[Federal Register Volume 61, Number 82 (Friday, April 26, 1996)]
[Notices]
[Pages 18600-18603]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10364]



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FEDERAL TRADE COMMISSION


Extension of Time; Comprehensive Review of ``Made in USA'' Claims

AGENCY: Federal Trade Commission.

ACTION: Extension of time for filing public comments.

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SUMMARY: The Federal Trade Commission (``Commission'' or ``FTC'') is 
conducting a comprehensive review of ``Made in USA'' claims in product 
advertising and labeling. As part of its review, the Commission invited 
representatives of consumers, industry, government agencies, and other 
groups to attend a public workshop to exchange views. On December 19, 
1995, the Commission announced that the public workshop would be held 
on March 26 and 27, 1996, and invited interested parties to file 
requests to participate in the workshop. The Commission stated that it 
would hold the record of the proceeding open until April 30, 1996, to 
allow participants and other interested parties to submit clarifying or 
rebuttal information. The Commission conducted the public workshop on 
March 26 and 27, 1996. In response to requests by participants during 
the workshop, the Commission extends the period for submitting 
clarifying or rebuttal information.

DATES: Written comments will be accepted until June 30, 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 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. (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.


[[Page 18601]]


FOR FURTHER INFORMATION CONTACT: Beth Grossman, Attorney, Division of 
Advertising Practices, Bureau of Consumer Protection, Federal Trade 
Commission, Washington, DC 20580, telephone 202-326-3019, or Kent C. 
Howerton, Attorney, Division of Enforcement, Bureau of Consumer 
Protection, Federal Trade Commission, Washington, DC 20580, telephone 
202-326-3013.

SUPPLEMENTARY INFORMATION:

I. Introduction

    As part of a comprehensive review of its legal standard regarding 
the use of unqualified ``Made in USA'' claims in product advertising 
and labeling, on October 18, 1995, the Commission published a notice 
soliciting public comments. The notice also stated that the Commission 
would hold a public workshop at a date to be announced in a later 
notice. 60 FR 53922. On December 19, 1995, the Commission announced 
that the public workshop would be held on March 26 and 27, 1996, and 
that the Commission would hold the record of the proceeding open until 
April 30, 1996 for workshop participants and other interested parties 
to submit clarifying or rebuttal comments on the issues discussed at 
the workshop.
    The workshop was conducted at the Commission's headquarters 
building in Washington, DC on March 26 and 27, 1996. At the conclusion 
of the workshop, several participants requested that the Commission 
extend the deadline for submission of clarifying and rebuttal comments 
to allow participants to work together on joint comments, feedback, and 
possible proposals.
    In light of the complexities of the issues presented, the 
Commission has determined that an extension of the comment period is 
appropriate. Therefore, to allow all interested parties the opportunity 
to supply the Commission with additional written data, views and 
arguments, the Commission grants an extension of the comment period to 
June 30, 1996.

II. Alternative Standards Addressed During the Public Workshop

    Participants in the workshop were invited to discuss the 
Commission's current legal standard regarding the use of unqualified 
``Made in USA'' claims, alternatives to the current legal standard, and 
how domestic content claims should be measured under any future 
standard. The heart of the workshop was the participants' discussion of 
three primary options that emerged for standards regarding unqualified 
``Made in USA'' claims: (1) the All or Virtually All Standard; (2) a 
Percentage Content Standard (e.g., 50%); (3) and the Substantial 
Transformation Standard.
    Under the ``all or virtually all'' standard, sellers may label 
their products ``Made in USA'' only if all or virtually all of the 
component parts of their goods were made in the United States and all 
or virtually all of the labor in assembling their goods was performed 
in the United States. A ``percentage content'' standard is a cost-based 
or value-added standard that focuses on the percent of domestic content 
and labor of a particular good. Under this type of standard, a product 
could be labeled ``Made in USA'' if it was made, for example, with at 
least 50% domestic parts and labor. The ``substantial transformation'' 
standard is based on the U.S. Customs Service's test for the marking of 
foreign goods. Substantial transformation occurs when, as a result of 
processes performed in a particular country, a new article emerges with 
a new name, use and character. Once the Customs Service considers an 
article to be substantially transformed in the United States, the 
article need not be marked with a country of origin.

III. Supplemental Questions for Comment

    During the extended period for submitting written clarifying or 
rebuttal information, the Commission invites interested parties also to 
comment on the following supplemental questions. The Commission 
appreciates that, in response to its October 18, 1995 notice, a number 
of commenters submitted evidence of consumer perceptions in support of 
their comments. In commenting on particular standards, definitions, or 
approaches to ``Made in USA'' claims and on terms that might be used to 
denote a lesser or different level of domestic content than a broad 
``Made in USA'' claim, comments should explain how such standards, 
definitions, approaches, or terms relate to consumer perceptions.

