FTC: Made In The USA Comments Concerning New Balance Athletic Shoe, Inc.--P894219
August 8, 1997
VIA OVERNIGHT U.S. MAIL
Office of the Secretary
Re: Proposed Guides for Made in USA, Comments submitted by
New Balance Athletic Shoe, Inc. FTC File No. P894219
New Balance Athletic Shoe, Inc. ("New Balance") hereby submits the following comments in response to the request by the Federal Trade Commission ("FTC") for public comments on the Proposed Guides for the Use of U.S. Origin Claims. 62 Fed. Reg. 25,020 (1997).
New Balance commends the FTC for undertaking a comprehensive review of the "all, or virtually all" domestic content standard in light of evidence indicating that: 1) the increasing globalization of production made that standard outdated, inflexible, and virtually impossible to achieve; and 2) consumer expectations have kept pace with this phenomenon. New Balance supports the efforts of the FTC to establish a more realistic standard for U.S. origin claims that remains consistent with consumer expectations while encouraging rather than disadvantaging U.S. companies that are committed to maintaining a manufacturing base here.
In that regard, New Balance applauds the FTC's determination to replace the "all, or virtually all" standard. A change in this standard can be implemented without putting consumers at risk. Although many us might like to believe, as one consumer critic of the proposed change put it, that "if a product consists of materials that were mined, grown, processed, manufactured, and assembled in the United States of America, then and only then is that product 'Made in USA'" (see Public Comment No. 87), the reality is that standard is simply no longer achievable.
It is not corporate greed that drives a company such as New Balance to seek an updated standard. See, e.g., Comment Nos. 27, 38, 235. It would certainly be more profitable to move offshore and take advantage of the far lower labor costs abroad, and clearly imports sell, and sell well -- in New Balance's industry the two largest athletic shoe manufacturers do not make a single shoe in this country. Instead, what has led to the challenge of the "all or virtually all" standard is the increasingly difficult effort to keep and expand U.S. manufacturing facilities in the face of competition from cheap imports, and the impossibility of obtaining needed components within the United States. The 650 manufacturing workers at New Balance's four U.S. plants are not less deserving of putting a "Made in USA" label on the shoes they make here just because economic forces completely out of their control have forced most of the domestic shoe industry and its infrastructure offshore. As one New Balance line manufacturing worker put it when she learned about the FTC's challenge to New Balance's labels: "For fourteen years I have been making shoes in the U.S. Why can't I say that?"
This is clearly a hot-button issue for many Americans, in large part because of the same concerns about the loss of U.S. jobs and weakening of the country's manufacturing base. See, e.g., Comment No. 261 ("Made in USA" label helps consumers identify source of labor so they can support American workers). When the rhetoric and emotion are put aside, however, the simple reality is that the "all, or virtually all" standards disserves American consumers and workers alike. New Balance agrees with the sentiment, expressed in many of the public comments filed to date, that the FTC ought to take action to preserve the "Made in USA" label, support U.S. jobs, and encourage manufacturers to maintain their manufacturing facilities in this country (see Comment Nos. 109, 120, 211, 362, 377), as well help to level the playing field for domestic manufacturers. See Comment No. 110. The "patriotic" response, however, is not to enforce an "all, or virtually all" standard that is unreachable for the vast majority of U.S. manufacturers, but to articulate a standard that those manufacturers -- the companies who are providing jobs for U.S. workers -- can meet so that they can compete more fairly with imports that have tremendous advantages.(1) Indeed, in light of substantial evidence that consumers believe a "Made in USA" label on a product means that their purchase of that item supports a U.S.-based manufacturing company employing U.S. manufacturing workers, an updating of the domestic content requirement such as that proposed will be consistent with consumer expectations and concerns. See attachment to Comment No. 243 (consumers understand situation of changing global marketplace, and that is why many try to buy American). New Balance supports the principle of establishing a "safe harbor" standard based on a percentage content test. A percentage content test will provide American manufacturers adequate guidance in determining their compliance with the FTC's advertising and fair trade practice regulations.
New Balance believes that the proposed 75% content standard is the minimum that could be implemented to achieve the stated goals, and urges the FTC to adopt its proposed regulations. The FTC's own consumer study supports a 70% content requirement that would be consistent with a majority of consumers' views. New Balance believes that products that have a majority of U.S. value (more than 50%) and that were last substantially transformed in the United States should be permitted to carry an unqualified "Made in USA" label because this is also consistent with consumer expectations. Therefore, New Balance urges the FTC to adopt a safe harbor that permits products with significant U.S. value -- particularly because that may be the highest domestic content achieved in that industry -- to carry an unqualified "Made in USA" label. While New Balance believes products with a majority U.S. value should be permitted to carry that label, New Balance supports the proposed safe harbor of 75%.
