[Federal Register Volume 60, Number 201 (Wednesday, October 18, 1995)]
[Notices]
[Pages 53922-53930]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-25887]
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FEDERAL TRADE COMMISSION
Request for Public Comment in Preparation for Public Workshop
Regarding ``Made in USA'' Claims in Product Advertising and Labeling
AGENCY: Federal Trade Commission.
ACTION: Request for public comment in preparation for proposed Federal
Trade Commission workshop on the use of ``Made in USA'' claims in
product advertising and labeling.
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[[Page 53923]]
SUMMARY: On July 11, 1995, the Federal Trade Commission announced that
it will conduct a comprehensive review of consumers' perceptions of
``Made in USA'' claims in product advertising and labeling. As part of
this review, the Commission will invite representatives of consumers,
industry, government agencies, and other groups to attend a public
workshop to exchange views on the issues. Among other things, the
Commission will be determining (i) whether it should alter its legal
standard regarding the use of unqualified ``Made in USA'' claims, and
(ii) how domestic content should be measured under any future standard.
The Commission plans to hold the workshop in Washington, D.C., in
February or March 1996, and has undertaken a consumer perception study
for use in that workshop. Today's notice seeks written comment on the
issues that will be addressed at the workshop.
The Commission will consider comments of all persons, including
non-participants in the workshop. However, any person who expects to
apply for participation in the workshop must file a written comment at
this time. The Commission will issue a second Federal Register notice
setting the date and specific location of the workshop and requesting
applications for participation, once a projected finish date for the
study is established.
DATES: Written comments must be submitted on or before January 16,
1996.
ADDRESSES: Six paper copies of each written comment should be submitted
to the Office of the Secretary, Federal Trade Commission, Room 159,
Sixth and Pennsylvania Avenue, N.W., Washington, D.C. 20580. To
encourage prompt and efficient review and dissemination of the comments
to the public, all comments also should be submitted, if possible, in
electronic form, on either a 5\1/4\ or a 3\1/2\ inch computer disk,
with a label on the disk stating the name of the commenter and the name
and version of the word processing program used to create the document.
(Programs based on DOS are preferred. Files from other operating
systems should be submitted in ASCII text format to be accepted.)
Individuals filing comments need not submit multiple copies or comments
in electronic form. Submissions should be captioned: ``Made in USA
Policy Comment,'' FTC File No. P894219.
FOR FURTHER INFORMATION CONTACT: Robert Easton, Special Assistant,
Division of Enforcement, Federal Trade Commission, Washington, DC
20580, telephone 202-326-2823.
SUPPLEMENTARY INFORMATION:
Introduction
The Commission is directed to prevent ``unfair or deceptive acts
and practices'' under section 5 of the Federal Trade Commission Act
(``FTC Act''), 15 U.S.C. 45. A deceptive act or practice is one that is
likely to mislead consumers acting reasonably under the
circumstances.1 It is under this general authority to prevent
deceptive acts or practices that the Commission addresses ``Made in
USA''2 claims in product advertising and labeling.
FTC deception law does not require manufacturers to disclose the
degree of domestic content in their products.3 If manufacturers
choose to advertise the domestic origin or content of their products,
however, the claims must be truthful and substantiated. Thus, FTC law
prohibits sellers from making affirmative claims that exaggerate the
domestic content of their products. As a result, manufacturers whose
products are not entirely domestic and who claim their products are
Made in USA may be required to qualify the Made in USA claims. An
example of a qualified claim would be ``Made in USA of foreign and
domestic components.''
Historically, the Commission has treated unqualified Made in USA
claims as implying that products are ``wholly of domestic
origin.''4 In recent years, the Commission also has taken action
against firms that allegedly deceived consumers by concealing the fact
that their goods were manufactured in foreign countries.5 Over the
last few decades, however, the Commission has not, until recently,
brought enforcement actions against those making Made in USA claims for
products assembled in the United States. Nonetheless, older Commission
cases and advisory opinions clearly required these products also be
wholly domestic in origin.6
On September 20, 1994, the Commission published for comment a
consent agreement subject to final approval in Hyde Athletic
Industries, Inc. (F.T.C. File No. 922-3236).7 On the same day, the
Commission issued a complaint in New Balance Athletic Shoe, Inc.
(F.T.C. Docket No. 9268).8 In both matters, the proposed complaint
alleged that the sellers represented that their goods are ``made in the
United States, i.e., that all, or virtually all, of the component parts
of the [goods] are made in the United States, and that all, or
virtually all, of the labor in assembling the [goods] is performed in
the United States.'' The representations were alleged to be false
because (1) a substantial portion of the firms' product lines was
assembled overseas of foreign parts, and (2) a substantial portion of
the products assembled in the U.S. was composed of foreign components.
In its announcement of the Hyde consent agreement, the Commission noted
that its decision was based in part on ``extrinsic evidence obtained by
the Commission regarding consumer perceptions of `Made in USA'
claims,'' and invited commenters to submit their own consumer
perception evidence.9
Over 150 commenters responded to this request for comment. Many
commenters objected to the ``all or virtually all'' standard as being
too stringent. Commenters argued that, with increased globalization of
production, most consumers today do not assume that ``Made in USA''
products contain ``all or virtually all'' U.S. parts and labor.
Commenters also argued, among other things, that the Commission's
standard was inconsistent with other government standards (e.g., U.S.
Customs Service requirements), could not be met by many sellers today,
and would make it difficult for sellers to promote the use of United
States labor in products.
Recognizing the public interest in these issues, the Commission on
July 11, 1995 announced it would conduct a comprehensive review of
consumers' perceptions of Made in USA advertising claims. The
Commission also announced it would hold a public workshop to allow a
variety of interested parties to exchange views on relevant
issues.10
Commission staff are conducting a research project to help
determine how consumers currently view Made in USA and related claims.
The Commission will place the results on the public record for use by
workshop participants and the general public. Once the project is
sufficiently advanced to allow a prediction of its completion date, the
Commission will announce the date, specific location, and details of
the workshop in a new Federal Register notice. At that time, the
Commission also will solicit applications for participation in the
workshop. No applications should be submitted except in response to
that later notice. Notwithstanding the later date for applications,
interested parties must submit written comments in response to today's
Federal Register notice in order to participate in the workshop.
