[Federal Register Volume 62, Number 231 (Tuesday, December 2, 1997)]
[Notices]
[Pages 63756-63771]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-31531]



[[Page 63755]]

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Part III





Federal Trade Commission





_______________________________________________________________________



``Made in USA'' and Other U.S. Origin Claims; Notice

  Federal Register / Vol. 62, No. 231 / Tuesday, December 2, 1997 / 
Notices  

[[Page 63756]]



FEDERAL TRADE COMMISSION


``Made in USA'' and Other U.S. Origin Claims

AGENCY: Federal Trade Commission.

TITLE: Enforcement Policy Statement on U.S. Origin Claims.

ACTION: Notice of Issuance of Enforcement Policy Statement on U.S. 
Origin claims.

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SUMMARY: The Federal Trade Commission (``FTC'' or ``Commission'') has 
conducted 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 or all or 
virtually all made in the United States to substantiate an unqualified 
``Made in USA'' claim. As part of its review, which began in 1995, the 
Commission sought public comment and conducted a two-day public 
workshop.
    On May 7, 1997, the Commission solicited public comment on Proposed 
Guides for the Use of U.S. Origin Claims (``Proposed Guides''). Under 
the Proposed Guides, a marketer making an unqualified U.S. origin claim 
would have been required to have a reasonable basis substantiating that 
the product was substantially all made in the United States. To give 
further guidance as to what constitutes a reasonable basis for making a 
``Made in USA'' claim, the Proposed Guides set forth two ``safe 
harbors'' under which an unqualified U.S. origin claim would not be 
considered deceptive.
    The Proposed Guides also addressed qualified claims, claims 
regarding specific processes and parts, multiple-item sets, and changes 
in cost and sourcing. They also would have authorized specific origin 
claims for certain products that are both sold domestically and 
exported.
    After extensively reviewing comments received regarding the 
Proposed Guides, the Commission has determined not to adopt the 
Proposed Guides. Instead, the Commission will continue to enforce the 
Commission's current ``all or virtually all'' standard. The Enforcement 
Policy Statement on U.S. Origin Claims that appears at the end of this 
notice outlines the Commission's enforcement policy in this area and 
provides additional guidance to marketers wishing to make an 
unqualified ``Made in USA'' claim under the ``all or virtually all'' 
standard. The statement also provides guidance on the use of qualified 
claims.

EFFECTIVE DATE: December 1, 1997.

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

SUPPLEMENTARY INFORMATION:

I. Introduction

    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 In two 
1994 cases, the Commission rearticulated this standard to require that 
a product advertised as ``Made in USA'' be ``all or virtually all'' 
made in the United States.2 Whether the standard was called 
``wholly domestic'' or ``all or virtually all,'' however, unqualified 
claims of domestic origin have been treated as claims that the product 
was in all but de minimis amounts made in the United 
States.3
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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).
    \3\ In this notice, the Commission refers to its traditional 
standard as the ``all or virtually all'' standard.
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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.4 On October 18, 
1995, the Commission published a notice in the Federal Register 
soliciting public comment on various issues related to this review, and 
announcing that Commission staff would conduct a public workshop on 
this topic. 60 FR 53922 (1995).5 Contemporaneous with the 
solicitation of public comment, the Commission commissioned a two-part 
study to examine consumer understandings of U.S. origin claims. On 
March 26 and 27, 1996, representatives of industry, consumer groups, 
unions, government agencies, and others participated in the public 
workshop, which focused on consumer perception of U.S. origin claims 
and a discussion of the costs and benefits of various alternative 
standards for evaluating such 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 (1996).
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    \4\ The Commission initiated its review in part because of 
comments from the public on the consent agreement the Commission had 
accepted (subject to final action) with Hyde, and letters from more 
than 40 members of Congress who wrote to the Commission or Chairman 
Robert Pitofsky urging that the Commission review and revise its 
standard.
    \5\ A follow-up notice published on December 19, 1995 announced 
that the public workshop would be held on March 26 and 27, 1996, and 
stated that the record would be held open for post-workshop public 
comments until April 30, 1996. 60 FR 65327 (1995).
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    After reviewing the consumer perception evidence, the public 
comments, and the workshop proceedings, the Commission proposed, in a 
notice published on May 7, 1997, to adopt Guides for the Use of U.S. 
Origin Claims and sought public comment on the Proposed Guides until 
August 11, 1997. 62 FR 25020. Under the Proposed Guides, a marketer 
making an unqualified claim of U.S. origin, at the time it makes the 
claim, would have to 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 forth two alternative ``safe harbors'' under which an unqualified 
U.S. origin claim would not be considered deceptive. The first safe 
harbor encompassed products that were last substantially transformed in 
the United States and whose U.S. manufacturing costs constituted 75% of 
total manufacturing costs (``75% U.S. content safe harbor''). The 
second safe harbor applied 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 it significant inputs 
took place in the United States (``two levels of substantial

[[Page 63757]]

transformation safe harbor'').6 The Proposed Guides also 
addressed various qualified claims, claims regarding specific processes 
and parts, multiple-item sets, and the effects of changes in costs and 
sourcing. They further provided for an alternative origin claim for 
certain products that are both sold domestically and exported.
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    \6\ ``Substantial transformation'' is a U.S. Customs Service 
term that refers to a manufacturing or other 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. See 59 FR 141 (1994).
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    In response to the Proposed Guides, the Commission received 1,057 
written comments.7 After reviewing the public comments, the 
Commission has decided that it will not adopt the Proposed Guides, but 
instead will continue to enforce the Commission's current ``all or 
virtually all'' standard. In conjunction with this decision, the 
Commission is issuing an Enforcement Policy Statement on U.S. Origin 
Claims which provides additional guidance to marketers seeking to make 
``Made in USA'' and similar claims. The Enforcement Policy Statement 
appears at the end of this notice.
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    \7\ This number reflects those comments received at the time 
this notice was prepared; additional comments on this matter 
continue to be submitted to the Commission. The comments have been 
filed on the Commission's public record as Document Nos. 
B21902700001, B21902700002, 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., AGs, 
#462, at 2. All written comments submitted (including those received 
after the preparation of this notice), as well as a list of 
commenters (through #1057), are available for public inspection 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., N.W., Washington, DC 20580. In addition, the 
comments received, and other materials relevant to this review, are 
available to the public through the Commission's World Wide Web site 
(http://www.ftc.gov).
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II. Summary of Comments On Proposed Guides

A. General Information

    The total of 1,057 comments represented 1,165 commenters, including 
963 individual consumers, 24 members of Congress, 2 consumer 
organizations, 1 non-profit organization, 90 manufacturers or other 
corporations, 29 trade associations, 29 labor unions and union 
representatives, 23 state and local government representatives 
(including a coalition of 16 state Attorneys General), and 4 others.

B. Comments Supporting the All or Virtually All Standard

    The vast majority of the individual consumers as well as 130 other 
commenters opposed the Proposed Guides as setting too low a standard 
and/or expressly supported the current ``all or virtually all'' 
standard. These included a coalition of 16 Attorneys 
General,8 13 members of Congress,9 5 state 
legislators,10 1 state General Assembly,11 1 City 
Council,12 6 trade associations,13 2 consumer 
groups,14 29 labor unions or union 
representatives,15 58 manufacturers and other 
corporations,16 and 3 other

[[Page 63758]]

commenters.17 In addition to the individual consumer 
comments, 7 individual commenters or groups submitted petitions urging 
the Commission to retain the ``all or virtually all'' standard that 
were signed by a total of more than 11,000 individuals.18 
Last, the Commission received over 200 telephone calls from individual 
consumers who stated their opposition to the Proposed 
Guides.19
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    \8\ This comment was submitted by the Attorneys General of 
Connecticut, California, Florida, Iowa, Illinois, Michigan, 
Missouri, North Carolina, New Jersey, Nevada, New York, 
Pennsylvania, Rhode Island, Tennessee, Washington, and Wisconsin 
(``AGs''), #462. In addition, Jeremiah Nixon, Attorney General of 
Missouri (``Nixon'') submitted a separate comment, #63.
    \9\ U.S. Sen. Dale Bumpers (``Bumpers''), #74; U.S. Rep. Mark W. 
Neumann and U.S. Rep. Tom Latham (``Neumann/Latham''), #75; U.S. 
Rep. James A. Traficant, Jr. (``Traficant''), #231; U.S. Rep. Peter 
J. Visclosky (``Visclosky''), #236; U.S. Rep. Earl F. Hilliard 
(``Hilliard''), #242; U.S. Sen. Carl Levin (``Levin''), #254; U.S. 
Rep. Virgil H. Goode, Jr. (``Goode''), #24; U.S. Rep. Sherrod Brown 
(``Brown''), #599; U.S. Rep. Bob Franks and U.S. Rep. John D. 
Dingell (``Franks/Dingell''), #670, (``Dingell''), #694 (noting his 
past opposition to weakening the all or virtually all standard and 
requesting that the Commission respond to specific questions about 
the Proposed Guides; with attached response from the Commission's 
staff); U.S. Rep. John Olver (``Olver''), #671A; U.S. Rep. Bruce F. 
Vento (``Vento''), #735. U.S. Rep. Tom Campbell (``Campbell'') 
submitted a comment conveying the concerns of constituents, but did 
not take a position himself. Campbell, #283. A number of other 
members of Congress forwarded comments from their constituents.
    \10\ North Carolina Rep. William S. Hiatt (``Hiatt''), #196; 
North Carolina Sen. Fountain Odom (``Odom''), #290; Illinois Rep. 
Michael J. Boland (``Boland''), #468; North Carolina Rep. Wayne 
Goodwin (``Goodwin''), #508; Pennsylvania Rep. Richard D. Olasz 
(``Olasz''), #623.
    \11\ New Jersey General Assembly (``NJ Assembly''), #740.
    \12\ City of Titusville, FL (``Titusville''), #1047.
    \13\ American Export Ass'n (``American Export''), #201; The 
American Hand Tool Coalition (``American Hand Tool''), #622; 
American Iron & Steel Institute (``AISI''), #636; Tile Council of 
America, Inc. (``TCA''), #618; American Textile Manufacturers 
Institute (``ATMI''), #615; Crafted with Pride in USA Council, Inc. 
(``Crafted With Pride''), #469. Despite the exclusion of textile 
products from the Proposed Guides, four additional trade 
associations filed comments urging the Commission to maintain the 
existing standards under the Textile Products Identification Act, 15 
U.S.C. 70, for ``Made in USA'' claims for garments and other textile 
products. American Apparel Manufacturers Ass'n (``AAMA''), #697; 
Clothing Manufacturers Ass'n of USA (``CMA''), #624; Garment 
Contractors Ass'n of Southern California (``GCASC''), #895; Knitted 
Textile Ass'n (``KTA''), #634.
    \14\ National Consumers League (``NCL''), #640; Wisconsin 
Citizen Action (``WI Citizen Action''), #991.
    \15\ Alabama AFL-CIO (``Alabama AFL-CIO''), #242; Connecticut 
Employees Union Independent, Local 511, AFL-CIO (``CEUI Local 
511''), #870; East Central Ohio Building & Construction Trades 
Council, AFL-CIO (``Construction Trades''), #687; Food & Allied 
Service Trades Dept., AFL-CIO (``FAST''), #545; Hotel Employees & 
Restaurant Employees Local 74, AFL-CIO (``HERE Local 74''), #255; 
Int'l Ass'n of Firefighters, West Hartford Fire Fighters Ass'n, 
Local 1241 (``Firefighters Local 1241''), #742; Int'l Ass'n of 
Machinists & Aerospace Workers, Air Transport Lodge 1056 
(``Machinists Lodge 1056''), #558; Int'l Brotherhood of 
Boilermakers, Iron Ship Builders, Blacksmiths, Forgers & Helpers, 
AFL-CIO (``Boilermakers''), #514; Int'l Brotherhood of Electrical 
Workers, Local 1040, AFL-CIO (``IBEW Local 1040''), #745; Int'l 
Brotherhood of Electrical Workers, Local 540, AFL-CIO (``IBEW Local 
540''), #686; Int'l Union, United Automobile, Aerospace & 
Agriculture Implement Workers of America--UAW (``UAW''), #615; 
Montana State AFL-CIO (``MT AFL-CIO''), #459; Permian Basin Central 
Labor Union, AFL-CIO (``PBCLU''), #388, #418; Seattle Professional 
Engineering Employees Ass'n (``SPEEA''), #830, #944; UAW--Region 9A 
(``UAW Region 9A''), #682; Union Label & Service Trade Department, 
Plumbers & Steamfitters Local 565, AFL-CIO (``Plumbers & 
Steamfitters Local 565''), #209; Union Label & Service Trades 
Department, AFL-CIO (``AFL-CIO/ULSTD''), #608; Union of 
Needletrades, Industrial & Textile Employees, AFL-CIO, CLC 
(``UNITE''), #696; United Food & Commercial Workers, Local 26, AFL-
CIO (``UFCW Local 26''), #897; United Paperworkers Int'l Union, AFL-
CIO, CLC (``Paperworkers''), #255; Communications Workers of 
America, Local 3104, AFL-CIO (``CWA Local 3104''), #688; Hartford 
Federation of School Secretaries (``School Secretaries''), #843; 
Int'l Union of Electronic, Electrical, Salaried, Machine and 
Furniture Workers, Furniture Workers Division, AFL-CIO (``Furniture 
Workers''), #506; UAW Local 977, Buy American Committee (``UAW Local 
977''), #651; UAW, Amalgamated Local 644 (``UAW Local 644''), #54; 
UAW, Local 145 (``UAW Local 145''), #913; United Steelworkers of 
America, Local 9189, AFL-CIO (``Steelworkers Local 9189''), #995; 
United Steelworkers of America, Rubber/Plastic Industry Conference, 
Local 2, District 1, AFL-CIO, CLC (``Steelworkers Local 2''), #1017; 
Brewery and Soft Drink Workers, Liquor Drivers, and New and Used Car 
Workers, Teamsters Local Union 1040 (``Teamsters Local 1040''), 
#1052.
    \16\ A&E Manufacturing Co. (``A&E''), #991; ABCO Industries, 
Inc. (``ABCO''), #743; American Sigma (``American Sigma''), #661; 
Ben Forman & Sons, Inc. (``Forman''), #159; BOYT (``BOYT''), #959; 
Calibre, Inc. (``Calibre''), #991; Centerville Lumber Co. 
(``Centerville''), #152, #734; Cheraw Yarn Mills, Inc. (``Cheraw''), 
#716; Danaher Tool Group (``Danaher''), #991; D.E. Williams Co. 
(``Williams''), #1031; Duchess Industries (``Duchess''), #512; 
Durand Int'l (``Durand''), #471; Dyersburg Corp. (``Dyersburg''), 
#720; Dynacraft Industries, Inc. (``Dynacraft''), #646; Elco Textron 
(``Elco''), #970; Equity Services of Connecticut, Inc. (``Equity 
Services''), #1001; Exidyne Instrumentation Technologies, Inc. 
(``Exidyne''), #731; Federal Forging Tools (``Federal''), #654; 
Friend Laboratory (``Friend''), #34; GBW Manufacturing, Inc. 
(``GBW''), #1014; Gee Kay--Knit Products (``Gee Kay''), #1034; 
Herker Industries (``Herker''), #991; Inman Mills (``Inman''), #981; 
Jackson Products (``Jackson''), #880; Joshua L. Baily & Co., Inc., 
(``Baily''), #53; Kenosha Leatherette & Display Co. (``Kenosha''), 
#991; Kern Special Tools Co., Inc. (``Kern''), #739; Madewell 
Machine Works Co., Inc. (``Madewell''), #958; March Instruments, 
Inc. (``March''), #46; Matco Tools (``Matco''), #600; Merit 
Abrasives (``Merit''), #628; Murphy & Co.(''Murphy''), #64; Newco 
Valves (``Newco''), #198; NTP-Republic (``NTP''), #699; Nucor Steel 
(``Nucor''), #992; Piedmont Clarklift, Inc. (``Piedmont''), #741; 
Protexall, Inc. (``Protexall''), #917; Regal-Beloit Corp. (``Regal-
Beloit''), #614; Richland Mills (``Richland''), #626; Schofield 
(``Schofield''), #51; SGS Tool Co. (``SGS''), #221; Sharpe 
Manufacturing Co. (``Sharpe''), #630; Sheffield Steel Corp. 
(``Sheffield''), #935; SidaMerica LLC (``SidaMerica''), #246; Snap-
on Tools (``Snap-on''), #685, #732, #733, #991; Spectronics Corp. 
(``Spectronics''), #631; Spray Cotton Mills (``Spray Cotton''), 
#672; Sterling Handling Equipment, Inc. (``Sterling''), #625; 
Taytronics Corp. (``Taytronics''), #744; Vaughn & Bushnell 
Manufacturing Co. (``Vaughn & Bushnell''), #151, #616; Victoria 
Vogue, Inc. (``Victoria''), #1045; The Warren Featherbone Co. 
(``Featherbone''), #1015; Waukesha Industrial Supply (``Waukesha''), 
#991; Weldbend Corp. (``Weldbend''), #597; Wolfe Dye & Bleach Works, 
Inc. (``Wolfe''), #1057. Wright Tool Co. (``Wright''), #262, #652; 
Yeoman's Chicago Corp. (``Yeoman's''), #216. See also Eastman Kodak 
Co. (``Kodak''), #619 (supporting 85% standard).
    \17\ Made in USA Coalition (``MUSA Coalition''), #596; Donald P. 
Selkirk (submitted as Executive Producer, The Donald P. Selkirk 
Show, WPON Radio, Bloomfield Hills, MI) (``Selkirk''), #186; Women 
V.I.P.s (``WVIP''), #1042.
    \18\ Brown, #599 (petition containing approximately 9,300 
signatures submitted by U.S. Rep. Sherrod Brown); John Moore (``John 
Moore''), #195 (petition signed by 26 individuals); UAW Local 977, 
#651 (petition containing approximately 2,000 signatures submitted 
by a union representative); Ellen Sofranski (``Sofranski''), #703 
(petition signed by 28 individuals); Employees of Danaher Tool Group 
(``Danaher Employees''), #829 (petition containing 181 names 
submitted by employees of Danaher Tool Group); David Micola 
(``Micola''), #966 (petition containing 151 names submitted by an 
individual who is a sheet metal worker); Richard Moran, Jr. 
(``Moran''), #1029 (petition signed by 28 individuals).
    \19\ These telephone calls have not been memorialized or 
codified on the record because many of them were phone mail messages 
without the name, telephone number, or address of the caller.
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    In addition, over 200 members of the House of Representatives have 
cosponsored House Concurrent Resolution 80 (``Resolution''), opposing 
the Proposed Guides and urging the Commission to retain the ``all or 
virtually all'' standard.20 The Resolution states that 
lowering the current standard ``will be a misrepresentation to 
consumers in the United States who presently believe products bearing 
the `Made in USA' label were all or virtually all made in the United 
States,'' and that American consumers are ``entitled to purchase 
products with the understanding that the labels on these products 
reflect consistent definitions.'' Accordingly, the Resolution ``urges 
the Federal Trade Commission to refrain from lowering this standard at 
the expense of consumers and jobs in the United States.'' The Made in 
USA Coalition, comprised of 3 consumer groups, 32 labor unions, 15 
businesses, and 11 agriculture organizations, and a primary backer of 
the House Resolution, submitted a comment expressly supporting 
it.21 In addition, members of the Senate recently introduced 
Senate Concurrent Resolution 52, which also supports the retention of 
the ``all or virtually all'' standard. Similarly, the New Jersey 
General Assembly and the Titusville (Florida) City Council adopted 
resolutions that ask the Commission to maintain the traditional 
standard.22
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    \20\ This number includes at least 13 members of Congress who 
were among those who had earlier written to the Commission or 
submitted public comments asking the Commission to lower the ``all 
or virtually all'' standard. See supra note 4. The Resolution was 
submitted to the Commission by U.S. Representatives Bob Franks and 
John D. Dingell. Franks/Dingell, #670.
    \21\ MUSA Coalition, #596.
    \22\ NJ Assembly, #740 (Assembly Resolution No. 163); 
Titusville, #1047 (Resolution No. 39-1997).
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    The consumer commenters overwhelmingly opposed the Proposed Guides 
and generally supported an ``all or virtually all'' standard or 
advocated a specific percentage, usually 90% or, more often, 100%. Many 
commenters stated that `` `Made in USA' means what it says'' or 
expressed similar sentiments. Several commenters asserted that changing 
the current standard would confuse consumers who wish to buy American 
products, leaving them unable to determine whether a product was truly 
made in the United States. Individual consumers also stated that they 
buy American products to support fellow Americans and expressed concern 
that lowering the standard would lead to a loss in American jobs. The 
following comments exemplify the individual consumer comments:

