Federal Trade Commission Received Documents Jan 22 1996 B18354900101 Secretary AIAM - The World's Leading Automakers Association of International Automobile Manufacturers, Inc. 1001 19th St. North, Suite 1200 Arlington, VA 22209 703-525-7788 Fax 703-525-8817 January 22, 1996 Mr. Donald S. Clark Office of the Secretary Federal Trade Commission Room 159 Sixth and Pennsylvania Avenue, NW Washington, DC 20580 Dear Mr. Clark: On behalf of the Association of International Automobile Manufacturers (hereinafter "AIAM"), we respectfully submit the following comments with regard to the Federal Trade Commissions's (FTC) request for comments as published in the Federal Register on Wednesday, October 18, 1995 (60 Fed. Reg. No. 210 53922). For the reasons discussed herein, we submit that the current policy requiring products labeled "Made in the USA" to be manufactured "all or virtually all" with United States materials and labor, makes this claim nearly impossible for any manufacturer (especially any automobile manufacturer) to achieve given the globalization of modern manufacturing practices. AIAM recommends that the Commission adopt a case-by-case approach that reviews specific ad claims and the meaning of those claims to consumers. AIAM believes that a single standard cannot be universally applied to automobiles and all other industries. AIAM is the trade association representing the interests of 22 subsidiaries of international automobile companies doing business in the United States. AIAM member companies are both importers to the United States and exporters from the United States. In America, our member companies have invested billions of dollars in developing manufacturing facilities, developed supplier relationships, trained American workers, designed automobiles, conducted research and development, and literally participated in every stage of manufacturing. We appreciate the opportunity to comment and look forward to the prospect of participating in the public workshop. The attachment provides a background analysis of the "Made in the USA" standard and the responses to most of the specific questions set forth by the Commission in its request for comments. Respectfully submitted, Philip A. Hutchinson, Jr. President and CEO ATTACHED COMMENT: The Association of International Automobile Manufacturers ("AIAM"), a trade association representing manufacturers and importers of motor vehicles manufactured in the United States and abroad, appreciates the opportunity to provide these comments on the Federal Trade Commission's "Made in USA" policy.{1} AIAM member companies distribute passenger cars, multi-purpose passenger vehicles and light trucks in the United States. Nearly half of these vehicles are manufactured in the United States in new plants established by AIAM companies since 1982. International automobile makers support more than 500,000 American jobs in manufacturing, supplier industries, ports, distribution centers, headquarters, research and development centers, and automobile dealerships. AIAM also represents manufacturers of tires and other original equipment with production facilities in the United States and abroad. For the reasons stated below, AIAM is strongly opposed to the FTC's adoption of an "all or virtually all" standard for all made in America claims, particularly for the automobile industry. AIAM believes the establishment of such a standard for "Made in USA" claims for automobiles would involve issues that are so wide-ranging and complex that, in the final analysis, the effort would not serve the Commission's goal of mandating a simple standard that fits a broad range of advertising claims and situations which will both protect consumers and encourage vigorous and fair competition. AIAM also believes that a single standard cannot be universally applied to automobiles and all other industries. For "Made in USA" claims for automobiles, which are already subject to a number of conflicting regulatory approaches, AIAM urges the Commission to adopt a case-by-case approach that reviews specific ad claims and the meaning of those claims to consumers. The Automobile Industry is an International One As the Commission is aware, the automobile industry is becoming more and more international. It is no longer composed of insular companies located only in one country. All "domestic" car companies have foreign ties, and vice-versa. A few years ago, joint ventures like that of Toyota and GM, which produces the Geo Prizm and the Toyota Corolla, made big headline news. Now such arrangements are common-place. Back in the 1940s and 1950s, when the Commission brought the bulk of cases addressing the alleged deception associated with "Made in USA" claims, the world was a much different place. Markets were insular. The skills of labor throughout the world varied, access to natural resources was limited, and communication between countries was often slow. In the mid/late 1990s, these conditions simply do not exist, and the standard developed back then cannot reasonably be applied to the market place today. The conclusion that "made in America" means "all or virtually all" of the component parts were manufactured in the United States and that "all or virtually all" of the labor in assembling the products was performed in the United States is simply not reasonable, especially when applied to the automotive industry. The standard simply does not reflect current consumer perception and understanding of the automobile industry. Moreover, no automobile company could meet this test. Which products may be considered "foreign" or "domestic" is getting increasingly more complicated. There are now