FTC: Made In The USA Comments Concerning American Sigma, Inc.--P894219
August 6, 1997
Office of the Secretary
Ref: Comments of American Sigma, Inc.
American Sigma hereby responds to the Federal Trade Commission's (the "Commission") request for comments on its proposed "Guides for the Use of U.S. Origin Claims" (the "Proposed Guides").¹ American Sigma is a manufacturer of water quality instrumentation, located in Medina, New York and employing 130 employees. American Sigma strongly opposes the Commission's proposal to weaken the standard for "Made in USA" claims from "all or virtually all" U.S. content to "substantially all" U.S. content. Weakening the standard will lead to consumer deception. It will also deny American Sigma the marketing advantage attributable to Made in USA products.
I. Weakening the "Made in USA" Standard will Deceive a Substantial Percentage of Consumers
According to the Commission's own findings, weakening the Made in USA standard would allow markets to deceive at least one third of all consumers. In announcing its determination to weaken the Made in USA standard, the Commission concluded that consumers no longer expect Made in USA products to have all or virtually all U.S. content. To support that conclusion, the Commission cited the results of a 1995 Attitude Survey commissioned by its staff and found that 67% of the Attitude Survey respondents were willing to accept a Made in USA claim for a product with 70% U.S. content and U.S. final assembly.² Based on that finding,
¹ Fed. Reg.
however, 33% of the respondents were not willing to accept such a "Made in USA" claim. Thus, the evidence cited by the Commission indicates that weakening the "Made in USA" standard will deceive one third of consumers.
Other consumer perception surveys before the Commission suggest that the substantially all standard actually will deceive a majority of consumers. For example, the 1997 FTC Copy test found that 77% of consumers expect a "Made in USA" product to have all or almost all U.S. content.³ The Commission noted several other surveys that produced similar results:
American Hand Tool asked respondents what percentage of a hand tool they assumed was made in the U.S. Fifty-three percent of the respondents stated 100% Similarly, in the NCL study, consumers were asked "When you see a product advertisement or label stating "Made in USA" what amount of U.S. parts (i.e. components) do you assume is in the product?" Forty-five percent of respondents stated 100%; an additional 9% of the respondents stated a minimum ranging between 90% and 100%. When respondents to this survey were asked about the minimum amount of U.S. labor they assume is in the product, 58% stated 100%, and an additional 8% stated a minimum between 90% and 100%.4
II. The Proposed Safe Harbors for "Made in USA" Claims Increase the Potential Level of Consumer Deception
The Proposed Guides set forth two alternative safe harbors to demonstrate a reasonable basis for a Made in USA claim under the substantially all standard. First, a product may be marked Made in USA if U.S. manufacturing costs represent 75% of the total manufacturing costs for the product and the product was last substantially transformed in the United States. Second, a product may be marked Made in USA if the product was last substantially transformed in the Made in USA means all or virtually all U.S. origin. In fact, as discussed below, the safe harbors do not even ensure that a product needs the weaker substantially all standard.
² Proposed Guides at 55. The percentage cited by the Commission is inflated. To reach 67%, the Commission combined the percentage of respondents who "strongly agreed" with the claim (26%) and the percentage who only "somewhat agreed" with the claim (41%). The "somewhat agree" responses indicate some unwillingness to accept the claim, and therefore the actual percentage of respondents who were willing to accept the "Made in USA" claim was only 26%.
³ Proposed Guides at 45.
A. The 75% U.S. Content Safe Harbor
The 75% U.S. content safe harbor has two significant loop holes that allow products with less than 75% U.S. content to be labeled Made in USA. First, the safe harbor only requires a manufacturer to trace the origin of inputs that are likely to have significant foreign content.5 Therefore, inputs that contain "insignificant" foreign content can be counted as 100% U.S. origin. For many products, the safe harbor expressly limits the obligation to identify foreign content to inputs "one step back" in the manufacturing process.6 As a result, a manufacturer can meet the safe harbor and advertise its products as "Made in USA" even if the product has less than 7% U.S. content. In fact, if a product has many parts, each of which the manufacturer believes contain only insignificant foreign content, the actual U.S. content could fall well below 75%.
A second loophole in the 7% U.S. content safe harbor allows a manufacturer to average its costs to determine whether a product line meets the substantially all standard.7 Individual products that do not meet the 75% standard, nevertheless can be marked as "Made in USA" so long as the average U.S. content is 75%. Consumers in the marketplace will have no basis to distinguish products that meet the safe harbor from those that fall below it.
In addition to these loopholes, the 75% U.S. content safe harbor does not ensure that a majority of the parts or labor that go into a product are U.S. origin. In fact, the outcome under the test does not turn on the amount or value of U.S. parts and labor, but instead depends on the cost of imported parts and labor. By sourcing from the lowest cost country possible, a manufacturer can maximize the imported parts and labor that go into a product while remaining within the safe harbor. In fact, it is possible for a product made from 100% foreign parts or materials to meet the 7% U.S. content safe harbor. These results are contrary to consumers' views that both the origin of parts and the location of processing are significant in defining Made in USA.8
B. The Two Levels of Substantial Transformation Safe Harbor
The second safe harbor, two levels of substantial transformation, similarly does not ensure that a Made in USA product conforms to consumers' expectations. The Commission itself note that minor processing steps can satisfy the substantial transformation test:
By itself, however, substantial transformation does not necessarily ensure that a product contains significant foreign content. If may, for example, reflect a
5 Id. At 77.
7 Id. At 85-86.
8 Id. At 45, 47-48.
relatively unsophisticated final assembly process putting together parts made elsewhere or it may be met by a process that in fact changes the nature of the product, but requires little work.9
Doubling the substantial transformation requirement simply means that the test can be met by two minor operations, and therefore does not ensure that a Made in USA product will have significant U.S. content in terms of value, parts, or labor.
The Proposed Guides specify that a product with more than 25% foreign content can meet the two levels of substantial transformation safe harbor.10 In fact, because the safe harbor does not impose any ceilings on foreign content, a product with substantially more than 25% foreign content by value can quality as "Made in USA". That result runs contrary to the Commission's findings about consumer acceptance of "Made in USA claims".11 Moreover, the two levels of substantial transformation safe harbor (like the 75% U.S. content safe harbor) can apply to products made from 100% foreign parts.12 Again, this result is contrary to consumers' belief that the "Made in USA" definition relates to both parts and processing.
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For all of these reasons, American Sigma strongly urges the Commission not to weaken the standard for unqualified Made in USA claims and instead to reaffirm the all or virtually all standard. In addition, the Commission should revise and expand the provisions of the Proposed Guides relating to qualified U.S. origin claims, U.S. origin claims for specific processes or parts, and comparative claims. Further guidance on these issues within the framework of the all or virtually all standard would (1) permit marketers to derive whatever market advantage applies to a product that is partially U.S. made; (2) increase the information available to consumers regarding the U.S. content of products; and (3) ensure that consumers are not deceived as to the content of a product labeled Made in USA.
American Sigma, Inc.
9 Id. at 57.
10 Id. at 79 (example 3).
11 Id. at 48, n.193, 56.
12 Id. at 79 (examples 1 and 3).