FTC: Made In The USA Comments Concerning Peter Jay Baskin--P894219
August 11, 1997
Office of the Secretary
Re: Made in USA Policy Comment
FTC File No. P894219
On behalf of our client, Wolverine World Wide, Inc., we hereby submit the following comments in regard to the Federal Trade Commission's Request for Public Comment on Proposed Guides for the Use of U.S. Origin Claims, 62 Fed. Reg. 25,020 (1997).
Our client is one of the largest footwear manufacturers in the United States, with thirteen manufacturing facilities located in four states. Those facilities employ nearly 2700 workers, whose annual wages collectively exceed $54 million. Thus, our client has a significant interest in the outcome of the FTC's examination and proposed revision of its policies governing the voluntary use of "Made in USA" claims.
Our client wholeheartedly endorses the FTC's efforts to modernize its approach to "Made in USA" representations. The Commission's recognition that its wholly domestic requirement is "outdated and inflexible" in this era of increasing globalization of production is a welcome sign that the FTC is not losing sight of the forest for the trees. Moreover, its finding that consumers are cognizant of the realities resulting from the vast changes in the international economy clearly demonstrates that the FTC is truly focusing on its obligation to serve all of the public in the best way possible. These reassuring developments merit recognition in and of themselves, regardless of the manner in which the "Made in USA" issue may ultimately be resolved.
Our client is equally encouraged regarding the substantive thrust of the proposed guides. As currently proposed, the FTC's guides would, for the first time, afford the opportunity for hundreds of thousands of American workers to see their contributions in factories thoroughout the United States create products which will appropriately carry the unqualified designation as having been "MADE IN AMERICA." For many of those workers, the pride and competitive spirit which will be instilled in them by seeing their efforts so come to symbolize their country is immeasurable. In addition, and also for the first time, the proposed guides attempt to strike a balance between the consumers' interest in knowing which products are being manufactured in this country and the American manufacturers' interest in having a reasonable degree of flexibility for sourcing their materials in order that they may remain competitive in today's global economy. When an effort is made to adjust administrative policies to accomplish goals such as these, all parties benefit.
Accordingly, our client believes that the FTC's actions in attempting to revise and expand its policies concerning "Made in USA" claims have been highly commendable to this point. However, with a few slight modifications, our client believes that the success of the FTC's undertaking may be significantly enhanced.
I. SAFE HARBOR BASED ON U.S. CONTENT
To begin with, our client maintains that under Section VIII of the proposed guides, involving unqualified U.S. origin claims, the safe harbor based on percentage of U.S. content should be modified by changing the criterion to a majority (i.e., greater than 50 percent) of U.S. content. Not only would this be comparable with the criteria for domestic origin claims in Canada and Switzerland, see 62 Fed. Reg. at 25,039, but it would also be consistent with government procurement rules of the Buy American Act (BAA), 41 U.S.C. § 10a. See 62 Fed. Reg. at 25,040.
The FTC realizes that there are often considerable benefits to harmonizing its standards with those of other government agencies. 62 Fed. Reg. at 25,038. Yet, the 75 percent content criterion that the Commission has proposed does not align with any other agency's approach. In regard to the BAA, this is particularly surprising inasmuch as the FTC's "substantially all" language is identical to the language of the BAA's statute, i.e., 41 U.S.C. § 10a, which unquestionably applies a "substantially all" measurement of 50 percent or greater. However, the Commission decided not to take a position consistent with the BAA, reasoning as follows:
[T]he BAA does not relate in any way to the labeling of products, and its standard is not based on consumer perceptions. Rather, the BAA is simply a government procurement preference rule. The Commission is therefore not persuaded that consistency with the BAA, in and of itself, would lead to significant benefits. In addition, adoption of the BAA standard would nevertheless leave the Commission applying a standard different from that of the Customs Service, and the BAA advocates give few, if any, reasons for preferring consistency with the BAA to consistency with the arguably more relevant Tariff Act.
62 Fed. Reg. 25,040.
With all due respect, our client believes that the FTC has missed the point concerning the BAA. There is no other standard in existence which is based on legislation that has exactly the same underlying purpose as the FTC's governing statute. Therefore, it is useless to make that the test for a standard with which it may be reasonable, from a policy standpoint, to conform. The benefit of aligning the standard for "Made in USA" claims with the BAA standard is that doing so would decrease the burden on businesses to understand it, apply it, and thus comply with it. To American businesses, many of which are faced with the task of complying with regulations from a multitude of federal and state agencies, these are significant benefits.
