Federal Trade Commission Received Documents Jan. 16, 1996 P894219 B18354900028 Before the Federal Trade Commission Washington, DC Regarding "Made in the USA") ) FTC Matter No P894219 Advertising Claims ) COMMENTS OF THE MADE IN THE USA FOUNDATION Submitted January 16, 1996 by Joel D. Joseph Chairman Made in the USA Foundation 5223 Wisconsin Avenue, N.W. Suite 118 Washington, DC 20015 TABLE OF CONTENTS I. SUMMARY OF COMMENTS 2 II. MADE IN THE USA FOUNDATION 3 III. REASONS WHY COUNTRY OF ORIGIN ADVERTISING AND LABELING RULES AND POLICIES NEED CLARIFICATION 4 American consumers have a strong preference for buying American products 4 Importers are exploiting this preference for American products through misleading labeling and advertising 6 American producers are prevented from making a selling point out of their products' domestic origin by overly restrictive FTC decisions 10 IV. PROPOSED DEFINITIONS 11 V. ECONOMIC IMPLICATIONS OF THE SUGGESTED DEFINITIONS 16 Analogy to the Effects of Relaxation of Warranty Regulations 16 VI. CONCLUSION 18 Page - 1 I. SUMMARY OF COMMENTS The Made in the USA Foundation supports to the fullest extent possible meaningful labeling and advertising policies which inform the consuming public of the country of origin of all products. There is abundant confusion in the marketplace now because of several factors including misleading labeling and advertising and uncertainty about what constitutes "Made in the USA." Currently, domestic manufacturers are prevented from highlighting their products' American content and marketing their products with a "Buy American" message, and yet importers continue to disguise their products' foreign content through intentionally misleading brand names and advertisements. These practices result in pervasive confusion among consumers and a lack of competition based on domestic manufacturing content. Current FTC regulations and case law allow the use of contradictory and deceptively misleading phrases and brand names in the marketing of imported products. Conversely, American producers who wish to label their products "Made in the USA" or otherwise market their products based an their American manufacture are prevented from so doing by restrictive FTC decisions and actions that require one-hundred percent domestic content to use overt phrases such as "Made in America." The result: products substantially made overseas legally can have brand names like "FloridaGold," "L.A. Gear," and "American Series," "Bell Telephones," "Maple Grove Farms of Vermont Maple Syrup" and be advertised with pictures and images of the American Page - 2 flag, the skyline of Los Angeles, the Vermont countryside or the Statue of Liberty. Conversely, products manufactured almost entirely in the United States cannot use overt references to their American manufacture, even in the fine print, unless the product has no significant imported content, a virtual impossibility in today's global economy. We at Made in the USA Foundation represent these domestic producers, their employees, the unions who perform and organize such work, and the millions of consumers who desire to purchase American-made products. The Foundation proposes definitions for product labeling and advertising that would differentiate "Made in the USA" and "Assembled in the USA." These changes will better educate consumers and manufacturers and eliminate confusion in the market place. II. MADE IN THE USA FOUNDATION The Made in the USA Foundation is a non-profit, educational corporation recognized as a 501(c)(3) tax-exempt organization by the Internal Revenue Service. Formed in 1989, the Made in the USA Foundation represents over 60,000 individual members and contributors concerned about the loss of American manufacturing jobs. Made in the USA Foundation proposed and lobbied for the American Automobile Labeling Act (AALA) which now requires disclosure of domestic content and other information on the price sticker on the side of new motor vehicles. The AALA requires that automobile manufacturers disclose the place of final Page - 3 assembly, the country where the engine and transmission were manufactured as well as the precise percentage of U.S. content. Concerning automobiles the automobile mileage law sets a standard of 75% U.S. content for a product to be considered American-made. The Foundation supports this standard so long as a lower standard of 50% can be set for use of the description "Assembled in the USA." The Made in the USA Foundation is non-partisan concerning both politics and union-management matters. While the United Auto Workers provided seed money for the Foundation, Ford Motor Corporation and many other major and mid-sized corporations including Anheuser Busch have also provided generous funding. III. REASONS WHY COUNTRY OF ORIGIN ADVERTISING AND LABELING RULES AND POLICIES NEED CLARIFICATION American consumers have a strong preference for buying U.S.