``Made in USA'' and Other U.S. Origin Claims
Federal RegisterDec 2, 1997
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SUMMARY: The Federal Trade Commission (``FTC'' or ``Commission'') has
conducted 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 or all or
virtually all made in the United States to substantiate an unqualified
``Made in USA'' claim. As part of its review, which began in 1995, the
Commission sought public comment and conducted a two-day public
workshop.
On May 7, 1997, the Commission solicited public comment on Proposed
Guides for the Use of U.S. Origin Claims (``Proposed Guides''). Under
the Proposed Guides, a marketer making an unqualified U.S. origin claim
would have been required to have a reasonable basis substantiating that
the product was substantially all made in the United States. To give
further guidance as to what constitutes a reasonable basis for making a
``Made in USA'' claim, the Proposed Guides set forth two ``safe
harbors'' under which an unqualified U.S. origin claim would not be
considered deceptive.
The Proposed Guides also addressed qualified claims, claims
regarding specific processes and parts, multiple-item sets, and changes
in cost and sourcing. They also would have authorized specific origin
claims for certain products that are both sold domestically and
exported.
After extensively reviewing comments received regarding the
Proposed Guides, the Commission has determined not to adopt the
Proposed Guides. Instead, the Commission will continue to enforce the
Commission's current ``all or virtually all'' standard. The Enforcement
Policy Statement on U.S. Origin Claims that appears at the end of this
notice outlines the Commission's enforcement policy in this area and
provides additional guidance to marketers wishing to make an
unqualified ``Made in USA'' claim under the ``all or virtually all''
standard. The statement also provides guidance on the use of qualified
claims.
EFFECTIVE DATE: December 1, 1997.
FOR FURTHER INFORMATION CONTACT: Beth M. Grossman, Attorney, Division
of Advertising Practices, Bureau of Consumer Protection, Federal Trade
Commission, Washington, DC 20580, telephone 202-326-3019, or Kent C.
Howerton, Attorney, Division of Enforcement, Bureau of Consumer
Protection, Federal Trade Commission, Washington, DC 20580, telephone
202-326-3013.
SUPPLEMENTARY INFORMATION:
I. Introduction
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 In two
1994 cases, the Commission rearticulated this standard to require that
a product advertised as ``Made in USA'' be ``all or virtually all''
made in the United States.2 Whether the standard was called
``wholly domestic'' or ``all or virtually all,'' however, unqualified
claims of domestic origin have been treated as claims that the product
was in all but de minimis amounts made in the United
States.3
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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).
\3\ In this notice, the Commission refers to its traditional
standard as the ``all or virtually all'' standard.
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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.4 On October 18,
1995, the Commission published a notice in the Federal Register
soliciting public comment on various issues related to this review, and
announcing that Commission staff would conduct a public workshop on
this topic. 60 FR 53922 (1995).5 Contemporaneous with the
solicitation of public comment, the Commission commissioned a two-part
study to examine consumer understandings of U.S. origin claims. On
March 26 and 27, 1996, representatives of industry, consumer groups,
unions, government agencies, and others participated in the public
workshop, which focused on consumer perception of U.S. origin claims
and a discussion of the costs and benefits of various alternative
standards for evaluating such 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 (1996).
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\4\ The Commission initiated its review in part because of
comments from the public on the consent agreement the Commission had
accepted (subject to final action) with Hyde, and letters from more
than 40 members of Congress who wrote to the Commission or Chairman
Robert Pitofsky urging that the Commission review and revise its
standard.
\5\ A follow-up notice published on December 19, 1995 announced
that the public workshop would be held on March 26 and 27, 1996, and
stated that the record would be held open for post-workshop public
comments until April 30, 1996. 60 FR 65327 (1995).
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After reviewing the consumer perception evidence, the public
comments, and the workshop proceedings, the Commission proposed, in a
notice published on May 7, 1997, to adopt Guides for the Use of U.S.
Origin Claims and sought public comment on the Proposed Guides until
August 11, 1997. 62 FR 25020. Under the Proposed Guides, a marketer
making an unqualified claim of U.S. origin, at the time it makes the
claim, would have to 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 forth two alternative ``safe harbors'' under which an unqualified
U.S. origin claim would not be considered deceptive. The first safe
harbor encompassed products that were last substantially transformed in
the United States and whose U.S. manufacturing costs constituted 75% of
total manufacturing costs (``75% U.S. content safe harbor''). The
second safe harbor applied 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 it significant inputs
took place in the United States (``two levels of substantial
[[Page 63757]]
transformation safe harbor'').6 The Proposed Guides also
addressed various qualified claims, claims regarding specific processes
and parts, multiple-item sets, and the effects of changes in costs and
sourcing. They further provided for an alternative origin claim for
certain products that are both sold domestically and exported.
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\6\ ``Substantial transformation'' is a U.S. Customs Service
term that refers to a manufacturing or other 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. See 59 FR 141 (1994).
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In response to the Proposed Guides, the Commission received 1,057
written comments.7 After reviewing the public comments, the
Commission has decided that it will not adopt the Proposed Guides, but
instead will continue to enforce the Commission's current ``all or
virtually all'' standard. In conjunction with this decision, the
Commission is issuing an Enforcement Policy Statement on U.S. Origin
Claims which provides additional guidance to marketers seeking to make
``Made in USA'' and similar claims. The Enforcement Policy Statement
appears at the end of this notice.
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\7\ This number reflects those comments received at the time
this notice was prepared; additional comments on this matter
continue to be submitted to the Commission. The comments have been
filed on the Commission's public record as Document Nos.
B21902700001, B21902700002, 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., AGs,
#462, at 2. All written comments submitted (including those received
after the preparation of this notice), as well as a list of
commenters (through #1057), are available for public inspection on
normal business days between the hours of 8:30 a.m. to 5:00 p.m. at
the Public Reference Room, Room 130, Federal Trade Commission, 6th
and Pennsylvania Ave., N.W., Washington, DC 20580. In addition, the
comments received, and other materials relevant to this review, are
available to the public through the Commission's World Wide Web site
(http://www.ftc.gov).
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II. Summary of Comments On Proposed Guides
A. General Information
The total of 1,057 comments represented 1,165 commenters, including
963 individual consumers, 24 members of Congress, 2 consumer
organizations, 1 non-profit organization, 90 manufacturers or other
corporations, 29 trade associations, 29 labor unions and union
representatives, 23 state and local government representatives
(including a coalition of 16 state Attorneys General), and 4 others.
B. Comments Supporting the All or Virtually All Standard
The vast majority of the individual consumers as well as 130 other
commenters opposed the Proposed Guides as setting too low a standard
and/or expressly supported the current ``all or virtually all''
standard. These included a coalition of 16 Attorneys
General,8 13 members of Congress,9 5 state
legislators,10 1 state General Assembly,11 1 City
Council,12 6 trade associations,13 2 consumer
groups,14 29 labor unions or union
representatives,15 58 manufacturers and other
corporations,16 and 3 other
[[Page 63758]]
commenters.17 In addition to the individual consumer
comments, 7 individual commenters or groups submitted petitions urging
the Commission to retain the ``all or virtually all'' standard that
were signed by a total of more than 11,000 individuals.18
Last, the Commission received over 200 telephone calls from individual
consumers who stated their opposition to the Proposed
Guides.19
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\8\ This comment was submitted by the Attorneys General of
Connecticut, California, Florida, Iowa, Illinois, Michigan,
Missouri, North Carolina, New Jersey, Nevada, New York,
Pennsylvania, Rhode Island, Tennessee, Washington, and Wisconsin
(``AGs''), #462. In addition, Jeremiah Nixon, Attorney General of
Missouri (``Nixon'') submitted a separate comment, #63.
\9\ U.S. Sen. Dale Bumpers (``Bumpers''), #74; U.S. Rep. Mark W.
Neumann and U.S. Rep. Tom Latham (``Neumann/Latham''), #75; U.S.
Rep. James A. Traficant, Jr. (``Traficant''), #231; U.S. Rep. Peter
J. Visclosky (``Visclosky''), #236; U.S. Rep. Earl F. Hilliard
(``Hilliard''), #242; U.S. Sen. Carl Levin (``Levin''), #254; U.S.
Rep. Virgil H. Goode, Jr. (``Goode''), #24; U.S. Rep. Sherrod Brown
(``Brown''), #599; U.S. Rep. Bob Franks and U.S. Rep. John D.
Dingell (``Franks/Dingell''), #670, (``Dingell''), #694 (noting his
past opposition to weakening the all or virtually all standard and
requesting that the Commission respond to specific questions about
the Proposed Guides; with attached response from the Commission's
staff); U.S. Rep. John Olver (``Olver''), #671A; U.S. Rep. Bruce F.
Vento (``Vento''), #735. U.S. Rep. Tom Campbell (``Campbell'')
submitted a comment conveying the concerns of constituents, but did
not take a position himself. Campbell, #283. A number of other
members of Congress forwarded comments from their constituents.
\10\ North Carolina Rep. William S. Hiatt (``Hiatt''), #196;
North Carolina Sen. Fountain Odom (``Odom''), #290; Illinois Rep.
Michael J. Boland (``Boland''), #468; North Carolina Rep. Wayne
Goodwin (``Goodwin''), #508; Pennsylvania Rep. Richard D. Olasz
(``Olasz''), #623.
\11\ New Jersey General Assembly (``NJ Assembly''), #740.
\12\ City of Titusville, FL (``Titusville''), #1047.
\13\ American Export Ass'n (``American Export''), #201; The
American Hand Tool Coalition (``American Hand Tool''), #622;
American Iron & Steel Institute (``AISI''), #636; Tile Council of
America, Inc. (``TCA''), #618; American Textile Manufacturers
Institute (``ATMI''), #615; Crafted with Pride in USA Council, Inc.
(``Crafted With Pride''), #469. Despite the exclusion of textile
products from the Proposed Guides, four additional trade
associations filed comments urging the Commission to maintain the
existing standards under the Textile Products Identification Act, 15
U.S.C. 70, for ``Made in USA'' claims for garments and other textile
products. American Apparel Manufacturers Ass'n (``AAMA''), #697;
Clothing Manufacturers Ass'n of USA (``CMA''), #624; Garment
Contractors Ass'n of Southern California (``GCASC''), #895; Knitted
Textile Ass'n (``KTA''), #634.
\14\ National Consumers League (``NCL''), #640; Wisconsin
Citizen Action (``WI Citizen Action''), #991.
\15\ Alabama AFL-CIO (``Alabama AFL-CIO''), #242; Connecticut
Employees Union Independent, Local 511, AFL-CIO (``CEUI Local
511''), #870; East Central Ohio Building & Construction Trades
Council, AFL-CIO (``Construction Trades''), #687; Food & Allied
Service Trades Dept., AFL-CIO (``FAST''), #545; Hotel Employees &
Restaurant Employees Local 74, AFL-CIO (``HERE Local 74''), #255;
Int'l Ass'n of Firefighters, West Hartford Fire Fighters Ass'n,
Local 1241 (``Firefighters Local 1241''), #742; Int'l Ass'n of
Machinists & Aerospace Workers, Air Transport Lodge 1056
(``Machinists Lodge 1056''), #558; Int'l Brotherhood of
Boilermakers, Iron Ship Builders, Blacksmiths, Forgers & Helpers,
AFL-CIO (``Boilermakers''), #514; Int'l Brotherhood of Electrical
Workers, Local 1040, AFL-CIO (``IBEW Local 1040''), #745; Int'l
Brotherhood of Electrical Workers, Local 540, AFL-CIO (``IBEW Local
540''), #686; Int'l Union, United Automobile, Aerospace &
Agriculture Implement Workers of America--UAW (``UAW''), #615;
Montana State AFL-CIO (``MT AFL-CIO''), #459; Permian Basin Central
Labor Union, AFL-CIO (``PBCLU''), #388, #418; Seattle Professional
Engineering Employees Ass'n (``SPEEA''), #830, #944; UAW--Region 9A
(``UAW Region 9A''), #682; Union Label & Service Trade Department,
Plumbers & Steamfitters Local 565, AFL-CIO (``Plumbers &
Steamfitters Local 565''), #209; Union Label & Service Trades
Department, AFL-CIO (``AFL-CIO/ULSTD''), #608; Union of
Needletrades, Industrial & Textile Employees, AFL-CIO, CLC
(``UNITE''), #696; United Food & Commercial Workers, Local 26, AFL-
CIO (``UFCW Local 26''), #897; United Paperworkers Int'l Union, AFL-
CIO, CLC (``Paperworkers''), #255; Communications Workers of
America, Local 3104, AFL-CIO (``CWA Local 3104''), #688; Hartford
Federation of School Secretaries (``School Secretaries''), #843;
Int'l Union of Electronic, Electrical, Salaried, Machine and
Furniture Workers, Furniture Workers Division, AFL-CIO (``Furniture
Workers''), #506; UAW Local 977, Buy American Committee (``UAW Local
977''), #651; UAW, Amalgamated Local 644 (``UAW Local 644''), #54;
UAW, Local 145 (``UAW Local 145''), #913; United Steelworkers of
America, Local 9189, AFL-CIO (``Steelworkers Local 9189''), #995;
United Steelworkers of America, Rubber/Plastic Industry Conference,
Local 2, District 1, AFL-CIO, CLC (``Steelworkers Local 2''), #1017;
Brewery and Soft Drink Workers, Liquor Drivers, and New and Used Car
Workers, Teamsters Local Union 1040 (``Teamsters Local 1040''),
#1052.
\16\ A&E Manufacturing Co. (``A&E''), #991; ABCO Industries,
Inc. (``ABCO''), #743; American Sigma (``American Sigma''), #661;
Ben Forman & Sons, Inc. (``Forman''), #159; BOYT (``BOYT''), #959;
Calibre, Inc. (``Calibre''), #991; Centerville Lumber Co.
(``Centerville''), #152, #734; Cheraw Yarn Mills, Inc. (``Cheraw''),
#716; Danaher Tool Group (``Danaher''), #991; D.E. Williams Co.
(``Williams''), #1031; Duchess Industries (``Duchess''), #512;
Durand Int'l (``Durand''), #471; Dyersburg Corp. (``Dyersburg''),
#720; Dynacraft Industries, Inc. (``Dynacraft''), #646; Elco Textron
(``Elco''), #970; Equity Services of Connecticut, Inc. (``Equity
Services''), #1001; Exidyne Instrumentation Technologies, Inc.