I. An updated standard should be adopted because it is consistent with consumer expectations and concerns and will support U.S. manufacturers and workers.
An unqualified "Made in USA" label on a product reflecting significant U.S. labor and components that was last substantially transformed in the U.S. would provide consumers with truthful information consistent with their understanding that buying U.S.-made goods supports our economy and helps provide jobs for U.S. workers. As indicated in many of the public comments filed to date in this matter, many U.S. consumers are concerned that U.S. manufacturing jobs are being sent abroad and identify the "Made in USA" label with companies that are employing American workers in manufacturing facilities located in the United States. See, e.g., Comments Nos. 1, 18, 29, 32, 42, 48, 104, 132, 133, 155, 171, 173, 174, 183, 244 (expressing view that too many jobs have gone overseas).
Ironically, many of the consumers who are urging the FTC not to change the standard -- apparently in response to editorials taking that position in USA Today and other papers -- express concern about the loss of U.S. manufacturing jobs and the fact that fewer and fewer products carry a "Made in USA" label. See, e.g., Comment Nos. 1, 12, 17, 58, 59, 188, 249, 286. These are the very concerns the change in the standard is designed to address -- the preservation of the "Made in USA" label and of American jobs. The "100% American" standard many concerned consumers support, however, would exclude entirely from the "Made in USA" category: American made products that contain raw materials not indigenous to the United States such as rubber; products incorporating components that are not made by anyone in the United States, such as the soles on some New Balance shoes; and products containing raw materials whose source cannot be traced, such as the oil used to make plastic used by a U.S. toy manufacturer. In short, there would be almost no product -- no matter how-much U.S. labor, craftsmanship and manufacturing sophistication went into it -- that could carry the "Made in USA" label. The "all or virtually all" standard therefore would not fulfill the goals of the consumer who, for example, looks "high and low" for the "Made in USA" label, but wants a product so labeled to be "totally made here." See Comment No. 286. Instead, the label that many consumers look for in order to show support for U.S. jobs would virtually disappear.
New Balance agrees that the "Made in USA" label should be an indicator to consumers that the labeled product is made by American workers. Therefore, New Balance strongly supports a standard which will allow products which are in fact made in the United States -- providing U.S. workers with jobs -- to be labeled "Made in USA." The current "all, or virtually all" standard does not achieve this goal. It creates an impossible-to-meet threshold for U.S. manufacturers trying to remain competitive in the face of sourcing realities and dramatically lower labor costs paid by companies whose manufacturing facilities are located offshore. It also requires American manufacturers to trace the source of often fungible raw materials such as oil, hides, and gold. The proposed 75% safe harbor standard will go far towards correcting the present imbalance between the amount of source information importers must provide consumers and an onerous requirement that makes it more difficult for companies trying to keep their manufacturing base in this country. In sum, a standard that does not require all or virtually all domestic content is the only means to meet the dual goal of encouraging U.S. manufacturing and providing consumers who want it with information about which of their purchases support U.S. manufacturing jobs.
New Balance realizes the importance to consumers of maintaining a U.S. manufacturing base -- to make products in the USA, to provide jobs to U.S. workers, and to bolster our economy. See, e.g., Comment No. 186. New Balance has demonstrated its commitment to maintaining such a base and to providing jobs to U.S. workers. However, in New Balance's case, for example, because of the movement offshore of much of the domestic shoe industry, certain key components are simply not available in the United States at any cost. In the case of the vast majority of other American manufacturers, some of their sourcing has become international in order to remain competitive in the face of cheap imports. Even in the case of hand tools -- the one industry group at the March 1996 workshop arguing for the status quo -- the source of the iron ore used in the steel in most cases cannot be traced to this country and the raw materials in chrome are not even mined in the U.S. in sufficient quantities. Few, if any, of their products can legitimately be labeled as U.S.-made under the "all or virtually all" standard supported by that industry group. As the FTC has recognized after exhaustive study, because of these facts, fewer and fewer companies were and will be able to maintain a "Made in USA" label under the standard developed right after World War II. Ironically, the end result of this trend will be less consumer information, a weakened U.S. manufacturing base, fewer jobs for U.S. workers, and the disappearance of "Made in USA" products.(2)
An additional risk incurred if a realistic standard is not implemented is that companies which currently benefit from using the "Made in USA" label may not keep manufacturing facilities in the U.S. if they cannot meet the requirements to continue to label their products "Made in USA." If this happens then the purpose of the label from the consumer's perspective will be defeated. In order to provide consumers with what they want from a "Made in USA" label -- the opportunity to support U.S. manufacturing -- the FTC should update the standard. The 75% standard will enable additional companies to maintain their U.S. facilities and inform consumers that they are doing so. As set forth in Section II, infra, a majority content safe harbor would also achieve this goal, and would preserve the label for a larger number of U.S. goods that contain a significant amount of U.S. materials, labor and craftsmanship.
