commission cannot pick a single number--such as 75% or 50%
value--and create a yardstick that will be fair or non-deceptive,
because the value added depends so much on the type of
product.79 The Joint Industry Group agreed, maintaining that
the selection of any quantitative basis for an advertising or labeling
claim is necessarily arbitrary. If a 50% U.S. content rule is adopted,
for example, there is likely to be no appreciable difference in goods
featuring 49.5% and 50.5% U.S. content, respectively--although the
goods would have different labeling and advertising requirements under
such a test.80 Further, Gates Rubber Co. asserted that
differences in relative domestic content may be found where identical
constituent parts are imported from different countries at different
costs. Alternatively, the same operations can be performed in the U.S.
yet the domestic content will vary based on wage rates, yields,
variable material costs, capacity utilization, or other factors.
Fluctuations in exchange rates could cause origin to change over time,
if a bright-line percentage-of-value test is adopted.81
---------------------------------------------------------------------------
\79\ IMRA, #46, at 8-9. See also Stanley, #59, at 8 (no specific
percentage content could be applied across the board that could
serve as a useful guide for determining whether consumers may be
deceived).
\80\ JIG, #88, at 8-9. See also Polaroid, #90, at 6; AAF, #100,
at 3-4 (strict thresholds, e.g., 75%, likely to deprive consumers of
valuable information; there is no useful distinction between
products 70% and 75% American made).
\81\ Gates, #50, at 2.
---------------------------------------------------------------------------
Several commenters opposed adoption of a percentage content
standard because of the administrative burdens and costs it would
impose on companies. Compaq Corp., for example, stated that percentage
content tests are arbitrary, difficult to administer, and can lead to
absurd or anomalous results.82 Similarly, the Joint Industry
Group and Polaroid maintained that minor changes in a producer's
sourcing patterns, in the price for a given material, and variances in
depreciation, units produced and other fixed and variable dependent
cost allocations can change the result of a country-of-origin marking
determination.83 According to Deere and Co., many components
may be outsourced and shipped to the manufacturer in an assembled
state. Although unknown to the manufacturer, some of the parts of the
purchased component may be foreign sourced. Therefore, companies may
face many problems in determining the source of all subcomponents and
then determining the ``Domestic Content'' of a finished
product.84 The Joint Industry Group and Polaroid asserted
that a percentage content standard also would require companies to
conduct detailed internal cost analyses in order to accurately
determine the exact domestic content for their products. Furthermore,
as sourcing patterns shift, and prices of materials, labor, and other
fixed and variable cost allocations change, companies would have to
update their cost/value analyses constantly.85 Thus, a cost-
of-production or value-added requirement, these commenters argued,
could add a burdensome and complicated new layer to the rules-of-origin
requirements already faced by manufacturers.
---------------------------------------------------------------------------
\82\ Compaq, #62, at 5 (noting, for example, that two companies
performing the same operations in U.S. may receive different origin
determinations simply because they paid different prices for a given
material or component).
\83\ JIG, #88 at 8-9, #196, at 2; Polaroid, #90, at 5-6. (two
companies performing the same operations in U.S. may receive
different origin determinations simply because they paid different
prices for a given material or component).
\84\ Deere, #57, at 1.
\85\ JIG, 88, at 9, #196, at 2; Polaroid, #90, at 7.
See also #98, at 18 (the added accounting requirements associated
with a value content test would be overwhelming); WIMA, #133, at 3,
5 (questions will continually arise regarding accounting, valuation
and profit methodology; whatever the specific percentage standard,
would require a complex set of calculations); NCITD, #89, at 3
(would require substantial investigation, calculation, and paperwork
from too many sources).
---------------------------------------------------------------------------
The International Electronic Manufacturers and Consumers of America
summarized the burdens:
An * * * important reason for opposing a percentage content
standard is the complexity such a rule would impose on producers and
marketers of goods. A percentage content standard, no matter what
specific percentage is chosen, poses an accounting nightmare for
producers of sophisticated electronic products, with components and
production costs from multiple sources. A cost-of-production or
value added requirement would add a burdensome and complicated new
layer to the rules of origin requirements already faced by IEMCA
members. Moreover, * * * cost fluctuations for components in
electronic products would render such a system completely
inconsistent and unworkable; a product might pass, e.g., a 50%
content test one day and, after component cost fluctuations, fail
the same test on another day, even though the exact same product
using the exact same foreign and domestic inputs is ``made'' in the
United States.86
---------------------------------------------------------------------------
\86\ IEMCA, #189, at 6.
---------------------------------------------------------------------------
Given all of the variables in the production process, one
participant in the workshop, a representative of the American
Association of Exporters and Importers, argued that it would very
difficult to know in advance whether the finished product would meet
the percentage threshold. The American Association of Exporters and
Importers representative expressed concern that a manufacturer may
prepare advertising and packaging fully anticipating to be able to
claim ``Made in the USA'' for the product, only to find that, during
production, a currency fluctuation occurs and the product no longer
meets the standard.87
---------------------------------------------------------------------------
\87\ Gail Cumins for AAEI, Tr. at 346-247.
---------------------------------------------------------------------------
For this reason, some commenters also suggested that a percentage
content standard would be expensive and difficult for the Commission to
enforce. The Stanley Works and the Joint Industry Group maintained that
the enforcement effort required would be enormous and wholly
inconsistent with the current government downsizing trend.
88
---------------------------------------------------------------------------
\88\ Stanley, #59, at 9; JIG, 88, at 9-10. See also
Polaroid, 90, at 7-8; WIMA, 133, at 5 (percentage
content standard would require constant case-by-case basis
examination by the FTC).
---------------------------------------------------------------------------
[[Page 25029]]
The Attorneys General expressed similar reservations, albeit from
the contrasting perspective of ``all or virtually all'' supporters,
about the application of a percentage content standard and the
difficulty of enforcing such a standard. In addition, the Attorneys
General suggested that in some circumstances a percentage content
standard might distort the relative weight of U.S. and foreign content.
The Attorneys General thus urged the Commission not merely to apply
mechanically such a standard:
In applying the formula, the FTC would need to create strict
definitions of raw materials and would have to anticipate an endless
number of contexts in which a manufacturer might wish to make a Made
in the U.S.A. claim. While cost might be the best way to compare
domestic and foreign content in many instances, sheer monetary
measures are not universally appropriate. Indeed, rote application
of any formula could lead to the anomalous result that a shirt made
in a ``sweatshop'' in a foreign country from materials originating
in the U.S.A. could be labeled as Made in the U.S.A. if the cost of
the labor comprises a small portion of the product's total cost.
Moreover, we have seen no consumer surveys linking consumer
perception of Made in the U.S.A. to the cost of component parts as
opposed to size, prominence or number of the component
parts.89
---------------------------------------------------------------------------
\89\ AGs, #43, at 7.
---------------------------------------------------------------------------
Several commenters also opposed a percentage content standard
because it does not reflect consumer understanding. The International
Electronics Manufacturers and Consumers of America, for example, argued
that the consumer survey results did not demonstrate that consumers
understand ``Made in USA'' to mean that some specific minimum
percentage of the production costs are domestic, and that there is no
indication that buyers of electronic products focus on the specific
percentage of domestic or foreign content in their understanding of a
``Made in [anywhere]'' marking.90 Some commenters supporting
the current standard emphasized that a percentage content standard
would be at odds with consumer perceptions by permitting items with
significant foreign content to be claimed ``Made in USA.'' The American
Hand Tool Coalition, for example, asserted that percentage thresholds,
whether 50% or 70%, are inconsistent with consumers' interpretation of
``Made in USA'' and would result in deception of a large proportion of
the U.S. consuming public.91 Along these lines, a
representative from the International Brotherhood of Teamsters stated
at the workshop:
\90\ IEMCA, #189, at 6.
\91\ American Hand Tool, #186, at 21. See also Vaughn & Bushell,
#97, at 3-4 (would depart from consumer perceptions and generate
considerable confusion in the marketplace; even 90% threshold could
permit some tools manufactured with foreign-forged metal to qualify
for the ``Made in USA'' label; consumers would not be able to
distinguish between genuine domestically forged metals and imported
substitutes).