(``Exidyne''), #731; Federal Forging Tools (``Federal''), #654;
Friend Laboratory (``Friend''), #34; GBW Manufacturing, Inc.
(``GBW''), #1014; Gee Kay--Knit Products (``Gee Kay''), #1034;
Herker Industries (``Herker''), #991; Inman Mills (``Inman''), #981;
Jackson Products (``Jackson''), #880; Joshua L. Baily & Co., Inc.,
(``Baily''), #53; Kenosha Leatherette & Display Co. (``Kenosha''),
#991; Kern Special Tools Co., Inc. (``Kern''), #739; Madewell
Machine Works Co., Inc. (``Madewell''), #958; March Instruments,
Inc. (``March''), #46; Matco Tools (``Matco''), #600; Merit
Abrasives (``Merit''), #628; Murphy & Co.(''Murphy''), #64; Newco
Valves (``Newco''), #198; NTP-Republic (``NTP''), #699; Nucor Steel
(``Nucor''), #992; Piedmont Clarklift, Inc. (``Piedmont''), #741;
Protexall, Inc. (``Protexall''), #917; Regal-Beloit Corp. (``Regal-
Beloit''), #614; Richland Mills (``Richland''), #626; Schofield
(``Schofield''), #51; SGS Tool Co. (``SGS''), #221; Sharpe
Manufacturing Co. (``Sharpe''), #630; Sheffield Steel Corp.
(``Sheffield''), #935; SidaMerica LLC (``SidaMerica''), #246; Snap-
on Tools (``Snap-on''), #685, #732, #733, #991; Spectronics Corp.
(``Spectronics''), #631; Spray Cotton Mills (``Spray Cotton''),
#672; Sterling Handling Equipment, Inc. (``Sterling''), #625;
Taytronics Corp. (``Taytronics''), #744; Vaughn & Bushnell
Manufacturing Co. (``Vaughn & Bushnell''), #151, #616; Victoria
Vogue, Inc. (``Victoria''), #1045; The Warren Featherbone Co.
(``Featherbone''), #1015; Waukesha Industrial Supply (``Waukesha''),
#991; Weldbend Corp. (``Weldbend''), #597; Wolfe Dye & Bleach Works,
Inc. (``Wolfe''), #1057. Wright Tool Co. (``Wright''), #262, #652;
Yeoman's Chicago Corp. (``Yeoman's''), #216. See also Eastman Kodak
Co. (``Kodak''), #619 (supporting 85% standard).
\17\ Made in USA Coalition (``MUSA Coalition''), #596; Donald P.
Selkirk (submitted as Executive Producer, The Donald P. Selkirk
Show, WPON Radio, Bloomfield Hills, MI) (``Selkirk''), #186; Women
V.I.P.s (``WVIP''), #1042.
\18\ Brown, #599 (petition containing approximately 9,300
signatures submitted by U.S. Rep. Sherrod Brown); John Moore (``John
Moore''), #195 (petition signed by 26 individuals); UAW Local 977,
#651 (petition containing approximately 2,000 signatures submitted
by a union representative); Ellen Sofranski (``Sofranski''), #703
(petition signed by 28 individuals); Employees of Danaher Tool Group
(``Danaher Employees''), #829 (petition containing 181 names
submitted by employees of Danaher Tool Group); David Micola
(``Micola''), #966 (petition containing 151 names submitted by an
individual who is a sheet metal worker); Richard Moran, Jr.
(``Moran''), #1029 (petition signed by 28 individuals).
\19\ These telephone calls have not been memorialized or
codified on the record because many of them were phone mail messages
without the name, telephone number, or address of the caller.
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In addition, over 200 members of the House of Representatives have
cosponsored House Concurrent Resolution 80 (``Resolution''), opposing
the Proposed Guides and urging the Commission to retain the ``all or
virtually all'' standard.20 The Resolution states that
lowering the current standard ``will be a misrepresentation to
consumers in the United States who presently believe products bearing
the `Made in USA' label were all or virtually all made in the United
States,'' and that American consumers are ``entitled to purchase
products with the understanding that the labels on these products
reflect consistent definitions.'' Accordingly, the Resolution ``urges
the Federal Trade Commission to refrain from lowering this standard at
the expense of consumers and jobs in the United States.'' The Made in
USA Coalition, comprised of 3 consumer groups, 32 labor unions, 15
businesses, and 11 agriculture organizations, and a primary backer of
the House Resolution, submitted a comment expressly supporting
it.21 In addition, members of the Senate recently introduced
Senate Concurrent Resolution 52, which also supports the retention of
the ``all or virtually all'' standard. Similarly, the New Jersey
General Assembly and the Titusville (Florida) City Council adopted
resolutions that ask the Commission to maintain the traditional
standard.22
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\20\ This number includes at least 13 members of Congress who
were among those who had earlier written to the Commission or
submitted public comments asking the Commission to lower the ``all
or virtually all'' standard. See supra note 4. The Resolution was
submitted to the Commission by U.S. Representatives Bob Franks and
John D. Dingell. Franks/Dingell, #670.
\21\ MUSA Coalition, #596.
\22\ NJ Assembly, #740 (Assembly Resolution No. 163);
Titusville, #1047 (Resolution No. 39-1997).
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The consumer commenters overwhelmingly opposed the Proposed Guides
and generally supported an ``all or virtually all'' standard or
advocated a specific percentage, usually 90% or, more often, 100%. Many
commenters stated that `` `Made in USA' means what it says'' or
expressed similar sentiments. Several commenters asserted that changing
the current standard would confuse consumers who wish to buy American
products, leaving them unable to determine whether a product was truly
made in the United States. Individual consumers also stated that they
buy American products to support fellow Americans and expressed concern
that lowering the standard would lead to a loss in American jobs. The
following comments exemplify the individual consumer comments:
The concept of ``Made in the USA'' has been specific and
definite for the last 50 years. Please leave it as it is. If
manufacturers want to say an item is ``Made in the USA''; then, make
sure it is exactly that. ``Made in the USA'' should mean that an
item is 100% manufactured in the United States of America and not in
another country.23
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\23\ Kenneth Fletcher (``Fletcher''), #178, at 1.
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If a product is only partially made in our Country, I want to
know. I do not wish to purchase items made in other countries and
falsely labeled ``Made in America.'' I want the entire truth on the
label. I don't want to be tricked into buying an item I think is
made here when in fact it is not.24
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\24\ Margaret A. Stem (``Stem''), #203, at 1.
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We are opposed to any change that would increase the percentage
of foreign labor or materials in those goods or products bearing the
``Made in the USA'' label. The American people recognize goods or
products bearing this label as being superior in workmanship and
quality. These goods and products are produced by American workers *
* * Any action by the FTC to modify the ``Made in USA'' label
standard will lead to the loss of American jobs.25
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\25\ Edwin and Beverly Emmons (``Emmons''), #288, at 1.
Other commenters echoed the consumers' concerns and cited
additional reasons for keeping the ``all or virtually all'' standard.
Several opponents of the Proposed Guides expressed concern that
altering the current standard would deceive, or at least confuse,
consumers.26 Some of these commenters argued that the
consumer perception evidence before the Commission does not support
lowering the standard.27 Some commenters additionally
asserted that consumer attitudes and preferences towards ``Made in
USA'' products have not been altered by a change in the economy, or, if
anything, have been made stronger.28
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\26\ See, e.g., Baily, #53; Nixon, #63; Traficant, #231; Crafted
With Pride, #469; ATMI, #613; Vaughan & Bushnell, #616; Weldbend,
#597; Exidyne, #731; UAW, #615.
\27\ See, e.g., American Hand Tool, #622; UAW, #615; Dynacraft,
#646; AGs, #462; Weldbend, #597; Bumpers, #74.
\28\ See, e.g., Vento, #735 at 1 (``The decline of America's
manufacturing base and the difficulty of ascertaining a product's
origin in the global marketplace, has in fact rendered the Made in
USA claim more valuable and significant to American consumers
wishing to buy American.''); AISI, #636, at 1 (It is ``highly likely
that the vast majority of U.S. consumers would be unaware of a
change in the standard, and would continue to believe that items
labeled `Made in USA' were held to the current standard.''); NCL,
#640, at 3 (the fact that the economy is increasingly globalized may
cause consumers to place even a greater value on unqualified `Made
in USA' claims); Bumpers, #74, at 1-2 (``Even if fewer products are
wholly `Made in the USA,' it does not follow that the meaning of the
phrase has changed--rather, that fewer products may meet the
standard.''); UNITE, #696, at 3 (``no credible evidence * * * that
American consumers expect the `Made in USA' label to mean that
products were produced somewhere else'').
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Other advocates of the ``all or virtually all'' standard warned
that changing the standard in the way proposed by the Commission would
harm the American manufacturing base, because companies would have less
incentive to use U.S. labor and U.S. product components. These
commenters concluded that American jobs would be jeopardized as
companies increasingly would rely on less expensive foreign
sources.29 Many commenters also stated that weakening the
standard would
[[Page 63759]]
deny manufacturers whose products were, in fact, ``all or virtually
all'' made in the United States the marketing advantage attributable to
labeling products ``Made in USA.'' 30
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\29\ E.g., SGS, #221, at 1 (U.S. jobs will be in jeopardy if
Commission adopts proposed standard); Alabama, #242, at 1 (American
workers are already badly injured by unfair exportation of jobs by
their employers); Boilermakers, #514; Plumbers & Steamfitters Local
565, #209, at 1 (``purchasing products displaying the `Made in
U.S.A.' label is the first line of defense for American workers to
protect their jobs''). See also PBCLU, #418; AFL-CIO/ULSTD, #608;
Vaughan & Bushnell, #616; AISI, #636; UAW Region 9A, #682; Cheraw,
#716; Bumpers, #74; Yeomans, #216; Odom, #290.
\30\ E.g., Weldbend, #597, at 1 (the Proposed Guides ``would
force most of Weldbend's fittings and flanges--made all or virtually
all of American materials by American workers--to share their hard-
earned `Made in USA' labels with competitors' products having less
than 50-percent U.S. content value''). See also Vento, #735; Matco,
#600; Duchess, #512; Merit, #628; Sharpe, #630; Spectronics, #631;
Federal, #654; Exidyne, #731; NTP, #699; Forman, #159; Traficant,
#231.
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A number of commenters opposed to the Proposed Guides also
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 the current standard allows marketers to make qualified
claims for products that are made with some foreign parts or labor as
long as those claims are truthful and substantiated.31
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\31\ See, e.g., NCL, #640; Visclosky, #236; Traficant, #231;
Boilermakers, #514; FAST, #545; UNITE, #696; Schofield, #51; AFL-
CIO/ULSTD, #608. In addition, a few individual consumers also
suggested that marketers can make qualified claims for their
products. See, e.g., Matthew Fogarty (``Fogarty''), #997 (for
products with less than 100% U.S. content, should specify percentage
of U.S. content, such as ``Materials 50% Made in USA, Assembled in
Guam''); Anthony J. Jordan (``Jordan''), #160 (supports disclosing
the specific percentages of U.S. and foreign materials and labor);
Lawrence P. Kosel (``Kosel''), #207 (supports disclosing on labels
the percentage of the product made in America, such as ``70% made in
America''); Arthur Lazur (``Lazur''), #119 (should state percentage
or exact materials made in USA; or that assembled, but not
manufactured, in USA); R.W. and Susan Marchand (``Marchand''), #107
(for products partially produced in USA, should identify percentage
made in USA); Debra Newman (``Debra Newman''), #123 (supports
qualified claims such as ``Made in USA of imported parts'' or
``Assembled in [name of country] from US parts''); Alan D. Shrom
(``Shrom''), #141 (should state on the product if it is assembled in
USA of foreign materials); Robert Lebensold (``Lebensold''), #942
(``Made in U.S.A. of imported materials'' might be okay).
---------------------------------------------------------------------------
In addition, some of the commenters supporting the ``all or
virtually all'' standard specifically criticized the particular safe
harbors proposed by the Commission, arguing that neither proposed safe
harbor would ensure that a product complies with the proposed
``substantially all'' standard and with consumer expectations regarding
``Made in USA'' claims.33
---------------------------------------------------------------------------
\33\ AGs, #462; AFL-CIO/ULSTD, #608; UAW, #615; Durand, #471;
Vaughan & Bushnell, #616; American Hand Tool, #622. See also Matco,
#600, American Sigma, #611; Sharpe, #630, Federal, #654; Exidyne,
#731, and NTP, #699 (all submitting comments nearly identical to the
American Hand Tool Coalition's comment).
---------------------------------------------------------------------------
Specifically, several commenters argued that the 75% U.S. content
safe harbor (expressed as a percent of total manufacturing costs), in
addition to being too low to meet consumer expectations, would allow a
``Made in USA'' claim for products with far less than even 75% U.S.
content (in terms of, for example, the percentage of components). UAW,
for example, contended that lower foreign labor costs would lead to
underestimating the actual amount of foreign content in a
product.34 In addition, the American Hand Tool Coalition
argued that, because the Proposed Guides do not necessarily require
marketers to take into account materials several steps back in the
manufacturing process or to take into account foreign content that is
not ``significant'' (which is left undefined), marketers may fail to
account for all foreign costs.35
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\34\ For example, UAW pointed out that ``[t]he difference in
rates of worker compensation between the U.S. and countries such as
China allows for the possibility that 75 percent of the
manufacturing costs could be U.S. value, but that the product would
be `substantially' made abroad.'' UAW, #615, at 2. See also Durand,
#471, at 1 (stating that the percentage content safe harbor would
seriously harm its business because ``[c]heap labor imports of stems
and bowls to be fused in the U.S. can easily be estimated to meet
the 75% manufacturing cost requirement * * *''); AFL-CIO/ULSTD,
#608, at 1-2 (under the 75% content safe harbor, products can be
labeled ``Made in USA,'' even though major components were produced
abroad, if those components were imported from countries with lower
wages); AGs, #462, at 5 (the Commission's approach of measuring
foreign content by comparing the percentage of costs attributable to
foreign parts and labor to those attributable to U.S. parts and
labor ``fails to compensate for the disparity in costs between the
United States and many developing countries'').