A summary of the subjects on which the FTC is soliciting comments
appears in Part V of this notice. As discussed further in Part V, all
written comments, including those from non-participants, will be made
available to the public, both through the FTC's Public Reference Room
and over the Internet, and will be
[[Page 53924]]
considered by the Commission in formulating its future policy regarding
Made in USA claims.
The issues on which the Commission desires comment are as follows.
I. Consumer Perception of Made in USA Claims and the New Global Economy
A. Direct Evidence of Consumer Perception
A primary objective of the Commission's consumer protection mission
is to enhance consumer choice. In exercising its authority to prohibit
deceptive acts or practices, the Commission seeks to ensure that
consumers can choose products on the basis of accurate
information.11 This policy applies to claims regarding the country
of origin of products.
In determining whether a representation is deceptive, the
Commission first must determine what that representation (whether in an
advertisement or a label) expressly states or implies to consumers.
Claims may be made expressly, through direct representations, or they
may be implied. With respect to implied claims, the Commission often is
able to conclude that an advertisement (or label) contains an implied
claim by evaluating the content of the ad and the circumstances
surrounding it. When the Commission cannot do so, the Commission will
not find the advertisement to have made an implied claim unless
extrinsic evidence allows it to conclude that such a reading of the
advertisement is reasonable. Such evidence can include such sources as
reliable results from methodologically sound consumer surveys, evidence
respecting the common usage of terms, generally accepted principles
drawn from market research, and expert opinion.12
Whether an unqualified Made in USA claim means ``all or virtually
all'' domestic content or some lesser proportion depends on the implied
message in the advertisement or label. Thus, direct or extrinsic
evidence of how consumers view Made in USA claims can contribute
significantly to the Commission's analysis.
The Commission already possesses some extrinsic evidence regarding
Made in USA claims. In 1991, the Commission performed a consumer
perception study that asked consumers general questions about Made in
USA claims, as well as questions about the use of such claims in
specific advertisements. The results of that study suggest that many
consumers view ``Made in USA'' claims as representing that products
possess high domestic content. For example, approximately 77% of the
consumers stated that, in general, Made in USA references mean ``all or
nearly all'' parts and labor are domestic.13
The Commission placed this consumer perception study on the public
record on July 11, 1995, and now invites comment on the study. The
Commission also invites the public to submit any other direct evidence
of consumer perception of Made in USA claims for placement on the
record and discussion at the workshop.
B. The Impact of Increased Globalization of Production on Consumer
Perception
Some commenters in Hyde offered circumstantial evidence in support
of a more lenient standard for Made in USA claims. They noted that the
world economy has changed significantly since the Commission's standard
was first adopted. Consumers now recognize that many products are no
longer made wholly in the United States. Thus, it was argued, many
consumers no longer believe that a Made in USA claim means the product
is ``all or virtually all'' domestic in origin.
The Commission recognizes that substantial changes in the domestic
production of goods have occurred since the time that the Commission's
first Made in USA cases were brought. For many products, the
globalization of production is so advanced that it is difficult to
identify any one unique country of origin for the product. There also
is little question that some consumers are aware that many goods
assembled here have foreign parts.
In the workshop, an important issue will be how this increased
awareness of foreign sourcing affects consumer perceptions when
consumers are confronted with specific Made in USA claims in
advertising or product labeling. On the one hand, it may be that
consumers today more readily ``discount'' or take alternative meanings
from unqualified Made in USA claims. For example, there may be product
categories where consumers know through the media that most product
parts come from other countries. At the same time, there is reason to
question whether consumers now view Made in USA claims differently than
in the past. Consumers may have a generalized knowledge of product
origin, but not enough information about specific brands to assess a
particular seller's country-of-origin claims.14 In addition, to
the extent that consumers are generally aware of increased foreign
manufacture, this may, in some circumstances, actually strengthen the
appeal of a Made in USA claim. An aggressive Made in USA claim for a
product of a kind known typically to be made abroad may suggest to
consumers not only that the advertised product is domestically
manufactured, but that it is unusual in this respect.15
The Commission invites commenters to submit any circumstantial
evidence or other arguments addressing how consumers currently view
Made in USA claims. In particular, the Commission is interested in how
the following factors might affect such perceptions: (1) The type or
complexity of the product; (2) general consumer knowledge of the
foreign sourcing for the type of product; (3) the frequency or
prominence of the claim (e.g., an aggressive advertising campaign
versus an inconspicuous claim); and (4) the presence of express or
implied claims that the seller is superior or unique with respect to
the domestic content of its product.
II. The Costs and Benefits of an ``All or Virtually All'' Standard
Compared to Other Standards
A. Impact on Domestic Commerce
Some commenters in Hyde contended that the ``all or virtually all''
standard set forth initially in the proposed Hyde consent agreement is
unattainable and deprives manufacturers of a selling tool that could
help preserve American jobs. Many of these commenters argued that few
sellers today have products with high domestic content. One solution
offered by such commenters was for the Commission to permit Made in USA
claims when the products are made with at least 50% domestic parts and
labor.
Firms that wish to retain or increase American labor content in the
face of possibly lower foreign labor costs may need an effective
advertising message to compete. ``Made in America'' and similar phrases
have a cachet and simplicity that may make them effective tools in
advertising and product labeling. However, a much smaller percentage of
products assembled in the United States today is comprised of all or
virtually all U.S. parts and labor, compared to previous decades, and
this trend is likely to continue.
At the same time, there is reason for caution in adopting a
substantially lower threshold of domestic content for Made in USA
claims. A lower threshold could permit deceptive claims if consumers
still believe that Made in USA claims imply high domestic
content.16 In this regard, the Commission seeks comment on the
relative costs and benefits of an ``all or virtually all'' standard and
a lower threshold, such as 50%.