Moreover, even if consistency with the BAA would not, in and of itself, lead to significant benefits, such consistency will also make the FTC's standard comparable with the requirements for domestic origin claims in other countries. This is significant in that, although those requirements do not apply in the United States, their underlying purpose is closely related to the intent behind the FTC's governing statute. From that standpoint, those standards are even more relevant than the Tariff Act. Our client submits that in this era of an increasingly global economy, there is much to be said for harmonizing the U.S. domestic origin claim standard with the standards being used for domestic origin claims in other countries.
Concerning the Commission's point as to how the adoption of the BAA standard would leave it applying a different standard than Customs, the FTC has preliminarily decided, for other reasons, not to follow Customs' standard, anyway. Therefore, the FTC is not confronted with following the BAA standard in lieu of following the Customs standard. Merely because the Commission finds the Customs standard to be inappropriate for its purposes does not thereby mean that all other standards with which it could align should be rejected. If alignment with another standard will be reasonable, workable, and beneficial, there is no reason why it should not be adopted.
Although the FTC gave serious consideration to a 50 percent U.S. content safe harbor, it decided upon the 75 percent figure because that "appeared to be in greater accord with consumer understanding." 62 Fed. Reg. 25,041. For illustrative purposes, the FTC noted:
[I]n the 1995 FTC Attitude Survey, for example, there was a significant drop-off between the number of consumers agreeing with a Made in USA claim for a product where U.S. costs accounted for 70% of all costs and those agreeing with such a claim for a product where U.S. costs accounted for 50% of costs. In fact, even where it was specified that final assembly of the product took place in the United States, significantly fewer than half of those surveyed were willing to accept a "Made in USA" label for a product with 50% U.S. content. Nor does the other consumer survey evidence in the record show much support for a 50% standard.
In contrast, our client endorses a majority U.S. content safe harbor. Our client submits that consumer data regarding a 50% standard does not reflect how consumers would respond to a majority content rule, for while the quantifiable difference in those two standards is only slight, the difference from a psychological standpoint is enormous. We contend that many consumers who would have an objection to saying that a product is "Made in USA" if only half of it need be attributable to U.S. input will have no problem with designating that product "Made in USA" if more than half of it must consist of U.S. materials and labor. A product which is 50% U.S. content, after all, is also 50% foreign content, so it is no more U.S.-made than it is foreign-made. However, a product which meets the majority content rule will unequivocally be more of a U.S. good than a foreign good, which we maintain will make it much more acceptable as a product that is "Made in USA" in the minds of consumers. The drop-off between a 70% threshold and a majority threshold, we believe, will be much less pronounced than the difference reported in the 1995 FTC Attitude Survey in the reaction to a 70% U.S.-content product and a 50% U.S.-content product.
If the Commission does not agree that a majority content standard is appropriate for "Made in USA" claims, then we alternatively maintain that the qualifying percentage for the safe harbor should be lowered to 70 percent. In the above-quoted language wherein the Commission explained why it did not adopt the 50 percent standard, it pointed to the drop-off in consumer acceptance which occurred between 70 percent and 50 percent in the 1995 FTC Attitude Survey. Thus, the FTC record is based on a 70 percent standard, not 75 percent.
Furthermore, the table listing the Percentage of Respondents Who Agreed and Disagreed with a "Made in USA" Label, 62 Fed. Reg. 25,036, indicates that with respect to products assembled in the U.S. (the most pertinent category for purposes of comparison in view of the safe harbor's requirement that the last substantial transformation must occur in the U.S.), 67 percent of respondents agreed that a product with 70 percent U.S. cost content should be eligible for a "Made in USA" label. When the U.S. cost content was raised to 90 percent, however, the percentage of respondents agreeing that the product should be eligible for a "Made in USA" label increased only another 8 percentage points, to 75 percent.
Based on the marginal increase which resulted when the 70 percent cost content requirement was raised 20 percentage points, there is little, if any, justification for raising the cost content requirement a mere 5 points from that level. If we assume that the increase in the number of agreeing respondents gained evenly as the cost content requirement was raised, then raising the standard from 70 percent to 75 percent added only another 2 percent of respondents who believed that a "Made in USA" label was acceptable. However, the likelihood is that the greatest concentration of respondents responsible for the 8-point increase was skewed toward the higher end of the range (i.e., the number of agreeing respondents increased disproportionately as the cost content approached 90 percent). In that case, raising the content requirement to 75 percent increased the number of agreeing respondents by less than 2 percent. Our client maintains that such a minor increase hardly outweighs the additional constraint that would be placed on the sourcing flexibility of American manufacturers if the 75 percent standard were adopted. Therefore, our client contends that if its proposed majority content rule is not adopted, then the percentage content standard should be no higher than 70 percent.