-made products. The Commission has already taken judicial notice of the fact that the American consumer has a general preference for buying American, but an understanding of the importance of the suggested regulations requires a detailed explanation of the reasons for this preferences. First, consumers realize that buying American products is a direct way to help the American economy and boost America's besieged manufacturing sector. It keeps money, and therefore Page - 4 jobs, in the United States and encourages the kind of economic growth needed to complete America's recovery from its recent economic recession. Second, it is usually in the consumer's best interest to buy American. Most of the time the best American products in a certain category are the best products in the world of that type. Consumers recognize that American products tend to be safer and that although they are often more expensive initially, American products embody a better long-run value. They are designed for American standards and uses, and replacement parts are easy to find. Finally, American products embody a cherished way of life. Consumers understand that American products may be more expensive for very good reasons. Their prices include the costs of: 1. Consumer protection, 2. Environmental protection, 3. Safe, humane working conditions, and 4. Decent worker wages. In contrast, products from other countries are often cheaper because the nations they come from do not have the high standard of living we enjoy in this country. Many of them employ practices and wages that the United States ended centuries ago. For instance, imported goods may well be produced by child or prison labor or in factory or workroom conditions that would never be acceptable in the United States. Many foreign countries do not have minimum-wage requirements or worker protection Page - 5 laws. The prisoner labor force and appalling conditions of Chinese factories have been well documented, as have the environmental degradation, child labor, and exploitative wages in the Mexican maquiladora factories. By buying American, the consumer knows she can make an immediate statement about her preferences in the economic democracy. Now that America has enacted occupational health and safety and environmental regulations that will help provide better living conditions for all Americans, consumers are realizing that those tough, appropriate regulations can be meaningless if the plants being regulated are simply moved overseas. By preferring to spend his money on American products, the American consumer is casting a vote of confidence in America's system of industrial regulation, in the American economy, and in the American way of life. Importers are exploiting this preference for American products through misleading labeling and advertising. Current FTC regulations and policies are allowing imported products to be marketed under suggestive, misleading brand names and advertising that delude the consumer about the true origin of the advertised product. These marks and advertisements are not using the respective geographic terms arbitrarily, but as part of an attempt to borrow the image and reputation of either a particular part of America, or of the United States generally, to mislead the consumer into thinking he is buying an Page - 6 American product, when in reality the product's content is mostly foreign. 1. FloridaGold Orange_Juice. Lykes Pasco, Inc. is a Florida corporation engaged in the business of supplying orange juice to the American consumer. The company's "FloridaGold" brand of orange juice is made from oranges grown in Florida and Brazil. Under existing law, the company can use the misleading brand name "FloridaGold" to describe orange juice made from anywhere from zero to one-hundred percent imported oranges, as long as the small print on the label identifies that some of the contents of that package may be imported. The company uses the "FloridaGold" brand name to attach the sunny, tropical image of the Sunshine State to its products, but it is important to note why the company does not choose to label its product "BrazilianGold." The sunny, tropical image would be the same, but Lykes Pasco wants to discourage the consumer from making the appropriate conclusion about this brand of orange juice: that it is at least partially made from imported oranges which may not be subject to American standards of health and safety regulations and the production of which does not contribute to the American economy. 2. L.A. Gear. "L.A. Gear" brand athletic and fashion footwear are marketed for their trendiness and modern style, which qualities are to be inferred from the product's association with Los Angeles. L.A. Gear, Inc. uses this trademark to give "L.A. Gear" footwear the image that accompanies Los Angeles, even though the product is manufactured in South Korea. Current FTC Page - 7 precedent allows the use of geographic names and abbreviations in advertising as long as the small print discloses that the name is actually devoid of truthful content; that the item has an origin other than that which the brand name suggests. These rules leave the consumer in the perplexing situation of relying more heavily on the fine print to determine the truthful origin of these items, even though the brand name provides an intentionally misleading suggestion that the shoes are Southern Californian. Further, most advertisement including these misleading geographic names do not disclose the true origin of the products. 