1. All or Virtually All Standard

    A. At the workshop, some participants suggested that for the ``all 
or virtually all standard'' to be practical, it would have to be more 
clearly defined. One possible definition of ``all or virtually all'' 
that was suggested would require that marketers look only one step (or 
two steps) back in the manufacturing process to determine the origin of 
the components of a product, and would exclude raw materials. Would 
that formulation be appropriate and practical? Would it provide 
adequate guidance to marketers? What are the advantages and 
disadvantages of such a circumscribed standard compared with simply 
requiring that all or virtually all of the components and subcomponents 
of a product be made in the U.S.? Are there other formulations that the 
Commission should consider?
    B. How far back in the manufacturing process is it appropriate to 
look to determine the origin of the components or materials comprising 
the product?
    i. What constitutes a ``step'' back in the manufacturing process?
    ii. Is there a single definition of a step back that can be used 
across products or industries?
    iii. Is the nature of a step back different for products that are 
comprised of separate components than for products that do not have 
separate parts but instead go through stages of processing?
    iv. Does how far back it is appropriate to look depend upon the 
nature of the product, e.g., whether the product is simple or complex?
    v. If the Commission were to adopt an ``all or virtually all'' 
standard, would it be appropriate to permit marketers to look only one 
step back in determining the origin of components? Are there products 
for which this approach would mask a significant amount of foreign 
content? If so, what products or types of products? Alternatively, is 
there a point in the production process, e.g., one step, two steps, or 
further back, at which most of the domestic content of a product would 
be included?
    vi. What would it cost firms to support an ``all or virtually all'' 
standard if they were only required to look back one step in the 
manufacturing process? What would the cost be with a two step back 
approach or one that required the producer to look even further back in 
the manufacturing process?
    C. Should raw materials be excluded in calculating domestic 
content?
    i. If so, how should ``raw material'' be defined? Should it include 
only those items that are naturally occurring? Is steel, for example, a 
raw material, or only iron ore? How about leather versus a tanned cow 
hide versus a raw hide?
    ii. Does it matter if the raw materials constitute a significant 
percentage of the product's value?
    D. Should ``virtually all'' be further defined? One alternative 
would be to quantify it as a percentage of the product (e.g., 90% or 
95%). Another alternative would be to consider it equivalent to ``de 
minimis'' foreign content. Which approach is preferable?

[[Page 18602]]

Are there other alternatives that should be considered?

2. Percentage Content Standard (e.g. 50%)

    A. What specific percentage threshold for domestic content should a 
product have to meet to be considered ``Made in USA''? What is the 
basis for choosing that threshold? How does it relate to consumer 
perception?
    B. What costs should be included (and which excluded) in 
calculating a product's domestic content?
    C. Is the percentage of domestic content of a product likely to 
fluctuate significantly over time because of currency fluctuations or 
because of routine changes in sourcing for certain inputs? If so, is 
there a way to address, for marking purposes, any uncertainty caused by 
such fluctuations? Does the impact of such fluctuations change with the 
level of permitted foreign content? For example, is the impact of such 
fluctuations greater or lesser if 50% foreign content is permitted than 
if only 10% foreign content is permitted?
    D. How should the computation issues raised in Questions 1B and IC, 
above, be resolved in the context of a percentage content standard?