approximately 41 automakers in the world and these companies share hundreds of relationships involving equity, joint manufacturing, component trading, shared marketing or joint R&D. For example, General Motors owns 37.4 percent of Isuzu, and Ford owns 25 percent of Mazda, 80 percent of Aston Martin and 100 percent of Jaguar. Mitsubishi Motor Manufacturing in Illinois builds cars for both Mitsubishi and Chrysler and the California joint venture between GM and Toyota (NUMMI) builds vehicles for both companies. In Indiana, the Isuzu/Subaru joint manufacturing facility builds vehicles for Honda. In the 1980s, many Japanese manufacturers established production plants in America. Today the Toyota Avalon, the Mazda 626, the Honda Accord and the Nissan Altima are among the foreign nameplates that are sold and built in the United States by foreign owned companies using American labor. Yet, the Dodge Stealth, the Eagle Summit, the Ford Crown Victoria, the Chevy Camaro and the Pontiac Firebird are some of the many "domestic" cars that are currently manufactured outside the United States. Certainly consumers understand that, when it comes to automobiles, the terms "made," "assembled," or "built" in America means that the final assembly takes place in a U.S. plant with American labor. To conclude otherwise would ignore the massive advertising campaigns and news reports and literature addressing the changes in the U.S. automobile industry during the 1980s and 1990s. Moreover, to attempt to apply a simple standard that can be applied evenly to all cars, not to mention all products in all industries, again does not reflect the fact that consumers are sophisticated and perceive that the products they buy, especially products such as automobiles, are being manufactured worldwide. The Commission stated it has based its application of the "all or virtually all" standard on a consumer perception survey of Smith Corona typewriters and Huffy bicycles. Unlike automobiles, however, typewriters and bicycles have not been the subject of numerous news reports and widespread consumer understanding regarding the increasing U.S. production and sourcing. Furthermore, typewriters and bicycles do not contain tens of thousands of individual components. Despite these product differences, the Commission's own study found a significantly smaller percentage of respondents to the Smith Corona ad saw an implied claim in the ad that "all or virtually all" of the parts were "Made in America" versus those respondents who were asked the question about unidentified products in general. It is practically impossible for the Commission to derive one standard that accurately reflects consumer perception of automobiles and all other products at the same time. Even if the Commission concludes that the "all or virtually all" standard or some other standard (50% or otherwise) is appropriate, it simply is not applicable to the automobile industry. The Many Approaches to Made in the US An "all or virtually all" standard is inconsistent with other governmental regulatory programs for the automobile industry. For example, under the Motor Vehicle Information and Cost Savings Act, CAFE requires separate calculations of a manufacturer's average fuel economy for automobiles manufactured "domestically" and those which are not. A passenger automobile is deemed to be manufactured "domestically" in a model year if at least 75 percent of the cost to the manufacturer is attributable to value added in the United States and/or Canada. 49 U.S.C.  32904. In addition, under the American Automobile Labeling Act, an automobile must include a label listing the country of origin of the engine and transmission as well as the location of final assembly 49 U.S.C.  32304(b). The calculation for domestic content includes Canadian parts while the value of American labor for vehicle assembly is excluded. In other words, an engine and transmission can be considered of U.S. origin even if it contains substantial foreign materials. The country of origin is the country from which the largest dollar value added has originated. The American Automobile Labeling Act sets two different standards for determining whether a part is of "US or Canadian origin." "Outside" suppliers (those not affiliated with the manufacturer) must meet a minimum 70 percent threshold of US/Canadian content for the part to be considered US or Canadian while allied suppliers (those wholly owned by the manufacturer or by one member of a joint venture arrangement) count actual US/Canadian value with no threshold amount required. 49 U.S.C.  32304(a)(9). The United States Customs Service has yet another regulatory regime for determining the origin of products. The Customs Service requires products imported into the United States be marked with the country of origin. Generally, the country in which the product last underwent a "substantial transformation" is the designated "country of origin." Thus, products that are imported for further assembly or processing and undergo a "substantial transformation" in the United States do not have an origin label. A fourth approach can be found under the North American Free Trade Agreement. The calculation methodology using a tracing formula differs in material respects from all of the other regulatory programs governing the automobile industry. These different laws and regulations confirm that the same products may have many different origin tests and standards. Obviously none of these applicable to the automobile industry can be adopted by the FTC because each includes at least one foreign country within the meaning of "domestic" or U.S. For the Commission to adopt