    The concept of ``Made in the USA'' has been specific and 
definite for the last 50 years. Please leave it as it is. If 
manufacturers want to say an item is ``Made in the USA''; then, make 
sure it is exactly that. ``Made in the USA'' should mean that an 
item is 100% manufactured in the United States of America and not in 
another country.23
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    \23\ Kenneth Fletcher (``Fletcher''), #178, at 1.
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    If a product is only partially made in our Country, I want to 
know. I do not wish to purchase items made in other countries and 
falsely labeled ``Made in America.'' I want the entire truth on the 
label. I don't want to be tricked into buying an item I think is 
made here when in fact it is not.24
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    \24\ Margaret A. Stem (``Stem''), #203, at 1.
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    We are opposed to any change that would increase the percentage 
of foreign labor or materials in those goods or products bearing the 
``Made in the USA'' label. The American people recognize goods or 
products bearing this label as being superior in workmanship and 
quality. These goods and products are produced by American workers * 
* * Any action by the FTC to modify the ``Made in USA'' label 
standard will lead to the loss of American jobs.25
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    \25\ Edwin and Beverly Emmons (``Emmons''), #288, at 1.

    Other commenters echoed the consumers' concerns and cited 
additional reasons for keeping the ``all or virtually all'' standard. 
Several opponents of the Proposed Guides expressed concern that 
altering the current standard would deceive, or at least confuse, 
consumers.26 Some of these commenters argued that the 
consumer perception evidence before the Commission does not support 
lowering the standard.27 Some commenters additionally 
asserted that consumer attitudes and preferences towards ``Made in 
USA'' products have not been altered by a change in the economy, or, if 
anything, have been made stronger.28
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    \26\ See, e.g., Baily, #53; Nixon, #63; Traficant, #231; Crafted 
With Pride, #469; ATMI, #613; Vaughan & Bushnell, #616; Weldbend, 
#597; Exidyne, #731; UAW, #615.
    \27\ See, e.g., American Hand Tool, #622; UAW, #615; Dynacraft, 
#646; AGs, #462; Weldbend, #597; Bumpers, #74.
    \28\ See, e.g., Vento, #735 at 1 (``The decline of America's 
manufacturing base and the difficulty of ascertaining a product's 
origin in the global marketplace, has in fact rendered the Made in 
USA claim more valuable and significant to American consumers 
wishing to buy American.''); AISI, #636, at 1 (It is ``highly likely 
that the vast majority of U.S. consumers would be unaware of a 
change in the standard, and would continue to believe that items 
labeled `Made in USA' were held to the current standard.''); NCL, 
#640, at 3 (the fact that the economy is increasingly globalized may 
cause consumers to place even a greater value on unqualified `Made 
in USA' claims); Bumpers, #74, at 1-2 (``Even if fewer products are 
wholly `Made in the USA,' it does not follow that the meaning of the 
phrase has changed--rather, that fewer products may meet the 
standard.''); UNITE, #696, at 3 (``no credible evidence * * * that 
American consumers expect the `Made in USA' label to mean that 
products were produced somewhere else'').
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    Other advocates of the ``all or virtually all'' standard warned 
that changing the standard in the way proposed by the Commission would 
harm the American manufacturing base, because companies would have less 
incentive to use U.S. labor and U.S. product components. These 
commenters concluded that American jobs would be jeopardized as 
companies increasingly would rely on less expensive foreign 
sources.29 Many commenters also stated that weakening the 
standard would

[[Page 63759]]

deny manufacturers whose products were, in fact, ``all or virtually 
all'' made in the United States the marketing advantage attributable to 
labeling products ``Made in USA.'' 30
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    \29\ E.g., SGS, #221, at 1 (U.S. jobs will be in jeopardy if 
Commission adopts proposed standard); Alabama, #242, at 1 (American 
workers are already badly injured by unfair exportation of jobs by 
their employers); Boilermakers, #514; Plumbers & Steamfitters Local 
565, #209, at 1 (``purchasing products displaying the `Made in 
U.S.A.' label is the first line of defense for American workers to 
protect their jobs''). See also PBCLU, #418; AFL-CIO/ULSTD, #608; 
Vaughan & Bushnell, #616; AISI, #636; UAW Region 9A, #682; Cheraw, 
#716; Bumpers, #74; Yeomans, #216; Odom, #290.
    \30\ E.g., Weldbend, #597, at 1 (the Proposed Guides ``would 
force most of Weldbend's fittings and flanges--made all or virtually 
all of American materials by American workers--to share their hard-
earned `Made in USA' labels with competitors' products having less 
than 50-percent U.S. content value''). See also Vento, #735; Matco, 
#600; Duchess, #512; Merit, #628; Sharpe, #630; Spectronics, #631; 
Federal, #654; Exidyne, #731; NTP, #699; Forman, #159; Traficant, 
#231.
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    A number of commenters opposed to the Proposed Guides also 
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 the current standard allows marketers to make qualified 
claims for products that are made with some foreign parts or labor as 
long as those claims are truthful and substantiated.31
---------------------------------------------------------------------------

    \31\ See, e.g., NCL, #640; Visclosky, #236; Traficant, #231; 
Boilermakers, #514; FAST, #545; UNITE, #696; Schofield, #51; AFL-
CIO/ULSTD, #608. In addition, a few individual consumers also 
suggested that marketers can make qualified claims for their 
products. See, e.g., Matthew Fogarty (``Fogarty''), #997 (for 
products with less than 100% U.S. content, should specify percentage 
of U.S. content, such as ``Materials 50% Made in USA, Assembled in 
Guam''); Anthony J. Jordan (``Jordan''), #160 (supports disclosing 
the specific percentages of U.S. and foreign materials and labor); 
Lawrence P. Kosel (``Kosel''), #207 (supports disclosing on labels 
the percentage of the product made in America, such as ``70% made in 
America''); Arthur Lazur (``Lazur''), #119 (should state percentage 
or exact materials made in USA; or that assembled, but not 
manufactured, in USA); R.W. and Susan Marchand (``Marchand''), #107 
(for products partially produced in USA, should identify percentage 
made in USA); Debra Newman (``Debra Newman''), #123 (supports 
qualified claims such as ``Made in USA of imported parts'' or 
``Assembled in [name of country] from US parts''); Alan D. Shrom 
(``Shrom''), #141 (should state on the product if it is assembled in 
USA of foreign materials); Robert Lebensold (``Lebensold''), #942 
(``Made in U.S.A. of imported materials'' might be okay).
---------------------------------------------------------------------------

    In addition, some of the commenters supporting the ``all or 
virtually all'' standard specifically criticized the particular safe 
harbors proposed by the Commission, arguing that neither proposed safe 
harbor would ensure that a product complies with the proposed 
``substantially all'' standard and with consumer expectations regarding 
``Made in USA'' claims.33
---------------------------------------------------------------------------

    \33\ AGs, #462; AFL-CIO/ULSTD, #608; UAW, #615; Durand, #471; 
Vaughan & Bushnell, #616; American Hand Tool, #622. See also Matco, 
#600, American Sigma, #611; Sharpe, #630, Federal, #654; Exidyne, 
#731, and NTP, #699 (all submitting comments nearly identical to the 
American Hand Tool Coalition's comment).
---------------------------------------------------------------------------

    Specifically, several commenters argued that the 75% U.S. content 
safe harbor (expressed as a percent of total manufacturing costs), in 
addition to being too low to meet consumer expectations, would allow a 
``Made in USA'' claim for products with far less than even 75% U.S. 
content (in terms of, for example, the percentage of components). UAW, 
for example, contended that lower foreign labor costs would lead to 
underestimating the actual amount of foreign content in a 
product.34 In addition, the American Hand Tool Coalition 
argued that, because the Proposed Guides do not necessarily require 
marketers to take into account materials several steps back in the 
manufacturing process or to take into account foreign content that is 
not ``significant'' (which is left undefined), marketers may fail to 
account for all foreign costs.35
---------------------------------------------------------------------------

