[Federal Register Volume 62, Number 88 (Wednesday, May 7, 1997)]
[Notices]
[Pages 25020-25059]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-11814]
[[Page 25019]]
_______________________________________________________________________
Part II
Federal Trade Commission
_______________________________________________________________________
Request for Public Comment on Proposed Guides for the Use of U.S.
Origin Claims; Notice
Federal Register / Vol. 62, No. 88 / Wednesday, May 7, 1997 /
Notices
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FEDERAL TRADE COMMISSION
Request for Public Comment on Proposed Guides for the use of U.S.
Origin Claims
AGENCY: Federal Trade Commission.
ACTION: Request for public comment on proposed Guides for the Use of
U.S. Origin Claims.
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SUMMARY: The Federal Trade Commission (``FTC'' or ``Commission'') has
been conducting a comprehensive review of ``Made in USA'' and other
U.S. origin claims in product advertising and labeling. Historically,
the Commission has held that a product must be wholly domestic to
substantiate an unqualified ``Made in USA'' claim. As part of its
review, the Commission, by Federal Register notice dated October 18,
1995, requested public comment on various issues related to the
evaluation of such claims and, on March 26 and 27, 1996, held a public
workshop and invited representatives of industry, consumer groups,
unions, government agencies and others to attend and exchange views. On
April 26, 1996, the Commission published a Federal Register notice
extending the deadline for post-workshop public comments until June 30,
1996.
The Commission now announces proposed Guides for the Use of U.S.
Origin Claims and seeks public comment on these guides. Under these
proposed guides, a marketer making an unqualified claim of U.S. origin
must, at the time it makes the claim, possess and rely upon a
reasonable basis that the product is substantially all made in the
United States. To assist manufacturers in complying with this standard,
the proposed guides also set out two alternative ``safe harbors'' under
which an unqualified U.S. origin claim would not be considered
deceptive. The first safe harbor encompasses products whose U.S.
manufacturing costs constitute 75% of total manufacturing costs and
were last substantially transformed in the United States. The second
safe harbor applies to products that have undergone two levels of
substantial transformation in the United States: i.e., the product's
last substantial transformation took place in the United States, and
the last substantial transformation of each of its significant inputs
took place in the United States.
The proposed guides also address various qualified claims, claims
regarding specific processes and parts, multiple-item sets, and changes
in costs and sourcing. They also authorize specific origin claims for
certain products that are both sold domestically and exported.
Throughout, the proposed guides address the interaction of FTC
deception law with U.S. Customs Service requirements.
DATES: Written comment will be accepted until August 11, 1997.
ADDRESSES: Six paper copies of each written comment should be submitted
to the Office of the Secretary, Federal Trade Commission, Room 159,
Sixth and Pennsylvania Avenue, N.W., Washington, D.C. 20580. To
encourage prompt and efficient review and dissemination of the comments
to the public, all comments also should be submitted, if possible, in
electronic form, on either a 5\1/4\ or a 3\1/2\ inch computer diskette,
with a label on the diskette stating the name of the commenter and the
name and version of the word processing program used to create the
document. (If possible, documents in WordPerfect 6.1 or Word 6.0, or
earlier generations of these word processing programs, are preferred.
Files from operating systems other than DOS or Windows should be
submitted in ASCII text format to be accepted.) Individuals filing
comments need not submit multiple copies or comments in electronic
form. Submissions should be captioned: ``Made in USA Policy Comment,''
FTC File No. P894219.
FOR FURTHER INFORMATION CONTACT: Beth M. Grossman, Attorney, Division
of Advertising Practices, Bureau of Consumer Protection, FTC,
Washington, DC 20580, telephone 202-326-3019, or Kent C. Howerton,
Attorney, Division of Enforcement, Bureau of Consumer Protection, FTC,
Washington, DC 20580, telephone 202-326-3013.
SUPPLEMENTARY INFORMATION:
I. Introduction
The Commission has been conducting a comprehensive review of its
standards for evaluating ``Made in USA'' claims in advertising and
labeling. The Commission now proposes to issue Guides for the Use of
U.S. Origin Claims, set out at the end of this notice, and seeks
comment on these proposed guides. The comment period will remain open
until August 11, 1997.
The Commission regulates claims of U.S. origin, such as ``Made in
USA,'' pursuant to its statutory authority under Section 5 of the
Federal Trade Commission Act, which prohibits ``unfair or deceptive
acts or practices.'' Cases brought by the Commission beginning over 50
years ago established the principle that it was deceptive for a
marketer to promote a product with an unqualified ``Made in USA'' claim
unless that product was wholly of domestic origin.1
Recently, this standard had been rearticulated to require that a
product advertised as ``Made in USA'' be ``all or virtually all'' made
in the United States, i.e., that all or virtually all of the parts are
made in the U.S. and all or virtually all of the labor is performed in
the U.S.2 In both cases, however, the import has been the
same: unqualified claims of domestic origin were deemed to imply to
consumers that the product for which the claims were made was in all
but de minimis amounts made in the United States.
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\1\ See, e.g., Windsor Pen Corp., 64 F.T.C. 454 (1964); Vulcan
Lamp Works, Inc., 32 F.T.C. 7 (1940).
\2\ This language was first used in the cases of Hyde Athletic
Industries, File No. 922-3236 (consent agreement accepted subject to
public comment Sept. 20, 1994) and New Balance Athletic Shoes, Inc.,
Docket No. 9268 (complaint issued Sept. 20, 1994). In light of the
decision to review the standard for U.S. origin claims, the
Commission later modified the complaints in these cases to eliminate
the allegations based on the ``all or virtually all'' standard.
Consent agreements based on these revised complaints were issued on
December 2, 1996 (New Balance) and December 4, 1996 (Hyde).
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In a July 11, 1995 press release, the Commission announced that it
would undertake a comprehensive review of U.S. origin claims and
examine whether the Commission's traditional standard for evaluating
such claims remained consistent with consumer perceptions and continued
to be appropriate in today's global economy. On October 18, 1995, the
Commission published a notice in the Federal Register formally
soliciting public comment for 90 days on various issues related to this
review, including the costs and benefits of continuing to use the ``all
or virtually all'' standard, and announcing that Commission staff would
conduct a public workshop on this topic. 60 FR 53922. A follow-up
notice published on December 19, 1995, announced that the public
workshop would be held on March 26 and 27, 1996, and indicated that the
record would be held open for post-workshop public comment until April
30, 1996. 60 FR 65327. In response to these notices, the Commission
received approximately 294 written comments. Contemporaneous with the
solicitation of public comment, Commission staff also commissioned a
two-part study to examine consumer understandings of U.S. origin
claims. The results of this study are discussed below.
As noted, Commission staff conducted a two-day public workshop on
issues related to U.S. origin claims. Thirty-three individuals,
representing corporations and trade associations from a variety of
industries; labor unions; federal and state government agencies;
[[Page 25021]]
and consumer groups, participated in the workshop, and a number of
other interested individuals attended the workshop as observers. At the
workshop, which was moderated by a neutral, third-party facilitator,
results of the Commission's consumer perception study as well as
consumer studies conducted by several other participants were
presented, and there was an extended round table discussion of the
costs and benefits of the various alternative standards under
consideration for the evaluation of U.S. origin claims. Following the
workshop, the Commission, in a notice published on April 26, 1996,
extended the period for clarifying or rebuttal comments until June 30,
1996, and set forth additional questions for comment. 61 FR 18600.
Approximately 49 additional comments were received in response to the
April 26 notice, including a proposed set of guidelines submitted by
the ``Ad Hoc Group,'' a coalition of industry groups that had
participated in the public workshop.
After reviewing the public comments, the consumer perception
evidence, and the workshop proceedings, the Commission now proposes to
adopt Guides for the Use of U.S. Origin Claims, which appear at the end
of this notice in Section IX, and seeks comment on the proposed guides.
Section II of this notice discusses the relevant country-of-origin
marking rules applied by the U.S. Customs Service and how these rules
relate to the FTC's regulation of U.S. origin claims. Section III
summarizes the comments received by the Commission. Section IV contains
a discussion of the factors considered by the Commission in its
formulation of a policy on U.S. origin claims, including evidence of
consumer perception; consistency with other statutory and regulatory
requirements; and practical issues of implementation. Section V
provides an overview of the proposed guides, and Section VI provides a
section-by-section analysis of the proposed guides. Section VII
addresses the Commission's policy with respect to goods without any
country-of-origin marking. Section VIII requests public comment on the
proposed guides. The proposed guides themselves are set out in Section
IX.
Information related to the Commission's review of U.S. origin
claims, including the public comments received, a transcript of the
workshop proceedings, and consumer perception studies conducted by the
Commission and other interested parties, are available in the Public
Reference Room, Room 130, Federal Trade Commission, 6th and
Pennsylvania Ave., N.W., Washington, DC 20580. In addition, the public
comments, the workshop transcript, and previous Federal Register
notices related to this review are available on the Commission's Home
Page on the World Wide Web, which can be reached through the internet
at http://www.ftc.gov.
II. Background: Country-of-Origin Marking Requirements for Imported
Goods
A. Relationship Between the Requirements of the U.S. Customs Service
and the Policies of the FTC
In the course of the Commission's review, there has been much
discussion of the relationship between the policies of the U.S. Customs
Service (``Customs'' or ``the Customs Service'') and those of the FTC
with respect to country-of-origin marking. As a general matter, the
Customs Service regulates mandatory country-of-origin markings on
imported products, while the FTC's policies govern voluntary U.S.
origin claims, whether in advertising or labeling, about domestic
products.3
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\3\ The Commission also has had policies relating to unmarked
goods and disclosures to supplement those required by Customs. These
policies are addressed in Section VII.
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Specifically, Section 304 of the Tariff Act of 1930, administered
by the Secretary of the Treasury and the Customs Service, requires that
all products of foreign origin imported into the United States be
marked with the name of a foreign country of origin. Where an imported
product incorporates materials and/or processing from more than one
country, Customs considers the country of origin to be the last country
in which a ``substantial transformation'' took place. A substantial
transformation is a manufacturing process that results in a new and
different article of commerce, having a new name, character and use
that is different from that which existed prior to the processing.
Country-of-origin determinations using the substantial transformation
test are made on a case-by-case basis through administrative
determinations by the Customs Service. 4
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\4\ For goods from NAFTA countries, determinations are codified
in ``tariff shift'' regulations, as noted below.
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Where Customs determines that a good is not of foreign origin
(i.e., the good undergoes its last substantial transformation in the
United States), there is generally no requirement that it be marked
with any country of origin. For most goods, neither the Customs Service
nor the FTC requires that domestic goods be labeled with ``Made in
USA'' or any other indication of U.S. origin.5 Where a
marketer chooses voluntarily, however, to make a U.S. origin claim in
an advertisement or on a label, the marketer must conform with the FTC
Act's general prohibition on ``unfair or deceptive acts and
practices.'' Thus, a ``Made in USA'' claim, like any other advertising
claim, must be truthful and substantiated.
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\5\ For a limited number of goods, such as textile, wool, and
fur products, there are, however, statutory requirements that they
disclose the U.S. processing or manufacturing that occurred. See,
e.g., Textile Fiber Products Identification Act, 15 U.S.C. 70(b).
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B. Other Relevant Information on Country-of-Origin Determinations
In addition to the Tariff Act, two international agreements provide
a further backdrop to the discussion of country-of-origin labeling.
North American Free Trade Agreement (NAFTA)
Goods imported from NAFTA countries are not subject to the Customs
Service's case-by-case determinations of substantial transformation.
Instead, marking requirements for such goods are governed by a change
in tariff classification or ``tariff shift'' approach. This approach
relies on an enumerated list of changes in tariff classification. In
determining the country of origin for NAFTA marking purposes, one looks
to whether a foreign article has changed sufficiently as the result of
processing in another country that it would fit within a different
tariff classification than it would have prior to that processing.
Where the ultimate article undergoes one of the enumerated shifts in
tariff classification as a result of processing in a particular
country, the country of origin is the country where that processing
took place.6
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\6\ For example, assume that a product is partially manufactured
in a non-NAFTA country, then sent to Canada for its remaining
processing, and the finished product is exported to the United
States. Upon import into the United States, the product would be
appropriately marked ``Made in Canada'' if the tariff classification
assigned to the finished product when it is exported from Canada to
the United States is different from the tariff classification that
would be assigned to the product in the state in which it was
brought into Canada, and that difference in tariff classification is
on a specified list of tariff shifts enumerated in the NAFTA marking
rules.
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Although the NAFTA tariff classification scheme was intended by the
Customs Service to be merely a codification of its traditional
substantial transformation test, there continues to be controversy over
perceived differences between the tariff shift standard and case-by-
case rulings under the traditional standard. A decision on a proposal
by the Customs Service to
[[Page 25022]]
extend the NAFTA marking rules to all imported goods was recently
deferred to an indefinite later date.7
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\7\ In addition to its marking rules, NAFTA also specifies
separate rules of origin that are used to determine whether a
product qualifies for preferential tariff treatment under NAFTA.
These rules of origin are based on a different set of tariff shifts
than are the marking rules and, in many cases, also incorporate a
value-added requirement. For purposes of this notice, these rules of
origin will be referred to as ``NAFTA Preference Rules'' to
distinguish them from the ``NAFTA Marking Rules'' described above.
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World Trade Organization (WTO)
Pursuant to the Uruguay Round Agreements, the WTO is currently
engaged in an effort to harmonize international rules of origin. The
goal of this effort is for all participating countries to use the same
rules for determining country of origin for all non-preferential
purposes, including country-of-origin marking. The WTO Agreement on
Rules of Origin (ARO) adopts substantial transformation as the basic
standard for determining country of origin, and expresses a preference
for a tariff shift approach as the method of determining whether a
substantial transformation has taken place. The WTO's initiative does
not generally extend to determinations of domestic origin.8
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\8\ The ARO does provide, however, that standards for
determining the origin of domestic goods may be no longer than for
determining the origin of imported goods. In doing so, it implicitly
recognizes that standards for determining domestic origin may be
higher than those for determining foreign origin. ARO, Annex 1A,
Article 3(c).
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The WTO's harmonization program is scheduled to be completed three
years from its commencement in March 1995. The U.S. Government, through
the office of the United States Trade Representative and other
agencies, has participated actively in the WTO's effort. In order to
take effect in the United States, however, any rules published by the
WTO would have to be legislatively enacted by Congress and current
Customs rules harmonized with them. 9
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\9\ For further information on U.S. and international country-
of-origin marking, see U.S. International Trade Commission, Country-
of-Origin Marking: Review of Laws, Regulations and Practices,
(Publication 2975, July 1996) a report issued by the U.S.
International Trade Commission (ITC) in response to a request from
the House of Representatives Committee on Ways and Means (``ITC
Report'').
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III. Summary of Comments
A. General Information
The Commission received a total of 342 written public comments in
response to its announcement on July 11, 1995 that it would conduct a
comprehensive review of consumers' perceptions of ``Made in USA''
advertising claims and conduct a public workshop, and to its Federal
Register notices that specifically solicited public
comments.10 The commenters included approximately 182
individual consumers, 55 manufacturers and other corporations, 37 trade
associations, 7 labor unions and union-affiliated organizations, 26
members of Congress,11 26 state and Federal Government
agencies (including a coalition of 22 state attorneys general), 2
consumer groups, 2 nonprofit organizations, and 5 others.
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\10\ The comments have been filed on the Commission's public
record as Document Nos. B18354900001, B18354900002, etc. The
comments are cited in this notice by the name of the commenter, a
shortened version of the comment number, and the relevant page(s) of
the comment, e.g., Stanley, #59, at 5. A complete list of commenters
is appended to this notice. Comments #1 through #200 and #332
through #343 were submitted following publication of the
Commission's October 18, 1995, and April 26, 1996, Federal Register
notices soliciting public comment. Comments #201 through #281 and
#283 through #331 (there is no comment #282) were submitted in
response to media coverage prior to the October 18, 1995 notice, but
have been added to the public record of this matter because they are
relevant to the Commission's consideration). The transcript of the
public workshop on March 26 and 27, 1996 has been placed on the
Commission's public record as Document No. B199403. References to
comments made during the workshop are cited by the name of the
speaker, the speaker's affiliation, and the relevant page(s) of the
transcript, e.g., Sarah Vanderwicken for IBT, Tr. at 80-81.
Twenty-six commenters filed two comments each, in response to
the two notices soliciting public comment, and several comments were
signed by more than one commenter. Nonetheless, the total number of
commenters is, coincidentally, the same as the total number of
comments: 342.
\11\ In addition, five other members of Congress forwarded
comments from their constituents.
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The written comments, as well as the discussion at the public
workshop, focused primarily on three alternative standards for
evaluating U.S. origin claims. One group of commenters favored
retaining the Commission's current standard, under which a product
promoted as ``Made in USA'' would have to be ``all or virtually all''
made in the United States. A second set of commenters favored a
percentage content standard. Under this standard, a product could be
promoted as ``Made in USA'' if a set percentage (generally 50%) of the
cost of manufacturing that product was attributable to U.S. production,
and the product underwent final assembly in the U.S. A third group of
commenters favored some version of the substantial transformation test
applied by the U.S. Customs Service, such that any product
``substantially transformed'' in the United States could be labeled
``Made in USA.''
The discussion below summarizes the commenters positions on the
costs and benefits of each of the primary standards. It also briefly
summarizes comments proposing other standards, as well as comments
supporting and criticizing the guidelines proposed by the Ad Hoc
Group.12
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\12\ Because the Ad Hoc Group's proposed guidelines (comment
#183) were submitted to the Commission on the last day of the
comment period, they were not generally available for comment and
some interested parties may not have had the opportunity to review
them before submitting their own comments.
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B. ``All or Virtually All'' Standard
In its October 18, 1995 Federal Register notice, the Commission
sought comment on the costs and benefits of its current ``all or
virtually all'' standard. In response, most of the comments received by
the Commission discussed this standard, either to support it or to
criticize it.
1. Comments Supporting the ``All or Virtually All'' Standard
Approximately 147 individual consumers and 73 other commenters
supported the current ``all or virtually all'' standard.\13\ These
include a coalition of 22 state Attorneys General,\14\ 13 members of
Congress,\15\ 6
[[Page 25023]]
trade associations,\16\ 7 labor unions or union-affiliated
organizations,\17\ 23 manufacturers and other corporations,\18\ a
consumer group,\19\ and a local political club.\20\
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\13\ Although not expressly identifying themselves as supporters
of the ``all or virtually all'' standard, at least two commenters
urged the Commission to adopt a percentage-based standard that would
require that products be made with at least 90% domestic parts and
labor in order to be called ``Made in USA.'' Bill Haley &
Associates, Inc (``Haley''), #128; G.G. Bean, Inc (``Bean''), #36
(submitted by the American Pet Products Manufacturers Association,
Inc., of which G.G. Bean is a member; the trade association itself
took no position on the appropriate standard for Made in USA
claims). For purposes of this summary, the Commission has treated
these comments as supporting an ``all or virtually all'' standard.
\14\ The comment originally submitted to the Commission on
behalf of the Attorneys General was signed by the Attorneys General
of the states of California, Connecticut, Florida, Hawaii, Iowa,
Kansas, Maryland, Michigan, Missouri, Nevada, New Hampshire, New
York, Ohio, Rhode Island, Washington, and West Virginia (``AGs''),
#43. Following the submission of comment #43, the Attorneys General
of the states of Illinois, #185, New Jersey, #138, North Carolina,
#114, Pennsylvania, #134, Tennessee, #122, and Wisconsin, #151,
joined in the coalition comment. A follow-up statement by the
Attorney General of Connecticut on behalf of the coalition was
submitted at the opening of the public workshop, and is included in
the public record as comment #343.
\15\ U.S. Rep. John D. Dingell (``Dingell''), #153; U.S. Rep.
Peter Deutsch (``Deutsch''), #340; U.S. Rep. Dale E. Kildee
(``Kildee''), #333; U.S. Rep. Jerry Kleczka (``Kleczka''), #337;
U.S. Sen. Carl Levin (``Levin''), #332; U.S. Rep. Donald A. Manzullo
(``Manzullo''), #334; U.S. Rep. Carlos J. Moorhead (``Moorhead''),
#339; U.S. Sens. Carol Moseley-Braun and Paul Simon (``Moseley-
Braun/Simon''), #341; U.S. Rep. Glenn Poshard (``Poshard''), #163;
U.S. Rep. James H. Quillen (``Quillen''), #168; U.S. Rep. Charles H.
Taylor (``Taylor''), #169; U.S. Rep. James A. Traficant, Jr.
(``Traficant''), #144.
\16\ Alabama Textile Manufacturers (``ATM''), #12; American Hand
Tool Coalition (``American Hand Tool''), #91, #186; American Textile
Manufacturing Institute (``ATMI''), #92, #171; Crafted With Pride in
USA Council, Inc. (``Crafted With Pride''), #35, #176; National
Knitwear & Sportswear Association (``NKSA''), #53; Tile Council of
America, Inc. (``TCA''), #161.
\17\ Jefferson, Lewis & St. Lawrence Counties Central Trade &
Labor Council, AFL-CIO (``AFL-CIO/Jefferson''), #146; Union Label &
Service Trades Dept., AFL-CIO (``AFL-CIO/ULSTD''), #48; Engineers
Political Action Committee (``EPAC''), #335; International
Brotherhood of Teamsters (``IBT''), #107; International Leather
Goods, Plastics, Novelty & Service Workers' Union, AFL-CIO/CLC
(``ILGPNSWU''), #80; United Auto Workers (``UAW''), #93, #174;
Retired Workers Council, Region 1-A, UAW (Buy American Union Label
Committee) (``UAW/RWC''), #33.
\18\ Bean, #36; Capital Mercury Shirt Corp. (``Capital''), #9;
Steel Technologies (``Steel Technologies''), #152; Centerville
Lumber Co. (attached to submission of U.S. Rep. Ed Bryant)
(``Centerville''), #145; Deere & Co. (``Deere''), #57; Diamond Chain
Co. (``Diamond Chain''), #55; Dynacraft Industries (``Dynacraft''),
#45, #173; Estwing Manufacturing. Co. (``Estwing''), #179; Hager
Hinge (``Hagar''), #160; Haley, #128; Impress Industries
(``Impress''), #308; Laclede Steel Co. (``Laclede''), #143;
Porterco, Inc. and Megasack Corp. (``Porterco/Megasack''), #132;
Precision--Kidd Steel Co.; (Precision-Kidd''), #142; Summitville
Tiles, Inc. (``Summitville''), #162; Tileworks (``Tileworks''),
#156; Tompkins Brothers Co., Inc (``Tompkins''), #157; Vaughan &
Bushnell Manufacturing (``Vaughan & Bushnell''), #97, #191; Weldbend
Corp. (``Weldbend''), #190; Werner Co. (``Werner''), #129; Western
Forge Corp. (Western Forge''), #49; Wright Tool (``Wright''), #40.
\19\ Citizen Action (``Citizen Action''), #181
\20\ Jefferson Democratic Club of Flushing, NY (``Jefferson
Democratic Club''), #61.
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The large majority of consumer comments supported the current
standard or some other, similarly high standard. Typically, individual
consumer commenters stated that ``Made in USA'' should mean ``Made in
USA.'' Many also stressed that they wish to buy American products, and
expressed concern that if the standard is lowered, they may be deceived
into buying a product that was not really made in the USA. The
following comments capture the flavor of many of the individual
consumer comments:
Please do not change the definition of ``Made in USA.'' ``Made
in USA'' means precisely that--manufactured on American soil, by
American workers, with American-made materials--100%21
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\21\ Virginia Hoover (``Hoover''), #5, at 1.
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How will we know what country made part or all of any item, or
what was completely made here, including raw materials? Can anything
be done to stop this action [changing the standard] on the part of
the FTC? 22
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\22\ Helen Menahen (attached to submission of U.S. Sen. Dianne
Feinstein) (``Menahen''), #200.
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American consumers who wish to purchase goods which are
domestically made will clearly be hampered from doing so if the
labels on those goods are ambiguous and may not mean what they say.
Please do not allow this to happen.23
\23\ Gloria Gonzalez (``Gonzalez''), #113.
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Other supporters of the ``all or virtually all'' standard warned
that altering the current standard will lead to consumer deception, or
at least consumer confusion, because the current standard is most
consistent with consumer perception. Citizen Action, for example,
stated:
Should the FTC [change the ``all or virtually all'' standard],
it is clear to us that a situation would exist in which the `Made in
USA' label means one thing in regulation and something very
different in the minds of consumers. The confusion that would be
created would directly contradict the primary purpose of utilizing
labels to provide an effective consumer information
tool.24
\24\ Citizen Action, #181, at 2.
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These commenters argued that the consumer perception evidence
before the Commission demonstrates that many American consumers
interpret a ``Made in USA'' label consistent with the ``all or
virtually all standard.'' Consumers, according to these commenters,
believe that a product that is labeled ``Made in USA'' is entirely made
in the USA, not merely assembled in the U.S. of foreign
parts.25
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\25\ See, e.g., Deere, #57, at 2 (citing FTC 1991 consumer
perception study showing that 77% of buying public believed that
``Made in USA'' claims mean ``all or nearly all'' of a finished
product was manufactured in U.S.); AGs, #43 at 2-4 (citing 1991 FTC
consumer perception study), #343 Dynacraft, #45, at 1-2 (citing 1991
FTC consumer perception study), #173, at 2-3, 5, 7; American Hand
Tool, #91, at 6; #186, at 2, 7; Diamond Chain, #55, at 1; NKSA, #53,
at 2; Western Forge, #49, at 1; Vaughan & Bushnell, #97, at 3;
Laclede, #143, at 11; Dingell, #153, at 2.
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Many commenters favoring the current standard further asserted that
consumer perception surveys demonstrate that ``Made in USA'' is a
material claim to the vast majority of American consumers. For example,
the American Hand Tool stated that all of the surveys presented at the
public workshop indicate that consumers consider a ``Made in USA''
label to be important when making purchasing decisions.26
Accordingly, these commenters concluded consumers want to know if a
product is made entirely, or only partially, in the United States and
choose to purchase products fully made in the United States for quality
reasons, to ensure that the product was not made by exploited workers,
and to support the U.S. economy and U.S. workers.27
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\26\ American Hand Tool, #186, at 6, n.2.
\27\ See, e.g., AGs, #43, at 4 (1991 FTC consumer perception
study showed respondents preferred U.S. products because buying USA
supports economy and keeps Americans working); Vaughan & Bushnell,
#97, at 2 (consumers look for make in USA label to assure themselves
of a high-quality tool and to express support for domestic
manufactering); Wright, #40, at 1 (enlarging Made in USA definition
would no longer strictly convey U.S. workmanship); Crafted With
Pride, #35, at 2 (consistent and corroborative research confirms
consumers' positive perception of the quality of Made in USA apparel
and home textiles; UAW/RWC, 33, at 1-2 (Would be sacrilege to allow
any part of any product to be sanctioned by Made in USA label if
made in foreign nations by exploited workers under deplorable
conditions).
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Several advocates of the ``all or virtually all'' standard
acknowledged that today's marketplace is a more global one, but argued
that this has not caused consumers to change their perception that
products advertised or labeled ``Made in USA'' contain all or virtually
all domestic materials and labor. Indeed, some of the supporters of the
current standard maintained that the fact that consumers may be aware
of increased globalization of production makes unqualified ``Made in
USA'' claims more, not less, significant. The coalition of Attorneys
General explained it thusly:
As the perception grows that America is losing jobs due to a
shrinking manufacturing base, and the availability of truly U.S.A.
products declines, the fact that a product is Made in the USA
becomes increasingly valuable to consumers who wish to buy American.
In such a climate, we believe it becomes more, not less, important
to ensure that manufacturers are not using deceptive claims * *
*.28
\28\ AGs, #43, at 2. See also International Brotherhood of
Teamsters (``[i]n the face of globalization, consumers can
appreciate even more the determination of a company to retain
American jobs and use American materials''); IBT, #107, at 4;
Poshard, #163, at 1.
---------------------------------------------------------------------------
A number of supporters of the ``all or virtually all'' standard
disputed critics' assertions that it is nearly impossible to comply
with the standard. They emphasized that some companies can and do
produce products that are ``all or virtually'' made in the
USA.29 These commenters argued that lowering the standard
would penalize producers who are able to label their products as ``Made
in USA'' under the current standard, and would reward companies who
purchase foreign materials or use foreign labor. Diamond Chain Co., a
U.S. manufacturer of precision roller chains, for example, wrote:
---------------------------------------------------------------------------
\29\ See, e.g. Diamond Chain, #55; Vaughan & Bushnell, #97, at 2
(manufacturers hand tools that meet standard); Tileworks, $156, at 1
(only 5% of its raw materials are procured abroad); Welbend, #190
(makes fittings in U.S. without depending on foreign materials or
labor); American Hand Tool, #91, at 5 (Coalition members have made
and continue to make hand tools that meet current standard), #186,
at 2-3; Dingell, #153, at 2-3; Dingell, at 2; UAW, #174, at 1.
---------------------------------------------------------------------------
Being able to make an unqualified Made in USA claim for a
product with as little as 50%
[[Page 25024]]
domestic content benefits the manufacturer of that product by
allowing customers to believe that manufacturer contributes much
greater support to the domestic economy than is actually the case.
The manufacturer of a product with 95% domestic content is penalized
because he or she has incurred the cost of finding and developing
domestic sources of supply that the manufacturer of the lower
---------------------------------------------------------------------------
domestic-content product has not.30
\30\ Diamond Chain, #55, at 2. See also Michael S. Hinshaw and
Ernest R. Rollins (attached to submission of U.S. Sen. John D.
Rockefeller IV); (``Hinshaw), #66 (franchisees of U.S. company that
sells products truly made in U.S. will be at a great disadvantage
selling against competitiors who will be able to claim that imported
products they sell are made in the United States); Bean, #36 (use of
Made in USA label where product is not 100% manufactured in U.S.
increases profits of companies using inaccurate labeling); Dingell,
#153, at 2; Poshard, #163, at 1; Estwing, #179, at 1.
---------------------------------------------------------------------------
Many supporters of the current standard asserted that the standard
furthers investment in U.S. manufacturing and creates secure jobs in
this country. Accordingly, lowering the standard would lessen the
incentive that companies have to use U.S. labor and U.S. product
components. American jobs, these commenters concluded, would be
jeopardized as companies rely more and more on less expensive foreign
sources. The United Auto Workers noted:
The increasing globalization of production has led to the
incorporation of foreign materials, parts and components into most
of the products made by UAW members. In too many cases, U.S. firms
use foreign inputs solely to increase their profits, which comes at
the expense of American jobs. When foreign procurement comes from
the subsidiaries of the U.S. firm, the adverse impact on American
jobs is a direct substitution of foreign labor for
domestic.31
\31\ UAW, #93, at 1. See also AFL-CIO/ULSTD, #48, at 4 (those
that want to dilute Made in USA claim are companies that have
destroyed jobs in U.S. moving all or part of their manufacturing
operations to the Third World for lower wages and higher profits);
Estwing, #179, at 1 (lowering standard would force domestic
manufacturers to import components to remain competitive,
effectively shipping U.S. jobs overseas; Traficant, #144, at 1
(diluting the standard would have a negative impact on U.S.
workers); IBT #107, at 3 (consumers will not use power to buy
products that are ``Made in USA'' if they do not know what that
means; would cost U.S. jobs); Quillen, #168, at 1; Taylor, #169, at
1; Vaughn & Bushnell, #97, at 4, #191. at 1; American Hand Tool,
#91, at 5, 10; Precision-Kidd, #142, at 1; Centerville, #145, at 1.
