[Billing Code 6750-01-P]
EXTENSION OF TIME
COMPREHENSIVE REVIEW OF "MADE IN USA" CLAIMS
FEDERAL TRADE COMMISSION
AGENCY: Federal Trade Commission.
ACTION: Extension of time for filing public comments.
SUMMARY: The Federal Trade Commission ("Commission" or "FTC") is conducting a comprehensive review of "Made in USA" claims in product advertising and labeling. As part of its review, the Commission invited representatives of consumers, industry, government agencies, and other groups to attend a public workshop to exchange views. On December 19, 1995, the Commission announced that the public workshop would be held on March 26 and 27, 1996, and invited interested parties to file requests to participate in the workshop. The Commission stated that it would hold the record of the proceeding open until April 30, 1996, to allow participants and other interested parties to submit clarifying or rebuttal information. The Commission conducted the public workshop on March 26 and 27, 1996. In response to requests by participants during the workshop, the Commission extends the period for submitting clarifying or rebuttal information.
DATES: Written comments will be accepted until June 30, 1996.
ADDRESSES: Six paper copies of each written comment should be submitted to the Office of the Secretary, Federal Trade Commission, Room 159, Sixth and Pennsylvania Avenue, N.W., Washington, D.C. 20580. To encourage prompt and efficient review and dissemination of the comments to the public, all comments also should be submitted, if possible, in electronic form, on either a 5-1/4 or a 3-1/2 inch computer diskette, with a label on the diskette stating the name of the commenter and the name and version of the word processing program used to create the document. (Programs based on DOS are preferred. Files from other operating systems should be submitted in ASCII text format to be accepted.) Individuals filing comments need not submit multiple copies or comments in electronic form. Submissions should be captioned: "Made in USA Policy Comment," FTC File No. P894219.
FOR FURTHER INFORMATION CONTACT: Beth Grossman, Attorney, Division of Advertising Practices, Bureau of Consumer Protection, Federal Trade Commission, Washington, DC 20580, telephone 202-326-3019, or Kent C. Howerton, Attorney, Division of Enforcement, Bureau of Consumer Protection, Federal Trade Commission, Washington, DC 20580, telephone 202-326-3013.
As part of a comprehensive review of its legal standard regarding the use of unqualified "Made in USA" claims in product advertising and labeling, on October 18, 1995, the Commission published a notice soliciting public comments. The notice also stated that the Commission would hold a public workshop at a date to be announced in a later notice. 60 FR 53922. On December 19, 1995, the Commission announced that the public workshop would be held on March 26 and 27, 1996, and that the Commission would hold the record of the proceeding open until April 30, 1996 for workshop participants and other interested parties to submit clarifying or rebuttal comments on the issues discussed at the workshop.
The workshop was conducted at the Commission's headquarters building in Washington, DC on March 26 and 27, 1996. At the conclusion of the workshop, several participants requested that the Commission extend the deadline for submission of clarifying and rebuttal comments to allow participants to work together on joint comments, feedback, and possible proposals.
In light of the complexities of the issues presented, the Commission has determined that an extension of the comment period is appropriate. Therefore, to allow all interested parties the opportunity to supply the Commission with additional written data, views and arguments, the Commission grants an extension of the comment period to June 30, 1996.
II. Alternative Standards Addressed During the Public Workshop
Participants in the workshop were invited to discuss the Commission's current legal standard regarding the use of unqualified "Made in USA" claims, alternatives to the current legal standard, and how domestic content claims should be measured under any future standard. The heart of the workshop was the participants' discussion of three primary options that emerged for standards regarding unqualified "Made in USA" claims: (1) the All or Virtually All Standard; (2) a Percentage Content Standard (e.g., 50%); (3) and the Substantial Transformation Standard.
Under the "all or virtually all" standard, sellers may label their products "Made in USA" only if all or virtually all of the component parts of their goods were made in the United States and all or virtually all of the labor in assembling their goods was performed in the United States. A "percentage content" standard is a cost-based or value-added standard that focuses on the percent of domestic content and labor of a particular good. Under this type of standard, a product could be labeled "Made in USA" if it was made, for example, with at least 50% domestic parts and labor. The "substantial transformation" standard is based on the U.S. Customs Service's test for the marking of foreign goods. Substantial transformation occurs when, as a result of processes performed in a particular country, a new article emerges with a new name, use and character. Once the Customs Service considers an article to be substantially transformed in the United States, the article need not be marked with a country of origin.
III. Supplemental Questions for Comment
During the extended period for submitting written clarifying or rebuttal information, the Commission invites interested parties also to comment on the following supplemental questions. The Commission appreciates that, in response to its October 18, 1995 notice, a number of commenters submitted evidence of consumer perceptions in support of their comments. In commenting on particular standards, definitions, or approaches to "Made in USA" claims and on terms that might be used to denote a lesser or different level of domestic content than a broad "Made in USA" claim, comments should explain how such standards, definitions, approaches, or terms relate to consumer perceptions.