A related point was made by the American Hand Tool Coalition,
which argued that varying labor costs in certain countries would
lead to inconsistent labeling results for similar products, e.g., if
one manufacturer sources parts from China and a second manufacturers
sources the same parts from Germany, the percentage U.S. content
will differ even if the manufacturers perform the same U.S.
processing at the same cost, because China is a much lower cost
market than Germany. American Hand Tool, #622, at 22.
\35\ American Hand Tool, #622, at 16-19.
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A number of commenters also specifically criticized the two levels
of substantial transformation safe harbor, arguing that this safe
harbor does not guarantee that ``substantially all'' of the labor and
value of the product is of domestic origin.36 A few of these
commenters expressed concern that, because this safe harbor does not
take into account the cost of U.S. processing or inputs, products could
be labeled ``Made in USA'' even though foreign content accounted for a
significant percentage of their value.37 Two commenters
additionally argued that consumers would be misled by the two levels of
substantial transformation safe harbor, because it is too imprecise to
ensure that ``substantially all'' the value of a product is of U.S.
origin. UAW stated that ``[t]he variation from product to product in
the impact of the double transformation test would prevent consumers
from having a real sense of the U.S. content of the product that is
being presented as `Made in USA.' '' 38 Similarly, the
American Hand Tool Coalition contended that this safe harbor leads to
conflicting or unpredictable results, in part, because the Proposed
Guides define substantial transformation to include two tests that are
not consistent for all products--the case-by-case analysis that Customs
applies to products from most countries and the tariff shift
regulations that Customs applies to products from NAFTA
countries.39
---------------------------------------------------------------------------
\36\ See, e.g., AFL-CIO/ULSTD, #608; UAW, #615; American Hand
Tool Coalition, #622; Durand, #471.
\37\ AFL-CIO/ULSTD, #608, at 2 (under the second safe harbor, a
product ``could be assembled in the U.S. of components put together
in the U.S. of parts made overseas that account for more than 25% of
the product's value''); American Hand Tool, #622, at 26; AGs, #462,
at 6. See also UAW, #615, at 3 (citing Example 1 under the second
safe harbor in the Proposed Guides as an example of when a product
can be labeled ``Made in USA'' even if imported components accounted
for 80% or 90% of the value of the final product); Weldbend, #597,
at 1-2 (for products such as pipe fittings and flanges, the two
levels of substantial transformation safe harbor would allow
products with 100% foreign materials and one-half to two-thirds of
their value of foreign origin to be marketed as ``Made in USA'').
\38\ UAW, #615, at 3.
\39\ American Hand Tool, #622, at 25.
---------------------------------------------------------------------------
Finally, some commenters supported a percentage content standard
greater than the 75% safe harbor proposed by the Commission, but less
than 100%. For example, a coalition of 16 state Attorneys General, as
well as a few manufacturers, who were generally supportive of an ``all
or virtually all'' standard, recommended that the Commission require
that a product have at least 90% actual U.S. content in order to bear
an unqualified ``Made in USA'' label.40 Another commenter,
Eastman Kodak, favored an 85% standard, stating that although the ``all
or virtually all'' standard affords the best guarantee against consumer
deception or confusion, ``legitimate disadvantages [may be placed] on
businesses who are very heavily committed to maintaining manufacturing
processes here but cannot ignore the economic realities of using at
least some foreign components'' or who must import items which are not
made, or raw materials which are not found, in the United
States.41 According
[[Page 63760]]
to this commenter, changing the standard might benefit consumers,
because American companies would be motivated ``to offer the best
quality at the best price without sacrificing the `American' identity
of their goods.''
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\40\ AGs, #462, at 1,7. See also Sterling, #625, at 1
(supporting a 90% standard); March, #46, at 1 (supporting a 90%
standard).
\41\ Kodak, #619, at 2-3 (consumer perception evidence justifies
lowering the U.S. content requirement to 85%; this standard, along
with last substantial transformation in the United States, would
serve consumers' interests).
---------------------------------------------------------------------------
C. Comments Supporting The Proposed Guides and/or Other Standards
A few individual consumers and 62 additional commenters favored
modifying the ``all or virtually all'' standard, including 10 members
of Congress,42 32 manufacturers and other
corporations,43 17 trade associations,44 1
nonprofit organization,45 and 1 other
commenter.46 Many of these commenters asserted that the vast
changes in the international economy since the Commission first applied
the ``all or virtually all'' standard necessitate that the standard be
altered. Thus, several commenters asserted that the Proposed Guides
``better reflect[ed] the practical realities of U.S.-manufactured
products in today's global economy'' 47 and provided U.S.
manufacturers with greater flexibility in making ``Made in USA'' claims
in light of these realities.48 Several of these commenters
stated that consumers' expectations have kept pace with the change in
the economy. According to these commenters, a lower standard is
therefore consistent with consumer perception.49
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\42\ U.S. Rep. Susan M. Collins, U.S. Rep. John F. Kerry, U.S.
Rep. Joseph I. Leiberman, and U.S. Rep. Olympia J. Snowe (``Collins/
Kerry/Leiberman/Snowe''), #606; U.S. Rep. Joseph Moakley, U.S. Rep.
William Delahunt; U.S. Rep. Martin Meehan; U.S. Rep. Joseph Kennedy,
U.S. Rep. Barney Frank (``Moakley/Delahunt/Meehan/Kennedy/Frank''),
#671; U.S. Rep. Michael G. Oxley (``Oxley''), #955. The comment from
Rep. Moakley et al. was also signed by U.S. Rep. John Olver. In a
subsequent letter, however, Rep. Olver stated that his signature was
``inadvertently attached'' to this comment and that he did not
believe that the FTC's traditional standard for ``Made in USA''
labels should be altered. Olver, #671A.
\43\ Franzus Co., Inc. (``Franzus''), #301; Converse, Inc.
(``Converse''), #363, #470; Genfoot America, Inc. (``Genfoot''),
#463; DeBon Leather (``DeBon''), #472; Carter Footwear, Inc.
(``Carter''), #595; The Leather Specialty Co. (``Leather
Specialty''), #598; Detroit Edge Tool Co. (``Detroit Edge''), #601;
Belair Time Corp. (``Belair''), #602; Maytag Corp. (``Maytag''),
#605; Oneida Ltd. (``Onedia''), #607; Jules Jurgensen Watches
(``Jurgensen''), #609; Toyota Motor Sales, USA (``Toyota''), #610;
Timex Corp. (``Timex''), #612; Wolverine Worldwide, Inc.
(``Wolverine''), Inc., #621; Jameslee Corp. (``Jameslee''), #627;
Central Tools, Inc., (``Central''), #629; Ronda Watch Corp. and
Progress Watch Corp. (``Ronda/Progress''), #632; Benrus Watch Co.
(``Benrus''), #633; New Balance Athletic Shoe Co., Inc. (``New
Balance''), #635; The Stanley Works (``Stanley''), #647; The Timken
(``Timken''), #648; The Gates Corp. (``Gates''), #649; Allegiance
Healthcare Int'l, Inc. (``Allegiance''), #653; Minnesota Mining &
Manufacturing (``3M''), #700; Imation Corp. (``Imation''), #643;
Gary's Leather Creations (``Gary's''), #678; Sacoche Int'l, Inc.
(``Sacoche''), #701; NIBCO Inc. (``NIBCO''), #738; Samsonite Corp.
(``Samsonite''), #828; Whirlpool Corp. (``Whirlpool''), #957.;
Hartmann Luggage & Leather Goods Group (``Hartmann''), #1013,
Savannah Luggage Works (``Savannah''), #1039.
\44\ Writing Instrument Manufacturers Ass'n, Inc. (``WIMA''),
#187; Rubber & Plastic Footwear Manufacturers Ass'n (``RPFMA''),
#264; Luggage and Leather Goods Manufacturers of America, Inc.
(``LLGMA''), #464; Ass'n of Home Applicance Manufacturers
(``AHAM''), #473; Int'l Mass Retail Ass'n (``IMRA''), #594; Footwear
Distributors and Retailers of America (``FDRA''), #603; Int'l
Electronics Manufacturers and Consumers of America (``IEMCA''),
#604; Footwear Industries of America, Inc. (``FIA''), #617; National
Food Processors Ass'n (``NFPA''), #620; The National Council on
Int'l Trade Development (``NCITD''), #638; Joint Industry Group
(``JIG''), #639; Electronics Industries Ass'n (``EIA''), #641; Japan
Machinery Exporters' Ass'n (``JMEA''), #642; Committee of Domestic
Steel Wire Rope and Specialty Cable Manufacturers (``Domestic Steel
Wire Rope''), #644; The Specialty Cable Manufacturers Subcommittee
(``Specialty Cable Subcommittee''), #645; Ass'n of Int'l Automobile
Manufacturers (``AIAM''), #650; Consumer Electronics Manufacturers
Association (``CEMA''), #1041 (attaching a letter to members of
Congress signed by officers of EIA, LLGMA, IMRA, FIA, the Automotive
Parts and Accessories Association, and the American Association of
Exporters and Importers urging the members not to cosponsor H. Con.
Res. 80 and supporting the FTC's proposed guidelines as offering a
``realistic approach'' to ``Made in USA'' labeling).
\45\ Made in the USA Foundation (``MUSA Foundation''), #730.
\46\ JBC International (a consulting firm) (``JBC''), #637.
\47\ See, e.g., Carter, #595, at 1; see also Stanley, #647;
Jurgensen, #609; AIAM, #650; Wolverine, #621; AHAM, #473; AIAM,
#650; JBC, #637; EIA, #641; Belair, #602; FIA, #617.
\48\ See, e.g., NCITD, #638; Carter, #595; New Balance, #635;
LLGMA, #464; FIA, #617.
\49\ See e.g., AHAM, #473, at 2 (although consumer perception
studies indicate that consumers are still interested in whether a
product is ``Made in USA,'' this ``rarely signifies to the consumer
that the product is 100 percent or `all or virtually all' composed
of U.S. made parts and assembled in the U.S.''); Timken, #648, at 1
(``Global sourcing of components is by now so well-known that
consumers recognize the fact that `USA' merchandise may contain a
small foreign content''); AIAM, #650, at 3 (``Given the fact that
consumer perception data is consistent with the global marketplace,
it would seem arbitrary to ignore it in fashioning Guides to prevent
consumer deception.'') See also Maytag, #605; FIA, #617; Converse,
#363; WIMA, #187; Allegiance, #653.
---------------------------------------------------------------------------
A number of commenters disputed the claim by supporters of the all
or virtually all standard that lowering the standard would lead to
fewer jobs in the United States, arguing that, on the contrary, the
strictness of the ``all or virtually all'' standard deprives American
manufacturers of a selling tool that could help preserve American
jobs.50 These commenters contended that American
manufacturers are at a competitive disadvantage compared to
manufacturers in countries where labor rates and other production costs
fall below U.S. standards.51 Although being able to promote
their products as ``Made in USA'' would help to even out this
disadvantage, they argued, many manufacturers' products cannot meet the
current standard, either because of cost reasons or because some
materials and components are no longer available from domestic
sources.52 According to these commenters, if domestic
manufacturers cannot claim that their products are ``Made in USA,''
American jobs would be jeopardized, because these companies would have
little incentive to stay in the United States.53 For
example, New Balance Athletic Shoes, Inc. stated:
\50\ See, e.g., Belair, #602; AHAM, #473; Jules Jurgensen, #609;
New Balance, #635.
\51\ See, e.g., LLGMA #464, at 2-3 (``Foreign goods dominate the
market and thousands of U.S. jobs have been lost to imports. This is
because the cost structure of major foreign suppliers of luggage and
leather goods is far below our own * * * Foreign suppliers in these
countries utilize very cheap labor and have minimal environmental
and workplace standards * * * It is crucial that the remaining
luggage and leather goods manufacturers be able to market the unique
`Made in USA' label to have any hope of competing with low labor
cost countries.''); New Balance, #635, at 4-6 (it has become
increasingly difficult to keep and expand U.S. manufacturing
facilities in the face of competition from cheap imports, and the
impossibility of obtaining needed components within the United
States); Converse, #470; DeBon, #472; Leather Specialty, #598.
Belair, #602; Jules Jurgensen. #609; Ronda/Progress, #632; Sacoche,
#701.
\52\ See, e.g., AHAM, #473 at 1; New Balance, #635, at 2.
\53\ See, e.g., Collins/Kerry/Leiberman/Snowe, #606, at 1 (``To
impose a standard which [numerous manufacturers] cannot meet is one
more encouragement for businesses to abandon U.S. manufacturing for
cheap overseas labor.''); LLGMA, #464, at 3 (``If the FTC continues
to impose unrealistic country of origin marking requirements, the
decline of the U.S. luggage and leather goods industry and its
migration off shore will be hastened.''); Moakley/Delahunt/Meehan/
Kennedy/Frank/Olver, #671, at 2 (``If the standard is so high that
it cannot be met, manufacturers will have no incentive even to
try.'')
---------------------------------------------------------------------------
New Balance agrees with the sentiment, expressed in many of the
public comments filed to date, that the FTC ought to take action to
preserve the ``Made in USA'' label, support U.S. jobs, and encourage
manufacturers to maintain their manufacturing facilities in this
country, as well as help to level the playing field for domestic
manufacturers. The ``patriotic'' response, however, is not to
enforce an ``all, or virtually all'' standard that is unreachable
for the vast majority of U.S. manufacturers, but to articulate a
standard that those manufacturers--the companies who are providing
jobs for U.S. workers--can meet so that they can compete more fairly
with imports that have tremendous advantages.54
\54\ New Balance, #635, at 2-3.
---------------------------------------------------------------------------
Other commenters asserted that, because the proposed standard would
make the ``Made in USA'' claim more attainable, manufacturers would be
encouraged to strive to maintain or increase domestic content in their
products in order to make the ``Made in
[[Page 63761]]
USA'' claim.55 Several commenters noted that the proposed
standard would allow them to make unqualified ``Made in USA'' claims
for their products, although they cannot make such claims under the
current standard. According to Wolverine, for example: ``As currently
proposed, the FTC's guides would, for the first time, afford the
opportunity for hundreds of thousands of American workers to see their
contributions in factories throughout the United States create products
which will appropriately carry the unqualified designation as having
been `Made in America.' '' 56
---------------------------------------------------------------------------
\55\ See, e.g., Allegiance, #653, at 1 (the ability to
capitalize on consumer preference for ``Made in USA'' products
favorably influences a company's decision to continue producing in
the United States); Maytag, #605; NIBCO, #738.