---------------------------------------------------------------------------
Other commenters contended that the ``all or virtually all''
standard should be maintained because it gives clear guidance to those
wishing to make a ``Made in USA'' claim. The coalition of Attorneys
General, for example, commented:
Due to the increasing relevance and popularity of Made in the
U.S.A. claims, consumers, manufacturers and law enforcement agencies
need clear and authoritative guidance regarding their meaning. . .
.Accordingly, we urge the FTC to promulgate a regulation, or an
enforcement guideline, incorporating the FTC's current standard that
requires products unqualifiedly represented to be Made in the U.S.A.
to be assembled all, or virtually all, within the U.S.A. using all,
or virtually all, U.S.A. component parts.32
---------------------------------------------------------------------------
\32\ AGs, #43, at 12-13. See also UAW/RWC, #33, at 1-2. (current
standard is ``simple and honest'' and cost to domestic commerce in
maintaining standard is minimal); Deere, #57, at 2; Vaughan &
Bushnell, #97.
---------------------------------------------------------------------------
Finally, several supporters of the ``all or virtually all''
standard contended that it is not necessary to change the standard in
order to permit sellers of products made with some foreign parts or
labor to inform consumers of their products' U.S. content. These
commenters argued that sellers are free to make qualified claims for
such products. As U.S. Representative Traficant stated, the ``FTC and
Congress have not precluded any manufacturer with such foreign content
or involvement from choosing to advertise or label their products as
Made in USA so long as they qualify that claim (e.g., `Made in USA of
foreign and domestic components').'' 33 Deere & Co. further
stated that if such alternatives are not acceptable to these companies,
``that is reflective of the importance of the claims based on consumer
expectations.'' 34
---------------------------------------------------------------------------
\33\ Traficant, #144, at 1, See Also Dingell, #153, at 1;
Taylor, #169, at 1; Citizen Action, #181, at 2; Levin, #332, at 1;
Jeanne Archibald for American Hand Tool, Tr. at 231-232 (``people
seem to be ignoring . . . that there is a choice. You can make an
unqualified claim if you meet that standard, but you have full
discretion to make qualified claims and, in fact, to tell the
consumers whatever is the domestic content of your product. So it
isn't as if it's an either/or choice. There are many variations that
you can develop.'').
\34\ Deere, #57, at 2. See also, AGs, #43, at 6 (manufacturers
can still take advantage of fact that a significant portion of
product is made in U.S. under FTC standard; manufacturers'
insistence that consumers understand that products represented as
made in USA have substantial foreign content cannot be reconciled
with their separate claim that disclosure dilutes the attractiveness
of the made in USA claim); American Hand Tool, #186, at 5 (qualified
claims protect consumers' interests, while accommodating companies'
desire to advertise the U.S. content of their products); UAW, #174,
at 1; AFL-CIO/ULSTD, #48, at 4. But see Vaughn & Bushnell, #97, at 4
(supporting current standard, but stating that qualified claims
would generate confusion among hand tool consumers).
---------------------------------------------------------------------------
In a similar vein, Diamond Chain Co. maintained that, although it
is more difficult and expensive to make qualified claims for products
that are not wholly domestic, it is also ``a substantial sales benefit
to be able to make unqualified Made in USA claims,'' so that the issue
is reduced to a ``legitimate cost vs. benefit business decision.''
35 Thus, Diamond Chain Co. asserted that, if a producer
wants the advantage of the lower cost of foreign-produced materials and
components, the company should balance that benefit against the cost of
not being able to make an unqualified ``Made in USA'' claim.
Conversely, if a producer wants to take advantage of making an
unqualified ``Made in USA'' claim, the company should balance that
benefit against the cost of finding and developing the domestic
source.36
---------------------------------------------------------------------------
\35\ Diamond Chain, #55, at 2.
\36\ Id. Some commenters did not explicitly support the ``all or
virtually all'' standard but nevertheless cited the benefits of
qualified claims. See, e.g., Brother International Corp. and Brother
Industries USA, Inc., (``Brother''), #109 at 2 (qualified claims
``provide an effective and nonburdensome alternative for advertisers
who do not wish to undertake whatever burdens may apply now or in
the future with respect to unqualified claims for products that are
not made entirely with U.S. labor and U.S. components.'') BGE, Ltd.
(``BGE''), #60, Exhibit A, at 3 (in most cases, ``there would be
little difficulty in making truthful comparative or qualified
claims'' that reveal a product is not entirely made in the U.S.,
provided that the claims are simple and that all relevant government
agencies have the same requirement); Cranston Print Works Co.
(``Crantson''), #38, at 3 (foreign custom officials would not
prohibit qualified ``Made in USA'' claims, and even if they did,
different label systems, one for domestic sales and one for export
sales would not be problematic); U.S. Customs Service (``Customs''),
#29, at 5-6, 7 (suggesting qualified claims may be appropriate for
goods substantially transformed in the United States from imported
components and noting that Canadian Customs accepts various forms of
marking for goods of NAFTA parties, including ``Made in USA with
foreign components''); American Advertising Federation (``AAF'')
#100, 5-6 (a flexible standard ``whereby a manufacturer has the
ability to make specific, qualified, and substantiated claims about
a product'' would ``further competition based on American content of
products, as well as increase consumer knowledge by allowing more
qualitative information into the marketplace.'') See also Office of
the District Attorney, County of Santa Cruz, CA (attached to
submission of National Association of Consumer Agency Administrators
(``Santa Cruz DA''), #137 (clear, short disclosures such as ``USA
80%'' on labels would be preferable; consumers most likely view
``Assembled in USA'' as suggesting a product with a majority of
foreign content; print ads logically would have more complete
disclosures of percentages and where a product is assembled).
---------------------------------------------------------------------------
2. Comments Opposing the ``All or Virtually All'' Standard
Many of the comments received by the Commission criticized the
``all or virtually all'' standard as being too strict and urged the
Commission to lower it. In addition to those commenters who argued in
favor of the other standards discussed below, at least 15 commenters
who did not indicate a preference for a specific alternative standard
nonetheless expressed their dissatisfaction with the current
standard.37
---------------------------------------------------------------------------
\37\ American Electronics Association (``AEA''), #87; American
International Automobile Dealers Association (``AIADA''), #85; BGE,
#60; Johnson & Murphy (``Johnston''), #324; Korea Fair Trade
Commission (``KFTC''), #141; Processed Plastic Company (``Processed
Plastic''), #167; U.S. Sen. William S. Cohen (``Cohen''), #199; U.S.
Reps. Joseph P. Kennedy, Edward J. Markey, and Richard Neal
(``Kennedy''), #67; U.S. Reps. Neil Abercrombie, Peter Blute, Marty
Meehan, John Joseph Moakley, and John W. Olver (``Abercrombie''),
#25.
---------------------------------------------------------------------------
[[Page 25025]]
Several of the commenters opposing the ``all or virtually all''
standard asserted that the standard is no longer consistent with
consumer perception. According to these comments, consumers understand
that, in today's globalized marketplace, there are few purely domestic
products, and that therefore, consumers do not perceive products
advertised or labeled ``Made in USA'' as containing all or virtually
all domestic materials and labor.38 For example, the
Footwear Industries of America, Inc., stated:
\38\ See, e.g., Brown and Williamson Tobacco Co. (``B&W''), #96,
at 2 (current standard is inconsistent with consumer expectations);
Compaq Computer Corp. (``Compaq''), #62, at 2 (consumers of
electronic products tend to be both technologically savvy and
reasonably well-informed about the globalization of the electronics
industry); Caterpillar, Inc. (``Caterpillar''), #104, at 2;
Minnesota Mining and Manufacturing Co. (``3M''), #98, at 14.
---------------------------------------------------------------------------
We believe that the modern American consumer does not assume
that a ``Made in USA'' label means 100 percent domestic content.
There can be no doubt that such consumers realize that the United
States imports a large variety of raw materials and components for
use in the manufacture of finished goods. They obtain this knowledge
from information available in the media and from their own
experience working in industries more and more reliant on foreign
parts.39
\39\ Footwear Industries of America (``FIA''), #52, at 1, #177,
at 2-3. See also 3M, #98, at 10, 14; Automotive Parts Rebuilders
Association (``APRA''), #30, at 5; Footwear Distributors and
Retailers of America (``FDRA''), #27, at 2, #172, at 1-2; National
Council on International Trade Development (``NCITD''), #89, at 3;
New Balance Athletic Shoe, Inc. (``New Balance''), #44, at 3;
Sunbeam Corp. (``Sunbeam''), #39, at 2; Toyota Motor Sales USA, Inc.
(``Toyota''), #26, at 3.
---------------------------------------------------------------------------
Similar views were voiced by United Technologies Carrier:
Consumers recognize that the globalization of production and
assembly is so far advanced today, that it is difficult to recognize
any one particular country as parent to that product. Consequently,
consumers realize that it is rare, and virtually impossible, for a
product to be ``100% Made in U.S.A.'' 40
\40\ United Technologies Carrier (``UTC''), #94, at 2.
---------------------------------------------------------------------------
A number of commenters further cited consumer perception studies as
indicating that consumers do not believe that ``Made in USA'' refers
only to products made with all or virtually all domestic labor and
materials.41
---------------------------------------------------------------------------
\41\ See e.g., FIA, #52, at 1 (1991 FTC consumer perception
study found that approximately one half of respondents believed
``Made in USA'' claim meant less than 80% of parts and labor were
domestic), #177, at 2 (1995 FTC consumer perception study indicates
that only an insignificant minority of consumers understand ``Made
in USA'' claims to mean that all or virtually all of a product's
labor and materials are of domestic origin); Rubber and Plastic
Footwear Manufacturers Association (``RPFMA''), #178, at 1 (1995 FTC
consumer perception study found that a majority of participants were
willing to accept a ``Made in USA'' claim on products that contained
a significant amount of foreign parts, provided the product was
assembled in the U.S.); Bicycle Manufacturers Association of America
(``BMA''), #195, Appendix, at 1 (1995 FTC consumer perception study
indicates that only an insignificant minority of consumers
understand ``Made in USA'' to mean that 100 percent of a product's
parts and labor are of U.S. origin).
---------------------------------------------------------------------------
Several commenters argued that the current standard does not
reflect current manufacturing and global sourcing practices of U.S.
firms.42 These commenters maintained that, because the
standard requires such a high degree of domestic content and domestic
labor, few companies are able to meet it in today's world market.
Packard Bell Electronics, for example, highlighted the problems
associated with trying to obtain U.S.-made components for its products:
\42\ See, e.g., Compaq, #62, at 2; Kennedy, #67, at 2; U.S. Rep.
Glen Browder (``Browder''), #119, at 1; U.S. Sen. John Kerry
(``Kerry''), #68, at 1; Toshiba America Electronic Components, Inc.
(``Toshiba''), #34, at 2-3.
---------------------------------------------------------------------------
In many industries, and particularly in the consumer electronics
area, some types of components are not manufactured at all in the
U.S., or are domestically manufactured in such small quantities that
it is impossible to obtain the volume of U.S.-made components
necessary to support large manufacturing operations.43
\43\ Packard Bell Electronics (``Packard Bell''), #64, at 2.
---------------------------------------------------------------------------
These commenters contended that a standard that is unattainable for
so many industries no longer makes sense.44
---------------------------------------------------------------------------
\44\ See, e.g., Polaroid Co. (``Polaroid''), #90, at 4-5;
Toyota, #26, at 5 (no motor vehicle sold in the U.S. would meet the
``all or virtually all'' standard); Sunbeam, #39, at 2 (while
manufactured or assembled in the U.S., a number of its products
cannot be advertised as ``Made in USA'' because some small component
is sourced from overseas); AIADA, #85, at 2 (no vehicle in mass
production today is made with virtually all U.S. parts); U.S. Rep.
James B. Longley, Jr. (``Longley''), #118.
---------------------------------------------------------------------------
Many of the commenters opposed to the ``all or virtually all''
standard asserted that the strictness of the standard deprives
manufacturers of a selling tool that could help preserve American jobs
and that qualified claims are not an adequate remedy to this problem.
Manufacturers who assemble products here of foreign and domestic
components, they argued, cannot sufficiently distinguish themselves
from manufacturers with lower (or zero) domestic content unless they
are permitted to use ``Made in USA'' claims. In its comment, Stanley
Works contended that imposing the current standard would require many
companies to stop claiming their products are ``Made in the USA'' and
thereby mislead consumers, who would be unaware that important
attributes of tools, such as fit and durability, were attained in
American plants through the labor of American workers. 45
Similarly, the American Electronics Association maintained that the
current standard ``produces a result contrary to the Commission's goal
of creating informed consumers.'' 46
---------------------------------------------------------------------------
\45\ Stanley Works (``Stanley''), #59, at 5, #194, at 1 (current
standard deprives consumers of information that all the physical
qualities and performance characteristics that make the product
desirable to them are a result of American labor, technology, and
capital equipment). See also Sunbeam, #39 (current standard makes it
hard for consumers to distinguish between a product that consists of
an insignificant amount of foreign components or materials from one
that is mostly of foreign origin and imported into the U.S.).
\46\ AEA, #87, at 1. See also AIADA, #85, at 3 (current standard
would only serve to limit the flow of meaningful consumer
information); Balluff, Inc. (``Balluff''), #69, at 1 (current
standard does not help in decision-making process; only hinders
manufacturer from labeling product appropriately).
---------------------------------------------------------------------------
Some opponents of the standard further argued in their comments
that the current standard penalizes companies committed to maintaining
production facilities in the United States. Companies that use some
foreign components or labor in manufacturing may be forced to move
production abroad if they are unable to get the benefits of an
unqualified ``Made in USA'' label. As a result, the commenters
contended, the ``all or virtually all'' standard can have the perverse
effect of moving high-paying jobs overseas, and shrinking the American
manufacturing base. 47
---------------------------------------------------------------------------
\47\ See e.g., Abercrombie, #25, Kennedy, #67; Luggage and
Leather Goods Manufacturers of America (``LLGMA''), #23, at 2.
---------------------------------------------------------------------------
Another criticism of the Commission's ``all or virtually all''
standard is that it is inconsistent with the country of origin rules
applied by other federal agencies and foreign governments.48
The federal standards most frequently cited by commenters in support of
this point were the Buy American Act, which requires that to be
eligible for federal procurement certain
[[Page 25026]]
products must contain 50% domestic content and be subject to a final
act of manufacture in the United States, and the regulations of the
U.S. Customs Service, which look to the country in which the product
was last substantially transformed. These commenters asserted that the
Commission's standard imposes yet another regulatory burden on
manufacturers.49 For example, the National Electrical
Manufacturers Association stated:
\48\ See, e.g., Cohen #199; Gates Rubber Co. (``Gates''), #50,
at 2-3; International Electronics Manufacturers and Consumers of
America (``IEMCA''), #99, at 2-3, #189, at 2; Kerry, #68; Longley,
#118; NCITD, #89, at 2; Polaroid, #90, at 1, 10; Seagate Technology
(``Seagate''), #95, at 2 (Commission should implement Buy American
standard). Cf. General Services Administration (``GSA''), #106, at 1
(Commission should ``explore the viability'' of standardizing its
standard with one or more of the federal government's procurement or
trade standards).
\49\ See, e.g., Caterpillar, #104, at 2; Seagate, #95, at 2.
---------------------------------------------------------------------------
The Commission's labeling standard is inconsistent with other
Federal government programs requirements, resulting in greater
inefficiencies and costs for the American manufacturer. An American
product should be an American product no matter the market in which
it is sold. Under today's conflicting rules, however, NEMA member
companies face high administrative costs associated with compliance
to numerous calculations.50
---------------------------------------------------------------------------
\50\ National Electrical Manufacturers Association (``NEMA''),
#102, at 3.
---------------------------------------------------------------------------
Several commenters maintained that the current standard also
conflicts with other foreign countries' marking rules and thus imposes
significant costs on American companies, making American products less
competitive abroad. For example, 3M asserted that many countries
require that imported goods be marked with the country of origin, and
would accept a product labeled as ``Made in USA'' if it satisfied
Custom's NAFTA Marking Rules. 3M stated, however, that, in many cases,
under the Commission's current standard, it cannot sell that same
product in the United States with a ``Made in USA'' label and must
therefore either develop two inventories of product, one with a ``Made
in USA'' label for export and another with no origin mark for the
United States, or relabel its products.51
---------------------------------------------------------------------------
\51\ 3M, #98, at 5. See also Joint Industry Group (``JIG''),
#88, at 2 (the ``multiplicity of origin rules'' has resulted in
increased costs for U.S. manufacturers, requiring them to establish
special packaging and re-labeling facilities and to design and
manufacture multiple forms of packages for different destination
markets), #196, at 3-4; Okidata (``Okidata''), #42, at 3 (it is
expensive and cumbersome for a company to have to apply different
labels to the same product depending on the product's destination;
different labels and boxes must be printed, the product must be
segregated in inventory, and tracking systems are needed to ensure
that a product is sent to the specific country destination to which
the product is labeled); Longley, #118, at 1 (the Commission should
``consider a standard that conforms to that articulated by other
government agencies so that domestic manufacturers are not
disadvantaged by: (1) having to meet one standard for their exports
and another for their goods sold within the U.S.; and (2) having to
provide more information on labels than what is required to be
placed on the labels of imported goods. U.S. industry must not be
placed at a competitive disadvantage.'').
---------------------------------------------------------------------------
A further criticism raised by some opponents of the ``all or
virtually all'' standard was that the standard is not adequately
defined and therefore fails to provide sufficient guidance to industry.
Commenters noted, for example, that the standard as it currently exists
gives no guidance as to how far back in the production process a
manufacturer must go in determining U.S. parts, material, and labor
content. 3M contended that the current standard does not provide a
clear method for determining permissible foreign content, and argued
that, as a result, many manufacturers are unable to properly determine
when they may mark a product ``Made in USA.'' 52 Moreover,
the Joint Industry Group stated:
\52\ 3M, #98, at 4. See also NCITD, #89, at 2 (because there is
no reliable definition, the current standard is difficult to follow;
not clear how far back in the manufacturing process a company must
go to meet the standard--for example, whether the iron ore that
became the steel tubing for a bicycle must have been mined in the
U.S. before the bicycle can claim to be made in the U.S.); Paul
Gauron for New Balance, Tr. at 162; Balluff, #69, at 2.
---------------------------------------------------------------------------
The multiple questions asked in [the Commission's April 1996]
request for comments regarding what constitutes a `step' back in
manufacturing is indicative of the complexity and subjectivity of
this yet to be defined methodology. In a practical business sense,
this complexity and subjectivity can only evolve into a standard
that is equally cumbersome.53
\53\ JIG, #196, at 2.
---------------------------------------------------------------------------
Finally, some of those commenters opposing the current standard
specifically rejected the utility of using qualified claims. Qualified
claims, they contended, will not solve the problems with the ``all or
virtually all'' standard, but would instead be costly, impractical, and
confusing to consumers. One commenter suggested that a qualified claim,
such as ``Made in USA with domestic and foreign parts,'' would not
allow consumers to distinguish between goods made with significant or
minimal foreign parts and would not assist with their decision-making
process. 54 Another commenter argued that consumers
examining a qualified claim would not be informed that a manufacturer
was unable to obtain all of a product's components domestically, and
that, without the cost savings realized from sourcing some components
offshore, the manufacturer could not continue to maintain its U.S.
factory and price its products competitively. 55
---------------------------------------------------------------------------
\54\ FIA, #52, at 3, #177, at 7.
\55\ New Balance, #44, at 22-23. See also BMA, #86, at 6 (a
claim that a bicycle was ``Assembled in the USA from 75% US parts
and labor'' would fail to ``communicate the simple, accurate `Made
in USA' message that Huffy, Murray, and Roadmaster are entitled to
convey: that their bicycles are produced in American factories and
represent the highest commercially feasible level of American
materials, labor and craftsmanship at a certain price level'').
---------------------------------------------------------------------------
Some comments also contended that qualified claims put U.S.
manufacturers at a disadvantage relative to importers who, in most
instances, can indicate a single country of origin, regardless of the
origin of a product's components.56 Other commenters
expressed concern that space limitations may prevent a lengthy
disclosure on the labeling of small consumer items,57 and
that such labeling may not comply with the customs requirements of
foreign countries, which, they asserted, generally require a simple,
clear ``Made in USA'' label. 58 Some comments noted that,
because sourcing requirements and parts costs change continually, any
specific qualifier based on percentages, such as ``Made in USA using
65% U.S. parts,'' would have to be constantly changed at great expense
to the company.59
---------------------------------------------------------------------------
\56\ E.g., New Balance, #44, at 22-23.
\57\ E.g., FIA, #52, at 3: 3M, #98, at 17 (manufacturers may
have to increase a product's packaging size to accommodate a
lengthier qualified marking).
\58\ E.g., #52, at 3; JIG, #88, at 11 (qualified origin claims
are often not recognized as legitimate claims resulting in customs
delays or denied entry of merchandise); 3M, #98, at 19-20 (it is not
certain that other foreign governments would accept a qualified
mark, thereby requiring costly relabeling of products); Polaroid,
#90, at 8.
\59\ E.g.,Electronic Industries Association (``EIA''), #84, at
4, #193, at 4: NEMA, #102, at 5 (qualified claims are unrealistic
due to the complex nature of electrical products and the
administrative costs associated with calculating comparative or
qualified claims).
---------------------------------------------------------------------------
C. Percentage Content Standard
1. Comments Supporting a Percentage Content Standard
Approximately 13 individual consumers and 21 other commenters
favored the adoption of a specific percentage content standard for
unqualified ``Made in USA'' claims. Supporters of this standard include
4 members of Congress; 60 6 trade associations;
61 10 manufacturers and other corporations, 62
and 1 nonprofit organization.63
---------------------------------------------------------------------------
\60\ Kerry, #68, Browder, #119, U.S. Rep. Barney Frank
(``Frank''), #140 (favoring permitting manufacturers to use a ``Made
in USA'' label when they have achieved ``a certain minimum amount of
domestic content,'' but not specifying a specific minimum
percentage); Longley, #118.
\61\ APRA, #30, BMA, #86, at 2-3; FIA, #52, at 3-4, 6, 8-9,
#177; LLGMA, #23, Packaging Machinery Manufacturers Institute
(``PMMI''), #56, RPFMA, #32, at 2,6, #178.
\62\ American Export Association, (``American Export''), #291;
B&W #96; Conair Corp. (``Conair''), #155; Cranston, #38; New
Balance, #44, #197; Packard Bell, #64; Seagate, #95; Secant
Chemicals, Inc. (``Secant''), #247; Sunbeam, #39; UTC, #94. See also
Whirlpool Corp. (``Whirlpool''), #54 (supporting adoption of the
NAFTA preference rules or, alternatively, a 50% content standard.)
\63\ Made in the USA Foundation (``MUSA Foundation''), #28.
---------------------------------------------------------------------------
[[Page 25027]]
Of those commenters supporting a standard based on a percentage
content, approximately 3 supported an 80% domestic content standard for
unqualified ``Made in USA'' claims and at least 6 others supported a
75% standard.64 Most, however, favored a standard permitting
``Made in the USA'' claims for items that undergo final assembly in the
United States and consist of more than 50% domestic content.
---------------------------------------------------------------------------
\64\ American Export, #291 (supporting an 80% standard); MUSA
Foundation, #28, at 4, 14 (supporting a 75% standard; in addition,
would permit a product to be labeled ``Assembled in USA'' if it has
50% or more U.S. content); APRA, #30, at 5 (supporting a 75%
standard and asserting that this would allow items ``substantially
processed or assembled'' in U.S. to claim ``Made in USA'' without
diluting message to consumers); Sunbeam, #39, at 2 (supporting a
standard requiring at least 75% of cost attributable to component
parts made in U.S., and at least 75% of cost of labor performed in
assembling the product into the form in which it is introduced,
delivered, sold offered, or advertised, to be incurred in U.S.). In
addition, approximately two individual consumers supported an 80%
standard; three supported a 75% standard; two supported a 70%
standard; and one supported at 65% standard.
---------------------------------------------------------------------------
Many of those commenters favoring a 50% standard argued that it is
more practical than the ``all or virtually all'' standard in today's
world. The Bicycle Manufacturers of America, for instance, suggested
that requiring a domestic contribution of at least 50% would be ``more
commercially realistic'' given the globalization of the economy.
65 The Rubber and Plastic Footwear Manufacturers Association
stated: ``Any formula which deviates to a considerable degree from this
proposal would have the effect of defeating consumers' desires for
American-made rubber footwear or slippers, since the domestic plants of
most such manufacturers are competitively dependent on the need to use
one or more imported components.'' 66
---------------------------------------------------------------------------
\65\ BMA, #86, at 2.
\66\ RPFMA, #32, at 6.
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Some comments suggested that adoption of a 50% standard would take
into consideration that particular components or raw materials may be
unavailable in the United States. Packard Bell Electronics stated that,
to the best of its knowledge, no personal computers sold in the United
States currently are able to carry a ``Made in America'' label because
none is made with all or virtually all U.S. components and labor. In
part, this is because in many industries, particularly in consumer
electronics, some types of components are not manufactured at all in
the United States, or are domestically manufactured in such small
quantities that it is impossible to obtain the volume of U.S.-made
components necessary to support large manufacturing
operations.67 Other commenters agreed.68
---------------------------------------------------------------------------
\67\ Packard Bell, #64, at 2.
\68\ See e.g. Seagate, #95, at 3; Whirlpool, #54, at 1-2.
---------------------------------------------------------------------------
In addition to being more realistic than an all or virtually all
standard, some commenters also argued that a 50% standard would ensure
that a ``Made in the USA'' claim would be limited to products with
substantial U.S. content. The Rubber and Plastic Footwear Manufacturers
Association concluded that a 50% standard ``requires a `substantial'
share of components and labor to be of American origin,'' and provides
``consumers who prefer American-made products because of their desire
to preserve American jobs and/or quality'' with the information they
need to choose between competing products and manufacturers with an
``effective way of distinguishing between the output of American plants
and that of foreign plants.'' 69 By contrast, it asserted
that ``a final assembly, substantial transformation or significant
processing test, standing alone without a required percentage of
domestic value and/or labor, would so dilute the significance of a Made
in USA logo * * * as to be virtually meaningless.'' 70
Seagate Technology similarly maintained that a standard that requires
that more than 50% of the value of the parts and components be
domestically produced and that the final act of ``manufacture'' take
place in the U.S. is sufficient to protect consumers' expectations
concerning the ``Made in USA'' mark.71
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\69\ RPFMA, #32, at 2, 6.
\70\ Id., #178, at 2-3.
\71\ Seagate, #95, at 6 (citing with approval the Buy American
Act).
---------------------------------------------------------------------------
Some commenters further argued that a 50% U.S. content standard
also would support the creation or retention of U.S. jobs. New Balance
Athletic Shoe, Inc., for example, asserted:
For industry, given that there are strong economic incentives to
move offshore and dramatically reduce labor and other costs,
whatever advantage might accrue from use of the ``Made in USA''
label provides at least some incentive to stay in the U.S. to
counterbalance the clear economic benefits of locating elsewhere. *
* * A standard allowing the use of ``Made in USA'' claims when a
manufacturer uses a majority of domestic materials and labor would
help to level a very uneven playing field.72
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\72\ New Balance, #44, at 21-22, #197, at 3.
---------------------------------------------------------------------------
Footwear Industries of America agreed, stating that a 50% U.S. content
standard ``would have the advantage of encouraging American companies
to do more domestic sourcing so that they could proclaim their American
content,'' while still giving them sufficient flexibility to maintain
their labeling even if their sourcing changed somewhat during the
manufacturing process.73
---------------------------------------------------------------------------
\73\ FIA, #52, at 3-4.
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Some commenters supporting a 50% standard pointed to the wide
variety of regulations governing domestic content claims both within
the U.S. and internationally (e.g., Customs' rules, FTC standards, the
Buy American Act, the North Atlantic Free Trade Agreement, the World
Trade Organization's potential standards), and suggested that the
Commission adopt a standard that is consistent with an existing
test.74 Seagate Technology urged the Commission to adopt the
50% standard of the Buy American Act, arguing that this is an
established standard with which the industry is well-versed and
knowledgeable, and that it would avoid burdening U.S. manufacturers
with yet another new and different standard.75
---------------------------------------------------------------------------
\74\ E.G., Seagate, #95, at 3, 6; B&W, #96, at 2-3; American
Association of Exporters and Importers, (``AAEI''), #37, at 2, 4-5;
Balluff, #69, at 2.
\75\ Seagate, #95, at 2-3.
---------------------------------------------------------------------------
Seagate Technology, along with several other commenters, further
maintained that the Buy American Act's 50% U.S. content standard,
coupled with a requirement for final assembly in the U.S., would be
consistent with consumers' expectations and the need for accurate
product information. Thus, Seagate asserted:
The Buy American Act standard has been in existence for more than
60 years and is well understood in the computer industry. It is
sufficient to protect consumers' expectations concerning the ``Made in
USA'' mark because it both requires (1) a significant amount of U.S.
content, i.e., more than 50% of the value of the parts and components
must be domestically produced and (2) that the final act of
``manufacture'' take place in the United States. If clear guidelines
are developed concerning the elements of value that are considered in
the 50% test as well as the meaning of the term ``manufacture,'' the
Commission can be assured that it has protected consumers''
expectations that significant U.S. labor and jobs were involved in the
creation of the product that is being purchased.76
---------------------------------------------------------------------------
\76\ Id. 2. See also RFPMA, #32, at 6; New Balance, #44, at 26-
27; B&W, #96, at 2 (supports adoption of a Buy American Act 50%
domestic content standard because it will provide certainty to
manufacturers and still properly protect consumer expectations);
FIA, #52, at 4, #177, at 3 (1995 FTC consumer perception study
supports view that 50% U.S. content plus final assembly in U.S.
would satisfy consumer perception of significant processing in
U.S.), at 6-7 (50% U.S. content plus final assembly in U.S. would
generally ensure that product would have a new name, character and
use as a result of U.S. operations would fulfill Customs'
substantial transformation requirements, and would comport with
consumer perceptions).
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[[Page 25028]]
2. Comments Opposing a Percentage Content Standard
Commenters who specifically opposed adopting a percentage content
standard for unqualified ``Made in USA'' claims generally fell into two
groups. One group, composed of at least 14 commenters 77
(and generally supportive of a substantial transformation-type
standard) was concerned that the calculations required by any
percentage standard would be onerous. The other, composed largely of
those who supported the current standard, 78 was primarily
concerned that a 50% standard was too low and unlikely to result in an
appropriate level of U.S. content.