---------------------------------------------------------------------------
I think one of the real problems as [a] public policy kind of
matter is that for the FTC to come out and say it's okay for the
``Made in America'' standard to apply to something which has as
little as 50 percent American content can only lead to increased
cynicism, increased disbelief, increased inability of consumers to
pay any attention whatsoever, and to have any of these advertising
slogans or anything else to have meaning.92
---------------------------------------------------------------------------
\92\ Sarah Vanderwicken for IBT, Tr. at 250-251.
---------------------------------------------------------------------------
Finally, some commenters supporting an ``all or virtually all''
standard expressed concern that a percentage content standard may hurt
domestic jobs and industry. For example, a participant at the public
workshop suggested that manufacturers whose domestic content exceeds
the minimum percentage required to claim ``Made in USA'' (for example,
50%) will have an incentive to ``move some production offshore so they
still stay within whatever is the tolerance level to make the claim,
but save on cost.'' 93
---------------------------------------------------------------------------
\93\ Jeanne Archibald for American Hand Tool, Tr. at 348. See
also UAW, #93, at 3.
---------------------------------------------------------------------------
3. Calculation of U.S. content
Under any percentage content standard, a marketer must determine
how to measure the value of U.S. content. In response to questions
posed in the Commission's Federal Register notices, a number of
comments discussed which costs should and should not be included, as
well as how far back in the manufacturing process to go in making the
calculation.
a. Costs to be included. There was a considerable range of opinion
as to the type of costs that should be included in a determination of
U.S. content. One commenter, the Retired Workers Council, Region I-A,
of the UAW, suggested that any calculation of U.S. content should be
based on labor hours and should exclude ``[o]verhead, advertising [and]
financing at any point.'' 94 At the other end of the
spectrum, Balluff, Inc., proposed that the definition of U.S. content
should extend to costs of development, engineering, profit, and the
overhead costs to maintain the product's made in USA
status.95 The largest number of commenters suggested that
all direct manufacturing costs, including manufacturing overhead, be
included in the computation of U.S. content.96 Hager Hinge
stated ``[T]he calculation should be made on a labor and material cost
basis only, including direct overhead.'' 97 Conair Corp.
suggested that the determination of domestic content should include
labor and fringe benefits for shipping, receiving, warehousing, and
packaging as well as overhead and the cost and amortization of capital
equipment and square footage.98
---------------------------------------------------------------------------
\94\ UAW/RWC, #33, at 2.
\95\ Balluff, #69, at 3.
\96\ E.g., FIA, #52, at 1, 4, 6-9, #177, at 1, 4-5; New Balance,
#44, at 26. See RPFMA, #32, at 5, #178, at 4; Dynacraft, #173, at 9;
(``The Ad Hoc Group''), #183, at 2-3; American Hand Tool, #186, at
30; AAEI, #187, at 5; and Hager, #160, at 2.
\97\ Hager, #160, at 2.
\98\ Conair, #155, at 1.
---------------------------------------------------------------------------
A few comments specifically addressed whether profit should be
included in the calculation of U.S. content. Seagate Technology stated
that the profit made by the final assembler in the U.S. should
constitute part of the domestic value.99 Hager Hinge,
however, insisted that ``profit is an entirely separate issue and
should not be a part of the calculation.'' 100
---------------------------------------------------------------------------
\99\ Seagate, #95, at 6. See also Balluff, #69, at 3.
\100\ Hager, #160, at 2. See also UTC, #94, at 2; NEMA, #102, at
8; American Hand Tool, #186, at 30; and FIA, #52, at 8.
---------------------------------------------------------------------------
The commenters also expressed a variety of opinions as to whether,
and to what extent, raw materials should be included in the calculation
of U.S. content. At least five commenters maintained that raw material
costs should be included in final product cost.\101\ Others, however,
suggested that raw materials that were not direct inputs into final
products should be excluded.\102\ A few commenters suggested that the
Commission exclude from total product cost only a narrowly defined
class of raw materials. The Ad Hoc Group, for example, proposed
[[Page 25030]]
excluding natural resources (which it defined as ``products such as
minerals, plants or animals that are processed no more than necessary
for ordinary transportation'') that are not indigenous to the United
States.\103\ Similarly, the Attorneys General indicated that only
materials ``not significantly transformed from their natural
conditions'' should be excluded.\104\ Finally, some commenters proposed
industry-specific limitations on the inclusion of raw materials.\105\
---------------------------------------------------------------------------
\101\ MUSA Foundation, #28, at 12-13; Seagate, #95, at 6;
Conair, #155; American Hand Tool, #186, at 17-20; AAEI, #187, at 6.
See also UAW, #174 at 3 (in suggesting further definition of the
``all or virtually all'' standard, would not create a blanket
exception for all raw materials because, for some products, raw
materials will account for a large share of final product cost,
while for others, raw material costs will be negligible).
\102\ FIA, #52, at 6-7 (include raw materials in cost of
materials but only if within one-step back; if not, exclude because
it is infeasible to make sellers determine the source of
subcomponents and other inputs that are incorporated into the parts
they purchase); Balluff, #69, at 3 (raw materials costs should be
used in determining the calculation for a subassembly if the only
product the company was producing was from raw material, e.g., steel
manufacturers, oil refineries, diamond producers). See also B&W,
#96, at 3 (foreign raw materials should be considered part of U.S.
content if they undergo significant processing in the U.S. and are
then used further in producing the finished product).
\103\ Ad Hoc Group, #183, at 3. See also American Hand Tool,
#186, at 19-20, (opposing exclusion of raw materials, but supporting
a similar definition if such materials are to be excluded); FIA,
#177, at 4 (exclude raw materials one-step back only if not
indigenous to the United States).
\104\ AGs, #43, at 10-11.
\105\ E.g., APRA, #30, at 4 (define raw materials in the
automotive rebuilding industry to exclude cores, e.g., old motor
vehicle parts); EIA, #84, at 7 (raw materials of electronics
industry are electronic or mechanical piece parts, i.e.,
transistors, capacitors, terminals, wiring harnesses, screws, DRAMs,
LEDs, plastic parts, which generally are ordered from piece part
suppliers). See also UAW, #174, at 3 (asserting that the definition
of raw materials may not be standard across industries and citing as
an example that coated alloy steel could be considered a raw
material by some companies and a manufactured product by others).
---------------------------------------------------------------------------
b. How far back to look. In its October 18, 1995 and April 26, 1996
notices, the Commission sought comment as to how far back in the
production process marketers should look in calculating the percentage
of total product cost attributable to U.S. content. Specifically, in
its questions about implementation of the all or virtually all and
percentage content standards, the Commission sought comment on whether
it was adequate for a marketer to look only ``one step back'' in the
manufacturing process, i.e., to where the immediate inputs into the
final product were produced, or whether the marketer should look
further back, i.e., to where the subcomponents that went into that
input were produced. In other words, in determining what percentage of
a refrigerator is U.S. content, is it adequate to know that the
compressor underwent final production in the United States, or must the
marketer also inquire as to where the parts that make up that
compressor were made? The Commission further sought comment on how to
define a ``step'' for these purposes.
Most of the commenters who addressed how far back manufacturers
should look to determine the amount of domestic content advocated a
``one step back'' approach. 106 They contended it would be
unduly burdensome and impractical to require manufacturers to make
inquiries beyond the suppliers from whom they purchase materials or
components. 107 Footwear Industries of America, for example,
explained:
\106\ E.g., LLGMA, #23, at 4; RPFMA, #32, at 5, #178, at 4; FIA,
#52, at 1, 6-8, #177, at 1, 3-4; EIA, #84, at 8, #193, at 2-4; Ad
Hoc Group, #183, at 2.
\107\ E.g., RPFMA, #32, at 5, #178, at 4; FIA, #52 at 7-8, #177,
at 3-4.
---------------------------------------------------------------------------
While manufacturers should be able to determine the source of
raw materials and components they purchase directly, it is entirely
infeasible to make sellers determine the source of subcomponents and
other inputs that are incorporated into the parts they purchase.
Suppliers often buy inputs from a variety of sources, depending on
market conditions, and do not keep track of which inputs go into
which end product. To require such comprehensive tracking would be
difficult for every manufacturer, but exceptionally hard for those
that use a substantial quantity of small inputs from various
countries. 108
\108\ FIA, #52, at 7. See also id., #177, at 3-4.