3. Arizona Clothing. J.C. Penny & Company widely advertises it "Arizona" brand clothing. The ads are complete with images of the American west, but the products are mostly imported. This is false and misleading advertising. 4. Perry Ellis America Series Perry Ellis' America" series provides perhaps the most egregious example of the need for FTC action to clarify and reconcile the rules on foreign and domestic origin. These clothes are marketed as an American type of clothing, made to provide the kinds of styles Americans prefer, as opposed to a more stereotypical "foreign" or "imported" look. This line of clothing has no domestic content at all, but is marketed under the idiomatic name for this country. Incredibly, the labels of these clothes also contain the cryptic reference, "Made in the American Style." This amounts to an assertion that the manufacturer uses the "American Style" of making clothes, even though the product is imported. When combined with the origin disclaimer hidden in the fine Page - 8 print, this phrase makes the ambiguous assertion that although the product is not actually made in America, it is nonetheless "Made in the American Style." 5. Tommv Hilfiger. Tommy Hilfiger clothing promotes its All American Style, including the use of American flags on shirts and sweaters, but nearly all of his clothing is imported. 6. "All American" names. The "Bell" name on telephones and telephone equipment originated in the United States. Alexander Graham Bell, the inventor of the telephone originated the use of the name "Bell" on his equipment. The Made in the USA Foundation surveyed hundreds of consumers and more than 90% believed that "Bell" telephones were made in the USA. Of course, up until 1984 when AT&T was broken up Bell telephones were made in the USA. The Foundation believes that it is an unfair and misleading practice to use the name "Bell" on imported telephone equipment. This is especially true when the country of origin is disclosed in very small type and the name "Bell" is promoted in a huge typeface. One telephone company, Bell-Atlantic, manufactures its telephones in China, but has chosen not to label these imports as "Genuine Bell" telephones. Bell Atlantic uses the trade name "Champion" on these phones. The Foundation applauds BellAtlantic for making this decision. However, most of the other "Bell" telephone companies insist on misleading consumers by promoting their equipment as "Genuine Bell." Actually, this equipment is neither Genuine, nor Bell. Webster's New Riverside University Dictionary defines "Genuine" as "produced by the reputed source," "free from hypocrisy," and "of pure or original Page - 9 stock." The original source of "Bell" telephones was Western Electric Company. The imports are not "Genuine Bell" and this phrase is used in a false and misleading manner. 7. Maple Grove Farms of Vermont Maple Syrup. Maple Grove Farms maple syrup sounds as American as apple pie, but in small print on the back of the product is the notice that the "Product [is] of U.S.A. and/or Canada." This description of origin as "and/or" is rampant and is common in the L.L. Bean Catalog and in many other mail-order catalogs. Inclusion of the use of "and/or" or "or" in the country of origin description is unfair and misleading to consumers. American producers are prevented from making a selling point out of their products' domestic origin by overly restrictive FTC actions. Model American Computer Corporation According to Jeffrey Schuman, past President of the Model American Computer Corporation, his company was so deleteriously affected by a vigorous FTC prosecution of an ad placed in the Wall Street Journal, that it was forced out of business. (These comments were produced on an old Model American Computer, which includes a U.S.-made keyboard and mouse, not found on many computers labeled "Made in the USA," such as many Dell brand computers.] The Wall Street Journal ad promoted fact that MACC's products were "All American" and "Made In the USA," The FTC successfully enjoined further use of this ad, and sought civil penalties against MACC for misrepresentation. MACC's computers Page - 10 were, in fact not of 100% U.S. origin, since a minority portion of their components and raw materials were sourced from outside the U.S. Despite the fact that the computers were nonetheless of over 75% U.S. origin, the FTC applied the 100% rule and ultimately forced the MACC out of business, eliminated over 50 U.S. jobs. This example highlights both of the failing of the FTC's current policy. Companies, like MACC, who would like to make a selling point out of their products' domestic origin are prevented from doing so by an overly restrictive standard. This, in turn, limits the amount and accuracy of the information consumers can obtain regarding a product's origin, and prevents them from exercising a buying preference judicially noticed by the FTC: American consumers prefer to buy American. Information regarding product warranties was once similarly restricted, and following an easing of the standards on warranty disclosure, the quality, availability, and consumer interest in warranties skyrocketed. The following analysis explains why we expect similar development of the preference for American products. IV. PROPOSED DEFINITIONS Made in the USA Foundation proposes that there be two definitions, one