Federal Trade Commission Received Documents July 1, 1996 P894219 B18354900187 LAW OFFICES SHANNETTS, PALEY, CARTER V BLAUVELT, P.C. June 26, 1996 Office of the Secretary Federal Trade Commission Room 159 Sixth & Pennsylvania Avenue, N.W. Washington, DC 20580 Re: Made in U.S.A. Policy Comment FTC File No. P894219 Dear Sir: This submission is filed on behalf of the American Association of Exporters and Importers ("AAEI"), in response to the Federal Trade Commission's ("FTC" or "Commission") April 26, 1996 Federal Register Notice, 61 Fed. Reg. 18600, requesting additional comments regarding the FTC's comprehensive review of "Made in USA" claims in product advertising and labeling. AAEI is a national association representing approximately 1200 United States companies active in the importation, exportation, and domestic production of a broad range of products. AAEI's members are thus experienced participants in the emerging global economy and are required to comply with marking and labeling requirements in virtually every nation in the world. As such, AAEI is singularly positioned to lend its expertise with respect to "Made in USA" marking and advertising. I. AAEI Endorses "Proposed Guidelines" Filed With the FTC by an Ad Hoc Group of Interested Parties AAEI has participated in drafting and is endorsing the proposed "Guidelines for Making U.S. Origin Advertising and/or Labeling Claims," which is being submitted to the FTC today by an ad-hoc group of interested parties who participated in the FTC workshop. These proposed Guidelines attempt to provide American manufacturers with reasonable, easily understandable alternative methods for claiming that their products, in fact, are "Made in USA." For example, the proposed Guidelines allow a company to utilize "Made in USA" marking if the good undergoes its last significant processing in the United States and the good meets a 50 percent value added test, or if a majority of the processing which results in the creation of a new article of commerce takes place in the United States and the value added in the United States although less than fifty (50) percent is not insignificant, or if the good satisfies a modified North American Free Trade Agreement ("NAFTA") preference test. We believe that by allowing companies to claim "Made in USA" for their products if any one of these three tests is met, the FTC will preserve the integrity of "Made in USA" advertising and labeling, eliminate potential anomalies in which "Made in USA" could be unreasonably denied, avoid potential traps for the unwary or unsophisticated, significantly reduce the extensive costs which would result by requiring companies to comply with mandatory complex and detailed regulations, and enhance the competitiveness of United States products in export markets. It is this latter consideration that requires an additional safe harbor for a "Made in USA" claim. II. AAEI Proposes an Additional Safe Harbor Guideline to Conform to Export Market Marking Requirements In addition to the proposed Guidelines, AAEI believes that the FTC should allow companies to sell products in the United States bearing a "Made in U.S.A." label (on the product or package) in those instances where the United States Customs Service exempts the product from marking pursuant to Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. Section 1304), because the processing in the United States is sufficiently substantial to create a new article of commerce, having a different name, character and use and when exported to a country such as Mexico (which requires country of origin designation on all imported merchandise) such product would have to be marked "Made in USA" in accordance with the NAFTA Marking Rules (19 C.F.R. 102.20). This additional safe harbor is very important to AAEI members who export American made products worldwide and who are attempting to reduce costs (and thus hopefully increase export opportunities) by creating "universal" packaging for their products. In addition, adoption of this proposal would solve the difficult and costly situation in which exported products returned to the U.S.A. for sale currently must be repacked because of FTC marking requirements. Finally, such safe harbor would ensure that United States products are not at a competitive disadvantage by being held to a different standard than products labelled "Made in Italy" or "Made in Canada" which, under the more universally applied "substantial transformation test," can contain a substantial amount of components from countries other than the final country of manufacture. We believe that this proposal will not dilute the integrity of a "Made in USA" label since the surveys presented to the FTC at its workshop establish that the American public is well aware of the global nature of sourcing and that many products contain foreign materials or components. What is important is that the dinner is created, prepared and served in the United States, not where the carrots are grown, particularly since this is the standard presented to the consumer when purchasing imported merchandise. III. Additional Comments on FTC Questions AAEI's comments on the FTC's Supplemental questions follows. 1. All or Virtually All Standard AAEI believes that the "all or virtually all rule" should be replaced by the proposed Guidelines submitted to the FTC today, as enhanced by the guideline contained in this submission. 2. Percentage Content Standard A. AAEI proposes that the FTC adopt a 50 percent percentage, as set forth in the proposed Guidelines as one of several safe harbors for a "Made in USA" claim, since 50 percent constitutes a reasonable standard and conforms to the 50 percent net cost standard adopted in the NAFTA. B. As set forth in the proposed Guidelines, AAEI suggests that costs of U.S. processing include U.S. materials, (defined as any material or part which is not considered to be a product of a foreign country), direct labor and manufacturing overhead, while cost of goods sold includes direct manufacturing costs, both foreign and domestic, but excludes cost of imported raw materials not available in the United States. C. AAEI believes that potentially complex questions regarding the impact of currency fluctuations on the value added standard need not be specifically addressed by the FTC at this time. The proposed Guidelines resolve these (and similar questions) by requiring companies to calculate costs of U.S. processing and costs of goods sold "in a reasonable and internally consistent manner," and allow companies who, for whatever reason, do not wish to base their U.S. claims on a cost test, to utilize an alternative "majority of processing" or "creation of a new and different article" standard. D. AAEI's response to the problem of looking back in the manufacturing process is addressed in the proposed Guidelines, which essentially allow companies to include raw materials, parts, subassemblies and intermediate products which have been "Made in the U.S.A." under the guidelines as part of the cost of U.S. material and materials and parts which are not considered to be products of a foreign country (either marketed as such or imported as such) as part of the cost of U.S. processing. 3. Substantial Transformation Standard A. As set forth above, the AAEI supports the adoption of a substantial transformation standard as an additional safe harbor for a "Made in USA" claim. Because product specific objective substantial transformation rules have already been codified in the NAFTA marking rules, AAEI would suggest that the FTC adopt the NAFTA marking rules approach. In advancing this proposal, AAEI recognizes that the WTO currently is attempting to draft harmonized origin rules, which eventfully are intended to be adopted worldwide. However, given the probability that WTO harmonized rules will not be established and adopted in the near future, AAEI believes that the FTC should adopt the proposed guidelines at this time. If the WTO ultimately drafts a world wide standard, which is adopted by the U.S., the FTC then could revisit its guidelines and either add the WTO rules as an alternative to the existing guidelines or decide that the WTO rules supersede existing guidelines. We thank the FTC for allowing AAEI to participate in the Public Workshop and for considering these additional comments. Please contact the undersigned if you have any questions regarding the AAEI position on this important issue. Respectfully submitted, Gail T. Cumins GTC:mms Enclosure - Electronic version of comments