---------------------------------------------------------------------------
And, in a similar vein, the Rubber and Plastic Footwear
Manufacturers Association commented:
Anything beyond one step back would create an unduly formidable
burden which manufacturers should not be expected to meet,
particularly since the net effect on American employment and quality
of product would in the vast majority of cases be de
minimis.109
\109\ RPFMA, #32, at 5. See also id, #178, at 4.
---------------------------------------------------------------------------
A few commenters supporting an all or virtually all standard
submitted comments opposing a ``one step back'' approach. Dynacraft
Industries stated that such an approach was not appropriate for the
bicycle industry, and urged the Commission to require that U.S. content
be calculated based on all stages of production. It asserted, among
other things, that the ``one step back'' approach could lead to
circumvention of the standard by, for example, permitting an
unscrupulous party to restructure sourcing to purchase through
middlemen in the U.S. and claim the part is of U.S.
origin.110 The American Hand Tool Coalition similarly
opposed allowing manufacturers to look only one or two steps back in
the manufacturing process to determine the origin of a product's
components and therefore the origin of the product. The Coalition
asserted that, regardless of how a manufacturing ``step'' is defined,
such an approach would be subject to manipulation and ``would conflict
with consumers' understanding of `Made in USA.' '' 111
---------------------------------------------------------------------------
\110\ Dynacraft, #173, at 8.
\111\ American Hand Tool, #186, at 14-17.
---------------------------------------------------------------------------
The United Auto Workers suggested that in most cases, looking ``two
steps back'' to unrelated supplier firms would be sufficient to
identify nearly all foreign content. It suggested that ``two step
back'' information would be critical for complex products such as
electronics that use imported components. 112 The United
Auto Workers also concluded, however, that in many cases obtaining the
first tier supplier's U.S. content level (``one step back'') should be
sufficient. 113
---------------------------------------------------------------------------
\112\ UAW, #174, at 2-3.
\113\ Id. at 3 (noting, for example, that if a part that
accounted for 10% of the value of the final product was 50% foreign
value, the contribution of this part to the foreign value of the
final product would be only 5%; on the other hand, if the 50%
foreign part accounted for 30% of final product's value, this
foreign content alone would account for 15% of final product's
value).
---------------------------------------------------------------------------
D. Substantial Transformation Standard
1. Comments Supporting a Substantial Transformation Standard
The Commission received comments from approximately 24 commenters
favoring some version of a ``substantial transformation''
standard.114 These commenters included 10 trade
associations,115 12 manufacturers,116 a law firm
specializing in international trade law,117 and the U.S.
Customs Service.118 While some of the commenters in this
group expressed a preference for substantial transformation generally,
or for any standard consistent with that of the U.S. Customs Service,
others advocated adoption of a specific form of substantial
transformation, such as the tariff-shift approach employed by the NAFTA
Marking Rules.119 In addition, some commenters urged the
Commission eventually to adopt whatever standard is ultimately
[[Page 25031]]
accepted by the WTO.120 At least one commenter suggested
that adopting the actual Customs rules was less important than that the
Commission adopt a standard that, like substantial transformation,
focused on the processing of a product rather than on the value of its
components.121 At the workshop, others also voiced support
for a ``processing'' approach.122
---------------------------------------------------------------------------
\114\ In addition, approximately 4 individual consumers
indicated support for a standard by which a product put together or
assembled in the United States could be labeled Made in USA even if
it was assembled from imported parts.
\115\ IEMCA, #99, #189; JIG, #88, #196; U.S. Apparel Industry
Council (``USAIC''), #24; WIMA, #133; AAEI, #37, #187; NCITD, #89;
Watch Producers, #192; IMRA, #46, #184; American Wire Producers
Association (``AWPA''), #65 (advocating adoption of the Customs
standard specifically for steel wire, steel wire products and wire
rod); Committee of Domestic Steel Wire Rope and Specialty Cable
Manufacturers (``Domestic Steel Wire Rope''), #63 (advocating
adoption of the Customs standard specifically for steel wire rope).
\116\ Balluff, #69; Caterpillar, #104; Compaq, #62; Gates, #50;
Okidata, #42; Polaroid, #90; Red Devil, #139; Timkin Co. and
Torrington Co. (``Timkin/Torrington''), #51 (advocating adoption of
the Customs standard specifically for antifriction bearings);
Toshiba, #34; Stanley, #59, #194; 3M, #98, #198. See also Packard
Bell, #64 (suggesting that adoption of a WTO standard would be the
best solution, but supporting a percent content standard in the
interim).
\117\ Meeks and Shephard (``Meeks''), #105.
\118\ Customs, #29 (suggesting for unqualified ``Made in USA''
claims that a product be substantially transformed in the United
States and have a 35% U.S. value-content).
\119\ AAEI, #37, #187; Gates, #50; 3M, #98, #198; NCITD, #89;
Polaroid, #90.
\120\ AAEI, #187; Compaq, #62; USAIC, #24; IEMCA, #99, #189;
IMRA, #46, #184; Stanley, #59, #194; JIG, #88, #196; Meeks, #105;
3M, #98, #198.
\121\ IMRA, # 46, at 9-11.
\122\ E.g., Cynthia Van Renterghem for NEMA, Tr. at 268; James
Clawson for JIG, Tr. at 389.
---------------------------------------------------------------------------
Many of the commenters favoring a substantial transformation
standard expressed concern that the FTC's standard was inconsistent
with that of the Customs Service. Some remarked on the incongruity of
not being able to mark a product ``Made in USA'' under FTC policy even
though the Customs Service would not require it to be marked with a
foreign country of origin.123 Several of the commenters,
moreover, pointed to the benefits associated with using a standard that
was consistent with that used by a sister federal agency. If FTC policy
was harmonized with Customs rules, Compaq Corp., for example, noted,
``manufacturers would not incur the additional expense of monitoring
compliance with two potentially conflicting origin criteria.''
124 Similarly, the Stanley Works argued that ``Use of
substantial transformation would unify and harmonize domestic marking
regulation. . . . business could look to a single, uniform set of
marking regulations.'' 125 Other commenters noted the number
and variety of laws already in existence related to country-of-origin
labeling and argued that using the substantial transformation standard
used by Customs had the advantage of ``not adding to the regulatory
burden of U.S. companies.'' 126
---------------------------------------------------------------------------
\123\ E.g., Meeks, #105, at 1; Polaroid, #90, at 3.
\124\ Compaq, #62, at 3.
\125\ Stanley, #59, at 8.
\126\ WIMA, #133, at 5. See also Caterpillar, #104, at 2;
Okidata, #42, at 1-2; Toshiba, #34, at 3.
---------------------------------------------------------------------------
In a similar vein, a number of commenters noted that because
businesses must already comply with Customs requirements, the
substantial transformation standard is familiar to industry and can be
readily complied with. Thus, the Joint Industry Group asserted that
application of the substantial transformation standard will ``bring
benefits of predictability, transparency, and enforceability to the
process.'' 127 The American Association of Exporters and
Importers echoed this view, contending that ``the Customs standard,
which has been the subject of thousands of administrative rulings and
court opinions, will be more objective than the FTC standard, which has
never been authoritatively defined.'' 128 The Writing
Instruments Manufacturers Association and the Timkin and Torrington
companies also each praised the substantial transformation test for
establishing a ``bright-line rule.'' 129
---------------------------------------------------------------------------
\127\ JIG, #88, at 3. See also JIG, #196, at 3; IECMA, #99, at
2, #189, at 3 (substantial transformation rule is understandable and
usable, and there is a body of customs law and precedent for
producers of virtually every product to follow).
\128\ AAEI, #37, at 4. See also 3M, #98, at 11, 18 (stating that
the NAFTA Marking Rules ``provide a workable and objective
standard'' and that ``[m]any U.S. manufacturers already are
operating under the NAFTA and performing the required NAFTA Marking
Rule analysis for their products.'' 3M, however, at the same time
characterized the traditional case-by-case application of the
Customs principle of substantial transformation as ``too
subjective.'').
\129\ WIMA, #133, at 2; Timkin/Torrington, #51, at 2. See also
Stanley, #59, at 9.