---------------------------------------------------------------------------
\77\ AAEI, at 346-347; Balluff, #69; Caterpillar, #104; Compaq,
#62; Gates, #50; IEMCA, #189; International Mass Retail Association
(``IMRA''), #46; JIG, #88; NCITD, #89; Polaroid, #90; Red Devil,
Inc. (``Red Devil''), #139; Stanley, #59; 3M, #98 U.S. Watch
Producers in the U.S. Virgin Islands (Watch Producers''), #192;
Writing Instrument Manufacturers Association, Inc. (``WIMA''), #133.
See also AAF, #100 (advocating a case-by-case approach and
criticizing a bright-line percentage standard).
\78\ E.g., AGs, #43; American Hand Tool, #186; Deere, #57;
Jefferson Democratic Club, #61; Vaughan & Bushnell, #191; Weldbend,
#190. Most of those supporting a 100% standard, of course, either
explicitly or implicitly rejected adoption of a lower percentage.
---------------------------------------------------------------------------
A number of commenters opposing a percentage content standard
stated that adoption of any such standard would be arbitrary and
emphasized that a single percentage would not be appropriate for all
manufacturing processes. In the International Mass Retail Association's
view, the Commission cannot pick a single number--such as 75% or 50%
value--and create a yardstick that will be fair or non-deceptive,
because the value added depends so much on the type of
product.79 The Joint Industry Group agreed, maintaining that
the selection of any quantitative basis for an advertising or labeling
claim is necessarily arbitrary. If a 50% U.S. content rule is adopted,
for example, there is likely to be no appreciable difference in goods
featuring 49.5% and 50.5% U.S. content, respectively--although the
goods would have different labeling and advertising requirements under
such a test.80 Further, Gates Rubber Co. asserted that
differences in relative domestic content may be found where identical
constituent parts are imported from different countries at different
costs. Alternatively, the same operations can be performed in the U.S.
yet the domestic content will vary based on wage rates, yields,
variable material costs, capacity utilization, or other factors.
Fluctuations in exchange rates could cause origin to change over time,
if a bright-line percentage-of-value test is adopted.81
---------------------------------------------------------------------------
\79\ IMRA, #46, at 8-9. See also Stanley, #59, at 8 (no specific
percentage content could be applied across the board that could
serve as a useful guide for determining whether consumers may be
deceived).
\80\ JIG, #88, at 8-9. See also Polaroid, #90, at 6; AAF, #100,
at 3-4 (strict thresholds, e.g., 75%, likely to deprive consumers of
valuable information; there is no useful distinction between
products 70% and 75% American made).
\81\ Gates, #50, at 2.
---------------------------------------------------------------------------
Several commenters opposed adoption of a percentage content
standard because of the administrative burdens and costs it would
impose on companies. Compaq Corp., for example, stated that percentage
content tests are arbitrary, difficult to administer, and can lead to
absurd or anomalous results.82 Similarly, the Joint Industry
Group and Polaroid maintained that minor changes in a producer's
sourcing patterns, in the price for a given material, and variances in
depreciation, units produced and other fixed and variable dependent
cost allocations can change the result of a country-of-origin marking
determination.83 According to Deere and Co., many components
may be outsourced and shipped to the manufacturer in an assembled
state. Although unknown to the manufacturer, some of the parts of the
purchased component may be foreign sourced. Therefore, companies may
face many problems in determining the source of all subcomponents and
then determining the ``Domestic Content'' of a finished
product.84 The Joint Industry Group and Polaroid asserted
that a percentage content standard also would require companies to
conduct detailed internal cost analyses in order to accurately
determine the exact domestic content for their products. Furthermore,
as sourcing patterns shift, and prices of materials, labor, and other
fixed and variable cost allocations change, companies would have to
update their cost/value analyses constantly.85 Thus, a cost-
of-production or value-added requirement, these commenters argued,
could add a burdensome and complicated new layer to the rules-of-origin
requirements already faced by manufacturers.
---------------------------------------------------------------------------
\82\ Compaq, #62, at 5 (noting, for example, that two companies
performing the same operations in U.S. may receive different origin
determinations simply because they paid different prices for a given
material or component).
\83\ JIG, #88 at 8-9, #196, at 2; Polaroid, #90, at 5-6. (two
companies performing the same operations in U.S. may receive
different origin determinations simply because they paid different
prices for a given material or component).
\84\ Deere, #57, at 1.
\85\ JIG, 88, at 9, #196, at 2; Polaroid, #90, at 7.
See also #98, at 18 (the added accounting requirements associated
with a value content test would be overwhelming); WIMA, #133, at 3,
5 (questions will continually arise regarding accounting, valuation
and profit methodology; whatever the specific percentage standard,
would require a complex set of calculations); NCITD, #89, at 3
(would require substantial investigation, calculation, and paperwork
from too many sources).
---------------------------------------------------------------------------
The International Electronic Manufacturers and Consumers of America
summarized the burdens:
An * * * important reason for opposing a percentage content
standard is the complexity such a rule would impose on producers and
marketers of goods. A percentage content standard, no matter what
specific percentage is chosen, poses an accounting nightmare for
producers of sophisticated electronic products, with components and
production costs from multiple sources. A cost-of-production or
value added requirement would add a burdensome and complicated new
layer to the rules of origin requirements already faced by IEMCA
members. Moreover, * * * cost fluctuations for components in
electronic products would render such a system completely
inconsistent and unworkable; a product might pass, e.g., a 50%
content test one day and, after component cost fluctuations, fail
the same test on another day, even though the exact same product
using the exact same foreign and domestic inputs is ``made'' in the
United States.86
---------------------------------------------------------------------------
\86\ IEMCA, #189, at 6.
---------------------------------------------------------------------------
Given all of the variables in the production process, one
participant in the workshop, a representative of the American
Association of Exporters and Importers, argued that it would very
difficult to know in advance whether the finished product would meet
the percentage threshold. The American Association of Exporters and
Importers representative expressed concern that a manufacturer may
prepare advertising and packaging fully anticipating to be able to
claim ``Made in the USA'' for the product, only to find that, during
production, a currency fluctuation occurs and the product no longer
meets the standard.87
---------------------------------------------------------------------------
\87\ Gail Cumins for AAEI, Tr. at 346-247.
---------------------------------------------------------------------------
For this reason, some commenters also suggested that a percentage
content standard would be expensive and difficult for the Commission to
enforce. The Stanley Works and the Joint Industry Group maintained that
the enforcement effort required would be enormous and wholly
inconsistent with the current government downsizing trend.
88
---------------------------------------------------------------------------
\88\ Stanley, #59, at 9; JIG, 88, at 9-10. See also
Polaroid, 90, at 7-8; WIMA, 133, at 5 (percentage
content standard would require constant case-by-case basis
examination by the FTC).
---------------------------------------------------------------------------
[[Page 25029]]
The Attorneys General expressed similar reservations, albeit from
the contrasting perspective of ``all or virtually all'' supporters,
about the application of a percentage content standard and the
difficulty of enforcing such a standard. In addition, the Attorneys
General suggested that in some circumstances a percentage content
standard might distort the relative weight of U.S. and foreign content.
The Attorneys General thus urged the Commission not merely to apply
mechanically such a standard:
In applying the formula, the FTC would need to create strict
definitions of raw materials and would have to anticipate an endless
number of contexts in which a manufacturer might wish to make a Made
in the U.S.A. claim. While cost might be the best way to compare
domestic and foreign content in many instances, sheer monetary
measures are not universally appropriate. Indeed, rote application
of any formula could lead to the anomalous result that a shirt made
in a ``sweatshop'' in a foreign country from materials originating
in the U.S.A. could be labeled as Made in the U.S.A. if the cost of
the labor comprises a small portion of the product's total cost.
Moreover, we have seen no consumer surveys linking consumer
perception of Made in the U.S.A. to the cost of component parts as
opposed to size, prominence or number of the component
parts.89
---------------------------------------------------------------------------
\89\ AGs, #43, at 7.
---------------------------------------------------------------------------
Several commenters also opposed a percentage content standard
because it does not reflect consumer understanding. The International
Electronics Manufacturers and Consumers of America, for example, argued
that the consumer survey results did not demonstrate that consumers
understand ``Made in USA'' to mean that some specific minimum
percentage of the production costs are domestic, and that there is no
indication that buyers of electronic products focus on the specific
percentage of domestic or foreign content in their understanding of a
``Made in [anywhere]'' marking.90 Some commenters supporting
the current standard emphasized that a percentage content standard
would be at odds with consumer perceptions by permitting items with
significant foreign content to be claimed ``Made in USA.'' The American
Hand Tool Coalition, for example, asserted that percentage thresholds,
whether 50% or 70%, are inconsistent with consumers' interpretation of
``Made in USA'' and would result in deception of a large proportion of
the U.S. consuming public.91 Along these lines, a
representative from the International Brotherhood of Teamsters stated
at the workshop:
\90\ IEMCA, #189, at 6.
\91\ American Hand Tool, #186, at 21. See also Vaughn & Bushell,
#97, at 3-4 (would depart from consumer perceptions and generate
considerable confusion in the marketplace; even 90% threshold could
permit some tools manufactured with foreign-forged metal to qualify
for the ``Made in USA'' label; consumers would not be able to
distinguish between genuine domestically forged metals and imported
substitutes).
---------------------------------------------------------------------------
I think one of the real problems as [a] public policy kind of
matter is that for the FTC to come out and say it's okay for the
``Made in America'' standard to apply to something which has as
little as 50 percent American content can only lead to increased
cynicism, increased disbelief, increased inability of consumers to
pay any attention whatsoever, and to have any of these advertising
slogans or anything else to have meaning.92
---------------------------------------------------------------------------
\92\ Sarah Vanderwicken for IBT, Tr. at 250-251.
---------------------------------------------------------------------------
Finally, some commenters supporting an ``all or virtually all''
standard expressed concern that a percentage content standard may hurt
domestic jobs and industry. For example, a participant at the public
workshop suggested that manufacturers whose domestic content exceeds
the minimum percentage required to claim ``Made in USA'' (for example,
50%) will have an incentive to ``move some production offshore so they
still stay within whatever is the tolerance level to make the claim,
but save on cost.'' 93
---------------------------------------------------------------------------
\93\ Jeanne Archibald for American Hand Tool, Tr. at 348. See
also UAW, #93, at 3.
---------------------------------------------------------------------------
3. Calculation of U.S. content
Under any percentage content standard, a marketer must determine
how to measure the value of U.S. content. In response to questions
posed in the Commission's Federal Register notices, a number of
comments discussed which costs should and should not be included, as
well as how far back in the manufacturing process to go in making the
calculation.
a. Costs to be included. There was a considerable range of opinion
as to the type of costs that should be included in a determination of
U.S. content. One commenter, the Retired Workers Council, Region I-A,
of the UAW, suggested that any calculation of U.S. content should be
based on labor hours and should exclude ``[o]verhead, advertising [and]
financing at any point.'' 94 At the other end of the
spectrum, Balluff, Inc., proposed that the definition of U.S. content
should extend to costs of development, engineering, profit, and the
overhead costs to maintain the product's made in USA
status.95 The largest number of commenters suggested that
all direct manufacturing costs, including manufacturing overhead, be
included in the computation of U.S. content.96 Hager Hinge
stated ``[T]he calculation should be made on a labor and material cost
basis only, including direct overhead.'' 97 Conair Corp.
suggested that the determination of domestic content should include
labor and fringe benefits for shipping, receiving, warehousing, and
packaging as well as overhead and the cost and amortization of capital
equipment and square footage.98
---------------------------------------------------------------------------
\94\ UAW/RWC, #33, at 2.
\95\ Balluff, #69, at 3.
\96\ E.g., FIA, #52, at 1, 4, 6-9, #177, at 1, 4-5; New Balance,
#44, at 26. See RPFMA, #32, at 5, #178, at 4; Dynacraft, #173, at 9;
(``The Ad Hoc Group''), #183, at 2-3; American Hand Tool, #186, at
30; AAEI, #187, at 5; and Hager, #160, at 2.
\97\ Hager, #160, at 2.
\98\ Conair, #155, at 1.
---------------------------------------------------------------------------
A few comments specifically addressed whether profit should be
included in the calculation of U.S. content. Seagate Technology stated
that the profit made by the final assembler in the U.S. should
constitute part of the domestic value.99 Hager Hinge,
however, insisted that ``profit is an entirely separate issue and
should not be a part of the calculation.'' 100
---------------------------------------------------------------------------
\99\ Seagate, #95, at 6. See also Balluff, #69, at 3.
\100\ Hager, #160, at 2. See also UTC, #94, at 2; NEMA, #102, at
8; American Hand Tool, #186, at 30; and FIA, #52, at 8.
---------------------------------------------------------------------------
The commenters also expressed a variety of opinions as to whether,
and to what extent, raw materials should be included in the calculation
of U.S. content. At least five commenters maintained that raw material
costs should be included in final product cost.\101\ Others, however,
suggested that raw materials that were not direct inputs into final
products should be excluded.\102\ A few commenters suggested that the
Commission exclude from total product cost only a narrowly defined
class of raw materials. The Ad Hoc Group, for example, proposed
[[Page 25030]]
excluding natural resources (which it defined as ``products such as
minerals, plants or animals that are processed no more than necessary
for ordinary transportation'') that are not indigenous to the United
States.\103\ Similarly, the Attorneys General indicated that only
materials ``not significantly transformed from their natural
conditions'' should be excluded.\104\ Finally, some commenters proposed
industry-specific limitations on the inclusion of raw materials.\105\
---------------------------------------------------------------------------
\101\ MUSA Foundation, #28, at 12-13; Seagate, #95, at 6;
Conair, #155; American Hand Tool, #186, at 17-20; AAEI, #187, at 6.
See also UAW, #174 at 3 (in suggesting further definition of the
``all or virtually all'' standard, would not create a blanket
exception for all raw materials because, for some products, raw
materials will account for a large share of final product cost,
while for others, raw material costs will be negligible).
\102\ FIA, #52, at 6-7 (include raw materials in cost of
materials but only if within one-step back; if not, exclude because
it is infeasible to make sellers determine the source of
subcomponents and other inputs that are incorporated into the parts
they purchase); Balluff, #69, at 3 (raw materials costs should be
used in determining the calculation for a subassembly if the only
product the company was producing was from raw material, e.g., steel
manufacturers, oil refineries, diamond producers). See also B&W,
#96, at 3 (foreign raw materials should be considered part of U.S.
content if they undergo significant processing in the U.S. and are
then used further in producing the finished product).
\103\ Ad Hoc Group, #183, at 3. See also American Hand Tool,
#186, at 19-20, (opposing exclusion of raw materials, but supporting
a similar definition if such materials are to be excluded); FIA,
#177, at 4 (exclude raw materials one-step back only if not
indigenous to the United States).
\104\ AGs, #43, at 10-11.
\105\ E.g., APRA, #30, at 4 (define raw materials in the
automotive rebuilding industry to exclude cores, e.g., old motor
vehicle parts); EIA, #84, at 7 (raw materials of electronics
industry are electronic or mechanical piece parts, i.e.,
transistors, capacitors, terminals, wiring harnesses, screws, DRAMs,
LEDs, plastic parts, which generally are ordered from piece part
suppliers). See also UAW, #174, at 3 (asserting that the definition
of raw materials may not be standard across industries and citing as
an example that coated alloy steel could be considered a raw
material by some companies and a manufactured product by others).
---------------------------------------------------------------------------
b. How far back to look. In its October 18, 1995 and April 26, 1996
notices, the Commission sought comment as to how far back in the
production process marketers should look in calculating the percentage
of total product cost attributable to U.S. content. Specifically, in
its questions about implementation of the all or virtually all and
percentage content standards, the Commission sought comment on whether
it was adequate for a marketer to look only ``one step back'' in the
manufacturing process, i.e., to where the immediate inputs into the
final product were produced, or whether the marketer should look
further back, i.e., to where the subcomponents that went into that
input were produced. In other words, in determining what percentage of
a refrigerator is U.S. content, is it adequate to know that the
compressor underwent final production in the United States, or must the
marketer also inquire as to where the parts that make up that
compressor were made? The Commission further sought comment on how to
define a ``step'' for these purposes.
Most of the commenters who addressed how far back manufacturers
should look to determine the amount of domestic content advocated a
``one step back'' approach. 106 They contended it would be
unduly burdensome and impractical to require manufacturers to make
inquiries beyond the suppliers from whom they purchase materials or
components. 107 Footwear Industries of America, for example,
explained:
\106\ E.g., LLGMA, #23, at 4; RPFMA, #32, at 5, #178, at 4; FIA,
#52, at 1, 6-8, #177, at 1, 3-4; EIA, #84, at 8, #193, at 2-4; Ad
Hoc Group, #183, at 2.
\107\ E.g., RPFMA, #32, at 5, #178, at 4; FIA, #52 at 7-8, #177,
at 3-4.
---------------------------------------------------------------------------
While manufacturers should be able to determine the source of
raw materials and components they purchase directly, it is entirely
infeasible to make sellers determine the source of subcomponents and
other inputs that are incorporated into the parts they purchase.
Suppliers often buy inputs from a variety of sources, depending on
market conditions, and do not keep track of which inputs go into
which end product. To require such comprehensive tracking would be
difficult for every manufacturer, but exceptionally hard for those
that use a substantial quantity of small inputs from various
countries. 108
\108\ FIA, #52, at 7. See also id., #177, at 3-4.
---------------------------------------------------------------------------
And, in a similar vein, the Rubber and Plastic Footwear
Manufacturers Association commented:
Anything beyond one step back would create an unduly formidable
burden which manufacturers should not be expected to meet,
particularly since the net effect on American employment and quality
of product would in the vast majority of cases be de
minimis.109
\109\ RPFMA, #32, at 5. See also id, #178, at 4.
---------------------------------------------------------------------------
A few commenters supporting an all or virtually all standard
submitted comments opposing a ``one step back'' approach. Dynacraft
Industries stated that such an approach was not appropriate for the
bicycle industry, and urged the Commission to require that U.S. content
be calculated based on all stages of production. It asserted, among
other things, that the ``one step back'' approach could lead to
circumvention of the standard by, for example, permitting an
unscrupulous party to restructure sourcing to purchase through
middlemen in the U.S. and claim the part is of U.S.
origin.110 The American Hand Tool Coalition similarly
opposed allowing manufacturers to look only one or two steps back in
the manufacturing process to determine the origin of a product's
components and therefore the origin of the product. The Coalition
asserted that, regardless of how a manufacturing ``step'' is defined,
such an approach would be subject to manipulation and ``would conflict
with consumers' understanding of `Made in USA.' '' 111
---------------------------------------------------------------------------
\110\ Dynacraft, #173, at 8.
\111\ American Hand Tool, #186, at 14-17.
---------------------------------------------------------------------------
The United Auto Workers suggested that in most cases, looking ``two
steps back'' to unrelated supplier firms would be sufficient to
identify nearly all foreign content. It suggested that ``two step
back'' information would be critical for complex products such as
electronics that use imported components. 112 The United
Auto Workers also concluded, however, that in many cases obtaining the
first tier supplier's U.S. content level (``one step back'') should be
sufficient. 113
---------------------------------------------------------------------------
\112\ UAW, #174, at 2-3.
\113\ Id. at 3 (noting, for example, that if a part that
accounted for 10% of the value of the final product was 50% foreign
value, the contribution of this part to the foreign value of the
final product would be only 5%; on the other hand, if the 50%
foreign part accounted for 30% of final product's value, this
foreign content alone would account for 15% of final product's
value).
---------------------------------------------------------------------------
D. Substantial Transformation Standard
1. Comments Supporting a Substantial Transformation Standard
The Commission received comments from approximately 24 commenters
favoring some version of a ``substantial transformation''
standard.114 These commenters included 10 trade
associations,115 12 manufacturers,116 a law firm
specializing in international trade law,117 and the U.S.
Customs Service.118 While some of the commenters in this
group expressed a preference for substantial transformation generally,
or for any standard consistent with that of the U.S. Customs Service,
others advocated adoption of a specific form of substantial
transformation, such as the tariff-shift approach employed by the NAFTA
Marking Rules.119 In addition, some commenters urged the
Commission eventually to adopt whatever standard is ultimately
[[Page 25031]]
accepted by the WTO.120 At least one commenter suggested
that adopting the actual Customs rules was less important than that the
Commission adopt a standard that, like substantial transformation,
focused on the processing of a product rather than on the value of its
components.121 At the workshop, others also voiced support
for a ``processing'' approach.122
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\114\ In addition, approximately 4 individual consumers
indicated support for a standard by which a product put together or
assembled in the United States could be labeled Made in USA even if
it was assembled from imported parts.
\115\ IEMCA, #99, #189; JIG, #88, #196; U.S. Apparel Industry
Council (``USAIC''), #24; WIMA, #133; AAEI, #37, #187; NCITD, #89;
Watch Producers, #192; IMRA, #46, #184; American Wire Producers
Association (``AWPA''), #65 (advocating adoption of the Customs
standard specifically for steel wire, steel wire products and wire
rod); Committee of Domestic Steel Wire Rope and Specialty Cable
Manufacturers (``Domestic Steel Wire Rope''), #63 (advocating
adoption of the Customs standard specifically for steel wire rope).
\116\ Balluff, #69; Caterpillar, #104; Compaq, #62; Gates, #50;
Okidata, #42; Polaroid, #90; Red Devil, #139; Timkin Co. and
Torrington Co. (``Timkin/Torrington''), #51 (advocating adoption of
the Customs standard specifically for antifriction bearings);
Toshiba, #34; Stanley, #59, #194; 3M, #98, #198. See also Packard
Bell, #64 (suggesting that adoption of a WTO standard would be the
best solution, but supporting a percent content standard in the
interim).
\117\ Meeks and Shephard (``Meeks''), #105.
\118\ Customs, #29 (suggesting for unqualified ``Made in USA''
claims that a product be substantially transformed in the United
States and have a 35% U.S. value-content).
\119\ AAEI, #37, #187; Gates, #50; 3M, #98, #198; NCITD, #89;
Polaroid, #90.
\120\ AAEI, #187; Compaq, #62; USAIC, #24; IEMCA, #99, #189;
IMRA, #46, #184; Stanley, #59, #194; JIG, #88, #196; Meeks, #105;
3M, #98, #198.
\121\ IMRA, # 46, at 9-11.
\122\ E.g., Cynthia Van Renterghem for NEMA, Tr. at 268; James
Clawson for JIG, Tr. at 389.
---------------------------------------------------------------------------
Many of the commenters favoring a substantial transformation
standard expressed concern that the FTC's standard was inconsistent
with that of the Customs Service. Some remarked on the incongruity of
not being able to mark a product ``Made in USA'' under FTC policy even
though the Customs Service would not require it to be marked with a
foreign country of origin.123 Several of the commenters,
moreover, pointed to the benefits associated with using a standard that
was consistent with that used by a sister federal agency. If FTC policy
was harmonized with Customs rules, Compaq Corp., for example, noted,
``manufacturers would not incur the additional expense of monitoring
compliance with two potentially conflicting origin criteria.''
124 Similarly, the Stanley Works argued that ``Use of
substantial transformation would unify and harmonize domestic marking
regulation. . . . business could look to a single, uniform set of
marking regulations.'' 125 Other commenters noted the number
and variety of laws already in existence related to country-of-origin
labeling and argued that using the substantial transformation standard
used by Customs had the advantage of ``not adding to the regulatory
burden of U.S. companies.'' 126
---------------------------------------------------------------------------
\123\ E.g., Meeks, #105, at 1; Polaroid, #90, at 3.
\124\ Compaq, #62, at 3.
\125\ Stanley, #59, at 8.
\126\ WIMA, #133, at 5. See also Caterpillar, #104, at 2;
Okidata, #42, at 1-2; Toshiba, #34, at 3.
---------------------------------------------------------------------------
In a similar vein, a number of commenters noted that because
businesses must already comply with Customs requirements, the
substantial transformation standard is familiar to industry and can be
readily complied with. Thus, the Joint Industry Group asserted that
application of the substantial transformation standard will ``bring
benefits of predictability, transparency, and enforceability to the
process.'' 127 The American Association of Exporters and
Importers echoed this view, contending that ``the Customs standard,
which has been the subject of thousands of administrative rulings and
court opinions, will be more objective than the FTC standard, which has
never been authoritatively defined.'' 128 The Writing
Instruments Manufacturers Association and the Timkin and Torrington
companies also each praised the substantial transformation test for
establishing a ``bright-line rule.'' 129
---------------------------------------------------------------------------
\127\ JIG, #88, at 3. See also JIG, #196, at 3; IECMA, #99, at
2, #189, at 3 (substantial transformation rule is understandable and
usable, and there is a body of customs law and precedent for
producers of virtually every product to follow).
\128\ AAEI, #37, at 4. See also 3M, #98, at 11, 18 (stating that
the NAFTA Marking Rules ``provide a workable and objective
standard'' and that ``[m]any U.S. manufacturers already are
operating under the NAFTA and performing the required NAFTA Marking
Rule analysis for their products.'' 3M, however, at the same time
characterized the traditional case-by-case application of the
Customs principle of substantial transformation as ``too
subjective.'').
\129\ WIMA, #133, at 2; Timkin/Torrington, #51, at 2. See also
Stanley, #59, at 9.
---------------------------------------------------------------------------
Perhaps the most frequently cited advantage of the substantial
transformation standard, however, was that it is consistent with the
standards used by most other countries, and its adoption was seen by
many of these commenters as an action that would facilitate
international trade. ``Obtaining uniformity and flexibility in country
of origin labeling,'' stated the U.S. Apparel Industry Council, ``would
enable manufacturers to more efficiently supply wearing apparel to an
increased number of countries. This benefits consumers and
manufacturers alike * * *.'' 130 Similarly, the American
Association of Exporters and Importers noted that adoption of labeling
requirements consistent with those of other countries would benefit the
increasing number of companies developing international labels for
their products.131
---------------------------------------------------------------------------
\130\ USAIC, #24, at 3.
\131\ AAEI, #37, at 4-5.
---------------------------------------------------------------------------
Many commenters pointed in particular to instances where a
manufacturer would not be permitted by the FTC to mark its product
``Made in USA,'' but would be required to do so by a foreign country
when the same product is exported.132 ``To meet these
conflicting requirements,'' Polaroid asserted, ``US companies are often
required to establish special packaging and relabeling facilities, and
to design and manufacture multiple forms of packaging for different
destination markets.'' 133 The Stanley Works also
highlighted the costs associated with preparing separate packaging for
domestic and exported products, stating:
\132\ E.g., Caterpillar, #104, at 1-2; IEMCA, #189, at 5.
\133\ Polaroid, #90, at 3. See also IEMCA, #99, at 2.
---------------------------------------------------------------------------
A packaging change alone, without considering the additional
administrative costs associated with maintaining dual inventories,
costs Stanley roughly $250 per stock keeping unit. That amount
multiplied by the thousands of individual products made by Stanley
graphically illustrates the steep, unnecessary costs of maintaining
dual inventories.134
\134\ Stanley, #59, at 6.
---------------------------------------------------------------------------
This theme was reiterated by 3M, which stated that:
With regard to relabeling, 3M has in many cases chosen not to
label its U.S. products with an origin mark (so that they can be
sold in the United States without violating the Commission's
standards), only to have to add a sticker indicating ``Made in USA''
to comply with a foreign country's marking requirement. The
stickering not only increases costs and burdens on 3M, but also
makes the 3M products look less physically attractive to the
consumer.135
\135\ 3M, #98, at 4.
---------------------------------------------------------------------------
Furthermore, several commenters supporting the substantial
transformation standard argued that adoption of this standard was in
keeping with efforts of the United States and other countries, through
the WTO and other means, to harmonize international marking standards.
Thus, one commenter suggested that ``because substantial transformation
is the conceptual basis for emerging international origin standards,
the Commission's adoption of this test would greatly aid international
efforts to harmonize rules.'' 136
---------------------------------------------------------------------------
\136\ Watch Producers, #192, at 2. See also USAIC, #24, at 3
(``uniformity in country of origin rules will meet a stated
objective of NAFTA and the GATT Uruguay Round Agreements'').
---------------------------------------------------------------------------
Finally, a number of commenters argued that the substantial
transformation standard serves to protect consumers. These commenters
noted that the marking requirements applied by Customs were intended,
like the Commission's policy, to ensure that consumers received
accurate information about the origin of the products they
purchased.137 In addition, several commenters pointed out
that, because the FTC and the Customs Service apply different tests, a
``Made in USA'' label had different meaning from one that said ``Made
in [foreign country],'' and that this was likely to lead to
considerable consumer confusion. Observed one commenter, ``A reasonable
buyer surely does not understand that a `Made in U.S.A.' product must
be all or virtually all U.S. content, while a product `Made in Japan'
may, on the other hand, have
[[Page 25032]]
substantial content from other countries.''138 Similarly,
another commenter argued:
\137\ Compaq, #62, at 8; Okidata, #42, at 1-2; Stanley, #59, at
3-4; 3M, #98, at 13.
\138\ Watch Producers, #192, at 11.
---------------------------------------------------------------------------
A ``Made in COUNTRY X'' claim should represent the origin of the
underlying product to consumers in a consistent manner, whether the
relevant country is the United States or any other country. The
long-standing Customs marking rule of origin, based on substantial
transformation, applies to the country of origin markings on all
imports. Consumers should not be faced with a conflicting origin
rule for products marked ``Made in USA.'' 139
\139\ IEMCA, #189, at 3. See also JIG, #88, at 2 (``When a
consumer buys a product labeled ``Made in Japan,'' the consumer
should have the same understanding of that product's origin as one
labeled ``Made in USA'.''); USAIC, #24, at 3 (``It is not realistic
to assume that consumers know or believe ``Made in U.S.A.''
determinations are based on rules which differ from the rule for
``Made in [Foreign Country].'' With uniform rules, consumers will be
able to make informed decisions about product origin without the
confusion now associated with country of origin marking.'').
---------------------------------------------------------------------------
Several of these commenters also argued that the substantial
transformation standard is consistent with consumer perception. One
commenter, for example, suggested that substantial transformation
``fits with general consumer perception that an article is made in the
place where it takes on its final identity or is transformed into a new
item.'' 140 3M asserted that ``consumers are concerned with
the major elements of a product and its final place of manufacture.
Consumers are not concerned with detailed accounting procedures and do
not understand the significance of allocating general overhead
expenses, etc.'' 141 Moreover, some commenters specifically
pointed to the consumer survey evidence as supporting a similar view.
For instance, IEMCA stated that:
\140\ WIMA, #133, at 3 (emphasis in original).
\141\ 3M, #98, at 24.
