Federal Trade Commission Received Documents Jan 16 1996 B18354900045 Secretary Grunfeld, Desiderio, Lebowitz & Silverman LLP Counselors At Law 1500 K Street, N.W., Suite 680 Washington, DC 20005 (202) 783-6881 January 16, 1996 Office of the Secretary Federal Trade Commission Room 159 Sixth Street and Pennsylvania Ave., NW Washington, DC 20580 Re: Made in USA Policy Comment FTC File No. P894219 Dear Mr. Secretary: On behalf of Dynacraft Industries, Inc. ("Dynacraft"), a major importer of bicycles from China, we submit herewith six paper copies of written comments in response to the Commission's October 18, 1995 Federal Register notice (60 FR 53922). We also provide Dynacraft's comments on 3.5" disk, in Wordperfect v5.1, formatted for DOS. A separate request to participate in the "Made in USA" Workshop is being filed concurrently herewith. If you have any questions, please contact the undersigned. Sincerely, GRUNFELD, DESIDERIO, LEBOWITZ & SILVERMAN, LLP Bruce M. Mitchell David L. Simon Jeffrey S. Grimson Encl. BEFORE THE FEDERAL TRADE COMMISSION Washington, DC ______________________________ ) "MADE IN USA" CLAIMS ) IN PRODUCT LABELLING ) FTC File No. P894219 AND ADVERTISING ) ______________________________) COMMENTS OF DYNACRAFT INDUSTRIES, INC. REGARDING "MADE IN USA" CLAIMS Of Counsel: Bruce M. Mitchell David L. Simon Jeffrey S. Grimson GRUNFELD, DESIDERIO LEBOWITZ & SILVERMAN, LLP 1500 K Street, NW Suite 680 Washington, DC 20005 tel. 202-783-6881 fax 202-783-0405 January 16, 1996 TABLE OF EXHIBITS Exhibit Description A Excerpt from US International Trade Commission's report in its investigation of Bicycles from China, Inv. No. 731-TA-731 (Preliminary) B Dynacraft's Lanham Act complaint against Huffy, Murray and Roadmaster (filed November 21, 1995) C Huffy advertisement from FTC 1991 consumer perception study (#75003141) Dynacraft Industries, Inc. ("Dynacraft") is a Massachusetts corporation which is in the business of selling bicycles at wholesale to mass merchandisers and discount retailers throughout the United States. Dynacraft's bicycles are produced in China, imported into the United States by Dynacraft, and sold under the trademark MAGNA. Dynacraft regularly competes against bicycles which are misleadingly-labelled as "Made in USA", when, in fact, those bicycles contain substantial foreign content and components. As set forth herein, Dynacraft urges the Commission to adhere to its long-standing policy of treating unqualified "Made in USA" claims as representing that the products are "wholly of domestic origin" or made in the United States of "all or virtually all" domestic parts and labor. Although Dynacraft neither manufactures bicycles in the USA nor labels or advertises its bicycles as "Made in USA," Dynacraft is keenly aware of the significance of the "Made in USA" issue. Dynacraft regularly competes against major US-based bicycle manufacturers{1} who aggressively market their bicycles as "Made in USA," when, in fact, many of these bicycles contain significant foreign parts and components, such as brake systems, derailleur systems, tires and tubes, chains, saddles and other significant components.{2} Hence, the "Made in USA" claims made in connection with the sale of such bicycles are literally false and are, in Dynacraft's view, misleading to American consumers. Indeed, the Commission's 1991 survey found that 59% of consumers viewing a Huffy advertisement containing a "Made in USA" claim thought that the bicycles contained 90% U.S. parts and labor.{3} The domestic bicycle companies' misleading "Made in USA" claims are causing significant harm not only to consumers, but also to Dynacraft. Three of the five largest national mass merchandisers for bicycles, Wal-Mart, K-Mart and Sears, have "Buy American" policies or preferences.{4} Of course, Dynacraft cannot compete in the lucrative "Buy American" market because Dynacraft's bicycles are foreign-made. Dynacraft's problem is that the domestic bicycle companies exploit their position as US companies to gain them unquestioned entrance into the "Buy American" market on the basis, Dynacraft believes, of exaggerated or misleading "Made in USA" claims. Dynacraft has not sat idly by in the face of such unfair competition. On November 21, 1995, Dynacraft filed a lawsuit in the United States District Court in Massachusetts against Huffy, Murray and Roadmaster, alleging that those companies have falsely represented their goods in violation of Section 43(a)(1)(B) of the Lanham Act and have engaged in deceptive practices in violation of Massachusetts Gen. L. ch. 93A  2 and 11. A copy of the complaint in that case is attached hereto as Exhibit B. Dynacraft will continue to aggressively seek such private legal remedies for the unfair competitive advantages which the domestic bicycle manufacturers gain by false and misleading "Made in USA" claims. In the context of the Commission's inquiry, many companies will likely support a relaxation of the "all or virtually all" standard of domestic origin. For example, the BMA has argued that the Commission should allow an unqualified "Made in USA" claim