---------------------------------------------------------------------------
Perhaps the most frequently cited advantage of the substantial
transformation standard, however, was that it is consistent with the
standards used by most other countries, and its adoption was seen by
many of these commenters as an action that would facilitate
international trade. ``Obtaining uniformity and flexibility in country
of origin labeling,'' stated the U.S. Apparel Industry Council, ``would
enable manufacturers to more efficiently supply wearing apparel to an
increased number of countries. This benefits consumers and
manufacturers alike * * *.'' 130 Similarly, the American
Association of Exporters and Importers noted that adoption of labeling
requirements consistent with those of other countries would benefit the
increasing number of companies developing international labels for
their products.131
---------------------------------------------------------------------------
\130\ USAIC, #24, at 3.
\131\ AAEI, #37, at 4-5.
---------------------------------------------------------------------------
Many commenters pointed in particular to instances where a
manufacturer would not be permitted by the FTC to mark its product
``Made in USA,'' but would be required to do so by a foreign country
when the same product is exported.132 ``To meet these
conflicting requirements,'' Polaroid asserted, ``US companies are often
required to establish special packaging and relabeling facilities, and
to design and manufacture multiple forms of packaging for different
destination markets.'' 133 The Stanley Works also
highlighted the costs associated with preparing separate packaging for
domestic and exported products, stating:
\132\ E.g., Caterpillar, #104, at 1-2; IEMCA, #189, at 5.
\133\ Polaroid, #90, at 3. See also IEMCA, #99, at 2.
---------------------------------------------------------------------------
A packaging change alone, without considering the additional
administrative costs associated with maintaining dual inventories,
costs Stanley roughly $250 per stock keeping unit. That amount
multiplied by the thousands of individual products made by Stanley
graphically illustrates the steep, unnecessary costs of maintaining
dual inventories.134
\134\ Stanley, #59, at 6.
---------------------------------------------------------------------------
This theme was reiterated by 3M, which stated that:
With regard to relabeling, 3M has in many cases chosen not to
label its U.S. products with an origin mark (so that they can be
sold in the United States without violating the Commission's
standards), only to have to add a sticker indicating ``Made in USA''
to comply with a foreign country's marking requirement. The
stickering not only increases costs and burdens on 3M, but also
makes the 3M products look less physically attractive to the
consumer.135
\135\ 3M, #98, at 4.
---------------------------------------------------------------------------
Furthermore, several commenters supporting the substantial
transformation standard argued that adoption of this standard was in
keeping with efforts of the United States and other countries, through
the WTO and other means, to harmonize international marking standards.
Thus, one commenter suggested that ``because substantial transformation
is the conceptual basis for emerging international origin standards,
the Commission's adoption of this test would greatly aid international
efforts to harmonize rules.'' 136
---------------------------------------------------------------------------
\136\ Watch Producers, #192, at 2. See also USAIC, #24, at 3
(``uniformity in country of origin rules will meet a stated
objective of NAFTA and the GATT Uruguay Round Agreements'').
---------------------------------------------------------------------------
Finally, a number of commenters argued that the substantial
transformation standard serves to protect consumers. These commenters
noted that the marking requirements applied by Customs were intended,
like the Commission's policy, to ensure that consumers received
accurate information about the origin of the products they
purchased.137 In addition, several commenters pointed out
that, because the FTC and the Customs Service apply different tests, a
``Made in USA'' label had different meaning from one that said ``Made
in [foreign country],'' and that this was likely to lead to
considerable consumer confusion. Observed one commenter, ``A reasonable
buyer surely does not understand that a `Made in U.S.A.' product must
be all or virtually all U.S. content, while a product `Made in Japan'
may, on the other hand, have
[[Page 25032]]
substantial content from other countries.''138 Similarly,
another commenter argued:
\137\ Compaq, #62, at 8; Okidata, #42, at 1-2; Stanley, #59, at
3-4; 3M, #98, at 13.
\138\ Watch Producers, #192, at 11.
---------------------------------------------------------------------------
A ``Made in COUNTRY X'' claim should represent the origin of the
underlying product to consumers in a consistent manner, whether the
relevant country is the United States or any other country. The
long-standing Customs marking rule of origin, based on substantial
transformation, applies to the country of origin markings on all
imports. Consumers should not be faced with a conflicting origin
rule for products marked ``Made in USA.'' 139
\139\ IEMCA, #189, at 3. See also JIG, #88, at 2 (``When a
consumer buys a product labeled ``Made in Japan,'' the consumer
should have the same understanding of that product's origin as one
labeled ``Made in USA'.''); USAIC, #24, at 3 (``It is not realistic
to assume that consumers know or believe ``Made in U.S.A.''
determinations are based on rules which differ from the rule for
``Made in [Foreign Country].'' With uniform rules, consumers will be
able to make informed decisions about product origin without the
confusion now associated with country of origin marking.'').
---------------------------------------------------------------------------
Several of these commenters also argued that the substantial
transformation standard is consistent with consumer perception. One
commenter, for example, suggested that substantial transformation
``fits with general consumer perception that an article is made in the
place where it takes on its final identity or is transformed into a new
item.'' 140 3M asserted that ``consumers are concerned with
the major elements of a product and its final place of manufacture.
Consumers are not concerned with detailed accounting procedures and do
not understand the significance of allocating general overhead
expenses, etc.'' 141 Moreover, some commenters specifically
pointed to the consumer survey evidence as supporting a similar view.
For instance, IEMCA stated that:
\140\ WIMA, #133, at 3 (emphasis in original).
\141\ 3M, #98, at 24.
---------------------------------------------------------------------------
While the results of various consumer surveys presented at the
workshop failed to reveal a universal consumer attitude about the
meaning of ``Made in USA,'' at least one simple perception was
evident: consumers feel that ``Made in USA'' means that the product
was ``made'' domestically. Nothing in the survey results indicate
that consumers typically understand this to mean that 100% of the
content or labor that went into producing all components of the good
was domestic. Rather, as elucidated by several participants in the
workshop, consumers, by and large, view the ``Made in * * *''
language to indicate where the ultimate product ``came into being.''
142
---------------------------------------------------------------------------
\142\ IEMCA, #189, at 3 (emphasis in original).
---------------------------------------------------------------------------
2. Comments Opposing a Substantial Transformation Standard
At least 15 commenters specifically criticized a substantial
transformation standard.143 The most frequent criticism
voiced was that the standard is too low and permits goods with
significant foreign content to be labeled ``Made in USA'' because one
step in the manufacturing process has been performed in the United
States. The Footwear Distributors and Retailers of America maintained
that using a substantial transformation standard, a manufacturer could
claim that its shoes were made in the U.S. if the shoes were assembled
using imported uppers and outsoles:
\143\ American Hand Tool, #91, #186; APRA, #30; Cranston, #38;
Diamond Chain, #55; Dingell, #153; Estwing, #179; FDRA, #27, #172;
FIA, #52, #177; New Balance, #44, #197; RPFMA, #178; Summitville,
#162; Tileworks, #156; UAW, #93, #174; Vaughan & Bushnell, #191;
Welbend, #190. In addition, although the coalition of state
Attorneys General did not specifically address substantial
transformation in their written comments, the coalition's
representative at the public workshop did voice his concerns about
the substantial transformation standard during the proceedings. See,
e.g., Roger Reynolds for AGs, Tr. at 434. Some commenters opposed a
``pure'' form of substantial transformation such as used by Customs
(indicating that in some circumstances such a standard might not
ensure that sufficient work was performed in the United States), but
suggested that a modified version could be acceptable. E.g., EIA,
#84, at 6, #193; BMA, #195.
---------------------------------------------------------------------------
Under the rules promulgated by Customs, footwear assembled in
Country B with an upper manufactured in Country A and an outsole
manufactured in Country C would be labeled as a product of Country
B, without qualification. By the same token, footwear assembled in
this country using both imported uppers and outsole, need not be
marked with a foreign country of origin.144
---------------------------------------------------------------------------
\144\ FDRA, #27, at 3. See also id., #172, at 4-5.
---------------------------------------------------------------------------
The Footwear Industries of America maintained that this problem
extends across an array of products ``because virtually any product
could have a new name, character and use after its foreign components
are finally assembled in the United States.'' 145
---------------------------------------------------------------------------
\145\ FIA, #177, at 6. See also id., #52, at 4.