    \34\ For example, UAW pointed out that ``[t]he difference in 
rates of worker compensation between the U.S. and countries such as 
China allows for the possibility that 75 percent of the 
manufacturing costs could be U.S. value, but that the product would 
be `substantially' made abroad.'' UAW, #615, at 2. See also Durand, 
#471, at 1 (stating that the percentage content safe harbor would 
seriously harm its business because ``[c]heap labor imports of stems 
and bowls to be fused in the U.S. can easily be estimated to meet 
the 75% manufacturing cost requirement * * *''); AFL-CIO/ULSTD, 
#608, at 1-2 (under the 75% content safe harbor, products can be 
labeled ``Made in USA,'' even though major components were produced 
abroad, if those components were imported from countries with lower 
wages); AGs, #462, at 5 (the Commission's approach of measuring 
foreign content by comparing the percentage of costs attributable to 
foreign parts and labor to those attributable to U.S. parts and 
labor ``fails to compensate for the disparity in costs between the 
United States and many developing countries'').
    A related point was made by the American Hand Tool Coalition, 
which argued that varying labor costs in certain countries would 
lead to inconsistent labeling results for similar products, e.g., if 
one manufacturer sources parts from China and a second manufacturers 
sources the same parts from Germany, the percentage U.S. content 
will differ even if the manufacturers perform the same U.S. 
processing at the same cost, because China is a much lower cost 
market than Germany. American Hand Tool, #622, at 22.
    \35\ American Hand Tool, #622, at 16-19.
---------------------------------------------------------------------------

    A number of commenters also specifically criticized the two levels 
of substantial transformation safe harbor, arguing that this safe 
harbor does not guarantee that ``substantially all'' of the labor and 
value of the product is of domestic origin.36 A few of these 
commenters expressed concern that, because this safe harbor does not 
take into account the cost of U.S. processing or inputs, products could 
be labeled ``Made in USA'' even though foreign content accounted for a 
significant percentage of their value.37 Two commenters 
additionally argued that consumers would be misled by the two levels of 
substantial transformation safe harbor, because it is too imprecise to 
ensure that ``substantially all'' the value of a product is of U.S. 
origin. UAW stated that ``[t]he variation from product to product in 
the impact of the double transformation test would prevent consumers 
from having a real sense of the U.S. content of the product that is 
being presented as `Made in USA.' '' 38 Similarly, the 
American Hand Tool Coalition contended that this safe harbor leads to 
conflicting or unpredictable results, in part, because the Proposed 
Guides define substantial transformation to include two tests that are 
not consistent for all products--the case-by-case analysis that Customs 
applies to products from most countries and the tariff shift 
regulations that Customs applies to products from NAFTA 
countries.39
---------------------------------------------------------------------------

    \36\ See, e.g., AFL-CIO/ULSTD, #608; UAW, #615; American Hand 
Tool Coalition, #622; Durand, #471.
    \37\ AFL-CIO/ULSTD, #608, at 2 (under the second safe harbor, a 
product ``could be assembled in the U.S. of components put together 
in the U.S. of parts made overseas that account for more than 25% of 
the product's value''); American Hand Tool, #622, at 26; AGs, #462, 
at 6. See also UAW, #615, at 3 (citing Example 1 under the second 
safe harbor in the Proposed Guides as an example of when a product 
can be labeled ``Made in USA'' even if imported components accounted 
for 80% or 90% of the value of the final product); Weldbend, #597, 
at 1-2 (for products such as pipe fittings and flanges, the two 
levels of substantial transformation safe harbor would allow 
products with 100% foreign materials and one-half to two-thirds of 
their value of foreign origin to be marketed as ``Made in USA'').
    \38\ UAW, #615, at 3.
    \39\ American Hand Tool, #622, at 25.
---------------------------------------------------------------------------

    Finally, some commenters supported a percentage content standard 
greater than the 75% safe harbor proposed by the Commission, but less 
than 100%. For example, a coalition of 16 state Attorneys General, as 
well as a few manufacturers, who were generally supportive of an ``all 
or virtually all'' standard, recommended that the Commission require 
that a product have at least 90% actual U.S. content in order to bear 
an unqualified ``Made in USA'' label.40 Another commenter, 
Eastman Kodak, favored an 85% standard, stating that although the ``all 
or virtually all'' standard affords the best guarantee against consumer 
deception or confusion, ``legitimate disadvantages [may be placed] on 
businesses who are very heavily committed to maintaining manufacturing 
processes here but cannot ignore the economic realities of using at 
least some foreign components'' or who must import items which are not 
made, or raw materials which are not found, in the United 
States.41 According

[[Page 63760]]

to this commenter, changing the standard might benefit consumers, 
because American companies would be motivated ``to offer the best 
quality at the best price without sacrificing the `American' identity 
of their goods.''
---------------------------------------------------------------------------

    \40\ AGs, #462, at 1,7. See also Sterling, #625, at 1 
(supporting a 90% standard); March, #46, at 1 (supporting a 90% 
standard).
    \41\ Kodak, #619, at 2-3 (consumer perception evidence justifies 
lowering the U.S. content requirement to 85%; this standard, along 
with last substantial transformation in the United States, would 
serve consumers' interests).
---------------------------------------------------------------------------

C. Comments Supporting The Proposed Guides and/or Other Standards

    A few individual consumers and 62 additional commenters favored 
modifying the ``all or virtually all'' standard, including 10 members 
of Congress,42 32 manufacturers and other 
corporations,43 17 trade associations,44 1 
nonprofit organization,45 and 1 other 
commenter.46 Many of these commenters asserted that the vast 
changes in the international economy since the Commission first applied 
the ``all or virtually all'' standard necessitate that the standard be 
altered. Thus, several commenters asserted that the Proposed Guides 
``better reflect[ed] the practical realities of U.S.-manufactured 
products in today's global economy'' 47 and provided U.S. 
manufacturers with greater flexibility in making ``Made in USA'' claims 
in light of these realities.48 Several of these commenters 
stated that consumers' expectations have kept pace with the change in 
the economy. According to these commenters, a lower standard is 
therefore consistent with consumer perception.49
---------------------------------------------------------------------------

    \42\ U.S. Rep. Susan M. Collins, U.S. Rep. John F. Kerry, U.S. 
Rep. Joseph I. Leiberman, and U.S. Rep. Olympia J. Snowe (``Collins/
Kerry/Leiberman/Snowe''), #606; U.S. Rep. Joseph Moakley, U.S. Rep. 
William Delahunt; U.S. Rep. Martin Meehan; U.S. Rep. Joseph Kennedy, 
U.S. Rep. Barney Frank (``Moakley/Delahunt/Meehan/Kennedy/Frank''), 
#671; U.S. Rep. Michael G. Oxley (``Oxley''), #955. The comment from 
Rep. Moakley et al. was also signed by U.S. Rep. John Olver. In a 
subsequent letter, however, Rep. Olver stated that his signature was 
``inadvertently attached'' to this comment and that he did not 
believe that the FTC's traditional standard for ``Made in USA'' 
labels should be altered. Olver, #671A.
    \43\ Franzus Co., Inc. (``Franzus''), #301; Converse, Inc. 
(``Converse''), #363, #470; Genfoot America, Inc. (``Genfoot''), 
#463; DeBon Leather (``DeBon''), #472; Carter Footwear, Inc. 
(``Carter''), #595; The Leather Specialty Co. (``Leather 
Specialty''), #598; Detroit Edge Tool Co. (``Detroit Edge''), #601; 
Belair Time Corp. (``Belair''), #602; Maytag Corp. (``Maytag''), 
#605; Oneida Ltd. (``Onedia''), #607; Jules Jurgensen Watches 
(``Jurgensen''), #609; Toyota Motor Sales, USA (``Toyota''), #610; 
Timex Corp. (``Timex''), #612; Wolverine Worldwide, Inc. 
(``Wolverine''), Inc., #621; Jameslee Corp. (``Jameslee''), #627; 
Central Tools, Inc., (``Central''), #629; Ronda Watch Corp. and 
Progress Watch Corp. (``Ronda/Progress''), #632; Benrus Watch Co. 
(``Benrus''), #633; New Balance Athletic Shoe Co., Inc. (``New 
Balance''), #635; The Stanley Works (``Stanley''), #647; The Timken 
(``Timken''), #648; The Gates Corp. (``Gates''), #649; Allegiance 
Healthcare Int'l, Inc. (``Allegiance''), #653; Minnesota Mining & 
Manufacturing (``3M''), #700; Imation Corp. (``Imation''), #643; 
Gary's Leather Creations (``Gary's''), #678; Sacoche Int'l, Inc. 
(``Sacoche''), #701; NIBCO Inc. (``NIBCO''), #738; Samsonite Corp. 
(``Samsonite''), #828; Whirlpool Corp. (``Whirlpool''), #957.; 
Hartmann Luggage & Leather Goods Group (``Hartmann''), #1013, 
Savannah Luggage Works (``Savannah''), #1039.
    \44\ Writing Instrument Manufacturers Ass'n, Inc. (``WIMA''), 
#187; Rubber & Plastic Footwear Manufacturers Ass'n (``RPFMA''), 
#264; Luggage and Leather Goods Manufacturers of America, Inc. 
(``LLGMA''), #464; Ass'n of Home Applicance Manufacturers 
(``AHAM''), #473; Int'l Mass Retail Ass'n (``IMRA''), #594; Footwear 
Distributors and Retailers of America (``FDRA''), #603; Int'l 
Electronics Manufacturers and Consumers of America (``IEMCA''), 
#604; Footwear Industries of America, Inc. (``FIA''), #617; National 
Food Processors Ass'n (``NFPA''), #620; The National Council on 
Int'l Trade Development (``NCITD''), #638; Joint Industry Group 
(``JIG''), #639; Electronics Industries Ass'n (``EIA''), #641; Japan 
Machinery Exporters' Ass'n (``JMEA''), #642; Committee of Domestic 
Steel Wire Rope and Specialty Cable Manufacturers (``Domestic Steel 
Wire Rope''), #644; The Specialty Cable Manufacturers Subcommittee 
(``Specialty Cable Subcommittee''), #645; Ass'n of Int'l Automobile 
Manufacturers (``AIAM''), #650; Consumer Electronics Manufacturers 
Association (``CEMA''), #1041 (attaching a letter to members of 
Congress signed by officers of EIA, LLGMA, IMRA, FIA, the Automotive 
Parts and Accessories Association, and the American Association of 
Exporters and Importers urging the members not to cosponsor H. Con. 
Res. 80 and supporting the FTC's proposed guidelines as offering a 
``realistic approach'' to ``Made in USA'' labeling).
    \45\ Made in the USA Foundation (``MUSA Foundation''), #730.
    \46\ JBC International (a consulting firm) (``JBC''), #637.
    \47\ See, e.g., Carter, #595, at 1; see also Stanley, #647; 
Jurgensen, #609; AIAM, #650; Wolverine, #621; AHAM, #473; AIAM, 
#650; JBC, #637; EIA, #641; Belair, #602; FIA, #617.
    \48\ See, e.g., NCITD, #638; Carter, #595; New Balance, #635; 
LLGMA, #464; FIA, #617.
    \49\ See e.g., AHAM, #473, at 2 (although consumer perception 
studies indicate that consumers are still interested in whether a 
product is ``Made in USA,'' this ``rarely signifies to the consumer 
that the product is 100 percent or `all or virtually all' composed 
of U.S. made parts and assembled in the U.S.''); Timken, #648, at 1 
(``Global sourcing of components is by now so well-known that 
consumers recognize the fact that `USA' merchandise may contain a 
small foreign content''); AIAM, #650, at 3 (``Given the fact that 
consumer perception data is consistent with the global marketplace, 
it would seem arbitrary to ignore it in fashioning Guides to prevent 
consumer deception.'') See also Maytag, #605; FIA, #617; Converse, 
#363; WIMA, #187; Allegiance, #653.
---------------------------------------------------------------------------

    A number of commenters disputed the claim by supporters of the all 
or virtually all standard that lowering the standard would lead to 
fewer jobs in the United States, arguing that, on the contrary, the 
strictness of the ``all or virtually all'' standard deprives American 
manufacturers of a selling tool that could help preserve American 
jobs.50 These commenters contended that American 
manufacturers are at a competitive disadvantage compared to 
manufacturers in countries where labor rates and other production costs 
fall below U.S. standards.51 Although being able to promote 
their products as ``Made in USA'' would help to even out this 
disadvantage, they argued, many manufacturers' products cannot meet the 
current standard, either because of cost reasons or because some 
materials and components are no longer available from domestic 
sources.52 According to these commenters, if domestic 
manufacturers cannot claim that their products are ``Made in USA,'' 
American jobs would be jeopardized, because these companies would have 
little incentive to stay in the United States.53 For 
example, New Balance Athletic Shoes, Inc. stated:

    \50\ See, e.g., Belair, #602; AHAM, #473; Jules Jurgensen, #609; 
New Balance, #635.
    \51\ See, e.g., LLGMA #464, at 2-3 (``Foreign goods dominate the 
market and thousands of U.S. jobs have been lost to imports. This is 
because the cost structure of major foreign suppliers of luggage and 
leather goods is far below our own * * * Foreign suppliers in these 
countries utilize very cheap labor and have minimal environmental 
and workplace standards * * * It is crucial that the remaining 
luggage and leather goods manufacturers be able to market the unique 
`Made in USA' label to have any hope of competing with low labor 
cost countries.''); New Balance, #635, at 4-6 (it has become 
increasingly difficult to keep and expand U.S. manufacturing 
facilities in the face of competition from cheap imports, and the 
impossibility of obtaining needed components within the United 
States); Converse, #470; DeBon, #472; Leather Specialty, #598. 
Belair, #602; Jules Jurgensen. #609; Ronda/Progress, #632; Sacoche, 
#701.
    \52\ See, e.g., AHAM, #473 at 1; New Balance, #635, at 2.
    \53\ See, e.g., Collins/Kerry/Leiberman/Snowe, #606, at 1 (``To 
impose a standard which [numerous manufacturers] cannot meet is one 
more encouragement for businesses to abandon U.S. manufacturing for 
cheap overseas labor.''); LLGMA, #464, at 3 (``If the FTC continues 
to impose unrealistic country of origin marking requirements, the 
decline of the U.S. luggage and leather goods industry and its 
migration off shore will be hastened.''); Moakley/Delahunt/Meehan/
Kennedy/Frank/Olver, #671, at 2 (``If the standard is so high that 
it cannot be met, manufacturers will have no incentive even to 
try.'')
---------------------------------------------------------------------------