In response to comments that such a standard would conflict with some consumer expectations, New Balance calls on the FTC to act in the public's interest to educate consumers as to the meaning of "Made in USA" in the context of today's globalized economy. Since a large percentage of the public indicates it wants to support U.S. manufacturing by purchasing products made in the U.S., it would be in the public interest for the FTC's guidelines to elucidate the significant U.S. inputs in products that are in fact being made in the U.S. even though they may have to incorporate some imported parts or materials. This pro-active approach would be consistent with the FTC's statutory and traditional role of educating consumers and industry about its standards.(3)
II. A standard that permits an unqualified "Made in USA" claim if a product's domestic content constitutes a majority of total costs would also be consistent with consumer expectations and support our U.S. manufacturing base.
While the proposed 75% threshold for the percentage content safe harbor is a tremendous improvement over the virtually 100% requirement, New Balances believes that a majority threshold is also consistent with consumer concerns, fully supported by extrinsic evidence, and would more effectively meet the Commission's stated goals. Additionally, a majority content standard would be consistent with other governmental agency regulations.
a. A majority content standard would minimize confusion to manufacturers and consumers because it is consistent with other governmental agency standards.
Regulations currently exist which address the issue of which products are considered by federal government agencies to be made in the United States. Included among those regulations are the Buy American Act, 41 U.S.C. § 10a and the Commerce Department's Market Development Cooperator Program, 59 Fed. Reg. 21,750 (1994). Each of these regulations consider a product with more than 50 percent U.S. content to be American. With that determination comes support from the federal government in terms of subsidies and preferences.
The Buy American Act requires that federal government agencies give procurement preference to goods that are "substantially all" made in the United States. For purposes of the Buy American Act, Congress determined that a good is considered "substantially all" made in the U.S. if its American components constitute a majority of the cost of the product. The purpose of the Buy American Act is notably similar to the purpose of consumers who look for and buy products labeled "Made in USA." Both believe in supporting the U.S. economy by buying products from companies that employ U.S. workers.(4) If a product is sufficiently "American" to be preferenced by the federal government, then labeling the product "Made in USA" is not deceptive to U.S. consumers. Whether the product is purchased by the government or by a consumer, that purchase will support the U.S. economy and a U.S. manufacturer who is providing jobs to U.S. workers.
Likewise, the Department of Commerce has determined that it is in the public's interest to provide assistance to companies interested in exporting U.S. goods. For these purposes the Department of Commerce will provide export assistance to companies who are exporting goods that again are made up of at least 50% materials and labor. The purpose of the Department of Commerce's Export Assistance Program is once again parallel to the purpose of consumers purchasing "Made in USA" products -- to support U.S. manufacturing.(5) Thus, another governmental agency has made the determination with goals similar to those of the FTC that products with a majority U.S. content be considered American made.
Since the purposes behind consumer purchases of "Made in USA" labeled goods and the Buy American and export assistance programs are the same then it is logical that the same standard would be appropriate to achieve that goal. An additional benefit of adopting the majority content standard would be the consistency it would provide to U.S. manufacturers. For these reasons, New Balance believes a majority content standard is justified.
b. A majority content standard is supported by extrinsic marketing studies and is a logical "bright-line" cut-off for foreign inputs.
As the FTC learned in its own consumer study and its review of other studies submitted for the March 1996 workshop, very few consumers focus on the origin of raw materials and components as the meaning or message of a "Made in USA" label, but when asked to think about parts or components consumers tend to believe that a "Made in USA"-labeled product contains a significant level of U.S. materials and components. A majority of U.S. value standard is consistent with that belief. Only 8% of respondents in New Balance's study believed that a "Made in USA" label was not appropriate for a product with a majority of U.S. materials and components; the vast majority of respondents (85%) believed such a product was U.S.-made.(6) These results certainly are inconsistent with the suggestion of the current lobbying effort which suggest that American consumers support a 100% or virtually 100% standard.