---------------------------------------------------------------------------
Other commenters also argued that the substantial transformation
standard fails to ensure that products claiming to be ``Made in the
USA'' actually contain significant domestic content. The United Auto
Workers, for example, point to Customs' practice of adding a value-
added test to the substantial transformation standard in certain
circumstances to illustrate the standard's limited domestic content
requirement:
When there is a suspicion that the location of the
transformation has been moved from one country to another to
circumvent a trade law (e.g., antidumping, subsidies), a test that
requires additional value-added is applied. This demonstrates the
minimal local value that is attached to the substantial
transformation; its domestic content is very far from the FTC
standard.146
\146\ UAW, #93, at 3-4.
---------------------------------------------------------------------------
A Bicycle Manufacturers Association representative observed that in
some instances, simple assembly may be enough to constitute substantial
transformation: ``[A]t least in the case of bicycles, * * * the NAFTA
marking rule basically says you take bicycle parts and assemble them
together and make a bicycle, and you have done a substantial
transformation.'' 147 Thus, while BMA did not oppose a
substantial transformation standard, it urged the Commission to include
a provision that would ensure the addition of significant domestic
value.148
---------------------------------------------------------------------------
\147\ Michael Kershow for BMA, Tr. at 187.
\148\ BMA, #195, at 3.
---------------------------------------------------------------------------
Some commenters opposed to the adoption of a substantial
transformation standard contended that, contrary to the supporters'
assertions, the substantial transformation standard does not apply
objective criteria, nor does it afford predictability or consistency in
administration.149 An American Hand Tool Coalition
representative, for example, stated that in Customs' January 1994
notice, Customs noted that `` `the application of the [substantial
transformation] rule involves considerable subjective judgments, that
it's non-systematic, that the judicial and administrative decisions in
one case have little bearing on another case.''' Accordingly, the
American Hand Tool representative did not believe that a substantial
transformation standard would ``give the kind of consistency and
guidance to business that most of the people around this table [at the
workshop] are looking for.'' 150
---------------------------------------------------------------------------
\149\ E.g., FIA, #52, at 5.
\150\ Jeanne Archibald for American Home Tool, Tr. at 373-74.
See also Lauren Howard for FIA, Tr. at 377 (substantial
transformation standard will not give manufacturers clear guidance).
---------------------------------------------------------------------------
U.S. Representative Dingell maintained that the Commission's
standard and Customs' rules serve different purposes and are thus not
inconsistent with each other. He urged that the Commission ``be guided
by its statutory charter of prohibiting unfair or deceptive practices
rather than focusing on the red herring argument made by certain
companies that the FTC and Customs Service should use identical
standards.'' 151 Several commenters agreed with this view,
arguing that the
[[Page 25033]]
Commission's current policy protects consumers from
deception.152
---------------------------------------------------------------------------
\151\ Dingell, #153, at 2. See also Jeanne Archibald for
American Hand Tool, Tr. at 270; American Hand Tool, #91, at 4-5,
#186, at 4, 34; UAW, #174, at 3; Dynacraft, #45, at 4-5, #173, at 4;
Diamond Chain, #55, at 3. Similarly, according to one workshop
participant, substantial transformation is based on manufacturing
processes rather than on consumer perception. Jeanne Archibald for
American Hand Tool, Tr. at 373-374.
\152\ APRA, #30, at 6; Cranston, #38, at 2; Diamond Chain, #55,
at 3.
---------------------------------------------------------------------------
Commenters opposed to the adoption of a substantial transformation
standard further argued that application of the standard would result
in labeling contrary to most consumers' understanding of the phrase
``Made in USA.'' American Hand Tool asserted that in the surveys that
were presented at the FTC's workshop, no respondents indicated that
``Made in the USA'' meant that the product had undergone substantial
transformation or tariff shift in the U.S., or even suggested it meant
creating a distinct article from something else:
Such a concept would require consumers to distinguish among
various manufacturing processes and to identify the point at which
the final product came into being. But the consumer perception
evidence demonstrates the opposite: consumers view ``Made in the
USA'' as applying to all of the materials and labor used to make a
product and do not distinguish among manufacturing steps or
processes. 153
\153\ American Hand Tool, #186, at 31.
---------------------------------------------------------------------------
Noting that the consumer survey presented at the FTC public
workshop found that the majority of consumers would not agree with a
``Made in USA'' label on a product with 50% foreign content, the same
commenter stated that use of the substantial transformation standard
would result in ``deceiving a fairly large segment of the U.S.
public.'' 154 Another workshop participant observed: ``I
don't see any relation of the substantial transformation test to
consumer perception.'' 155
---------------------------------------------------------------------------
\154\ Jeanne Archibald for American Hand Tool, Tr. at 373.
\155\ Roger Reynolds for AGs, Tr. at 434.
---------------------------------------------------------------------------
Finally, the American Hand Tool Coalition questioned whether using
a substantial transformation standard would in fact harmonize the
Commission's standard with other U.S. and international standards. The
Coalition maintained that several of the proponents of a substantial
transformation standard in the Commission's proceeding actually
advocated adopting various modifications to the substantial
transformation standard as applied by the Customs Service. Adopting
such variations, the American Hand Tool Coalition maintained, would not
achieve harmonization with the Customs Service. Moreover, a unified
Customs/Commission standard would nevertheless be inconsistent with the
Buy American Act.156
---------------------------------------------------------------------------
\156\ American Hand Tool, #186, at 34.
---------------------------------------------------------------------------
E. Comments Supporting Other Standards
In addition to the three primary alternatives discussed above, a
number of commenters suggested other possible approaches to the
evaluation of U.S. origin claims. 157 For example, some
commenters suggested that a ``Made in USA'' standard should focus on
the production of ``major'' or ``essential'' components. The Footwear
Distributors and Retailers of America, for example, suggested that the
Commission adopt a standard that permits the use of a ``Made in USA''
label when the ``major component production'' and final assembly takes
place in the United States. 158 Similarly, Manchester Trade
Ltd. argued that products whose ``essential elements'' are produced and
assembled in the United States should be allowed to carry an
unqualified ``Made in USA'' label. 159
---------------------------------------------------------------------------
\157\ As noted above, see supra note 37, there were also
approximately 15 commenters who opposed the current ``all or
virtually all'' standard, but who did not specify a preferred
alternative standard. In addition, there were approximately 33 other
commenters (including approximately 18 consumer commenters) whose
comments did not clearly indicate any preferred standard.
\158\ FDRA, #27, at 2, #172, at 4.
\159\ Manchester Trade Ltd. (``Manchester Trade''), #21, at 2.
See also Federation of the Swiss Watch Industry (``FSWI''), #47 (FTC
should adopt a standard that recognizes the relative importance of
the different parts of a product, such as the importance of the
movement and the casing of a watch). But see Jim Clawson for JIG,
Tr. at 513-514 (discouraging the Commission from adopting a standard
based on essential components because of the difficulty of
determining which components of a product are essential, and because
such a standard may discourage the use of American materials).
---------------------------------------------------------------------------
The National Electrical Manufacturers Association supported a
similar standard. It asserted that, at least for electronic products,
the standard for making an unqualified U.S. origin claim should focus
on whether the product is ``manufactured primarily'' in the United
States. Specifically, if an American electronics producer uses
primarily U.S.-built subassemblies and performs the remaining steps in
the United States, the product should be eligible for a ``Made in USA''
label, regardless of the source of the basic electronic and mechanical
components.160 According to the National Electrical
Manufacturers Association, this standard ``more fairly acknowledges
that the source of electrical products' greatest cost, value, and
essence is found at the subassembly level rather than the basic
component level.''161
---------------------------------------------------------------------------
\160\ NEMA, #102, at 2. See also EIA, #84, at 1-2 (similarly
advocating that ``if a U.S. electronics producer uses primarily
U.S.-built subassemblies and performs the remaining manufacturing
steps in the U.S., that product should be eligible for a `Made in
USA' label, whatever the source of the basic electronic and
mechanical components'').
\161\NEMA, #102, at 2. In NEMA's post-workshop comment, however,
it contended tha tthe Commission shoud defer to the substantial
transformation standard for industrial products, or alternatively,
exclude industrial products ``from anyrule directed to `Made in USA'
claims.'' Id, #182, at 2-3.
---------------------------------------------------------------------------
Other commenters, most notably two trade associations of automobile
manufacturers, specifically objected to any bright-line test for
determining whether a seller can make a U.S. origin claim and instead
advocated the use of a case-by-case approach.162 The
American Automobile Manufacturers Association, for example, stated that
consumers' understanding of ``Made in USA'' claims varies greatly from
product to product, and that this understanding continues to evolve.
