FTC: Made In The USA Comments Concerning Joint Industry Group--P894219
THE JOINT INDUSTRY GROUP
August 8, 1997
Office of the Secretary
"Made in USA" Policy Comments, FTC File No. P894219.
Dear Secretary Clark:
On behalf of the Joint Industry Group (hereinafter JIG), we respectively submit the following comments with regard to the Federal Trade Commission's request for comments as published in the Federal Register on May 7, 1997 (62 Fed. Reg. N0. 88 250191). JIG commends the Commission for its efforts to find a replacement for the antiquated "all or virtually" standard for making US origin claims. JIG members recognize and appreciate the traditional position of the Commission as supporting free and open trade for the benefit of the consumer. Changing to a substantial transformation standard is consistent with that long held position. For the reasons discussed herein, we support the proposed guides and the "safe Harbors" policy which requires a product be substantially all made in the US in order to be labeled "Made in USA".
While we would still prefer an FTC standard for "Made in USA" labeling that is harmonized with the substantial transformation country of origin marking requirements administered by the United States Customs Service, we believe the Commission is adopting part of that standard with these proposed substantial transformation guidelines. JIG is generally opposed to arbitrary value added percentages for content, including 100 percent as in "all or virtually all", for the reasons outlined in its previous submissions. The principal aversion stems from the complex information gathering, record keeping, and subsequent auditing required to ensure compliance with such rules.
The "Origin: USA" and other alternative terms also move in the right direction toward such a common standard. More consideration is needed about the use of these terms as described below.
JIG is a coalition of over 120 companies, associations and firms actively involved in business and trade. JIG examines the concerns of the business community, relative to customs-related policies, actions, legislation and regulation and undertakes to improve them through proactive dialogue with US Customs, Congress and other government agencies. JIG commends the FTC for its attention to this important issue. As a representative of these global companies, these comments from JIG represent the comments, beliefs and insights of over 100 US companies, of all sizes and from multiple industries. A membership list is attached. We urge the Commission to give appropriate weight to the support of its Proposed Guides from these 100 companies.
The Commission has proposed new Rule of Origin guides for determining appropriate use of Made in USA labeling. Final adoption includes a provision for a five-year review to evaluate the adequacy of the new guides. The proposals would replace the current "all or virtually all" standard with a combination of percentage content and substantial transformation criteria. To substantiate a Made in USA claim, a marketer would have to satisfy one of two tests. The first, itself a two part standard, would require that 75% of total manufacturing costs be incurred within the United States and that the product was last substantially transformed in the US. The second test would confer US origin on a product that had undergone two levels of substantial transformation in the US. In other words, not only the last substantial transformation resulting in the finished product would have to occur in the US, but also all significant components used in final assembly must themselves have been last substantially transformed in the United States.
The members of the Joint Industry Group thank the Commission for recognizing the importance of the substantial transformation principle for determining origin. While we do not support percentage content requirements for the reasons given, we believe the Commission proposals provide sufficient flexibility for most manufacturers to mark goods for the benefit of the consumer.
The Commission's decision to embrace the time tested country of origin standard of "substantial transformation will protect consumers against false and deceptive practices. This standard, which confers origin when an article undergoes significant domestic manufacturing or processing so as to change its name, character, or use and thereby substantially increase its value, is the most reliable test for evaluating whether a "Made in USA" claim is misleading or deceptive to consumers. It is a standard that can be traced back to a Supreme Court case of 1907.(1) It is used by the US in administering origin decisions, that like Section 5 of the Federal Trade Commission Act, is intended "to prevent [consumer] deception or mistakes as to the origin of the article" (19 USC.1304 (a)(2)).
We believe that these Guides should apply to consumer goods. Industrial goods trade is a very different market, domestically and internationally. Just as Section 304 of the Trade Act recognizes that goods destined for the industrial market need not be marked because there is no consumer deception, the Commission Guides should recognize a slightly different standard for non-consumer goods. Many industrial products are produced to the specifications of the customer, including country of origin. For those that are not, a single substantial transformation such as the Customs rule, is sufficient. This will allow industrial product producers to manufacture for the global market with markings of "Made in the USA" without fear of violation of the Commission standard.
