Federal Trade Commission Received Documents Jan. 17, 1996 B18354900055 Transmitting the Power of American Industry Since 1890 Diamond Chain Company January, 1996 Office of the Secretary Federal Trade Commission Room 159 Sixth and Pennsylvania Avenue, N.W. Washington, D.C. 20580 Dear Mr. or Ms. Secretary: Re: "Made in USA Comment," FTC File No. P894219 Diamond Chain Company wishes to submit comments to the FTC about the Commission's review of "Made in USA" claims. Diamond Chain was founded in Indianapolis, Indiana, in 1890. Diamond Chain has manufactured a full line of precision roller chain at that location for the past 105 years. Virtually all components and materials in the chain are made in the United States and all of the labor performed in assembling the chain is performed in the United States. We believe it is important to comment to the FTC on this issue because of our history, and our current philosophy. The majority of Diamond's customers believe that "Made in USA" means all or virtually all of the materials and components are made in the USA, and all or virtually all of the assembly labor is performed in the USA. We have no survey results or similar direct evidence, but reports from our field sales personnel indicate that our customers think "Made in USA" means 95% or greater domestic content. Even customers who have no strong feelings about "buying American", believe that the claim, "Made in USA", means virtually all of the product is made in the United States. ONE OF THE AMSTED INDUSTRIES 402 Kentucky Avenue, P.O. Box 7045, Indianapolis, Indiana 46207 FAX 317/633-2243 Phone 317/638-6431 FEDERAL TRADE COMMISSION January 16, 1996 "Made in USA Comment," FTC File No. P894219 Page 2 Most of Diamond's customers are industrial users, and they are quite knowledgeable about many products, the origin of those products, and the relative price, performance, and quality of each product. Those customers prefer to know the details of the product's origin, and then make their own value judgments. Many of those customers feel deceived when a supplier claims a product is "Made in USA", but the product has only 50% domestic content. When a manufacturer claims a product is "Made in USA" in advertising, rather than just on the package label, customers generally assume that virtually all of a product's content is domestic. Customers know that the manufacturer paid additional money to advertise the product's origin, so they associate a higher domestic content with the advertising claim. Being able to make an unqualified Made in USA claim for a product with as little as 50% domestic content benefits the manufacturer of that product by allowing customers to believe that manufacturer contributes much greater support to the domestic economy than is actually the case. The manufacturer of a product with 95% domestic content is penalized because he or she has incurred the cost of finding and developing domestic sources of supply that the manufacturer of the lower domestic-content product has not. There is no question that it is more difficult and costly to qualify the claims for a product that is not wholly domestic. There also is no question that it is a substantial sales benefit to be able to make an unqualified Made in USA claim, at least Diamond's experience indicates that is so. That reduces the issue to a legitimate cost vs. benefit business decision. The usual reason for obtaining components from a foreign source is lower price which reduces the producer's cost. The usual reason for wanting to make an unqualified Made in USA claim is that it enhances sales opportunities in the domestic market. If a producer wishes to take advantage of the lower cost of foreign-produced materials and components, that should be balanced against the cost of not being able to make an unqualified Made in USA claim. Conversely, if a producer wants to take advantage of making an unqualified Made in USA claim, that should be balanced against the cost of finding and developing the domestic source. The cost or practicality of qualifying Made in USA claims due to space limitations or other constraints, either real or imagined, should not be an issue here. Unqualified Made in USA claims should be applied only to products with 95% or more domestic content. Claims should be qualified for products with lower domestic content. FEDERAL TRADE COMMISSION January 16, 1996 "Made in USA Comment," FTC File No. P894219 Page 3 Applying the same tests imposed by U. S. Customs is really not appropriate for Made in USA claims. U. S. Customs regulations are directed towards determining the legally correct amount of duty to charge. Manufacturer's claims are directed towards influencing customer's to be more favorably inclined to buy the manufacturer's products. To be fair, the test must be consistent with the customers' perceptions. It is incorrect to set the domestic content threshold at 50%, when the customer's perception is closer to 95%. Diamond Chain's products are truly "Made in USA" by the traditional FTC definition. So, we are not aware of any prohibitions that foreign customs officials might impose on qualified claims. Domestic content should be determined exclusively from direct costs. Only the costs of direct materials, labor, and overhead should be considered. General overhead should not be considered. The direct costs should include all steps of manufacturing back to, and including, raw materials. It is suggested that raw materials be defined as the finished material, such as steel or plastic strip or bar, that is used in the initial fabrication of component parts. Determining the origin of the iron ore or crude oil should not be necessary. Considering only direct costs puts the focus on those costs that contribute in some way to the U. S. economy. If general overhead were to be considered, it would be difficult, if not impossible, to account for just the domestic portion of those costs. The greatest benefit, at minimum cost, would come from justifying claims on a case-by-case basis, and requiring sellers to have a "reasonable basis" for them. It might even be worthwhile to direct manufacturers to prepare such justifications before making an unqualified Made in USA claim. We would recommend that the Commission offer guidance to sellers by a policy statement, augmented by a case-by-case enforcement program. This would be a very efficient and economical way of accomplishing their goal, especially if the claim of Made in USA is defined to mean all, or virtually all, domestic content. If a threshold limit is desired, we suggest that it be set at 95% domestic content. FEDERAL TRADE COMMISSION January 16, 1996 "Made in USA Comment," FTC File No. P894219 Page 4 We understand that the Commission asked for comments based on factual data and objective analysis. However, this is an emotionally charged issue, and we think it may be impossible to achieve the desired degree of objectivity. Perhaps the best we can do is present a well-reasoned philosophy in a civil manner, so that is what we tried to do. Very truly yours, DIAMOND CHAIN COMPANY John L. Wright General Product Manager