---------------------------------------------------------------------------
While the results of various consumer surveys presented at the
workshop failed to reveal a universal consumer attitude about the
meaning of ``Made in USA,'' at least one simple perception was
evident: consumers feel that ``Made in USA'' means that the product
was ``made'' domestically. Nothing in the survey results indicate
that consumers typically understand this to mean that 100% of the
content or labor that went into producing all components of the good
was domestic. Rather, as elucidated by several participants in the
workshop, consumers, by and large, view the ``Made in * * *''
language to indicate where the ultimate product ``came into being.''
142
---------------------------------------------------------------------------
\142\ IEMCA, #189, at 3 (emphasis in original).
---------------------------------------------------------------------------
2. Comments Opposing a Substantial Transformation Standard
At least 15 commenters specifically criticized a substantial
transformation standard.143 The most frequent criticism
voiced was that the standard is too low and permits goods with
significant foreign content to be labeled ``Made in USA'' because one
step in the manufacturing process has been performed in the United
States. The Footwear Distributors and Retailers of America maintained
that using a substantial transformation standard, a manufacturer could
claim that its shoes were made in the U.S. if the shoes were assembled
using imported uppers and outsoles:
\143\ American Hand Tool, #91, #186; APRA, #30; Cranston, #38;
Diamond Chain, #55; Dingell, #153; Estwing, #179; FDRA, #27, #172;
FIA, #52, #177; New Balance, #44, #197; RPFMA, #178; Summitville,
#162; Tileworks, #156; UAW, #93, #174; Vaughan & Bushnell, #191;
Welbend, #190. In addition, although the coalition of state
Attorneys General did not specifically address substantial
transformation in their written comments, the coalition's
representative at the public workshop did voice his concerns about
the substantial transformation standard during the proceedings. See,
e.g., Roger Reynolds for AGs, Tr. at 434. Some commenters opposed a
``pure'' form of substantial transformation such as used by Customs
(indicating that in some circumstances such a standard might not
ensure that sufficient work was performed in the United States), but
suggested that a modified version could be acceptable. E.g., EIA,
#84, at 6, #193; BMA, #195.
---------------------------------------------------------------------------
Under the rules promulgated by Customs, footwear assembled in
Country B with an upper manufactured in Country A and an outsole
manufactured in Country C would be labeled as a product of Country
B, without qualification. By the same token, footwear assembled in
this country using both imported uppers and outsole, need not be
marked with a foreign country of origin.144
---------------------------------------------------------------------------
\144\ FDRA, #27, at 3. See also id., #172, at 4-5.
---------------------------------------------------------------------------
The Footwear Industries of America maintained that this problem
extends across an array of products ``because virtually any product
could have a new name, character and use after its foreign components
are finally assembled in the United States.'' 145
---------------------------------------------------------------------------
\145\ FIA, #177, at 6. See also id., #52, at 4.
---------------------------------------------------------------------------
Other commenters also argued that the substantial transformation
standard fails to ensure that products claiming to be ``Made in the
USA'' actually contain significant domestic content. The United Auto
Workers, for example, point to Customs' practice of adding a value-
added test to the substantial transformation standard in certain
circumstances to illustrate the standard's limited domestic content
requirement:
When there is a suspicion that the location of the
transformation has been moved from one country to another to
circumvent a trade law (e.g., antidumping, subsidies), a test that
requires additional value-added is applied. This demonstrates the
minimal local value that is attached to the substantial
transformation; its domestic content is very far from the FTC
standard.146
\146\ UAW, #93, at 3-4.
---------------------------------------------------------------------------
A Bicycle Manufacturers Association representative observed that in
some instances, simple assembly may be enough to constitute substantial
transformation: ``[A]t least in the case of bicycles, * * * the NAFTA
marking rule basically says you take bicycle parts and assemble them
together and make a bicycle, and you have done a substantial
transformation.'' 147 Thus, while BMA did not oppose a
substantial transformation standard, it urged the Commission to include
a provision that would ensure the addition of significant domestic
value.148
---------------------------------------------------------------------------
\147\ Michael Kershow for BMA, Tr. at 187.
\148\ BMA, #195, at 3.
---------------------------------------------------------------------------
Some commenters opposed to the adoption of a substantial
transformation standard contended that, contrary to the supporters'
assertions, the substantial transformation standard does not apply
objective criteria, nor does it afford predictability or consistency in
administration.149 An American Hand Tool Coalition
representative, for example, stated that in Customs' January 1994
notice, Customs noted that `` `the application of the [substantial
transformation] rule involves considerable subjective judgments, that
it's non-systematic, that the judicial and administrative decisions in
one case have little bearing on another case.''' Accordingly, the
American Hand Tool representative did not believe that a substantial
transformation standard would ``give the kind of consistency and
guidance to business that most of the people around this table [at the
workshop] are looking for.'' 150
---------------------------------------------------------------------------
\149\ E.g., FIA, #52, at 5.
\150\ Jeanne Archibald for American Home Tool, Tr. at 373-74.
See also Lauren Howard for FIA, Tr. at 377 (substantial
transformation standard will not give manufacturers clear guidance).
---------------------------------------------------------------------------
U.S. Representative Dingell maintained that the Commission's
standard and Customs' rules serve different purposes and are thus not
inconsistent with each other. He urged that the Commission ``be guided
by its statutory charter of prohibiting unfair or deceptive practices
rather than focusing on the red herring argument made by certain
companies that the FTC and Customs Service should use identical
standards.'' 151 Several commenters agreed with this view,
arguing that the
[[Page 25033]]
Commission's current policy protects consumers from
deception.152
---------------------------------------------------------------------------
\151\ Dingell, #153, at 2. See also Jeanne Archibald for
American Hand Tool, Tr. at 270; American Hand Tool, #91, at 4-5,
#186, at 4, 34; UAW, #174, at 3; Dynacraft, #45, at 4-5, #173, at 4;
Diamond Chain, #55, at 3. Similarly, according to one workshop
participant, substantial transformation is based on manufacturing
processes rather than on consumer perception. Jeanne Archibald for
American Hand Tool, Tr. at 373-374.
\152\ APRA, #30, at 6; Cranston, #38, at 2; Diamond Chain, #55,
at 3.
---------------------------------------------------------------------------
Commenters opposed to the adoption of a substantial transformation
standard further argued that application of the standard would result
in labeling contrary to most consumers' understanding of the phrase
``Made in USA.'' American Hand Tool asserted that in the surveys that
were presented at the FTC's workshop, no respondents indicated that
``Made in the USA'' meant that the product had undergone substantial
transformation or tariff shift in the U.S., or even suggested it meant
creating a distinct article from something else:
Such a concept would require consumers to distinguish among
various manufacturing processes and to identify the point at which
the final product came into being. But the consumer perception
evidence demonstrates the opposite: consumers view ``Made in the
USA'' as applying to all of the materials and labor used to make a
product and do not distinguish among manufacturing steps or
processes. 153
\153\ American Hand Tool, #186, at 31.
---------------------------------------------------------------------------
Noting that the consumer survey presented at the FTC public
workshop found that the majority of consumers would not agree with a
``Made in USA'' label on a product with 50% foreign content, the same
commenter stated that use of the substantial transformation standard
would result in ``deceiving a fairly large segment of the U.S.
public.'' 154 Another workshop participant observed: ``I
don't see any relation of the substantial transformation test to
consumer perception.'' 155
---------------------------------------------------------------------------
\154\ Jeanne Archibald for American Hand Tool, Tr. at 373.
\155\ Roger Reynolds for AGs, Tr. at 434.
---------------------------------------------------------------------------
Finally, the American Hand Tool Coalition questioned whether using
a substantial transformation standard would in fact harmonize the
Commission's standard with other U.S. and international standards. The
Coalition maintained that several of the proponents of a substantial
transformation standard in the Commission's proceeding actually
advocated adopting various modifications to the substantial
transformation standard as applied by the Customs Service. Adopting
such variations, the American Hand Tool Coalition maintained, would not
achieve harmonization with the Customs Service. Moreover, a unified
Customs/Commission standard would nevertheless be inconsistent with the
Buy American Act.156
---------------------------------------------------------------------------
\156\ American Hand Tool, #186, at 34.
---------------------------------------------------------------------------
E. Comments Supporting Other Standards
In addition to the three primary alternatives discussed above, a
number of commenters suggested other possible approaches to the
evaluation of U.S. origin claims. 157 For example, some
commenters suggested that a ``Made in USA'' standard should focus on
the production of ``major'' or ``essential'' components. The Footwear
Distributors and Retailers of America, for example, suggested that the
Commission adopt a standard that permits the use of a ``Made in USA''
label when the ``major component production'' and final assembly takes
place in the United States. 158 Similarly, Manchester Trade
Ltd. argued that products whose ``essential elements'' are produced and
assembled in the United States should be allowed to carry an
unqualified ``Made in USA'' label. 159
---------------------------------------------------------------------------
\157\ As noted above, see supra note 37, there were also
approximately 15 commenters who opposed the current ``all or
virtually all'' standard, but who did not specify a preferred
alternative standard. In addition, there were approximately 33 other
commenters (including approximately 18 consumer commenters) whose
comments did not clearly indicate any preferred standard.
\158\ FDRA, #27, at 2, #172, at 4.
\159\ Manchester Trade Ltd. (``Manchester Trade''), #21, at 2.
See also Federation of the Swiss Watch Industry (``FSWI''), #47 (FTC
should adopt a standard that recognizes the relative importance of
the different parts of a product, such as the importance of the
movement and the casing of a watch). But see Jim Clawson for JIG,
Tr. at 513-514 (discouraging the Commission from adopting a standard
based on essential components because of the difficulty of
determining which components of a product are essential, and because
such a standard may discourage the use of American materials).
---------------------------------------------------------------------------
The National Electrical Manufacturers Association supported a
similar standard. It asserted that, at least for electronic products,
the standard for making an unqualified U.S. origin claim should focus
on whether the product is ``manufactured primarily'' in the United
States. Specifically, if an American electronics producer uses
primarily U.S.-built subassemblies and performs the remaining steps in
the United States, the product should be eligible for a ``Made in USA''
label, regardless of the source of the basic electronic and mechanical
components.160 According to the National Electrical
Manufacturers Association, this standard ``more fairly acknowledges
that the source of electrical products' greatest cost, value, and
essence is found at the subassembly level rather than the basic
component level.''161
---------------------------------------------------------------------------
\160\ NEMA, #102, at 2. See also EIA, #84, at 1-2 (similarly
advocating that ``if a U.S. electronics producer uses primarily
U.S.-built subassemblies and performs the remaining manufacturing
steps in the U.S., that product should be eligible for a `Made in
USA' label, whatever the source of the basic electronic and
mechanical components'').
\161\NEMA, #102, at 2. In NEMA's post-workshop comment, however,
it contended tha tthe Commission shoud defer to the substantial
transformation standard for industrial products, or alternatively,
exclude industrial products ``from anyrule directed to `Made in USA'
claims.'' Id, #182, at 2-3.
---------------------------------------------------------------------------
Other commenters, most notably two trade associations of automobile
manufacturers, specifically objected to any bright-line test for
determining whether a seller can make a U.S. origin claim and instead
advocated the use of a case-by-case approach.162 The
American Automobile Manufacturers Association, for example, stated that
consumers' understanding of ``Made in USA'' claims varies greatly from
product to product, and that this understanding continues to evolve.
Accordingly, it urged the Commission to avoid setting rigid standards
that may become obsolete or cause consumer confusion, and recommended
that the Commission apply well-established principles of advertising
law, considering the express and reasonably implied meaning of the
claim, the materiality to consumers of the claim, and whether the
advertiser has a reasonable basis to make the claim.163 The
Association of International Automobile Manufacturers similarly
asserted that a ``one-size-fits-all standard'' would be confusing, and
that it may be impossible to develop a standard that can accurately
reflect consumer views about all products. It therefore suggested that,
at least for automobiles, the Commission adopt a case-by-case approach
that reviews specific advertising claims and the meaning of those
claims to consumers.164
---------------------------------------------------------------------------
\162\ Association of International Automobile Manufacturers
(``AIAM''), #101, at 2, #180, at 1. See also Toyota, #26, at 2
(suggesting that, with respect to the automotive industry, the
Commission should adopt a traditional reasonable basis standard for
measuring domestic content, rather than a precise formula); AAF,
#100, at 2, 5 (urging the Commission to ``avoid establishing a
bright line definition of ` ``Made in USA'' ' and instead adopt ``a
flexible standard whereby a manufacturer has the ability to make
specific, qualified and substantiated claims about a product'').
\163\ American Automobile Manufacturers Associations (``AAMA''),
#103, at 2.
\164\ AIAM, #101, at 4, #180 at 1-2. Another approach suggested
was to include a grading scale from A+ to F, depending on percentage
of U.S. content. Tech Team, Inc. (``Tech Team''), #307. The
Federation of the Swiss Watch Industry advocated that the FTC adopt
a standard for ``Made in USA'' designations similar to Switzerland's
``Swiss Made'' rule for watches. It said this rule provides that the
watch must contain a Swiss movement (defined as one in which 50% of
the value of the parts are of Swiss manufacture and which is
assembled and inspected in Switzerland), the movement must have been
encased in Switzerland, and the watch must have undergone final
inspection in Switzerland. FSWI, #47, at 4-5.
---------------------------------------------------------------------------
[[Page 25034]]
F. Guidelines Proposed By the Ad Hoc Group
After the workshop, a group of several companies and industry
associations calling themselves the ``Ad Hoc Group'' jointly submitted
as a post-workshop comment proposed ``Guidelines for Making U.S. Origin
Advertising and/or Labeling Claims'' (``Ad Hoc Guidelines'').
165 Central to the Ad Hoc Guidelines are three proposed safe
harbors for making an unqualified ``Made in USA'' claim. Specifically,
the Ad Hoc Guidelines provide that ``a product that contains materials,
parts or components that are not wholly obtained in the United States
can be non-deceptively advertised or labeled `Made in USA''' if one of
three conditions is met:
\165\Ad Hoc Group, #183. The proposal was signed by AAEI, the
Association of Home Appliance Manufacturers (``AHAM''), the
Automotive Parts and Accessories Association (``APAA''), AWPA, BMA,
EIA, IMRA, 3M, and Stanley.
---------------------------------------------------------------------------
(1) the last significant manufacturing process or processes,
which must be more significant than simple assembly or minor
processing, occur in the United States, and the cost of U.S.
processing is at least 50% of the cost of goods sold; or
(2) (i) a majority of all the processing that is normally
undertaken to produce a product takes place in the U.S.;
(ii) such process(es) result in the creation of a new article of
commerce that has a different name, character, and use than the
materials, parts, or components from which it is made; and
(iii) such process(es) when taken together, are more significant
than simple assembly or minor processing and result in a ratio of
the cost of U.S. processing to the cost of goods sold that is not
insignificant; or
(3) the good satisfies a modified version of the NAFTA
Preference Rules.
In addition, the Ad Hoc Guidelines propose establishing a second
tier of U.S. origin claims. Specifically, a product could be labeled
``Wholly made in the U.S.'' (emphasis added) if ``all or virtually all
of the processing, materials, components, and labor used in the
production of product are of U.S. origin.''
Some of the signatories to the Ad Hoc Guidelines also submitted
separate comments emphasizing their support for the Ad Hoc Guidelines.
The American Association of Exporters and Importers explained that the
Guidelines attempt to provide American manufacturers with reasonable
and easily understandable alternative methods for claiming that their
products are ``Made in USA.'' 166 The Bicycle Manufacturers
Association asserted that ``consumers are entitled to expect that a
claim that a product was `Made in USA' means not only--but most
fundamentally--that the product came into being (i.e., was
substantially transformed) here, but that substantial value was added
in the U.S. * * * [E]ach of the three `safe harbors' acknowledge this
principle * * * `` 167 Similarly, the International Mass
Retail Association asserted that, in rejecting both a simple value-
added standard as well as a simple adoption of Customs' substantial
transformation standard, the Ad Hoc Guidelines ``get to the plain idea
of what it takes to `make' something''; accordingly, the proposal
provides guidance to advertisers and avoids consumer deception.
168 The Association of Home Appliance Manufacturers also
submitted a separate comment endorsing the Guidelines and reiterating
its support for the NAFTA Preference Rules as one of the three safe
harbors for making a ``Made in USA'' claim. 169
---------------------------------------------------------------------------
\166\ AAEI, #187, at 2.
\167\ BMA, #195, at 3.
\168\ #184, at 1-4.
\169\ AHAM, #188, at 1-2.
---------------------------------------------------------------------------
Other signatories to the Ad Hoc Guidelines submitted separate
comments suggesting modifications to the proposal. 3M expressed its
support for the Ad Hoc Guidelines, but suggested two additional safe
harbors: (1) that goods be allowed to be labeled ``Made in USA'' if
they are substantially transformed in the United States; 170
or alternatively, (2) that a lesser mark such as ``Country of Origin:
USA'' or ``Product of the US'' (rather than ``Made in USA'') be
permitted when a product is sufficiently manufactured in the United
States to become a U.S. product for international customs purposes
(i.e., is substantially transformed in the U.S.), but would not meet
the standard for an unqualified ``Made in USA'' claim. 171
Under 3M's proposal, to bear the lesser mark: (1) the product would
have to be actually sold in the market that requires the label; (2) the
label would have to be no larger than is necessary to meet foreign
labeling requirements; and (3) the claim could not be repeated in U.S.
advertising unless it could meet the Ad Hoc Guidelines' safe harbors
for unqualified ``Made in USA'' claims. 172
---------------------------------------------------------------------------
\170\ See also AAEI, #187, at 3; EIA, #193, at 8.
\171\ 3M, #198, at 1-2.
\172\ See also IMRA, #184, at 7 (should allow manufacturers to
mark products sold in the U.S. with the words ``Country of origin:
USA'' in limited instances where actual exports of the product are
subject to foreign marking requirements); EIA, #193, at 2 (the
Commission could prevent consumer deception through education
concerning the limited meaning of such marking and through
prohibition on U.S.-origin claims to consumers); JIG, #196, at 3-4
(should the FTC decide that the substantial transformation standard
is not appropriate, advocates establishing a ``safe harbor'' that
would allow companies to provide consumers with country-of-origin
information that also satisfies international origin marking rules).
---------------------------------------------------------------------------
New Balance and Footwear Industries of America, although not
signatories to the Ad Hoc Guidelines, expressed general support for
them, but asserted that any safe harbor for making unqualified ``Made
in USA'' claims should require that a product have over 50% domestic
value. 173 According to New Balance, without this
requirement, products with low domestic content that undergo only final
assembly in the United States could be labeled ``Made in USA'' in some
instances, and in those instances, the label would be deceptive.
174
---------------------------------------------------------------------------
\173\ New Balance, #197, at 2; FIa, #177, at 6-7.
\174\ New Balance, #197, at 4.
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In contrast, the American Hand Tool Coalition, and two of its
member companies, submitted comments strongly objecting to the Ad Hoc
Guidelines. The American Hand Tool Coalition asserted that the Ad Hoc
Guidelines are a ``conglomeration of vague and potentially unequal
tests that would promote rather than prevent consumer deception.''
175 Among its specific criticism of the Ad Hoc Guidelines
were: (1) by permitting products with 50% or even more foreign content
to be labeled ``Made in USA,'' the Ad Hoc Guidelines would deceive a
substantial percentage of consumers;176 (2) the two-tiered
approach of ``Made in USA'' and ``wholly Made in USA'' would lead to
consumer confusion and make it difficult for companies that meet the
higher standard to distinguish their products;177 and (3)
the proposed Guidelines would not achieve harmonization with other U.S.
or foreign government standards.178
---------------------------------------------------------------------------
\175\ American Hand Tool, #186, Appendix A, at 1.
\176\ Id. at 1, 4-6.
\177\ Id. at 7-8. See also Vaughan & Bushnell, #191, at 2;
Estwing, #179, at 2 (``Only the most vigilant consumers would notice
the difference between the two claims, and even if the distinctions
were noticed, consumers would have no basis by which to discern the
different meanings of the two phrases. Consumers are likely to
assume that [both claims] refer to all or virtually all domestic
origin * * *'').
\178\ American Hand Tool, #186, Appendix A, at 8-0.
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IV. Analysis: General Considerations
The comments submitted to the Commission, as well as the
Commission's independent analysis, suggest a number of factors to be
considered in seeking an appropriate standard for evaluating U.S.
origin claims. The Commission considered consumer perception of such
claims, consistency of the Commission's standard with other, existing
standards,
[[Page 25035]]
and practical issues of implementation. This notice discusses each in
turn.
A. Consumer Perception
1. Studies and Findings
As noted above, Commission staff commissioned a consumer perception
study 179 as part of the FTC's overall review of U.S. origin
claims in advertising and labeling. In addition, some commenters
responded to the Commission's request for further consumer perception
evidence by submitting data of their own.180
---------------------------------------------------------------------------
\179\ Document No. B212883 on the Commission's public record.
\180\ IMRA, Document No. B212895; Crafted with Pride, Document
No. B212908; American Hand Tool (Danaher Tool Group), Document No.
B212910; New Balance, Document No. B212922; National Consumers
League, Document No. B212934; BGE, Document No. B212946.
---------------------------------------------------------------------------
The FTC staff-commissioned study consisted of two parts. The first
part (``1995 FTC Copy Test'') was a traditional copy test in which
subjects were shown advertisements containing one of five qualified or
unqualified U.S. origin claims (e.g., ``Made in USA,'' ``70% Made in
USA,'' ``Made in U.S. of U.S. and imported parts'') and asked a series
of questions about what they understood each claim to mean. The second
part of the Commission's study was termed an attitude survey (``1995
FTC Attitude Survey''). It presented subjects with a series of
scenarios in which the percentage of a product's cost that was U.S. in
origin varied; in addition, subjects were either told that the product
was assembled in the U.S., told that it was assembled abroad or not
told the site of assembly. Subjects were then asked whether or not they
agreed with a label stating that the product was ``Made in USA.''
181 In addition to the results of the new study commissioned
for this review, the results of a 1991 FTC study (``1991 FTC Copy
Test'') also were considered.182 This 1991 consumer
perception study asked consumers general questions about ``Made in
USA'' claims, as well as questions about the use of such claims in
specific advertisements.
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\181\ For example, a typical question in the 1995 FTC Attitude
Survey read:
This stereo is assembled in the United States using U.S. and
foreign parts. The foreign parts account for 10% of the total cost
of making the stereo. The U.S. parts and U.S. assembly together
account for 90% of the total cost. If this product had a label
stating that the product was ``Made in the USA,'' how much would you
agree or disagree with the label? Would you strongly agree, somewhat
agree, neither agree nor disagree, somewhat disagree, or strongly
disagree?
A respondent would then be presented with the same scenario,
except that 30% of the cost was foreign and 70% U.S., then with a
scenario in which U.S. and foreign costs each accounted for 50% of
the total costs, and so on.
\182\ Document No. B213001.
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In addition to the Commission's studies, at least six other
commenters provided consumer perception data on U.S. origin claims,
including: New Balance Athletic Shoe (New Balance), the International
Mass Retail Association (IMRA), the American Hand Tool Coalition
(American Hand Tool), Crafted With Pride in U.S.A. Council, Inc.
(Crafted with Pride), BGE Ltd. (BGE), and the National Consumers League
(NCL).183 The studies addressed a number of topics related
to U.S. origin claims and found a range of results. The most
significant findings are discussed below.
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\183\ The NCL study consisted of mail-in survey of its
membership and did not purport to be a scientifically valid survey.
Nonetheless, it is included in this discussion for informational
purposes.
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a. Importance of U.S. origin in purchasing decisions. All of the
studies looked in one way or another at how important a ``Made in USA''
designation was to consumers. Several of the studies found that many
consumers express a preference for U.S.-made goods. For example, when
respondents to the 1991 FTC Copy Test were asked to circle things in an
ad that were important to them, 52% of those shown a typewriter ad and
33% of those shown a bicycle ad circled the ``Made in USA'' logo.
Similarly, American Hand Tool survey participants considered a ``Made
in USA'' label to be a highly important factor when buying hand tools.
On average, this label was considered as important as price and more
important than brand name and reputation of store (but was seen as less
important than the warranty). Crafted With Pride submitted the results
of several studies, all of which indicated that consumers have a
significant preference for items made in the USA.184 For
example, in one test conducted in retail stores, sales of U.S.-made
apparel increased 24% when the items were affixed with hangtags
prominently identifying them as ``Made in USA.'' 185
Finally, 84% of respondents in the NCL study said they were more likely
to buy an item that was made in the USA than a foreign-made product,
assuming that price and other features of the product were identical.
---------------------------------------------------------------------------
\184\ Crafted With Pride, #35, at 3-7, Exhibits 1-7; #176, at 2-
3.
\185\ Id., #35, at 6, Exhibit 7.
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On the other hand, three other studies suggested that country of
origin is not as important to consumers as some other product features,
such as price, design, and style. When asked an open-ended question as
to what factors they considered in deciding which brand of athletic
shoes to buy, no respondents to the New Balance survey mentioned the
country of origin of the shoes' components. Country of origin was
ranked by respondents in that survey below comfort and fit, durability,
design/style, and price in factors they considered in their athletic
shoe purchasing decisions. Similarly, in the BGE survey, only 26% of
participants indicated that they would base their decision about
whether to buy a collectible plate on the country in which it was
manufactured. In contrast, 99% said the primary reason for buying such
a plate was because of the art on it. IMRA submitted poll data
suggesting that although consumers say they prefer buying products made
in the USA, this preference noticeably declines if an American-made
good is more expensive than a foreign-made good. IMRA's data also
indicated that a product's country of origin rated well below a
product's warranty, price, and other product features in importance to
purchasing decisions. In addition, the survey submitted by IMRA showed
that people care more about the country of origin for certain products,
such as cars, clothing, and electronics, than for other products, such
as tools, shoes and large appliances.
Consumer responses to the 1995 FTC Copy Test and 1995 FTC Attitude
Survey reflect a range of views about the importance to consumers of
purchasing products that are made in the USA. Participants in the Copy
Test were asked ``When you are considering buying a [product], how
important is it to you that the item be made in the USA?'' On a scale
of 0-10, 0 being not at all important and 10 being very important, 39%
of participants responded in the 8-10 range; 39% of participants
responded in the 3-7 range; 22% of participants responded in the 0-2
range. The importance participants placed on buying a product that was
produced in the U.S. did not vary among the copy test products (a
stereo, coffee maker or pen).
The results of the 1995 FTC Attitude Survey were similar, although
participants in the Attitude Survey rated the importance of buying a
pen that was ``Made in USA'' somewhat higher than the importance of
buying a stereo that was made in the USA. Just under 50% of
participants who were asked about pens rated the importance of buying a
pen that was ``Made in the USA'' between 8-10. Less than 20% put the
importance between 0-2. For participants who were asked about stereos,
approximately 35% rated the importance of buying a stereo that was
[[Page 25036]]
Made in the USA between 8-10, while just over 25% put the importance
between 0-2.
Several of the studies found that consumers associate ``Made in
USA'' claims with positive economic consequences for the United States,
such as more jobs for Americans. For example, in the New Balance study,
when respondents were asked ``What does Made in USA mean to you,'' 35%
of respondents stated that a ``Made in USA'' label implied jobs or work
for U.S. citizens. In the Commission's 1991 Copy Test, when respondents
were shown a card with ``Made in USA'' on it and asked what they think
of when they see this on a product, the largest number of respondents
(27%) mentioned that ``Made in USA'' means jobs or employment, gave
responses focused on keeping dollars in the United States, or gave
other answers relating to the U.S. economy. Similarly, in the American
Hand Tool study, among 443 respondents who said that a majority of
their hand tools are American made, the largest percentage (41%) stated
that they buy American products to support the U.S. economy and U.S.
labor.
On the other hand, Crafted With Pride concluded that people check
country of origin for quality reasons, not because of abstract
political or social concerns; most think U.S. companies make better
clothing, appliances, telephones. Like Crafted With Pride, IMRA
concluded that people who base their purchasing decisions on a ``Made
in USA'' label do so because such a label represents better quality
than foreign produced goods, not because of patriotic sentiment.
b. Consumer understanding of ``Made in USA'' i. General meaning.
Several studies indicate that when asked to define ``Made in USA,''
consumers do so in only the most general terms. Most commonly, when
asked the meaning of ``Made in USA,'' study participants stated that a
product was ``Made in the USA'' with no elaboration. For example, in
the New Balance study, when consumers were asked ``What does 'Made in
USA' mean to you,'' the highest percentage of respondents (40%) stated
some version of ``Made/Manufactured in US.'' Similarly, American Hand
Tool found that when respondents were asked what a ``Made in USA''
label would mean if they were considering buying a hand tool, the
largest percentage of respondents (46%) simply stated it would mean the
tool was ``Made in the U.S.''
The Commission found similar results. In the 1995 FTC Copy Test,
when respondents were asked what a ``Made in USA'' claim means in an
advertisement or label, 63.5% gave answers indicating the product was
made in the U.S. without further elaboration. Similarly, in the 1995
FTC Attitude Survey, 60.8% of respondents stated that a ``Made in the
USA'' label means ``Made in US.''
ii. How much is made in the United States. In looking at how much
of a product that is labeled ``Made in USA'' consumers believe is made
in the United States, the answer appears to depend in part on how the
question is asked. As noted above, when asked the general, open-ended
question what does ``Made in USA'' mean, most consumers simply answer
``Made in USA.'' In the 1995 FTC Copy Test, for example, when asked
what a ``Made in USA'' statement in an ad or label meant, only 5% of
respondents answered ``all made in US.''
Where studies, however, directly asked consumers how much of a
product marked ``Made in USA'' was made in the United States, or
presented them with scenarios that posited a level of U.S. content,
many respondents indicated that they view ``Made in USA'' claims as
representing that products possess a high amount of U.S. content. This
result, for example, was reflected in two of the Commission studies.
The 1995 FTC Attitude Survey found that the number of consumers who
were willing to accept a ``Made in USA'' label on a product decreased
significantly as the amount of production costs incurred abroad
increased. For example, while 52% of respondents agreed with a ``Made
in USA'' label when foreign production accounted for 30% of total
production costs, only 28% of respondents were willing to accept a
``Made in USA'' label when foreign production accounted for 50% of
total production costs.186 In the 1991 FTC Copy Test,
approximately 77% of consumers stated that ``Made in USA'' references
mean that all or almost all of a product was made in the
USA.187
---------------------------------------------------------------------------
\186\ These figures are for responses across all sites of
assembly, i.e., whether the respondent was told that the product was
assembled in the U.S., assembled in a foreign country, or not told
the site of assembly. More complete results of the 1995 Attitude
Survey appear in the chart below.
\187\ In response to a follow-up question, approximately 82% of
these respondents specified that this was both parts and labor.
Thus, a total of approximately 63% of the respondents to the 1991
FTC Copy Test stated that a ``Made in USA'' claim meant the product
was all or almost all made in the United States and that this meant
both parts and labor.