We recommend that an additional guide be added for industrial goods that provides for substantial transformation without the value added percentage content component. A definition of an "industrial product" could also be added. The definition should be based upon the manufacturer's intent to sell capital goods to industrial markets. Many of the components in large capital goods are not available in the US. With those additions, we believe that the proposed guidelines will ensure that products marked, as "Made in the USA" will indeed be substantially made in the USA. The safe harbor approach is sufficiently rigorous that products with a major foreign component will not be eligible for an unqualified claim. We recommend the proposal be implemented.
The proposals also provide guidance for use of qualified US origin claims such as "Made in the USA from Imported Parts," "Assembled in the USA," "Software Written in the USA," "Designed in the USA," and similar labels.
These qualified claims are necessary to accommodate the reality of today's manufacturing practices. These Guides will allow the consumer to receive clear information about the products available. We recommend adoption of these Guides.
We again commend the FTC on its efforts and insight in reviewing the "all or virtually all" standard, which has been applied by the FTC in the past to claims of "Made in USA." The "all or virtually all" standard is out of date in the present day global business environment. It acts as a barrier to US businesses trying to compete globally, weighing down US businesses with complex and contradictory regulatory schemes that result in added costs and complexities. It is clear from the Commission's proposed Guides For Use of US Origin Claims that it recognizes it can fulfill its responsibilities to the American consuming public, and at the same time alleviate much of the competitive disadvantage US businesses have been subject to under the old "all or virtually all" standard.
The Commission obviously noted the conflicting regulatory burdens on US businesses, and taken initial steps to alleviate some of them through Section XIII "Origin: USA" Labels of its proposed Guides. The Commission is wise in recognizing the need for simplification in an area of conflicting requirements that adversely affect US companies. The framework proposed by the Commission in Section XIII is the right general approach to the problem. The availability to US companies of "lesser" markings to declare US origin for the limited purpose of labeling will be of great benefit to US business, should these marks prove to be acceptable to other foreign markets, and such marks should not confuse or deceive US consumers.
Under the old "all or virtually all" standard for "Made in USA" claims, US manufacturers were forced to spend substantial sums to maintain dual packaging facilities in foreign markets and/or to relabel US products in order to export them to foreign markets requiring country of origin markings. For US companies forced to maintain separate packaging facilities in foreign markets for the sole purpose of complying with the conflicting requirements for country of origin markings and the FTC's "all or virtually all" standard for US origin claims, the additional cost per product ranges from 10 to 30 percent.
Those US manufacturers who have attempted to meet these conflicting requirements in the US by producing two sets of labels or by overlabeling US products exported and sold abroad have likewise been burdened with additional costs. The cost of specific labels and/or relabeling a US product for export is a 10 to 15 percent upcharge which adds no value whatsoever to the product. The conflicting requirements add costs and complexity to US manufactured products, placing US businesses at a competitive disadvantage because these barriers do not apply to our foreign competitors.
In addition to the significant "no value added" costs to US businesses associated with meeting conflicting country of origin and FTC requirements, there is the undetermined cost to US businesses and the US economy of fewer US products being exported. Many US manufacturers will simply sell fewer or no US products to foreign markets with country of origin marking requirements due to the additional costs and complexities associated with such sales. And if US manufacturers do choose to sell US products in such countries, the lesser cost may very well be to maintain a packaging plant in the foreign market. The result of these scenarios is less US product being exported, fewer US products being produced in the US and less work for US workers.
The following comments respond to the Commission's specific requests for additional information on this very important provision of the Commission's proposed Guides.
Whether such a mark is likely to be of significant utility to those selling goods in more than one country.