\56\ Wolverine, #621, at 2. See also Detroit, #601; Imation,
#643; Benrus, #633; Ronda/Progress, #632; NIBCO, #738.
---------------------------------------------------------------------------
Some of the commenters favoring a change in the standard expressed
their support for the safe harbors for unqualified U.S. origin claims
set forth in the Proposed Guides.57 Other commenters,
however, while expressing general support for the Proposed Guides,
asked the Commission to revise one or both of the proposed safe harbors
and offered specific advice as to how this should be done.58
For example, a few commenters expressly supported one proposed safe
harbor, but urged the Commission to eliminate the other.59
Several other commenters stated that, although the Commission's 75%
U.S. content safe harbor is an improvement over the current ``all or
virtually all'' standard, the Commission should lower the U.S. content
percentage even further. The Luggage & Leather Goods Manufacturers of
America, for example, asked the Commission to lower the standard to
50%, because the luggage and leather goods industry ``has been forced
to increase its reliance on foreign materials and components. As
domestic industry has grown smaller, so has its supplier base.
Therefore, domestic producers often have no choice but to source
certain components off shore * * *.60 In addition, a few
commenters suggested alternative ways to calculate domestic
content.61
---------------------------------------------------------------------------
\57\ Collins/Kerry/Leiberman/Snowe, #606; Moakley/Delahunt/
Meehan/Kennedy/Frank/Olver, #671, Oxley, #955; Allegiance, #653,
Belair, #602; Benrus, #633; Carter, #595; Detroit, #601; Gary's,
#678; Gates, #649; Genfoot, #463; Hartman, #1013; Imation, #643;
Jurgensen, #609; Maytag, #605; New Balance, #635; NIBCO, #738;
Oneida, #607; Timex, #612; Timken, #648; IMRA, #594; WIMA, #187.
\58\ Converse, #363, #470; DeBon, #472; Jameslee, #627; Rhonda/
Progress, #632; Sacoche, #701; Samsonite, #823; Whirlpool, #957;
Wolverine, #621; JBC, #637; AHAM, #473; AIAM, #650; FDRA, #603;
LLGMA, #464; RPFMA, #264; IEMCA, #604; JIG, #639; NCITD, #638; EIA,
#641.
\59\ Some commenters objected to the percentage content safe
harbor and argued that the Commission should only apply to two
levels of substantial transformation safe harbor. See, e.g., JBC,
#637, at 1 (percentage content rules can be ``consciously
manipulated, affected by exchange rates, and otherwise made
administratively impossible to enforce.''); JIG, #639; AIAM, #650.
In contract, two commenters supported the percentage content safe
harbor, but not the two levels of substantial transformation safe
harbor. MUSA Foundation, #730, at 2 (the two levels of substantial
transformation safe harbor ``opens up a very wide loophole'');
Central Tools, #629.
\60\ LLGMA, #464, at 2. See also FIA, #617, at 3 (a product that
contains more than 50% U.S. content clearly qaualifies as
``substantially all'' made in the United States); RPFMA, #264; at 2
(70% justified by consumer perception evidence); Converse, #363, at
1 (preferring a 70% standard); Leather Specialty, #598, at 2
(supporting a 50% standard); Wolverine, #621, at 5 (supporting a
majority U.S. content safe harbor or, at least no higher than 70%);
AIAM, #650, at 1 (favoring substantial transformation standard or
lowering U.S. content safe harbor at least to 70%); Savannah, #1039
(supporting a 50% standard). Cf. DeBon, #472, at 1, Jameslee, #627,
at 1, and Sacoche, #701, at 1 (all three asserting that the 75%
standard would be relatively difficult for many U.S. manufacturers
to meet, but not recommending a specific percentage).
\61\ See, e.g., LLGMA #464, at 3-4 (the NAFTA regional content
net cost formula should be used to calculate domestic content);
Stanley, #647, at 6-9 (the Commission should not adopt ``arbitrary''
percentage for U.S. content, but if it does, it should make clear
that the percentage of total manufacturing costs relates to cost of
fabrication only); Dynacraft, #646, at 7-8 (opposes lowering the
standard, but if the Commission adopts the Proposed Guides, the
Commission should base the percentage content standard on actual
manufacturing costs); EIA, #641, at 2 (the percentage cost safe
harbor should only look one step back in the manufacturing process);
AHAM, #473, at 2 (the Commission should provide the option of using
Generally Accepted Accounting Principles of cost accounting as an
alternative method for calculating percentage content).
---------------------------------------------------------------------------
A number of commenters argued that the Commission's proposed second
safe harbor, which would have allowed an unqualified U.S. origin claim
where a product undergoes two levels of substantial transformation in
the United States (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), is too
burdensome. Several, for example, urged the Commission to apply only
one level of substantial transformation (i.e., requiring that only the
final substantial transformation of the product be performed in the
United States) rather than two, or suggested other modifications to
this safe harbor.62
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\62\ See, e.g., NCITD, #638, at 2 (favoring the use of the NAFTA
marking rules for single substantial transformation as the second
safe harbor, rather than requiring two levels of substantial
transformation); Stanley, #647, at 9-11 (favoring only one level of
substantial transformation for products involving processes other
than assembly); 3M, #700, at 1-2 (arguing that two levels of
substantial transformation creates too great an administrative cost
for U.S. corporations); EIA, #641, at 7 (this safe harbor may be
unduly restrictive, depending upon the meaning of term
``significant;'' Commission should modify the concept of ``all
significant components'' with a requirement that the final
components transformed in the United States constitute most of the
total component value). But see Timex, #612, at 4 (the Commission
may want to consider adding a cost threshold, such as 51% U.S.
costs, to the two levels of substantial transformation safe harbor,
to guard against consumer deception).
---------------------------------------------------------------------------
In addition, a number of commenters urged the Commission to replace
the Proposed Guides altogether with a lower standard. As was the case
during the Commission's earlier public comment period on this issue,
many commenters, for example, asked the Commission to replace the ``all
or virtually all'' standard with a substantial transformation standard
or with the NAFTA Preference Rules.63 One commenter
recommended that the Commission apply a case-by-case, reasonable basis
approach to all country-of-origin claims.64
---------------------------------------------------------------------------
\63\ See, e.g., AHAM, #473 (NAFTA Preference Rules); IEMCA, #604
(substantial transformation); Maytag, #605 (NAFTA Preference Rules);
NFPA, #620 (substantial transformation); Ronda/Progress, #632
(substantial transformation); Domestic Steel Wire Rope, #644
(substantial transformation); Speciality Cable Subcommittee, #645
(substantial transformation); National Electrical Manufacturers
Ass'n (``NEA''), #702 (substantial transformation); NFPA, #620, at 2
(substantial transformation); JMEA, #662, at 2-3 (standards of the
World Trade Organization and U.S. Customs); see also JIG, #639 and
NCITD, #638 (supporting the Proposed Guides, but preferring a
substantial transformation standard); NEMA, #702 (urging substantial
transformation standard for industrial products).
\64\ Toyota, #610.
---------------------------------------------------------------------------
Finally, several commenters asked the Commission to modify the
Proposed Guides to specifically address certain situations not
expressly discussed in the Proposed Guides 65 or to exempt
certain types of products.66
---------------------------------------------------------------------------
\65\ For example, one commenter requested that the Commission
amend the Guides to specifically permit manufacturers rebuilding or
remanufacturing automotive parts in the United States to designate
their products ``Made in USA'' if the products originally were used
in the United States, regardless of where the products originally
were manufactured. Automotive Parts Rebuilders Ass'n (``APRA''),
#698, at 1-3. See also NFPA, #620, at 2 (if Proposed Guides apply to
processed foods, Proposed Guides should include references to raw
agricultural products and processed or manufactured food products in
cost and other definitions and include processed food product
examples); Wolverine, #621, at 6-8 (Commission should authorize
``Made in USA'' claims for products assembled or processed in
accordance with subheading 9802.00.8040, HTSUS); Carter, #595, at 1-
2 (asking the Commission to explain how it will treat certain
qualified claims under the Proposed Guides, e.g., when a qualified
claim indicates that some or all of the parts are of U.S. origin, do
those parts have to meet the standard for an unqualified ``Made in
USA'' claim?).
\66\ Two commenters asked the Commission to apply the Proposed
Guides only to consumer goods, not to industrial products, arguing
that industrial products are produced to the specifications
(including country of origin) of a sophisticated customer. JIG,
#639; NEMA, #702. But see Kern, #739, at 2 (the `` `creative' use of
the `Made in the USA' designation has caused considerable confusion
in my [tool] company's local and national marketplace of normally
well informed industrial customers and has had a negative financial
impact on my company and its employees'').
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[[Page 63762]]
D. Commenters' Discussion of Other Issues
Several commenters discussed additional issues raised in the
Federal Register notice soliciting comments on the Proposed Guides.
These issues included whether the Commission should treat unqualified
``Assembled in USA'' claims the same as unqualified ``Made in USA''
claims, whether the Commission should recognize a separate ``Origin:
USA'' claim in limited instances for domestically-sold products that
also are exported for sale, and whether the Commission should eliminate
its traditional presumption that products that do not bear any country-
of-origin marking are understood by consumers to be made in the United
States. These comments are discussed below.
1. ``Assembled in USA'' Claims
In the Federal Register notice announcing the Proposed Guides, the
Commission solicited comment on whether a product that does not meet
the standard for unqualified U.S. origin claims should nonetheless be
permitted to be labeled or advertised as ``Assembled in USA'' without
further qualification; and if so, under what circumstances, i.e., what
processing should it undergo in the United States to support the
unqualified claim. Five commenters contended that the claim should be
interpreted similarly to an unqualified ``Made in USA'' claim, and must
therefore be qualified (e.g., ``Assembled in USA from imported parts'')
if it does not meet the standard for unqualified ``Made in USA''
claims. According to these commenters, consumers understand ``Assembled
in USA'' to mean the same thing as ``Made in USA.'' 67 Two
commenters, on the other hand, contended that consumers perceive the
two claims differently. The coalition of state Attorneys General, for
example, suggested that ``while the term `make' connotes a process of
creation the term `assemble' is generally understood to mean the final
process of fitting or joining together pre-existing parts.''
68 These commenters favored permitting an unqualified
``Assembled in USA'' claim where a ``Made in USA'' claim would be
inappropriate. 69
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\67\ See Gates, #649, at 2-3 (``Assembled in USA'' claim should
identify country of origin of major component parts); Timken, #648,
at 3-4 (because of similarity between ``Made'' and ``Assembled'' and
the importance of assembly to respondents in Commission's survey,
unqualified ``Assembled in USA'' mark is inappropriate); IMRA, #594;
FDRA, #603; Timex, #612.
\68\ AGs, #462, at 5.
\69\ Id., #462, at 4-5 (treating terms differently would allow
manufacturers to market their products effectively, using easily
understood unqualified claims that would not sacrifice truth in
advertising); AIAM, #650, at 1-2, 5-6. See also Toyota, #610, at 6-7
(if Commission concludes that a bright line test is necessary for
``Made in USA'' claims, it should allow ``assembled in'' or ``built
in'' claims based only on substantial transformation).
---------------------------------------------------------------------------
In addition, three of these commenters addressed the circumstances
under which they believed an ``Assembled in USA'' claim should be
permitted. Two commenters favored authorizing the use of unqualified
``Assembled in USA'' claims for products that have been last
substantially transformed in the United States.70 Another
commenter supported requiring at least 50% U.S. content to ensure more
than minimal or simple assembly operations; even at that level,
however, the commenter recommended requiring that the claim be
qualified to disclose whether foreign components were
used.71
---------------------------------------------------------------------------
\70\ AGs, #462, at 6; Toyota, #610, at 6-7.
\71\ Gates, #649, at 2-3.
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2. ``Origin: USA'' Claims
In the Proposed Guides, the Commission proposed allowing marketers
to use a ``lesser mark''--``Origin: USA''--in certain, limited
circumstances. Such a mark would have allowed manufacturers to
uniformly label products for sale in both the United States and abroad,
when a foreign country may require that a product exported from the
United States be marked with an indication of U.S. origin, while that
same product would not be permitted to bear an unqualified U.S. origin
claim when sold in the United States. Use of the lesser mark would have
been subject to certain restrictions, including that consumer products
sold in the United States would have to include, in some manner, an
additional disclosure of the existence of any substantial foreign
content. The commenters addressing this issue were evenly divided as to
whether marketers should be allowed to use a ``lesser mark'' or
specific claim such as ``Origin: USA.'' 72
---------------------------------------------------------------------------
\72\ Seven commenters supported use of a ``lesser mark.'' LLGMA,
#464, at 4; IMRA, #594, at 4-5 (strongly supports as a short-term
solution until WTO adopts origin-marking requirements; the
Commission should prohibit use of the ``Origin: USA'' claim in
advertising, because the issue faced by exporters is purely a
labeling issue, and could be abused in advertising); FIA, #617, at
8-9; Wolverine, #621, at 8; JBC, #637, at 3-4; JIG, #639, at 4;
NEMA, #702, at 1-3. Seven commenters opposed the use of such a mark.
FDRA, #603, at 2-4; Timex, #612, at 1, 5-6; NFPA, #620, at 3-4;
American Hand Tool, #622, at 29-31; Timken, #648, at 4-5; Gates,
#649, at 3-4; Wright, #262, at 2.
---------------------------------------------------------------------------
A number of commenters supporting the option of using an ``Origin:
USA'' label argued that such a claim would benefit manufacturers who
export U.S. products, as well as consumers, for example, by eliminating
the need to separately label domestic and exported products and to
maintain packaging plants in foreign countries for the sole purpose of
meeting conflicting country-of-origin labeling standards; 73
by encouraging U.S. manufacturers to manufacture and sell more U.S.
products if they can export the products for sale in foreign markets
without the added costs associated with the Commission's historic
restrictions on U.S. origin statements; 74 and by reducing
the price of consumer goods sold in the United States, because of the
cost savings to U.S. manufacturers.75 At least one commenter
who supported the use of the lesser mark asserted that additional
disclosure requirements for consumer goods sold in the United States
would not be necessary to prevent consumer deception.76
Another commenter suggested alternative lesser marks to avoid the
burden and expense of additional labeling for U.S. sales while
providing additional information to U.S. consumers.77
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\73\ JBC, #637, at 3-4; JIG, #639, at 4 (cost of maintaining
separate packaging facilities in foreign markets for sole purpose of
complying with conflicting country-of-origin markings and
Commission's ``all or virtually all'' standard for U.S. origin
claims adds 10% to 30% per product; cost of special labels and/or
relabeling U.S. product in United States for export adds 10% to 15%
per product); NEMA, #702, at 2-3.