on a product containing as little as 50 percent domestic content. BMA's 1994 Hyde Comments at 2ff. Many of these companies argue that the "all or virtually all" standard conflicts with other regulatory standards, such as country of origin marking standards under U.S. Customs and NAFTA rules. The Commission should reject these efforts to "harmonize" FTC standards with those of other agencies. The FTC is uniquely charged with preventing unfair methods of competition and unfair or deceptive acts or practices in commerce. It is in this context that the Commission conducts research on consumers' perceptions of the meaning of "Made in USA" claims. It is these consumers' perceptions, and not the mandate of other regulatory agencies, which should determine FTC standards for origin labelling and advertising. Furthermore, if the so-called "domestic" bicycle companies are compelled to disclose the foreign content in their bicycles by using qualified "Made in USA" statements, this would not conflict with any statute or regulation of which Dynacraft is aware. Reducing the domestic content requirement to a 50% level would be contrary to the Commission's own findings in the 1991 survey that 59% of consumers viewing a Huffy advertisement containing a "Made in USA" claim thought that the bicycles contained 90% U.S. parts and labor.{5} The BMA's arguments about the "hardships" involved with compliance with the Commission's existing "all or virtually all standard" are irrelevant to the Commission's duty to protect consumers from misleading advertisements.{6} The Commission should also reject the BMA's argument that the "all or virtually all" standard does not apply to bicycles. The BMA has argued in the past that a 1961 Commission stipulation in Standard Cycle, Stip. No. 9460, 59 F.T.C. 1492 (1961), gives the bicycle manufacturers special license to label bicycles as "Made in USA" when discrete and substantial individual components of foreign origin are "clearly and conspicuously disclosed." BMA's 1994 Hyde Comments at 10. In BMA's view, if a consumer can inspect the individual parts on the retailer's floor and determine that the tires are made in Taiwan, for example, then the consumer is not being mislead by a "Made in USA" label on the "finished product."{7} Dynacraft disagrees. The BMA arguments do not address the significant issue of when a seller may advertise its product as "Made in USA." In the price-sensitive segment of the bicycle industry in which Dynacraft competes with the members of the BMA, the advertisements are extremely important because price-conscious consumers will comb the advertisement inserts in the newspaper, for example, to decide whether to buy a $129 bicycle at Wal-Mart versus Toys-R-Us. Huffy's advertisement in the Wal-Mart circular, for example, will show a bold, unqualified "Made in USA" claim. See, e.g., Exhibit B at D-4 (Wal-Mart ad from November 1994); Exhibit "Cell D" to 1991 Consumer Survey (excerpt attached hereto as Exhibit C showing Huffy's logo with integrated "Made in USA" statement). On the other hand, Dynacraft's MAGNA advertisement in the Toys-R-Us circular makes no country of origin claim. Everything else being equal, a consumer with a "Buy America" preference will likely rely on Huffy's "Made in USA" claim and choose to shop for bicycles at Wal-Mart. The "Made in USA" claim serves the important marketing advantage of getting the consumer to the store floor. Once the customer is in the store and sees an American flag or "Made in USA" label, it is unlikely that the consumer will inquire further. BMA's claim that consumers are not misled because they can inspect each component to determine the country of origin is far-fetched. Consumers are being lured into the stores in the first instance by exaggerated "Made in USA" claims. Getting the consumer into the store is the hardest part of the sale. The BMA has stressed the importance of being able to market bicycles as "Made in USA": BMA strongly believes that the rules employed in the proposed [1994 Hyde] consent agreement overlook the competitive realities of today's international marketplace and will work an unfair hardship on bona fide U.S. manufacturers who need and deserve the marketing advantage of being able to label their products as "Made in USA" in order to distinguish them clearly from products made by foreign manufacturers. BMA's 1994 Hyde Comments at 1-2 (italics in original) (underline supplied). Dynacraft agrees with the BMA that the "Made in USA" claim provides a "marketing advantage" to the US bicycle manufacturers, gaining them access to the lucrative "Buy American" market segment and allowing them to lure consumers into the stores. Dynacraft has no qualms about competing with the domestic bicycle manufacturers when consumers are fully and accurately informed. However, when the domestic manufacturers advertise a bicycle as "Made in USA," they are trading on the perception of the substantial majority of consumers who, according to the FTC's 1991 study, believe that 90% of the bicycle is of domestic parts and labor. In reality, once the BMA gets that customer into the store by using exaggerated "Made in USA" claims in advertisements, BMA wants to sell them a bicycle with only 50% domestic parts and labor. It is outrageous for the BMA to expect the Commission to sanction this classic "bait-and-switch" advertising tactic. The Commission should continue to adhere to, and to enforce, the "all or virtually" all standard by which "Made in USA" means just what it says and just what the consumer understands. * * * Dynacraft has submitted concurrently herewith the request of Jerome A. Berman, President of Dynacraft, to participate in the upcoming workshop. The Commission has expressed the desire to hear from a "balance of interests at the conference." 