[[Page 53925]]
Implicit in the above arguments for a lower domestic content
standard is the assumption that sellers of products with relatively
high domestic content cannot tout this advantage with qualified claims,
because it is impractical to convey such qualifications or because they
lack commercial appeal. Accordingly, the Commission also invites
comment on the costs and benefits to business of using qualified,
rather than unqualified, Made in USA claims. Commission doctrine
permits sellers to make truthful and nonmisleading claims concerning
the amount of domestic content in their products, in both absolute and
comparative terms. The Commission requests comment on whether and to
what extent qualified Made in USA claims--e.g., ``Made in USA of
domestic and imported parts,'' ``Made in USA with at least 70% U.S.
parts and labor,'' or ``The most U.S. content of any leading brand''--
unduly burden an advertiser's domestic content message. The Commission
also requests comment on the practical considerations in using
qualified claims, including the problem of space limitations. In
particular, do even relatively short qualifications--e.g., ``80% US
parts''--present practical problems in fashioning advertisements or
labels, and would such problems inhibit the use of domestic content
claims?17
In addition, the Commission seeks comment on specific domestic
origin phrases or messages that might adequately convey the amount or
presence of foreign content in products, yet address practical
concerns. For example, one alternative claim that has been suggested is
``Assembled in USA.'' The Commission is interested in receiving
information as to what meaning consumers take from this phrase and
whether use of the term would avoid undue inferences of domestic
content.18
B. Impact on International Trade
Some commenters in Hyde have suggested that strict FTC standards
for unqualified Made in USA claims could lead to conflicting
requirements (and thus manufacturing inefficiencies) for U.S. companies
that sell their goods both here and abroad. For example, some
commenters claimed that foreign customs officials permit (or even
require) simple Made in USA labels in circumstances where the FTC would
require qualified claims. Where such labels are permanently affixed to
or incorporated in the item, the manufacturer may have to run separate
production runs for the same product, one for foreign sales (``Made in
USA'') and one for domestic sales (``Made in USA from foreign and
domestic parts'').
In this regard, the Commission invites comment on consumers' and
businesses' experience with foreign customs laws and practices with
respect to qualified Made in USA claims. The Commission also wishes to
explore alternatives for granting sellers the flexibility to comply
with both FTC law and foreign customs, while avoiding deceptive
labeling practices. One possible option would be to permit sellers to
place unqualified labels on products (e.g., ``USA'') to be shipped to
both foreign markets and within the United States, as long as sellers
disclose foreign content to U.S. consumers by other means, such as
packaging or hangtags.19
C. The Costs and Benefits of Adopting the Country-of-Origin Rules of
Other U.S. Government Agencies
U.S. Customs Service. The Tariff Act requires, specifically for
purposes of quotas and duties, that products entering the United States
bear ``the English name of the country of origin of the article,'' and
that one foreign country be designated as the country of origin.20
Generally speaking, Customs law requires a foreign origin marking on
the imported article unless the imported item will be ``substantially
transformed'' in the United States.21 Although Customs law imposes
no requirements regarding the disclosure of domestic content and
therefore does not address preconditions for Made in USA claims,22
some commenters in Hyde urged the Commission to apply the substantial
transformation test to Made in USA claims.23
The latter approach would have the benefit of applying one set of
rules to both claims of domestic origin and claims of foreign origin.
However, the substantial transformation test is principally aimed at
determining a country of origin for purposes of tariffs and quotas, not
anticipating the degree of domestic content that consumers would attach
to affirmative Made in USA claims. Products substantially transformed
in the United States could still contain higher foreign content than
consumers might be led to believe by affirmative Made in USA labels or
advertisements.
Other Laws and Regulations. Other statutes and regulations involve
country-of-origin determinations as well. For example, the Buy American
Act requires that federal agencies purchase only such products as were
mined or produced in the United States, or are at least 50% domestic in
value.24 However, the law does not deal with advertising or
labeling, and its definition does not appear to be tailored to consumer
perception of Made in USA claims. Another example of a law involving
country-of-origin determinations is the American Automobile Labeling
Act,25 which requires that each automobile manufactured on or
after October 1, 1994 for sale in the United States bear a label
disclosing, among other things, where the car was assembled, the
percentage of equipment which originated in the United States and
Canada, the country of origin of the engine, and the country of origin
of the transmission. The Commission invites comment on whether, and in
what respect, any aspect of these laws or other laws are relevant to
the development of the Commission's Made in USA advertising and
labeling policy.
III. Issues Regarding the Computation of Domestic Content
The Commission's advertising substantiation doctrine requires that
any objective claim be supported by a ``reasonable basis''26--
commonly defined in Commission orders as ``competent and reliable
evidence'' that substantiates the representation.27 Thus, whatever
threshold for domestic content is adopted, an advertiser making a Made
in USA claim must have substantiation that its product in fact meets
that threshold.
Some commenters in the Hyde matter, however, stated that the
Commission's current standard gives little guidance as to how domestic
content is to be computed. Commission staff also routinely receive
inquiries on this subject from consumers and businesses seeking
guidance. Therefore, the Commission solicits comment on alternative
methods of calculating domestic content.
A. A Proposed Formula for Measuring Domestic Content
In defining the appropriate method of measuring domestic content,
whether the threshold for Made in USA claims is ``all or virtually
all'' or some lesser proportion, several approaches are possible. For
example, it might be possible to measure the proportion of labor hours,
proportion of total labor cost (wages), or to impose separate
requirements for minimum labor and minimum parts costs.
For discussion purposes, one possible formula for computing
domestic content is as follows:
Before making Made in USA claims, sellers must demonstrate that
their products contain X percent domestic content. This percentage
shall be computed by (i) dividing DOMESTIC CONTENT (purchase
cost28 of U.S. parts +
[[Page 53926]]
cost of U.S. labor and direct overhead in final assembly) by (ii) TOTAL
PRODUCT COST.
The Commission invites comment on this formula, and any alternative
approaches.
In addition, whatever approach is adopted, it is likely to require
resolution of the following issues.
1. The ``Domestic Content'' Determination: Identifying ``U.S. Parts''
at the Component and Subcomponent Level
A central issue in calculating domestic content is determining how
far back in the production process to search. May the seller simply
determine the origin of product parts ``one step back'' in the
production process? What if a large number of subcomponents within the
supposedly U.S. parts are made in foreign countries?
Below, the Commission offers for discussion a number of options for
measuring ``U.S. parts.'' The Commission requests comment on the
reasonableness of each approach and any alternatives.
a. Computation at All Stages of Production: Under this approach,
the manufacturer of the final product would need to find out from parts
suppliers, or through other reliable evidence, where the component
parts of the product were made and where the subcomponents of these
parts were made. A seller who wished to make an unqualified Made in USA
claim would need to proceed with this inquiry as far back in the
production process as necessary to determine whether the threshold for
domestic content (whether 100%, 50%, or something else) was met.