Percentage of Respondents Who Agreed and Disagreed with a ``Made in USA'' Label
----------------------------------------------------------------------------------------------------------------
Assembled in U.S. Country of assembly Assembled in foreign
-------------------------- unspecified country
Total cost ---------------------------------------------------
Agree Disagree Agree Disagree Agree Disagree
----------------------------------------------------------------------------------------------------------------
90% US/10% Foreign................ 75.0% 22.0% 63.9% 31.5% 54.6% 33.3%
70% US/30% Foreign................ 67.0% 31.0% 50.9% 43.5% 38.9% 50.0%
50% US/50% Foreign................ 36.0% 46.0% 28.7% 57.4% 18.5% 63.9%
30% US/70% Foreign................ 25.0% 68.0% 20.4% 72.2% 10.2% 83.3%
10% US/90% Foreign................ 20.0% 74.0% 19.4% 74.1% 10.2% 84.3%
----------------------------------------------------------------------------------------------------------------
Other studies found similar results. American Hand Tool asked
respondents what percentage of a hand tool they assumed was made in the
U.S. Fifty-three percent of the respondents stated 100%. An additional
27% gave responses between 50% and 99%. Similarly, in the NCL study,
consumers were asked ``When you see a product advertisement or label
stating ``Made in USA,'' what amount of U.S. parts (i.e., components)
do you assume is in the product?'' Forty-five percent of respondents
stated 100%; an additional 9% of the respondents stated a minimum
ranging between 90% and 100%. When respondents to this survey were
asked about the minimum amount of U.S. labor they assume is in the
product, 58% stated 100%, and an additional eight percent stated a
minimum between 90% and 100%.
iii. Importance of U.S. assembly. When participants in the 1995 FTC
Copy Test were asked whether a ``Made in USA'' statement in an ad or on
a package suggested or implied anything
[[Page 25037]]
about where the product was assembled, only 50% of the respondents
answered affirmatively. The responses of the participants in to the
1995 FTC Attitude Survey, however, suggest that the site of assembly
makes a significant difference to consumers in deciding whether a
product is ``Made in USA.'' Specifically, respondents in the 1995 FTC
Attitude Survey were considerably more willing to agree with a ``Made
in the USA'' label on products that were assembled in the United States
than on products assembled abroad, regardless of the overall percentage
of the product that was made in the United States. For example, even if
a foreign-assembled product contained U.S.-made parts that accounted
for 90% of the product's total cost, only 55% of respondents were
willing to agree with a ``Made in the USA'' label on the product. By
contrast, when respondents were asked about the same 90% U.S. content
product and told that it was assembled in the United States, 75% were
willing to agree with a ``Made in USA'' label on the product.
2. Conclusions
The Commission received considerable information concerning
consumer perception of U.S. origin claims and has found this
information useful in its consideration of this matter. Although there
are necessarily limitations on the inferences that can be drawn, the
Commission believes that the following conclusions are supported by the
evidence.
First, the studies cited by the commenters indicate that U.S.
origin claims are material to many consumers. A large number of
consumers expressed an interest in or preference for U.S.-made goods,
even if they did not always follow this interest through when actually
purchasing items. A consumer's purchasing decision is, of course, often
influenced by other factors, such as fit and price; it is not sensible
to expect consumers to buy shoes that do not fit or that cost more than
they can afford simply because those products are labeled ``Made in
USA.'' Nonetheless, all other things being equal, many consumers
express a preference for U.S.-made products. That U.S. origin claims
are material to consumers is reinforced by the considerable interest of
manufacturers in making these claims. Many of the comments received
also indicate that a ``Made in USA'' label is a valuable marketing
tool.
Second, the consumer perception data indicate that many consumers
may have only a general sense of what the phrase ``Made in USA'' means
rather than a highly refined view of how ``Made in USA'' should be
interpreted, i.e., whether a ``Made in USA'' claim should be evaluated
in terms of costs, processing, or in another manner. Several
commenters, both at the workshop and in post-workshop comments, opined
that consumers' failure to specifically mention anything about cost or
parts when asked generally what ``Made in USA'' means shows that these
consumers interpret a ``Made in USA'' claim as meaning only that the
product ``came into being'' in the United States. One commenter said,
for example:
[A]pproximately 65 percent of the [FTC] copy test respondents
either repeated the ``Made in USA'' phrase or responded with a
virtually identical phrase when queried about the meaning of ``Made
in USA.'' Since such consumers are likely to use the word `made'
according to its dictionary definition, the copy test results show
that consumers perceive a product as being created in this country
if the materials are either formed or modified, or the component
parts are put together in the United States. 188
---------------------------------------------------------------------------
\188\ FIA, #177, at 2.
---------------------------------------------------------------------------
Similarly, another commenter suggested that the ``overwhelming
response of consumers was not that [`Made in USA'] means X percent
parts or labor, but rather that it means simply that the product was
made, built, manufactured, created in America.'' 189 And a
third commenter argued that ``[T]he empirical evidence suggests that
consumers conceptualize `Made in USA' claims in terms of the process by
which parts or materials are transformed into a `new and different'
finished product--` that is, substantial transformed.' ''
190
---------------------------------------------------------------------------
\189\ EIA, #193, at 5.
\190\ BMA, #194, at 4.
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The Commission, however, does not believe that this complex
interpretation is supported by the available evidence. It is likely
reading too much into a consumer's tautological statement that ``Made
in USA'' means ``Made in USA'' to say that it demonstrates that
consumers understand ``Made in USA'' to mean that a product ``came into
being'' in the United States and not to mean anything about where the
product's parts were made. A simpler explanation is that many consumers
are likely unaware that there are various alternative constructs for
evaluating ``Made in USA'' claims and may not articulate a precise
definition of ``Made in USA.'' 191 In other words, it may
not have occurred to many of the survey respondents that there are
multiple ways of defining the commonly used, short-hand phrase ``Made
in USA.''
---------------------------------------------------------------------------
\191\ See UAW, #174, at 2 (``The consumer survey data provides
little useful information regarding the understanding of most
consumers of the term `Made in USA.' One conclusion that could be
drawn from the data is that very few consumers know enough about the
process of production to be able to evaluate different claims about
parts content or product fabrication.'').
---------------------------------------------------------------------------
Moreover, the view that a product is made where it ``comes into
being,'' regardless of the origin of a product's parts, is contradicted
by at least some evidence that many consumers do consider parts to be
an important element of the ``Made in USA'' definition. In the 1991 FTC
Copy Test, for example, when the respondents who stated that ``Made in
USA'' means that ``all or nearly all'' of a product was made in the
United States were asked ``Is that parts, labor, or both parts and
labor?,'' 77% of respondents answered both parts and labor. The
American Hand Tool Coalition's study found similar results, with 38% of
respondents saying the claim referred mostly to materials, 38% saying
it pertained mostly to labor, and 40% saying both parts and labor (even
though the latter response was not expressly given as an option). In
addition, in the 1995 FTC Attitude Survey, most respondents disagreed
with a ``Made in USA'' label for products that underwent final assembly
in the United States but had low overall U.S. content, suggesting that
merely ``coming into being'' in the United States does not satisfy
consumers'' understanding of the term ``Made in USA.'' 192
---------------------------------------------------------------------------
\192\ On the other hand, only 28% of respondents to the 1995 FTC
Copy Test answered ``yes'' when asked if a ``Made in USA'' claim
suggested or implied anything about where the parts that went into a
product were manufactured. Some commenters, including the Bicycle
Manufacturers Association, cited this statistic as support for the
argument that consumers do not think of ``Made in USA'' claims in
terms of parts. BMA, 195, Appendix at 6. Interestingly,
only about half of the respondents to the 1995 FTC Copy Test stated
that ``Made in USA'' suggests or implies anything about where the
product was assembled either (a concept presumably closer to
``coming into being''). In fact, a considerable number of
respondents (34%) to this copy test were unwilling to say that a
``Made in USA'' claims suggests or implies anything about where a
product was assembled or where its parts came from or how much of
the total cost was U.S., making it hard to infer exactly what these
respondents believe ``Made in USA'' does mean. One possible
explanation is that consumers do not believe that any of the factors
asked about--site of assembly, origin of parts, some level of U.S.
costs--are necessarily required for a product to be called ``Made in
USA,'' although any or all of them may be required in a particular
(or even most) instances. Thus, when asked whether a ``Made in USA''
representation suggests or implies where the parts are made, a nay-
saying participant may have answered, in essence, ``not
necessarily.''
Yet another possible interpretation is that the relatively low
number of respondents responding affirmatively to the question of
whether a ``Made in USA'' claims suggests or implies anything about
where the parts are made is the result of the conservative phrasing
of the question. Pointed to a ``Made in USA'' statement and asked
whether it says anything about where the parts of the product are
manufactured, consumers may well respond that, no, literally it does
not.
---------------------------------------------------------------------------
[[Page 25038]]
Third, whether or not consumers are able to precisely define ``Made
in USA,'' the consumer perception studies indicate that, when given the
opportunity, consumers nonetheless fairly consistently suggest that
products labeled ``Made in USA'' are expected to have a high degree of
U.S. content. When asked what portion of a product labeled ``Made in
USA'' was made in the United States, many respondents say that the
claim means that all of a product is U.S.-made. When presented with
specific scenarios, many consumers similarly indicated that they
expected a product to have a high level of U.S. content, although they
also indicated they were willing to accept a product labeled ``Made in
USA'' even if it had some foreign content. For example, in the 1995 FTC
Attitude Survey, 67% of respondents agreed with a ``Made in USA'' label
when the product was assembled in the United States and U.S. production
accounted for 70%, and foreign content, 30%, of the total production
cost. Even with U.S. assembly, however, consumers appear to require
significant U.S. content to justify a ``Made in USA'' label. Thus, the
number of respondents agreeing with a ``Made in USA'' label in the same
study drops off significantly--to 36%--when U.S. content drops to 50%,
even where the product is assembled in the United States.
193 Only New Balance found that a majority of consumers were
willing to accept a ``Made in USA'' label when a product was made with
50% U.S. materials and components. 194
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\193\ Interestingly, the drop between 70% U.S. content and 50%
U.S. content is the largest drop between levels whether respondents
were presented with scenarios in ascending order (i.e., proceeding
from 10% U.S. content to 90% U.S. content) or in descending order
(i.e., proceeding from 90% U.S. content to 10% U.S. content).
\194\ New Balance did not present consumers with any scenarios
in which a product was made with an amount of U.S. content between
50 and 100 percent.
---------------------------------------------------------------------------
The Commission accepts the argument of several commenters that
consumers increasingly recognize that products are made globally. The
multitude of foreign origin labels on products likely reinforces
consumers' increased awareness of foreign sourcing. That consumers may
recognize that many products are no longer wholly made in the United
States, however, does not necessarily indicate that consumers expect
that products labeled ``Made in USA'' have significantly less U.S.
content. It appears at least equally likely that the commenters are
correct who argued that knowledge of increased globalization of
production makes high U.S. content more, not less, important to
consumers.
Finally, although there may in fact be differences in the way
consumers interpret and understand U.S. origin claims for different
types of products, the data currently before the Commission appear too
limited to draw any conclusions on this subject. 195
---------------------------------------------------------------------------
\195\ Nonetheless, to the extent marketers may in the future
develop competent and reliable evidence that consumer perception
varies among products, this evidence could be relevant to
establishing a reasonable basis for their specific U.S. origin
claims.
---------------------------------------------------------------------------
B. Consistency With Other Statutory and Regulatory Requirements
Many of the corporations and trade associations that commented as
well as some of the Congressional comments strongly urged the
Commission to adopt a standard that is consistent with one of the
other, already existing legal standards, such as the substantial
transformation test applied by the Customs Service, standards employed
by foreign governments, the Buy American Act, or NAFTA preference
rules. The Commission recognizes that there are often considerable
benefits to harmonizing its standards with those of other government
agencies, including decreased burdens on business and additional
clarity for consumers. Thus, wherever possible and appropriate, the
Commission strives to ensure that its standards are consistent with
those of other agencies. To this end, Commission staff has consulted
with staff of other federal agencies as part of this review, including
staff of the U.S. Customs Service.
Nonetheless, there are certain limitations on the possibility of
full harmonization in this area and there are costs to be weighed
against the benefits of harmonization. In addition, it is not, of
course, possible to be consistent with each of the cited standards, as
they are not consistent with each other. Issues raised by the adoption
of each of the referenced standards are addressed in turn.
1. Consistency With the Standards of the U.S. Customs Service
Under the current legal regime, there is in fact no direct conflict
between Customs Service and FTC requirements. This is because, on
product labels, the Customs Service regulates only markings of foreign
origin, while the Commission is concerned primarily with claims of U.S.
origin. Nonetheless, the Commission recognizes that a certain tension
arises from the use of different standards by the Customs Service and
by the FTC. In particular, there are two ways in which an appearance of
inconsistency may be conveyed. First, although a product is deemed,
under Customs Service regulations, not to be of foreign origin (because
it has been or will be substantially transformed in the United States)
and so is not required to be marked with a foreign country of origin,
it may not necessarily qualify to be labeled ``Made in USA'' under the
Commission's analysis.196 Second, a foreign origin marking
(such as ``Made in Japan'') may reflect a different level of processing
in that country than would a U.S. origin claim (``Made in USA'') on a
similar item.
---------------------------------------------------------------------------
\196\ Many of the commenters appeared to have overlooked other
Commission precedent that has historically applied in this
circumstance. Specifically, the Commission has had a rebuttable
presumption that consumers would view unmarked goods to be of
domestic origin, and that when such goods contained a significant
amount of foreign content this had to be disclosed to prevent
deception. As explained in Part VII, the Commission finds this
rebuttable presumption is no longer in the public interest.
Nonetheless, up until this point, it was inaccurate to characterize
the situation this simply.
---------------------------------------------------------------------------
The standards currently applied by the FTC and the Customs Service
derive from their respective governing statutes, and the differing
purposes of these statutes impose certain limits on harmonization
between the two. Section 5 of the FTC Act is designed primarily to
protect consumers and to ensure that voluntary advertising and labeling
claims, including claims of U.S. origin, are not deceptive. The Customs
laws, by contrast, address a range of purposes, including the
establishment of tariffs and quotas and the prevention of dumping.
While the specific requirement in the Tariff Act that every imported
good be marked with its country of origin does indeed spring from the
consumer-friendly goal of providing information to the ``ultimate
purchaser,'' the standard actually employed to determine which country
is the country of origin `` substantial transformation `` is used not
only for this purpose but also for many others. Thus, there is little
indication that the standard itself is based on consumer understanding.
Indeed, as discussed above, substantial transformation (characterized
by some commenters as equivalent to where a product ``came into
being'') is not necessarily consistent with consumer perception. In
addition, the fact that Customs' marking rules are mandatory and
universal may, to some extent, dictate the form those rules take.
Another consideration in attempting to harmonize the FTC's standard
with
[[Page 25039]]
that of the Customs Service is that the Customs Service uses more than
one variation of substantial transformation in its regulation of the
marking of imported goods. As explained in Section II, above, goods
imported from NAFTA countries are subject to a tariff shift standard
instead of the traditional substantial transformation test, and this
may, in some instances, lead to divergent determinations of origin.
Moreover, the standards for determining country of origin for the
marking of imports appear, in many respects, to be in a state of flux
at the present time. Customs proposed, but then set aside, plans to
extend the NAFTA tariff shift standards to the marking of all goods. In
addition, international efforts in this area may lead to further
changes in how country-of-origin determinations are made. As noted
previously, the World Trade Organization is currently working on a
proposal for uniform international standards for making country-of-
origin determinations.197 Should the United States
ultimately adopt such a proposal, it may lead to significant changes in
the current system of country-of-origin marking. In fact, some
witnesses at the ITC's recent hearings on country-of-origin issues
suggested that the United States take an approach similar to that of
some other countries and abolish some or all of its marking
requirements altogether, arguing that such requirements present a
costly barrier to trade.198
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\197\ Although ``substantial transformation'' is the basic test
applied by many countries in determining whether and how to require
imports to be marked, the implementation of that standard may vary
from country to country. Hence, the WTO is working to harmonize this
area.
\198\ See, e.g., ITC Report, at 2-8, n. 30.
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Varying standards and the possibility of change in the short-term
future complicate attempts at harmonization. Nonetheless, the
Commission expects to continue monitoring activities in the area of
marking of imports, and, where appropriate, to reevaluate its own
standards in light of changes in this area.
In addition, a number of commenters argued that the fact that a
``Made in USA'' label and a ``Made in (foreign country)'' label may
reflect different amounts of processing in their respective countries
is likely to lead to consumer confusion. Under the deception standard
of Section 5, however, it is by no means clear that consumers generally
interpret foreign-origin claims in a manner analogous to how they
interpret ``Made in USA'' claims or that they place as much value on
foreign-origin claims as they do domestic ones. Consumers who look for
``Made in USA'' claims may do so because they are seeking products that
are made by U.S. labor from U.S. components. To the extent that
consumers prefer domestic products for patriotic reasons, they may
attribute special meaning to U.S. origin claims out of concern for the
United States economy and may not have similar concerns about the
economy of a foreign country.199 In addition, consumers
reading a foreign-origin label may be more likely to care about the
general fact that the product is made abroad than about which specific
country or countries it is made in.200
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\199\ In addition, it is not clear that most consumers
understand that a ``Made in (foreign country)'' label means only
that the product was last substantially transformed in the foreign
country and in fact may contain parts from many countries. Thus, to
the extent that consumers understand a ``Made in USA'' claim to have
an equivalent meaning to a ``Made in (foreign country)'' claim, they
may expect that both claims mean the product was substantially all
made in the named country.
\200\ Some commenters have further suggested that differing
standards for marking of imported and domestic goods puts U.S.
manufacturers at a disadvantage because they may have to qualify
their claims while a foreign manufacturer can use simply ``Made in
(country)'' statement. The Commission fails to see a significant
disadvantage in this situation. Consumers with a preference for U.S.
goods are likely to prefer goods with a qualified U.S. origin label
over those with an unqualified foreign origin label.
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Further, the United States is not alone in specifying a higher
standard for domestic-origin claims than for foreign-origin claims. A
number of the United States' trading partners also impose a higher
threshold for goods marked with a domestic origin label. Canada, for
example, uses a substantial transformation analysis to determine the
country of origin to be marked on imports, but for ``Made in Canada''
claims requires not only that the last substantial production operation
take place in Canada but also that the product contain at least 51%
Canadian materials or direct labor. Switzerland requires that a product
labeled ``Made in Switzerland'' contain at least 50% Swiss material and
labor, and have its last major processing done in Switzerland.
2. Consistency With the Standards of Other Countries
A number of commenters urged the Commission to adopt a substantial
transformation standard to ensure uniformity with the standards of
other countries and to enable manufacturers selling in both the United
States and abroad to use a single set of labels. Specifically, these
commenters asserted that other countries, applying a substantial
transformation test, may require that a good be marked ``Made in USA''
in cases where the Commission, under its traditional standard, would
prohibit such a label, thereby requiring the manufacturer to maintain
two separate sets of inventory.
The extent of this problem is not clear. Few other countries impose
the sort of universal marking requirements on imported goods that are
mandated in the United States.201 Nonetheless, even where
marking requirements are not universal, many countries appear to impose
marking requirements on at least some (and sometimes many) categories
of products. Those countries that do apply marking requirements use, in
many cases, a substantial transformation standard, but do not
necessarily apply it in a manner that is wholly consistent with the
determinations reached by the United States, or by other countries. In
addition, only limited information was submitted concerning whether
other countries would accept or reject qualified statements of U.S.
origin (e.g., ``Made in USA of U.S. and imported parts'') on imported
products.202 Nor is it clear to what extent manufacturers
must use different labels for exports in any event, because of language
differences or other regulatory requirements of the foreign government.
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\201\ Insofar as the other country does not require a product to
be marked, the manufacturer may avoid any conflict in standards by
choosing not to mark the product at all.
\202\ According to U.S. Customs, Canada accepts goods from NAFTA
countries which contain qualified statements such as ``Made in USA
with foreign components.'' Customs, #29, at 5-6. Other commenters,
however, suggested that other countries might be unwilling to accept
qualified statements. See supra note 58. See also FDRA, #27, at 4
(suggesting that foreign customs officials generally do not prohibit
the addition of qualifying information, such as ``Made in USA of
foreign and domestic components,'' but that a label indicating the
country of origin of components (e.g., ``Made in USA from Uppers
from the People's Republic of China'') would generally not be
accepted).
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Despite these uncertainties, the Commission is sensitive to the
costs that may be imposed on manufacturers where different countries
impose different labeling requirements, and the Commission has in other
instances taken steps to promote harmonization with the practices of
other countries.203 The Commission has endeavored to address
this problem in Section XIII of the proposed guides, which provides for
use, in certain proscribed circumstances, of a modified U.S. origin
[[Page 25040]]
label intended to be acceptable internationally.
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\203\ For example, the adoption of NAFTA created industry
interest in being able to use symbols in lieu of words to provide
care instructions under the Commission's Rule on Care Labeling of
Textile Wearing Apparel. 16 CFR Part 423. Symbols are already in use
in Canada and Mexico and, to aid in harmonization of requirements,
the Commission has approved an interim conditional exemption to
allow the use of certain care symbols in lieu of words. 62 FR 5724
(1997).
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3. Consistency With the Buy American Act and Other Standards
A number of commenters advocating a 50% standard suggested that the
Commission adopt such a standard because it is consistent with the Buy
American Act (BAA). The BAA requires that, in its procurement of
certain products, the United States government, in certain
circumstances, buy products that are manufactured in the United States
of at least 50% U.S. articles, materials or supplies.204
Unlike the marking standards used by the Customs Service and other
countries, however, the BAA does not relate in any way to the labeling
of products, and its standard is not based on consumer perceptions.
Rather, the BAA is simply a government procurement preference rule. The
Commission is therefore not persuaded that consistency with the BAA, in
and of itself, would lead to significant benefits. In addition,
adoption of the BAA standard would nevertheless leave the Commission
applying a standard different from that of the Customs Service, and the
BAA advocates give few, if any, reasons for preferring consistency with
the BAA to consistency with the arguably more relevant Tariff Act.
---------------------------------------------------------------------------
\204\ 41 U.S.C. 10a.
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Similarly, the few commenters who suggested that the Commission
adopt standards consistent with NAFTA Preference Rules also failed to
articulate the relevance of these rules beyond the fact that they are
already in existence. Like the BAA, these are preference rules and do
not apply to labeling. Moreover, the NAFTA preference rules have the
further disadvantage of being highly complex and of having standards
that vary from product to product, thereby providing little
predictability.
C. Practical Considerations
Each of the three proposed alternative standards necessarily
presents its own set of benefits and burdens on those wishing to comply
with it. A percentage content standard, as many commenters and
participants in the public workshop noted, while presenting a bright-
line standard, involves sometimes complex accounting issues. A
substantial transformation standard, while already in use and familiar,
requires reference to Customs rulings, and the case-by-case, fact-
specific approach employed under Customs' traditional (i.e., non-tariff
shift) standard may result in a lack of predictability.205
The all or virtually all standard likely poses the least burden in
terms of calculation costs--a marketer need only determine whether its
product contains any significant foreign content; if so, the product
may not be labeled with an unqualified Made in USA label. On the other
hand, the all or virtually all standard is less flexible and does not
reflect the increasing internationalization of production and consumer
recognition and acceptance of this in goods otherwise U.S. made.
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\205\ Moreover, any attempt to use a modified version of the
Customs standards, as suggested by some commenters, would require
the FTC to engage in a similar case-by-case review.
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In reviewing its policy on U.S. origin claims, the Commission has
taken into consideration the costs likely to be borne by industry under
any future standard, and has sought ways, consistent with preventing
consumer deception, to minimize such costs. Specifically, the
Commission has attempted to address these concerns in two ways. First,
the Commission's proposed policy provides alternative means of
compliance, so that marketers may weigh for themselves the costs and
benefits of the alternative approaches and choose the approach that is
likely to pose the fewest burdens on them. Second, the Commission has
sought to provide a balance in its proposed guides between giving
sufficient guidance to marketers on how to comply and giving them
adequate flexibility, through such means as providing multiple options
where appropriate and allowing the use of ordinary business and
accounting practices, so that marketers may determine their compliance
without significant alterations of, or additions to, their ordinary
business practices.
V. Overview of Proposed Guides
After thoroughly reviewing the public comments and the proceedings
of the public workshop, the Commission proposes to adopt the Guides for
the Use of U.S. Origin Claims that appear at the end of this notice.
Many of the commenters, including many of those in attendance at the
workshop, asked that the Commission provide more thorough guidance to
marketers on the use of U.S. origin claims, whatever standard the
Commission ultimately adopted. Through these proposed guides, the
Commission attempts to provide such guidance.206 Guides are
administrative interpretations of laws administered by the Federal
Trade Commission. 16 CFR 1.5. Guides themselves, unlike rules
promulgated pursuant to Section 18 of the FTC Act or other statutes for
which the FTC is responsible, do not have the force and effect of law.
Rather, they are intended to provide the public with guidance as to how
the Commission is likely to apply the principles of Section 5 of the
FTC Act to a particular issue--in this case, the use of U.S. origin
claims. In addition, guides often provide the Commission with greater
flexibility than would rules in responding to changes in evolving
areas.
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\206\ Although the Commission has attempted to provide
significant guidance, the proposed guides, by necessity, cannot
address all possible issues that may arise in the context of U.S.
origin claims. For example, the proposed guides do not address the
situation in which a marketer represents that a whole product line
is of U.S. origin (e.g., ``Our products are Made in USA'') when only
some of the products in the product line are, in fact, made in the
United States. Among other reasons, this is because such situations
involve issues of advertising interpretation and deception law that
are not specific to U.S. origin claims and have been addressed in
Commission cases both within and outside the U.S. origin context.
See, e.g., Hyde Athletic Industries, supra, Docket No. C-3695
(consent agreement accepted as final 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., supra, Docket No. 9268 (consent agreement accepted as final
December 2, 1996) (same); Uno Restaurant Corp., File No. 962-3150
(consent agreement accepted for public comment January 22, 1997)
(complaint alleged that restaurant chain represented that its whole
line of thin crust pizzas were low fat, when only two of eight of
the pizzas met acceptable limits for low fat claims); Hagen-Dazs
Company, Inc., Docket No. C-3582 (consent agreement accepted as
final 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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The Commission believes that consumers continue to understand
``Made in USA'' claims as representing a significant level of U.S.-
derived content. Although many consumers may not be able to articulate
exactly what it is that makes a product ``Made in USA,'' the consumer
survey evidence, including the 1991 and 1995 studies commissioned by
Commission staff, indicates that, when given the opportunity, consumers
consistently state that they understand ``Made in USA'' claims to
connote a high degree (though not necessarily 100%) of U.S. content.
This conclusion is reinforced by the overwhelming, albeit anecdotal,
views of individual consumers who submitted comments.
At the same time, the Commission recognizes that there have been
vast changes in the international economy since the Commission first
required that goods labeled ``Made in USA'' be wholly domestic.
Increasing globalization of production suggests that a requirement that
even minor parts be all made in the United States is outdated and
inflexible. Consumers appear to understand this as well. In the
Commission's 1995 Attitude Survey 67% were willing to agree with a
``Made
[[Page 25041]]
in USA'' label on a product where foreign inputs accounted for 30% of
the total cost if the rest of the product was U.S.-made and final
assembly took place in the United States.
Based on these conclusions, as well as the Commission's overall
analysis of the record, the guides provide that a marketer making an
unqualified U.S. origin claim must have a reasonable basis
substantiating that the product is substantially all made in the United
States. To give further guidance as to what constitutes a reasonable
basis for this standard, there are two ``safe harbors'' set forth; if
the product falls within either of these safe harbors, the Commission
would not consider an unqualified U.S. origin claim for that product to
be deceptive. Some consumers may hold views or understand claims
differently from what is set forth in the ``substantially all''
standard. The Commission, however, believes that, as a general matter,
it would not be in the public interest to bring a law enforcement
action under section 5 of the FTC Act if a marketer satisfied either
one of the safe harbors for meeting this standard. The two safe harbors
represent alternative approaches to the determination of U.S. origin:
one is a percentage content standard 207 and the other a
``processing'' approach. While both safe harbors are intended to ensure
that a product is ``substantially all'' made in the United States, they
reflect the Commission's recognition that different modes of
determining U.S. origin may be appropriate for different types of
products.
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\207\ Although a percentage content standard safe harbor may
pose complex accounting issues, the Commission has attempted to deal
with practical problems such as multiple sourcing and price
fluctuations in section XII of the proposed guides and to otherwise
minimize any accounting burdens. The Commission also notes that some
of the alternatives favored by commenters (for example, NAFTA
Preference Rules and BAA) require this type of accounting.
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The first safe harbor requires that 75% of the total manufacturing
costs of producing a product be U.S. costs and that the product be last
substantially transformed in the United States. The Commission believes
a product meeting the threshold of 75% U.S. content is likely to
conform with consumer expectations for a product labeled ``Made in
USA,'' but this safe harbor nonetheless recognizes that even a largely
U.S.-made product may necessarily include a relatively minor amount of
foreign content.
The Commission gave serious consideration to those commenters who
suggested that the most appropriate percentage standard is 50% U.S.
content. The higher threshold proposed by the Commission, however,
appears to be in greater accord with consumer understanding. As noted
above, in the 1995 FTC Attitude Survey, for example, there was a
significant drop-off between the number of consumers agreeing with a
Made in USA claim for a product where U.S. costs accounted for 70% of
all costs and those agreeing with such a claim for a product where U.S.
costs accounted for 50% of costs. In fact, even where it was specified
that final assembly of the product took place in the United States,
significantly fewer than half of those surveyed were willing to accept
a ``Made in USA'' label for a product with 50% U.S. content. Nor does
the other consumer survey evidence in the record show much support for
a 50% standard. In addition, as a practical matter, it should be noted
that, if one includes the costs of final assembly in the U.S. cost
calculation, a product for which U.S. costs constitute 50% of total
production costs may well have less than half its inputs, by value, be
of U.S. origin. Furthermore, because of the potentially lower wages
paid to workers in other countries, a 50% cost standard does not ensure
that 50% of the work (in terms, for example, of labor hours) was
performed in the United States. Such factors add to the concern that a
50% threshold is unlikely to ensure that a product contains sufficient
U.S. content to prevent a U.S. origin claim from being deceptive. The
Commission believes that a 75% safe harbor more effectively ensures
that a product promoted as ``Made in USA'' has substantially all U.S.
content and better reflects consumer understanding.208
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\208\ Several commenters, including the Ad Hoc Group and a
number of participants at the public workshop, suggested that, were
a 50% standard adopted, manufacturers whose products contained
higher amounts of U.S. content could nonetheless advertise those
products as, for example, ``Wholly Made in USA'' or ``100% Made in
USA.'' The problem with this approach, however, is that there is no
basis to believe that consumers will understand the difference
between a ``Made in USA'' claim and a ``Wholly Made in USA'' claim.
That is, to the extent that at least some consumers already
interpret ``Made in USA'' to mean that a product is virtually all of
domestic origin, these consumers will not perceive ``Wholly Made in
USA'' as indicating a greater amount of domestic content.