The FTC's proposed 75% content standard is expressly grounded on the conclusion that "consumers continue to understand 'Made in USA' claims as representing a significant level of U.S.-derived content." Request for Public Comment at 55. A majority of U.S. value is certainly a significant level. Moreover, it is a logical, supportable cut-off. Many commenters arguing against a percentage content standard stated that a percentage cut-off seemed arbitrary: how different is 74%, for example, from 75%? Why is the first considered too little U.S. content to qualify but not the second? There is nothing arbitrary about drawing a line requiring that a majority of a product's inputs be of U.S. origin. Indeed, if the standard is not to be 100% the only cut-off that does not seem arbitrary is that between a majority of U.S. content and a majority of foreign inputs.
For these reasons, adoption of a majority content standard would guarantee that a substantial, meaningful portion of the content of products labeled "Made in USA" would consist of U.S.-based value. Ensuring such a result would enable the FTC to adequately protect consumers from deceptive labeling because consumers would be getting the information they need if they choose to be "U.S. supporters" in their purchasing. In contrast, adoption of an all or virtually standard will do nothing but weaken the domestic manufacturing base of this country and further tip the balance in favor of products made by underpaid and overworked foreign workers. If the Commission had any doubt about this fact it need only look to the workshop commentary to see among the supporters of the "all or virtually all" standard foreign manufacturers and importers -- who have never made anything in the United States, and who clearly have foreign manufacturing interests at heart.
The FTC should not be deterred from updating the standard. The thoughtful input at the public workshop in March 1996, the consumer studies presented in connection with that workshop which the FTC has analyzed carefully, and the overwhelming evidence of vast commercial and trade changes that have made it increasingly more difficult to maintain a domestic manufacturing base no matter how strong a manufacturer's commitment to doing so, all demonstrate that it is in the public interest -- that of consumers, U.S. workers, and our overall economic well-being -- to preserve the existence of the "Made in USA" label so that consumers can continue to support U.S. jobs and businesses in their purchases. A change in the present standard to a more realistic, achievable standard will benefit consumers, support U.S. manufacturing and enable those U.S. workers who are making products here -- even when those products might have a minority of imported materials or parts -- to proudly put on their finished product a label that says, "We made it here."
NEW BALANCE ATHLETIC SHOE, INC.
By its Attorneys,
Paul R. Gauron, P.C.
1. Consumers who support the 100% standard might be interested to know that, with the exception of a representative from the handtool industry, the only industry representative at the March 1996 workshop who argued for the "all, or virtually all" standard was an importer who makes not a single product within the borders of the United States. See Transcript of Proceedings, "Made in USA" Public Workshop, March 27, 1996 at pp. 632-634.
2. Manufacturers who cannot meet the all or virtually requirement will have to choose whether to label their products with an alternative, qualified label or not to label the product at all. A product with no label provides no information. The alternative labels that have been proposed provide confusing information. The proliferation of lesser labels will likely dilute the effectiveness of the "Made in USA" label unless consumers could accurately differentiate between "Origin: USA," "Assembled in USA," "Made in USA," etc. labels. Consumers may believe that an unlabeled product is made in the USA. As fewer and fewer companies are able to use the label, consumers may believe that virtually no products are made in the USA. This would be deceptive when in fact there are products like New Balance athletic shoes being made by U.S. workers who manufacture components from U.S. materials and make the final product in the U.S.
3. There is present confusion about the standard and definitions. The "all or virtually all" standard is understood by even its supporters to mean different things, including 100% (see e.g., Comment No. 4, 114, 170, 258), 98% (Comment Nos. 15, 28, 91, 119, 166), 90% (Comment No. 46; and see Request for Public Comment at 8, n. 13 & 14), and "majority" (Comment No. 392).
4. The legislative history of the Buy American Act shows that the main purpose of the act was to provide jobs for American workers and to protect American industry. See, comments by various representatives supporting the Buy American Act. 76 Cong.Rec. 1894 and 1896. "The adoption of this amendment will mean work for our workers" (comments of Rep. Davis). 76 Cong. Rec. 1993.
5. The mission of the International Trade Administration is to promote U.S. exports and to strength the international trade position of the United States. The intended beneficiaries of the program are U.S. producers. 59 Fed. Reg. 21,750-21,751.
6. The Commission misstates the results of the New Balance Survey when it suggest New Balance "did not present consumers with any scenarios in which a product was made with an amount of U.S. content between 50 and 100 percent." Request for Public Comment at 48 and n. 194. In fact, a "majority" standard encompasses that entire range, which is why the number of respondents choosing the "Made in USA" response dropped dramatically from the 85% who thought it applied to a product with a majority of U.S. materials/components when the question changed to "less than 50% U.S. materials/components."