    New Balance agrees with the sentiment, expressed in many of the 
public comments filed to date, that the FTC ought to take action to 
preserve the ``Made in USA'' label, support U.S. jobs, and encourage 
manufacturers to maintain their manufacturing facilities in this 
country, as well as help to level the playing field for domestic 
manufacturers. The ``patriotic'' response, however, is not to 
enforce an ``all, or virtually all'' standard that is unreachable 
for the vast majority of U.S. manufacturers, but to articulate a 
standard that those manufacturers--the companies who are providing 
jobs for U.S. workers--can meet so that they can compete more fairly 
with imports that have tremendous advantages.54

    \54\ New Balance, #635, at 2-3.
---------------------------------------------------------------------------

    Other commenters asserted that, because the proposed standard would 
make the ``Made in USA'' claim more attainable, manufacturers would be 
encouraged to strive to maintain or increase domestic content in their 
products in order to make the ``Made in

[[Page 63761]]

USA'' claim.55 Several commenters noted that the proposed 
standard would allow them to make unqualified ``Made in USA'' claims 
for their products, although they cannot make such claims under the 
current standard. According to Wolverine, for example: ``As currently 
proposed, the FTC's guides would, for the first time, afford the 
opportunity for hundreds of thousands of American workers to see their 
contributions in factories throughout the United States create products 
which will appropriately carry the unqualified designation as having 
been `Made in America.' '' 56
---------------------------------------------------------------------------

    \55\ See, e.g., Allegiance, #653, at 1 (the ability to 
capitalize on consumer preference for ``Made in USA'' products 
favorably influences a company's decision to continue producing in 
the United States); Maytag, #605; NIBCO, #738.
    \56\ Wolverine, #621, at 2. See also Detroit, #601; Imation, 
#643; Benrus, #633; Ronda/Progress, #632; NIBCO, #738.
---------------------------------------------------------------------------

    Some of the commenters favoring a change in the standard expressed 
their support for the safe harbors for unqualified U.S. origin claims 
set forth in the Proposed Guides.57 Other commenters, 
however, while expressing general support for the Proposed Guides, 
asked the Commission to revise one or both of the proposed safe harbors 
and offered specific advice as to how this should be done.58 
For example, a few commenters expressly supported one proposed safe 
harbor, but urged the Commission to eliminate the other.59 
Several other commenters stated that, although the Commission's 75% 
U.S. content safe harbor is an improvement over the current ``all or 
virtually all'' standard, the Commission should lower the U.S. content 
percentage even further. The Luggage & Leather Goods Manufacturers of 
America, for example, asked the Commission to lower the standard to 
50%, because the luggage and leather goods industry ``has been forced 
to increase its reliance on foreign materials and components. As 
domestic industry has grown smaller, so has its supplier base. 
Therefore, domestic producers often have no choice but to source 
certain components off shore * * *.60 In addition, a few 
commenters suggested alternative ways to calculate domestic 
content.61
---------------------------------------------------------------------------

    \57\ Collins/Kerry/Leiberman/Snowe, #606; Moakley/Delahunt/
Meehan/Kennedy/Frank/Olver, #671, Oxley, #955; Allegiance, #653, 
Belair, #602; Benrus, #633; Carter, #595; Detroit, #601; Gary's, 
#678; Gates, #649; Genfoot, #463; Hartman, #1013; Imation, #643; 
Jurgensen, #609; Maytag, #605; New Balance, #635; NIBCO, #738; 
Oneida, #607; Timex, #612; Timken, #648; IMRA, #594; WIMA, #187.
    \58\ Converse, #363, #470; DeBon, #472; Jameslee, #627; Rhonda/
Progress, #632; Sacoche, #701; Samsonite, #823; Whirlpool, #957; 
Wolverine, #621; JBC, #637; AHAM, #473; AIAM, #650; FDRA, #603; 
LLGMA, #464; RPFMA, #264; IEMCA, #604; JIG, #639; NCITD, #638; EIA, 
#641.
    \59\ Some commenters objected to the percentage content safe 
harbor and argued that the Commission should only apply to two 
levels of substantial transformation safe harbor. See, e.g., JBC, 
#637, at 1 (percentage content rules can be ``consciously 
manipulated, affected by exchange rates, and otherwise made 
administratively impossible to enforce.''); JIG, #639; AIAM, #650. 
In contract, two commenters supported the percentage content safe 
harbor, but not the two levels of substantial transformation safe 
harbor. MUSA Foundation, #730, at 2 (the two levels of substantial 
transformation safe harbor ``opens up a very wide loophole''); 
Central Tools, #629.
    \60\ LLGMA, #464, at 2. See also FIA, #617, at 3 (a product that 
contains more than 50% U.S. content clearly qaualifies as 
``substantially all'' made in the United States); RPFMA, #264; at 2 
(70% justified by consumer perception evidence); Converse, #363, at 
1 (preferring a 70% standard); Leather Specialty, #598, at 2 
(supporting a 50% standard); Wolverine, #621, at 5 (supporting a 
majority U.S. content safe harbor or, at least no higher than 70%); 
AIAM, #650, at 1 (favoring substantial transformation standard or 
lowering U.S. content safe harbor at least to 70%); Savannah, #1039 
(supporting a 50% standard). Cf. DeBon, #472, at 1, Jameslee, #627, 
at 1, and Sacoche, #701, at 1 (all three asserting that the 75% 
standard would be relatively difficult for many U.S. manufacturers 
to meet, but not recommending a specific percentage).
    \61\ See, e.g., LLGMA #464, at 3-4 (the NAFTA regional content 
net cost formula should be used to calculate domestic content); 
Stanley, #647, at 6-9 (the Commission should not adopt ``arbitrary'' 
percentage for U.S. content, but if it does, it should make clear 
that the percentage of total manufacturing costs relates to cost of 
fabrication only); Dynacraft, #646, at 7-8 (opposes lowering the 
standard, but if the Commission adopts the Proposed Guides, the 
Commission should base the percentage content standard on actual 
manufacturing costs); EIA, #641, at 2 (the percentage cost safe 
harbor should only look one step back in the manufacturing process); 
AHAM, #473, at 2 (the Commission should provide the option of using 
Generally Accepted Accounting Principles of cost accounting as an 
alternative method for calculating percentage content).
---------------------------------------------------------------------------

    A number of commenters argued that the Commission's proposed second 
safe harbor, which would have allowed an unqualified U.S. origin claim 
where a product undergoes two levels of substantial transformation in 
the United States (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), is too 
burdensome. Several, for example, urged the Commission to apply only 
one level of substantial transformation (i.e., requiring that only the 
final substantial transformation of the product be performed in the 
United States) rather than two, or suggested other modifications to 
this safe harbor.62
---------------------------------------------------------------------------

    \62\ See, e.g., NCITD, #638, at 2 (favoring the use of the NAFTA 
marking rules for single substantial transformation as the second 
safe harbor, rather than requiring two levels of substantial 
transformation); Stanley, #647, at 9-11 (favoring only one level of 
substantial transformation for products involving processes other 
than assembly); 3M, #700, at 1-2 (arguing that two levels of 
substantial transformation creates too great an administrative cost 
for U.S. corporations); EIA, #641, at 7 (this safe harbor may be 
unduly restrictive, depending upon the meaning of term 
``significant;'' Commission should modify the concept of ``all 
significant components'' with a requirement that the final 
components transformed in the United States constitute most of the 
total component value). But see Timex, #612, at 4 (the Commission 
may want to consider adding a cost threshold, such as 51% U.S. 
costs, to the two levels of substantial transformation safe harbor, 
to guard against consumer deception).
---------------------------------------------------------------------------

    In addition, a number of commenters urged the Commission to replace 
the Proposed Guides altogether with a lower standard. As was the case 
during the Commission's earlier public comment period on this issue, 
many commenters, for example, asked the Commission to replace the ``all 
or virtually all'' standard with a substantial transformation standard 
or with the NAFTA Preference Rules.63 One commenter 
recommended that the Commission apply a case-by-case, reasonable basis 
approach to all country-of-origin claims.64
---------------------------------------------------------------------------

    \63\ See, e.g., AHAM, #473 (NAFTA Preference Rules); IEMCA, #604 
(substantial transformation); Maytag, #605 (NAFTA Preference Rules); 
NFPA, #620 (substantial transformation); Ronda/Progress, #632 
(substantial transformation); Domestic Steel Wire Rope, #644 
(substantial transformation); Speciality Cable Subcommittee, #645 
(substantial transformation); National Electrical Manufacturers 
Ass'n (``NEA''), #702 (substantial transformation); NFPA, #620, at 2 
(substantial transformation); JMEA, #662, at 2-3 (standards of the 
World Trade Organization and U.S. Customs); see also JIG, #639 and 
NCITD, #638 (supporting the Proposed Guides, but preferring a 
substantial transformation standard); NEMA, #702 (urging substantial 
transformation standard for industrial products).
    \64\ Toyota, #610.
---------------------------------------------------------------------------

    Finally, several commenters asked the Commission to modify the 
Proposed Guides to specifically address certain situations not 
expressly discussed in the Proposed Guides 65 or to exempt 
certain types of products.66
---------------------------------------------------------------------------

    \65\ For example, one commenter requested that the Commission 
amend the Guides to specifically permit manufacturers rebuilding or 
remanufacturing automotive parts in the United States to designate 
their products ``Made in USA'' if the products originally were used 
in the United States, regardless of where the products originally 
were manufactured. Automotive Parts Rebuilders Ass'n (``APRA''), 
#698, at 1-3. See also NFPA, #620, at 2 (if Proposed Guides apply to 
processed foods, Proposed Guides should include references to raw 
agricultural products and processed or manufactured food products in 
cost and other definitions and include processed food product 
examples); Wolverine, #621, at 6-8 (Commission should authorize 
``Made in USA'' claims for products assembled or processed in 
accordance with subheading 9802.00.8040, HTSUS); Carter, #595, at 1-
2 (asking the Commission to explain how it will treat certain 
qualified claims under the Proposed Guides, e.g., when a qualified 
claim indicates that some or all of the parts are of U.S. origin, do 
those parts have to meet the standard for an unqualified ``Made in 
USA'' claim?).
    \66\ Two commenters asked the Commission to apply the Proposed 
Guides only to consumer goods, not to industrial products, arguing 
that industrial products are produced to the specifications 
(including country of origin) of a sophisticated customer. JIG, 
#639; NEMA, #702. But see Kern, #739, at 2 (the `` `creative' use of 
the `Made in the USA' designation has caused considerable confusion 
in my [tool] company's local and national marketplace of normally 
well informed industrial customers and has had a negative financial 
impact on my company and its employees'').

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[[Page 63762]]

D. Commenters' Discussion of Other Issues

    Several commenters discussed additional issues raised in the 
Federal Register notice soliciting comments on the Proposed Guides. 
These issues included whether the Commission should treat unqualified 
``Assembled in USA'' claims the same as unqualified ``Made in USA'' 
claims, whether the Commission should recognize a separate ``Origin: 
USA'' claim in limited instances for domestically-sold products that 
also are exported for sale, and whether the Commission should eliminate 
its traditional presumption that products that do not bear any country-
of-origin marking are understood by consumers to be made in the United 
States. These comments are discussed below.
1. ``Assembled in USA'' Claims
    In the Federal Register notice announcing the Proposed Guides, the 
Commission solicited 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 ``Assembled in USA'' without 
further qualification; and if so, under what circumstances, i.e., what 
processing should it undergo in the United States to support the 
unqualified claim. Five commenters contended that the claim should be 
interpreted similarly to an unqualified ``Made in USA'' claim, and must 
therefore be qualified (e.g., ``Assembled in USA from imported parts'') 
if it does not meet the standard for unqualified ``Made in USA'' 
claims. According to these commenters, consumers understand ``Assembled 
in USA'' to mean the same thing as ``Made in USA.'' 67 Two 
commenters, on the other hand, contended that consumers perceive the 
two claims differently. The coalition of state Attorneys General, for 
example, suggested that ``while the term `make' connotes a process of 
creation the term `assemble' is generally understood to mean the final 
process of fitting or joining together pre-existing parts.'' 
68 These commenters favored permitting an unqualified 
``Assembled in USA'' claim where a ``Made in USA'' claim would be 
inappropriate. 69
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    \67\ See Gates, #649, at 2-3 (``Assembled in USA'' claim should 
identify country of origin of major component parts); Timken, #648, 
at 3-4 (because of similarity between ``Made'' and ``Assembled'' and 
the importance of assembly to respondents in Commission's survey, 
unqualified ``Assembled in USA'' mark is inappropriate); IMRA, #594; 
FDRA, #603; Timex, #612.
    \68\ AGs, #462, at 5.
    \69\ Id., #462, at 4-5 (treating terms differently would allow 
manufacturers to market their products effectively, using easily 
understood unqualified claims that would not sacrifice truth in 
advertising); AIAM, #650, at 1-2, 5-6. See also Toyota, #610, at 6-7 
(if Commission concludes that a bright line test is necessary for 
``Made in USA'' claims, it should allow ``assembled in'' or ``built 
in'' claims based only on substantial transformation).
---------------------------------------------------------------------------

    In addition, three of these commenters addressed the circumstances 
under which they believed an ``Assembled in USA'' claim should be 
permitted. Two commenters favored authorizing the use of unqualified 
``Assembled in USA'' claims for products that have been last 
substantially transformed in the United States.70 Another 
commenter supported requiring at least 50% U.S. content to ensure more 
than minimal or simple assembly operations; even at that level, 
however, the commenter recommended requiring that the claim be 
qualified to disclose whether foreign components were 
used.71
---------------------------------------------------------------------------

    \70\ AGs, #462, at 6; Toyota, #610, at 6-7.
    \71\ Gates, #649, at 2-3.
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2. ``Origin: USA'' Claims
    In the Proposed Guides, the Commission proposed allowing marketers 
to use a ``lesser mark''--``Origin: USA''--in certain, limited 
circumstances. Such a mark would have allowed manufacturers to 
uniformly label products for sale in both the United States and abroad, 
when a foreign country 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 be permitted to bear an unqualified U.S. origin 
claim when sold in the United States. Use of the lesser mark would have 
been subject to certain restrictions, including that consumer products 
sold in the United States would have to include, in some manner, an 
additional disclosure of the existence of any substantial foreign 
content. The commenters addressing this issue were evenly divided as to 
whether marketers should be allowed to use a ``lesser mark'' or 
specific claim such as ``Origin: USA.'' 72
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    \72\ Seven commenters supported use of a ``lesser mark.'' LLGMA, 
#464, at 4; IMRA, #594, at 4-5 (strongly supports as a short-term 
solution until WTO adopts origin-marking requirements; the 
Commission should prohibit use of the ``Origin: USA'' claim in 
advertising, because the issue faced by exporters is purely a 
labeling issue, and could be abused in advertising); FIA, #617, at 
8-9; Wolverine, #621, at 8; JBC, #637, at 3-4; JIG, #639, at 4; 
NEMA, #702, at 1-3. Seven commenters opposed the use of such a mark. 
FDRA, #603, at 2-4; Timex, #612, at 1, 5-6; NFPA, #620, at 3-4; 
American Hand Tool, #622, at 29-31; Timken, #648, at 4-5; Gates, 
#649, at 3-4; Wright, #262, at 2.
---------------------------------------------------------------------------