60 FR 65327, 65328 (December 19, 1995). In the event that the BMA is invited to participate in support of a relaxation of the consumer protection laws, then Dynacraft urges the Commission to invite Dynacraft to participate to provide the appropriate balance. Respectfully submitted, GRUNFELD, DESIDERIO, LEBOWITZ & SILVERMAN Bruce M. Mitchell David L. Simon Jeffrey S. Grimson Counsel to Dynacraft Industries, Inc. Exhibits Attached Footnotes: {1} The three principal US bicycle manufacturers are Huffy Bicycle Company (a division of Huffy Corporation) ("Huffy"), The Murray Ohio Manufacturing Company ("Murray"), and Roadmaster Corporation ("Roadmaster"). {2} That the domestic bicycle industry relies extensively on foreign parts is no secret. In their 1994 comments before the Commission, the Bicycle Manufacturers Association of America ("BMA") stated: Thus, unlike industries in recent years that have been compelled to import low-priced raw materials and components merely to reduce production costs, U.S. bicycle manufacturers were also required to import bicycle components in order to produce the finished product at all. For example, there are today no viable domestic suppliers of such critical bicycle components as brakes, chains, and tires. U.S. bicycle manufacturers have a stark choice: import these components so that they can continue to employ Americans producing bicycles in the United States, or give up (as some have) and import finished bicycles from abroad. BMA's members have chosen the former. Comments of the Bicycle Manufacturers Association of America, Inc. Regarding the Commission's Proposed Consent Agreement With Hyde Athletic Industries, Inc. Concerning Hyde's Use of "Made In USA" Claims In Connection With The Sale of Footwear, FTC File No. 922-3236 ("BMA's 1994 Hyde Comments") at 4 (November 22, 1994) (italics in original) (underline added). The domestic bicycle industry benefits from duty-free treatment for imports of certain bicycle parts and from preferential treatment for parts imported into foreign trade zones. In April 1995, Huffy, Murray and Roadmaster commenced an antidumping proceeding against bicycles from China. The petitioners actually excluded bicycle parts from the scope of the antidumping investigation in order to insulate from antidumping duties the petitioners' own supply of Chinese parts for bicycles marketed as "Made in USA." {3} Request for Public Comment in Preparation for Public Workshop Regarding "Made in USA" Claims in Product Advertising and Labelling, 60 Fed. Reg. 53922, 53929 n.13 (October 18, 1995). After viewing the Huffy and Smith Corona ads, as well as four other "filler" ads, the survey respondents were asked the following question: When you see this phrase "Made in USA" on a product or in an ad, what does this phrase suggest to you as to how much of the product was made in the United States?" (Q.4b) Print Advertising Study #75003141, Prepared for the Federal Trade Commission, Washington, DC at 19 (February 1991). Seventy-seven percent of the respondents stated that "all of it/almost all made in USA." Id. {4} The U.S. International Trade Commission ("ITC") found that a large percentage of the US bicycle market is covered by "Buy American" policies. Bicycles from China: Inv. No. 731-TA-731 (Preliminary), USITC Pub. 2893 at II-32 (May 1995) (excerpt attached hereto as Exhibit A). The ITC also found that the "Made-in-America" terminology gives domestic producers an "advantage with customers." Id. at II-34. {5} Request for Public Comment in Preparation for Public Workshop Regarding "Made in USA" Claims in Product Advertising and Labelling, 60 Fed. Reg. 53922, 53929 n.13 (October 18, 1995). {6} The Commission should be mindful that groups like the BMA do not seek to protect the interests of the American consumer. BMA's admission that the "Made in USA" claim gives them a "marketing advantage" (BMA's 1994 Hyde Comments at 1-2) highlights the fact that the BMA's interest is to have the FTC adopt a domestic content policy which maximizes BMA's competitive advantage over foreign competitors. Hence, the BMA's interest does not necessarily coincide with the Commission's interest in protecting consumers from unfair methods of competition and unfair or deceptive acts or practices in commerce. {7} While it is true that tires may be conspicuously marked, many components are either not marked at all or are not marked conspicuously.