Accordingly, it urged the Commission to avoid setting rigid standards
that may become obsolete or cause consumer confusion, and recommended
that the Commission apply well-established principles of advertising
law, considering the express and reasonably implied meaning of the
claim, the materiality to consumers of the claim, and whether the
advertiser has a reasonable basis to make the claim.163 The
Association of International Automobile Manufacturers similarly
asserted that a ``one-size-fits-all standard'' would be confusing, and
that it may be impossible to develop a standard that can accurately
reflect consumer views about all products. It therefore suggested that,
at least for automobiles, the Commission adopt a case-by-case approach
that reviews specific advertising claims and the meaning of those
claims to consumers.164
---------------------------------------------------------------------------
\162\ Association of International Automobile Manufacturers
(``AIAM''), #101, at 2, #180, at 1. See also Toyota, #26, at 2
(suggesting that, with respect to the automotive industry, the
Commission should adopt a traditional reasonable basis standard for
measuring domestic content, rather than a precise formula); AAF,
#100, at 2, 5 (urging the Commission to ``avoid establishing a
bright line definition of ` ``Made in USA'' ' and instead adopt ``a
flexible standard whereby a manufacturer has the ability to make
specific, qualified and substantiated claims about a product'').
\163\ American Automobile Manufacturers Associations (``AAMA''),
#103, at 2.
\164\ AIAM, #101, at 4, #180 at 1-2. Another approach suggested
was to include a grading scale from A+ to F, depending on percentage
of U.S. content. Tech Team, Inc. (``Tech Team''), #307. The
Federation of the Swiss Watch Industry advocated that the FTC adopt
a standard for ``Made in USA'' designations similar to Switzerland's
``Swiss Made'' rule for watches. It said this rule provides that the
watch must contain a Swiss movement (defined as one in which 50% of
the value of the parts are of Swiss manufacture and which is
assembled and inspected in Switzerland), the movement must have been
encased in Switzerland, and the watch must have undergone final
inspection in Switzerland. FSWI, #47, at 4-5.
---------------------------------------------------------------------------
[[Page 25034]]
F. Guidelines Proposed By the Ad Hoc Group
After the workshop, a group of several companies and industry
associations calling themselves the ``Ad Hoc Group'' jointly submitted
as a post-workshop comment proposed ``Guidelines for Making U.S. Origin
Advertising and/or Labeling Claims'' (``Ad Hoc Guidelines'').
165 Central to the Ad Hoc Guidelines are three proposed safe
harbors for making an unqualified ``Made in USA'' claim. Specifically,
the Ad Hoc Guidelines provide that ``a product that contains materials,
parts or components that are not wholly obtained in the United States
can be non-deceptively advertised or labeled `Made in USA''' if one of
three conditions is met:
\165\Ad Hoc Group, #183. The proposal was signed by AAEI, the
Association of Home Appliance Manufacturers (``AHAM''), the
Automotive Parts and Accessories Association (``APAA''), AWPA, BMA,
EIA, IMRA, 3M, and Stanley.
---------------------------------------------------------------------------
(1) the last significant manufacturing process or processes,
which must be more significant than simple assembly or minor
processing, occur in the United States, and the cost of U.S.
processing is at least 50% of the cost of goods sold; or
(2) (i) a majority of all the processing that is normally
undertaken to produce a product takes place in the U.S.;
(ii) such process(es) result in the creation of a new article of
commerce that has a different name, character, and use than the
materials, parts, or components from which it is made; and
(iii) such process(es) when taken together, are more significant
than simple assembly or minor processing and result in a ratio of
the cost of U.S. processing to the cost of goods sold that is not
insignificant; or
(3) the good satisfies a modified version of the NAFTA
Preference Rules.
In addition, the Ad Hoc Guidelines propose establishing a second
tier of U.S. origin claims. Specifically, a product could be labeled
``Wholly made in the U.S.'' (emphasis added) if ``all or virtually all
of the processing, materials, components, and labor used in the
production of product are of U.S. origin.''
Some of the signatories to the Ad Hoc Guidelines also submitted
separate comments emphasizing their support for the Ad Hoc Guidelines.
The American Association of Exporters and Importers explained that the
Guidelines attempt to provide American manufacturers with reasonable
and easily understandable alternative methods for claiming that their
products are ``Made in USA.'' 166 The Bicycle Manufacturers
Association asserted that ``consumers are entitled to expect that a
claim that a product was `Made in USA' means not only--but most
fundamentally--that the product came into being (i.e., was
substantially transformed) here, but that substantial value was added
in the U.S. * * * [E]ach of the three `safe harbors' acknowledge this
principle * * * `` 167 Similarly, the International Mass
Retail Association asserted that, in rejecting both a simple value-
added standard as well as a simple adoption of Customs' substantial
transformation standard, the Ad Hoc Guidelines ``get to the plain idea
of what it takes to `make' something''; accordingly, the proposal
provides guidance to advertisers and avoids consumer deception.
168 The Association of Home Appliance Manufacturers also
submitted a separate comment endorsing the Guidelines and reiterating
its support for the NAFTA Preference Rules as one of the three safe
harbors for making a ``Made in USA'' claim. 169
---------------------------------------------------------------------------
\166\ AAEI, #187, at 2.
\167\ BMA, #195, at 3.
\168\ #184, at 1-4.
\169\ AHAM, #188, at 1-2.
---------------------------------------------------------------------------
Other signatories to the Ad Hoc Guidelines submitted separate
comments suggesting modifications to the proposal. 3M expressed its
support for the Ad Hoc Guidelines, but suggested two additional safe
harbors: (1) that goods be allowed to be labeled ``Made in USA'' if
they are substantially transformed in the United States; 170
or alternatively, (2) that a lesser mark such as ``Country of Origin:
USA'' or ``Product of the US'' (rather than ``Made in USA'') be
permitted when a product is sufficiently manufactured in the United
States to become a U.S. product for international customs purposes
(i.e., is substantially transformed in the U.S.), but would not meet
the standard for an unqualified ``Made in USA'' claim. 171
Under 3M's proposal, to bear the lesser mark: (1) the product would
have to be actually sold in the market that requires the label; (2) the
label would have to be no larger than is necessary to meet foreign
labeling requirements; and (3) the claim could not be repeated in U.S.
advertising unless it could meet the Ad Hoc Guidelines' safe harbors
for unqualified ``Made in USA'' claims. 172
---------------------------------------------------------------------------
\170\ See also AAEI, #187, at 3; EIA, #193, at 8.
\171\ 3M, #198, at 1-2.
\172\ See also IMRA, #184, at 7 (should allow manufacturers to
mark products sold in the U.S. with the words ``Country of origin:
USA'' in limited instances where actual exports of the product are
subject to foreign marking requirements); EIA, #193, at 2 (the
Commission could prevent consumer deception through education
concerning the limited meaning of such marking and through
prohibition on U.S.-origin claims to consumers); JIG, #196, at 3-4
(should the FTC decide that the substantial transformation standard
is not appropriate, advocates establishing a ``safe harbor'' that
would allow companies to provide consumers with country-of-origin
information that also satisfies international origin marking rules).
---------------------------------------------------------------------------
New Balance and Footwear Industries of America, although not
signatories to the Ad Hoc Guidelines, expressed general support for
them, but asserted that any safe harbor for making unqualified ``Made
in USA'' claims should require that a product have over 50% domestic
value. 173 According to New Balance, without this
requirement, products with low domestic content that undergo only final
assembly in the United States could be labeled ``Made in USA'' in some
instances, and in those instances, the label would be deceptive.
174
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\173\ New Balance, #197, at 2; FIa, #177, at 6-7.
\174\ New Balance, #197, at 4.
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In contrast, the American Hand Tool Coalition, and two of its
member companies, submitted comments strongly objecting to the Ad Hoc
Guidelines. The American Hand Tool Coalition asserted that the Ad Hoc
Guidelines are a ``conglomeration of vague and potentially unequal
tests that would promote rather than prevent consumer deception.''