Although this may appear a formidable task, the ease of applying
this rule likely will depend on the type of product and the necessary
threshold. Through experience, many manufacturers know the origin of
the components and subcomponents in their products.29 The simpler
the product, the simpler the determination. The most difficult
circumstance may be where the company manufactures a complex product
with many tiers of production and it appears that the product is close
to meeting the domestic content threshold. Manufacturers who frequently
change from domestic to foreign parts suppliers also may find it
difficult to make these determinations.30
b. ``One or Two Steps Back'': Another approach would be to require
specific determination of the country of origin of all parts and
subcomponents, but only one or two steps back in the production
process. Under a one step back approach, for example, a lawn mower
manufacturer would determine whether the basic parts in final
assembly--e.g., engine, wheels, platform, handle--were assembled in
plants in the United States.31 This approach may result in
reasonable determinations of domestic content, if consumers only take
Made in USA claims as meaning ``basic parts were made here.'' This
approach is already used in the textile area.32 In many
circumstances, it may also have the advantage of ease of application--
although some difficulties may arise in determining what constitutes a
single ``step'' (or two ``steps'') back in the manufacturing
process.33
If, however, consumers are concerned with the true proportion of
labor or profit that can be attributed to U.S. workers and firms, then
the approach of looking only ``one step back'' may open the door to
misleading Made in USA claims. Automobiles (although separately
regulated by the American Automobile Labeling Act) provide an obvious
example. Examining only the basic parts put together in the final stage
of assembly--e.g., assembled engine, transmission, etc.--would mask
enormous added foreign value in some instances. The same could be said
of many complex products.
2. Adding ``Domestic Content'' at the Final Stage of Assembly
The cost of parts is not the only measure of domestic value. At
final assembly, there is the addition of labor on the assembly line,
packaging, and other direct costs of producing the particular item
(e.g., energy use).
One issue is whether domestic content can be further amplified by
allocating any portion of general overhead to the manufacture of the
product. Another issue is whether sellers can make Made in USA claims
for products that have high domestic content, but do not undergo final
assembly in the United States.34 Such products may sufficiently
contribute to U.S. wealth and labor creation to satisfy consumer
expectations of Made in USA claims. However, consumers also may find it
material whether final assembly took place in the United States.35
3. The Definition of ``Total Product Cost''
The final step in the formula is to divide the domestic content
figure into ``total product cost.'' The latter obviously will be a
higher figure than ``domestic cost'' when the product contains foreign
components. On the simplest level, total product cost would be the
total purchase price of foreign parts plus all the domestic costs added
previously. However, the Commission invites comment on whether any
additional elements should be added to the total cost of the product.
B. ``Reasonable Basis'': an Alternative Approach
Rather than, as suggested above, adopting a particular formula for
calculating domestic content, one alternative would be simply to
require that advertisers possess a ``reasonable basis'' for an express
or implied claim that their products contain a proportion of domestic
content, as required generally by the Commission's substantiation
doctrine. Such an approach would permit advertisers greater flexibility
in determining how to substantiate their claims, and might be less
restrictive of truthful Made in USA claims. However, a ``reasonable
basis'' standard, unelaborated upon, also provides less certain
guidance to businesses and consumers. The Commission invites comment on
the costs and benefits of utilizing a reasonable basis standard versus
specifying a particular method for calculating domestic content.
IV. Form of Guidance
At the conclusion of the workshop, the Commission will have several
options for giving guidance to the public on Made in USA claims.
Possible options include, among others, case-by-case enforcement, an
enforcement policy statement, interpretive guides, or a rulemaking
under the Crime Bill. The Commission seeks comment on the form of
guidance that would be most useful.
One question is whether it would be preferable for the Commission
to state a general rule (e.g., ``all or virtually all,'' ``substantial
domestic content'') or a bright-line percentage threshold for Made in
USA claims.36 A related question is whether the Commission, were
it to adopt a non-numeric rule, should also provide for safe harbors
for firms whose products meet some minimum percentage threshold for
domestic content. The Commission requests comment on the foregoing
issues.
V. Information for Interested Persons
A. Invitation to Comment
Interested persons, including those who may wish to participate in
the public workshop, are requested to submit written comments on any
issue of fact, law or policy that may have bearing upon the
Commission's policy on Made in USA claims. Although the Commission
welcomes comments on any aspect of its policy regarding Made in USA
claims, the Commission is particularly interested in comments on
[[Page 53927]]
the issues discussed above. Specifically, the Commission wishes comment
on the following questions:
1. When consumers see product advertisements or labels stating or
implying that products are ``Made in USA,'' ``Made in America,'' or the
equivalent, what amount of U.S. parts and labor do they assume are in
the products?
a. Are there surveys, copytests, or other direct evidence of
consumer perception that will aid the analysis?
b. How has increased consumer knowledge of foreign imports or
foreign components affected such perceptions? How much knowledge of
foreign sourcing of components do consumers have?
c. How much, if at all, is consumer perception of Made in USA
claims affected by the type of product, complexity of the product, or
other factors?
d. Do consumers attach higher domestic content to products claimed
to be Made in USA when the claims are presented with greater prominence
or frequency? When they are featured in advertising, as opposed to
merely on labels?
2. What are the costs and benefits of an ``all or virtually all''
threshold for Made in USA claims, versus a lower threshold (e.g., 50%)?
a. What are the precise benefits of being able to make unqualified
Made in USA claims for lower domestic-content products? What impact
would this have on firms that now meet the higher standard? On firms
that might be able to raise their domestic content to meet a lowered
threshold?
b. What difficulties are there in making truthful comparative or
qualified claims that reveal that the product is not wholly domestic?
