Federal Trade Commission Received Documents Jan 22 1996 B18354900091 Secretary HOGAN & HARTSON L.L.P. Columbia Square 555 Thirteenth Street NW Washington, DC 20004-1109 (202) 637-5600 Jeanne S. Archibald Partner Direct Dial (202) 637-5740 Made in USA Policy Comment FTC File No. P894219 January 22, 1996 HAND DELIVERY Office of the Secretary Federal Trade Commission Room 159 Sixth & Pennsylvania Ave., N.W. Washington, D.C. 20580 Re: Comments of The American Hand Tool Coalition in Preparation for "Made in USA" Workshop Dear Sir/Madam: The American Hand Tool Coalition (the "Coalition") (see attached list of member companies), which represents a substantial portion of the U.S. hand tool industry, submits these comments in response to the Federal Trade Commission's ("FTC" or the "Commission") Request for Public Comment in Preparation for Public Workshop Regarding "Made in USA" Claims in Product Advertising and Labeling, 60 Fed. Reg. 53922 (Oct. 18, 1995) ("Request"). These comments are submitted consistent with the Commission's telephone advice extending the comment period until January 22, 1996 due to snow closings. The Commission has announced that it will consider whether to change the legal standard regarding the use of unqualified "Made in USA" claims. The Coalition is opposed to changing the current standard, especially as applied to hand tools, and urges the Commission to retain its long-standing interpretation under which the phrase "Made in USA" constitutes an affirmative representation that a product is all, or virtually all, of domestic origin. The Coalition has a very substantial interest in this issue as evidenced by its dedication to the American market and reflected in the member companies' investment of millions of dollars in U.S. manufacturing plants and other facilities. The Coalition therefore requests by separate letter submitted today the opportunity to participate in the public workshop scheduled for March 26 and 27 in Washington, D.C. I. THE DOMESTIC HAND TOOL INDUSTRY The Coalition is made up of 9 member companies with manufacturing facilities in Arkansas, California, Connecticut, Georgia, Illinois, Iowa, Massachusetts, Nebraska, North Carolina, Ohio, Pennsylvania, Tennessee and Wisconsin. Coalition members' hand tools account for a substantial percentage of hand tool sales in this country, and the vast majority of their tools are made using all or virtually all U.S. parts and labor. These companies employ approximately 11,000 American workers. Some other members of the hand tool industry have chosen to establish manufacturing facilities in foreign countries and to increase foreign parts and labor in their products in order to reduce production costs. The Coalition believes that each company should be free to choose whether to invest in facilities abroad or in the U.S. However, a company's decision to invest abroad should not be permitted to deprive American consumers who wish to purchase U.S. made tools of the ability to make a knowing and informed purchasing choice. The Coalition members' hand tools bearing the legend "Made in USA" do so not only because the products are made in the USA from "cradle to grave" but also, and most important, because purchasers of these tools have exhibited an overwhelming preference for domestically produced tools. This preference is particularly apparent in the professional hand tool markets, e.g., carpenters, electricians, auto mechanics and others who rely on hand tools to make their living. These purchasers regard the "Made in USA" label as assuring the highest standard of quality. Purchasers of hand tools also understand the "Made in USA" label as a guarantee that the tool is "all or virtually all" of domestic origin, and this is a compelling factor in their selection of tools. The Coalition is seeking empirical data from consumer studies that support this preference and perception. II. THERE ARE GOOD REASONS TO RETAIN THE PRESENT STANDARD, AT LEAST WITH RESPECT TO HAND TOOLS The Request indicates that the Commission may consider changing its interpretation of "Made in USA." Among the changes to be considered is the adoption of a numerical formula under which a "Made in USA" claim would be permissible when a product has a much reduced level of domestic content. One rationale advanced for such a significant change to the long-standing "all or virtually all" standard is the assumption that "with increased globalization of production most consumers today do not assume that Made in USA' products contain all or virtually all' U.S. parts and labor." Request at 53923. This assumption is untested, and we believe it is not correct. We certainly know that it is not correct in the hand tool industry. A second announced reason for considering such a change is the assertion that "the Commission's standard [is] inconsistent with other government standards" for determining origin, such as those used by the United States Customs Service ("Customs") and that this inconsistency should be eliminated. Id. It is quite true that there are "differences" between the "Made in USA" consumer protection standard and the "substantial transformation" country of origin standard. But there are good and important reasons to preserve these differences, which are not accurately characterized as "inconsistencies." The respective standards are designed to accomplish very different purposes and eliminating their differences would adversely