175 Among its specific criticism of the Ad Hoc Guidelines
were: (1) by permitting products with 50% or even more foreign content
to be labeled ``Made in USA,'' the Ad Hoc Guidelines would deceive a
substantial percentage of consumers;176 (2) the two-tiered
approach of ``Made in USA'' and ``wholly Made in USA'' would lead to
consumer confusion and make it difficult for companies that meet the
higher standard to distinguish their products;177 and (3)
the proposed Guidelines would not achieve harmonization with other U.S.
or foreign government standards.178
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\175\ American Hand Tool, #186, Appendix A, at 1.
\176\ Id. at 1, 4-6.
\177\ Id. at 7-8. See also Vaughan & Bushnell, #191, at 2;
Estwing, #179, at 2 (``Only the most vigilant consumers would notice
the difference between the two claims, and even if the distinctions
were noticed, consumers would have no basis by which to discern the
different meanings of the two phrases. Consumers are likely to
assume that [both claims] refer to all or virtually all domestic
origin * * *'').
\178\ American Hand Tool, #186, Appendix A, at 8-0.
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IV. Analysis: General Considerations
The comments submitted to the Commission, as well as the
Commission's independent analysis, suggest a number of factors to be
considered in seeking an appropriate standard for evaluating U.S.
origin claims. The Commission considered consumer perception of such
claims, consistency of the Commission's standard with other, existing
standards,
[[Page 25035]]
and practical issues of implementation. This notice discusses each in
turn.
A. Consumer Perception
1. Studies and Findings
As noted above, Commission staff commissioned a consumer perception
study 179 as part of the FTC's overall review of U.S. origin
claims in advertising and labeling. In addition, some commenters
responded to the Commission's request for further consumer perception
evidence by submitting data of their own.180
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\179\ Document No. B212883 on the Commission's public record.
\180\ IMRA, Document No. B212895; Crafted with Pride, Document
No. B212908; American Hand Tool (Danaher Tool Group), Document No.
B212910; New Balance, Document No. B212922; National Consumers
League, Document No. B212934; BGE, Document No. B212946.
---------------------------------------------------------------------------
The FTC staff-commissioned study consisted of two parts. The first
part (``1995 FTC Copy Test'') was a traditional copy test in which
subjects were shown advertisements containing one of five qualified or
unqualified U.S. origin claims (e.g., ``Made in USA,'' ``70% Made in
USA,'' ``Made in U.S. of U.S. and imported parts'') and asked a series
of questions about what they understood each claim to mean. The second
part of the Commission's study was termed an attitude survey (``1995
FTC Attitude Survey''). It presented subjects with a series of
scenarios in which the percentage of a product's cost that was U.S. in
origin varied; in addition, subjects were either told that the product
was assembled in the U.S., told that it was assembled abroad or not
told the site of assembly. Subjects were then asked whether or not they
agreed with a label stating that the product was ``Made in USA.''
181 In addition to the results of the new study commissioned
for this review, the results of a 1991 FTC study (``1991 FTC Copy
Test'') also were considered.182 This 1991 consumer
perception study asked consumers general questions about ``Made in
USA'' claims, as well as questions about the use of such claims in
specific advertisements.
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\181\ For example, a typical question in the 1995 FTC Attitude
Survey read:
This stereo is assembled in the United States using U.S. and
foreign parts. The foreign parts account for 10% of the total cost
of making the stereo. The U.S. parts and U.S. assembly together
account for 90% of the total cost. If this product had a label
stating that the product was ``Made in the USA,'' how much would you
agree or disagree with the label? Would you strongly agree, somewhat
agree, neither agree nor disagree, somewhat disagree, or strongly
disagree?
A respondent would then be presented with the same scenario,
except that 30% of the cost was foreign and 70% U.S., then with a
scenario in which U.S. and foreign costs each accounted for 50% of
the total costs, and so on.
\182\ Document No. B213001.
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In addition to the Commission's studies, at least six other
commenters provided consumer perception data on U.S. origin claims,
including: New Balance Athletic Shoe (New Balance), the International
Mass Retail Association (IMRA), the American Hand Tool Coalition
(American Hand Tool), Crafted With Pride in U.S.A. Council, Inc.
(Crafted with Pride), BGE Ltd. (BGE), and the National Consumers League
(NCL).183 The studies addressed a number of topics related
to U.S. origin claims and found a range of results. The most
significant findings are discussed below.
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\183\ The NCL study consisted of mail-in survey of its
membership and did not purport to be a scientifically valid survey.
Nonetheless, it is included in this discussion for informational
purposes.
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a. Importance of U.S. origin in purchasing decisions. All of the
studies looked in one way or another at how important a ``Made in USA''
designation was to consumers. Several of the studies found that many
consumers express a preference for U.S.-made goods. For example, when
respondents to the 1991 FTC Copy Test were asked to circle things in an
ad that were important to them, 52% of those shown a typewriter ad and
33% of those shown a bicycle ad circled the ``Made in USA'' logo.
Similarly, American Hand Tool survey participants considered a ``Made
in USA'' label to be a highly important factor when buying hand tools.
On average, this label was considered as important as price and more
important than brand name and reputation of store (but was seen as less
important than the warranty). Crafted With Pride submitted the results
of several studies, all of which indicated that consumers have a
significant preference for items made in the USA.184 For
example, in one test conducted in retail stores, sales of U.S.-made
apparel increased 24% when the items were affixed with hangtags
prominently identifying them as ``Made in USA.'' 185
Finally, 84% of respondents in the NCL study said they were more likely
to buy an item that was made in the USA than a foreign-made product,
assuming that price and other features of the product were identical.
---------------------------------------------------------------------------
\184\ Crafted With Pride, #35, at 3-7, Exhibits 1-7; #176, at 2-
3.
\185\ Id., #35, at 6, Exhibit 7.
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On the other hand, three other studies suggested that country of
origin is not as important to consumers as some other product features,
such as price, design, and style. When asked an open-ended question as
to what factors they considered in deciding which brand of athletic
shoes to buy, no respondents to the New Balance survey mentioned the
country of origin of the shoes' components. Country of origin was
ranked by respondents in that survey below comfort and fit, durability,
design/style, and price in factors they considered in their athletic
shoe purchasing decisions. Similarly, in the BGE survey, only 26% of
participants indicated that they would base their decision about
whether to buy a collectible plate on the country in which it was
manufactured. In contrast, 99% said the primary reason for buying such
a plate was because of the art on it. IMRA submitted poll data
suggesting that although consumers say they prefer buying products made
in the USA, this preference noticeably declines if an American-made
good is more expensive than a foreign-made good. IMRA's data also
indicated that a product's country of origin rated well below a
product's warranty, price, and other product features in importance to
purchasing decisions. In addition, the survey submitted by IMRA showed
that people care more about the country of origin for certain products,
such as cars, clothing, and electronics, than for other products, such
as tools, shoes and large appliances.
Consumer responses to the 1995 FTC Copy Test and 1995 FTC Attitude
Survey reflect a range of views about the importance to consumers of
purchasing products that are made in the USA. Participants in the Copy
Test were asked ``When you are considering buying a [product], how
important is it to you that the item be made in the USA?'' On a scale
of 0-10, 0 being not at all important and 10 being very important, 39%
of participants responded in the 8-10 range; 39% of participants
responded in the 3-7 range; 22% of participants responded in the 0-2
range. The importance participants placed on buying a product that was
produced in the U.S. did not vary among the copy test products (a
stereo, coffee maker or pen).
The results of the 1995 FTC Attitude Survey were similar, although
participants in the Attitude Survey rated the importance of buying a
pen that was ``Made in USA'' somewhat higher than the importance of
buying a stereo that was made in the USA. Just under 50% of
participants who were asked about pens rated the importance of buying a
pen that was ``Made in the USA'' between 8-10. Less than 20% put the
importance between 0-2. For participants who were asked about stereos,
approximately 35% rated the importance of buying a stereo that was
[[Page 25036]]
Made in the USA between 8-10, while just over 25% put the importance
between 0-2.