Is qualifying claims more difficult in this context than in other
advertising or labeling contexts (e.g., ``30% lower in fat than the
leading brand'')? Do advertising and labeling pose the same
considerations?
c. What are the costs and benefits of alternative thresholds (e.g.,
50%, 75%, products ``substantially transformed'' in the United States)?
d. What are the costs to consumers, when the actual domestic
content in ``Made in USA'' products is lower than consumers are led to
believe?
e. If adding qualifications to Made in USA claims sometimes is
impractical or costly due to space limitations, are there alternative
phrases that meet this concern and also adequately inform consumers of
foreign content? Do such formulations as ``USA 80%,'' ``Made in USA
(80%),'' or similar formulations satisfy these concerns?
f. What do consumers understand the phrase ``Assembled in USA'' to
mean? Would consumers view such terms as ``Assembled in USA'' as
suggesting that the product may have substantial foreign content? How
much foreign content? What are the costs and benefits of allowing such
a claim for a product where there is only minimal domestic assembly?
3. What are the costs and benefits of using the same tests for Made
in USA claims as those imposed by U.S. Customs requirements
(``substantial transformation''), the Buy America Act (50% cost), and
other domestic content statutes or rules?
4. Do foreign customs officials prohibit the addition of qualifying
phrases on Made in USA labels? If so, does the traditional FTC
requirement that labels make disclosures of substantial foreign content
add significant manufacturing costs where sellers wish to sell a single
item in domestic and foreign markets? Would an option of stating
qualifying disclosures only on packages, hangtags, etc. at time of sale
in the U.S. market significantly reduce such costs?
5. How should the proportion of domestic content be measured with
respect to Made in USA claims?
a. In determining the U.S. value added by parts and components, is
it sufficient to determine the purchase cost of parts and components
made in U.S. plants? Do other measures better measure the U.S. content
from the consumer's perspective?
b. Should the determination of U.S. value added by parts and
components exclude raw materials? If so, what should be the definition
of raw materials?
c. What are the costs and benefits of requiring sellers to
determine the source of all components and subcomponents before making
Made in USA claims?
d. What are the costs and benefits of permitting Made in USA claims
where the seller has determined that a sufficient percentage of parts
and components ``one step back'' in the manufacturing process were made
in U.S. plants? Two steps back? At some other stage in production?
e. What types of costs, other than direct labor costs, should be
added to the domestic content measure at the stage of final assembly?
Only direct overhead? If general overhead (e.g., real estate taxes,
administrative costs), how can the measure be defined to avoid sellers
from artificially inflating the domestic content of products for this
purpose?
f. Should the profit to the final U.S. assembler of the product be
counted toward domestic content?
g. What are the costs and benefits of a case-by-case determination
that requires sellers to have a ``reasonable basis'' for their Made in
USA claims, rather than requiring a particular method of computing
domestic content? Would this lesser certainty provide insufficient
guidance or fail to deter misleading Made in USA claims?
6. What form of guidance should the Commission offer with respect
to Made in USA claims?
a. Should the form of guidance be case-by-case enforcement, an
enforcement policy statement, guides, or a rulemaking? Are there other
forms of guidance that would be more useful or cost efficient?
b. Should the Commission offer a bright-line test whereby sellers
can make Made in USA claims only if the product contains a specific
percentage of domestic cost? If a non-numerical threshold for permitted
claims is adopted, would it be helpful to establish safe harbors within
that threshold to establish what types of claims always would be
permitted?
The Commission requests that commenters provide representative
factual data in support of their comments. Individual firms'
experiences are relevant to the extent they typify industry experience
in general or the experience of similar-sized firms. Comments should,
if possible, suggest specific alternatives to various proposals and
include reasons and data that indicate why the alternatives would
better serve the Commission's statutory mandate of protecting consumers
against deception.
Written comments submitted will be available for public inspection
in accordance with the Freedom of Information Act, 5 U.S.C. 552, and
Commission regulations, on normal business days between the hours of
8:30 a.m. to 5:00 p.m. at the Public Reference Room 130, Federal Trade
Commission, 6th and Pennsylvania Ave., N.W., Washington, D.C. 20580.
In addition, the FTC will make this notice and, to the extent
technically possible, all comments received in response to this notice
available to the public through the Internet. To access this notice and
the comments filed in response to this notice, access the World Wide
Web at the following address: http://www.ftc.gov.
At this time, the FTC cannot receive comments made in response to
this notice over the Internet.
[[Page 53928]]
B. Public Workshop
The Commission's staff will conduct a public workshop to afford
Commission staff and interested parties an opportunity to discuss the
foregoing issues and other relevant issues raised in the written
comments.
As stated previously, the Commission is conducting a consumer
research project regarding consumer perception of Made in USA claims.
Although the Commission has commenced work on this project, it is not
yet clear when the results will be available. However, the Commission's
goal is to have the work finished in time so that the workshop could be
held in Washington, D.C., in February or March 1996. The Commission
will issue a new Federal Register notice announcing the date and
specific location of the workshop once staff has a projected finish
date for the study.
The Commission recognizes that interested parties may not be able
to determine whether they can participate in the workshop until they
are informed of the specific dates. Therefore, the Commission will not
solicit applications for participation at this time. However, the
Commission will only accept applications for participation from parties
who also have submitted written comments in advance of the proceeding.
Accordingly, any party who expects to submit an application for a
workshop should submit a written comment in response to this Federal
Register Notice.
The next Federal Register notice will describe the workshop in more
detail. In general, the Commission expects to conduct the workshop as
described below.
The intent of the workshop will not be to achieve a consensus of
opinion among participants, or between participants and Commission
staff, with respect to any issue raised in this proceeding. However,
the Commission will consider the views and suggestions made during the
workshop, in addition to any written comments, in formulating its
future policy regarding Made in USA claims.
If the number of parties who request to participate in the workshop
is so large that including all requesters would inhibit effective
discussion among the participants, then Commission staff will select as
the participants a limited number of parties to represent the interests
of those who submit written comments. The selections will be made on
the basis of the following criteria:
1. The party submits a written comment by January 16, 1996.
2. In response to the next Federal Register notice announcing the
date of the workshop, the party notifies Commission staff of its
interest and authorization to represent an affected interest by the
workshop notification date.
3. The party's attendance would promote a balance of interests
being represented at the conference.
4. The party's attendance would promote the consideration and
discussion of the issues presented in the workshop.
5. The party has expertise in issues raised in the workshop.
6. The party adequately reflects the views of the affected
interest(s) which it purports to represent.