affect accomplishment of their divergent goals. As a third rationale for altering the Commission's interpretation, the Request notes public comments in past proceedings that the "all or virtually all" standard is "unattainable and deprives manufacturers of a selling tool that could help preserve American jobs." Request at 53924. The Coalition disputes both the factual basis and reasoning of such commentary. Coalition members have made and continue to make hand tools that meet the current standard, demonstrating that it is in fact attainable. Moreover, diluting the standard to permit "Made in USA" claims for products with more than minimal foreign content would jeopardize rather than preserve U.S. jobs. 1. Change Would Depart from a Long-Standing Practice The Commission has developed its interpretation of "Made in USA" under 15 U.S.C.  45. This consumer protection statute is designed to prevent "unfair or deceptive acts or practices."{1} Under this statute, the Commission has treated unqualified "Made in USA" claims as assuring that the products so labeled are all or virtually all of domestic origin. The consumer understanding of "Made in USA" was shown in the Commission's 1991 consumer perception survey. Furthermore, the Commission has recognized that a designation of "Made in America" on a product that is less than "all or virtually all" of American origin, when the consumer expects a product with all or virtually all U.S. content, is precisely the kind of deception that it must guard against. See e.g., Hyde Athletic Industries; Proposed Consent Agreement With Analysis to Aid Public Comment, 59 Fed. Reg. 48892 (September 23, 1994); see also Aronberg v. FTC, 132 F.2d 165 (7th Cir. 1943) (purpose of 15 U.S.C.  45 is to empower FTC to protect "credulous" consumers in their purchasing activities). The Coalition's experience demonstrates that the Commission's interpretation of "Made in USA" under the statute is entirely accurate. Consumers prefer domestic hand tools and understand the phrase "Made in USA" as a representation that a hand tool contains all or virtually all U.S. parts and labor. If the Commission were to dilute the meaning of "Made in USA," at least as applied to hand tools, despite the documented perception of consumers, the Commission would be changing its fundamental approach to the protection of consumers. Instead of protecting consumers by ensuring the accuracy of labeling, the FTC would be sanctioning a misleading label and then, presumably, would have to embark on a massive and expensive public relations effort to "re-educate" consumers about the "new" meaning of an already familiar and well-understood label. There has been no development justifying such a radical departure from the Commission's statutory mission and past practice. The Coalition believes that, if the Commission decides to alter its interpretation of "Made in USA," the change should be made only on an industry-by-industry basis. The modification should apply only if there exists persuasive evidence that consumers of a particular product, or of a particular class of products, perceive "Made in USA" as signaling something less than the "all or virtually all" standard long embraced by the Commission. A presumption of correctness attaches to the Commission's "all or virtually all" interpretation of "Made in USA," and this presumption should only be overcome by clear and convincing evidence that the FTC interpretation is no longer reflective of actual consumer perceptions and expectations. 2. Inconsistency With Other Standards of Origin Is Irrelevant One consideration driving the Commission's possible reconsideration of the "Made in USA" standard is the difference between that standard and the rules for determination of country of origin used by other government agencies, such as Customs. For example, the FTC permits a "Made in USA" designation on an item only when the item is devoid (or all but devoid) of foreign content. By contrast, Customs may require a product to bear an origin marking from a given foreign country even though the item is not wholly the product of that country. For Customs purposes, the product need only be "substantially transformed" in a given country to become a product of that country. However, differences between the FTC approach and the Customs and other {2} rules for determining country origin are not a valid reason to alter the FTC interpretation of "Made in USA." This is because the objectives of the Customs rules of origin and the FTC "Made in USA" labeling rule are very different. All goods imported into the United States are subject to a mandatory determination of their country of origin because that determination affects the treatment of those goods under various laws administered by Customs, including laws regarding admissibility of the merchandise, duty assessment and quota administration. In recognition of the fact that many products contain components from more than one country, Customs has long used (and recently proposed to codify) a test under which the "country of origin" is the country in which a product takes on its essential character. National Hand Tool v. U.S., 18 CIT 306 (April 27, 1992) aff'd., 989 F.2d 1201 (Fed. Cir. 1993); Customs Notice of Proposed Rule Making to extend the NAFTA country of origin rules, 59 Fed. Reg. 141-42 (Jan. 3, 1994). The FTC rule, on the other hand, is purely a consumer protection rule. Unlike Customs, which must determine a country of origin for every product under its jurisdiction, the FTC does not mandate the labeling of any product as "Made in USA." If a company elects to use such a label or advertisement, the FTC must ensure accurate disclosure of information and prohibit the use of that label on any product that does not meet the "all or virtually all" standard. Thus, the test of the propriety of the FTC's interpretation is not whether it is consistent with other laws enacted for entirely different purposes, but whether it fulfills the FTC's statutory mandate to protect consumers from deceptive practices. 