yet another standard for evaluating "Made in America" in advertising and marketing materials would simply add yet another formulaic approach to this issue and a consequent administrative burden which is not warranted . Rather, the FTC should follow its Congressional mandate and prohibit those claims that are "false or deceptive to" consumers or that result in unfair competition. To proceed under any other mandate not only is outside the scope of the FTC's jurisdiction and expertise, but also could result in fostering a regulatory scheme that contributes to deceiving consumers, rather than informing them. Case by Case Makes the Most Sense Under traditional FTC guidelines, a determination that an advertising claim is "deceptive" depends upon several factors, including how the claim appears within the context of the entire advertisement, the characteristics of the targeted audience, and the nature of the claim. The consumer perception of an unadorned "Made in USA" claim in one context may be vastly different from such a claim made in the context of an advertising campaign aimed at highlighting the fact that an entire line of products is assembled by Americans within the United States. Consumers will naturally judge a "Made in USA" claim differently in differing contexts. It is hardly deceptive for an automobile advertisement showing an American assembly line for a specific automobile or model to have a truthful tag line that the featured automobile was "made," "assembled" or "built" in America or in a specific state or location. This example raises an additional problem with a "one-size-fits-all solution" to the "Made in USA" issue. Rigid formulas for calculating "domestic" and "foreign" content of automobiles may not permit manufacturers the flexibility to compete using truthful claims on a product by product basis. For instance, if the FTC follows other regulatory programs that require that "domestic" and "foreign" content be determined on a total manufacturer or fleet basis, then AIAM members would be unable to promote in their advertisements the truthful statement that American workers are producing their automobiles. In addition, laws like the AALA require automobile manufacturers to use the term "assembly" in labeling practices. Would companies be prohibited from advertising the information contained on that label? Moreover, the competitive impact of such a standard cannot be overstated. Only a case-by-case traditional deception standard avoids giving one automobile manufacturer the competitive advantage over another. Obviously, the market, not the FTC, should determine the nature of competition. Maintaining a marketplace free from consumer deception is the FTC's job. To craft a standard that tries to predict consumer perception across all advertising campaigns, all claims made and all products without tampering with market forces is plainly impossible. The FTC's proposals regarding the methods of calculating domestic content highlight the unworkability of the proposed standard. The Commission suggests that manufacturers be required to determine the "domestic" content of products "before making Made in USA claims." The various proposals all require that manufacturers determine the content of both the products and the labor components. Thus, the FTC implicitly suggests that all "Made in USA" claims imply to consumers something about both the labor and the component parts of a product. But in the automobile industry, such an assumption about consumer perception simply is not true. Just as in the case of potential purchasers of typewriters or bicycles, automobile consumers know that when a "foreign" automobile manufacturer's advertising shows a plant in Ohio producing a model of automobile in conjunction with a statement that the product is "assembled" or "made" in USA, this is not a claim that "all or virtually all" the component parts or subcomponents were made in the U.S. In sum, the FTC has substantial experience in determining when an advertisement is deceptive. AIAM strongly urges the FTC to recognize that "Made in USA" claims for all products cannot be subject to a single standard of consumer perception, and in particular, given the manifest and well known globalization of automobile production and parts sourcing, the Commission must continue to apply traditional advertising standards to automobile content advertising and determine on a case-by-case basis whether any claims are "false or deceptive." _______________ Footnotes: {1} AIAM is the trade association representing 22 subsidiaries of international automobile companies doing business in the United States. AIAM members include American Honda Motor Co., Inc.; American Suzuki Motor Corporation; BMW of North America, Inc.; Fiat Auto U.S.A., Inc.; Hyundai Motor America; Isuzu Motors America, Inc.; Kia Motors America, Inc.; Land Rover North America, Inc.; Mazda Motor of America, Inc.; Mitsubishi Motor Sales of America, Inc.; Nissan North America, Inc.; Porsche Cars North America, Inc.; Rolls-Royce Motor Cars Inc.; Subaru of America, Inc.; Toyota Motor Sales, U.S.A., Inc.; Volkswagen of America, Inc.; Volvo North America Corporation. AIAM associates: Robert Bosch Corporation; Bridgestone/Firestone, Inc.; Daewoo Motor Co., Ltd.; Japan Automobile Manufacturers Association, Inc.; Koito Manufacturing Co., Ltd.; Nippondenso America, Inc.; Peugeot Motors of America, Inc.; Recreation Vehicle Industry Association; Societe Anonyme des Usines Renault; Saab Cars USA, Inc.; Samsung Motors Inc.; Satra Corporation; Ssangyong Motor Company, Ltd.; Toyo Tire (U.S.A.) Corporation; Yamaha Motor Corporation, U.S.A.; and Yokohama Tire Co., Ltd.