7. The party has been designated by one or more interested parties
(who timely file requests to participate and written comments) as a
party who shares group interests with the designator(s).
8. The number of parties selected will not be so large as to
inhibit effective discussion among them.
If it is necessary to limit the number of participants, those not
selected to participate, but who submit both requests to participate
and written comments, will be afforded an opportunity at the end of the
session to present their views during a limited time period. The time
allotted for these statements will be determined on the basis of the
time necessary for discussion of the issues by the selected parties, as
well as by the number of persons who wish to make statements.
A neutral, third-party facilitator may be retained for the public
workshop. Prior to the conference, the participants will be provided
with copies of the written comments received in response to this
Notice. The discussion during the workshop will be transcribed and the
transcription will be placed on the public record.
Authority: 15 U.S.C. 41 et seq.
By direction of the Commission, Commissioner Starek dissenting.
Donald S. Clark,
Secretary.
Notes
1. See Cliffdale Associates, Inc., 103 F.T.C. 110 (1984),
reprinting as an appendix letter dated Oct. 14, 1983, from the
Commission to The Honorable John D. Dingell, Chairman, Committee on
Energy and Commerce, U.S. House of Representatives (``Deception
Statement'').
Under settled Commission doctrine, claims are deemed deceptive
if even a ``significant minority'' of consumers are misled. ``An
interpretation may be reasonable even though it is not shared by a
majority of consumers in the relevant class, or by particularly
sophisticated consumers. A material practice that misleads a
significant minority of reasonable consumers is deceptive.'' Kraft,
Inc., 114 F.T.C. 40, 122 (1991), aff'd, 970 F.2d 311 (7th Cir.
1992), cert. denied 113 S.Ct. 1254 (1993).
2. In this notice, ``Made in USA'' refers to any message in
which the terms, text, phrases, images, or other depictions refer
solely to the United States as the country of origin, without
disclosing the extent or fact of foreign components or labor. ``Made
in America,'' ``U.S.-Made,'' and ``All American'' are examples of
equivalent terms. However, the proceeding also will address the
circumstances under which other terms, e.g., ``Assembled in USA,''
``Crafted in the USA,'' etc. might convey the same message and
therefore have to satisfy the same threshold of domestic content.
3. Some statutes require disclosure of domestic origin or
domestic content. See, e.g., Textile Products Identification Act, 15
U.S.C. 70; Wool Products Labeling Act, 15 U.S.C. 68 (both enforced
by the FTC).
4. See, e.g., Windsor Pen Corp., 64 F.T.C. 454 (1964); Vulcan
Lamp Works, Inc., 32 F.T.C. 7 (1940). From the 1940's through the
1960's, Commission cases uniformly stated that such unqualified Made
in USA claims implied that the product was wholly domestic. In
addition, the Commission in the late 1960's and early 1970's issued
numerous public advisory opinions stating that a manufacturer could
claim that a product was Made in USA only if the product was
comprised wholly of domestic parts and labor. See Foreign Origin, 3
Trade Reg. Rep. (CCH) para.7551 (1988) (discussing FTC advisory
opinions and cases on country-of-origin issues).
In a related line of cases, the Commission has also imposed a
requirement that sellers affirmatively disclose foreign content,
rather than remain silent, when the cost of the product is
substantially (50 percent or more) foreign in origin and this
failure to disclose would mislead consumers as to the product's
origin. See Manco Watch Strap Co., 60 F.T.C. 495 (1962). The
Commission's different traditional threshold for Made in USA claims
(requiring wholly domestic content, rather than 50%) is based on the
fact that the seller, rather than remaining silent, has made an
affirmative Made in USA claim suggesting high domestic content. By
contrast, the seller's silence on origin may suggest a wider range
of scenarios regarding foreign versus domestic content.
5. See Nikki Fashions, Ltd., No. C-3404 (1992) and Richard B.
Pallack, Inc., No. C-3333 (1991)(alleged removal of foreign origin
labels); Manzella Productions, Inc., No. C-3503 (alleged
substitution of Made in USA labels for foreign origin labels); El
Portal Luggage, Inc., No. C-3499 (alleged removal of foreign origin
labels in store featuring prominent Made in USA signs).
6. In September 1994, Congress, citing instances where foreign-
made goods were labeled as Made in USA, enacted a domestic origin
labeling provision in section 320933 of the Violent Crime Control
and Law Enforcement Act of 1994, P.L. 103-322, 108 Stat. 2135
(``Crime Bill''). Section 320933 sets no substantive standard for
Made in USA labeling claims. Instead, the provision makes clear that
such claims are to be consistent
[[Page 53929]]
with section 5 of the FTC Act, and that the Commission is free to alter
its legal standard as circumstances warrant.
7. Commissioner Azcuenaga and Commissioner Owen dissenting.
8. Commissioner Azcuenaga dissenting. Because the New Balance
matter is now the subject of an order to show cause proceeding, see
discussion infra note 10, it would be inappropriate for the
Commission to discuss the merits of the case in this notice.
9. 59 FR 48,892, 48,894 (1994).
10. On the same day, the Commission (Commissioner Starek
dissenting) also voted to direct staff to renegotiate a revised
consent agreement with Hyde to remove the ``all or virtually all''
allegation and corresponding consent agreement terms. In addition,
the Commission (Commissioner Starek dissenting) stayed the
administrative proceeding in New Balance, and required New Balance
and FTC complaint counsel to show cause why the FTC's complaint and
notice order should not be amended in similar fashion.
11. In addition, the Commission, in acting against deception,
seeks to protect competition in the marketplace by ensuring that
firms that promote their products truthfully are not subject to
unfair competition from competitors who engage in deceptive
advertising.
12. See Kraft, Inc., 114 F.T.C. at 121-22.
13. The consumer perception study (the ``Smith-Corona test'')
involved 400 participants. The specific advertisements shown
consumers advertised Smith Corona typewriters and Huffy bicycles.
The Smith Corona advertisement showed a typewriter with various
claims in headlines and text, plus a relatively small ``Made in
USA'' reference under a company logo in the right margin. The Huffy
advertisement showed a picture of bicycles with price information
and claims in the upper left corner, plus a small ``Huffy, Made in
USA'' reference at the bottom.
