FTC: Made In The USA Comments Concerning Herbert E. Harris II--P894219 COMMENTS on behalf of THE SPECIALTY CABLE MANUFACTURERS SUBCOMMITTEE MADE IN USA POLICY COMMENT August 11, 1997 Counsel: Herbert E. Harris II The Watergate I. INTRODUCTORY STATEMENT This submission is made on behalf of the Specialty Cable Manufacturers Subcommittee (SCM Subcommittee),1 in a response to notice published at 62 Fed. Reg. 25020 (May 7, 1997) which requests public comment on the proposed guidelines issued by the Federal Trade Commission for "Made In USA" claims in product advertising and labeling. The SCM Subcommittee is composed of most major U.S. manufacturers of "small diameter" specialty steel wire rope, including stainless steel wire rope and galvanized aircraft cable (hereafter referred to as "specialty cable"), and accounts for a substantial majority of U.S. specialty cable production. The SCM Subcommittee submits that the "Made In USA" standard should be premised on the "substantial transformation" principle. For specialty cable, this means that only specialty cable which contains U.S.-produced strand (and where relevant, IWRC) can be labeled "Made In USA." This standard properly reflects the realities of the specialty cable manufacturing process, is consistent with the standard used by the U.S. Customs Service for determining country of origin, is transparent, and is readily enforceable. 1 The SCM Subcommittee consists of the following member companies: Carolina Steel & Wire Corp., Lexington, SC; Loos & Co., Inc., Pomfret, CT; Macwhyte Company, Kenosha, WI; Sava Industries, Inc., Riverdale, NJ; Strandflex Div. of MSW, Inc., Oriskany, NY; and Wire Rope Corporation of America, Incorporated, St. Joseph, MO. II. DESCRIPTION OF THE PRODUCT AND MANUFACTURING PROCESS Specialty cable is a type of steel wire rope, and is a machine used for applications which require force to be transmitted. Specialty cables are typically used in specialized industrial applications where the corrosion-resistant properties of the article are required. These applications include the marine, food processing, automotive, aeronautic and aerospace industries. For example, stainless steel wire rope is typically used to form the lifelines and rigging on yachts, and for the hood release, throttle and cruise controls in automobiles. Stainless steel is also used for the control cables on most military jets, while galvanized steel wire rope is commonly used for the control cables on civilian aircraft. Most specialty cables have two basic components: 1) wires that form a strand; and 2) strands which form the cable.2 Strands consist of individual wires, usually with seven or more wires per strand. The individual wires are formed around a center, which is usually a single wire, so that all wires in a strand can move in unison to distribute load and bending stresses. Physical characteristics of the finished specialty cable, such as flexibility, fatigue resistance and abrasion resistance, are directly affected by the design of the strands, i.e. , the number of wires in the strand and the manner in which these wires are 2 In addition, some, but not all, specialty cables will have a center core around which the strands are helically laid. The core can be made from a variety of materials, such as steel (often an independent wire rope or “IWRC”), hard vegetable or synthetic fiber. arranged within the strand. Generally, specialty cable production begins with stainless steel wire rod (for production of stainless steel wire rope) or hot rolled, high carbon steel wire rod (for production of galvanized steel wire rope such as GAC). After being cleaned, the rod is drawn through progressively smaller dies to achieve the wire diameter required for specific rope uses. High carbon steel wire is given a zinc coating ("galvanized") The latter process improves the corrosion resistance of wire rope. Stainless steel wires are not galvanized. Individual wires are brought together in the stranding process. Strand used for making galvanized wire rope is generally lubricated as the wires move into the stranding die. This lubrication is necessary to enable the wires, and the strands, to move freely in the wire rope, and to protect and preserve the individual wires. The type and amount of lubrication used varies depending upon the ultimate use to which the finished wire rope will be put. Stainless steel wire ropes are typically not lubricated. In the last stage of production, the strands are "closed." A completed specialty cable is almost always assembled into a sling, or fitted with fittings at either or both ends of the cable. Certain end attachments adapt the cable to the purpose for which it will be used, while other attachments merely facilitate handling of the cable. End attachments may be affixed to the cable and sold as an assembly by the manufacturer. More commonly, the assembly is fabricated by a separate entity from the manufacturer of the specialty cable, such as a distributor. III. A “MADE IN USA” STANDARD BASED ON THE SUBSTANTIAL TRANSFORMATION PRINCIPLE WOULD BE READILY ENFORCEABLE The SCM Subcommittee submits that the "Made In USA" standard must be based on the substantial transformation principle. Only specialty cable manufactured from U.S.-produced strand (and were relevant, IWRC) should qualify as "Made In USA." The stranding operation constitutes a sound and practicable "bright line" demarcation for "Made In USA" claims since the principal physical characteristics of the completed specialty cable are directed by the design of the strands. Moreover, it is at this stage of the specialty cable production process that the raw material becomes fully dedicated to its ultimate use as specialty cable. Additionally, the stranding operation is the proper and operative focus of a "Made In USA" determination since this stage of the specialty cable production process constitutes a substantial transformation.3 3
The U.S. Customs Service has not issued a formal ruling
on this issue. However, the SCM Subcommittee submits that