    A number of commenters supporting the option of using an ``Origin: 
USA'' label argued that such a claim would benefit manufacturers who 
export U.S. products, as well as consumers, for example, by eliminating 
the need to separately label domestic and exported products and to 
maintain packaging plants in foreign countries for the sole purpose of 
meeting conflicting country-of-origin labeling standards; 73 
by encouraging U.S. manufacturers to manufacture and sell more U.S. 
products if they can export the products for sale in foreign markets 
without the added costs associated with the Commission's historic 
restrictions on U.S. origin statements; 74 and by reducing 
the price of consumer goods sold in the United States, because of the 
cost savings to U.S. manufacturers.75 At least one commenter 
who supported the use of the lesser mark asserted that additional 
disclosure requirements for consumer goods sold in the United States 
would not be necessary to prevent consumer deception.76 
Another commenter suggested alternative lesser marks to avoid the 
burden and expense of additional labeling for U.S. sales while 
providing additional information to U.S. consumers.77
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    \73\ JBC, #637, at 3-4; JIG, #639, at 4 (cost of maintaining 
separate packaging facilities in foreign markets for sole purpose of 
complying with conflicting country-of-origin markings and 
Commission's ``all or virtually all'' standard for U.S. origin 
claims adds 10% to 30% per product; cost of special labels and/or 
relabeling U.S. product in United States for export adds 10% to 15% 
per product); NEMA, #702, at 2-3.
    \74\ JIG, #639, at 4.
    \75\ Id., #639, at 6.
    \76\ JBC, #637, at 3-4.
    \77\ FIA, #617, at 8-9 (suggesting lesser mark ``Origin: USA 
(for export)'' to allow manufacturers to avoid burden and expense of 
additional labeling while alerting consumers that the article is 
labeled for export; alternatively, lesser mark ``Origin: USA (with 
non-U.S. content)'' to provide U.S. consumers with relevant 
information while eliminating additional labeling requirements).
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    On the other hand, other commenters argued that whatever benefits 
an ``Origin: USA'' mark would provide would not justify the potential 
confusion caused by the lesser mark, as consumers were likely to 
confuse ``Origin: USA'' labels with ``Made in USA'' 
labels.78 Even the additional disclosures required on 
consumer goods sold in the United States, some of these commenters 
stated, would not be sufficient to prevent consumer deception or might 
even increase

[[Page 63763]]

consumer confusion.79 Some commenters also asserted that a 
lesser mark is unnecessary,80 arguing that if a foreign 
country's marking rules require the origin of a product to be ``USA,'' 
then the manufacturer can identify the United States as the assembly 
point and further qualify the origin, e.g., ``Assembled in USA from 
Components of U.S. and Foreign Origin,'' or apply separate labels or 
marks, depending upon the destination of the goods.81 In 
addition, one commenter who supported a substantial transformation 
standard for unqualified ``Made in USA'' claims found the alternative 
of using an ``Origin: USA'' claim to be inadequate. This commenter 
contended that the lesser mark would provide little or no benefit 
because the additional disclosure requirements for U.S. sales of 
consumer products would create a dual marking requirement.82 
Last, even some commenters supporting use of a lesser mark were unsure 
whether the lesser mark ``Origin: USA'' would be an acceptable marking 
to foreign customs officials.83
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    \78\ See, e.g., Timken, #648; American Hand Tool, #622; Gates. 
#649; Timex, #612.
    \79\ FDRA, #603, at 2-3 (``Origin: USA'' label likely would 
prove deceptive even if appropriate qualifying language appears on a 
hangtag or packaging because consumers would not locate or read the 
qualifying language); Timex, #612, at 5 (consumer likely would 
decide to purchase a watch without seeing package containing 
additional disclosures because watches are frequently displayed 
without packaging, and packaging products are pulled from a cabinet 
or shelf once the consumer has made purchasing decision); American 
Hand Tool, #622, at 29 (strongly opposed the ``Origin: USA'' label); 
Gates, #649, at 4 (the meaning of a lesser mark, even where 
qualified by the phrase ``substantial foreign content,'' would be 
uncertain to consumers).
    \80\ Wright, #262, at 2 (marking is the last or near to last 
operation performed; it is practical to run large lots and carry 
most inventory in an unmarked condition, involving only a relatively 
small cost penalty); American Hand Tool, #622, at 29-31 (little need 
for lesser mark; Commission found little evidence that companies 
routinely face conflicting labeling requirements or that ``Made in 
USA'' claim causes such conflicts); Gates, #649.
    \81\ Gates, #649, at 3-4. See also Timex, #612, at 5 (a 
qualified marking such as ``Assembled in USA; Philippines movement'' 
for watches would satisfy the marking requirements of almost every 
other country--most of which identify the place of origin of a watch 
as the place of final assembly; this qualified claim would therefore 
resolve--for watches--the concerns that prompted the Commission to 
consider an ``Origin: USA'' marking).
    \82\ NFPA, #620, at 4 (economic burden of sticker labeling or 
hangtags similar to creation of additional labeling inventory, and 
handling requirements might be even more burdensome).
    \83\ See, e.g., NEMA, #702, at 2 (a number of countries have 
indicated either that they would not accept an ``Origin: USA'' mark 
or that they are not sure); JIG, #639, at 5 (``Origin: USA'' likely 
would not be acceptable to customs officials in at least Australia, 
New Zealand, and Canada).
---------------------------------------------------------------------------

3. Rebuttable Presumption for Unmarked Products
    As explained in the prior Federal Register notice, the Commission 
has historically employed a rebuttable presumption that goods not 
labeled with any country of origin are 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. Based on the facts 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 announced in the 
Federal Register notice that it no longer was 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. The Commission, therefore, determined to 
cease using this presumption, but instead explained that it would 
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.84
---------------------------------------------------------------------------

    \84\ 62 FR at 25047.
---------------------------------------------------------------------------

    Although the Commission did not specifically solicit comments on 
this determination,85 four commenters submitted their views 
concerning the current need for the presumption. Three commenters urged 
the Commission not to eliminate the presumption, arguing, among other 
reasons, that it was appropriate for the producer of an unmarked 
product to have the burden of proving that the lack of a country-of-
origin indication was not deceptive.86 The other commenter 
agreed with the Commission that the presumption should be eliminated, 
and, indeed, urged the Commission to go further and clearly indicate 
that an unmarked good, in and of itself, would not be considered 
deceptive simply for the fact of being unmarked.87
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    \85\ The Commission's determination on this point was not part 
of the Proposed Guides, but was included in the Federal Register 
notice accompanying the Guides because it addressed a related topic 
that had been raised at the public workshop.
    \86\ Timken, #648, at 5-6; Gates, #649, at 4 (also asserting 
that the presumption is a valuable remedy to counter the incentive 
for foreign producers to import unmarked products, e.g., the 
producers of automotive belts, who may have the incentive to import 
unmarked belts contrary to antidumping duty orders and U.S. Customs 
marking regulations). See also Oneida, #607, at 1-2 (arguing that 
the presumption is particular necessary in catalog sales where the 
consumer cannot inspect the item prior to purchase, and expressing 
its concern that without the presumption, attempting to show that a 
significant minority of consumers believes an unmarked product is 
domestic would be unworkable).
    \87\ IMRA, #594, at 5-6.
---------------------------------------------------------------------------

III. Analysis

    Section 5 of the Federal Trade Commission Act, 15 U.S.C. 45, 
proscribes ``unfair or deceptive acts or practices'' in or affecting 
commerce. An advertisement, label or other promotional material will be 
found to be deceptive if it contains a representation or omission that 
is likely to mislead consumers acting reasonably and that 
representation or omission is material. In applying the principles of 
Section 5 and the Commission's traditional deception analysis to U.S. 
origin claims, the Commission has, throughout its review, focused first 
and foremost on consumers' understanding of such claims.88
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    \88\ To the extent they are not inconsistent with consumer 
understanding, other considerations, such as the compliance burdens 
placed on businesses, have been considered by the Commission as part 
of its general obligation to act in the public interest.
---------------------------------------------------------------------------

    The considerable evidence available to the Commission concerning 
consumer understanding of ``Made in USA'' claims was discussed at 
length in the Commission's May 7, 1997 Federal Register notice. As 
explained in that notice, the Commission itself, as part of its overall 
review of U.S. origin claims, commissioned a two-part study in 1995 
(referred to as the ``1995 Copy Test'' and ``1995 Attitude Survey,'' 
respectively) to look at consumer perception of such 
claims.89 In addition, the Commission had previously 
conducted a more limited study of these issues in 1991 as part of a 
subsequently closed investigation (``1991 Copy Test'').90 
The results of these studies indicated that many consumers expected 
that a product advertised or labeled as ``Made in USA'' had a high 
amount of U.S. content, but that a significant number of these were 
willing to accept a product with at least some foreign content and 
that, as a result, there was a range of values at which most consumers 
would find a ``Made in USA'' claim appropriate. In addition, the 
studies suggested that many consumers appeared to have only a general 
sense of what ``Made in USA'' means and did not necessarily have in 
mind a highly

[[Page 63764]]

detailed conception of what it meant for a product to be ``Made in 
USA.''
---------------------------------------------------------------------------

    \89\ This study is available as Document No. B212883 on the 
Commission's public record.
    \90\ Document No. B213001 on the Commission's public record.
---------------------------------------------------------------------------

    In the 1995 Attitude Survey, participants were presented with a 
series of scenarios and asked whether they agreed or disagreed with a 
``Made in USA'' label on a product in those circumstances. In the 
scenarios, the percentage of the product's cost that was U.S. in origin 
varied from 10% to 90%; in addition, participants were either told that 
the product was assembled in the United States, told that it was 
assembled abroad, or not told the site of assembly. The Attitude Survey 
indicated that a ``Made in USA'' label would likely be misleading to 
most consumers when a product contained 50% or less U.S. content or was 
assembled abroad. However, where a product was assembled in the United 
States, a significant majority of consumers agreed that a ``Made in 
USA'' claim would be appropriate if the product contained either 70% 
U.S. content (67% of respondents) or 90% U.S. content (75% of 
respondents), suggesting that there is a range of standards likely to 
be considered acceptable and nonmisleading by most consumers.
    As in the 1995 Attitude Survey, in the 1991 Copy Test, the 
Commission had also found evidence that many consumers expected a 
product called ``Made in USA'' to have a high amount of U.S. content. 
In that study, of the participants who were asked ``when you see the 
phrase `Made in USA' on a product or in an ad, how much of the product 
was made in the United States?'' approximately 77% said that all or 
almost all of the product so labeled was made in the United States. 
Nonetheless, the answers to a follow-up question attenuated this result 
somewhat. When asked whether they meant parts or labor or both parts 
and labor, only 77% of the respondents (82% of those who answered ``all 
or almost all'') said both parts and labor, while 14% said labor only, 
and 9% said only parts.91
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    \91\ There was no attempt in this survey to breakdown these 
categories further--i.e., to look at whether the respondents who 
said that ``Made in USA'' referred to parts also thought that it 
referred to the materials that went into those parts; or whether 
those who said ``Made in USA'' referred to labor meant only final 
assembly labor or also any labor that went into making the parts.
---------------------------------------------------------------------------

    The 1995 Copy Test attempted to explore further issues of what 
consumers included in their definitions of Made in USA, but the results 
were less than definitive. For example, in the 1995 FTC Copy Test, when 
respondents were shown a ``Made in USA'' claim and asked an open-ended 
question about what the claim meant, 63.5% said simply that the claim 
meant ``Made in USA.'' 92 Moreover, when asked specifically 
whether the claim suggested or implied anything about where the product 
was assembled, only 49% said that it did (almost all of whom said it 
meant the product was assembled in the United States); only 28% of 
those asked about an unqualified ``Made in USA'' claim said it 
suggested or implied anything about where the parts were made; and only 
11% said it implied anything about how much of the parts were made in 
the United States. Indeed, a total of 34% of respondents stated that a 
``Made in USA'' claim did not suggest or imply anything about any of 
these factors--assembly, parts, or how much of the total cost of the 
product was incurred in the United States. This suggests that many 
consumers may not have in mind a highly developed definition of ``Made 
in USA''; in any event, the data are not definitive. In addition, the 
available consumer perception evidence suggests that, to the extent 
that consumers do define Made in USA, they may do so in a variety of 
different ways. For example, in each of the Commission-sponsored 
surveys, there is evidence, albeit inconclusive, of a minority of 
consumers who, rather than expecting a high amount of both U.S. parts 
and labor, view ``Made in USA'' claims as referring only to where a 
product was put together. Thus, 28.5% of respondents to the 1995 Copy 
Test answered that ``Made in USA'' implied that a product was assembled 
in the United States but that it did not imply that a product's parts 
were necessarily U.S. made; 20% of respondents in the 1995 Attitude 
Survey agreed that a ``Made in USA'' label would be appropriate for a 
product that was assembled in the United States but whose costs were 
only 10% U.S.; and 14% of those asked in the 1991 copy test indicated 
that ``Made in USA'' referred only to labor, not parts.
---------------------------------------------------------------------------

    \92\ During the Commission's earlier comment period on this 
matter, a number of commenters suggested that the fact that many 
consumers said that ``Made in USA'' means ``Made in USA'' showed 
that consumers understood ``Made in USA'' claims as referring only 
to where a product ``came into being,'' i.e., where it underwent its 
final assembly or processing. See 62 FR at 25037. By contrast, in 
response to the Commission's May notice, some commenters suggested 
that the response that ``Made in USA'' means ``Made in USA'' showed 
that consumers expected a product labeled ``Made in USA'' to be 100% 
``Made in USA.'' The Commission continues to believe, however, that 
there is inadequate evidence upon which to infer either meaning from 
this tautological definition.
---------------------------------------------------------------------------

