Federal Trade Commission Received Documents Jan 22 1996 B18354900097 Secretary VAUGHAN Vaughan & Bushnell Manufacturing Company P.O. Box 390 11414 Maple Avenue Hebron, Illinois 60034-0390 Phone 815-648-2446 Fax 815-648-4300 January 22, 1996 Office of the Secretary Federal Trade Commission Room 159 Sixth and Pennsylvania Avenue, N.W. Washington, D.C. 20580 Dear Sir/Madam: Vaughan & Bushnell Manufacturing Company submits a "made in USA Policy Comment" in response to the Federal Trade commission's Request for Public Comment, FTC File No. P894219. See 60 Fed. Reg. 53922 - 53930 (Oct. 18, 1995). Enclosed are six paper copies of the Comment and one 3 1/2 computer diskette containing an electronic version of the Comment in WordPerfect 5.1 format. Vaughan & Bushnell was advised in a telephone conversation with the Commission that the deadline for submitting Comments was extended until January 22, 1996 due to federal government closing in inclement weather. Vaughan & Bushnell also has signed a Comment to be submitted by the American Hand Tool Coalition. Under separate cover, Vaughan & Bushnell is requesting an opportunity to participate in the Commission's March 26-27 workshop regarding unqualified "Made in USA" claims. Respectfully submitted, VAUGHAN & BUSHNELL MFG CO G. Farlin Caufield Executive Vice President "MADE IN USA" POLICY COMMENT Federal Trade Commission File No. P894219 submitted by Vaughan & Bushnell Manufacturing Company January 16, 1996 Vaughan & Bushnell Manufacturing Company ("Vaughan") submits comments in response to the Federal Trade Commission's Request for Public Comment Regarding "Made in USA" Claims in Product Advertising and Labeling, FTC File No. P894219. Under separate cover, Vaughan also is filing a request to participate in the Commission's workshop on this issue scheduled for March 26 - 27, 1996 in Washington, D.C. Vaughan may submit additional comments in response to the workshop, as the Commission invites in its Federal Register Notice of Tuesday, December 19, 1995, and at other opportunities that the Commission makes available. Introduction Vaughan & Bushnell Manufacturing Company ("Vaughan") is a manufacturer of high-quality hand tools headquartered in Hebron, Illinois with plants in Bushnell, Illinois, Walnut Ridge, Arkansas and Centerville, Tennessee. Since its founding in 1869, Vaughan has become known as one of the world's highest quality manufacturers of hand tools. The company sells products under its name in major hardware and home improvement retail outlets throughout the United States, Canada, and Mexico and in overseas markets. Vaughan also sells private brand tools to other companies, including Snap-On Tools Corporation, Ridge Tool Company, Armstrong Bros. Tool Co., and the Craftsman brand to Sears, Roebuck and Co. Vaughan's Chairman and President, Howard A. Vaughan, Jr., is the fourth generation of the founding family. Of Vaughan's tools labeled "Made in USA", the steel in the products is domestically sourced, and the steel forging, machining, drilling, lathing, and other steps in the manufacturing process are performed in the company's Hebron and Bushnell, Illinois facilities. Hickory handles for the tools also are produced domestically, primarily in Arkansas and Tennessee plants. The high quality of Vaughan's American-made products has long been a source of pride to the company. In 1993, the company became the first striking tool manufacturer in the world to be awarded the International Standards Organization ISO 9002 Certification, together with British BS 5750 Part 2 and European EN 29002 Certifications. As a United States manufacturer that competes successfully in world-wide markets, Vaughan believes that the Commission should retain its current standard for determining whether unqualified "Made in USA" claims are "deceptive" under the Federal Trade Commission Act. See 15 U.S.C.  45(a)(1) (Supp. 1995) (prohibiting "unfair or deceptive acts or practices in or affecting commerce"). As stated in the Notice, the Commission requires that "all or virtually all" of the component parts, labor, and processing associated with a product be of domestic origin for the seller to make an unqualified "Made in USA" claim. This "all or virtually all" standard is clear, unambiguous and attainable in the hand tool industry. Unlike industries in which domestic production has evolved into a system of world-wide sourcing for most component parts and labor, many hand tool companies remain primarily domestic. These companies are very competitive in the marketplace in large part because of the value of the "Made in USA" claim to consumers. In this industry, dilution of the "all or virtually all" standard would not only confuse and deceive consumers but also penalize domestic manufacturers. Vaughan does not object to foreign sourcing. In fact, it purchases some hand tools overseas, such as its soft-face hammers, and clearly marks those tools with their foreign country of origin. But Vaughan feels strongly that the "Made in USA" claim should not be devalued by lowering the "all or virtually all" standard. Consumers should be able to determine a hand tool's country of origin without having to interpret qualified claims and trying to determine precisely what those claims mean with regard to the tool. Retaining the current standard will ensure that consumers are informed in a clear and non-deceptive manner. These Comments make three points. First, hand tool consumers value the "Made in USA" claim and are willing to pay a premium price for "Made in USA" products. Second, the use of qualified claims are confusing to consumers in the hand tool industry. Finally, deviating from the "all or virtually all" standard could force domestic hand tool manufacturers to shift to foreign sources for materials and labor. Consumers Value Hand Tools that are "Made in USA" Based on Vaughan's 127 years of experience in the industry, Vaughan knows that consumers value domestically produced hand tools. Although Vaughan does not have scientific consumer surveys that directly address the Commission's questions concerning consumer perceptions, the company's sales experience demonstrates that consumers look for the "Made in USA" label both to assure themselves of a high-quality tool and to express support for domestic manufacturing. In addition, hand tool companies advocating the dilution of the "all or virtually all" standard seem to recognize the value of the "Made in USA" label to their customers. These companies apparently want to be able to use the label on products that currently do not meet the "all or virtually all" standard, an implicit admission by these companies that the "Made in USA" claim attracts consumers. Strong evidence of this consumer preference is the heavy emphasis on domestic manufacturing in advertising and promotional practices in the industry. For example, Vaughan's domestically produced hand tools are marked with a red, white and blue label with the phrase "Proud to Say Made In USA " which also is prominently displayed in advertisements. Vaughan steel forgings are stamped with the phrase "Made in USA" directly below the company's name. In addition, Vaughan's promotional brochures devote substantial space to the company's roots in the Chicago area and to its pride in American craftsmanship. (See Attachment A.) Whenever possible, domestic manufacturers stress that their hand tools are entirely of domestic origin. Vaughan's brochures include many images and descriptions of United States' origin materials and labor. Its recent catalogues note that hammers "are forged of high quality American steel" and handles are made of "high quality American Hickory" from forests in Tennessee and surrounding states. (See Attachment B.) Heat treating and other finishing functions performed in its Illinois plants also are described. The clear message is that hand tools claiming to be "Made in USA" are in fact "all or virtually all" produced in this country; that is, components are domestically sourced and processing and labor are performed in the United States. A consumer perception study conducted by the Commission, as reported in the Notice, suggests that a "Made in USA" label is perceived by consumers to mean that "all or virtually all" of the product is domestically sourced and produced. It found that 49% of respondents viewing typewriter advertisements and 59% of respondents viewing bicycle advertisements thought that the advertisements' "Made in USA" claims meant that the products contained over 90% United States' parts and labor. 60 Fed. Reg. 53929, n.13 (1995). As the Notice goes on to suggest, the prominence of a "Made in USA" claim in an advertisement featuring American flags and references to American workers, such as Vaughan's advertisements, might lead even more consumers to assume that its products are "all or virtually all" of domestic origin. There is no reason to believe that consumers in the hand tool industry do not share these perceptions. Hand tool consumers respond to promotional messages of domestic manufacturing by paying a premium price for products with the "Made in USA" label. Hand tools manufactured domestically generally are more expensive to produce than competing products made with foreign components or labor. This cost differential is passed on at both the wholesale and the retail levels. Vaughan's sales representatives have found that large retail outlets that purchase its hand tools are willing to pay the higher price because of the marketing value of the "Made in USA" label, enabling retailers to recover that higher price in sales to their customers. The sales force responds to pricing pressure from wholesale customers by promoting the "Made in USA" label its products bear. In addition, domestic manufacturers believe that American crafted steel forgings and wood handles result in considerably higher-quality tools than competitive products made with foreign forgings and labor. The willingness of consumers to pay more for "Made in USA" products suggests that consumers share this assessment. Dilution of the "all or virtually all" standard for unqualified "Made in USA" claims would depart from these consumer perceptions and generate considerable confusion in the marketplace. For example, permitting the label to be used for products with 75% domestic components, processing and labor could allow a company to make an unqualified "Made in USA" claim for hammers made of imported metal forgings that were finished and attached to handles in the United States. Thus, the "Made in USA" claim would be permitted even though the most important component of the tool Ä the metal in the hammer head Ä had been forged in another country. Even a 90% threshold for domestic components, processing and labor could permit some tools manufactured with foreign-forged metal to qualify for the "Made in USA" label. If the "all or virtually all" standard were diluted, consumers would not be able to distinguish between genuine domestically forged metals and imported substitutes. Qualified Claims Would Generate Confusion Among Hand Tool Consumers The confusion would not be alleviated by Commission approval of various qualified "Made in USA" claims. Qualified claims proposed in the Notice, such as "Made in USA of domestic and imported parts", "Made in USA with at least 70% U.S. parts and labor", or "Assembled in USA", raise more questions than they answer. For example, none of these qualified claims would identify which parts of the tools are produced domestically. Are key components, such as hammer heads, forged and finished in foreign or domestic plants? How is the 70% figure measured? In the hand tools industry, "Assembled in USA" could mean merely that United States workers connected a handle to a hammer head forged and finished overseas. These qualified "Made in USA" claims would confuse consumers intending to buy genuine American products. Diluting the Current Commission Standard Would Encourage Outsourcing in the Hand Tool Industry Consumers are willing to pay a premium price for hand tools with the "Made in USA" label, as discussed above. In general, manufacturing is more expensive in the United States than in foreign countries, particularly the countries that would be the source of metal forgings and other components of hand tools. If cheaper foreign-sourced hand tools carried an unqualified "Made in USA" label, consumers would have no basis upon which to distinguish them from the more expensive but genuinely "Made in USA" hand tools. Domestic manufacturers would not be able to maintain their price premiums because consumers would likely choose the cheaper product. Price suppression caused by cheaper imported hand tools claiming to be "Made in USA" would encourage domestic manufacturers to lower their costs through outsourcing. Conclusion Vaughan recognizes that the marketplace has changed since the Federal Trade Commission Act was passed and the Commission established standards for unqualified "Made in USA" claims. But the Commission also should recognize that in some industries, such as the hand tool industry, products are still "all or virtually all" manufactured in the United States with domestically produced materials. The manufacturers of these truly American products should not be penalized, in effect, for continuing to make competitive and high-quality tools in this country. The unqualified "Made in USA" claim has enabled these companies to sell hand tools to consumers who seek genuine domestic goods, and who are willing to pay a premium price for them. At a time when greater numbers of companies in many industries are shifting to overseas sources, consumers face ever increasing difficulty in determining precisely which products, and which components of those products, are in fact domestically produced. In this environment, Vaughan urges that the Commission continue its longstanding commitment to informed consumers by maintaining the undiluted meaning of the "Made in USA" claim.