1. All or Virtually All Standard:
A. At the workshop, some participants suggested that for the "all or virtually all standard" to be practical, it would have to be more clearly defined. One possible definition of "all or virtually all" that was suggested would require that marketers look only one step (or two steps) back in the manufacturing process to determine the origin of the components of a product, and would exclude raw materials. Would that formulation be appropriate and practical? Would it provide adequate guidance to marketers? What are the advantages and disadvantages of such a circumscribed standard compared with simply requiring that all or virtually all of the components and subcomponents of a product be made in the U.S.? Are there other formulations that the Commission should consider?
B. How far back in the manufacturing process is it appropriate to look to determine the origin of the components or materials comprising the product?
i. What constitutes a "step" back in the manufacturing process?
ii. Is there a single definition of a step back that can be used across products or industries?
iii. Is the nature of a step back different for products that are comprised of separate components than for products that do not have separate parts but instead go through stages of processing?
iv. Does how far back it is appropriate to look depend upon the nature of the product, e.g., whether the product is simple or complex?
v. If the Commission were to adopt an "all or virtually all" standard, would it be appropriate to permit marketers to look only one step back in determining the origin of components? Are there products for which this approach would mask a significant amount of foreign content? If so, what products or types of products? Alternatively, is there a point in the production process, e.g., one step, two steps, or further back, at which most of the domestic content of a product would be included?
vi. What would it cost firms to support an "all or virtually all" standard if they were only required to look back one step in the manufacturing process? What would the cost be with a two step back approach or one that required the producer to look even further back in the manufacturing process?
C. Should raw materials be excluded in calculating domestic content?
i. If so, how should "raw material" be defined? Should it include only those items that are naturally occurring? Is steel, for example, a raw material, or only iron ore? How about leather versus a tanned cow hide versus a raw hide?
ii. Does it matter if the raw materials constitute a significant percentage of the product's value?
D. Should "virtually all" be further defined? One alternative would be to quantify it as a percentage of the product (e.g., 90% or 95%). Another alternative would be to consider it equivalent to "de minimis" foreign content. Which approach is preferable? Are there other alternatives that should be considered?
2.Percentage Content Standard (e.g. 50%):
A. What specific percentage threshold for domestic content should a product have to meet to be considered "Made in USA"? What is the basis for choosing that threshold? How does it relate to consumer perception?
B. What costs should be included (and which excluded) in calculating a product's domestic content?
C. Is the percentage of domestic content of a product likely to fluctuate significantly over time because of currency fluctuations or because of routine changes in sourcing for certain inputs? If so, is there a way to address, for marking purposes, any uncertainty caused by such fluctuations? Does the impact of such fluctuations change with the level of permitted foreign content? For example, is the impact of such fluctuations greater or lesser if 50% foreign content is permitted than if only 10% foreign content is permitted?
D. How should the computation issues raised in Questions 1B and IC, above, be resolved in the context of a percentage content standard?
3. Substantial Transformation Standard:
A. A substantial transformation standard was extensively discussed at the workshop. However, the exact form of this standard that should be considered was not resolved.
i. Should the FTC adopt an existing form of this standard already applied by the U.S. Customs Service -- i.e., the substantial transformation test that the Customs Service generally applies or the tariff classification shift rules that the Customs Service uses for North American Free Trade Agreement ("NAFTA") goods?
a. Which of these two Customs Service approaches should the FTC adopt? Why?
b. If the FTC chooses to adopt either of the existing Customs approaches, what are the implications if these approaches are changed?
(1) What should the FTC do if the World Trade Organization ("WTO") establishes (and Congress adopts) rules for determining whether substantial transformation has occurred that are different than those applied by the Customs Service?
(2) If the Commission chooses to employ the Customs Service's general substantial transformation analysis, and the Customs Service subsequently chooses to apply the NAFTA tariff shift approach to goods from all Most Favored Nation ("MFN") countries (as has been proposed), should the FTC then switch to this approach for domestic origin claims?
ii. A number of participants at the Commission's workshop suggested that the substantial transformation (or tariff shift) test should be adopted, but with minor alterations to assure that a product labeled "Made in USA" in fact had a meaningful amount of domestic content. Should the FTC adopt a modified version of the substantial transformation test applied by the U.S. Customs Service?
a. Are there certain products or types of products for which application of a substantial transformation standard is unlikely to ensure that the product contains a meaningful amount of domestic content?
b. Some participants suggested that the Customs Service's substantial transformation test be altered to exclude transformations that amounted only to "simple assembly." An alternative proposal is that there be a supplemental requirement that, to be promoted as "Made in USA," a product not only be substantially transformed in the U.S., but also contain a certain percentage of domestic content or have certain of its key components made in the U.S. What are the advantages and disadvantages of these approaches? Are there other modifications to the substantial transformation test that the Commission should consider?
c. If the FTC were to adopt a modified substantial transformation test, what costs, if any, would result from the fact that the FTC's standard would not be precisely consistent with that applied by the Customs Service?
iii. Should the FTC adopt the standard ultimately adopted by the WTO for country-of-origin determinations? Because the WTO process is likely to take some time, should the FTC adopt an interim standard, and if so, what standard?