    The Commission has thus been presented with evidence that suggests 
that many consumers expect that ``Made in USA'' labels connote a high 
amount of U.S. content, as well as that many of these consumers do not 
have a detailed conception of what it means for a product to be ``Made 
in USA.'' Moreover, the evidence suggests that no single standard is 
likely to correspond to the views of all consumers, and that there is a 
range of points along the spectrum that would likely satisfy a 
significant majority of consumers. Based on this evidence, the 
Commission initially proposed a ``substantially all'' standard. 
Although this was not the only possible standard consistent with the 
data, it was, the Commission believed, a high threshold for ``Made in 
USA'' claims that would at the same time provide some flexibility to 
U.S. manufacturers operating in an increasingly global economy. 
Moreover, although nominally less stringent than the existing standard, 
the proposed ``substantially all'' standard and the associated guides 
provided strict constraints with respect to the sort of details that 
the consumer perception studies were unable to address but that can 
have a great deal of practical effect in determining whether a product 
can meet the standard for ``Made in USA'' claims (however that standard 
is denominated)--e.g., how far back in the manufacturing process 
marketers were required to look, or what sorts of costs should be 
included in the calculation of U.S. content.
    Nonetheless, the record currently before the Commission does not 
support adoption of the ``substantially all'' standard and the 
accompanying guides proposed in May. The vast majority of those 
commenting, including, significantly, a large number of individual 
consumers as well as a number of U.S. manufacturers, opposed the 
proposed standard, perceiving it, contrary to the Commission's intent, 
as significantly weakening the standard for ``Made in USA'' claims. The 
submissions of these commenters suggest that the Commission may have 
underestimated the benefits such individuals or corporations derive 
from the current standard and the costs they believe they will incur if 
the standard is changed. An overwhelming number of consumers told the 
Commission, through written comments, telephone calls, and petitions, 
that they prefer buying U.S.-made goods; they want to be able to rely 
on a simple and clear standard; and, they feel very strongly that the 
current standard should be retained. The comments also underscore the 
fact, noted as well in the Commission's May Federal Register notice, 
that consumer awareness of the

[[Page 63765]]

globalization of the economy has not necessarily changed consumers' 
beliefs about those products actually labeled ``Made in USA.'' Thus, 
the Commission concludes that the better course, and one equally 
consistent with the consumer perception evidence, is to retain and 
continue to enforce the Commission's traditional all or virtually all 
standard.

IV. Enforcement Policy Statement

    The ``all or virtually all'' standard--and its earlier equivalent, 
the ``wholly domestic'' standard--was developed through case law and 
advisory opinions that were largely limited to discussions of single 
products, and the standard has never been more generally defined. 
Indeed, throughout this review process, commenters, particularly those 
businesses that must comply with the requirements for ``Made in USA'' 
claims, have entreated the Commission to provide more guidance on what 
this standard (or any other standard the Commission were to adopt) 
requires. For that reason, the Commission in retaining the ``all or 
virtually all'' standard, is at the same time issuing an Enforcement 
Policy Statement on U.S. Origin Claims. The Enforcement Policy 
Statement sets forth the general principles to which the Commission 
will adhere in enforcing the requirement that goods promoted as ``Made 
in USA'' must be all or virtually all made in the United States. The 
Enforcement Policy Statement is intended to give general guidance on 
making and substantiating U.S. origin claims. It is not designed, 
however, to answer all questions that may arise on this topic. Given 
the complex and varied factual scenarios that present themselves in 
this area, and the wide range of products for which U.S. origin claims 
may be made, there are necessarily issues that will continue to be more 
appropriately resolved on a case-by-case basis.
    The Enforcement Policy Statement addresses a range of basic issues 
related to U.S. origin claims. It includes introductory information on 
the scope of the products and claims to which the Statement applies and 
of the respective responsibilities of the FTC and the U.S. Customs 
Service in regulating country-of-origin claims; an explanation of the 
Commission's authority to act against deceptive practices and how the 
Commission is likely to interpret express and implied U.S. origin 
claims; a discussion of unqualified U.S. origin claims and the factors 
that the Commission will consider in determining whether such a claim 
is substantiated, i.e., whether a product is ``all or virtually all'' 
made in the United States; and guidance on using qualified claims where 
a product does not meet the ``all or virtually all'' standard. The 
Enforcement Policy Statement is intended to be self-explanatory; 
nonetheless, a few matters that may be of particular interest are 
highlighted below.
    Substantiating U.S. Origin Claims: The All or Virtually All 
Standard. The Enforcement Policy Statement sets forth the requirement 
that where a product is labeled or advertised as ``Made in USA,'' the 
marketer should possess and rely upon a reasonable basis that the 
product is all, or virtually all, made in the United States. A product 
that is ``all or virtually all'' made in the United States is described 
typically as one in which all significant parts and processing that go 
into the product are of U.S. origin, i.e., where there is only a de 
minimis, or negligible, amount of foreign content. In order to provide 
further guidance, the Enforcement Policy Statement discusses three 
factors that the Commission will likely consider in evaluating whether 
a product is all or virtually all made in the United States: whether 
the final assembly or processing of the product took place in the 
United States; the portion of the total manufacturing cost of the 
product that is attributable to U.S. parts and processing; and how far 
removed from the finished product any foreign content is.
    There was widespread agreement among commenters who addressed the 
issue (both in response to the May 7, 1997 Federal Register notice and 
to the Commission's earlier requests for public comment), whatever 
standard they otherwise supported, that a product should have to 
undergo its final processing in the United States in order to be called 
``Made in USA.'' This view is confirmed by the consumer perception 
evidence, which indicates that the country of final assembly is highly 
significant to consumers in evaluating where a product is ``made.'' 
Accordingly, the Enforcement Policy Statement indicates that a product 
promoted as ``Made in USA'' must have undergone its final assembly or 
processing in the United States; in particular, the product must, at 
minimum, have been last substantially transformed in the United States 
(this also ensures that no product required to be labeled with a 
foreign country-of-origin under the Customs Service's rules would be 
permitted to make a ``Made in USA'' claim).
    The Enforcement Policy Statement also indicates that, in 
determining whether a product is appropriately represented to be ``Made 
in USA,'' the Commission will consider what portion of the total cost 
of manufacturing the product is attributable to U.S. parts and 
processing. Obviously, the greater the percentage of U.S. costs, the 
more likely the product will be considered all or virtually all made in 
the United States. As discussed above, there were a great many 
commenters who criticized the 75% safe harbor put forth as part of the 
Commission's earlier proposal as overly lax and likely to deceive many 
consumers, and the Commission agrees that the record as a whole does 
not support adoption of such a safe harbor. The Commission, however, 
believes that, as a matter of enforcement policy, it is appropriate to 
allow for some small but reasonable amount of tolerance in enforcing 
the ``all or virtually all'' standard. Some commenters have called for 
the Commission to define this tolerance level with a bright line 
percentage standard so as to provide greater certainty to marketers. 
Nonetheless, the Commission has concluded that any such certainty is 
likely to be illusory and no single percentage standard will be 
appropriate for all products in all circumstances.\93\ Instead, the 
Commission will look at U.S. manufacturing costs in the context of the 
other factors outlined here and in light of the nature of the product 
and consumers' expectations. In general, the Commission concludes that 
it will not be in the public interest to bring a law enforcement action 
where the proportion of U.S. costs of the product is extremely high.
---------------------------------------------------------------------------

    \93\ For example, in some cases, the percentage of manufacturing 
costs attributable to foreign parts and process may not reflect the 
true extent of foreign content. Where only a small amount of 
domestic processing takes place and the bulk of the work on the 
product is performed abroad, or a significant component is 
manufactured abroad, it may be possible that, because of lower costs 
for foreign parts and labor, foreign costs may be disproportionately 
low relative to the amount of foreign production. Similarly, as the 
American Hand Tool Coalition noted, a product made with inputs from 
a high-cost country (such as Germany) will reflect a higher degree 
of foreign content (in terms of cost) than would a product made with 
identical inputs supplied from a low-cost country (such as China). 
In such circumstances, it may be preferable to look more generally 
at the significance of the foreign inputs rather than evaluate their 
extent entirely in terms of cost.
---------------------------------------------------------------------------

    Finally, the Enforcement Policy Statement indicates that, in 
evaluating whether any foreign content is significant enough to prevent 
a product from being considered all or virtually all made in the United 
States, the Commission will also examine how far removed the foreign 
content is from the finished product. In other words, foreign parts or 
materials that are incorporated several steps back in the manufacturing 
process are generally less

[[Page 63766]]

likely to be significant than are parts or materials that are immediate 
inputs into the final product.
    Many commenters implicitly recognized this point. The Attorneys 
General, for example, suggested that raw materials be excluded from the 
calculation of foreign content, suggesting that ``a company that 
designs and manufacturers a plastic product entirely within the U.S.A. 
but uses petroleum from a foreign county, could fairly claim that the 
product was made in the U.S.A. with no foreign component parts.'' \94\ 
Some other supporters of the ``all or virtually all'' standard, even 
those who supported including all basic materials in the analysis, also 
appeared to acknowledge that there should be limits as to how far back 
a manufacturer must go in accounting for foreign materials. For 
example, a number of commenters, arguing that steel must be included in 
the evaluation of a product's origin, did not also suggest that a 
manufacturer should be required to go as far back as the iron ore used 
in the steel.\95\ On the other hand, commenters also recognized that 
raw materials can sometimes be relevant to the determination as to 
whether a product is all or virtually all made in the United States, 
especially when the raw materials are only one step back from the 
finished product and are integral components of that article. For 
example, the Tile Council of America, arguing that the Commission must 
include raw materials in the evaluation of whether a product is made in 
the United States, stated that ``the quality and reliability benefits 
of tile `Made in the USA' are the result of both the domestic sourcing 
of raw materials and the domestic manufacturing process. Tile 
manufactured in the United States of clay dug in Mexico * * * clearly 
[does] not meet the `Made in USA' expectations of U.S. consumers.'' 
\96\
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    \94\ AGs, #462, Attachment at 10.
    \95\ See, e.g., Weldbend, #597; Vaughan & Bushnell, #616; 
American Iron & Steel Institute, #636.
    \96\ TCA, #618, p. 3.
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    Thus, the Enforcement Policy Statement indicates that raw 
materials, per se, will be neither automatically included nor excluded 
from the Commission's evaluation of whether a product is all or 
virtually all made in the United States. Instead, here, too, the 
Commission's analysis will depend on the percentage of the cost of the 
product the raw materials constitute and how far removed from the 
finished product the raw materials are, and, because, some raw 
materials are naturally nonoccurring in this country, whether the raw 
material is indigenous (and available in commercial quantities) in the 
United States.
    Qualified U.S. Origin Claims and ``Assembled in USA''. Few 
commenters directly addressed the use of qualified U.S. origin claims, 
although those that did commented favorably, suggesting that qualified 
claims can provide valuable information to consumers.\97\ The 
Commission has always permitted marketers to use appropriately 
qualified claims where their products would not meet the standard for 
an unqualified ``Made in USA'' claim, and that continues to be the 
case. The Enforcement Policy Statement addresses various types of 
qualified claims, including claims about the U.S. origin of specific 
processes or parts and comparative U.S. origin claims, and indicates 
that all such claims must be truthful and substantiated and that 
qualifications and disclosures should be clear, prominent and 
understandable. Comparative U.S. origin claims may be a particularly 
useful vehicle for those manufacturers who wish to draw a distinction 
between the domestic content of their products and those of competitors 
who engage in less domestic manufacturing or use fewer U.S. made parts.
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    \97\ See, e.g., American Hand Tool, #622; Traficant, #231 
Visclosky, #236; NCL, #640; Matco, #600.
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    As discussed above, the Commission specifically solicited comment 
in its May 7, 1997 Federal Register notice on one particular 
alternative claim, ``Assembled in USA.'' The Commission asked for 
comment on whether a product that does not meet the standard for an 
unqualified U.S. origin claims should nonetheless be permitted to be 
promoted as ``Assembled in USA,'' and, if so, under what circumstances. 
Upon review of the responses and further reflection, the Commission has 
concluded that ``assembled'' has a common meaning sufficiently distinct 
from ``made'' so that in many instances it will be appropriate for 
marketers to promote a product as ``Assembled in USA'' without further 
qualification.\98\ Specifically, the Enforcement Policy Statement 
states that such a claim may be used where a product has undergone its 
principal assembly in the United States and that assembly is 
substantial; it also indicates that a product should have been last 
substantially transformed in the United States if it is to be labeled 
or advertised as ``Assembled in USA.''
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    \98\ AGs, #462, at 4-5.
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V. Issues Not Addressed by the Enforcement Policy Statement

A. Origin: USA

    As explained above, in the Proposed Guides, the Commission sought 
comment on the use of a separate ``lesser mark'' for products that 
faced conflicting marking requirements when sold domestically and 
exported. Several commenters praised the proposal as likely to save 
U.S. businesses, and consumers, money while others contended that such 
a mark was unnecessary and likely to confuse consumers. Upon reviewing 
the record, the Commission finds that, at the present time, there is 
inadequate evidence of the extent of both the problems purportedly 
caused by conflicting labeling requirements (e.g., to what extent 
conflicting marking requirements actually occur, how frequently 
multiple labeling is actually required) as well as of the degree to 
which a lesser mark such as ``Origin: USA'' is likely to alleviate 
these problems (e.g., whether relabeling would have been required in 
any event because of language differences, whether foreign customs 
services will accept this mark). As a result, the Commission has 
concluded that the benefits to be gained through establishment of this 
mark are as yet too speculative to outweigh the more obvious costs in 
potential confusion between such a mark and ``Made in USA.'' 
Accordingly, the Commission has not adopted ``Origin: USA'' (or any 
other lesser mark) in the Enforcement Policy Statement.

B. Goods With No Country-of-Origin Marking

    In the May 7, 1997 Federal Register, the Commission indicated that 
it would no longer employ its historical rebuttal presumption that 
unmarked goods will be understood by reasonable consumers to have been 
made in the United States, but instead would look at an array of 
factors on a case-by-case basis. Although a few commenters disagreed 
with this change in policy, the Commission continues to believe that 
this course is appropriate and more in keeping with the Commission's 
traditional deception analysis that is widely applied to other 
representations and omissions.