A "lesser" mark available for country of origin marking would be of significant utility to US manufacturers exporting and selling US products in foreign markets. Currently, US manufacturers are subject to conflicting and contradictory requirements for labeling country of origin on US products. The ability to mark labels on US products with a lesser mark, such as "Origin: USA," would alleviate the necessity for US manufacturers to maintain packaging plants in foreign countries for the sole purpose of meeting foreign country of origin marking requirements, and eliminate the need for costly special labels on US products being exported added costs of from 10-30% of the product cost. Bottom line, US manufacturers will be encouraged to manufacture and sell more US products if they can export and sell their products in foreign markets without the added costs associated with the old Commission restrictions on US origin statements.
1. Whether "Origin: USA" in particular is likely to be an acceptable marking to foreign Customs officials.
The lesser mark of "Origin: USA" might be acceptable in some foreign markets; however, it would not likely be acceptable to Customs authorities in at least several of the countries JIG members have communicated with to date (e.g. Australia, New Zealand, and Canada). JIG encourages the Commission to work with the United States Trade Representative (USTR) and US Customs, which are currently involved in country of origin harmonization discussions, to determine what "lesser" marks will be acceptable by Customs officials in foreign markets.
JIG also recommends that the Commission provide guidance to US manufacturers in the form of providing as many examples of acceptable lesser marks for labels as possible in its Guides. To that end, JIG recommends that the following lesser marks be listed as examples of acceptable lesser labeling marks in the Commission's Guides: "Product of USA", "Produced in USA", "Assembled in USA." These are marks currently required by some of our trading partners such as Canada and the European Union.
It is unlikely a small label marking of US origin would mislead consumers into believing the product is substantially all US made. As the Commission observed in its 1995 Copy Test, only 18% of consumers even thought the words "Assembled in USA," when used as a claim, meant "Made in USA." Certainly fewer consumers would take away such a meaning in the context of a small country of origin marking on a package label a marking that complies with the other requirements of Section XIII and is thus no larger than required to meet foreign Customs requirements. Moreover, consumers will come to understand the purpose, need and use of such packaging labeling as it is used, just as they will and have come to understand other package labeling changes due to harmonization.
2. Whether the distinction between consumer goods and goods sold to businesses for commercial use is an appropriate one.
Here is where definitions become a problem. JIG does not believe the distinction set forth in Section XIII of the FTC's proposed Guides is a necessary distinction between consumer and commercial use goods. The "consumer" in the case of an industrial/capital goods customer has specified product requirements and in most cases, made a request for proposal from vendors. These are sophisticated consumers, and all relevant information about the product, including country of origin is provided. Also, the de minimus quantity standard in XIII should not be applied to industrial products.
However, as discussed above and below, US consumers of "Consumer goods" are also sophisticated enough to understand the distinction between a claim of "Made in USA" and a small marking of US origin on a packaging label. US consumers are becoming more and more globally knowledgeable and sophisticated and are becoming accustomed to changes in US packaging due to harmonization.
Moreover, the additional costs associated with proposed requirement C of Section XIII would be an up-charge of from 10 to 15 percent of the product's cost. This significant additional cost to US manufacturers would do little or nothing to provide US consumers with additional information and would likely result in higher priced consumer goods for those consumers.
3. The extent of any burden the additional requirements for disclosures on consumer goods imposes on marketers (and whether the flexibility of using means of disclosure such as hang tags that need not be permanently affixed at time of manufacture mitigates these burdens).
The additional requirements set forth in requirement C of Section XIII is a significant burden. The requirement will impose a near impossible barrier for US manufacturers of certain consumer goods. Certain US products in small or decorative packages and/or those which are displayed on wall mountings or pegs would be incapable of carrying additional hang tags and/or labels at the point-of-purchase. For example, a small decorative fragrance bottle or cosmetic container, such as lipstick, does not have space for additional labeling.
US manufacturers are, and have been, reducing outer packaging for environmental reasons, and vast amounts of information are already required on these package labels pursuant to other government agencies (e.g. FDA). Equally problematic is the concept of hanging tags from such products where such products are displayed on wall mounted racks or hung from pegs. Such tags or labels would be unsightly and would tangle with the displays or other products. Moreover, the cost to US manufacturers of additional labeling and/or hang tags for such products would be an upcharge of anywhere from 10% to 25% of the products value.