Nonetheless, nothing in the proposed guides prohibits a marketer
from using a ``Wholly Made in USA'' or ``100% Made in USA''
statement, or any other representation that a product contains a
particular level of U.S. content, as long as the marketer is able to
substantiate such a representation.
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The second, alternative safe harbor would allow an unqualified U.S.
origin claim where a product undergoes two levels of substantial
transformation in the United States: i.e., the product's last
substantial transformation must take place in the United States and the
last substantial transformation of each of its significant inputs must
take place in the United States. This safe harbor focuses on the
processing of the product, and does not require that a marketer engage
in any cost calculation or take into account any foreign content
further than ``one step back'' in the manufacturing process.
Nonetheless, by requiring that a product be made of parts that undergo
their last significant processing in the United States, as well as
requiring that the final processing of the product take place in the
United States, the Commission believes that this safe harbor ensures
that a Made in USA label reflects significant U.S. content and is
unlikely to be deceptive to consumers.
In crafting this safe harbor, the Commission considered, but
rejected, other processing-oriented standards. The most commonly used
processing standard, of course, is the basic substantial transformation
test applied by the Customs Service. By itself, however, substantial
transformation does not necessarily ensure that a product contains
significant U.S. content. It may, for example, reflect a relatively
unsophisticated final assembly process putting together parts made
elsewhere or it may be met by a process that in fact changes the nature
of the product, but requires little U.S. work (e.g., imprinting
software onto a computer disk). The requirement in this safe harbor
that there be an additional level of substantial transformation works
to remedy these limitations. By requiring that all of a product's
significant inputs have undergone substantial transformation in the
United States, the safe harbor minimizes the vagaries of the
substantial transformation standard and ensures that a product coming
within the safe harbor is likely to meet consumer expectations for U.S.
content.
The Commission also considered a process-oriented safe harbor
proposed in the Ad Hoc Guidelines: that a product could be labeled with
an unqualified U.S. origin claim if it underwent a majority of its
processing in the United States. Although it has some conceptual
appeal, there appear to be significant practical limitations to
application of this majority of processing safe harbor. The Ad Hoc
Guidelines specify no objective means of determining what constitutes
``a majority of processing.'' 209 Instead,
[[Page 25042]]
manufacturers apparently may divide their manufacturing process into
separate steps as they deem appropriate and then count whether a
majority of these steps are performed in the United States. The lack of
an objective standard leaves open the possibility of manufacturer
manipulation and is likely to lead to inconsistent labeling and
consumer confusion. By contrast, the Commission's processing safe
harbor avoids these concerns by referring to the existing Customs
standards as its fixed, external measure.
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\209\ Thus, one manufacturer may divide the production of its
product into three steps: a, b, and c, and performing steps a and b
in the U.S., determine that it has performed a majority of the
processing in the U.S. At the same time, a second manufacturer,
engaged in the production of the same product, but that does not
perform steps a and b in the United States, may choose to view ``c''
as itself three steps (c, d, and e), for a total of five steps. If
this second manufacturer performs steps c, d, and e in the United
States, then it, too, presumably, has performed a majority of
processing in the United States and can label its product ``Made in
USA.''
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In addition to providing guidance on the standard and safe harbors
for making unqualified U.S. origin claims, the guides also address
qualified U.S. origin claims (i.e., claims that indicate that the
product also contains foreign content or otherwise indicates that U.S.
content does not constitute substantially all of the product).
Marketers are free to make any qualified U.S. origin claim which is
truthful and substantiated, and the guides provide examples of
qualified claims that may be appropriate.
A number of commenters expressed doubts about the usefulness of
qualified claims and suggested that such claims were impractical and
likely to confuse consumers. The Commission disagrees with these
conclusions. Qualified claims permit marketers for whose products an
unqualified Made in USA claim would be deceptive to nonetheless inform
consumers about the U.S. content in their products. By the same token,
they allow consumers to receive such information and to distinguish
between goods that are manufactured entirely abroad and those that are
partially made in the United States. Marketers making efforts to use
U.S. inputs when available and practical may tout the U.S. content they
do use, and (at least in media allowing for lengthier discussion)
explain their efforts to consumers. Moreover, the limited data
available from the 1995 FTC Copy Test suggest that consumers viewing
qualified U.S. origin claims did not misinterpret such claims and, in
fact, had somewhat better recall of such claims than of unqualified
Made in USA claims.
The Commission recognizes commenters' further concern that space
limitations, in some instances, may pose problems for a marketer
wishing to include an appropriate qualification on a small label.
Qualifications, however, need not be lengthy; the guides provide
examples of short qualified claims, and the Commission is confident
that marketers will be able to develop others to meet this need.
The proposed guides also endeavor to address the situation faced by
marketers who may face conflicting marking requirements in the United
States and other countries. The guides build on a suggestion made by
certain commenters that the Commission allow a ``lesser mark'' to be
used where a product does not meet the standard for an unqualified
``Made in USA'' claim but has been substantially transformed in the
United States, so that the product may be marked uniformly for domestic
and foreign sale. Specifically, the guides propose to permit an
alternative label claim, ``Origin: USA,'' where a product has been
substantially transformed in the United States and is exported to a
country that requires that the product be marked with an indication of
U.S. origin. Thus, in certain circumstances, the guides would allow
marketers to use a single country-of-origin label for products sold
domestically and abroad. As explained further below, this provision is
intended primarily to apply to business-to-business transactions where
there is less risk of deception. Nonetheless the provision does permit
an ``Origin: USA'' label to be used in connection with the sale of
consumer products, where appropriate actions are undertaken to assure
that qualifying information is presented to U.S. consumers.
VI. Section-by-Section Analysis
Section I: Statement of Purpose
Section I of the guides explains that the purpose of the guides is
to provide guidance to industry and the public as to how the Commission
is likely to interpret Section 5 of the FTC Act as it applies to U.S.
origin claims, so that they may conform their practices with legal
requirements.
Section II: Scope of the Guides
Section II establishes that the guides apply to U.S. origin claims
in whatever marketing media they may appear and whether they are
conveyed through words, depictions or other means. This section also
indicates that the proposed guides apply to claims for any product sold
in the United States, whether for personal or commercial use, with
certain, specified exceptions.
Section III: Structure of the Guides
Section III describes the structure of the guides and advises that
claims may raise issues that are addressed under more than one section
of the guides.
Section IV: Review Procedure
As part of its efforts to ensure that its policies continue to be
relevant and appropriate, the Commission ordinarily reviews each of its
rules and guides at least once every ten years. The Commission proposes
to review these guides after five years. The Commission believes that a
shorter time frame for review is appropriate here to assess the
practical application of newly introduced guides. In addition, at that
time, the Commission may assess the relevance of any changes in other
marking requirements, including any standards adopted pursuant to the
recommendations of the World Trade Organization. This section also
provides that parties may petition the Commission at any time to alter
or amend these guides based on new evidence related to consumer
interpretation of U.S. origin claims or significant, relevant changes
to U.S. or international country-of-origin marking requirements.
Section V: Definitions
Most of the definitions set forth here are self-explanatory. Some
that may not be are the definitions related to manufacturing costs, and
these are discussed below, in the analysis of Section VIII. ``U.S.
origin claim'' is defined broadly to mean any claim, express or
implied, that any product originates, in whole or in part, in the
United States, and encompasses both unqualified and qualified claims.
Section VI: Interpretation and Substantiation of U.S. Origin Claims
This section sets out the basic legal framework for the
Commission's evaluation of advertising and labeling claims. It states
the general principle that a claim will be found deceptive under
Section 5 of the FTC Act if it is likely to mislead consumers acting
reasonably under the circumstances and is material. The provision also
notes that a U.S. origin claim may be either express or implied; the
accompanying Example 1 describes a situation in which an advertisement,
through a combination of words and depictions, is likely to convey a
U.S. origin claim even though it contains no express statement that the
product at issue is ``Made in USA.''
In addition, Section VI describes the long-standing requirement
that a marketer making an objective product
[[Page 25043]]
claim must, at the time it makes the claim, have a reasonable basis
substantiating the claim and that the reasonable basis consist of
competent and reliable evidence. This section further notes that where
a marketer's substantiation for its U.S. origin claims is based on an
assessment of U.S. costs, that the requirement of ``competent and
reliable evidence'' does not necessarily mandate that a particular
formula be used to calculate U.S. costs, but that it generally will
require that whatever calculation is used, it be based on generally
accepted accounting principles.
Section VII: Requirements of Other Agencies
The proposed guides do not preempt, alter, or exempt a marketer
from the requirements of any other marking statute or regulation. Thus,
marketers must continue to follow the marking requirements administered
by other government agencies, e.g., the Tariff Act and the American
Automobile Labeling Act.
Subsection A is directed to those instances in which the Customs
Service, pursuant to the Tariff Act, requires that a product be marked
with a foreign country of origin, and discusses how this requirement
affects the analysis of whether, and in what manner, a U.S. origin
claim may be made for the product. Because the Tariff Act requires
markings on articles or their containers, but does not govern claims in
advertising or other promotional material, these two types of media are
discussed separately.
On a product label--i.e., on an article or its container--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.210 Thus, for example, under
Customs regulations, a product may be properly marked ``Made in
Switzerland, finished in U.S.'' or ``Made in France with U.S. and
French parts,'' but it may not simply be labeled ``Finished in U.S.''
if it is deemed to be of foreign origin. The proposed guides admonish
marketers to comply with the Customs Service's requirements on this
issue, regardless of whether the proposed guides would otherwise permit
a U.S. origin claim.211 Furthermore, the proposed guides
note that the failure to clearly and prominently disclose the foreign
manufacture of the article in conjunction with the U.S. origin claim
may, in some circumstances, constitute a deceptive act or practice
under Section 5 of the FTC Act, because of its potential to mislead
consumers, as well as a violation of Customs law.
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\210\ 19 CFR 134.46.
\211\ The Commission has provided similar admonitions in other
situations where a guide is closely related to other statutes or
regulations. See Guides for the Jewelry, Precious Metals, and Pewter
Industries, 61 FR 27214, 27214 (1996) (to be codified at 16 CFR
24.4).
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In advertising or other promotional material, there is no Customs
requirement that foreign origin be indicated. Nonetheless, in
situations where the Customs Service requires that the product itself
be marked with a foreign country of origin, the Commission believes
that in many instances it may be confusing and deceptive to consumers
to make a U.S. origin claim for that same product in an advertisement
(even if the U.S. origin claim would otherwise be permitted by the
proposed guides) without disclosing the foreign manufacture of the
product. Thus, the proposed guides would deem deceptive any unqualified
U.S. origin claim made in advertising or other promotional material for
a product that is required to be marked with a foreign country of
origin under the Tariff Act (that is, notwithstanding any other
provision in the proposed guides, a marketer should not advertise a
product as ``Made in USA'' if the product is required to be labeled by
Customs as, for example, ``Made in Japan'').212
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\212\ Of Course, marketers required to label their products with
a foreign country origin would generally not be able to meet either
of the safe harbors for unqualified claims set forth in the guides,
as both require that a product undergo its last substantial
transformation in the United States. Moreover, because consumers
perceive an unqualified ``Made in USA'' representation as a claim of
substantial U.S. content, that claim is unlikely in any event to be
substantiated where the product has undergone sufficient processing
in a foreign country that it must be marked, according to Customs
law, with its foreign origin.
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The proposed guides and accompanying examples further encourage
marketers to disclose foreign manufacture (where the product requires a
foreign origin label) in conjunction with even qualified or limited
U.S. origin claims so as to avoid potential deception. A consumer who
sees an advertisement promoting a product as ``Finished in U.S.'' may
well feel misled if he or she then goes to purchase the product and
finds the product labeled ``Made in Switzerland,'' and depending on the
context and consumer perception, the ``Finished in U.S.'' claim may be
deceptive. Therefore, the Commission believes that the better practice,
where a foreign-origin marking is required by Customs, is to qualify
the U.S. origin claim with a disclosure of foreign manufacture. Such a
disclosure, made in close proximity to the U.S. origin claim (as would
be required by the Customs Service on the product label), is most
likely to make clear the limitations on the U.S. origin claim, and the
proposed guides indicate that claims so qualified are unlikely to be
considered deceptive.213
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\213\ Although it is possible to read the statement ``Finished
in U.S.'' in an advertisement in a manner not inconsistent with the
statement ``Made in Switzerland'' on a package label, the fact that
the statements are intended to be read as complementary, rather than
contradictory, is more readily apparent when the statements appear
in conjunction with one another. Otherwise, consumers may take a
broader message from the ``Finished in U.S.'' representation, and
the marketer may not be able to substantiate that broader claim.
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The Commission recognizes, however, that it may be possible to make
a U.S. origin claim 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. As discussed more generally below in the explanation of
Section X of the proposed guides (which addresses U.S. origin claims
for specific products and parts), 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.214 Marketers who wish to make U.S. origin
claims in advertising or other promotional materials for products that
are required by Customs to be marked with a foreign country of origin
without an express disclosure of foreign manufacture 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 material
implied, as well express, claims that consumers acting reasonably in
the circumstances take from representations.215
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\214\ Even if not understood as conveying an unqualified U.S.
origin claim, a claim about the U.S. origin of specific processes or
parts may nonetheless convey a claim sufficiently broad that it
would be perceived by consumers as contradicting a foreign origin
label and/or as implying more U.S. content than might typically be
found in a product substantially transformed abroad.
\215\ The information provided here is intended to guide
marketers in making qualified claims as described in Section IX, and
claims about specific processes or parts, as described in Section X.
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[[Page 25044]]
Subsection B is concerned with the American Automobile Labeling Act
(AALA). The AALA requires that all new passenger vehicles bear a label
that contains certain information about the vehicle's country of
origin, including, among other things, the percentage of U.S. and
Canadian parts and the place of final assembly. This provision makes
clear that nothing in the guides is intended to alter these
requirements in any way. Furthermore, to ensure that there are not
conflicting standards for automobiles in labeling and in advertising,
this subsection provides that nothing in the guides prohibits a
marketer from making any representation, in advertising or elsewhere,
that is required in labeling by the AALA or its implementing
regulations.
Section VIII Unqualified U.S. Origin Claims
Section VIII constitutes the heart of the guides. It provides that
a marketer may make an unqualified U.S. origin claim only if it has a
reasonable basis that substantiates that the product is substantially
all made in the United States. The provision then sets out two
alternative safe harbors for marketers seeking guidance on what
constitutes a reasonable basis that a product is substantially all made
in the United States. Specifically, the guides provide that an
unqualified U.S. origin claim will not be considered deceptive if the
marketer possesses competent and reliable evidence either that the
product contains 75% U.S. content (i.e., U.S. manufacturing costs
constitute 75% of the total manufacturing costs of the product) and was
last substantially transformed in the United States (subsection A); or
that the product has undergone two levels of substantial transformation
in the United States (i.e., that the final product was last
substantially transformed in the United States and that all of the
significant inputs into the final product were last substantially
transformed in the United States). The Commission solicits comment on
whether or not compliance with each of the proposed safe harbors is
likely to ensure that a product promoted as ``Made in USA'' will be
substantially all made in the United States.
In calculating 75% content, the guides provide that manufacturing
costs shall include all manufacturing materials, direct manufacturing
labor, and manufacturing overhead. Although commenters suggested a wide
variety of formulas for calculating manufacturing costs, the Commission
believes that this definition best captures those costs reasonably
related to the actual manufacture of a product. The Commission has
decided not to itemize each of the specific costs that may be included
or excluded in this calculation. Instead, the guides indicate that a
marketer may take into account those costs included in its finished-
goods inventory cost or in its cost of goods sold, as those terms are
used in accordance with generally accepted accounting principles. The
Commission understands finished-goods inventory cost and cost of goods
sold to be widely used accounting terms that are presumably calculated
by all manufacturers in the course of their ordinary business; the
Commission therefore expects that reliance on these terms is unlikely
to pose significant definitional problems for marketers.216
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\216\ It was suggested by a number of commenters, including the
Ad Hoc Group, that marketers be able to exclude the cost of natural
resources not indigenous to the United States from their calculation
of total manufacturing costs. The Commission has concluded, however,
that such an exclusion is likely to provide little benefit to
marketers beyond that inherent in the 75% U.S. content safe harbor,
as, in many instances, natural resources are unlikely to represent a
large share of the finished product's cost and are likely to be far
removed in the manufacturing process from the finished product.
Moreover, adoption of such an exclusion would likely raise a number
of further enforcement questions: for example, whether or not a
natural resource that is found in the United States, but only in
small amounts that are insufficient to meet industry demand, would
be considered nonindigenous.
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Subsection VIII.A also provides that, in computing manufacturing
costs, 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. The Commission has thus rejected,
for purposes of this safe harbor, a strict ``one-step back'' analysis.
While such an approach has a facial simplicity that may provide some
practical benefits, the Commission has concluded that a strict one-step
back approach is likely to lead to inconsistent and unpredictable
results, as well as the potential for significant consumer deception.
Commenters appear to have understood what constitutes a ``step'' in
different ways. To some, ``one-step back'' is considered to refer to
those inputs that the manufacturer of a final product has purchased
from an outside supplier. If one accepts such a definition, however,
then what constitutes a ``step'' depends on the degree of vertical
integration of the final manufacturer. For example, consider a scenario
involving the manufacture of a computer. In each case, final assembly
of the computer takes place in the United States, as does assembly of
the motherboard that is part of the computer. However, assume that in
both instances, the microchips that make up the motherboard and
presumably constitute much of its value are manufactured abroad. In the
first scenario, the computer manufacturer buys completed motherboards
from an outside domestic supplier. Under a one-step back analysis, this
computer manufacturer, in calculating whether it met the 75% U.S.
content safe harbor, would be permitted to treat the entire value of
the motherboard as U.S. content. By contrast, in the second scenario,
the computer manufacturer buys the foreign-made chips directly and
assembles them into motherboards as part of its own in-house
manufacturing process. When this second manufacturer looks back one-
step to an outside supplier, it reaches the foreign-made chips and so
must include the value of these foreign parts in its calculations.
Thus, despite the fact that the inputs manufactured in the U.S. and
abroad are identical in both cases, under a strict one-step back
approach, the first manufacturer (depending on the extent of its other
U.S.-made inputs) may be able to label its computer ``Made in USA,''
while the second may not. Such an outcome provides an unfair advantage
to the first manufacturer and is almost certain to mislead consumers
comparing the country-of-origin labels on the otherwise identical
products.
An alternative approach, to avoid the inconsistent results
described above, is to define a ``step'' in a fixed way that would not
vary with who performed it. Thus, to continue with the computer example
described above, one could simply define a step back in the manufacture
of the computer to be the motherboard or the chips. Unfortunately,
there does not appear to be an obvious, objective basis for determining
which of these should constitute a ``step''--or whether, alternatively,
one step back in this process should be viewed only as reaching the
system unit subassembly that includes the motherboard and disk drives.
The only way to ensure that manufacturers defined steps in similar ways
would seem to be to issue product-by-product rulings as to what would
be considered a step back in the manufacturing process.217
The Commission believes that the considerable costs of such far-
reaching
[[Page 25045]]
regulation is likely to greatly exceed any benefit gained thereby.
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\217\ Indeed, this was done for textile products under
regulations issued by the Commission. 16 CFR 303.33. However, unlike
other manufacturing, textile production is generally composed of a
few discrete steps, e.g., fiber to yarn to cloth to finished
product.
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The Commission has concluded that the better approach is to focus
on where the value of the product lies. Thus, the proposed guides do
not attempt to draw a bright line, but instead ask marketers to look
back far enough to account for any significant foreign content. When
using U.S.-supplied inputs with nontrivial value that the marketer
would reasonably know to be made up of components, parts or materials
that themselves are likely to be of significant value, the marketer
should inquire of its supplier or, where appropriate, look further back
in its own manufacturing process as to the U.S. content of that input.
Thus, as set out in Example 4 in this section of the proposed guides,
the computer manufacturer would presumably know that a significant
portion of the motherboard's value lies in the microchips. In
calculating the U.S. content of its computer, the manufacturer should
therefore not treat the motherboard as if it were 100% U.S. content,
but rather should ask the motherboard manufacturer what the U.S.
content of the motherboard is. To do otherwise would allow the marketer
to overlook potentially significant foreign value.
Nonetheless, while rejecting a strict one-step back test, the
Commission expects that, in many cases (particularly those involving a
simple product or where most of the processing is done by the final
manufacturer), marketers will in fact need to look back no more than
one step (i.e., to the immediate inputs into the final product) in
calculating U.S. content and that in the remaining cases, a marketer
would ordinarily need look no further than two steps back (i.e., to the
makeup of immediate inputs). Moreover, in practical terms, whether a
marketer looks one or two steps back, it is expected that the marketer
will have to communicate only with its immediate suppliers. In ensuring
that it has a reasonable basis to substantiate that its product meets
this safe harbor, a marketer may rely on the information provided by
the immediate suppliers as to the U.S. content of the inputs supplied;
unless the marketer has reason to believe its immediate suppliers'
representations are false, it need not undertake an independent
investigation or contact suppliers/manufacturers further back in the
chain of production.
Finally, the 75% U.S. content safe harbor requires that a product
undergo its last substantial transformation in the United States. This
requirement reflects the importance consumers appear to attach to the
site of final assembly in evaluating the appropriateness of a ``Made in
USA'' label. Substantial transformation (or an equivalent concept
reflecting final, significant processing in the United States) was also
a component of virtually all the proposals advanced.
For purposes of both the 75% U.S. content safe harbor and the ``two
levels of substantial transformation'' safe harbor set out at
subsection VIII.B., the guides define ``substantial transformation'' to
encompass both the Customs Service's case-by-case rulings and the
enumerated shifts in tariff classification set forth in the NAFTA
marking rules. Thus, in determining whether a final product (and, under
the two levels of substantial transformation safe harbor, each of that
product's significant inputs) was last substantially transformed in the
United States, a marketer may refer to either of these standards, as it
chooses.218
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\218\ Marketers are reminded, however, that they may not make an
unqualified U.S. origin claim for any product which the U.S. Customs
Service requires to be labeled with a foreign country of origin
without running afoul of Section VII.A. of the proposed guides as
well as U.S. Customs Service regulations.
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With respect to the ``two levels of substantial transformation''
safe harbor, Example 3 in subsection VIII.B. of the guides makes clear
that where a product, such as a compact disk, is not comprised of
traditional ``parts,'' a marketer may look to whether the product as a
whole has undergone its last two substantial transformations in the
United States.
Section IX: Qualified U.S. Origin Claims
Where a marketer is unable to make an unqualified U.S. origin claim
for its product, the marketer may still communicate to consumers that
the product contains U.S. content through the use of appropriately
qualified claims. Section IX provides a number of examples of possible
qualified claims. These range from the general (indicating simply the
existence of foreign content, e.g., ``Made in USA of U.S. and imported
parts) to the specific (indicating the percent of U.S. content, which
parts are imported, or the particular foreign country from which the
parts come). The examples further include short qualified claims that
may be useful on labels, as well as more complete explanations that may
be more appropriate in advertising or other media. As indicated in the
proposed guides, these examples are not intended to be exhaustive: a
marketer may make any qualified claim for which it possesses adequate
substantiation. Section IX further provides that, to the extent
qualifications are necessary to ensure that a claim is not deceptive,
those qualifications must be clear, prominent, and understandable.
Section X: U.S. Origin Claims for Specific Processes and Parts
The Commission recognizes that there may be U.S. origin claims,
while not specifically referring to foreign parts or processing, that
are specific enough so as to convey to consumers only a limited claim
that a particular process is performed in the United States or that a
particular part is manufactured in the United States and that do not
convey a general claim of U.S. origin. Section X provides that
marketers may use such claims--that a product, for example is
``designed'' or ``painted'' or ``written'' in the United States or that
a particular part or component is produced in the United States--
without further qualification as long as the claim is truthful and
substantiated. This provision further distinguishes claims about
specific processes from general or indefinite claims such as
``created,'' ``produced,'' or ``manufactured'' in USA, which are likely
to be viewed as synonymous with ``Made in USA.''
Example 3 indicates that ``Assembled in USA'' will be understood
not as a claim about a specific process but rather as a general claim
of U.S. origin, equivalent to a ``Made in USA'' designation. It
therefore should be qualified to indicate the presence of foreign
content if used to describe a product that is not substantially all
made in the United States. It is the Commission's tentative conclusion
that ``Assembled in USA'' does not convey a sufficiently specific and
limited meaning to consumers so as not to require further
qualification. ``Assembly'' potentially describes a wide range of
processes, from simple, ``screwdriver'' operations at the very end of
the manufacturing process to the construction of a complex, finished
item from basic materials. Consumers may thus be confused or misled by
this term or may simply take from it an unqualified ``Made in USA''
claim. 219
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\219\ The Commission has before it only limited empirical
evidence on consumer understanding of ``assembled'' claims and this
evidence appears to be inconclusive. In the 1995 FTC Copy Test, for
example, 30% of respondents asked an open-ended question about what
an ``Assembled in USA'' claim meant, responded that the product was
made in the United States with some foreign parts; on the other
hand, 18% of respondents said that claim meant that the product was
made in USA.
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The Commission solicits 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
[[Page 25046]]
``Assembled in USA'' without further qualification. If so, under what
circumstances should an unqualified ``Assembled in USA'' claim be
permitted, i.e., what processing must a product undergo in the United
States to support this claim?
In addition, Examples 6-8 present circumstances in which a U.S.
origin claim about a specific process or part may be literally true but
may nonetheless convey a more general U.S. origin claim, because of the
manner in which the claim is presented or the context in which it
appears. Example 8, in particular, provides a scenario in which
advertising embellishments may serve to convey a meaning beyond that of
the literal words.
Section XI: Comparative Claims
This section provides that claims of U.S. origin that contain a
comparative statement (e.g., ``More U.S. content than our competitor'')
may be made as long as such claims are truthful and substantiated.
Through the text and accompanying examples, this provision advises
marketers that such comparative claims should be presented in a manner
that makes the basis for comparison clear, should not be used to
exaggerate the U.S. content of a product, and should be based on a
meaningful difference in U.S. content between the compared products.
Example 1 further indicates that appropriate comparative claims may be
used even where use of an unqualified U.S. origin claim is likely to be
deceptive. On the other hand, Example 3 indicates that a comparative
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.
Section XII: Miscellaneous Issues
This provision addresses several practical issues in applying these
guides.
A. Multiple Sourcing
This provision is directed at an issue that may arise in
calculating the percentage of U.S. content in the product. In the
course of producing a product a manufacturer may obtain an input from
multiple sources, some in the United States and some abroad. The
Commission recognizes that it would place a considerable burden on
manufacturers to trace which specific inputs went into each finished
product and to individually label each of those finished products
accordingly. Thus, this subsection provides that a manufacturer may use
the average U.S. cost of an input over a reasonable period of time in
its assessment of U.S. content, and may label all of the finished units
with a uniform origin label based on this assessment.
B. Price Fluctuations
This provision is also directed at the calculation of the
percentage of U.S. content in a product. The Commission recognizes that
the price of inputs may vary frequently (if not constantly) over time
and this may affect a marketer's assessment of U.S. costs. This
subsection addresses this issue by providing that a marketer may, at
its option, use either the average price of the input over a fixed
period of time or the price of all of the inputs on a particular date,
where those prices are updated on a regularly scheduled basis.
C. Multiple-Item Sets
This provision addresses the situation where a marketer is selling
a set of several discrete items, some of which are domestically
produced and some of which are produced abroad, and the packaging
together of the discrete items does not constitute a substantial
transformation of those items. The provision indicates that it is
likely to be deceptive to make an unqualified U.S. origin claim for
such a set of items and further advises marketers that when making
qualified claims for such a set, they should make clear to which items
the U.S. origin claim refers. In addition, this provision notes that
Customs rules require that each of the foreign-made items or the
container bear an appropriate country-of-origin marking, and marketers
are reminded that, in marking the items or their container, they must
follow Customs requirements.
Section XIII: ``Origin: USA'' Labels
As noted above, in certain instances, a foreign country (most often
applying a form of substantial transformation) 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, under the proposed
guides, be permitted to bear an unqualified U.S. origin claim when sold
in the United States. This provision establishes a specific designation
of U.S. origin--``Origin: USA''--that may be used, in certain, limited
circumstances, to uniformly label such products for sale in both the
United States and abroad. 220
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\220\ Phrasing similar to ``Origin: USA'' was suggested by EIA,
#193 at 13. Other terms for a ``lesser mark,'' including ``Country
of Origin: USA'' and ``Product of the U.S.'' were suggested by 3M,
the International Mass Retail Association, and the Joint Industry
Group. 3M, #198, at 2; IMRA, #184, at 6-8; JIG, #196, at 4. The
Commission, however, believes that ``Origin: USA'' is somewhat less
likely to be confused by consumers with the more familiar ``Made in
USA'' designation than are these alternative terms.
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The proposed guides would permit marketers to use an ``Origin:
USA'' label on any product sold in the United States that is not
required to be marked with a foreign country of origin under Customs
rules, provided that the product is also exported to a country that
requires that it be labeled with an indication of U.S. origin, and the
label used is no more prominent than necessary to meet the requirements
of the country to which it is being exported. For non-consumer products
(i.e., for products sold to businesses for commercial or industrial
use), no further requirements need be met.
Because consumers may potentially be misled by an ``Origin: USA''
label and confuse it with a ``Made in USA'' claim, however, the
proposed guides provide that consumer products (i.e., products sold to
consumers for personal, family or household use) may only be marked
with an ``Origin: USA'' label if they also disclose to consumers,
through other means, the existence of any substantial foreign content.
221 In order to accommodate the problems faced by those
selling in multiple countries, this provision contemplates additional
flexibility in disclosures in this circumstance. Thus, Section XIII
provides that disclosures made to consumers may be made through
appropriately qualified claims on packaging, stickers or hangtags
visible to consumers prior to purchase and need not be made on the
label itself.
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\221\ Competitors who do not sell their product in a country
that requires U.S. marking and so cannot use an ``Origin: USA''
designation may also be placed at a competitive disadvantage without
further qualifications to consumers.
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The Commission solicits comments on the proposed establishment of a
``lesser mark'' of ``Origin: USA.'' Specifically, the Commission
requests comment on whether such a mark is likely to be of significant
utility to those selling goods in more than one country; whether
``Origin: USA'' in particular is likely to be an acceptable marking to
foreign Customs officials; whether the distinction between consumer
goods and goods sold to businesses for commercial use is an appropriate
one; the extent of any burden the additional requirements for
disclosures on consumer goods imposes on marketers (and whether the
flexibility of using means of disclosure such as hangtags that need not
be permanently affixed at the time of manufacture mitigates these
burdens); and whether the additional requirements for disclosures on
[[Page 25047]]
consumer goods are sufficient to prevent consumer deception.