ENFORCEMENT POLICY STATEMENT ON U.S. ORIGIN CLAIMS

I. Introduction

    The Federal Trade Commission (``FTC'' or ``Commission'') is issuing 
this statement to provide guidance regarding its enforcement policy 
with respect to

[[Page 63767]]

the use of ``Made in USA'' and other U.S. origin claims in advertising 
and labeling. The Commission has determined, as explained below, that 
unqualified U.S. origin claims should be substantiated by evidence that 
the product is all or virtually all made in the United States. This 
statement is intended to elaborate on principles set out in individual 
cases and advisory opinions previously issued over the course of many 
years by the Commission. This statement, furthermore, is the 
culmination of a comprehensive process in which the Commission has 
reviewed its standard for evaluating U.S. origin claims. Throughout 
this process, the Commission has solicited, and received, substantial 
public input on relevant issues. The Commission anticipates that from 
time to time, it may be in the public interest to solicit further 
public comment on these issues and to assess whether the views 
expressed in this statement continue to be appropriate and reflect 
consumer perception and opinion, and to determine whether there are 
areas on which the Commission could provide additional guidance.
    The principles set forth in this enforcement policy statement apply 
to U.S. origin claims included in labeling, advertising, other 
promotional materials, and all other forms of marketing, including 
marketing through digital or electronic means such as the Internet or 
electronic mail. The statement, moreover, articulates the Commission's 
enforcement policy with respect to U.S. origin claims for all products 
advertised or sold in the United States, with the exception of those 
products specifically subject to the country-of-origin labeling 
requirements of the Textile Fiber Products Identification 
Act,99 the Wool Products Labeling Act,100 or the 
Fur Products Labeling Act.101 With respect to automobiles or 
other passenger motor vehicles, nothing in this enforcement policy 
statement is intended to affect or alter a marketer's obligation to 
comply with the requirements of the American Automobile Labeling Act 
102 or regulations issued pursuant thereto, and any 
representation required by that Act to appear on automobile labeling 
will not be considered a deceptive act or practice for purposes of this 
enforcement policy statement, regardless of whether the representation 
appears in labeling, advertising or in other promotional material. 
Claims about the U.S. origin of passenger motor vehicles other than 
those representations required by the American Automobile Labeling Act, 
however, will be governed by the principles set forth in this 
statement.
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    \99\ 15 U.S.C. 70.
    \100\ 15 U.S.C. 68.
    \101\ 15 U.S.C. 69.
    \102\ 49 U.S.C. 32304.
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II. Background

    Both the FTC and the U.S. Customs Service have responsibilities 
related to the use of country-of-origin claims. While the FTC regulates 
claims of U.S. origin under its general authority to act against 
deceptive acts and practices, foreign-origin markings on products 
(e.g., ``Made in Japan'') are regulated primarily by the U.S. Customs 
Service (``Customs'' or ``the Customs Service'') under the Tariff Act 
of 1930. Specifically, Section 304 of the Tariff Act, 19 U.S.C. 1304, 
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 or other 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.103
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    \103\ For goods from NAFTA countries, determinations are 
codified in ``tariff shift'' regulations. 19 CFR 102.
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    The FTC also has jurisdiction over foreign origin claims in 
packaging insofar as they go beyond the disclosures required by the 
Customs Service (e.g., claims that supplement a required foreign origin 
marking, so as to represent where additional processing or finishing of 
a product occurred). In addition, the Commission has jurisdiction over 
foreign-origin claims in advertising, which the U.S. Customs Service 
does not regulate.
    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 goods made partially or wholly in the United 
States be labeled with ``Made in USA'' or any other indication of U.S. 
origin.104 The fact that a product is not required to be 
marked with a foreign country of origin does not mean that it is 
permissible to promote that product as ``Made in USA.'' The FTC will 
consider additional factors, beyond those considered by the Customs 
Service in determining whether a product is of foreign origin, in 
determining whether a product may properly be represented as ``Made in 
USA.''
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    \104\ For a limited number of goods, such as textile, wool, and 
fur products, there are, however, statutory requirements that the 
U.S. processing or manufacturing that occurred be disclosed. See, 
e.g., Textile Fiber Products Identification Act, 15 U.S.C. 70(b).
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    This statement is intended to address only those issues related to 
U.S. origin claims. In developing appropriate country-of-origin 
labeling for their products, marketers are urged also to consult the 
U.S. Customs Service's marking regulations.

III. Interpreting U.S. Origin Claims: The FTC's Deception Analysis

    The Commission's authority to regulate U.S. origin claims derives 
from Section 5 of the Federal Trade Commission Act (``FTC Act''), 15 
U.S.C. 45, which prohibits ``unfair or deceptive acts or practices.'' 
The Commission has set forth its interpretations of its Section 5 
authority in its Deception Policy Statement,105 and its 
Policy Statement Regarding Advertising Substantiation 
Doctrine.106 As set out in the Deception Policy Statement, 
the Commission will find an advertisement or label deceptive under 
Section 5, and therefore unlawful, if it contains a representation or 
omission of fact that is likely to mislead consumers acting reasonably 
under the circumstances, and that representation or omission is 
material. In addition, objective claims carry with them the implication 
that they are supported by valid evidence. It is deceptive, therefore, 
to make a claim unless, at the time the claim is made, the marketer 
possesses and relies upon a reasonable basis substantiating the claim. 
Thus, a ``Made in USA'' claim, like any other objective advertising 
claim, must be truthful and substantiated.
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    \105\ 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).
    \106\ 49 FR 30,999 (1984); reprinted in Thompson Medical Co., 
104 F.T.C. 648, appendix (1984).
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    A representation may be made by either express or implied claims. 
``Made in USA'' and ``Our products are American made'' would be 
examples of express U.S. origin claims. In

[[Page 63768]]

identifying implied claims, the Commission focuses 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. 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. For example, assume that 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.'' Although there is no express 
representation that the company's product is ``Made in USA,'' the net 
impression of the advertisement is likely to convey to consumers a 
claim that the product is of U.S. origin.
    Whether any particular symbol or phrase, including an American 
flag, conveys an implied U.S. origin claim, will depend upon the 
circumstances in which the symbol or phrase is used. Ordinarily, 
however, the Commission will not consider a marketer's use of an 
American brand name 107 or trademark,108 without 
more, to constitute a U.S. origin claim, even though some consumers may 
believe, in some cases mistakenly, that a product made by a U.S.-based 
manufacturer is made in the United States. Similarly, the mere listing 
of a company's U.S. address on a package label, in a nonprominent 
manner, such as would be required under the Fair Packaging and Labeling 
Act,109 is unlikely, without more, to constitute a ``Made in 
USA'' claim.
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    \107\ This assumes that the brand name does not specifically 
denote U.S. origin, e.g., the brand name is not ``Made in America, 
Inc.''
    \108\ For example, a legal trademark consisting of, or 
incorporating, a stylized mark suggestive of a U.S. flag will not, 
by itself, be considered to constitute a U.S. origin claim.
    \109\ 15 U.S.C. 1451 et seq.
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IV. Substantiating U.S. Origin Claims: The ``All or Virtually All'' 
Standard

    Based on its review of the traditional use of the term ``Made in 
USA,'' and the record as a whole, the Commission concludes that 
consumers are likely to understand an unqualified U.S. origin claim to 
mean that the advertised product is ``all or virtually all'' made in 
the United States. Therefore, when a marketer makes an unqualified 
claim that a product is ``Made in USA,'' it should, at the time the 
representation is made, possess and rely upon a reasonable basis that 
the product is in fact all or virtually all made in the United 
States.110, 111
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    \110\ For purposes of this Enforcement Policy Statement, 
``United States'' refers to the several states, the District of 
Columbia, and the territories and possessions of the United States. 
In other words, an unqualified ``Made in USA'' claim may be made for 
a product that is all or virtually all manufactured in U.S. 
territories or possessions as well as in the 50 states.
    \111\ In addition, marketers should not represent, either 
expressly or by implication, that a whole product line is of U.S. 
origin (e.g., ``Our products are Made in USA'') when only some 
products in the product line are, in fact, made in the United 
States. Although not the focus of this Enforcement Policy Statement, 
this is a principle that has been addressed in Commission cases both 
within and outside the U.S. origin context. See, e.g., Hyde Athletic 
Industries, FTC Docket No. C-3695 (consent order 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., FTC Docket No. 9268 (consent order December 2, 
1996) (same); Uno Restaurant Corp., FTC Docket No. C-3730 (consent 
order April 4, 1997) (complaint alleged that restaurant chain 
represented that its whole line of thin crust pizzas were low fat, 
when only two of eight pizzas met acceptable limits for low fat 
claims); Haagen-Dazs Company, Inc., FTC Docket No. C-3582 (consent 
order June 7, 1995) (complaint alleged that respondent represented 
that its entire line of frozen yogurt was 98% fat free when only 
certain flavors were 98% fat free).
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    A product that is all or virtually all made in the United States 
will ordinarily be one in which all significant parts 112 
and processing that go into the product are of U.S. origin. In other 
words, where a product is labeled or otherwise advertised with an 
unqualified ``Made in USA'' claim, it should contain only a de minimis, 
or negligible, amount of foreign content. Although there is no single 
``bright line'' to establish when a product is or is not ``all or 
virtually all'' made in the United States, there are a number of 
factors that the Commission will look to in making this determination. 
To begin with, in order for a product to be considered ``all or 
virtually all'' made in the United States, the final assembly or 
processing of the product must take place in the United States. Beyond 
this minimum threshold, the Commission will consider other factors, 
including but not limited to the portion of the product's total 
manufacturing costs that are attributable to U.S. parts and processing; 
and how far removed from the finished product any foreign content is.
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    \112\ The word ``parts'' is used in its general sense throughout 
this enforcement policy statement to refer to all physical inputs 
into a product, including but not limited to subassemblies, 
components, parts, or materials.
---------------------------------------------------------------------------

A. Site of Final Assembly or Processing

    The consumer perception evidence available to the Commission 
indicates that the country in which a product is put together or 
completed is highly significant to consumers in evaluating where the 
product is ``made.'' Thus, regardless of the extent of a product's 
other U.S. parts or processing, in order to be considered all or 
virtually all made in the United States, it is a prerequisite that the 
product have been last ``substantially transformed'' in the United 
States, as that term is used by the U.S. Customs Service `` i.e., the 
product should not be required to be marked ``made in [foreign 
country]'' under 19 U.S.C. 1304.113 Furthermore, even where 
a product is last substantially transformed in the United States, if 
the product is thereafter assembled or processed (beyond de minimis 
finishing processes) outside the United States, the Commission is 
unlikely to consider that product to be all or virtually all made in 
the United States. For example, were a product to be manufactured 
primarily in the United States (and last substantially transformed 
there) but sent to Canada or Mexico for final assembly, any U.S. origin 
claim should be qualified to disclose the assembly that took place 
outside the United States.
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    \113\ It is conceivable, for example, that occasionally a 
product imported into the United States could have a very high 
proportion of its manufacturing costs be U.S. costs, but is 
nonetheless not considered by the U.S. Customs Service to have been 
last substantially transformed in the United States. In such cases, 
the product would be required to be marked with a foreign country of 
origin and an unqualified U.S. origin claim could not appropriately 
be made for the product.
---------------------------------------------------------------------------

B. Proportion of U.S. Manufacturing Costs

    Assuming the product is put together or otherwise completed in the 
United States, the Commission will also examine the percentage of the 
total cost of manufacturing the product that is attributable to U.S. 
costs (i.e., U.S. parts and processing) and to foreign 
costs.114 Where the percentage of foreign content is very 
low, of course, it is more likely that the Commission will consider the

[[Page 63769]]

product all or virtually all made in the United States. Nonetheless, 
there is not a fixed point for all products at which they suddenly 
become ``all or virtually all'' made in the United States. Rather, the 
Commission will conduct this inquiry on a case-by-case basis, balancing 
the proportion of U.S. manufacturing costs along with the other factors 
discussed herein, and taking into account the nature of the product and 
consumers' expectations in determining whether an enforcement action is 
warranted. Where, for example, a product has an extremely high amount 
of U.S. content, any potential deception resulting from an unqualified 
``Made in USA'' claim is likely to be very limited, and therefore the 
costs of bringing an enforcement action challenging such a claim are 
likely to substantially outweigh any benefit that might accrue to 
consumers and competition.
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    \114\ In calculating manufacturing costs, manufacturers should 
ordinarily use as their measure the cost of goods sold or finished 
goods inventory cost, as those terms are used in accordance with 
generally accepted accounting principles. Such costs will generally 
include (and be limited to) the cost of manufacturing materials, 
direct manufacturing labor, and manufacturing overhead. Marketers 
should also note the admonishment below that, in determining the 
percentage of U.S. content, they should look far enough back in the 
manufacturing process that a reasonable marketer would expect that 
it had accounted for any significant foreign content.
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C. Remoteness of Foreign Content