B. How does a substantial transformation standard in any of the variations discussed above relate to consumer perceptions of "Made in USA" claims? Does empirical evidence suggest that consumers think about the phrase "Made in USA" in terms of the process by which parts or materials are transformed into a finished product? Does empirical evidence suggest that consumers think the phrase "Made in USA" refers both to the transformation process and the origin of the parts and materials themselves?
C. Is there evidence as to whether consumers' understanding of "Made in USA" claims is the same or different than their understanding of foreign origin claims (e.g., "Made in Japan")? Is there evidence as to whether claims of foreign origin are as material to consumers across all or most products as are claims of domestic origin? Please provide any supporting documentary evidence or citations.
D. Are there process-oriented standards other than substantial transformation that the Commission should consider adopting?
E. What are the country-of-origin marking requirements of other countries, including the United States' major trading partners? (For the questions below, supporting documentary evidence or citations would be particularly helpful.)
i. Do other countries require that all imported goods be marked? Which countries? For countries that do not have universal marking requirements, are there specific categories of goods that are required to be marked?
ii. Where goods are required to be marked with their country of origin, what standards do other countries use to determine that country of origin?
iii. To what extent do (or would) other countries permit alternative or qualified country-of-origin labels on imported goods -- i.e., not simply "Made in USA," but, for example, "Product of USA," "Assembled in USA," "Assembled in USA of domestic and imported components," or "80% Made in USA"?
iv. What are other countries' standards for their own domestic origin claims (e.g., France's requirements for "Made in France" claims)? Do these standards differ from those countries' standards for foreign origin claims?
4. Other Issues:
A. Are there other standards or approaches not encompassed by the three alternatives set forth above that the Commission should consider?
B. Are there terms that are, or can be, used to denote some lesser or different level of domestic content than a broad "Made in USA" claim, e.g., "Assembled in USA," "Product of USA," "Processed in USA," etc. What are the costs and benefits of using such alternative terms to label products that would not meet a standard for "Made in USA" claims but nonetheless involve some significant domestic inputs?
C. Some participants at the workshop suggested consumers interpret the absence of country of origin labeling as an indication that a product is made in the United States. Historically, the Commission has employed a rebuttable presumption that goods that were not labeled with any country of origin would be understood by consumers to be made in the United States. As a result, the Commission traditionally required that foreign origin be disclosed if unmarked goods contained a significant amount of foreign content.
i. Do consumers generally believe that unlabeled products are domestic? Does consumer perception of the origin of unlabeled products vary by type of product?
ii. Is a failure to disclose foreign origin for unmarked goods that contain a significant amount of foreign content material to consumers? Does the materiality vary by type of product?
Commenters are urged to limit their additional comments to clarifying or rebuttal information, to the supplemental questions, or to specific new proposals, and not merely to resubmitting views or information previously submitted or expressed during the workshop. Comments proposing or addressing a particular standard should address how it protects consumers against deception(1) and why adopting a particular standard is in the public interest. All written comments submitted will be available for public inspection in accordance with the Freedom of Information Act, 5 U.S.C. 552, and Commission regulations, on normal business days between the hours of 8:30 a.m. to 5:00 p.m. at the Public Reference Room 130, Federal Trade Commission, 6th and Pennsylvania Ave., N.W., Washington, D.C. 20580.
In addition, the Commission will make this notice and, to the extent technically possible, all comments received in response to this notice available to the public through the Commission's Home Page on the Internet. Interested parties can access the Commission's Home Page on the World Wide Web at the following address: http://www.ftc.gov.
Authority: 15 U.S.C. 41 et seq.
By direction of the Commission, Commissioner Starek dissenting.(2)
Donald S. Clark
BILLING CODE 6750-01-P
(1) A deceptive act or practice is one that is likely to mislead consumers acting reasonably under the circumstances. See Cliffdale Associates, Inc., 103 F.T.C. 110 (1984), reprinting as an appendix letter dated Oct. 14, 1983, from the Commission to the Honorable John D. Dingell, Chairman, Committee on Energy and Commerce, U.S. House of Representatives ("Deception Statement"). The Commission considers a claim deceptive if even a "significant minority" of consumers are misled. "An interpretation may be reasonable even though it is not shared by a majority of consumers in the relevant class, or by particularly sophisticated consumers. A material practice that misleads a significant minority of reasonable consumers is deceptive." Kraft, Inc., 114 F.T.C. 40, 122 (1991), aff'd 970 F.2d 311 (7th Cir. 1992), cert. denied, 507 U.S. 909 (1993).
(2) Commissioner Starek dissented for reasons previously stated. See 60 FR 53930 (1995).