3. Substantial Transformation Standard

    A. A substantial transformation standard was extensively discussed 
at the workshop. However, the exact form of this standard that should 
be considered was not resolved.
    i. Should the FTC adopt an existing form of this standard already 
applied by the U.S. Customs Service--i.e., the substantial 
transformation test that the Customs Service generally applies or the 
tariff classification shift rules that the Customs Service uses for 
North American Free Trade Agreement (``NAFTA'') goods?
    a. Which of these two Customs Service approaches should the FTC 
adopt? Why?
    b. If the FTC chooses to adopt either of the existing Customs 
approaches, what are the implications if these approaches are changed?
    (1) What should the FTC do if the World Trade Organization 
(``WTO'') establishes (and Congress adopts) rules for determining 
whether substantial transformation has occurred that are different than 
those applied by the Customs Service?
    (2) If the Commission chooses to employ the Customs Service's 
general substantial transformation analysis, and the Customs Service 
subsequently chooses to apply the NAFTA tariff shift approach to goods 
from all Most Favored Nation (``MFN'') countries (as has been 
proposed), should the FTC then switch to this approach for domestic 
origin claims?
    ii. A number of participants at the Commission's workshop suggested 
that the substantial transformation (or tariff shift) test should be 
adopted, but with minor alterations to assure that a product labeled 
``Made in USA'' in fact had a meaningful amount of domestic content. 
Should the FTC adopt a modified version of the substantial 
transformation test applied by the U.S. Customs Service?
    a. Are there certain products or types of products for which 
application of a substantial transformation standard is unlikely to 
ensure that the product contains a meaningful amount of domestic 
content?
    b. Some participants suggested that the Customs Service's 
substantial transformation test be altered to exclude transformations 
that amounted only to ``simple assembly.'' An alternative proposal is 
that there be a supplemental requirement that, to be promoted as ``Made 
in USA,'' a product not only be substantially transformed in the U.S., 
but also contain a certain percentage of domestic content or have 
certain of its key components made in the U.S. What are the advantages 
and disadvantages of these approaches? Are there other modifications to 
the substantial transformation test that the Commission should 
consider?
    c. If the FTC were to adopt a modified substantial transformation 
test, what costs, if any, would result from the fact that the FTC's 
standard would not be precisely consistent with that applied by the 
Customs Service?
    iii. Should the FTC adopt the standard ultimately adopted by the 
WTO for country-of-origin determinations? Because the WTO process is 
likely to take some time, should the FTC adopt an interim standard, and 
if so, what standard?
    B. How does a substantial transformation standard in any of the 
variations discussed above relate to consumer perceptions of ``Made in 
USA'' claims? Does empirical evidence suggest that consumers think 
about the phrase ``Made in USA'' in terms of the process by which parts 
or materials are transformed into a finished product? Does empirical 
evidence suggest that consumers think the phrase ``Made in USA'' refers 
both to the transformation process and the origin of the parts and 
materials themselves?
    C. Is there evidence as to whether consumers' understanding of 
``Made in USA'' claims is the same or different than their 
understanding of foreign origin claims (e.g., ``Made in Japan'')? Is 
there evidence as to whether claims of foreign origin are as material 
to consumers across all or most products as are claims of domestic 
origin? Please provide any supporting documentary evidence or 
citations.
    D. Are there process-oriented standards other than substantial 
transformation that the Commission should consider adopting?
    E. What are the country-of-origin marking requirements of other 
countries, including the United States' major trading partners? (For 
the questions below, supporting documentary evidence or citations would 
be particularly helpful.)
    i. Do other countries require that all imported goods be marked? 
Which countries? For countries that do not have universal marking 
requirements, are there specific categories of goods that are required 
to be marked?
    ii. Where goods are required to be marked with their country of 
origin, what standards do other countries use to determine that country 
of origin?
    iii. To what extent do (or would) other countries permit 
alternative or qualified country-of-origin labels on imported goods--
i.e., not simply ``Made in USA,'' but, for example, ``Product of USA,'' 
``Assembled in USA,'' ``Assembled in USA of domestic and imported 
components,'' or ``80% Made in USA''?
    iv. What are other countries' standards for their own domestic 
origin claims (e.g., France's requirements for ``Made in France'' 
claims)? Do these standards differ from those countries' standards for 
foreign origin claims?

4. Other Issues

    A. Are there other standards or approaches not encompassed by the 
three alternatives set forth above that the Commission should consider?
    B. Are there terms that are, or can be, used to denote some lesser 
or different level of domestic content than a broad ``Made in USA'' 
claim, e.g., ``Assembled in USA,'' ``Product of USA,'' ``Processed in 
USA,'' etc. What are the costs and benefits of using such alternative 
terms to label products that would not meet a standard for ``Made in 
USA'' claims but nonetheless involve some significant domestic inputs?
    C. Some participants at the workshop suggested consumers interpret 
the absence of country of origin labeling as an indication that a 
product is made in the United States. 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 traditionally

[[Page 18603]]

required that foreign origin be disclosed if unmarked goods contained a 
significant amount of foreign content.
    i. Do consumers generally believe that unlabeled products are 
domestic? Does consumer perception of the origin of unlabeled products 
vary by type of product?
    ii. Is a failure to disclose foreign origin for unmarked goods that 
contain a significant amount of foreign content material to consumers? 
Does the materiality vary by type of product?
    Commenters are urged to limit their additional comments to 
clarifying or rebuttal information, to the supplemental questions, or 
to specific new proposals, and not merely to resubmitting views or 
information previously submitted or expressed during the workshop. 
Comments proposing or addressing a particular standard should address 
how it protects consumers against deception 1 and why adopting a 
particular standard is in the public interest. 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 130, Federal Trade Commission, 
6th and Pennsylvania Ave., N.W., Washington, D.C. 20580.
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    \1\ A deceptive act or practice is one that is likely to mislead 
consumers acting reasonably under the circumstances. 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''). The Commission 
considers a claim 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, 507 U.S. 909 
(1993).
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    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 Internet. Interested parties can access the Commission's Home Page 
on the World Wide Web at the following address: http://www.ftc.gov.

    Authority: 15 U.S.C. 41 et seq.

    By direction of the Commission, Commissioner Starek 
dissenting.\2\
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    \2\  Commissioner Starek dissented for reasons previously 
stated. See 60 FR 53930 (1995).
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Donald S. Clark,
Secretary.
[FR Doc. 96-10364 Filed 4-25-96; 8:45 am]
BILLING CODE 6750-01-P