    Finally, in evaluating whether any foreign content is significant 
enough to prevent a product from being considered all or virtually all 
made in the United States, the Commission will look not only to the 
percentage of the cost of the product that the foreign content 
represents, but will also consider how far removed from the finished 
product the foreign content is. As a general rule, in determining the 
percentage of U.S. content in its product, 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. 
In other words, a manufacturer who buys a component from a U.S. 
supplier, which component is in turn made up of other parts or 
materials, may not simply assume that the component is 100% U.S. made, 
but should inquire of the supplier as to the percentage of U.S. content 
in the component.115 Foreign content that is incorporated 
further back in the manufacturing process, however, will often be less 
significant to consumers than that which constitutes a direct input 
into the finished product. For example, in the context of a complex 
product, such as a computer, it is likely to be insignificant that 
imported steel is used in making one part of a single component (e.g., 
the frame of the floppy drive). This is because the steel in such a 
case is likely to constitute a very small portion of the total cost of 
the computer, and because consumers purchasing a computer are likely, 
if they are concerned about the origin of the product, to be concerned 
with the origin of the more immediate inputs (floppy drive, hard drive, 
CPU, keyboard, etc.) and perhaps the parts that, in turn, make up those 
inputs. Consumers are less likely to have in mind materials, such as 
the steel, that are several steps back in the manufacturing process. By 
contrast, in the context of a product such as a pipe or a wrench for 
which steel constitutes a more direct and significant input, the fact 
that the steel is imported is likely to be a significant factor in 
evaluating whether the finished product is all or virtually all made in 
the United States. Thus, in some circumstances, there may be inputs one 
or two steps back in the manufacturing process that are foreign and 
there may be other foreign inputs that are much further back in the 
manufacturing process. Those foreign inputs far removed from the 
finished product, if not significant, are unlikely to be as important 
to consumers and change the nature of what otherwise would be 
considered a domestic product.
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    \115\ For example, assume that 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, which 
constitutes 50% of the total cost of manufacturing the lawn mower, 
is bought from a U.S. supplier, which, the lawn mower manufacturer 
knows, assembles the engine in a U.S. factory. Although most of the 
parts and the final assembly of the lawn mower are of U.S. origin 
and the engine is assembled in the United States, the lawn mower 
will not necessarily be considered all or virtually all made in the 
United States. This is because the engine itself is made up of 
various parts that may be imported and that may constitute a 
significant percentage of the total cost of manufacturing the lawn 
mower. Thus, before labeling its lawn mower ``Made in USA,'' the 
manufacturer should look to its engine supplier for more specific 
information as to the engine's origin. For instance, were foreign 
parts to constitute 60% of the cost of producing the engine, then 
the lawn mower would contain a total of at least 30% foreign 
content, and an unqualified ``Made in USA'' label would be 
inappropriate.
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    In this analysis, raw materials 116 are neither 
automatically included nor automatically excluded in the evaluation of 
whether a product is all or virtually all made in the United States. 
Instead, whether a product whose other parts and processing are of U.S. 
origin would not be considered all or virtually all made in the United 
States because the product incorporated imported raw materials depends 
(as would be the case with any other input) on what percentage of the 
cost of the product the raw materials constitute and how far removed 
from the finished product the raw materials are.117 Thus, 
were the gold in a gold ring, or the clay used to make a ceramic tile, 
imported, an unqualified ``Made in USA'' claim for the ring or tile 
would likely be inappropriate.118 This is both because of 
the significant value the gold and the clay are likely to represent 
relative to the finished product and because the gold and the clay are 
only one step back from the finished articles and are integral 
components of those articles. By contrast were the plastic in the 
plastic case of a clock radio that was otherwise all or virtually all 
made in the United States found to have been made from imported 
petroleum, the petroleum is far enough removed from, and an 
insignificant enough input into, the finished product that it would 
nonetheless likely be appropriate to label the clock radio with an 
unqualified U.S. origin claim.
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    \116\ For purposes of this Enforcement Policy Statement, the 
Commission considers raw materials to be products such as minerals, 
plants or animals that are processed no more than necessary for 
ordinary transportation.
    \117\ In addition, because raw materials, unlike manufactured 
inputs, may be inherently unavailable in the United States, the 
Commission will also look at whether or not the raw material is 
indigenous to the United States, or available in commercially 
significant quantities. In cases where the material is not found or 
grown in the United States, consumers are likely to understand that 
a ``Made in USA'' claim on a product that incorporates such 
materials (e.g., vanilla ice cream that uses vanilla beans, which, 
the Commission understands, are not grown in the United States) 
means that all or virtually all of the product, except for those 
materials not available here, originated in the United States. 
Nonetheless, even where a raw material is nonindigenous to the 
United States, if that imported material constitutes the whole or 
essence of the finished product (e.g., the rubber in a rubber ball 
or the coffee beans in ground coffee), it would likely mislead 
consumers to label the final product with an unqualified ``Made in 
USA'' claim.
    \118\ Nonetheless, in these examples, other, qualified claims 
could be used to identify truthfully the domestic processing that 
took place. For example, if the gold ring was designed and 
fabricated in the United States, the manufacturer could say that 
(e.g., ``designed and fabricated in U.S. with 14K imported gold''). 
Similarly, if the ceramic tile were manufactured in the United 
States from imported clay, the manufacturer could indicate that as 
well.
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V. Qualifying U.S. Origin Claims

A. Qualified U.S. Origin Claims Generally

    Where a product is not all or virtually all made in the United 
States, any claim of U.S. origin should be adequately qualified to 
avoid consumer deception about the presence or amount of foreign 
content. In order to be effective, any qualifications or disclosures 
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 the effectiveness of the qualification will 
maximize the likelihood that the qualifications and disclosures are 
appropriately clear and prominent.

[[Page 63770]]

    Within these guidelines, the form the qualified claim takes is up 
to the marketer. A marketer may make any qualified claim about the U.S. 
content of its products as long as the claim is truthful and 
substantiated. Qualified claims, for example, may be general, 
indicating simply the existence of unspecified foreign content (e.g., 
``Made in USA of U.S. and imported parts'') or they may be specific, 
indicating the amount of U.S. content (e.g., ``60% U.S. content''), the 
parts or materials that are imported (e.g., ``Made in USA from imported 
leather''), or the particular foreign country from which the parts come 
(``Made in USA from French components'').119
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    \119\ These examples are intended to be illustrative, not 
exhaustive; they do not represent the only claims or disclosures 
that would be permissible under Section 5 of the FTC Act. As 
indicated, however, qualified claims, like any claim, should be 
truthful and substantiated and should not overstate the U.S. content 
of a product. For example, it would be inappropriate for a marketer 
to represent that a product was ``Made in U.S. of U.S. and imported 
parts'' if the overwhelming majority of the parts were imported and 
only a single, insignificant part was manufactured in the United 
States; a more appropriate claim would be ``Made in U.S. of imported 
parts.''
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    Where a qualified claim takes the form of a general U.S. origin 
claim accompanied by qualifying information about foreign content 
(e.g., ``Made in USA of U.S. and imported parts'' or ``Manufactured in 
U.S. with Indonesian materials''), the Commission believes that 
consumers are likely to understand such a claim to mean that, whatever 
foreign materials or parts the product contains, the last assembly, 
processing, or finishing of the product occurred in the United States. 
Marketers therefore should avoid using such claims unless they can 
substantiate that this is the case for their products. In particular, 
such claims should only be made where the product was last 
substantially transformed in the United States. Where a product was 
last substantially transformed abroad, and is therefore required by the 
U.S. Customs Service to be labeled ``Made in [foreign country],'' it 
would be inappropriate, and confusing, to use a claim such as ``Made in 
USA of U.S. and imported parts.'' 120
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    \120\ On the other hand, that the last substantial 
transformation of the product takes place in the United States may 
not alone be sufficient to substantiate such a claim. For example, 
under the rulings of the U.S. Customs Service, a disposable razor is 
considered to have been last substantially transformed where its 
blade is made, even if it is thereafter assembled in another 
country. Thus, a disposable razor that is assembled in Mexico with a 
U.S.-made blade and other parts of various origins would be 
considered to have been last substantially transformed in the United 
States and would not have to bear a foreign country-of-origin 
marking. Nonetheless, because the final assembly of the razor occurs 
abroad, it would be inappropriate to label the razor ``Made in U.S. 
of U.S. and imported parts.'' It would, however, likely be 
appropriate to label the razor ``Assembled in Mexico with U.S.-made 
blade,'' ``Blade made in United States, razor assembled in Mexico'' 
or ``Assembled in Mexico with U.S. and imported parts.''
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B. Claims About Specific Processes or Parts

    Regardless of whether a product as a whole is all or virtually 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. This 
category would include claims such as that a product is ``designed'' or 
``painted'' or ``written'' in the United States or that a specific 
part, e.g., the picture tube in a television, is made in the United 
States (even if the other parts of the television are not). Although 
such claims do not expressly disclose that the products contain foreign 
content, the Commission believes that they are normally likely to be 
specific enough so as not to convey a general claim of U.S. origin. 
More general terms, however, such as that a product is, for example, 
``produced,'' or ``manufactured'' in the United States, are likely to 
require further qualification where they are used to describe a product 
that is not all or virtually all made in the United States. 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.
    The Commission further concludes that, in many instances, it will 
be appropriate for marketers to label or advertise a product as 
``Assembled in the United States'' without further qualification. 
Because ``assembly'' potentially describes a wide range of processes, 
however, from simple ``screwdriver'' operations at the very end of the 
manufacturing process to the construction of a complex, finished item 
from basic materials, the use of this term may, in some circumstances, 
be confusing or misleading to consumers. To avoid possible deception, 
``Assembled in USA'' claims should be limited to those instances where 
the product has undergone its principal assembly in the United States 
and that assembly is substantial. In addition, a product should be last 
substantially transformed in the United States to properly use an 
``Assembled in USA'' claim. This requirement ensures against 
potentially contradictory claims, i.e., a product claiming to be 
``Assembled in USA'' while simultaneously being marked as ``Made in 
[foreign country].'' In many instances, this requirement will also be a 
minimum guarantee that the U.S. assembly operations are substantial.

C. Comparative Claims

    U.S. origin claims that contain a comparative statement (e.g., 
``More U.S. content than our competitor'') may be made as long as the 
claims are truthful and substantiated. Where this is so, the Commission 
believes that comparative U.S. origin claims are unlikely to be 
deceptive even where an unqualified U.S. origin claim would be 
inappropriate. Comparative claims, however, should be presented in a 
manner that makes the basis for the comparison clear (e.g., whether the 
comparison is being made to another leading brand or to a previous 
version of the same product). Moreover, comparative claims should not 
be used in a manner that, directly or by implication, exaggerates the 
amount of U.S. content in the product, and should be based on a 
meaningful difference in U.S. content between the compared products. 
Thus, a comparative U.S. origin 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.

D. U.S. Customs Rules and Qualified and Comparative U.S. Origin Claims

    It is possible, in some circumstances, for marketers to make 
certain qualified or comparative U.S. origin claims (including claims 
such as that the product contains a particular amount of U.S. content, 
certain claims about the U.S. origin of specific processes or parts, 
and certain comparative claims) even for products that are last 
substantially transformed abroad and which therefore must be marked 
with a foreign country of origin. In making such claims, however, 
marketers are advised to take care to follow the requirements set forth 
by the U.S. Customs Service and to ensure, for purposes of section 5 of 
the FTC Act, that the claim does not deceptively suggest that the 
product is made with a greater amount of U.S. parts or processing than 
is in fact the case.
    In looking at the interaction between the requirements for 
qualified and

[[Page 63771]]

comparative U.S. origin claims and those for foreign origin marking, 
the analysis is slightly different for advertising and for labeling. 
This is a result of the fact that the Tariff Act requires foreign 
origin markings on articles or their containers, but does not govern 
claims in advertising or other promotional materials.
    Thus, on a product label, 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.121 As a result, under Customs regulations, a product 
may, for example, be properly marked ``Made in Switzerland, finished in 
U.S.'' or ``Made in France with U.S. parts,'' but it may not simply be 
labeled ``Finished in U.S.'' or ``Made with U.S. parts'' if it is 
deemed to be of foreign origin.
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    \121\  19 CFR 134.46. Specifically, this provision provides 
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, and those words, letters or names 
may mislead or deceive the ultimate purchaser as to the actual 
country of origin of the article, 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.''
    In a Federal Register notice announcing amendments to this 
provision, the Customs Service indicated that, where a product has a 
foreign origin, any references to the United States made in the 
context of a statement relating to any aspect of the production or 
distribution of the product (e.g., ``Designed in USA,'' ``Made for 
XYZ Corporation, California, U.S.A.,'' or ``Distributed by ABC, 
Inc., Colorado, USA'') would be considered misleading to the 
ultimate purchaser and would require foreign country-of-origin 
marking in accordance with the above provision. 62 FR 44211, 442213 
(Aug. 20, 1997).
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    In advertising or other promotional materials, the Tariff Act does 
not require that foreign origin be indicated. The Commission recognizes 
that it may be possible to make a U.S. origin claim in advertising or 
promotional materials 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. 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. Marketers who wish to 
make U.S. origin claims in advertising or other promotional materials 
without an express disclosure of foreign manufacture for products that 
are required by Customs to be marked with a foreign country of origin 
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 implied, as well express, material claims that consumers 
acting reasonably in the circumstances take from the representations. 
Therefore, the Commission encourages marketers, where a foreign-origin 
marking is required by Customs on the product itself, to include in any 
qualified or comparative U.S. origin claim a clear, conspicuous, and 
understandable disclosure of foreign manufacture.

    By direction of the Commission.
Donald S. Clark,
Secretary.

Concurring Statement of Commissioner Roscoe B. Starek, III, 
Regarding Enforcement Policy Statement on U.S. Origin Claims

File No. P89-4219
    Today the Commission restores the ``Made in USA'' standard to the 
highly demanding level that we affirmed in 1994. The Commission's 
action reinstates the longstanding principle that an unqualified U.S. 
origin claim is a claim that the product is made entirely in the United 
States except for a de minimis or negligible amount of foreign content. 
By explaining the factors that the Commission will consider in 
assessing whether an unqualified ``Made in USA'' claim is deceptive, 
and whether the public interest warrants enforcement action, the Policy 
Statement provides guidance that should reduce the costs of making 
``Made in USA'' claims that comply with Section 5 of the FTC Act. The 
current state of consumer perception and the benefits and costs of 
various ``Made in USA'' standards have been exhaustively investigated. 
With the issuance of this Policy Statement, I expect to see the 
traditional ``Made in USA'' standard enforced, now that we no longer 
labor under the self-imposed moratorium that consumed several years 
while we explored various policy options.
    The broad review initiated by a majority of the Commission in 1995 
produced a reasonable alternative approach based on copy test evidence 
showing that significant minorities of consumers took contradictory 
meanings from unqualified ``Made in USA'' claims. As I stated when we 
proposed the Guides for comment, the ``substantially all'' standard 
created by the Guides appeared to strike the correct balance between 
contradictory consumer understandings of ``Made in USA'' so as to 
minimize overall consumer injury from deception. Today's action 
illustrates the value of seeking public comment when the Commission 
elects to fashion a compromise through an expansive review similar to a 
rulemaking, rather than base its findings of deception on evidence and 
interpretations tested during litigation and the pursuit of negotiated 
orders.
    Intense public interest in ``Made in USA'' claims inspired more 
individual consumer comments than we have received in almost any other 
comment period during my tenure at the Commission. These comments--
which demonstrate that consumers who believe that ``Made in USA'' means 
all or virtually all made in the United States are highly motivated to 
act on their belief--justify redrawing the balance that the proposed 
Guides attempted to strike. These consumers want to be able to rely on 
a simple and clear standard, and their awareness of the globalization 
of the economy evidently has not changed their beliefs about domestic 
origin claims. The Policy Statement also wisely confines the 
Commission's guidance to general principles and, as I clearly prefer, 
leaves for case-by-case resolution more complex issues that may turn on 
variations in claims and products.

[FR Doc. 97-31531 Filed 12-1-97; 8:45 am]
BILLING CODE 6750-01-P