for products "Made in the USA" and another for those "Assembled in the USA."  1. Purpose and Scope of the Definitions. The guides for the labeling and advertising of foreign and domestic manufacturing content are intended to help producers and Page - 11 advertisers avoid unfair and deceptive practices in the marketing of their products. The guides do not purport to anticipate all possible unfair or deceptive acts or practices in the labeling and advertising of foreign and domestic manufacturing content and the Guides should not be interpreted to limit the Commission's authority to proceed against such acts or practices under section 5 of the Federal Trade Commission Act. The Commission may bring an action under section 5 Against any advertiser who misrepresents the origin or content of the product or service offered, who misrepresents the criteria or methodology used in determining said origin or content, or who employs other deceptive or unfair means.  2. Definitions and-formulae. (a) "United States" refers to the territorial boundaries of the fifty states of the American union, as well as the District of Colombia, Puerto Rico, Guam, the Virgin Islands, and all other geographic or political entities under the jurisdiction of the federal government of the United States of America. (b) "Domestic manufacturing content" shall uniformly be expressed as the percentage of the cost of goods sold at the time of promulgation of the label or advertisement in question attributable to United States raw materials and United States labor. "Foreign manufacturing content" shall uniformly be expressed as the percentage of the cost of goods sold at the time Page - 12 of promulgation of the label or advertisement in question attributable to foreign raw materials and foreign labor. (d) "Packaging" means any representations found anywhere on the label, on the product itself, on inserts or literature included in the package, or on any document associated with the product. (e) "Advertising" means any representations intended to be communicated to any segments or individuals of the general public, in the United States or abroad, via any media, including but not limited to, print, broadcast, electronic bulletin boards, sandwich boards, etc.  3. Use of geographic names as marks, phrases, and symbols implying manufacturing origin within the United States. (a) No advertisement or packaging can use the geographic name of any location or locations within the United States, including the United States generally, unless the product in question contains at least 75% domestic manufacturing content. (b) Regulation of the content respective to specified locations within the United States will be left to the authorities of the region or location to which reference was made, but these guides will preempt such local regulation to the extent those regulations require less than 75% local content. Examples: These examples are for both print and broadcast advertising. These examples are illustrative, not exhaustive. Page - 13 Example A: "Arizona Fine" orange juice would have to contain at least 75% domestic manufacturing content, but the required proportion of Arizona-based content is left to regulation by the state of Arizona. Even if Arizona requires only 51% Arizona content, these regulations preempt such percentage to require 75%. Example B: "Seattle Gear" umbrellas would have to contain at least 75% domestic manufacturing content, but the required proportion of Seattle-based content is left to regulation by the city of Seattle. If Seattle requires 90% local content to advertise as a Seattle product, these regulations will not preempt such regulation to reduce the percentage required by local ordinance.  4. Use of the term "Made in the USA," "American Made," or any other overt representation or indication of American origin or manufacture. (a) Any product that has at least 75% domestic manufacturing content can use the words "Made in the USA," ."American Made" or similar indications of domestic origin without qualification. (b) Any product that has between 50% and 75% domestic manufacturing content can use the words "Made in the USA," "American Made" or similar indications of domestic origin but must directly accompany such representation with a numerical indication of the percentage of domestic manufacturing Page - 14 content. These products may use the term "Assembled in the USA" without specifying the percentage of domestic content. No product with less than 50% domestic manufacturing content can make any references or allusions to American origin. Examples: These examples are for both print and broadcast advertising. These examples are illustrative, not exhaustive. Example A: "Bob's Widgets" have 78% domestic manufacturing content. Regardless of the identity of the parts or labor that comprises the 22% foreign content, "Bob's Widgets" can be labeled and advertised as "Made in the USA" without qualification. Example B: "Colleen's Gadgets" have 64% domestic manufacturing content. Colleen can advertise her gadgets as "64% American Made" or "Over 60% U.S. Content" or "Assembled in the USA" but cannot use unqualified references to American origin. Example C: "Ethan's Doohickey's" are assembled in the United States from parts that have no domestic manufacturing content. Even though 100% of the assembly work is done in the United States, if the total domestic manufacturing percentage remains less than 50%, Ethan cannot label his products "Assembled in the USA," even with a disclaimer as to the foreign origin of the parts. 