With respect to the specific advertisements, 59% of the
consumers viewing Huffy bicycle advertisements thought that ``Made
in USA'' meant the bicycles contained over 90% U.S. parts and labor.
For typewriters, 49% of respondents viewed the claim as meaning the
product contained over 90% parts and labor. Consumers held this view
despite the fact that bicycle and typewriter industries have
experienced substantial foreign imports for many years, and that the
Made in USA references in the advertisements were quite modest and
made no express uniqueness or superiority claims regarding U.S.
content.
Nonetheless, the study suggests that consumer perceptions are
influenced by the nature of the claims and product. Whereas 77% of
participants thought that Made in USA claims, in the abstract,
implied that all or almost all the product was domestic in origin,
somewhat fewer took a ``90% or more'' message from the specific
advertisements--and here too there was some difference in perception
between the two ads. With respect to the typewriter advertisement,
participants explained the lower estimate of domestic content based
on such factors as the Canadian company address on the advertisement
and that ``most electronic parts [are] made abroad.''
14. Many consumers do not have ready access to any specific
information on component sourcing. For example, participants in the
Smith-Corona test who viewed ``control'' bicycle and typewriter
advertisements that lacked any Made in USA references held widely
differing views regarding the foreign content of these products. Ten
percent of the participants stated the products were 100% domestic;
21% said they ``do not know;'' and 45% said that at least 50% parts
and labor were provided by U.S. workers. Smith-Corona Test, Tables
10 and 12.
15. In determining what claim is made in an advertisement, the
Commission looks to the overall, net impression of the ad rather
than to any single element. Stouffer Foods Corp., Docket No. 9250,
(September 26, 1994) slip op. at 4; Kraft, 114 F.T.C. at 790. Thus,
a prominent Made in USA claim in an ad that featured American flags
and references to employing American workers might convey to
consumers a stronger claim of domestic content than would an ad
focused on other product features that contained an inconspicuous
``Made in USA'' in the corner.
16. It is unclear whether lowering the domestic content
threshold would in fact create greater incentives for American job
creation. Under a new lower standard (e.g., 50% domestic), any
producer now having higher domestic content would have the incentive
to lower the American labor and parts content to that new level
(assuming unqualified Made in USA claims are a distinct marketing
advantage and foreign production costs are lower). At the same time,
there could be offsetting effects. A new class of producers having
relatively low domestic content might find it advantageous to
increase domestic content just enough to reach the new threshold.
17. In this regard, the Commission notes that garment
manufacturers appear to have successfully adapted to the similar
requirements of the Textile Labeling Rule, 16 CFR 303.33, placing
qualifications on one-inch or smaller tags. The Commission also
observes that sellers have fashioned commercially appealing claims
in comparative terms in other contexts (e.g., ``50% lower in fat
than the leading brand'').
18. In this regard, the Commission cautions that literally true
statements at times can carry deceptive implications. See Kraft v.
FTC, 970 F.2d 311 (7th Cir. 1992), cert. denied, 113 S. Ct. 1254
(1993). Thus, the Commission invites comment on whether, for
example, an ``Assembled in USA'' advertising campaign might be
deceptive where the product is made almost entirely of foreign
components and there is minimal domestic assembly, and whether
consumers assume that an ``Assembled in USA'' product contains a
minimum amount of domestic labor or parts.
19. By analogy, FTC opinions have permitted foreign products
themselves to remain unlabeled (i.e., thereby possibly implying
domestic origin on the product itself) where space limitations
prevented proper disclosures, as long as country-of-origin
disclosures instead appeared on packaging. Hoover Ball & Bearing
Company, 62 F.T.C. 1410, 1413 (1963). See also Delaware Watch
Company, Inc., 63 F.T.C. 473 (1963) (permitting the use of a
separate tag or label on watches for disclosing foreign origin).
There are a number of constraints on this flexibility, however.
Deceptive representations cannot be cured by disclosures provided
substantially later in time. Deception Statement, 103 F.T.C. at 180.
Thus, for example, the use of unqualified Made in USA claims in
advertisements or store displays cannot be remedied by
qualifications that the consumer may or may not detect upon
receiving the package. Any disclosure also must be clear and
prominent. Id. at 180-81.
20. 19 U.S.C. 1304(a).
21. 19 CFR 134.1(b), 134.1(d)(1), and 134.35. As construed by
some courts, substantial transformation occurs when ``as a result of
processes performed in that country a new article emerges with a new
name, use or identity.'' Belcrest Linens v. United States, 741 F.2d
1368, 1371 (Fed. Cir. 1984).
22. The U.S. Customs Service, however, has jurisdiction to take
action where a required foreign origin marking has been removed and
replaced with a ``Made in USA'' marking. The Tariff Act declares it
unlawful for anyone (whether importer, wholesaler, or retailer) to
cover or remove a foreign-origin label that is already on a product.
19 U.S.C. 1304(i); 19 CFR 134.4.
23. Reportedly, some importers assume that whenever the U.S.
Customs Service determines that an imported product will be
substantially transformed in the United States and therefore need
not bear a foreign marking, that the importer then is free to place
a Made in USA label on that product. This view has no support in FTC
doctrine or U.S. Customs law. A Made in USA label only would be
permitted in that circumstance if it met the FTC's domestic content
requirements for Made in USA claims.
24. The Act specifically states that the products must be made
here or be ``substantially all'' from products mined or produced in
the United States. 41 U.S.C. 10a. The Act does not define what
``substantially all'' means for manufactured goods. However,
Executive Order 10582 (19 FR 8723 (1954)) defines ``foreign origin''
under a 50% of cost rule. See also 48 CFR 25.101 et seq. The
Department of Defense and the General Services Administration are
the two Federal agencies with prime responsibility for enforcing the
Buy American Act.
25. 15 U.S.C. 1950.
26. FTC Policy Statement Regarding Advertising Substantiation at
6, reprinted as appendix to Thompson Medical Co., 104 F.T.C. 648
(1984) (``Substantiation Statement'').