3. Other Negative Effects of Dilution Dilution of the "all or virtually all" standard for "Made in USA" claims would not only frustrate the expectations of the tool-buying public, but have other more generalized negative effects as well. This is especially true in the hand-tool industry where most, if not all, materials used to make Coalition member's products are available, along with a viable and skilled workforce, in the U.S. For example, permitting unqualified "Made in USA" claims for tools with less than virtually all domestic content will provide a compelling incentive for producers that meet the current standard to transfer millions of dollars of capital investment to foreign countries and to increase foreign sourcing of parts and labor to reduce costs. This will result in the extinction of totally American-made products as well as the loss of thousands of valuable American jobs and millions of dollars invested in U.S. manufacturing facilities. At the same time, the current standard does not penalize companies with partial U.S. manufacturing operations. In such circumstances companies can make non-deceptive claims to advertise the domestic content of their products. While such qualified "Made in USA" claims may be less appealing, as suggested in the Request, that consideration does not justify altering the legal right to use the simple and compelling "Made in USA" label. On the contrary, companies that meet the current standard should not be forced to qualify their advertisement to distinguish their products from those that satisfy a diluted standard. III. CONGRESSIONAL ACTION The FTC interpretation of "Made in USA" has received implicit Congressional approval with the passage of Pub. L. No. 103-322, Title XXXII,  320933 (September 13, 1994). That law, codified at 15 U.S.C.  45a, provides that any use of the designation "Made in USA" shall be consistent with decisions and orders of the Federal Trade Commission issued pursuant to [15 U.S.C.  34]." In referring expressly to the FTC interpretation of "Made in USA," Congress has implicitly approved that interpretation. Moreover, as the Supreme Court has stated, when "Congress adopts a new law. . . [it] normally can be presumed to have had knowledge of [the administrative] interpretation . . . at least insofar as it affects the new statute." Lorillard v. Pons, 434 U.S. 575, 580-81 (1977). Any change in the "Made in USA" standard must be consistent with the FTC's general mandate to protect American consumers from deception, 15 U.S.C.  45. Therefore, any change in the Commission's interpretation of "Made in USA" must await evidence that consumer perceptions have in fact changed materially and substantially since the 1991 study. The Coalition is preparing to assist the FTC in gathering persuasive evidence on this issue which will confirm that there has been no such change in consumer perceptions. IV. RECOMMENDATION The Coalition recommends: (1) that FTC retain its long-standing interpretation of "Made in USA" in the absence of clear and convincing evidence that consumers no longer view that phrase as designating a product that is made using all or virtually all U.S. parts and labor; (2) that FTC reject any proposal to make its "Made in USA" consumer protection labeling rules conform to country of origin rules administered by other agencies for significantly different purposes; and (3) that any change in the "Made in USA" interpretation be implemented on product-by-product basis and only after the presentation of clear and convincing evidence regarding consumer perception of "Made in USA" claims about each product. Respectfully submitted, ________________________ Jeanne S. Archibald Joanne L. Leasure Hogan & Hartson, L.L.P. Columbia Square 555 Thirteenth St., N.W. Washington, D.C. 20004-1109 Telephone: (202) 637-5740 Facsimile: (202) 637-5910 Counsel for the American Hand Tool Coalition Attachment Footnotes: {1} Not even a majority of consumers need be misled to find deception. For example, in American Home Products Corp., 98 F.T.C. 136, 393-94, aff'd as modified, 695 F.2d 681 (3d Cir. 1982), 22 percent of consumers were misled by an advertising claim, and that percentage was deemed sufficient for a finding of deception. {2} For example, under the "Buy American" rules used in the federal procurement field, a product can generally qualify as "American" if it contains 50% domestic value. See 41 U.S.C.  10a. ATTACHMENT Danaher Tool Group Simsbury, Connecticut SNAP-ON Incorporated Kenosha, Wisconsin SK Hand Tool Corp. Chicago, Illinois Pratt, Read Corporation Bridgeport, Connecticut Ajax Tool Works Incorporated Franklin Park, Illinois Woodings-Verona Tool Works, Inc. Verona, Pennsylvania Cornwell Quality Tools Company Wadsworth, Ohio Ridge Tool Company Elyria, Ohio Vaughan & Bushnell Manufacturing Co. Hebron, Illinois