FTC: Made In The USA Comments Concerning Japan Machinery Exporters Association --P894219
Made in USA Policy Comment
The Committee for International Harmonization of Rules of Origin (Committee) of the Japan Machinery Exporters Association (JMEA) has the honor of submitting comments on the Proposed Guides for the Use of U.S. Origin Claims published by the Federal Trade Commission (FTC) in the Federal Register of May 5, 1997.
JMEA is an association of 410 firms that manufacture and export machinery products worldwide. We were established in 1952 under the Japanese Export and Import Transactions Law. JMEA established the Committee on an ad-hoc basis to study harmonized rules of origin for machinery products classified under chapters 84-91 of the Harmonized Tariff System.
The Committee cooperates with nine industrial associations listed in Annex 1. It is composed of leading firms engaged in the manufacture and trade of machinery products. Some of the firms have established production facilities in North America and sell their products in the United States. Accordingly, the Committee has a vital interest in the FTC policy for labeling products as Made in USA.
The Committee commends the FTC for proposing the Guides and soliciting public comment. We submit our comments below.
A. Possible Conflict with WTO Agreement on Rules of Origin
The WTO Agreement on Rules of Origin provides for the harmonization of all non-preferential rules of origin, including origin rules under Article IX of the GATT. In the view of the Committee, if the FTC rules of origin used to make claims of U.S. or foreign content constitute rules of origin for marking purposes in terms of Article IX of the GATT, they should be subject to harmonization. Accordingly, if the FTC rules of origin are subject to the harmonization work, the FTC cannot lay down its own rules of origin with disregard for the harmonization work in the WTO and WCO. The FTC is required to follow harmonized rules of origin once the rules of origin are harmonized.
In addition, consistent with the WTO Agreement, the FTC should abide by specified disciplines during the transition period (i.e., until the work program for the harmonization of rules of origin is completed).
If so, the FTCs proposed Guides are possibly inconsistent with Article 2(c) of the WTO Agreement, which provides that rules of origin shall not pose unduly strict requirements as a prerequisite for the determination of the country of origin. The rule of domestic content of 100 percent or 75 percent might constitute unduly strict requirements prohibited by Article 2(c). Moreover, the FTCs proposed Guides do not meet the requirements of Article 2(a), which provides that the method for determining the country of origin shall be clearly defined. The method for calculating the domestic content is not clear because the concept of manufacturing cost (including, among other things, direct manufacturing labor and manufacturing overhead) varies between manufacturers. It is unknown whether a roll-up/roll-down test or a tracing test would be used to calculate costs of manufactured materials.
The FTCs proposed Guides also state that standards for determining domestic origin may be higher than those for determining foreign origin. Such thinking might, however, be inconsistent with the work under the WTO Agreement on harmonizing origin rules.
B. Shortcomings of Value-Added Criteria
FTC rules of origin rely on a domestic or foreign content test for determining the country of origin for marking purposes. They therefore adopt value-added criteria. The Committee considers value-added criteria to have several shortcomings.
First, value-added criteria are administratively burdensome to enforce and often produce an origin determination that is not always predicable. For example, in cases where exchange rates fluctuate, value added also fluctuates. Thus, the origin of a good might change if exchange rates vary. In addition, calculation of various costs is cumbersome and gives rise to conflict.
Second, the rule on domestic content of 100 or 75 percent departs from economic reality because it lacks adequacy as a non-preferential rule of origin. Such a high standard applies to wholly-produced goods and therefore is inadequate for a majority of industrial products that are manufactured from multi-sourced parts or materials. The standard is all the more problematic because it is stricter than preferential standards.
C. Conflict with Customs Rules of Origin
FTC rules of origin are significantly different than the rules of origin administered by the U.S. Customs Service. First, FTCs standards for determining the U.S. origin of a good differ from Customs standards for determining the U.S. origin of NAFTA goods and those for determining the country of origin of non-NAFTA goods. Application of three different standards within a country adversely affects investment and distribution in the United States.
In addition, a problem might arise in cases where a Japanese-owned U.S. subsidiary manufactures goods using Japanese parts. In such a case, if processing operations in the United States constitute a substantial transformation, the goods need not be affixed with the country-of-origin marking under Customs marking rules. However, if the goods are voluntarily affixed with a Made in USA label, this marking risks violating the FTCs marking rules. Under the proposed Guides, the domestic origin can only be substantiated if the U.S. content is 75 percent and substantial transformation tests are met.
Second, it is not clear whether the FTCs traditional loss of identity criterion is replaced by the Customs substantial transformation test as a result of the proposed Guides. If the former subsists, its coexistence with the Customs substantial transformation would make origin determinations random.
Electronic Industries Association of Japan