27. Depending on the nature of the claim, the Commission may
require a particular level of substantiation, such as ``competent
and reliable scientific evidence,'' defined as ``tests, analyses,
research, studies or other evidence based on the expertise of
professionals in the relevant area, that has been conducted and
evaluated in an objective manner by persons qualified to do so,
using procedures generally accepted in the
[[Page 53930]]
profession to yield accurate and reliable results.'' E.g., Nature's
Bounty, Inc., F.T.C. Docket No. C-3593 (July 21, 1995); Mattel,
Inc., F.T.C. Docket No. C-3591 (June 23, 1995).
28. This exclusive emphasis on total ``purchase cost'' of
components and subcomponents bought from U.S. plants--rather than
singling out only the U.S. labor hours or labor costs upstream in
production--offers a number of advantages. One is ease of
measurement. Another is that measuring the total purchase cost of
all components and subcomponents made in U.S. plants captures not
only the total U.S. labor cost but also profit to U.S. component
manufacturers. Studies have shown that many consumers have a
preference for American-made goods not only out of concern for
American labor, but also to increase U.S. wealth and take advantage
of American quality. See The Wirthlin Report, February 1992
(survey); Foote, Cone & Belding, ``The Buy America Issue,'' May
1992; ``East v. West; What Americans Really Think About Imports,''
Chain Store Age, January 1988, pp. 13-15 (Leo J. Shapiro &
Associates survey); Smith-Corona test, Tables 3, 5.
29. The total burden to industry of making these determinations
will depend, in part, on where the threshold is set. If it is true
that most complex products today contain substantial foreign
components, then such manufacturers presumably would know that any
information search would be fruitless under a high standard.
30. In determining how far back in the process to inquire, a
further issue is whether raw materials, or only processed goods,
should be counted in this or other measurement schemes. For some
products, raw materials may be so removed from the final stage of
production that they cease to have meaning to consumers as a
cognizable product component (e.g., petroleum in plastic products,
iron ore in steel products). Computing domestic content down to the
raw materials stage also could greatly increase the information-
gathering burden for sellers. At the same time, excluding raw
materials possibly could lead to anomalous results for products
wherein raw materials are a high proportion of cost (e.g., a diamond
ring). Obviously, some amount of American labor and wealth flows
from basic farming, mining, and other raw materials production. In
addition, excluding raw materials from the calculation would require
a workable definition of raw materials.
31. One question also is whether it is enough for the part to
have been finally assembled in the United States to qualify as a
``U.S. part,'' or must have been substantially transformed here as
defined by U.S. Customs rules.
32. See Textile Labeling Rules, 16 CFR 303.33(b). The operation
of the one step back rule in the textile area can be illustrated as
follows. Wool yarn is made in Australia and sold to a U.S. cloth
maker. This cloth maker sells the cloth to a U.S. manufacturer of
wool suits. The labels would be: yarn (``Made in Australia''); cloth
(``Made in U.S. of foreign yarn''); and garment (``Made in USA'').
The Commission notes that the textile industry is somewhat unique in
that Congress has mandated the placement of Made in USA labels on
all covered textile products manufactured here. Thus, there is
exceptional need for administrative convenience and a bright-line
rule.
33. This is not an issue in the textile context, where the
governing regulation sets out the various ``steps'' in the
production process. For other products, however, what constitutes
one step (or two steps) back in the production process may not be so
evident.
34. For example, one form of globalization is the development of
``maquiladoras'' in Mexico. These are plants primarily owned by U.S.
firms that provide labor-intensive assembly of components. It is
reported that 98% of the raw materials and components used in
products assembled by maquiladores are produced in the United
States. U.S. International Trade Commission, Review of Trade and
Investment Liberalization Measures by Mexico and Prospects for
Future United States-Mexican Relations: Phase I: Recent Trade and
Investment Reforms Undertaken by Mexico and Implications for the
United States, Inv. No. 332-282, USITC Pub. 2275 (April 1990), pp.
5-14.
35. An additional issue is whether not only cost, but also
profit to the U.S. assembler, should be counted in determining the
proportion of domestic origin of the product. Profit to foreign
parts suppliers is implicitly counted toward foreign value, as part
of total purchase price of foreign components. Including profits at
final assembly also addresses consumers' concerns over U.S. wealth
creation. At the same time, some profits in U.S. assembly operations
might be diverted to foreign owners, and there are complications in
defining profit. The Commission invites comment on the foregoing
issues.
36. A minimum percentage would provide the most certain
guidance. However, the evidence thus far does not suggest that
consumers attach a precise percentage boundary to Made in USA
claims. A bright-line percentage also might be more arbitrary for
other reasons. For example, products with unchanged domestic parts
and labor content could pass back and forth over the cost threshold,
based merely on foreign exchange fluctuations.
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Dissenting Statement of Commissioner Roscoe B. Starek, III in the
Matter of Request for Public Comment in Preparation for Public Workshop
Regarding ``Made In USA'' Claims in Product Advertising and Labeling,
Matter No. P894219
For the reasons stated in my dissenting statement in Hyde Athletic
Industries, Inc., File No. 922-3236, I oppose spending Commission
resources on a broad examination of whether and how to change the
Commission's standard for unqualified ``Made in USA'' claims. Case-by-
case enforcement is the appropriate means to evaluate ``Made in USA''
claims. If consumer perceptions of ``Made in USA'' claims vary from
industry to industry or support some other standard, the most promising
way to develop that evidence is by litigating individual cases in which
the particular ads at issue are copy tested.1 The Commission
regularly addresses in individual cases complex public policy concerns
within the scope of its competition and consumer protection missions,
with the benefit of arguments, evidence, and a record on which a fully
developed opinion can be based. I find no persuasive reason--only,
perhaps, some miscalculated conception of expediency--for abandoning
case-by-case enforcement in favor of a resource-intensive,
unnecessarily broad review more typical of a rulemaking.
\1\The extensive copy testing now planned in preparation for
this workshop could provide the Commission with additional evidence
of consumer perceptions that may be useful in the assessment of
future enforcement actions against a variety of domestic content
claims.
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As I have stated previously, in order to reduce firms' costs of
making ``Made in USA'' claims in compliance with the law, I support
providing guidance on the level of substantiation that the Commission
will require for those claims. It is unnecessary and ill-advised,
however, to drop enforcement efforts against clear violations of
Section 5 of the FTC Act while such guidance is being developed.
[FR Doc. 95-25887 Filed 10-17-95; 8:45 am]
BILLING CODE 6750-01-P