FTC: Made In The USA Comments Concerning The Stanley Works --P894219
August 5, 1997
Office of the Secretary
Re: "Made in USA Policy Comment" -- FTC File No. P894219
This submission is filed with the Federal Trade Commission ("Commission") on behalf of The Stanley Works ("Stanley") to express its views on the Proposed Guides for the Use of U.S. Origin Claims. Stanley, a 153 year old American company headquartered in New Britain, Connecticut, is a leading manufacturer of tools, hardware and specialty hardware for home improvement, consumer, industrial and professional use. While maintaining its deep commitment to domestic manufacturing and its American customer base, Stanley has grown into a global enterprise with 20,000 employees at 114 manufacturing plants and major distribution facilities in 20 countries and product sales in virtually every country of the world. As a leading American manufacturer of hand tools and given the international nature of its manufacturing and marketing operations, Stanley is keenly interested in the issues under consideration. Stanley participated in the Commission's workshop on the "Made in USA" standard and was part of an ad hoc group of companies and trade associations that drafted and submitted proposals to the Commission.
Stanley supports the Commission in its effort to modernize its guidelines for Made in USA claims to better reflect the realities of today's global economy and the perceptions and expectations of consumers. Stanley also applauds the Commission's effort to harmonize the rules pertaining to "Made in USA" advertising claims with other Government rules of origin applicable to products generally. In attempting to harmonize origin rules, we commend the Commission's decision to embrace the time-honored concept of "substantial transformation" as a relevant factor in developing rules to protect consumers against false and deceptive practices.
Stanley believes that reliance on substantial transformation, as a basis for determining a product's origin, will serve to fairly apprise consumers when making product purchase decisions. This standard, which confers origin when an article undergoes significant domestic manufacturing or processing so as to change its name, character, or use, is the most reliable test for evaluating whether a "Made in USA" claim is misleading or deceptive to consumers. As we pointed out in our initial submission(1), it is a standard which can be traced back to the Supreme Court decision in Anheuser Busch Brewing Assn. v. United States, 207 U.S. 556 (1907). Thus, it has been the basis for origin decisions by the Customs Service for ninety years in administering Section 304 of the Tariff Act (19 U.S.C. § 1304), which, like Section 5 of the Federal Trade Commission Act, is intended "to prevent [consumer] deception or mistake as to the origin of the article ...." (19 U.S.C. 1304(a)(2))
For the most part, the mechanics tools Stanley sells in the U.S. are made entirely from raw feedstock in the U.S., but some of these tools are manufactured from rough forgings imported from Stanley-owned facilities in foreign countries. The post-importation processing of these rough forgings in the United States has been determined, by Customs Service rulings consistent with numerous judicial decisions, to effect a substantial transformation such that the completed articles are not deemed to be of foreign origin.
Although Stanley supports the Commission's general approach to adopt a less arbitrary standard for determining whether an article is "Made in USA", Stanley submits that the two alternative "percentage content" and "processing" safe harbors need clarification in order to avoid possible illogical and unintended results which may also be inconsistent with origin standards applicable throughout the global marketplace. It would be ironic, if under the current standards Stanley was free to represent its products for sale in foreign countries as being American-made (even though they may contain some non-originating materials), but in its own domestic market Stanley was barred from telling its American customers that the same products were produced in its American factories by American workers.
Specific Comments on the Proposed Guides
In one "safe harbor" the product must be last substantially transformed in the U.S. and contain 75% U.S. content (i.e., U.S. manufacturing costs constitute 75% of the total manufacturing costs of the product). The other "safe harbor" requires that the product undergo two levels of substantial transformation in the U.S. (i.e., the final product was last substantially transformed in the U.S. and that all of the significant inputs into the final product were last substantially transformed in the U.S.).
The Commission Should Not Adopt an Arbitrary Percentage for U.S. Content
Stanley supports the notion that U.S. content, whether it be materials, labor, or a combination of the two, is germane to consideration of "Made in USA" claims. Stanley does not agree, however, that establishing an arbitrary percentage of U.S. content furthers the objective of preventing consumer deception, especially if "content" measurement is to embrace "total manufacturing costs" as suggested at page 56 of the Guide.(2)
A standard based solely on an arbitrary percentage of content may not accurately and reliably inform hand tool buyers whether the attributes of the product they regard as most important were imparted by American workers at American facilities. Hand tool consumers want to know and rely on Made in USA as denoting that American craftsmanship imparted the important physical attributes to the particular item. Such a standard, therefore, would be potentially misleading and a disservice to consumers.
As we noted in our original comments(3), "There is no litmus test that can be applied to a broad spectrum of manufactured goods that could serve as a useful guide for determining whether consumers may be deceived or misled by a Made in USA claim." Stanley does not object to the establishment of a percentage of content as an aid for determining whether processing in the United States was sufficient to confer origin and the accuracy of a Made in USA claim, such as the 75 percent figure proposed, provided that it is not inflexible and does not override an examination of the processing operations.
A fixed percent domestic "content" requirement may in fact be of little or no relevance to consumer perceptions regarding hand tools. Historically, mechanics and other end-use buyers associate American-made tools with superior physical qualities that translate into better performance in the workplace. These attributes include the precise fit, strength, toughness, durability and lasting value of the tool which may have nothing whatsoever to do with either the source of the steel or where the initial shaping process occurred. What is important to American hand tool consumers is that the fabrication processes by which those qualities are achieved are done in the United States and therefore, that information should be conveyed to the consumer by origin decisions. A fixed arbitrary percentage of material "content" simply may not accurately or reliably carry that message.
Dual Substantial Transformation
An uncertainty and possible point of confusion arises with respect to the apparent requirement of a dual substantial transformation within the processing "safe harbor." As the Commission points out, "This safe harbor focuses on the processing of the product . . ." (see page 57). While a test specifying two levels of substantial transformation may be workable for products that require the assembly of various components (see Example 1 at p. 79), it is completely inapplicable to mechanics hand tools. Hand tools, for the most part, are single pieces of material and require little if any assembly, but involve considerable "processing" requiring skilled labor and sophisticated capitol investment. In many instances, the substantial transformation of a single article into a finished product involves far more "processing" than the assembly of parts into subassemblies and then a finished product. The Guides should make clear that for products involving processes other than assembly, one level of substantial transformation may be adequate to invoke the processing safe harbor.
In the last 90 years since the substantial transformation standard was announced by the Supreme Court, numerous courts have had the opportunity to modify the standard, but all have declined to do so (although some have considered additional factors in determining whether there has been a substantial transformation). The Commission should not add inflexible requirements to the substantial transformation standard which would create difficulties for manufacturers and would be potentially misleading and a disservice to consumers.
Richard H. Abbey
1. January 18, 1996, at page 6.
2. To be meaningful, it should be made clear that the percentage of "total manufacturing costs" referred to at page 56 relates to the cost of fabrication (i.e. the processing operations performed on and to the raw material) and is not distorted by other costs such as feedstock, transportation, duties, and the like which under many accounting systems would be included in "total manufacturing costs." With respect to imported materials, there are numerous variables, including differences in size and weight of otherwise identical goods, labor rates in the countries of production, exchange rates, etc., which have nothing to do with the extent of the manufacturing actually done and the changes effected in the products.
3. January 18, 1996 p. 8.