Several of the studies found that consumers associate ``Made in
USA'' claims with positive economic consequences for the United States,
such as more jobs for Americans. For example, in the New Balance study,
when respondents were asked ``What does Made in USA mean to you,'' 35%
of respondents stated that a ``Made in USA'' label implied jobs or work
for U.S. citizens. In the Commission's 1991 Copy Test, when respondents
were shown a card with ``Made in USA'' on it and asked what they think
of when they see this on a product, the largest number of respondents
(27%) mentioned that ``Made in USA'' means jobs or employment, gave
responses focused on keeping dollars in the United States, or gave
other answers relating to the U.S. economy. Similarly, in the American
Hand Tool study, among 443 respondents who said that a majority of
their hand tools are American made, the largest percentage (41%) stated
that they buy American products to support the U.S. economy and U.S.
labor.
On the other hand, Crafted With Pride concluded that people check
country of origin for quality reasons, not because of abstract
political or social concerns; most think U.S. companies make better
clothing, appliances, telephones. Like Crafted With Pride, IMRA
concluded that people who base their purchasing decisions on a ``Made
in USA'' label do so because such a label represents better quality
than foreign produced goods, not because of patriotic sentiment.
b. Consumer understanding of ``Made in USA'' i. General meaning.
Several studies indicate that when asked to define ``Made in USA,''
consumers do so in only the most general terms. Most commonly, when
asked the meaning of ``Made in USA,'' study participants stated that a
product was ``Made in the USA'' with no elaboration. For example, in
the New Balance study, when consumers were asked ``What does 'Made in
USA' mean to you,'' the highest percentage of respondents (40%) stated
some version of ``Made/Manufactured in US.'' Similarly, American Hand
Tool found that when respondents were asked what a ``Made in USA''
label would mean if they were considering buying a hand tool, the
largest percentage of respondents (46%) simply stated it would mean the
tool was ``Made in the U.S.''
The Commission found similar results. In the 1995 FTC Copy Test,
when respondents were asked what a ``Made in USA'' claim means in an
advertisement or label, 63.5% gave answers indicating the product was
made in the U.S. without further elaboration. Similarly, in the 1995
FTC Attitude Survey, 60.8% of respondents stated that a ``Made in the
USA'' label means ``Made in US.''
ii. How much is made in the United States. In looking at how much
of a product that is labeled ``Made in USA'' consumers believe is made
in the United States, the answer appears to depend in part on how the
question is asked. As noted above, when asked the general, open-ended
question what does ``Made in USA'' mean, most consumers simply answer
``Made in USA.'' In the 1995 FTC Copy Test, for example, when asked
what a ``Made in USA'' statement in an ad or label meant, only 5% of
respondents answered ``all made in US.''
Where studies, however, directly asked consumers how much of a
product marked ``Made in USA'' was made in the United States, or
presented them with scenarios that posited a level of U.S. content,
many respondents indicated that they view ``Made in USA'' claims as
representing that products possess a high amount of U.S. content. This
result, for example, was reflected in two of the Commission studies.
The 1995 FTC Attitude Survey found that the number of consumers who
were willing to accept a ``Made in USA'' label on a product decreased
significantly as the amount of production costs incurred abroad
increased. For example, while 52% of respondents agreed with a ``Made
in USA'' label when foreign production accounted for 30% of total
production costs, only 28% of respondents were willing to accept a
``Made in USA'' label when foreign production accounted for 50% of
total production costs.186 In the 1991 FTC Copy Test,
approximately 77% of consumers stated that ``Made in USA'' references
mean that all or almost all of a product was made in the
USA.187
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\186\ These figures are for responses across all sites of
assembly, i.e., whether the respondent was told that the product was
assembled in the U.S., assembled in a foreign country, or not told
the site of assembly. More complete results of the 1995 Attitude
Survey appear in the chart below.
\187\ In response to a follow-up question, approximately 82% of
these respondents specified that this was both parts and labor.
Thus, a total of approximately 63% of the respondents to the 1991
FTC Copy Test stated that a ``Made in USA'' claim meant the product
was all or almost all made in the United States and that this meant
both parts and labor.
Percentage of Respondents Who Agreed and Disagreed with a ``Made in USA'' Label
----------------------------------------------------------------------------------------------------------------
Assembled in U.S. Country of assembly Assembled in foreign
-------------------------- unspecified country
Total cost ---------------------------------------------------
Agree Disagree Agree Disagree Agree Disagree
----------------------------------------------------------------------------------------------------------------
90% US/10% Foreign................ 75.0% 22.0% 63.9% 31.5% 54.6% 33.3%
70% US/30% Foreign................ 67.0% 31.0% 50.9% 43.5% 38.9% 50.0%
50% US/50% Foreign................ 36.0% 46.0% 28.7% 57.4% 18.5% 63.9%
30% US/70% Foreign................ 25.0% 68.0% 20.4% 72.2% 10.2% 83.3%
10% US/90% Foreign................ 20.0% 74.0% 19.4% 74.1% 10.2% 84.3%
----------------------------------------------------------------------------------------------------------------
Other studies found similar results. American Hand Tool asked
respondents what percentage of a hand tool they assumed was made in the
U.S. Fifty-three percent of the respondents stated 100%. An additional
27% gave responses between 50% and 99%. Similarly, in the NCL study,
consumers were asked ``When you see a product advertisement or label
stating ``Made in USA,'' what amount of U.S. parts (i.e., components)
do you assume is in the product?'' Forty-five percent of respondents
stated 100%; an additional 9% of the respondents stated a minimum
ranging between 90% and 100%. When respondents to this survey were
asked about the minimum amount of U.S. labor they assume is in the
product, 58% stated 100%, and an additional eight percent stated a
minimum between 90% and 100%.
iii. Importance of U.S. assembly. When participants in the 1995 FTC
Copy Test were asked whether a ``Made in USA'' statement in an ad or on
a package suggested or implied anything
[[Page 25037]]
about where the product was assembled, only 50% of the respondents
answered affirmatively. The responses of the participants in to the
1995 FTC Attitude Survey, however, suggest that the site of assembly
makes a significant difference to consumers in deciding whether a
product is ``Made in USA.'' Specifically, respondents in the 1995 FTC
Attitude Survey were considerably more willing to agree with a ``Made
in the USA'' label on products that were assembled in the United States
than on products assembled abroad, regardless of the overall percentage
of the product that was made in the United States. For example, even if
a foreign-assembled product contained U.S.-made parts that accounted
for 90% of the product's total cost, only 55% of respondents were
willing to agree with a ``Made in the USA'' label on the product. By
contrast, when respondents were asked about the same 90% U.S. content
product and told that it was assembled in the United States, 75% were
willing to agree with a ``Made in USA'' label on the product.
2. Conclusions
The Commission received considerable information concerning
consumer perception of U.S. origin claims and has found this
information useful in its consideration of this matter. Although there
are necessarily limitations on the inferences that can be drawn, the
Commission believes that the following conclusions are supported by the
evidence.
First, the studies cited by the commenters indicate that U.S.
origin claims are material to many consumers. A large number of
consumers expressed an interest in or preference for U.S.-made goods,
even if they did not always follow this interest through when actually
purchasing items. A consumer's purchasing decision is, of course, often
influenced by other factors, such as fit and price; it is not sensible
to expect consumers to buy shoes that do not fit or that cost more than
they can afford simply because those products are labeled ``Made in
USA.'' Nonetheless, all other things being equal, many consumers
express a preference for U.S.-made products. That U.S. origin claims
are material to consumers is reinforced by the considerable interest of
manufacturers in making these claims. Many of the comments received
also indicate that a ``Made in USA'' label is a valuable marketing
tool.
Second, the consumer perception data indicate that many consumers
may have only a general sense of what the phrase ``Made in USA'' means
rather than a highly refined view of how ``Made in USA'' should be
interpreted, i.e., whether a ``Made in USA'' claim should be evaluated
in terms of costs, processing, or in another manner. Several
commenters, both at the workshop and in post-workshop comments, opined
that consumers' failure to specifically mention anything about cost or
parts when asked generally what ``Made in USA'' means shows that these
consumers interpret a ``Made in USA'' claim as meaning only that the
product ``came into being'' in the United States. One commenter said,
for example:
[A]pproximately 65 percent of the [FTC] copy test respondents
either repeated the ``Made in USA'' phrase or responded with a
virtually identical phrase when queried about the meaning of ``Made
in USA.'' Since such consumers are likely to use the word `made'
according to its dictionary definition, the copy test results show
that consumers perceive a product as being created in this country
if the materials are either formed or modified, or the component
parts are put together in the United States. 188
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\188\ FIA, #177, at 2.
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