VII. Goods With No Country of Origin Marking--Rebuttable
Presumption
As part of its review of U.S. origin claims, the Commission has
taken the opportunity to re-examine its approach to products that do
not bear any country-of-origin marking. Historically, the Commission
has employed a rebuttable presumption that goods that were not labeled
with any country of origin would be understood by consumers to be made
in the United States. As a result, the Commission required that foreign
origin be disclosed if unmarked goods contained a significant amount of
foreign content. In its April 26, 1996 Federal Register notice, the
Commission sought comment as to whether or not this presumption
continued to be valid. Only three commenters addressed this issue. BMA
stated that consumer perception of the origin of unlabeled products
varies among product categories, depending largely upon the extent to
which foreign-made products are present in a particular
market.222 The UAW suggested that the absence of any
indication that there could be substantial foreign content in unmarked
products could, at least to some degree, mislead
consumers.223 Finally, Watch Producers asserted that the
buying public is no longer likely to believe that a product with no
origin designation was made in the United States because of public
awareness of such developments as the decline in domestic production in
many industries and the presence of foreign-owned manufacturing
facilities in the United States.224
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\222\ BMA, #195, at 8-9.
\223\ UAW, #174, at 4.
\224\ Watch Producers, #192, at 8-9.
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Based on the facts, well-documented in many of the comments
received in connection with this review, 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 concludes that it is no
longer 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. Thus,
the Commission has determined to cease using its traditional
presumption. Instead, the Commission will 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. Cf. El Portal
Luggage, Inc., FTC No. C-3499 (1994) (consent agreement involving
alleged removal of foreign origin labels on luggage in store featuring
prominent ``Made in USA'' signs).
VIII. Request for Comment
Interested parties are invited to submit comments on the proposed
Guides for the Use of U.S. Origin Claims. Commenters are welcome to
submit comments on any aspect of the proposed guides, but are requested
to avoid merely resubmitting views or information submitted in response
to the Commission's earlier requests for public comment in this matter.
All written comments submitted will be available for public
inspection in accordance with the Freedom of Information Act, 5 U.S.C.
552, and Commission regulations, on normal business days between the
hours of 8:30 a.m. to 5:00 p.m. at the Public Reference Room, Room 130,
Federal Trade Commission, 6th and Pennsylvania Ave., NW., Washington,
DC 20580.
In addition, the Commission will make this notice and, to the
extent technically possible, all comments received in response to this
notice available to the public through the Commission's Home Page on
the World Wide Web (http://www.ftc.gov.). At this time, the FTC cannot
receive comments made in response to this notice over the Internet.
IX. Text of Proposed Guides
Guides for the Use of U.S. Origin Claims
I. Statement of Purpose
These guides represent administrative interpretations of laws
administered by the Federal Trade Commission for the guidance of the
public in conducting its affairs in conformity with legal requirements.
They provide the basis for voluntary compliance with such laws by
members of industry. These guides specifically address the application
of Section 5 of the Federal Trade Commission Act (``FTC Act''), 15
U.S.C. 45, to U.S. origin claims in advertising and labeling.
Because the guides are not legislative rules under Section 18 of
the FTC Act, they are not themselves enforceable regulations, nor do
they have the force and effect of law. Conduct inconsistent with the
positions articulated in these guides may, however, result in
corrective action by the Commission under Section 5 of the FTC Act if,
after investigation, the Commission has reason to believe that the
behavior falls within the scope of conduct declared unlawful by the
statute.
II. Scope of the Guides
These guides apply to U.S. origin claims included in labeling,
advertising, promotional materials and all other forms of marketing,
whether asserted directly or by implication, through words, symbols,
emblems, logos, depictions, trade names, or through any other means.
The guides apply to any claims about the U.S. origin of a product in
connection with the sale, offering for sale, or marketing of such
product in the United States for personal, family, or household use,
or, except as provided, for commercial, institutional or industrial
use. These guides, however, do not apply to claims made for any product
subject to the country-of-origin labeling requirements of the Textile
Fiber Products Identification Act (15 U.S.C. 70), the Wool Products
Labeling Act (15 U.S.C. 68), or the Fur Products Labeling Act (15
U.S.C. 69).
These guides do not preempt regulation of other federal agencies or
of state and local bodies governing the use of U.S. origin claims.
Compliance with other federal, state or local laws and regulations
concerning such claims, however, will not necessarily preclude
Commission law enforcement action under Section 5 of the FTC Act.
III. Structure of the Guides
The guides are composed of a series of guiding principles on the
use of U.S. origin claims. These guiding principles are followed by
examples that generally address a single deception concern. A given
claim may raise issues that are addressed under more than one example
and in more than one section of the guides.
IV. Review Procedure
Five years after the date of final adoption of these guides, the
Commission will seek public comment on whether and how the guides need
to be modified in light of ensuing developments. Parties may petition
the Commission to alter or revise these guides based on substantial new
evidence regarding consumer interpretation of U.S. origin claims or
significant, relevant changes in United States or international
country-of-origin marking requirements. Following review of such a
petition, the Commission will take such action as it deems appropriate.
[[Page 25048]]
V. Definitions
For the purposes of these guides:
(a) Commission means the Federal Trade Commission.
(b) Consumer product means any product sold or offered for sale to
consumers for personal, family, or household use. It excludes products
sold to businesses that are for commercial, industrial or institutional
use and that are not intended for resale to consumers.
(c) Foreign content means the portion of a product that is not
attributable to U.S. costs.
(d) Input means any item, including but not limited to a
subassembly, component, part or material, that is part of, and is made
or assembled into, a finished product.
(e) Marketer means any individual, partnership, corporation,
organization, or other entity that makes a U.S. origin claim in
advertising, labeling, promotional materials, or in any other form of
marketing.
(f) Substantial transformation means a manufacturing process which
results in an article's having a new name, character, and use different
from that which existed prior to the processing. For purposes of these
guides, a good will be considered to have been substantially
transformed if (1) it would be considered to be substantially
transformed under 19 CFR 134 and the rulings of the U.S. Customs
Service and decisions of the United States courts issued pursuant
thereto; or (2) it undergoes an applicable change in tariff
classification and/or satisfies other applicable requirements set out
in the NAFTA marking rules, 19 CFR 102.
(g) Tariff Act means the Tariff Act of 1930, as amended, including
but not limited to 19 U.S.C. Sec. 1304, and all regulations and
administrative rulings issued pursuant thereto.
(h) Total cost(s) or total manufacturing cost(s) means the total
cost of all manufacturing materials, direct manufacturing labor, and
manufacturing overhead, whether U.S. or foreign. Generally, total cost
will be equivalent to finished-goods inventory cost or the cost of
goods sold, as those terms are used in accordance with generally
accepted accounting principles.
(i) U.S. content means the portion of a product that is
attributable to U.S. costs.
(j) U.S. cost(s) or U.S. manufacturing cost(s) means those costs
attributable to U.S. manufacturing materials, U.S. direct manufacturing
labor and U.S. manufacturing overhead.
(k) U.S. origin claim means any claim, whether express or implied,
that a product is made, manufactured, produced, assembled or created,
or otherwise originates, in whole or in part, in the United States, or
that any work that contributes to the manufacture, production, assembly
or creation of the product is performed in the United States.
(l) United States means the several states, the District of
Columbia, and the territories and possessions of the United States.
VI. Interpretation and Substantiation of U.S. Origin Claims
A. Deception
Section 5 of the FTC Act makes unlawful deceptive acts and
practices in or affecting commerce. As set forth in the Commission's
Deception Policy Statement,1 a representation (or omission)
will be found deceptive under Section 5 if it is likely to mislead
consumers acting reasonably under the circumstances and is material. A
representation about U.S. origin may be made by either an express claim
(such as ``Made in USA'') or an implied claim. In identifying implied
claims, the Commission will focus 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. Marketers should be alert to the possibility that,
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. Indeed, absent
qualification, general implied claims of U.S. origin are likely to
convey that the product was substantially all made in the United
States, and care should be taken to ensure that any such representation
is not likely to be misleading. Further information concerning the
Commission's interpretation of claims is available in the Deception
Policy Statement.
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\1\ 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).
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B. Substantiation
A corollary to the principle of deception is the principle of
advertising substantiation. Any party making an express or implied
claim that presents an objective assertion about the U.S. origin of a
product must, at the time the claim is made, possess and rely upon a
reasonable basis substantiating the claim. A reasonable basis consists
of competent and reliable evidence. To the extent that a marketer's
substantiation for its U.S. origin claims is based on an assessment of
U.S. costs, there is no single prescribed method or formula for
performing this calculation. However, competent and reliable evidence
in such circumstances typically will be based on generally accepted
accounting principles. Further guidance on the reasonable basis
standard is set forth in the Commission's Policy Statement on the
Advertising Substantiation Doctrine.2 Because general
implied claims of U.S. origin are likely to be understood as
unqualified claims that the product was substantially all made in the
United States, marketers should possess appropriate substantiation
before making such representations.3 See Section VIII of
these guides.
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\2\ 49 FR 30,999 (1984); reprinted in Thompson Medical Co., 104
F.T.C. 648, appendix (1984).
\3\ Of course, representations that a product contains a
particular amount of U.S. content (e.g., ``U.S. content: 20%'' or
``Entirely Made in USA'') should be substantiated by competent and
reliable evidence that the product contains the represented amount
of U.S. content.
Example 1: 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.'' The advertisement is likely to convey an
unqualified U.S. origin claim to consumers. The company should be
able to substantiate such a claim or should include appropriate
qualifications or disclosures.
Example 2: A product is manufactured abroad by a prominent U.S.
company. The fact that the company is headquartered in the United
States is widely known. The company's advertisements for its
foreign-made product prominently feature its brand name. Assuming
that the brand name does not specifically denote U.S. origin (e.g.,
the brand name is not ``Made in America, Inc.''), the use of the
brand name, without more, does not constitute a U.S. origin claim.
VII. Other Statutory and Regulatory Requirements
Nothing in these guides should be construed as exempting any
product or marketer from the requirements of any other statute or
regulation bearing upon country-of-origin advertising or labeling, and
marketers should be mindful of such other requirements. The following
principles are intended to explain the interaction between these guides
and certain other laws, and to minimize potential conflicts.
[[Page 25049]]
A. Tariff Act
1. U.S. origin claims on an article or its container.
Notwithstanding any other provision in these guides, where an article
or its container is required to be marked with a foreign country of
origin pursuant to Section 304 of the Tariff Act, any U.S. origin claim
appearing on the article or its container should comport with the
requirements of the Tariff Act and its associated regulations.
Specifically, the U.S. Customs Service has issued regulations
requiring, in pertinent part, 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, 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. 4
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\4\ 19 CFR 134.46.
In addition, where an article is deemed to be of foreign origin for
marking purposes under the Tariff Act, making a U.S. origin claim on
the article or its container, or making such a claim without clearly
and prominently disclosing the foreign manufacture of the article, may,
in some circumstances, constitute a deceptive act or practice under
Section 5 of the FTC Act.
2. U.S. origin claims other than on an article or its container.
The Tariff Act does not address foreign origin marking other than on an
article or its container. Where the Tariff Act requires that an article
or its container be marked with a foreign country of origin, U.S.
origin claims about the article in advertising or through other means
may confuse and mislead consumers. Therefore, notwithstanding any other
provision of these guides, marketers should not make unqualified U.S.
origin claims in advertising or other promotional materials for
products that are required by the Tariff Act to be marked with a
foreign country of origin. Furthermore, to avoid potential consumer
deception, marketers should consider qualifying any U.S. origin claim
(including U.S. origin claims for specific processes or parts) made in
advertising or other promotional materials for such a product so as to
disclose clearly the foreign manufacture of the article; claims so
qualified are unlikely to be considered deceptive.
Example 1: A ceramic figurine is fabricated in Kenya and then
painted and glazed in the United States. The figurine is packaged in
a clear, plastic box for sale. The Customs Service, pursuant to the
Tariff Act, requires that the figurine be marked ``Made in Kenya,''
and a label to this effect appears on the bottom of the figurine.
Affixed to the top of the box is a large sticker that says ``Painted
in USA.'' The statement on the sticker would likely not be permitted
by the U.S. Customs Service because it fails to include in close
proximity to the statement concerning U.S. origin the name of the
country of origin preceded by ``Made in'' or a similar formulation
as required by U.S. Customs regulations. A single statement that the
figurine was ``Made in Kenya, painted in the U.S.'' would likely be
permitted by U.S. Customs and is unlikely to be deceptive under
Section 5 of the FTC Act.
Example 2: A piano is constructed in Australia using some U.S.
and some non-U.S. parts. The piano is then shipped to the United
States, where it undergoes some simple, final assembly and gets a
final coat of lacquer. Under the Tariff Act, the piano is required
to be marked ``Made in Australia.'' An advertisement for the piano
includes the statement ``Made in USA of U.S. and imported parts.''
The statement in the advertisement is likely to convey a meaning to
consumers that contradicts the meaning conveyed by the required
foreign origin statement on the label, and is therefore likely to be
deceptive.
Example 3: A television set assembled in Korea using a U.S.-made
picture tube is shipped to the United States. Under the Tariff Act,
the television set must be marked ``Made in Korea.'' A pamphlet
distributed by the company that makes the television set states
``Although our televisions are assembled abroad, they always contain
U.S.-made picture tubes.'' This statement would likely not be
deceptive. However, a representation in an advertisement or
promotional pamphlet that ``All our picture tubes are Made in the
USA'' (without any disclosure of foreign manufacture) might,
depending on the context, convey a broader implied claim than could
be substantiated in light of the significant foreign processing that
triggers the foreign origin marking requirement under the Tariff
Act.
B. American Automobile Labeling Act
Nothing in these guides affects or alters a marketer's obligation
to comply with the requirements of the American Automobile Labeling Act
(49 U.S.C. 32304) or any regulations promulgated pursuant thereto, nor
does anything in these guides prohibit a marketer from making any
representation in advertising or other promotional material for any
passenger motor vehicle that is required in labeling for that passenger
motor vehicle by this Act or its associated regulations.
VIII. Unqualified U.S. Origin Claims
Except as provided in Section XIII, below, a marketer making an
unqualified U.S. origin claim should, at the time it makes the claim,
possess and rely upon a reasonable basis that substantiates that the
product is substantially all made in the United States.
Provided, however, that it will not be considered a deceptive
practice for a marketer to make an unqualified U.S. origin claim if the
marketer meets the conditions set out in either Paragraph A or B,
below.
A. 75 percent U.S. Content
At the time it makes the claim, the marketer possesses and relies
upon competent and reliable evidence that: (1) U.S. manufacturing costs
constitute 75% of the total manufacturing costs for the product; and
(2) the product was last substantially transformed in the United
States.
In computing U.S. or total manufacturing costs, the 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. For simple products, or for products that undergo most of
their processing by the final manufacturer, the marketer may, in many
cases, have to look only ``one step back,'' i.e., the marketer may look
only at the immediate inputs into the finished product, and for those
inputs that undergo their last significant manufacturing step in the
United States, the marketer may count 100% of their cost as U.S. costs.
For more complex products, the marketer may, for some of its inputs,
have to look further back, i.e., the marketer may need to consider the
amount of U.S. and foreign content in the inputs themselves.
Example 1: 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, however, is bought from a supplier. The
engine's cost constitutes 50% of the total cost of producing the
lawn mower, while the manufacture of the other parts and final
assembly costs constitute the other 50% of the total. The engine is
manufactured in a U.S. plant from U.S. and imported parts; U.S.
manufacturing costs constitute 60% of the engine's total cost. Thus,
U.S. costs constitute 80% of the total cost of manufacturing the
product (50% [U.S. cost of final assembly and other parts] + (60% x
50%) [U.S. cost of engine]). Because U.S. manufacturing costs exceed
75% of total manufacturing costs and the last substantial
transformation of the product took place in the United States, a
claim that the lawnmower is ``Made in USA'' would likely not be
deceptive.
Example 2: A toaster is made from primarily U.S. parts and is
assembled in Canada in a process that constitutes a substantial
transformation. U.S. costs account for 75% of the total costs of
manufacturing the product. A claim that the toaster is
[[Page 25050]]
``American Made'' would likely be deceptive, as the last substantial
transformation occurs outside the United States.
Example 3: Masking tape is produced in the United States and
sent to Mexico to be cut into individual rolls. U.S. costs
constitute 90% of the total cost of manufacturing the tape. Cutting
the tape is not considered a substantial transformation, and U.S.
Customs rules do not require that the tape be labeled with a foreign
country of origin when it is brought back into the United States. It
would likely not be deceptive to label the tape ``Made in USA.''
Example 4: A computer maker assembles computers in the United
States. It buys motherboards for its computers from an outside
supplier who assembles the motherboards in the United States. The
computer maker intends to run an ad promoting its ``U.S. Made
Computers.'' To substantiate the claim the computer maker may not
simply assume that the motherboards are composed wholly of U.S.
content. Because the components of the motherboard (such as
microchips) are likely to represent a significant portion of the
motherboard's value and may be produced in other countries, the
computer maker should ascertain from the motherboard manufacturer
what percentage of the costs of producing the motherboard are U.S.
costs.5
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\5\ In addition, to comply with the Tariff Act, the marketer may
specifically need to determine the origin of the CPU (Central
Processing Unit) and BIOS (Basic Input/Output System). Pursuant to
the determinations of the U.S. Customs Service, a motherboard has to
be marked with a foreign country of origin unless the CPU and BIOS
are of U.S. origin.
---------------------------------------------------------------------------
Example 5: A computer maker assembles computers in the United
States. It constructs its own motherboards with U.S.-made microchips
that it purchases from an outside company. Because the materials
used to make microchips are unlikely to represent significant value,
the computer maker likely need not look back any further in the
manufacturing process and may assume, for computation purposes, that
the microchips contain 100% U.S. content.
Example 6: A U.S. wallet manufacturer purchases plastic inserts
from a U.S. manufacturer of such inserts. The inserts account for
approximately 2% of the total cost of making the wallet, which is
last substantially transformed in the United States. The wallet
manufacturer knows that the insert manufacturer sometimes uses
imported plastic to make the inserts. Because the value of the
plastic is likely to be de minimis or insignificant relative to the
overall cost of manufacturing the wallet, the wallet manufacturer
may, for computation purposes, treat 100% of the cost of the plastic
insert as U.S. costs.
Example 7: A table lamp is assembled in the United States from
an imported base and a variety of other, U.S.-made parts, including
a Tiffany-style lampshade. The imported base was made using U.S.-
made brass. A marketer may include the value of the U.S. brass in
its computation of total U.S. costs even though the brass was made
into a base abroad.
B. Two Levels of Substantial Transformation
At the time it makes the claim, the marketer possesses and relies
upon competent and reliable evidence that: (1) The product was last
substantially transformed in the United States; and (2) all significant
inputs into the final product were last substantially transformed in
the United States.
Example 1: A tape recorder is made up of three major
subassemblies, and a few additional minor parts (which account for
only a small fraction of the finished product's cost). Each of the
subassemblies is manufactured in the United States, using primarily
imported components. Final assembly of the tape recorder takes place
in the United States. The assembly of each of the subassemblies as
well as the final assembly would be considered substantial
transformations under the Tariff Act. A label that said ``Made in
America'' would likely not be deceptive.
Example 2: A refrigerator is assembled in the United States from
a number of components, and this assembly process constitutes the
last substantial transformation of the product. Several of the
refrigerator's components are themselves assembled in the United
States, but certain other major components, such as the compressor
and the motor, are manufactured abroad. Because the last substantial
transformation of these major components occurred abroad, unless
manufacturing and assembling costs attributable to the United States
constitute at least 75% of the total manufacturing costs of the
refrigerator, an unqualified claim that the refrigerator was
``Manufactured in USA'' would likely be deceptive.
Example 3: A blank compact disk is manufactured in the United
States from imported materials, in a process that constitutes a
substantial transformation. Music is then encoded onto the compact
disk in the United States, in a process that also constitutes a
substantial transformation and is the last substantial
transformation of the product. Because both the manufacture of the
compact disk and the encoding of music onto the disk would be
considered substantial transformations under the Tariff Act, the
last two levels of substantial transformation take place in the
United States, and a printed statement on the compact disk that said
``USA'' would likely not be deceptive, even if the imported
materials used in the manufacture of the compact disk account for
more than 25% of the total manufacturing costs.
Example 4: A cordless telephone is made up of a base unit, a
handset, and a power cord. Each of these inputs is last
substantially transformed in the United States and is made from
primarily foreign parts or materials. The final assembly of the
inputs into a complete telephone, however, is not considered a
substantial transformation by the U.S. Customs Service. Thus, two
levels of substantial transformation do not take place in the United
States, and an unqualified claim that the telephone is ``American
Made'' would likely be deceptive.
IX. Qualified U.S. Origin Claims
Where a product is not substantially all made in the United States,
a claim of U.S. content should be adequately qualified to avoid
consumer deception about the presence or amount of foreign content.
Marketers may make qualified claims about the U.S. content of their
products as long as those claims are substantiated by competent and
reliable evidence. The examples below and elsewhere in these guides
present options for qualifying a claim. These options are intended to
provide ``safe harbors'' for marketers who want certainty about how to
make qualified U.S. origin claims. The examples are not the only
permissible approaches to qualifying a claim, and they do not
illustrate all claims or disclosures that would be permissible under
Section 5. In addition, some of the illustrative disclosures may be
appropriate for use on labels but not in print or broadcast
advertisements and vice versa.
In order to be effective, any qualifications or disclosures such as
those described in these guides 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
effectiveness of the qualification, will maximize the likelihood that
the qualifications and disclosures are appropriately clear and
prominent. Finally, if a qualified U.S. origin claim applies only to a
part of a product or component, this limited applicability should be
made clear as well (See Section X, below).
Example 1: A piece of luggage is produced in the United States
from leather that was tanned and processed in Italy. U.S.
manufacturing costs account for 50% of the total manufacturing costs
of the luggage; the leather, 40%; and miscellaneous imported parts,
10%. A claim that the luggage was ``Made in the USA of Italian
leather'' would likely not be deceptive.
Example 2: A fireplace poker is made from an iron forging that
is imported from Canada and finished and painted in the United
States. U.S. processing accounts for 40% of the total cost of
manufacturing the poker. Assuming that the U.S. processing
constitutes a substantial transformation and thus a foreign country
of origin marking is not required under the Tariff Act, a label
claim that the fireplace poker was ``Made in the USA from imported
forging'' would likely not be deceptive. (Were a foreign origin
marking required, a claim on the label such as ``Made in Canada.
Finished in U.S.'' would likely be appropriate.)
Example 3: A snowblower is assembled in the United States. The
engine is manufactured in the United States and other parts, such as
the frame and the wheels, are
[[Page 25051]]
imported from several different countries. Together, the U.S.
assembly and U.S. parts account for 55% of the total cost of
manufacturing the product. An advertising circular that described
the snowblower as ``Proudly made in America with U.S. and imported
parts'' would likely not be deceptive.
Example 4: An exercise treadmill is assembled in the United
States. All of the major parts of the treadmill, including the
motor, the frame, and the electronic display, are imported. A few of
the incidental parts of the treadmill, such as the dial used to set
the speed, are manufactured in the U.S.; together, they account for
approximately 5% of the total cost of all the parts. Because the
value of the U.S.-made parts is essentially de minimis in relation
to the value of all the parts, a statement on a hangtag on the
treadmill that states that it is ``Made in USA of U.S. and imported
parts'' would likely be deceptive. A claim that the treadmill was
``Made in the U.S. from imported parts'' or ``Assembled in the
United States with primarily foreign parts'' would likely not be
deceptive.
Example 5: A typewriter is produced in the United States from a
mix of U.S. and imported parts. Assuming that the marketer can
substantiate that U.S. costs constitute 60% of the total costs of
manufacturing the typewriter, a label that said ``60% American
Made'' or ``U.S. Content: 60%'' would likely not be deceptive.
Example 6: A vacuum cleaner is assembled in the United States
from a mix of U.S. and imported parts. Depending upon the
availability of particular parts, the U.S. content of the product
varies between 50% and 70%. A claim on the box that said ``Contains
at least 50% U.S. content'' or ``50-70% U.S. content'' would likely
not be deceptive.6
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\6\ See also Section XII.A., below, for information on using
average costs to assess U.S. content.
---------------------------------------------------------------------------
Example 7: A swing set is made up of various components (poles,
swing, ladder, etc.), all of which are imported. The unassembled
components are packaged together in a box in the United States; the
swing set is designed for assembly at-home by the purchaser. A
statement on the box that said ``Assembled in U.S. of imported
parts'' would likely be deceptive as neither the mere packaging
together of parts nor assembly by the purchaser is likely to be
understood by consumers as constituting ``assembly.''
Example 8: A bicycle is assembled in the United States of a
U.S.-made frame and various other U.S. and imported parts. The total
U.S. content of the bicycle is 65%. The bicycle manufacturer
distributes brochures for the bicycle that state, in part, ``To
ensure that our customers get the highest quality product possible,
we assemble all of our bicycles in our own factories in the United
States and, wherever possible, we use American-made parts.
Unfortunately, some bicycle parts, such as gear shifts, are no
longer manufactured in this country; in these cases, we use the
highest quality import available.'' Assuming the statements are
truthful, and the brochure does not contain other, contrary
representations, the statements would likely not be deceptive.
Example 9: A marketer manufactures in-line skates in its
Maryland plant from primarily imported parts; the U.S. content of
the skates is approximately 30%. The marketer runs full-page
magazine advertisements with a headline in large, bold print that
says ``Built in Baltimore*.'' At the bottom of the page is a fine
print disclosure that says ``*All our skates are Built in Baltimore,
Parts Nos. 122, 353, and 812 imported.'' Because of its size and
location, the disclosure is not clear and prominent. As a result, it
is unlikely to be seen by consumers or to affect the net impression
conveyed by the advertisement that the entire product was made in
the United States. The advertisement, therefore, is likely to be
deceptive. In addition, the language of the disclosure is ambiguous
unless consumers are readily able to ascertain what the part numbers
refer to, and should be clarified.
X. U.S. Origin Claims for Specific Processes or Parts
Regardless of whether a product is substantially 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. Claims,
however, that a product is, for example, ``created,'' ``produced,''
``manufactured,'' or ``assembled'' in the United States likely would
not be appropriate under this provision. 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.
Example 1: A manufacturer of crystal stemware imports uncut,
crystal stemware from abroad. The manufacturer then hand cuts
elaborate designs into the bowl and stem, and performs certain other
finishing operations, in its United States factory. Under the Tariff
Act, the stemware is considered to have been last substantially
transformed in the United States, and so is not required to bear a
foreign country-of-origin marking. Because U.S. costs account for
only approximately 50% of the total manufacturing costs of producing
the finished stemware, an unqualified U.S. origin claim is likely to
be deceptive. However, a label that said ``Hand-Cut in the United
States'' would likely not be deceptive.
Example 2: Computer software is designed and written in the
United States and copied in the United States onto floppy disks that
are manufactured in Japan. A package label that stated ``Software
written in the United States'' would likely not be deceptive.
Example 3: A sewing machine that is made with primarily foreign
parts undergoes its final manufacturing step in the United States.
The marketer of the sewing machine wishes to advertise it as
``Assembled in USA.'' Because the term ``assembled'' may refer to a
broad range of actions on the part of the manufacturer, it is
unlikely to be understood by consumers as connoting a specific
process. Therefore, the claim would likely be deceptive and should
be qualified so as to indicate the presence of foreign parts (e.g.,
``Assembled in USA of foreign parts'').
Example 4: A U.S.-based furniture maker designs a sofa in the
United States and has the sofa manufactured in Denmark. Because the
Tariff Act would require that the sofa be marked with a foreign
country of origin, a tag that said only ``Designed in USA'' would
not be permitted by the U.S. Customs Service. Were the furniture
maker, however, to note the U.S. design of the product in
conjunction with an appropriate foreign origin marking, e.g., ``Made
in Denmark from U.S. designs,'' the statement would likely be both
permissible under the Tariff Act and not deceptive under Section 5
of the FTC Act.
Example 5: A faucet is manufactured in the United States from a
U.S.-made cartridge (which controls water flow) and other parts, all
of which are foreign-made. The foreign parts account for sufficient
cost that an unqualified U.S. origin claim could not be made for the
faucet. The marketer of the faucet has a World Wide Web page on the
Internet that advertises the faucet as ``Made with our exclusive
U.S.-made cartridges.'' The claim is likely not deceptive.
Example 6: A food processor is assembled in the United States
from a U.S.-made blade and other parts, all of which are foreign-
made. Under the Tariff Act, the assembly of the food processor
constitutes the last substantial transformation of the product. U.S.
costs, however, account for less than 75% of the total costs of
manufacturing the food processor. The marketer of the food processor
takes out a print advertisement that includes at the top a large
red, white, and blue ``Made in USA'' logo. Above the logo, in very
small print, appears the word ``Blade.'' It is likely that the
advertisement will not adequately convey to consumers that the U.S.
origin claim is limited to the blade only, but instead, is likely to
convey a deceptive unqualified U.S. origin claim. The marketer
should more clearly and prominently disclose the limitation on the
claim.
Example 7: A picture frame is assembled in the United States.
The wooden outer frame is manufactured in the United States, but the
other parts, such as a sheet of glass, posterboard backing, and
miscellaneous hardware, such as clips and a hook for hanging, are
imported. The foreign parts account for sufficient cost that an
unqualified U.S. origin claim may not be made for the product. A
package label features the statement ``Frame Made in USA.'' Because
the statement is ambiguous--it is not clear whether it refers to the
picture frame as a whole or just to the wooden outer pieces--it is
likely to be deceptive.
Example 8: The Acme Camera Company assembles its cameras in the
United States.
[[Page 25052]]
The camera lenses are manufactured in the United States, but most of
the remaining parts are imported; U.S. costs constitute 40% of the
total cost of manufacturing the camera. A magazine advertisement for
the camera is headlined ``Beware of Imported Imitations'' and states
``Other high-end camera makers use imported parts made with cheap
foreign labor. But at Acme Camera, we want only the highest quality
parts for our cameras and we believe in employing American workers.
That's why we make all of our lenses right here in the United
States.'' The advertisement is likely to convey to consumers a claim
that more than a specific product part (the lens) is of U.S. origin,
and the marketer should be prepared to substantiate whatever broader
U.S. origin claim is conveyed.
XI. Comparative Claims
Claims of U.S. origin that include a comparative statement should
be truthful and substantiated by competent and reliable evidence. In
addition, comparative U.S. origin claims should be presented in a
manner that makes the basis for the comparison sufficiently clear to
avoid consumer deception. Comparative claims should not be used in a
manner that, directly or by implication, exaggerates the amount of U.S.
content in a product.
Example 1: In an advertisement for its stereo speakers, the
manufacturer states that ``We do more of our manufacturing in the
United States than any other speaker manufacturer.'' The
manufacturer assembles the speakers in the United States from U.S.
and imported components. U.S. costs, from final assembly operations
at the manufacturer's U.S. factory and from U.S.-made parts, are
significant but constitute less than 75% of the total cost of
manufacturing the speakers, and, therefore, the manufacturer cannot
substantiate an unqualified U.S. origin claim. However, provided
that the manufacturer can substantiate that the difference between
the U.S. content of its speakers and that of the other
manufacturers' speakers is significant, the comparative claim would
likely not be deceptive.