5. Confusing labeling and descriptions. It is misleading for a product to be labeled "Made in the USA and/or Hong Kong." Labeling is improper if it does not specify where the product is actually made, not where it may have been made. Advertisers Page - 15 promoting similar products from different countries shall provide these different products with different catalog or product numbers so that the consumer confusion is reduced. VI. ECONOMIC IMPLICATIONS OF THE PROPOSED DEFINITIONS Analogy to the Effects of Relaxation of Warranty Regulations In 1974, Congress passed the Magnuson-Moss Warranty--Federal Trade Commission Improvement Act. This law established very tough standards for the advertisement of warranties, guarantees and service contracts in order to provide consumers relief from misleading and deceptive warranties and to standardize the requirements for disclosure of all relevant terms and imitations. The law, and its concomitant regulations, require that "the terms of any written warranty on a consumer product be made available to the consumer (or prospective consumer) prior to the sale of the product to him." The Commission adopted 16 C.F.R. Parts 701 and 702 to carry the law into effect. In 1985, the Commission adopted Part 239 of the CFR chapter on industry guides, the "Guides for the Advertising of Warranties and Guarantees." Up until these guides were promulgated, most manufacturers were very hesitant to make any claims about the warranties they offered for their products, because the Commission's policies required full disclosure of all terms and conditions of the warranty whenever any implication about that warranty's existence was made. Page - 16 With the adoption of the new Guides, the Commission relaxed its restrictions on warranty advertising and allowed advertisers to publicize the warranties and guarantees of their products as long as also they told the consumer how to find additional information about the respective warranties. The result of this change in policy was immediate. Once producers were able to start advertising their existing warranties under the new guides, producers were able to easily disseminate information about a product characteristic consumers found highly desirable: meaningful, reliable warranties. Car companies in particular made this feature of their products a highly visible point of competition. The period in the mid to late Eighties marked an explosion not only in warranty advertising, but in the actual quality and coverage of warranties in general. Since consumers could easily compare one manufacturer's warranty against another's, car makers started routinely "one-upping" each other, with each round of warranty improvements enormously benefitting the consumer. This is the type of pure competition that is extremely healthy for the American economy, and of which it is the FTC's mission to promote. Relaxed warranty restrictions enabled producers to make a selling point about information that was previously either wholly unavailable to the consumer, or simply too cumbersome to provide. Once producers could easily compete over a feature by which the American consumer clearly was influenced, competition over who best provided that feature flourished. Page - 17 The Made in the USA Foundation expects that appropriate regulations will encourage similar competition over another selling point known to be attractive to the American consumer, that the product was "Made in the USA." VII. CONCLUSION Consumers can no longer rely on the inferences and suggestions implicit in trademarks like "FloridaGold, "Arizona Clothing", "Bell Telephones" or "L.A. Gear," or on advertising like "Made in the American Style" because those types of marks and advertisements have lost their capacity to accurately convey their intended information: that "FloridaGold" orange juice comes from Florida, or that "L.A. Gear" footwear is from Los Angeles, or that an item which is "Made in the American Style" is therefore made in America. Tough, yet fair and appropriate regulations will allow the consumer to rely on the information contained in these suggestive marks by prohibiting the contradictions currently allowed between a product's name and its fine print. Similarly, the relaxation of the 100% content requirement to advertise "Made in the USA" will allow American producers to open up a new avenue of competition concerning the actual degree of their products' domestic content that will be beneficial to both the consumer and the American worker. Page - 18 The Made in the USA Foundation therefore requests that the FTC adopt the enclosed definitions and guidelines as an industry guide under 16 C.F.R. Ch. 1, Part 2, Subpart A  2.1 et seq. The Foundation appreciates this opportunity to present its views and thanks the Federal Trade Commission for considering changes in its policies regarding products Made in the USA. Respectfully submitted, Joel D. Joseph Chairman Made in the USA Foundation Page 19