II. "MADE IN USA" CLAIMS FOR PRODUCTS MADE FROM ARTICLES ENTERED UNDER SUBHEADING 9802.00.8040, HTSUSA
In Section VII of the proposed guides, the FTC recognized that there is interaction between the rules it applies to "Made in USA" claims and other laws -- particularly, the tariff laws -- which are also concerned with identifying products' countries of origin. See 62 Fed. Reg. at 25,048-9. Therefore, it cannot impose requirements relating to voluntary "Made in USA" claims in a vacuum. Rather, it must make every effort to "minimize potential conflicts" with laws that Congress has enacted with a view towards designating country of origin for other purposes. See 62 Fed. Reg. 25,048.
One example given in the proposed guides involves situations where the tariff laws deem articles to be of foreign origin. In those cases, the FTC explains its position as follows:
[W]here an article is deemed to be of foreign origin for marking purposes under the Tariff Act, making a U.S. origin claim on the article or its container, or making such a claim without clearly and prominently disclosing the foreign manufacture of the article, may, in some circumstances, constitute a deceptive act or practice under Section 5 of the FTC Act.
62 Fed. Reg. at 25,049. Thus, the FTC recognizes the inconsistency in allowing a "Made in USA" claim to be made for an article that is statutorily deemed to be of foreign origin.
Our client requests that the FTC address a situation which represents the reverse of the above example. Articles entered under subheading 9802.00.8040, HTSUS, are deemed to be of U.S. origin in accordance with U.S. Note 2(b), Subchapter II, Chapter 98, which provides that no article assembled or processed in a "beneficiary country" and otherwise meeting the terms of that note "may be treated as a foreign article, or as subject to duty." In contrast to the above-quoted FTC example, in which the articles are deemed to be of foreign origin for marking purposes, goods within the scope of U.S. Note 2(b) are prohibited without qualification from being treated as a foreign article, whether it be for duty, marking, or other purposes. There is good reason for this rule, viz., that articles covered by U.S. Note 2(b) must, inter alia, be assembled or processed in whole of fabricated components that are a product of the United States, or processed in whole of ingredients (other than water) that are a product of the United States.
Our client maintains that this Congressional mandate that articles entered under subheading 9802.00.8040, HTSUS, pursuant to U.S. Note 2(b), Subchapter II, Chapter 98, HTSUS, be treated as U.S. articles means that products made from articles entered under that subheading, and for which all other components and labor is sourced in the U.S., may legally be claimed as "Made in USA." In view of the substantial amount of importations which are made under subheading 9802.00.8040, HTSUSA, our client believes that it would be both timely and appropriate for the Commission to address this issue in the context of its present undertaking.
III. DEFINITION OF "SUBSTANTIAL TRANSFORMATION"
Regarding the interpretation of "substantial transformation" for purposes of the proposed "Made in USA" guides, our client wishes to commend the FTC for taking the position in subparagraph (f) of Section V of the guides that the term shall encompass both Customs' case-by-case rulings and the tariff classification shifts set forth in the NAFTA marking rules. See 62 Fed. Reg. 25,045, 25,048. We believe that this is a well-reasoned approach, and note that it is consistent with the recent court decision in CPC Int'l, Inc. v. United States, 933 F. Supp. 1093 (Ct. Int'l Trade July 8, 1996), rehearing denied, 956 F. Supp. 1014 (Ct. Int'l Trade Jan. 6, 1997).
IV. DISCLOSURE REQUIRED FOR CONSUMER PRODUCTS IN CONNECTION WITH "ORIGIN: USA" LABELS
Finally, our client also wishes to commend the FTC's recognition of the need for a mechanism to indicate U.S. origin for goods that are to be sold in domestic and foreign markets, but which are not eligible for an unqualified "Made in USA" claim. Our client believes that the FTC's suggested "Origin: USA" mark is an appropriate mechanism for these purposes as long as no undue restrictions are placed on the manner in which the disclosure of substantial foreign content required for consumer products is made to consumers. In this regard, we submit that in the context of footwear, an insert in the box containing such a disclosure should be sufficient to satisfy this requirement in view of the fact that boxes containing footwear are ordinarily opened prior to purchase by the consumer. We believe that the proposed guides should recognize this option for footwear and other products sold under similar circumstances.
Thank you for your consideration of these comments.
Very truly yours,
Peter Jay Baskin