Example 2: A product is marked with the statement ``30% More
U.S. content.'' The claim is ambiguous, and depending on the
context, could be understood to suggest either a comparison to
another brand or to a previous version of the same product. The
marketer should clarify the claim to make the basis of the
comparison clear, for example, by saying ``More U.S. content than
brand ``X'.'' Alternatively, the marketer should be prepared to
substantiate whatever comparison is conveyed to reasonable
consumers.
Example 3: A product is advertised as having ``twice as much
U.S. content as before.'' The U.S. content in the product has been
increased from 2% in the previous version to 4% in the current
version. As neither the amount of U.S. content in the current
version of the product, nor the difference between the U.S. content
in the current and previous versions of the product, is significant,
the comparative claim would likely be deceptive.
XII. Miscellaneous Issues
A. Multiple Sourcing
Where a manufacturer purchases an input from multiple sources, some
of which manufacture the input in the United States and some of which
manufacture the input abroad, the manufacturer may base its assessment
of U.S. costs on the average annual U.S. cost for that input (or the
average U.S. cost for that input over some other fixed and reasonable
time period), based on the cost of the units made in the United States
relative to the total cost of the units acquired from all sources.\7\
\7\ Under these guides, marketers may use an average of U.S.
costs to calculate whether a produce contains 75% U.S. content.
Marketers should be aware that the U.S. Customs Service, however,
requires a determination of origin for each individual item.
---------------------------------------------------------------------------
Example 1: A computer maker assembles computers in the United
States and buys hard drives from several different U.S. and
Brazilian suppliers with whom it has contracts for the coming year.
The hard drives from the U.S. suppliers are entirely U.S.-made and
the hard drives from the Brazilian suppliers are entirely Brazilian-
made. Over the course of the year, the computer maker, pursuant to
its contracts, will spend $6.5 million on U.S.-made hard drives and
$3.5 million on Brazilian-made hard drives. Sixty-five percent of
the cost of the hard drives may be counted as U.S. costs.
Example 2: A firm sells brooms that it assembles in the United
States. The firm buys bristles for its brooms from both U.S. and
foreign suppliers. The firm does not enter into long-term contracts
for bristles but, instead, buys them on an as-needed basis from any
of several suppliers, based on the price and availability at that
time. As a result, when it prints country-of-origin labels for its
brooms, the firm does not know what proportion of the bristles will
be U.S.-made that year. The firm may use the average U.S. cost for
the bristles from the previous year, assuming that the firm does not
have reason to believe that the proportion of U.S.-made bristles
will be significantly lower in the coming year.
Example 3: An electric saw is manufactured with either a U.S.-
made or German-made blade, both of which cost the same amount. The
blades constitute 50% of the total cost of producing the saw, and,
over the course of year, 70% of the blades are U.S.-made. The
remaining parts of the saw are U.S.-made, and final assembly of the
saw takes place in the United States. Thus, averaged over a year,
U.S. costs are equal to 85% of the total manufacturing costs ((70%
x 50%) [average U.S. content for the blade] + 50% [final U.S.
assembly and other U.S. parts]). Because the average U.S. cost is
greater than 75% of the total manufacturing costs, it would likely
not be deceptive to print ``Made in USA'' on the box that the saw is
sold in, even though some individual saws (those with imported
blades) contain only 50% U.S. content.
Example 4: The facts are the same as in Example 3, above, except
that only 20% of the saw blades are U.S. made. Thus, U.S. costs
would constitute 60% of the total manufacturing costs ((20% x 50%)
+ 50%). Because the average U.S. cost is less than 75% of the total
manufacturing costs, a printed claim on the box that said ``Made in
USA'' would likely be deceptive. The claim should be qualified to
indicate the possible inclusion of foreign parts. Examples of
qualified claims that are likely not to be deceptive include:
``Manufactured in USA with domestic or imported parts''; ``Made in
USA. Contains parts from U.S. or Germany''; ``Assembled in USA.
Blade Made in U.S. or Germany.'' (Alternatively, the manufacturer
may separately label those boxes that contain saws with U.S.-made
blades with a label that says ``Made in USA,'' while leaving the
other boxes unlabeled or labeling them with an appropriately
qualified claim).
B. Price Fluctuations
In assessing the costs of particular inputs, the price of which may
fluctuate over time, a marketer need not calculate the costs on an
item-by-item basis for the purposes of complying with these guides and
Section 5 of the FTC Act. Rather, the marketer may take as the cost of
an input the average price of the input over the period of a year (or
over some other fixed and reasonable period). Alternatively, the
marketer may use a ``snapshot'' of the prices for each of the inputs on
a particular date and then update these prices on a regularly scheduled
basis. A marketer using either the averaging or snapshot approaches
should update its calculations annually or, if not annually, after some
other interval that is reasonable in light of industry practices and
known or anticipated changes in the relevant markets.
Example 1: A company manufactures a product in the United States
from U.S. and imported parts. One of the key parts is a widget, the
price of which fluctuates seasonally, tending to be higher in the
spring and summer (when widgets are in short supply) and lower in
the fall and winter (when widgets are plentiful). In calculating the
percentage of U.S. content of its product, the company may use the
average price paid for the widget over the past year, assuming that
the company does not have any reason to believe that the average
price paid for widgets will be significantly different in the coming
year. It may be deceptive for the company to use a ``snapshot'' of
the price at either the high or low point in order deliberately to
minimize or maximize the costs of the widgets for purposes of
calculating U.S. content.
Example 2: A marketer sells a product labeled ``Made in USA.''
As substantiation for this claim, the marketer relies on a
computation performed three years earlier
[[Page 25053]]
that shows the product to consist of 75% U.S. content. Even if the
marketer is still using the same suppliers for its inputs, it is
likely that three years is too long a period to guard against
significant shifts in prices or the make-up of parts. Therefore, the
marketer should review the costs of its inputs to confirm that, on
the basis of the updated prices, it can still substantiate an
unqualified ``Made in USA'' claim.
C. Multiple-Item Sets
Where a product consists of a packaged set of discrete items, some
of which are domestically produced and some of which are imported, and
the packaging together of the items does not constitute a substantial
transformation of those items, the Tariff Act requires that the
imported items (or their container) be marked with a foreign country of
origin. In addition, because this set of items was not last
substantially transformed in the United States, it would not fall
within either of the safe harbors for unqualified U.S. origin claims
set forth in Section VIII of these guides. Therefore, an unqualified
U.S. origin claim for such a set of items is likely to be deceptive. In
making any qualified claim of U.S. origin for such a set, a marketer
should make clear to which items any U.S. origin claim refers, and, for
claims made on the article or its container, should comply with the
requirements of the U.S. Customs Service for foreign origin marking.
Example 1: A tool set consists of four separate hand tools
(hammer, wrench, pliers, and screwdriver) packaged in a sealed black
plastic case. Three of the tools are made in the United States,
while the fourth, the screwdriver, is made in Indonesia. It would be
deceptive to label the tool set ``Made in USA.'' A label that said
``Screwdriver made in Indonesia. Other tools made in USA,'' or
``Hammer, wrench, and pliers made in USA. Screwdriver made in
Indonesia,'' would likely not be deceptive.
Example 2: Perfume, which is made and bottled in the United
States, is packaged with a promotional gift, an umbrella that is
made in England. The two items are packaged together into a set in
the United States and wrapped in clear cellophane. Both the bottle
of perfume and the umbrella are labeled with their respective
countries of origin, and the country-of-origin label on the umbrella
is clearly visible to consumers. No country-of-origin statement need
be placed on the package as a whole. However, it would likely not be
deceptive to label the package ``Perfume made in USA. Umbrella made
in England'' or ``Packaged in the U.S. Contains U.S. and imported
items. See item for country of origin.'' It would likely be
deceptive to label the package as a whole ``Made in USA.''
Example 3: Several individual pots and pans are packaged and
sold together as a set. Some of the pots and pans are made in the
United States, while others are made abroad. A department store
advertising circular promoting the pots and pans states ``Set
contains U.S. and imported items.'' This representation would likely
not be deceptive. 8
---------------------------------------------------------------------------
\8\Note, however, that the U.S. Customs Service would not permit
this label to appear on the box, as the Tariff Act requires an
indication of a specific foreign country of origin.
---------------------------------------------------------------------------
XIII. ``Origin: USA'' Labels
Notwithstanding any other provision herein, a product that is sold
in the United States and is not required to be marked (and the
container of which is not required to be marked) with a foreign country
of origin pursuant to the Tariff Act may be marked or labeled with the
phrase ``Origin: USA'' provided that:
A. The product is also exported in more than a de minimis quantity
to a country or countries requiring that the product be marked to
indicate U.S. origin;
B. The mark or label is no more prominent than necessary to meet
the requirements of the other country to which the product is being
exported; and
C. For consumer products, the existence of substantial foreign
content is disclosed to consumers through other means, such as
appropriately qualified claims on packaging, stickers, or hangtags that
may be seen by consumers before purchase.
Example 1: An electrical switch is manufactured in the United
States from imported inputs and could not, under these guides, be
labeled with an unqualified ``Made in USA'' claim. The switch is
sold both in the United States and in countries that require that
the switch be marked with an indication of U.S. origin. The switch
is sold to businesses for industrial use and is not sold to
consumers. The statement ``Origin: USA'' embossed on the side of the
switch would likely not be deceptive.
Example 2: Shoes are assembled in the United States of U.S. and
imported components; the assembly process is considered a
substantial transformation by the U.S. Customs Service. On the
bottom of each shoe is printed ``Origin: USA.'' The shoes are sold
in the United States and are also exported to countries that require
the shoes to be marked with an indication of U.S. origin. For those
shoes sold in the United States, a sticker is affixed to the outside
of each shoe box that says ``Made in USA of U.S. and imported
components.'' The ``Origin: USA'' statement would likely not be
deceptive.
Example 3: A marketer assembles a product in the United States
of imported parts; the U.S. content is 30%. A television commercial
for the product features the words ``Origin: USA'' superimposed over
the product and in large, stencil-type letters that fill the width
of the screen. Simultaneously, the voice-over in the commercial
talks about the importance of buying American products. The
commercial is likely to be deceptive unless it contains adequately
clear and prominent qualifications or disclosures of the substantial
foreign content of the product. Where a marketer uses an ``Origin:
USA'' statement in circumstances beyond those prescribed in this
provision, the marketer should recognize that the statement may
convey to consumers a broader, or even unqualified, U.S. origin
claim, and the marketer should be preprared to substantiate any
claim that is conveyed to reasonable consumers.
Authority: 15 U.S.C. 41 et seq.
By direction of the Commission.
Donald S. Clark,
Secretary.
[[Page 25054]]
Appendix.--List of Commenters
------------------------------------------------------------------------
Citation
Name Comment No. abbreviation *
------------------------------------------------------------------------
Ad Hoc Group................ 183................. Ad Hoc Group
Adams, John W............... 276.................
Alabama Textile 12.................. ATM
Manufacturers Association.
Altschul, Frank J. Jr....... 41..................
Amato, Charles T............ 11..................
American Apparel 31.................. American Apparel
Manufacturers Association.
American Advertising 100................. AAF
Federation.
American Association of 37, 187............. AAEI
Exporters & Importers.
American Automobile 103................. AAMA
Manufacturers Association.
American Electronics 87.................. AEA
Association.
American Export Association. 291................. American Export
American Hand Tool Coalition 91, 186............. American Hand Tool
American International 85.................. AIADA
Automobile Dealers
Association.
American Textile 92, 171............. ATMI
Manufacturers Institute.
American Wire Producers 65.................. AWPA
Association.
Angst, Charles R............ 250.................
Appel, Edwin................ 235.................
Association of Home 108, 188............ AHAM
Appliance Manufacturers.
Association of International 101, 180............ AIAM
Automobile Manufacturers.
Atanosian, M. George........ 315.................
Attorney General of 43, 343............. AGs
California.
Attorney General of 43, 343............. AGs
Connecticut.
Attorney General of Florida. 43, 343............. AGs
Attorney General of Hawaii.. 43, 343............. AGs
Attorney General of Illinois 185................. AGs
Attorney General of Iowa.... 43, 343............. AGs
Attorney General of Kansas.. 43, 343............. AGs
Attorney General of Maryland 43, 343............. AGs
Attorney General of Michigan 43, 343............. AGs
Attorney General of Missouri 43, 343............. AGs
Attorney General of Nevada.. 43, 343............. AGs
Attorney General of New 43, 343............. AGs
Hampshire.
Attorney General of New 138, 343............ AGs
Jersey.
Attorney General of New York 43, 343............. AGs
Attorney General of North 114, 343............ AGs
Carolina.
Attorney General of Ohio.... 43, 343............. AGs
Attorney General of 134, 343............ AGs
Pennsylvania.
Attorney General of Rhode 43, 343............. AGs
Island.
Attorney General of 122, 343............ AGs
Tennessee.
Attorney General of 343................. AGs
Washington.
Attorney General of West 43, 343............. AGs
Virginia.
Attorney General of 151................. AGs
Wisconsin.
Automotive Parts Rebuilders 30.................. APRA
Association.
Bain, Lauren S.............. 224.................
Baker, Charles A............ 258.................
Balluff, Inc................ 69.................. Balluff
Barndt, Samuel L. Jr........ 111.................
Baudier, Roger.............. 216.................
Benson, Walter.............. 301.................
Bernard, Philip J. Ph.D..... 75..................
Best, Donald A.............. 125.................
Bevins, William H........... 79..................
BGE, Ltd.................... 60.................. BGE
Bicycle Manufacturers 86, 195............. BMA
Association of America.
Bill Haley & Associates, Inc 128................. Haley
Bissell, Bill............... 204.................
Bonacci, Kenneth P.......... 202.................
Bowman, Sandra J............ 121.................
Brady, Patrick.............. 289.................
Brennan, John M............. 221.................
Britton, Wallace B.......... 76..................
Bromley, Jesse F............ 13..................
Brother International Corp./ 109................. Brother
Brother Industries USA, Inc.
Brown & Williamson Tobacco 96.................. B&W
Corp.
Burger, Carol............... 208.................
Burychka, William M......... 150.................
Butcher, Kathryn K.......... 236.................
Cagle, Thelma............... 243.................
Caiazza, Butch.............. 254.................
[[Page 25055]]
Canty, John................. 203.................
Capital Mercury Shirt Corp.. 9................... Capital
Carter, Howell & Elizabeth.. 233.................
Casey, Bic.................. 238.................
Caterpillar, Inc............ 104................. Caterpillar
Centerville Lumber Co....... 145................. Centerville
Cerulli, Ernest A........... 211.................
Citizen Action.............. 181................. Citizen Action
Clark, Shirley & Harry W.... 311.................
Clownzo..................... 293.................
Colson, Arnold.............. 240.................
Committee of Domestic Steel 63.................. Domestic Steel Wire
Wire Rope & Specialty Cable Rope
Manufacturers.
Compaq Computer Corp........ 62.................. Compaq
Conair Corp................. 155................. Conair
Consumers for World Trade... 14.................. CWT
Corbeil, Alan............... 302.................
Cornelius, Judith Ann, John 214.................
& Carla.
Crafted With Pride in USA 35, 176............. Crafted With Pride
Council, Inc.
Cranston Print Works Co..... 38, 314............. Cranston
Dalton, Helen B............. 280.................
Dean, Earl S. 3rd........... 281.................
Deere & Co.................. 57.................. Deere
Diamond Chain Co............ 55.................. Diamond Chain
Dixon Family................ 316.................
Donovan, C. Ross Jr......... 229.................
Douglas, Joe R.............. 279.................
Duncan, Therese A........... 290.................
Dunstan, Douglas F.......... 318.................
Dynacraft Industries........ 45, 173............. Dynacraft
Dzurko, Edward D............ 83..................
Eberman, Leslie............. 230.................
Electronics Industries 84,193.............. EIA
Association.
Elliott, Carlton E.......... 248.................
Engineers Political Action 335................. EPAC
Committee.
Estwing Manufacturing Co.... 179................. Estwing
Falcone, Melissa............ 249.................
Farish, Bob................. 218.................
Federation of the Swiss 47.................. FSWI
Watch Industry.
Ferguson, Frances Wade...... 263.................
Footwear Distributors & 27, 172............. FDRA
Retailers of America.
Footwear Industries of 52, 177............. FIA
America, Inc.
Foster, Bonnie.............. 292.................
G.G. Bean, Inc.............. 36.................. Bean
Gates Rubber Co............. 50.................. Gates
Gay, Janice L............... 312.................
Gearhart, David............. 231.................
Gonzales, Gloria............ 113.................
Gooderum, Hugo G. Jr........ 17..................
Gordon, J. Richard.......... 330................. ....................
Graham, Herbert............. 285.................
Grant, William M............ 205.................
Green, Betty L.............. 298.................
Guill, E.M.................. 261.................
Hagen, Robert W............. 268.................
Hager Hinge Co.............. 160................. Hager
Hammons, Elizabeth.......... 284.................
Haney, George G............. 78..................
Hart, Joseph M.............. 77..................
Hayworth, Ron............... 278.................
Helfand, Arnold H........... 226.................
Henkel, Klaus P............. 6...................
Heyden, Timothy J........... 328.................
Higgins, Dorothy............ 244.................
Hinrichsen, Chuck........... 242.................
Hinshaw, Michael S.......... 66..................
Hoover, Virginia............ 5...................
Horn, Eddie A............... 273.................
Hoskins, William............ 265.................
Hott, Mary Catherine A...... 223.................
[[Page 25056]]
Houtz, R.P.................. 225.................
Hrebik, Richard K........... 306.................
Huber, Patricia D........... 4...................
Hyde Athletic Industries, 130................. Hyde
Inc.
ICOM........................ 123.................
Impress Industries, Inc..... 308................. Impress
International Brotherhood of 107................. IBT
Teamsters.
International Electronics 99, 189............. IEMCA
Manufacturers & Consumers
of America.
International Leather Goods, 80.................. ILGPNSWU
Plastics, Novelty & Service
Worker's Union, AFL-CIO/CLC.
International Mass Retail 46, 184............. IMRA
Association.
Iredell, Capt. David Stanton 253.................
ITT Industries.............. 165................. ITT
James, Lloyd A.............. 135.................
Jefferson Democratic Club of 61.................. Jefferson Democratic
Flushing, NY. Club
Jefferson, Lewis & St. 146................. AFL-CIO/Jefferson
Lawrence Counties Central
Trade & Labor Council, AFL-
CIO.
Jenkins, Elizabeth.......... 246.................
Jenkins, Michael V.......... 305.................
Jewelers of America, Inc.... 58.................. Jewelers
Johnston & Murphy........... 324................. Johnston
Joint Industry Group........ 88, 196............. JIG
Jones, Darrell S. Jr........ 234.................
Jules Jergusen/Helbros 18, 19.............. Jergenson
International.
Kaiser, Jim & Ricky......... 275.................
Kammerer, John.............. 120.................
Kane, John.................. 71..................
Kearney, Mark S............. 115.................
Kennedy, Gregory B.......... 70..................
Kennedy, Patrick R.......... 262.................
King, Harry D............... 256.................
Klaus, Karl................. 82..................
Klof, John C................ 331.................
Knight, Larry J............. 259.................
Kossuth, Joseph J........... 158, 159............
Kotur, Nick................. 124.................
Kujovsky, Joseph S.......... 336.................
Laclede Steel Co............ 143................. Laclede
Lewis, Marvin............... 147.................
Lisaro, Anne................ 270.................
Luggage & Leather Goods 23.................. LLGMA
Manufacturers of America,
Inc.
Lyness, William J........... 319.................
Lyons, Helen................ 154.................
Lyons, James A. Jr.......... 175.................
Made in the USA Foundation.. 28.................. MUSA Foundation
Manchester Trade, Ltd....... 21.................. Manchester Trade
Manufacturing Jewelers & 164................. MJSA
Silversmiths of America,
Inc.
Martirone, Fred L........... 222.................
Masterjohn, John............ 313.................
McClain, Dianna............. 2...................
McFall, Marlene............. 304.................
McFarlane, Mrs. Don......... 272.................
McMakin, Dorothy............ 255.................
Meeks & Sheppard............ 105................. Meeks
Megasack Corp............... 132................. Porterco/Megasack
Menahen, Helen.............. 200.................
Metz, Anthony............... 303.................
Meyers, Phyllis............. 274.................
Minnesota Mining & 98, 198............. 3M
Manufacturing.
Mistretta, Steve Jr......... 283.................
Moroz, Marion J............. 326.................
National Association of 137................. NACAA
Consumer Agency
Administrators.
National Association of 16, 170............. NAHM
Hosiery Manufacturers.
National Consumers League... 117................. NCL
National Cotton Council of 131................. NCCA
America.
National Council on 89.................. NCITD
International Trade
Development.
National Electrical 102, 182............ NEMA
Manufacturers Association.
National Knitwear & 53.................. NKSA
Sportswear Association.
[[Page 25057]]
Nelson, Marcy............... 210.................
New Balance Athletic Shoe, 44, 197............. New Balance
Inc.
Oakes, Michael G............ 228.................
Oakland, Dana............... 73..................
Oakland, Joe................ 72..................
Okidata..................... 42.................. Okidata
Packard Bell Electronics.... 64.................. Packard Bell
Packing Machinery 56.................. PMMI
Manufacturers Institute.
Padden, Roger M............. 296.................
Paige, Ray.................. 271.................
Peiffer, Peter W & Nancy.... 126.................
Pennington, K............... 288.................
Pilger, Bill................ 325.................
Polaroid.................... 90.................. Polaroid
Porter, Darlene............. 220.................
Porterco, Inc............... 132................. Porterco/Megasack
Precision-Kidd Steel Co., 142................. Precision-Kidd
Inc.
Processed Plastic Co........ 167................. Processed Plastic
Publia, Thomas J............ 136.................
Rachal, Raylinda............ 232.................
Red Devil, Inc.............. 139................. Red Devil
Republic of Korea Fair Trade 141................. KFTC
Commission.
Retired Workers Council, 33.................. UAW/RWC
Region 1-A, UAW (Buy
American Union Label
Committee).
Ricardi, Richard A.......... 149.................
Richardson, Michael R....... 299.................
Richter, Alan D............. 212.................
Rollins, Ernest R........... 66..................
Rothschild, Naomi........... 295.................
Rubber & Plastic Footwear 32, 178............. RPFMA
Manufacturers Association.
Samenfeld, Dr. Herbert W.... 20..................
Santeford, Bruce A.......... 329.................
Scaglione, Lisa............. 217.................
Scheiderer, Clifton & Joy... 110.................
Schubach, Stan.............. 294.................
Schultz, Gerald R........... 321.................
Seagate Technology.......... 95.................. Seagate
Secant Chemicals, Inc....... 247................. Secant
Shawe, Ted.................. 338.................
Sills, William R............ 241.................
Sinclair, David............. 287.................
Sinclair, James............. 300.................
Sisler, Jerry............... 22..................
Smith, Al M................. 112.................
Smith, David A.............. 297.................
Smith, James E.............. 317.................
Smith, Michael C............ 327.................
Soltys, Frank M............. 207.................
Spreitzer, Dr. Francis F.... 266.................
Stamm, Patricia............. 15..................
Stanley Works............... 59, 194............. Stanley
Steel Technologies.......... 152................. Steel Technologies
Stein, John................. 81..................
Steinberg, Alan............. 320.................
Steinmetz, Craig I.......... 227.................
Story, L.................... 215.................
Stroebel, W................. 213.................
Studt, William C............ 74..................
Summitville Tiles, Inc...... 162................. Summitville
Sunbeam Corp................ 39.................. Sunbeam
Taylor, Veronica............ 252.................
Tech Team, Inc.............. 307................. Tech Team
Tejada, Henry A.F........... 239.................
Tile Council of America, Inc 161................. TCA
Tileworks................... 156................. Tileworks
Timken Co................... 51.................. Timkin/Torrington
Tompkins Brothers Co., Inc.. 157................. Tomkins
Torrington Co............... 51.................. Timkin/Torrington
[[Page 25058]]
Toshiba America Electronic 34.................. Toshiba
Components, Inc.
Toyota Motor Sales, U.S.A., 26.................. Toyota
Inc.
Tuchel, Harold.............. 7...................
Tyson, Joan................. 127.................
U.S. Customs Service........ 29.................. Customs
U.S. Department of Commerce. 166................. Commerce
U.S. General Services 106................. GSA
Administration.
U.S. Rep. Neil Abercrombie.. 25.................. Abercrombie
U.S. Rep. Peter Blute....... 25.................. Abercrombie
U.S. Rep. Glen Browder...... 119................. Browder
U.S. Rep. Peter Deutsch..... 340................. Deutsch
U.S. Rep. John D. Dingell... 153................. Dingell
U.S. Rep. Barney Frank...... 140................. Frank
U.S. Rep. Joseph P. Kennedy 67.................. Kennedy
II.
U.S. Rep. Dale E. Kildee.... 333................. Kildee
U.S. Rep. Jerry Kleczka..... 337................. Kleczka
U.S. Rep. James B. Longley, 118................. Longley
Jr.
U.S. Rep. Donald A. Manzullo 334................. Manzullo
U.S. Rep. Edward J. Markey.. 67.................. Kennedy
U.S. Rep. Marty Meehan...... 25.................. Abercrombie
U.S. Rep. John Joseph 25.................. Abercrombie
Moakley.
U.S. Rep. Carlos J. Moorhead 339................. Moorhead
U.S. Rep. Richard Nea....... 67.................. Kennedy
U.S. Rep. John W. Olver..... 25.................. Abercrombie
U.S. Rep. Glenn Poshard..... 163................. Poshard
U.S. Rep. James H. Quillen.. 168................. Quillen
U.S. Rep. Charles H. Taylor. 169................. Taylor
U.S. Rep. James A. 144................. Traficant
Traficant, Jr.
U.S. Sen. William S. Cohen.. 199................. Cohen
U.S. Sen. John Kerry........ 68.................. Kerry
U.S. Sen. Carl Levin........ 332................. Levin
U.S. Sen. Carol Mosley-Braun 341................. Mosley-Braun/Simon
U.S. Sen. Paul Simon........ 341................. Mosley-Braun/Simon
U.S. Watch Producers in the 192................. Watch Producers
U.S. Virgin Islands.
Union Label & Service Trades 48.................. AFL-CIO/ULSTD
Dept., AFL-CIO.
United Auto Workers......... 93, 174............. UAW
United States Apparel 24.................. USAIC
Industry Council.
United Technologies Carrier. 94.................. UTC
Van Hoosier, Gary........... 267.................
Van Put, K.................. 116.................
Varney, Earl D.............. 264.................
Vaughan, Peter S. III....... 148.................
Vaughn & Bushnell 97, 191............. Vaughn & Bushnell
Manufacturing.
Vereide, Christopher A...... 3...................
Villarreal, Chris J......... 8...................
Vogel, Arthur P............. 269.................
Walker, Douglas L........... 201.................
Weider, Evelyn.............. 286.................
Welch, William L............ 245.................
Weldbend Corp............... 190................. Weldbend
Werner Co................... 129................. Werner
West, Fred C................ 260.................
Western Forge Corp.......... 49.................. Western Forge
Whalen, Karen............... 277.................
Whalen, Tom................. 310.................
Whirlpool Corp.............. 54.................. Whirlpool
White, Frank................ 257.................
Whitfield, R. H............. 206.................
Whittaker, Robert A......... 1...................
Wicart, John C.............. 10..................
Wilkins, Alfred J. Jr....... 323.................
Wright Tool................. 40.................. Wright
Wright, George H. & Martha M 219.................
Writing Instrument 133................. WIMA
Manufacturers Association,
Inc.
Wujek, Peter M.............. 209.................
Zgone, Thomas............... 237.................
[[Page 25059]]
Anonymous................... 66..................
Anonymous................... 251.................
Anonymous................... 309.................
Anonymous................... 322.................
Anonymous................... 342 ................
------------------------------------------------------------------------
* Individual consumers are cited by last (or complete) name. Other
commenters are cited by the citation abbreviation.
Concurring Statement of Commissioner Roscoe B. Starek, III Regarding
Request for Public Comment on Proposed Guides for the Use of U.S.
Origin Claims File No. P89-4219
I have voted in favor of issuing the proposed Guides for comment,
because I believe that the copy tests discussed in the Federal Register
notice show that substantial minorities of consumers take contradictory
meanings from ``Made in USA'' claims. In these circumstances, it is
appropriate to engage in a form of balancing that may minimize the
injury to all consumers from claims inconsistent with their
understandings of ``Made in USA.'' The proposed Guides strike the
correct balance in recognizing that an unqualified ``Made in USA''
claim means that a product is substantially all made in the United
States. As the proposed Guides make clear, qualified claims may be used
to identify U.S. content for products that cannot satisfy a
``substantially all'' standard. Similarly, stronger claims may be used
to identify products that have even higher levels of U.S. content. In
any event, however, marketers must substantiate claims for a particular
amount of U.S. content with competent and reliable
evidence.1
---------------------------------------------------------------------------
\1\ Proposed Guides Sec. VI.B. n.3.
---------------------------------------------------------------------------
The proposed safe harbors and examples should lessen the costs of
compliance, although it may be more useful to businesses if the final
Guides contain more definitive language in the examples, like the
language used in the Green Guides.2 The examples in the
proposed Guides use tentative language to state that an ad or claim is
``likely to be deceptive'' or ``would not likely be deceptive'' rather
than ``is deceptive'' or ``is not deceptive.'' 3 Certainly,
any advertising or labeling needs to be viewed in context, as the
proposed Guides state.4 The Commission looks at the overall
impression created by an ad, and the existence of facts not described
in the examples could alter the Commission's interpretation of whether
a law violation has occurred. Nonetheless, departure from the more
definitive language used in recent Commission interpretations of the
FTC Act's requirements for environmental claims may discourage reliance
on the proposed Guides. It will be interesting to see any comments that
address this issue.
---------------------------------------------------------------------------
\2\ See Guides for the Use of Environmental Marketing Claims, 16
C.F.R. Part 260 (using ``is not deceptive'' or ``is deceptive''
rather than ``is not likely to be deceptive'' or ``is likely
deceptive'').
\3\ Compare, e.g., Proposed Guides Sec. VIII.B., Examples 1 and
2, with Green Guides, 16 C.F.R. Sec. 260.6(b), Examples 1 and 2.
\4\ Proposed Guides Sec. VI.A.
---------------------------------------------------------------------------
As I have stated on other occasions, I would have preferred to have
had the benefit of litigated administrative records, including
additional copy test evidence, addressing specific ``Made in USA''
advertising campaigns in different industries. A majority of this
Commission decided to proceed differently. Over time we will know if
this undertaking--when combined with a consumer and business education
campaign--reduces confusion, encourages compliance, and provides
consumers with more information on which to base their purchasing
decisions.
[FR Doc. 97-11814 Filed 5-6-97; 8:45 am]
BILLING CODE 6750-01-P
