[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]


      
      
      

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Part II





Federal Trade Commission





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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

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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

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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).
---------------------------------------------------------------------------

    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
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    \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
---------------------------------------------------------------------------

    \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
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
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    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
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    \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.
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    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
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    \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.
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    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
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    \130\ USAIC, #24, at 3.
    \131\ AAEI, #37, at 4-5.
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    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.
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    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.
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    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.
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    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.
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    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
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    \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.
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    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.

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[[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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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
---------------------------------------------------------------------------

    \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.
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    \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.
---------------------------------------------------------------------------

    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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.''
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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
---------------------------------------------------------------------------

    \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
---------------------------------------------------------------------------

    \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