\74\ JIG, #639, at 4.
\75\ Id., #639, at 6.
\76\ JBC, #637, at 3-4.
\77\ FIA, #617, at 8-9 (suggesting lesser mark ``Origin: USA
(for export)'' to allow manufacturers to avoid burden and expense of
additional labeling while alerting consumers that the article is
labeled for export; alternatively, lesser mark ``Origin: USA (with
non-U.S. content)'' to provide U.S. consumers with relevant
information while eliminating additional labeling requirements).
---------------------------------------------------------------------------
On the other hand, other commenters argued that whatever benefits
an ``Origin: USA'' mark would provide would not justify the potential
confusion caused by the lesser mark, as consumers were likely to
confuse ``Origin: USA'' labels with ``Made in USA''
labels.78 Even the additional disclosures required on
consumer goods sold in the United States, some of these commenters
stated, would not be sufficient to prevent consumer deception or might
even increase
[[Page 63763]]
consumer confusion.79 Some commenters also asserted that a
lesser mark is unnecessary,80 arguing that if a foreign
country's marking rules require the origin of a product to be ``USA,''
then the manufacturer can identify the United States as the assembly
point and further qualify the origin, e.g., ``Assembled in USA from
Components of U.S. and Foreign Origin,'' or apply separate labels or
marks, depending upon the destination of the goods.81 In
addition, one commenter who supported a substantial transformation
standard for unqualified ``Made in USA'' claims found the alternative
of using an ``Origin: USA'' claim to be inadequate. This commenter
contended that the lesser mark would provide little or no benefit
because the additional disclosure requirements for U.S. sales of
consumer products would create a dual marking requirement.82
Last, even some commenters supporting use of a lesser mark were unsure
whether the lesser mark ``Origin: USA'' would be an acceptable marking
to foreign customs officials.83
---------------------------------------------------------------------------
\78\ See, e.g., Timken, #648; American Hand Tool, #622; Gates.
#649; Timex, #612.
\79\ FDRA, #603, at 2-3 (``Origin: USA'' label likely would
prove deceptive even if appropriate qualifying language appears on a
hangtag or packaging because consumers would not locate or read the
qualifying language); Timex, #612, at 5 (consumer likely would
decide to purchase a watch without seeing package containing
additional disclosures because watches are frequently displayed
without packaging, and packaging products are pulled from a cabinet
or shelf once the consumer has made purchasing decision); American
Hand Tool, #622, at 29 (strongly opposed the ``Origin: USA'' label);
Gates, #649, at 4 (the meaning of a lesser mark, even where
qualified by the phrase ``substantial foreign content,'' would be
uncertain to consumers).
\80\ Wright, #262, at 2 (marking is the last or near to last
operation performed; it is practical to run large lots and carry
most inventory in an unmarked condition, involving only a relatively
small cost penalty); American Hand Tool, #622, at 29-31 (little need
for lesser mark; Commission found little evidence that companies
routinely face conflicting labeling requirements or that ``Made in
USA'' claim causes such conflicts); Gates, #649.
\81\ Gates, #649, at 3-4. See also Timex, #612, at 5 (a
qualified marking such as ``Assembled in USA; Philippines movement''
for watches would satisfy the marking requirements of almost every
other country--most of which identify the place of origin of a watch
as the place of final assembly; this qualified claim would therefore
resolve--for watches--the concerns that prompted the Commission to
consider an ``Origin: USA'' marking).
\82\ NFPA, #620, at 4 (economic burden of sticker labeling or
hangtags similar to creation of additional labeling inventory, and
handling requirements might be even more burdensome).
\83\ See, e.g., NEMA, #702, at 2 (a number of countries have
indicated either that they would not accept an ``Origin: USA'' mark
or that they are not sure); JIG, #639, at 5 (``Origin: USA'' likely
would not be acceptable to customs officials in at least Australia,
New Zealand, and Canada).
---------------------------------------------------------------------------
3. Rebuttable Presumption for Unmarked Products
As explained in the prior Federal Register notice, the Commission
has historically employed a rebuttable presumption that goods not
labeled with any country of origin are understood by consumers to be
made in the United States. As a result, the Commission required that
foreign origin be disclosed if unmarked goods contained a significant
amount of foreign content. Based on the facts that manufacturing and
the sourcing of components have become increasingly global in nature
and that consumers appear to be increasingly aware that goods they buy
are produced throughout the world, the Commission announced in the
Federal Register notice that it no longer was appropriate to presume
that reasonable consumers will interpret the absence of a foreign
country-of-origin mark, by itself, as a representation that the product
was made in the United States. The Commission, therefore, determined to
cease using this presumption, but instead explained that it would
require disclosure of foreign origin on unmarked goods only if there is
some evidence that, with respect to the particular type of product at
issue, a significant minority of consumers views country of origin as
material and believes that the goods in question, when unlabeled, are
domestic.84
---------------------------------------------------------------------------
\84\ 62 FR at 25047.
---------------------------------------------------------------------------
Although the Commission did not specifically solicit comments on
this determination,85 four commenters submitted their views
concerning the current need for the presumption. Three commenters urged
the Commission not to eliminate the presumption, arguing, among other
reasons, that it was appropriate for the producer of an unmarked
product to have the burden of proving that the lack of a country-of-
origin indication was not deceptive.86 The other commenter
agreed with the Commission that the presumption should be eliminated,
and, indeed, urged the Commission to go further and clearly indicate
that an unmarked good, in and of itself, would not be considered
deceptive simply for the fact of being unmarked.87
---------------------------------------------------------------------------
\85\ The Commission's determination on this point was not part
of the Proposed Guides, but was included in the Federal Register
notice accompanying the Guides because it addressed a related topic
that had been raised at the public workshop.
\86\ Timken, #648, at 5-6; Gates, #649, at 4 (also asserting
that the presumption is a valuable remedy to counter the incentive
for foreign producers to import unmarked products, e.g., the
producers of automotive belts, who may have the incentive to import
unmarked belts contrary to antidumping duty orders and U.S. Customs
marking regulations). See also Oneida, #607, at 1-2 (arguing that
the presumption is particular necessary in catalog sales where the
consumer cannot inspect the item prior to purchase, and expressing
its concern that without the presumption, attempting to show that a
significant minority of consumers believes an unmarked product is
domestic would be unworkable).
\87\ IMRA, #594, at 5-6.
---------------------------------------------------------------------------
III. Analysis
Section 5 of the Federal Trade Commission Act, 15 U.S.C. 45,
proscribes ``unfair or deceptive acts or practices'' in or affecting
commerce. An advertisement, label or other promotional material will be
found to be deceptive if it contains a representation or omission that
is likely to mislead consumers acting reasonably and that
representation or omission is material. In applying the principles of
Section 5 and the Commission's traditional deception analysis to U.S.
origin claims, the Commission has, throughout its review, focused first
and foremost on consumers' understanding of such claims.88
---------------------------------------------------------------------------
\88\ To the extent they are not inconsistent with consumer
understanding, other considerations, such as the compliance burdens
placed on businesses, have been considered by the Commission as part
of its general obligation to act in the public interest.
---------------------------------------------------------------------------
The considerable evidence available to the Commission concerning
consumer understanding of ``Made in USA'' claims was discussed at
length in the Commission's May 7, 1997 Federal Register notice. As
explained in that notice, the Commission itself, as part of its overall
review of U.S. origin claims, commissioned a two-part study in 1995
(referred to as the ``1995 Copy Test'' and ``1995 Attitude Survey,''
respectively) to look at consumer perception of such
claims.89 In addition, the Commission had previously
conducted a more limited study of these issues in 1991 as part of a
subsequently closed investigation (``1991 Copy Test'').90
The results of these studies indicated that many consumers expected
that a product advertised or labeled as ``Made in USA'' had a high
amount of U.S. content, but that a significant number of these were
willing to accept a product with at least some foreign content and
that, as a result, there was a range of values at which most consumers
would find a ``Made in USA'' claim appropriate. In addition, the
studies suggested that many consumers appeared to have only a general
sense of what ``Made in USA'' means and did not necessarily have in
mind a highly
[[Page 63764]]
detailed conception of what it meant for a product to be ``Made in
USA.''
---------------------------------------------------------------------------
\89\ This study is available as Document No. B212883 on the
Commission's public record.
\90\ Document No. B213001 on the Commission's public record.
---------------------------------------------------------------------------
In the 1995 Attitude Survey, participants were presented with a
series of scenarios and asked whether they agreed or disagreed with a
``Made in USA'' label on a product in those circumstances. In the
scenarios, the percentage of the product's cost that was U.S. in origin
varied from 10% to 90%; in addition, participants were either told that
the product was assembled in the United States, told that it was
assembled abroad, or not told the site of assembly. The Attitude Survey
indicated that a ``Made in USA'' label would likely be misleading to
most consumers when a product contained 50% or less U.S. content or was
assembled abroad. However, where a product was assembled in the United
States, a significant majority of consumers agreed that a ``Made in
USA'' claim would be appropriate if the product contained either 70%
U.S. content (67% of respondents) or 90% U.S. content (75% of
respondents), suggesting that there is a range of standards likely to
be considered acceptable and nonmisleading by most consumers.
As in the 1995 Attitude Survey, in the 1991 Copy Test, the
Commission had also found evidence that many consumers expected a
product called ``Made in USA'' to have a high amount of U.S. content.
In that study, of the participants who were asked ``when you see the
phrase `Made in USA' on a product or in an ad, how much of the product
was made in the United States?'' approximately 77% said that all or
almost all of the product so labeled was made in the United States.
Nonetheless, the answers to a follow-up question attenuated this result
somewhat. When asked whether they meant parts or labor or both parts
and labor, only 77% of the respondents (82% of those who answered ``all
or almost all'') said both parts and labor, while 14% said labor only,
and 9% said only parts.91
---------------------------------------------------------------------------
\91\ There was no attempt in this survey to breakdown these
categories further--i.e., to look at whether the respondents who
said that ``Made in USA'' referred to parts also thought that it
referred to the materials that went into those parts; or whether
those who said ``Made in USA'' referred to labor meant only final
assembly labor or also any labor that went into making the parts.
---------------------------------------------------------------------------
The 1995 Copy Test attempted to explore further issues of what
consumers included in their definitions of Made in USA, but the results
were less than definitive. For example, in the 1995 FTC Copy Test, when
respondents were shown a ``Made in USA'' claim and asked an open-ended
question about what the claim meant, 63.5% said simply that the claim
meant ``Made in USA.'' 92 Moreover, when asked specifically
whether the claim suggested or implied anything about where the product
was assembled, only 49% said that it did (almost all of whom said it
meant the product was assembled in the United States); only 28% of
those asked about an unqualified ``Made in USA'' claim said it
suggested or implied anything about where the parts were made; and only
11% said it implied anything about how much of the parts were made in
the United States. Indeed, a total of 34% of respondents stated that a
``Made in USA'' claim did not suggest or imply anything about any of
these factors--assembly, parts, or how much of the total cost of the
product was incurred in the United States. This suggests that many
consumers may not have in mind a highly developed definition of ``Made
in USA''; in any event, the data are not definitive. In addition, the
available consumer perception evidence suggests that, to the extent
that consumers do define Made in USA, they may do so in a variety of
different ways. For example, in each of the Commission-sponsored
surveys, there is evidence, albeit inconclusive, of a minority of
consumers who, rather than expecting a high amount of both U.S. parts
and labor, view ``Made in USA'' claims as referring only to where a
product was put together. Thus, 28.5% of respondents to the 1995 Copy
Test answered that ``Made in USA'' implied that a product was assembled
in the United States but that it did not imply that a product's parts
were necessarily U.S. made; 20% of respondents in the 1995 Attitude
Survey agreed that a ``Made in USA'' label would be appropriate for a
product that was assembled in the United States but whose costs were
only 10% U.S.; and 14% of those asked in the 1991 copy test indicated
that ``Made in USA'' referred only to labor, not parts.
---------------------------------------------------------------------------
\92\ During the Commission's earlier comment period on this
matter, a number of commenters suggested that the fact that many
consumers said that ``Made in USA'' means ``Made in USA'' showed
that consumers understood ``Made in USA'' claims as referring only
to where a product ``came into being,'' i.e., where it underwent its
final assembly or processing. See 62 FR at 25037. By contrast, in
response to the Commission's May notice, some commenters suggested
that the response that ``Made in USA'' means ``Made in USA'' showed
that consumers expected a product labeled ``Made in USA'' to be 100%
``Made in USA.'' The Commission continues to believe, however, that
there is inadequate evidence upon which to infer either meaning from
this tautological definition.
---------------------------------------------------------------------------
The Commission has thus been presented with evidence that suggests
that many consumers expect that ``Made in USA'' labels connote a high
amount of U.S. content, as well as that many of these consumers do not
have a detailed conception of what it means for a product to be ``Made
in USA.'' Moreover, the evidence suggests that no single standard is
likely to correspond to the views of all consumers, and that there is a
range of points along the spectrum that would likely satisfy a
significant majority of consumers. Based on this evidence, the
Commission initially proposed a ``substantially all'' standard.
Although this was not the only possible standard consistent with the
data, it was, the Commission believed, a high threshold for ``Made in
USA'' claims that would at the same time provide some flexibility to
U.S. manufacturers operating in an increasingly global economy.
Moreover, although nominally less stringent than the existing standard,
the proposed ``substantially all'' standard and the associated guides
provided strict constraints with respect to the sort of details that
the consumer perception studies were unable to address but that can
have a great deal of practical effect in determining whether a product
can meet the standard for ``Made in USA'' claims (however that standard
is denominated)--e.g., how far back in the manufacturing process
marketers were required to look, or what sorts of costs should be
included in the calculation of U.S. content.