the conversion of wire to strand constitutes a
substantial transformation under the "distinctive
name, character, or use” test established in a
series of judicial decisions. See Anheuser-Busch
Brewing Ass’n v. United States,
207 U.S. 556 (1908) ; Superior Wire v. United States,
867 F.2d 1409 (Fed. Cir. 1989). The standard proposed by the SCM Subcommittee aptly reflects the realities of the specialty cable production process since its emphasis is on that stage of the process in which the essential character of the finished product is imparted. Furthermore, this standard has the advantages of across-the-board consistency and transparency, and is not encumbered by complex case-by-case determinations or calculations regarding product cost.4 A standard premised on the substantial transformation principle would render "Made In USA" guidelines consistent with the standard under Customs law for determining the country of origin of articles. Under U.S. Customs law, an imported product must bear a foreign country of origin marking unless the product is International Trade Commission Inv. No. 332-360, 61 Fed. Reg. 13214 (March 26, 1996)). 4 Under the first safe harbor of the "Made In USA" standard proposed by the FTC, a product would qualify for a "Made In USA" claim if it has last been substantially transformed in the United States, and 75 percent of total manufacturing costs are U.S. costs. The SCM Subcommittee is concerned that the "U.S. percentage" leg of this safe harbor will necessarily give rise to complex and inconsistent case-by-case cost determinations, and as a result, could hamper effective enforcement efforts. The FTC has itself noted that "a percentage content standard safe harbor may pose complex accounting issues." 62 Fed. Reg. 25020, 25041 n.207 (May 7, 1997). In addition, the SCM Subcommittee submits that the “U.S. percentage" leg of this safe harbor could potentially handicap U.S. specialty cable manufacturers in those limited instances where imported rod or wire must be used for production due to domestic supply shortages. For example, if a U.S. manufacturer is preempted from labelling specialty cable as "Made In USA" solely because it was manufactured with imported rod or wire, a U.S. consumer is likely to equate the lack of the "Made In USA" label with the product being imported. In that instance, any comparative advantage which the product may have as a result of it being substantially transformed in the United States is effectively nullified. substantially transformed in the United States.5 Under the guidelines proposed by the FTC, an article can be substantially transformed in the United States so as not to require a foreign country of origin marking, but still not qualify for a "Made In USA" label. The SCM Subcommittee submits that this "grey area" will necessarily lead to significant consumer confusion and will undermine the benefits which the FTC seeks to attain through "Made In USA" guidelines. The SCM Subcommittee's primary concern is enforcement. Any standard which the FTC adopts be readily enforceable. The vast majority of imported specialty cable is sold in the U.S. at prices significantly below that of domestically-manufactured specialty cable. Since domestically- manufactured and imported specialty cable may appear interchangeable to U.S. consumers, purchasing decisions are often made on the basis of price. The lack of a uniform and readily enforceable guidelines for determining whether a specialty cable or assembly is made in America has allowed for questionable, and often fraudulent, claims regarding the country of-origin of the article. These factors have greatly abetted foreign suppliers, ability to capture an increasing share of the domestic specialty cable market at the expense of U.S. producers. The establishment of sound and uniform guidelines for determining whether specialty cable may be labeled and advertised as "Made In USA" will curtail foreign suppliers, ability to avail themselves of 5 19 U.S.C. §1304; Uniroyal, Inc. v. United States, 3 CIT 220 (1982), aff'd, 702 F.2d 1022 (Fed. Cir. 1983). this form of deceptive trade practice, and it will promote fair competition. The SCM Subcommittee applauds the FTC's efforts to devise sound and uniform "Made In USA" guidelines. However, the establishment of sound and uniform guidelines, without an attendant and commensurate enforcement effort, is at best a vacuous intellectual exercise. Therefore, the standard adopted by the FTC must lend itself to consistent enforcement efforts. The SCM Subcommittee submits that guidelines based on the substantial transformation principle best serves that paramount purpose. The FTC must commit itself, alone and in concert with the Customs Service, to effective enforcement actions. As the Customs Service claims that its enforcement authority ends once the article leaves the hands of the importer, it is fundamentally important for the FTC to exert its authority to enforce "Made In USA" claims after that point. If not, U.S. manufacturers, such as the SCM Subcommittee members, will continue to fall victim to an injurious enforcement void. The FTC must investigate documented instances of false "Made In USA" claims. This is the essential step in order to bring substance to "Made In USA" guidelines. IV. CONCLUSION The SCM Subcommittee submits that "Made In USA" guidelines should be premised on the principle of substantial transformation. As applied to specialty cables, this means that only specialty cable which contains U.S.-produced strand (and where relevant, IWRC) can be labeled “Made In USA.” This standard properly reflects the realities of the specialty cable manufacturing process , is consistent with the standard used by the U.S. Customs Service for determining country of origin, is transparent, and is readily enforceable. On behalf of the SCM Subcommittee, we appreciate the opportunity to participate in this important process. Respectfully submitted, Herbert E. HarrisHerbert E. Harris II Counsel to the Specialty Cable |