4. Whether the additional requirements for disclosure on consumer goods are sufficient to prevent consumer deception.
JIG believes that the additional labeling or disclosure, as set forth in requirement C of Section XIII, is not necessary to prevent consumer deception for the labelling of the product. We believe that "Origin: USA" will not be confused with "Made in the USA". In addition, the cost and complexity of the requirements set forth in Section XIII C will not provide any additional value or information to the consumer commensurate with that cost. These requirements would likely serve to inflate the cost of the products to US consumers (based on the price increase it would be necessary for US manufacturers to impose to cover the increased costs associated with the requirement).
As the FTC observed in its review of its consumer perception studies, consumers understand the concept of modified/lesser marks to mean something different from and less than the "Made in USA" claim. Moreover, as appropriate language for these lesser marks on package labels is developed, US consumers will come to understand exactly what such language means that this is a US product with less than substantial US content. US consumers are already becoming accustomed to changes on labeling of US products as a result of harmonization efforts by other US government agencies. For example, the FDA has been working with many nations to harmonize labeling requirements on toiletry and cosmetic package labels so US manufacturers can sell US products outside the US in the same packages. Commerce and USTR have been working with Mexico and Canada to achieve similar goals for all consumer products in provisions of NAFTA.
The lesser labeling markings envisioned in Section XIII to meet foreign market country or origin requirements would benefit US businesses and ultimately US consumers, and would be in line with harmonization efforts of other US government agencies. The effect of removing the cost barrier from US manufacturers' exports could very well be reductions in the price of consumer goods sold in the US, based on the savings US manufacturers will experience. US citizens certainly would likely take pride in having more US products being sold in foreign countries, and they would not wish to see US businesses at a competitive disadvantage as compared to their foreign counterparts.
We recommend implementation of these proposals as modified by these comments.
The Commission noted in the announcement that it received a total of 342 written comments during the public comment period. Some 64% supported the current "all or virtually all" standard, 10% the percentage content formula, and 7% favored substantial transformation. The remainder either registered no support for a particular standard, devised combinations of various proposals, or offered their own solutions.
Care should be taken about drawing definitive conclusions from these statistics. They cannot be said to represent the views of ALL Americans, only of those submitting comments. We believe the surveys of consumers where a majority believed 70% to 90% US content supported a "Made in USA" claim is more illustrative of the support for the Commissions proposals. The all or virtually all standard (100% US content) is not required by consumers for a designation of "Made in USA". Those supporting the retention of that standard represent a small minority of manufacturers today that either enjoy a unique product that has no foreign content or who do not understand that 100% means 100%. Many common components in manufactured goods are not available in the US. Aluminum, chrome, and rubber are good examples. These are common products found in many manufactured products. Substantial transformation and a reasonable content rule such as that proposed recognize the reality of today's material and component sourcing.
Commissioner Starek points out in his separate comments that some of the language in the examples in the Guides could be more definitive. We concur with that view. We believe that more examples with more definitive language will greatly assist US companies in compliance with these important standards.
In conclusion, the Joint Industry Group recommends adoption of the proposed guides. We ask that our comments and recommendations found in this submission be given full consideration for adoption in the final Guides. While there are a number of continuing issues such as the record keeping needed to support value content claims, the use of the qualified terms, and industrial product standards, there are sufficient "safe harbors" in the proposal, with minor adjustments, to meet the needs of most manufacturers. The Commission's proposal for a five-year review is an excellent idea. Clearly we need the opportunity to determine the feasibility of some of the provisions in these Guides and then make recommendations for change.
The members of the Joint Industry Group thank the Commission and the staff for all the hard work and effort that has been directed to this most important issue. We appreciate the opportunity to participate and make these additional comments and urge the Commission to adopt the guidelines.
James B. Clawson
1. Anheuser Busch Brewing Assn. V. United States 19 USC. 1304