Nonetheless, the record currently before the Commission does not
support adoption of the ``substantially all'' standard and the
accompanying guides proposed in May. The vast majority of those
commenting, including, significantly, a large number of individual
consumers as well as a number of U.S. manufacturers, opposed the
proposed standard, perceiving it, contrary to the Commission's intent,
as significantly weakening the standard for ``Made in USA'' claims. The
submissions of these commenters suggest that the Commission may have
underestimated the benefits such individuals or corporations derive
from the current standard and the costs they believe they will incur if
the standard is changed. An overwhelming number of consumers told the
Commission, through written comments, telephone calls, and petitions,
that they prefer buying U.S.-made goods; they want to be able to rely
on a simple and clear standard; and, they feel very strongly that the
current standard should be retained. The comments also underscore the
fact, noted as well in the Commission's May Federal Register notice,
that consumer awareness of the
[[Page 63765]]
globalization of the economy has not necessarily changed consumers'
beliefs about those products actually labeled ``Made in USA.'' Thus,
the Commission concludes that the better course, and one equally
consistent with the consumer perception evidence, is to retain and
continue to enforce the Commission's traditional all or virtually all
standard.
IV. Enforcement Policy Statement
The ``all or virtually all'' standard--and its earlier equivalent,
the ``wholly domestic'' standard--was developed through case law and
advisory opinions that were largely limited to discussions of single
products, and the standard has never been more generally defined.
Indeed, throughout this review process, commenters, particularly those
businesses that must comply with the requirements for ``Made in USA''
claims, have entreated the Commission to provide more guidance on what
this standard (or any other standard the Commission were to adopt)
requires. For that reason, the Commission in retaining the ``all or
virtually all'' standard, is at the same time issuing an Enforcement
Policy Statement on U.S. Origin Claims. The Enforcement Policy
Statement sets forth the general principles to which the Commission
will adhere in enforcing the requirement that goods promoted as ``Made
in USA'' must be all or virtually all made in the United States. The
Enforcement Policy Statement is intended to give general guidance on
making and substantiating U.S. origin claims. It is not designed,
however, to answer all questions that may arise on this topic. Given
the complex and varied factual scenarios that present themselves in
this area, and the wide range of products for which U.S. origin claims
may be made, there are necessarily issues that will continue to be more
appropriately resolved on a case-by-case basis.
The Enforcement Policy Statement addresses a range of basic issues
related to U.S. origin claims. It includes introductory information on
the scope of the products and claims to which the Statement applies and
of the respective responsibilities of the FTC and the U.S. Customs
Service in regulating country-of-origin claims; an explanation of the
Commission's authority to act against deceptive practices and how the
Commission is likely to interpret express and implied U.S. origin
claims; a discussion of unqualified U.S. origin claims and the factors
that the Commission will consider in determining whether such a claim
is substantiated, i.e., whether a product is ``all or virtually all''
made in the United States; and guidance on using qualified claims where
a product does not meet the ``all or virtually all'' standard. The
Enforcement Policy Statement is intended to be self-explanatory;
nonetheless, a few matters that may be of particular interest are
highlighted below.
Substantiating U.S. Origin Claims: The All or Virtually All
Standard. The Enforcement Policy Statement sets forth the requirement
that where a product is labeled or advertised as ``Made in USA,'' the
marketer should possess and rely upon a reasonable basis that the
product is all, or virtually all, made in the United States. A product
that is ``all or virtually all'' made in the United States is described
typically as one in which all significant parts and processing that go
into the product are of U.S. origin, i.e., where there is only a de
minimis, or negligible, amount of foreign content. In order to provide
further guidance, the Enforcement Policy Statement discusses three
factors that the Commission will likely consider in evaluating whether
a product is all or virtually all made in the United States: whether
the final assembly or processing of the product took place in the
United States; the portion of the total manufacturing cost of the
product that is attributable to U.S. parts and processing; and how far
removed from the finished product any foreign content is.
There was widespread agreement among commenters who addressed the
issue (both in response to the May 7, 1997 Federal Register notice and
to the Commission's earlier requests for public comment), whatever
standard they otherwise supported, that a product should have to
undergo its final processing in the United States in order to be called
``Made in USA.'' This view is confirmed by the consumer perception
evidence, which indicates that the country of final assembly is highly
significant to consumers in evaluating where a product is ``made.''
Accordingly, the Enforcement Policy Statement indicates that a product
promoted as ``Made in USA'' must have undergone its final assembly or
processing in the United States; in particular, the product must, at
minimum, have been last substantially transformed in the United States
(this also ensures that no product required to be labeled with a
foreign country-of-origin under the Customs Service's rules would be
permitted to make a ``Made in USA'' claim).
The Enforcement Policy Statement also indicates that, in
determining whether a product is appropriately represented to be ``Made
in USA,'' the Commission will consider what portion of the total cost
of manufacturing the product is attributable to U.S. parts and
processing. Obviously, the greater the percentage of U.S. costs, the
more likely the product will be considered all or virtually all made in
the United States. As discussed above, there were a great many
commenters who criticized the 75% safe harbor put forth as part of the
Commission's earlier proposal as overly lax and likely to deceive many
consumers, and the Commission agrees that the record as a whole does
not support adoption of such a safe harbor. The Commission, however,
believes that, as a matter of enforcement policy, it is appropriate to
allow for some small but reasonable amount of tolerance in enforcing
the ``all or virtually all'' standard. Some commenters have called for
the Commission to define this tolerance level with a bright line
percentage standard so as to provide greater certainty to marketers.
Nonetheless, the Commission has concluded that any such certainty is
likely to be illusory and no single percentage standard will be
appropriate for all products in all circumstances.\93\ Instead, the
Commission will look at U.S. manufacturing costs in the context of the
other factors outlined here and in light of the nature of the product
and consumers' expectations. In general, the Commission concludes that
it will not be in the public interest to bring a law enforcement action
where the proportion of U.S. costs of the product is extremely high.
---------------------------------------------------------------------------
\93\ For example, in some cases, the percentage of manufacturing
costs attributable to foreign parts and process may not reflect the
true extent of foreign content. Where only a small amount of
domestic processing takes place and the bulk of the work on the
product is performed abroad, or a significant component is
manufactured abroad, it may be possible that, because of lower costs
for foreign parts and labor, foreign costs may be disproportionately
low relative to the amount of foreign production. Similarly, as the
American Hand Tool Coalition noted, a product made with inputs from
a high-cost country (such as Germany) will reflect a higher degree
of foreign content (in terms of cost) than would a product made with
identical inputs supplied from a low-cost country (such as China).
In such circumstances, it may be preferable to look more generally
at the significance of the foreign inputs rather than evaluate their
extent entirely in terms of cost.
---------------------------------------------------------------------------
Finally, the Enforcement Policy Statement indicates that, in
evaluating whether any foreign content is significant enough to prevent
a product from being considered all or virtually all made in the United
States, the Commission will also examine how far removed the foreign
content is from the finished product. In other words, foreign parts or
materials that are incorporated several steps back in the manufacturing
process are generally less
[[Page 63766]]
likely to be significant than are parts or materials that are immediate
inputs into the final product.
Many commenters implicitly recognized this point. The Attorneys
General, for example, suggested that raw materials be excluded from the
calculation of foreign content, suggesting that ``a company that
designs and manufacturers a plastic product entirely within the U.S.A.
but uses petroleum from a foreign county, could fairly claim that the
product was made in the U.S.A. with no foreign component parts.'' \94\
Some other supporters of the ``all or virtually all'' standard, even
those who supported including all basic materials in the analysis, also
appeared to acknowledge that there should be limits as to how far back
a manufacturer must go in accounting for foreign materials. For
example, a number of commenters, arguing that steel must be included in
the evaluation of a product's origin, did not also suggest that a
manufacturer should be required to go as far back as the iron ore used
in the steel.\95\ On the other hand, commenters also recognized that
raw materials can sometimes be relevant to the determination as to
whether a product is all or virtually all made in the United States,
especially when the raw materials are only one step back from the
finished product and are integral components of that article. For
example, the Tile Council of America, arguing that the Commission must
include raw materials in the evaluation of whether a product is made in
the United States, stated that ``the quality and reliability benefits
of tile `Made in the USA' are the result of both the domestic sourcing
of raw materials and the domestic manufacturing process. Tile
manufactured in the United States of clay dug in Mexico * * * clearly
[does] not meet the `Made in USA' expectations of U.S. consumers.''
\96\
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\94\ AGs, #462, Attachment at 10.
\95\ See, e.g., Weldbend, #597; Vaughan & Bushnell, #616;
American Iron & Steel Institute, #636.
\96\ TCA, #618, p. 3.
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Thus, the Enforcement Policy Statement indicates that raw
materials, per se, will be neither automatically included nor excluded
from the Commission's evaluation of whether a product is all or
virtually all made in the United States. Instead, here, too, the
Commission's analysis will depend on the percentage of the cost of the
product the raw materials constitute and how far removed from the
finished product the raw materials are, and, because, some raw
materials are naturally nonoccurring in this country, whether the raw
material is indigenous (and available in commercial quantities) in the
United States.
Qualified U.S. Origin Claims and ``Assembled in USA''. Few
commenters directly addressed the use of qualified U.S. origin claims,
although those that did commented favorably, suggesting that qualified
claims can provide valuable information to consumers.\97\ The
Commission has always permitted marketers to use appropriately
qualified claims where their products would not meet the standard for
an unqualified ``Made in USA'' claim, and that continues to be the
case. The Enforcement Policy Statement addresses various types of
qualified claims, including claims about the U.S. origin of specific
processes or parts and comparative U.S. origin claims, and indicates
that all such claims must be truthful and substantiated and that
qualifications and disclosures should be clear, prominent and
understandable. Comparative U.S. origin claims may be a particularly
useful vehicle for those manufacturers who wish to draw a distinction
between the domestic content of their products and those of competitors
who engage in less domestic manufacturing or use fewer U.S. made parts.
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\97\ See, e.g., American Hand Tool, #622; Traficant, #231
Visclosky, #236; NCL, #640; Matco, #600.
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As discussed above, the Commission specifically solicited comment
in its May 7, 1997 Federal Register notice on one particular
alternative claim, ``Assembled in USA.'' The Commission asked for
comment on whether a product that does not meet the standard for an
unqualified U.S. origin claims should nonetheless be permitted to be
promoted as ``Assembled in USA,'' and, if so, under what circumstances.
Upon review of the responses and further reflection, the Commission has
concluded that ``assembled'' has a common meaning sufficiently distinct
from ``made'' so that in many instances it will be appropriate for
marketers to promote a product as ``Assembled in USA'' without further
qualification.\98\ Specifically, the Enforcement Policy Statement
states that such a claim may be used where a product has undergone its
principal assembly in the United States and that assembly is
substantial; it also indicates that a product should have been last
substantially transformed in the United States if it is to be labeled
or advertised as ``Assembled in USA.''
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\98\ AGs, #462, at 4-5.
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V. Issues Not Addressed by the Enforcement Policy Statement
A. Origin: USA
As explained above, in the Proposed Guides, the Commission sought
comment on the use of a separate ``lesser mark'' for products that
faced conflicting marking requirements when sold domestically and
exported. Several commenters praised the proposal as likely to save
U.S. businesses, and consumers, money while others contended that such
a mark was unnecessary and likely to confuse consumers. Upon reviewing
the record, the Commission finds that, at the present time, there is
inadequate evidence of the extent of both the problems purportedly
caused by conflicting labeling requirements (e.g., to what extent
conflicting marking requirements actually occur, how frequently
multiple labeling is actually required) as well as of the degree to
which a lesser mark such as ``Origin: USA'' is likely to alleviate
these problems (e.g., whether relabeling would have been required in
any event because of language differences, whether foreign customs
services will accept this mark). As a result, the Commission has
concluded that the benefits to be gained through establishment of this
mark are as yet too speculative to outweigh the more obvious costs in
potential confusion between such a mark and ``Made in USA.''
Accordingly, the Commission has not adopted ``Origin: USA'' (or any
other lesser mark) in the Enforcement Policy Statement.
B. Goods With No Country-of-Origin Marking
In the May 7, 1997 Federal Register, the Commission indicated that
it would no longer employ its historical rebuttal presumption that
unmarked goods will be understood by reasonable consumers to have been
made in the United States, but instead would look at an array of
factors on a case-by-case basis. Although a few commenters disagreed
with this change in policy, the Commission continues to believe that
this course is appropriate and more in keeping with the Commission's
traditional deception analysis that is widely applied to other
representations and omissions.
ENFORCEMENT POLICY STATEMENT ON U.S. ORIGIN CLAIMS
I. Introduction
The Federal Trade Commission (``FTC'' or ``Commission'') is issuing
this statement to provide guidance regarding its enforcement policy
with respect to
[[Page 63767]]
the use of ``Made in USA'' and other U.S. origin claims in advertising
and labeling. The Commission has determined, as explained below, that
unqualified U.S. origin claims should be substantiated by evidence that
the product is all or virtually all made in the United States. This
statement is intended to elaborate on principles set out in individual
cases and advisory opinions previously issued over the course of many
years by the Commission. This statement, furthermore, is the
culmination of a comprehensive process in which the Commission has
reviewed its standard for evaluating U.S. origin claims. Throughout
this process, the Commission has solicited, and received, substantial
public input on relevant issues. The Commission anticipates that from
time to time, it may be in the public interest to solicit further
public comment on these issues and to assess whether the views
expressed in this statement continue to be appropriate and reflect
consumer perception and opinion, and to determine whether there are
areas on which the Commission could provide additional guidance.
The principles set forth in this enforcement policy statement apply
to U.S. origin claims included in labeling, advertising, other
promotional materials, and all other forms of marketing, including
marketing through digital or electronic means such as the Internet or
electronic mail. The statement, moreover, articulates the Commission's
enforcement policy with respect to U.S. origin claims for all products
advertised or sold in the United States, with the exception of those
products specifically subject to the country-of-origin labeling
requirements of the Textile Fiber Products Identification
Act,99 the Wool Products Labeling Act,100 or the
Fur Products Labeling Act.101 With respect to automobiles or
other passenger motor vehicles, nothing in this enforcement policy
statement is intended to affect or alter a marketer's obligation to
comply with the requirements of the American Automobile Labeling Act
102 or regulations issued pursuant thereto, and any
representation required by that Act to appear on automobile labeling
will not be considered a deceptive act or practice for purposes of this
enforcement policy statement, regardless of whether the representation
appears in labeling, advertising or in other promotional material.
Claims about the U.S. origin of passenger motor vehicles other than
those representations required by the American Automobile Labeling Act,
however, will be governed by the principles set forth in this
statement.
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\99\ 15 U.S.C. 70.
