[Congressional Record Volume 147, Number 20 (Tuesday, February 13, 2001)]
[Extensions of Remarks]
[Pages E158-E159]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




  INTRODUCTION OF LEGISLATION ON MODIFYING THE FTC'S ORIGIN RULES FOR 
                                WATCHES

                                 ______
                                 

                       HON. DONNA M. CHRISTENSEN

                         of virgin the islands

                    in the house of representatives

                       Tuesday, February 13, 2001

  Mrs. CHRISTENSEN. Mr. Speaker, today I am introducing legislation 
which would modify the Federal Trade Commission's practices for 
determining the country of origin of domestic watches, including those 
watches manufactured in the United States Virgin Islands.
  The watch industry is the largest light manufacturing industry in the 
U.S. Virgin Islands and remains one of the most important direct and 
indirect sources of private sector employment in the Territory. The 
insular watch production industry is also highly importsensitive and 
faces continued threats from multinational watch producers, who have 
continued to move their watch production to lower wage countries. The 
legislation that I am introducing today will help assure that domestic 
watch producers can compete on a level playing field with foreign 
producers with respect to the labeling and advertising of the origin of 
watches sold in the U.S. marketplace.
  Currently, the FTC's test for determining whether a watch in made in 
the United States differs from the FTC's origin test for foreign-made 
watches, the Customs Service origin test for imported watches and 
longstanding international practice. The legislation that I am 
introducing today would rationalize these various tests by requiring 
that the FTC employ a common and well-established standard for 
determining the origin of all watches. This modification to the FTC's 
practice would help ensure that consumers have a uniform basis on which 
to judge the country of origin of watches. It would also help promote 
the operations of U.S. watch producers, particularly those in the U.S. 
Virgin Islands. The production of watch movements by these producers 
(and their subsequent production of finished watches) involve highly 
labor intensive operations which add considerable value to the finished 
watch and to the U.S. and Virgin Islands economies.
  The country of origin of a watch is, by longstanding international 
trade practice, generally considered to be the country in which the 
watch movement is produced. The movement is the ``guts'' of a watch. 
The production of a watch movement involves numerous, labor-intensive 
operations involving inspection, quality control, reworking and testing 
of some 35 to 45 individual parts prior to, during and after assembly. 
These operations require substantial investment in diversified 
precision equipment and employee training and add considerable value to 
the finished watch.
  In determining the country of origin of imported products, the U.S. 
Customs Service generally employs the well-established concept of 
``substantial transformation.'' The substantial transformation test--
which is supported by almost 100 years of judicial and administrative 
precedent--recognizes that some functional changes and processes 
involved in the production of an imported product are so

[[Page E159]]

significant as to create an entirely new article. I am informed that, 
in applying this concept to imported watches, the Customs Service has 
followed international practice and has determined that the production 
of a watch movement results in a substantial transformation and thereby 
determines the country of origin of the finished watch. Additionally, 
under the ``tariff shift'' origin rules adopted under NAFTA, the 
country of origin of the watch is the country where the movement was 
produced.
  In evaluating product labels or advertising that state a foreign 
country of origin for watches and other imported products, the Federal 
Trade Commission has generally permitted foreign claims that are based 
on substantial transformation. For example, based on the FTCs practice 
under section 5 of the Federal Trade Commission Act, a watch whose 
movement was produced in a foreign country from parts sourced worldwide 
could be labeled and/or advertised as made in that foreign country.
  The Federal Trade Commission applies a different and much more strict 
origin test to watches produced in the United States and the U.S. 
territories. Under this test, a watch whose movement is produced in the 
United States or the U.S. territories cannot be labeled or advertised 
as ``Made in the USA'' unless all or virtually all of the parts and 
labor employed in producing the movement and finished watch are of 
domestic origin. Thus, the FTC applies substantially different tests 
for determining the foreign and domestic origin of watches. These tests 
lead to different results in situations in which the only difference 
between two watches is the country where the movement was assembled.
  The FTC's current origin tests for watches discriminate against 
domestic producers, including those in the U.S. Virgin Islands. Given 
the globalization of the international watch components industry, it is 
virtually impossible, as a practical matter, for a domestic producer to 
source all of its watch components from U.S. sources. Thus, watches 
produced in the United States from U.S. assembled movements cannot be 
marked ``Made in the USA'' even though their production involves highly 
labor intensive operations which add considerable value to the watch. 
In contrast, under the FTC's current test, a watch made from a movement 
assembled in Japan from imported parts could be labeled as ``Made in 
Japan.'' These conflicting tests put U.S. producers at a considerable 
disadvantage in the marketplace and are confusing to U.S. consumers.
  My legislation would correct this unfair and confusing situation by 
requiring that the FTC apply the same substantial transformation test 
for determining the origin of all watches, including those watches that 
are labeled or advertised as ``Made in the USA.'' This common test will 
assure that origin rules for domestic watches conform with well-
established international and Customs Service practice and the FTC's 
own practice for imported watches. It will enable U.S. producers, 
including those in the Virgin Islands, to employ country of origin 
labels or claims in the same circumstances in which their foreign 
competitors could label or advertise that their watches are made in a 
foreign country. Finally, the legislation would provide U.S. consumers 
with a clear and consistent test for determining where watches are 
made.

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