\100\ 15 U.S.C. 68.
\101\ 15 U.S.C. 69.
\102\ 49 U.S.C. 32304.
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II. Background
Both the FTC and the U.S. Customs Service have responsibilities
related to the use of country-of-origin claims. While the FTC regulates
claims of U.S. origin under its general authority to act against
deceptive acts and practices, foreign-origin markings on products
(e.g., ``Made in Japan'') are regulated primarily by the U.S. Customs
Service (``Customs'' or ``the Customs Service'') under the Tariff Act
of 1930. Specifically, Section 304 of the Tariff Act, 19 U.S.C. 1304,
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 or other 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.103
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\103\ For goods from NAFTA countries, determinations are
codified in ``tariff shift'' regulations. 19 CFR 102.
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The FTC also has jurisdiction over foreign origin claims in
packaging insofar as they go beyond the disclosures required by the
Customs Service (e.g., claims that supplement a required foreign origin
marking, so as to represent where additional processing or finishing of
a product occurred). In addition, the Commission has jurisdiction over
foreign-origin claims in advertising, which the U.S. Customs Service
does not regulate.
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 goods made partially or wholly in the United
States be labeled with ``Made in USA'' or any other indication of U.S.
origin.104 The fact that a product is not required to be
marked with a foreign country of origin does not mean that it is
permissible to promote that product as ``Made in USA.'' The FTC will
consider additional factors, beyond those considered by the Customs
Service in determining whether a product is of foreign origin, in
determining whether a product may properly be represented as ``Made in
USA.''
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\104\ For a limited number of goods, such as textile, wool, and
fur products, there are, however, statutory requirements that the
U.S. processing or manufacturing that occurred be disclosed. See,
e.g., Textile Fiber Products Identification Act, 15 U.S.C. 70(b).
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This statement is intended to address only those issues related to
U.S. origin claims. In developing appropriate country-of-origin
labeling for their products, marketers are urged also to consult the
U.S. Customs Service's marking regulations.
III. Interpreting U.S. Origin Claims: The FTC's Deception Analysis
The Commission's authority to regulate U.S. origin claims derives
from Section 5 of the Federal Trade Commission Act (``FTC Act''), 15
U.S.C. 45, which prohibits ``unfair or deceptive acts or practices.''
The Commission has set forth its interpretations of its Section 5
authority in its Deception Policy Statement,105 and its
Policy Statement Regarding Advertising Substantiation
Doctrine.106 As set out in the Deception Policy Statement,
the Commission will find an advertisement or label deceptive under
Section 5, and therefore unlawful, if it contains a representation or
omission of fact that is likely to mislead consumers acting reasonably
under the circumstances, and that representation or omission is
material. In addition, objective claims carry with them the implication
that they are supported by valid evidence. It is deceptive, therefore,
to make a claim unless, at the time the claim is made, the marketer
possesses and relies upon a reasonable basis substantiating the claim.
Thus, a ``Made in USA'' claim, like any other objective advertising
claim, must be truthful and substantiated.
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\105\ Letter from the Commission to the Honorable John D.
Dingell, Chairman, Committee on Energy and Commerce, U.S. House of
Representatives (Oct. 14, 1983); reprinted in Cliffdale Associates,
Inc., 103 F.T.C. 110, appendix (1984).
\106\ 49 FR 30,999 (1984); reprinted in Thompson Medical Co.,
104 F.T.C. 648, appendix (1984).
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A representation may be made by either express or implied claims.
``Made in USA'' and ``Our products are American made'' would be
examples of express U.S. origin claims. In
[[Page 63768]]
identifying implied claims, the Commission focuses on the overall net
impression of an advertisement, label, or other promotional material.
This requires an examination of both the representation and the overall
context, including the juxtaposition of phrases and images, and the
nature of the transaction. Depending on the context, U.S. symbols or
geographic references, such as U.S. flags, outlines of U.S. maps, or
references to U.S. locations of headquarters or factories, may, by
themselves or in conjunction with other phrases or images, convey a
claim of U.S. origin. For example, assume that a company advertises its
product in an advertisement that features pictures of employees at work
at what is identified as the company's U.S. factory, these pictures are
superimposed on an image of a U.S. flag, and the advertisement bears
the headline ``American Quality.'' Although there is no express
representation that the company's product is ``Made in USA,'' the net
impression of the advertisement is likely to convey to consumers a
claim that the product is of U.S. origin.
Whether any particular symbol or phrase, including an American
flag, conveys an implied U.S. origin claim, will depend upon the
circumstances in which the symbol or phrase is used. Ordinarily,
however, the Commission will not consider a marketer's use of an
American brand name 107 or trademark,108 without
more, to constitute a U.S. origin claim, even though some consumers may
believe, in some cases mistakenly, that a product made by a U.S.-based
manufacturer is made in the United States. Similarly, the mere listing
of a company's U.S. address on a package label, in a nonprominent
manner, such as would be required under the Fair Packaging and Labeling
Act,109 is unlikely, without more, to constitute a ``Made in
USA'' claim.
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\107\ This assumes that the brand name does not specifically
denote U.S. origin, e.g., the brand name is not ``Made in America,
Inc.''
\108\ For example, a legal trademark consisting of, or
incorporating, a stylized mark suggestive of a U.S. flag will not,
by itself, be considered to constitute a U.S. origin claim.
\109\ 15 U.S.C. 1451 et seq.
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IV. Substantiating U.S. Origin Claims: The ``All or Virtually All''
Standard
Based on its review of the traditional use of the term ``Made in
USA,'' and the record as a whole, the Commission concludes that
consumers are likely to understand an unqualified U.S. origin claim to
mean that the advertised product is ``all or virtually all'' made in
the United States. Therefore, when a marketer makes an unqualified
claim that a product is ``Made in USA,'' it should, at the time the
representation is made, possess and rely upon a reasonable basis that
the product is in fact all or virtually all made in the United
States.110, 111
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\110\ For purposes of this Enforcement Policy Statement,
``United States'' refers to the several states, the District of
Columbia, and the territories and possessions of the United States.
In other words, an unqualified ``Made in USA'' claim may be made for
a product that is all or virtually all manufactured in U.S.
territories or possessions as well as in the 50 states.
\111\ In addition, marketers should not represent, either
expressly or by implication, that a whole product line is of U.S.
origin (e.g., ``Our products are Made in USA'') when only some
products in the product line are, in fact, made in the United
States. Although not the focus of this Enforcement Policy Statement,
this is a principle that has been addressed in Commission cases both
within and outside the U.S. origin context. See, e.g., Hyde Athletic
Industries, FTC Docket No. C-3695 (consent order December 4, 1996)
(complaint alleged that respondent represented that all of its
footwear was made in the United States, when a substantial amount of
its footwear was made wholly in foreign countries); New Balance
Athletic Shoes, Inc., FTC Docket No. 9268 (consent order December 2,
1996) (same); Uno Restaurant Corp., FTC Docket No. C-3730 (consent
order April 4, 1997) (complaint alleged that restaurant chain
represented that its whole line of thin crust pizzas were low fat,
when only two of eight pizzas met acceptable limits for low fat
claims); Haagen-Dazs Company, Inc., FTC Docket No. C-3582 (consent
order June 7, 1995) (complaint alleged that respondent represented
that its entire line of frozen yogurt was 98% fat free when only
certain flavors were 98% fat free).
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A product that is all or virtually all made in the United States
will ordinarily be one in which all significant parts 112
and processing that go into the product are of U.S. origin. In other
words, where a product is labeled or otherwise advertised with an
unqualified ``Made in USA'' claim, it should contain only a de minimis,
or negligible, amount of foreign content. Although there is no single
``bright line'' to establish when a product is or is not ``all or
virtually all'' made in the United States, there are a number of
factors that the Commission will look to in making this determination.
To begin with, in order for a product to be considered ``all or
virtually all'' made in the United States, the final assembly or
processing of the product must take place in the United States. Beyond
this minimum threshold, the Commission will consider other factors,
including but not limited to the portion of the product's total
manufacturing costs that are attributable to U.S. parts and processing;
and how far removed from the finished product any foreign content is.
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\112\ The word ``parts'' is used in its general sense throughout
this enforcement policy statement to refer to all physical inputs
into a product, including but not limited to subassemblies,
components, parts, or materials.
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A. Site of Final Assembly or Processing
The consumer perception evidence available to the Commission
indicates that the country in which a product is put together or
completed is highly significant to consumers in evaluating where the
product is ``made.'' Thus, regardless of the extent of a product's
other U.S. parts or processing, in order to be considered all or
virtually all made in the United States, it is a prerequisite that the
product have been last ``substantially transformed'' in the United
States, as that term is used by the U.S. Customs Service `` i.e., the
product should not be required to be marked ``made in [foreign
country]'' under 19 U.S.C. 1304.113 Furthermore, even where
a product is last substantially transformed in the United States, if
the product is thereafter assembled or processed (beyond de minimis
finishing processes) outside the United States, the Commission is
unlikely to consider that product to be all or virtually all made in
the United States. For example, were a product to be manufactured
primarily in the United States (and last substantially transformed
there) but sent to Canada or Mexico for final assembly, any U.S. origin
claim should be qualified to disclose the assembly that took place
outside the United States.
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\113\ It is conceivable, for example, that occasionally a
product imported into the United States could have a very high
proportion of its manufacturing costs be U.S. costs, but is
nonetheless not considered by the U.S. Customs Service to have been
last substantially transformed in the United States. In such cases,
the product would be required to be marked with a foreign country of
origin and an unqualified U.S. origin claim could not appropriately
be made for the product.
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B. Proportion of U.S. Manufacturing Costs
Assuming the product is put together or otherwise completed in the
United States, the Commission will also examine the percentage of the
total cost of manufacturing the product that is attributable to U.S.
costs (i.e., U.S. parts and processing) and to foreign
costs.114 Where the percentage of foreign content is very
low, of course, it is more likely that the Commission will consider the
[[Page 63769]]
product all or virtually all made in the United States. Nonetheless,
there is not a fixed point for all products at which they suddenly
become ``all or virtually all'' made in the United States. Rather, the
Commission will conduct this inquiry on a case-by-case basis, balancing
the proportion of U.S. manufacturing costs along with the other factors
discussed herein, and taking into account the nature of the product and
consumers' expectations in determining whether an enforcement action is
warranted. Where, for example, a product has an extremely high amount
of U.S. content, any potential deception resulting from an unqualified
``Made in USA'' claim is likely to be very limited, and therefore the
costs of bringing an enforcement action challenging such a claim are
likely to substantially outweigh any benefit that might accrue to
consumers and competition.
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\114\ In calculating manufacturing costs, manufacturers should
ordinarily use as their measure the cost of goods sold or finished
goods inventory cost, as those terms are used in accordance with
generally accepted accounting principles. Such costs will generally
include (and be limited to) the cost of manufacturing materials,
direct manufacturing labor, and manufacturing overhead. Marketers
should also note the admonishment below that, in determining the
percentage of U.S. content, they should look far enough back in the
manufacturing process that a reasonable marketer would expect that
it had accounted for any significant foreign content.
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C. Remoteness of Foreign Content
Finally, in evaluating whether any foreign content is significant
enough to prevent a product from being considered all or virtually all
made in the United States, the Commission will look not only to the
percentage of the cost of the product that the foreign content
represents, but will also consider how far removed from the finished
product the foreign content is. As a general rule, in determining the
percentage of U.S. content in its product, a marketer should look far
enough back in the manufacturing process that a reasonable marketer
would expect that it had accounted for any significant foreign content.
In other words, a manufacturer who buys a component from a U.S.
supplier, which component is in turn made up of other parts or
materials, may not simply assume that the component is 100% U.S. made,
but should inquire of the supplier as to the percentage of U.S. content
in the component.115 Foreign content that is incorporated
further back in the manufacturing process, however, will often be less
significant to consumers than that which constitutes a direct input
into the finished product. For example, in the context of a complex
product, such as a computer, it is likely to be insignificant that
imported steel is used in making one part of a single component (e.g.,
the frame of the floppy drive). This is because the steel in such a
case is likely to constitute a very small portion of the total cost of
the computer, and because consumers purchasing a computer are likely,
if they are concerned about the origin of the product, to be concerned
with the origin of the more immediate inputs (floppy drive, hard drive,
CPU, keyboard, etc.) and perhaps the parts that, in turn, make up those
inputs. Consumers are less likely to have in mind materials, such as
the steel, that are several steps back in the manufacturing process. By
contrast, in the context of a product such as a pipe or a wrench for
which steel constitutes a more direct and significant input, the fact
that the steel is imported is likely to be a significant factor in
evaluating whether the finished product is all or virtually all made in
the United States. Thus, in some circumstances, there may be inputs one
or two steps back in the manufacturing process that are foreign and
there may be other foreign inputs that are much further back in the
manufacturing process. Those foreign inputs far removed from the
finished product, if not significant, are unlikely to be as important
to consumers and change the nature of what otherwise would be
considered a domestic product.
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\115\ For example, assume that a company manufactures lawn
mowers in its U.S. plant, making most of the parts (housing, blade,
handle, etc.) itself from U.S. materials. The engine, which
constitutes 50% of the total cost of manufacturing the lawn mower,
is bought from a U.S. supplier, which, the lawn mower manufacturer
knows, assembles the engine in a U.S. factory. Although most of the
parts and the final assembly of the lawn mower are of U.S. origin
and the engine is assembled in the United States, the lawn mower
will not necessarily be considered all or virtually all made in the
United States. This is because the engine itself is made up of
various parts that may be imported and that may constitute a
significant percentage of the total cost of manufacturing the lawn
mower. Thus, before labeling its lawn mower ``Made in USA,'' the
manufacturer should look to its engine supplier for more specific
information as to the engine's origin. For instance, were foreign
parts to constitute 60% of the cost of producing the engine, then
the lawn mower would contain a total of at least 30% foreign
content, and an unqualified ``Made in USA'' label would be
inappropriate.
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In this analysis, raw materials 116 are neither
automatically included nor automatically excluded in the evaluation of
whether a product is all or virtually all made in the United States.
Instead, whether a product whose other parts and processing are of U.S.
origin would not be considered all or virtually all made in the United
States because the product incorporated imported raw materials depends
(as would be the case with any other input) on what percentage of the
cost of the product the raw materials constitute and how far removed
from the finished product the raw materials are.117 Thus,
were the gold in a gold ring, or the clay used to make a ceramic tile,
imported, an unqualified ``Made in USA'' claim for the ring or tile
would likely be inappropriate.118 This is both because of
the significant value the gold and the clay are likely to represent
relative to the finished product and because the gold and the clay are
only one step back from the finished articles and are integral
components of those articles. By contrast were the plastic in the
plastic case of a clock radio that was otherwise all or virtually all
made in the United States found to have been made from imported
petroleum, the petroleum is far enough removed from, and an
insignificant enough input into, the finished product that it would
nonetheless likely be appropriate to label the clock radio with an
unqualified U.S. origin claim.
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\116\ For purposes of this Enforcement Policy Statement, the
Commission considers raw materials to be products such as minerals,
plants or animals that are processed no more than necessary for
ordinary transportation.
\117\ In addition, because raw materials, unlike manufactured
inputs, may be inherently unavailable in the United States, the
Commission will also look at whether or not the raw material is
indigenous to the United States, or available in commercially
significant quantities. In cases where the material is not found or
grown in the United States, consumers are likely to understand that
a ``Made in USA'' claim on a product that incorporates such
materials (e.g., vanilla ice cream that uses vanilla beans, which,
the Commission understands, are not grown in the United States)
means that all or virtually all of the product, except for those
materials not available here, originated in the United States.
Nonetheless, even where a raw material is nonindigenous to the
United States, if that imported material constitutes the whole or
essence of the finished product (e.g., the rubber in a rubber ball
or the coffee beans in ground coffee), it would likely mislead
consumers to label the final product with an unqualified ``Made in
USA'' claim.
\118\ Nonetheless, in these examples, other, qualified claims
could be used to identify truthfully the domestic processing that
took place. For example, if the gold ring was designed and
fabricated in the United States, the manufacturer could say that
(e.g., ``designed and fabricated in U.S. with 14K imported gold'').
Similarly, if the ceramic tile were manufactured in the United
States from imported clay, the manufacturer could indicate that as
well.
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V. Qualifying U.S. Origin Claims
A. Qualified U.S. Origin Claims Generally
Where a product is not all or virtually all made in the United
States, any claim of U.S. origin should be adequately qualified to
avoid consumer deception about the presence or amount of foreign
content. In order to be effective, any qualifications or disclosures
should be sufficiently clear, prominent, and understandable to prevent
deception. Clarity of language, prominence of type size and style,
proximity to the claim being qualified, and an absence of contrary
claims that could undercut the effectiveness of the qualification will
maximize the likelihood that the qualifications and disclosures are
appropriately clear and prominent.
[[Page 63770]]
Within these guidelines, the form the qualified claim takes is up
to the marketer. A marketer may make any qualified claim about the U.S.
content of its products as long as the claim is truthful and
substantiated. Qualified claims, for example, may be general,
indicating simply the existence of unspecified foreign content (e.g.,
``Made in USA of U.S. and imported parts'') or they may be specific,
indicating the amount of U.S. content (e.g., ``60% U.S. content''), the
parts or materials that are imported (e.g., ``Made in USA from imported
leather''), or the particular foreign country from which the parts come
(``Made in USA from French components'').119
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\119\ These examples are intended to be illustrative, not
exhaustive; they do not represent the only claims or disclosures
that would be permissible under Section 5 of the FTC Act. As
indicated, however, qualified claims, like any claim, should be
truthful and substantiated and should not overstate the U.S. content
of a product. For example, it would be inappropriate for a marketer
to represent that a product was ``Made in U.S. of U.S. and imported
parts'' if the overwhelming majority of the parts were imported and
only a single, insignificant part was manufactured in the United
States; a more appropriate claim would be ``Made in U.S. of imported
parts.''
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Where a qualified claim takes the form of a general U.S. origin
claim accompanied by qualifying information about foreign content
(e.g., ``Made in USA of U.S. and imported parts'' or ``Manufactured in
U.S. with Indonesian materials''), the Commission believes that
consumers are likely to understand such a claim to mean that, whatever
foreign materials or parts the product contains, the last assembly,
processing, or finishing of the product occurred in the United States.
Marketers therefore should avoid using such claims unless they can
substantiate that this is the case for their products. In particular,
such claims should only be made where the product was last
substantially transformed in the United States. Where a product was
last substantially transformed abroad, and is therefore required by the
U.S. Customs Service to be labeled ``Made in [foreign country],'' it
would be inappropriate, and confusing, to use a claim such as ``Made in
USA of U.S. and imported parts.'' 120
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\120\ On the other hand, that the last substantial
transformation of the product takes place in the United States may
not alone be sufficient to substantiate such a claim. For example,
under the rulings of the U.S. Customs Service, a disposable razor is
considered to have been last substantially transformed where its
blade is made, even if it is thereafter assembled in another
country. Thus, a disposable razor that is assembled in Mexico with a
U.S.-made blade and other parts of various origins would be
considered to have been last substantially transformed in the United
States and would not have to bear a foreign country-of-origin
marking. Nonetheless, because the final assembly of the razor occurs
abroad, it would be inappropriate to label the razor ``Made in U.S.
of U.S. and imported parts.'' It would, however, likely be
appropriate to label the razor ``Assembled in Mexico with U.S.-made
blade,'' ``Blade made in United States, razor assembled in Mexico''
or ``Assembled in Mexico with U.S. and imported parts.''
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B. Claims About Specific Processes or Parts
Regardless of whether a product as a whole is all or virtually all
made in the United States, a marketer may make a claim that a
particular manufacturing or other process was performed in the United
States, or that a particular part was manufactured in the United
States, provided that the claim is truthful and substantiated and that
reasonable consumers would understand the claim to refer to a specific
process or part and not to the general manufacture of the product. This
category would include claims such as that a product is ``designed'' or
``painted'' or ``written'' in the United States or that a specific
part, e.g., the picture tube in a television, is made in the United
States (even if the other parts of the television are not). Although
such claims do not expressly disclose that the products contain foreign
content, the Commission believes that they are normally likely to be
specific enough so as not to convey a general claim of U.S. origin.
More general terms, however, such as that a product is, for example,
``produced,'' or ``manufactured'' in the United States, are likely to
require further qualification where they are used to describe a product
that is not all or virtually all made in the United States. Such terms
are unlikely to convey to consumers a message limited to a particular
process performed, or part manufactured, in the United States. Rather,
they are likely to be understood by consumers as synonymous with ``Made
in USA'' and therefore as unqualified U.S. origin claims.
The Commission further concludes that, in many instances, it will
be appropriate for marketers to label or advertise a product as
``Assembled in the United States'' without further qualification.
Because ``assembly'' potentially describes a wide range of processes,
however, from simple ``screwdriver'' operations at the very end of the
manufacturing process to the construction of a complex, finished item
from basic materials, the use of this term may, in some circumstances,
be confusing or misleading to consumers. To avoid possible deception,
``Assembled in USA'' claims should be limited to those instances where
the product has undergone its principal assembly in the United States
and that assembly is substantial. In addition, a product should be last
substantially transformed in the United States to properly use an
``Assembled in USA'' claim. This requirement ensures against
potentially contradictory claims, i.e., a product claiming to be
``Assembled in USA'' while simultaneously being marked as ``Made in
[foreign country].'' In many instances, this requirement will also be a
minimum guarantee that the U.S. assembly operations are substantial.
C. Comparative Claims
U.S. origin claims that contain a comparative statement (e.g.,
``More U.S. content than our competitor'') may be made as long as the
claims are truthful and substantiated. Where this is so, the Commission
believes that comparative U.S. origin claims are unlikely to be
deceptive even where an unqualified U.S. origin claim would be
inappropriate. Comparative claims, however, should be presented in a
manner that makes the basis for the comparison clear (e.g., whether the
comparison is being made to another leading brand or to a previous
version of the same product). Moreover, comparative claims should not
be used in a manner that, directly or by implication, exaggerates the
amount of U.S. content in the product, and should be based on a
meaningful difference in U.S. content between the compared products.
Thus, a comparative U.S. origin claim is likely to be deceptive if it
is made for a product that does not have a significant amount of U.S.
content or does not have significantly more U.S. content than the
product to which it is being compared.
D. U.S. Customs Rules and Qualified and Comparative U.S. Origin Claims
It is possible, in some circumstances, for marketers to make
certain qualified or comparative U.S. origin claims (including claims
such as that the product contains a particular amount of U.S. content,
certain claims about the U.S. origin of specific processes or parts,
and certain comparative claims) even for products that are last
substantially transformed abroad and which therefore must be marked
with a foreign country of origin. In making such claims, however,
marketers are advised to take care to follow the requirements set forth
by the U.S. Customs Service and to ensure, for purposes of section 5 of
the FTC Act, that the claim does not deceptively suggest that the
product is made with a greater amount of U.S. parts or processing than
is in fact the case.
In looking at the interaction between the requirements for
qualified and
[[Page 63771]]
comparative U.S. origin claims and those for foreign origin marking,
the analysis is slightly different for advertising and for labeling.
This is a result of the fact that the Tariff Act requires foreign
origin markings on articles or their containers, but does not govern
claims in advertising or other promotional materials.
Thus, on a product label, where the Tariff Act requires that the
product be marked with a foreign country of origin, Customs regulations
permit indications of U.S. origin only when the foreign country of
origin appears in close proximity and is at least of comparable
size.121 As a result, under Customs regulations, a product
may, for example, be properly marked ``Made in Switzerland, finished in
U.S.'' or ``Made in France with U.S. parts,'' but it may not simply be
labeled ``Finished in U.S.'' or ``Made with U.S. parts'' if it is
deemed to be of foreign origin.
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\121\ 19 CFR 134.46. Specifically, this provision provides
that:
``In any case in which the words `United States,' or `American,'
the letters U.S.A., any variation of such words or letters, or the
name of any city or locality in the United States, or the name of
any foreign country or locality other than the country or locality
in which the article was manufactured or produced appear on an
imported article or its container, and those words, letters or names
may mislead or deceive the ultimate purchaser as to the actual
country of origin of the article, there shall appear, legibly and
permanently, in close proximity to such words, letters or name, and
in at least a comparable size, the name of the country of origin
preceded by `Made in,' `Product of,' or other words of similar
meaning.''
In a Federal Register notice announcing amendments to this
provision, the Customs Service indicated that, where a product has a
foreign origin, any references to the United States made in the
context of a statement relating to any aspect of the production or
distribution of the product (e.g., ``Designed in USA,'' ``Made for
XYZ Corporation, California, U.S.A.,'' or ``Distributed by ABC,
Inc., Colorado, USA'') would be considered misleading to the
ultimate purchaser and would require foreign country-of-origin
marking in accordance with the above provision. 62 FR 44211, 442213
(Aug. 20, 1997).
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In advertising or other promotional materials, the Tariff Act does
not require that foreign origin be indicated. The Commission recognizes
that it may be possible to make a U.S. origin claim in advertising or
promotional materials that is sufficiently specific or limited that it
does not require an accompanying statement of foreign manufacture in
order to avoid conveying a broader and unsubstantiated meaning to
consumers. Whether a nominally specific or limited claim will in fact
be interpreted by consumers in a limited matter is likely to depend on
the connotations of the particular representation being made (e.g.,
``finished'' may be perceived as having a more general meaning than
``painted'') and the context in which it appears. Marketers who wish to
make U.S. origin claims in advertising or other promotional materials
without an express disclosure of foreign manufacture for products that
are required by Customs to be marked with a foreign country of origin
should be aware that consumers may believe the literal U.S. origin
statement is implying a broader meaning and a larger amount of U.S.
content than expressly represented. Marketers are required to
substantiate implied, as well express, material claims that consumers
acting reasonably in the circumstances take from the representations.
Therefore, the Commission encourages marketers, where a foreign-origin
marking is required by Customs on the product itself, to include in any
qualified or comparative U.S. origin claim a clear, conspicuous, and
understandable disclosure of foreign manufacture.
By direction of the Commission.
Donald S. Clark,
Secretary.
Concurring Statement of Commissioner Roscoe B. Starek, III,
Regarding Enforcement Policy Statement on U.S. Origin Claims
File No. P89-4219
Today the Commission restores the ``Made in USA'' standard to the
highly demanding level that we affirmed in 1994. The Commission's
action reinstates the longstanding principle that an unqualified U.S.
origin claim is a claim that the product is made entirely in the United
States except for a de minimis or negligible amount of foreign content.
By explaining the factors that the Commission will consider in
assessing whether an unqualified ``Made in USA'' claim is deceptive,
and whether the public interest warrants enforcement action, the Policy
Statement provides guidance that should reduce the costs of making
``Made in USA'' claims that comply with Section 5 of the FTC Act. The
current state of consumer perception and the benefits and costs of
various ``Made in USA'' standards have been exhaustively investigated.
With the issuance of this Policy Statement, I expect to see the
traditional ``Made in USA'' standard enforced, now that we no longer
labor under the self-imposed moratorium that consumed several years
while we explored various policy options.
The broad review initiated by a majority of the Commission in 1995
produced a reasonable alternative approach based on copy test evidence
showing that significant minorities of consumers took contradictory
meanings from unqualified ``Made in USA'' claims. As I stated when we
proposed the Guides for comment, the ``substantially all'' standard
created by the Guides appeared to strike the correct balance between
contradictory consumer understandings of ``Made in USA'' so as to
minimize overall consumer injury from deception. Today's action
illustrates the value of seeking public comment when the Commission
elects to fashion a compromise through an expansive review similar to a
rulemaking, rather than base its findings of deception on evidence and
interpretations tested during litigation and the pursuit of negotiated
orders.
Intense public interest in ``Made in USA'' claims inspired more
individual consumer comments than we have received in almost any other
comment period during my tenure at the Commission. These comments--
which demonstrate that consumers who believe that ``Made in USA'' means
all or virtually all made in the United States are highly motivated to
act on their belief--justify redrawing the balance that the proposed
Guides attempted to strike. These consumers want to be able to rely on
a simple and clear standard, and their awareness of the globalization
of the economy evidently has not changed their beliefs about domestic
origin claims. The Policy Statement also wisely confines the
Commission's guidance to general principles and, as I clearly prefer,
leaves for case-by-case resolution more complex issues that may turn on
variations in claims and products.
[FR Doc. 97-31531 Filed 12-1-97; 8:45 am]
BILLING CODE 6750-01-P
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.