FTC: Made In The USA Comments Concerning The Gates Corporation--P894219
August 11, 1997
Office of the Secretary
Dear Mr. Secretary:
Re: Made in USA Policy Comment, FTC File No. P894219
On behalf of The Gates Corporation, a U.S. manufacturer of industrial and automotive belts, hoses, and other products, we hereby comment on the Proposed Guides for the Use of U.S. Origin Claims, published in the Federal Register on May 7, 1997, 62 Fed. Reg. 25,020. In general, we approve of the proposed guidelines and applaud the Commission for adopting a standard that will permit U.S. manufacturers to use the "made in USA" mark when some minor portion of the total manufacturing costs of their products are attributable to imported parts or components.
1. Compliance with the proposed safe harbors is likely to ensure that a product promoted as "Made in USA" is "substantially all" made in the United States
The Commission's notice of proposed guides first solicits comments concerning the impact of the safe harbors. 62 Fed. Reg. at 25,044. As we indicated in our comments of January 16, 1996, Gates supports the adoption of legal standards for the marking of merchandise manufactured in this country that coincide with the standards applied by U.S. Customs to imported goods and by our trading partners with respect to exported merchandise. The safe harbors, which require 75% U.S. content plus substantial transformation or double substantial transformation are by definition more stringent than the Customs standards. The proposed standards appear to represent a compromise between the traditional rule, "all or virtually all," and the various lesser standards proposed.
In practical effect, though, the proposed rule should relieve domestic manufacturers from the need for different marks on products that incorporate only a small import value, depending on whether the merchandise is exported or sold in the U.S. market. In this respect, the proposed guides are an improvement and are likely to ensure that "made in USA" merchandise in fact is the product of the United States.
Of concern to Gates, there are several U.S. subsidiaries of foreign producers with operations in the United States. In some cases, the foreign parent manufacturers are subject to antidumping duty orders covering imports of industrial belts from Japan, Singapore, Germany and Italy. As reviewed below, importers in the past have brought in unmarked belts in order to circumvent the antidumping duty order. We have also encountered mismarking of belts, sometimes with imported belts being marked "Gates." It is therefore important to us that marking rules be enforced and that the country of origin stated on a given belt accurately identify the true origin of the product.
Of course, our concerns with respect to the importation of belts are largely within the jurisdiction of the Customs Service. We do not believe, however, that cutting, slitting, fastening, or other similar operations should be permitted under any standard to define U.S. origin. The Commission's proposed standards will likely prevent an importer from achieving "made in USA" status in the case of imported belting or hose that is merely cut to length. Hence, we support the proposal. A more lenient standard, such as a single substantial transformation or a lower U.S. content requirement might very well permit products to become "made in USA" where the substantial value in the product derives from abroad.
2. Use of an "Assembled in USA" mark or label should not be permitted in the case of minor assembly operations and should not be permitted without qualification
The proposed guidelines request comments on the question of using a mark indicating "assembled in USA" without further qualification. 62 Fed. Reg. at 25,045-46. Our products are in general the result of processes that involve far more than mere "assembly." As such, we do not believe that an "assembled in USA" mark, qualified or not, would ever be appropriately applied to an industrial or automotive belt or hose.
At the minimum, a product bearing the label "assembled in USA" should require more than minimal or simple assembly operations and should identify the country of origin of the major component parts. As reviewed above, in the belt industry there is concern that subsidiaries of our foreign competitors should not be permitted to import "endless" belting, only to cut and fasten the lengths into belts, and on that basis obtain a "USA" mark. To the extent that these minor operations could be termed "assembly," it is equally inappropriate to designate such belts "assembled in USA." Certainly, cutting and fastening belting into belts would not constitute a substantial transformation under any standard. As we reviewed in our January 16, 1996, submission, Customs standards do not deem assembly to confer origin unless, as a rule, the imported parts are not more than de minimus in value. 19 C.F.R. § 102.13 (i.e. no more than 7% of the value of the finished good). Even if "assembly" is intended to designate less than a substantial transformation, it is not appropriate to mark merchandise "USA" when the value-added in this country consists of cutting and fastening a rubber belt. Only for products in which the assembly operations impart more than 50% U.S. content, should the mark reference "USA."
In the context of merchandise that is subject to more than minor assembly operations, however, there is a distinct potential for confusion between "made in USA" and "assembled in USA." According to the Commission's Proposed Guides and the various surveys submitted during the investigation, consumers believe that the country of final assembly is important. E.g., 62 Fed. Reg. at 25,036 (Percentage of Respondent Who Agreed and Disagreed with a "Made in USA" Label). By the same token, for products with less than 50% U.S. value added, the large majority of survey respondents did not believe that a "made in USA" label was appropriate. Id. In these circumstances, merely to indicate "assembled" in USA, rather than "made," is not warranted.
The Proposed Guides note that other countries accept qualified origin labels, such as "Made in USA of foreign and domestic components." 62 Fed. Reg. at 25,039, n.202. Articles resulting from substantial assembly operations in the United States, should not be marked "assembled" without also indicating whether foreign components were incorporated.
3. The Commission should not establish an "Origin: USA" mark that is not needed and would cause confusion in the market
We oppose the establishment of such a mark for use on products sold within the United States. If one assumes that a foreign country's marking rules would require the origin of a product to be "USA," but U.S. rules would not deem that product to be "made in USA," then the manufacturer should have two choices. Either (1) identify the United States as an assembly point and further qualify the origin, e.g., "Assembled in USA from Components of U.S. and Foreign Origin;" or (2) apply separate labels or marks to the merchandise, depending upon the destination of the goods.
The Commission's proposed safe harbors will already diminish the U.S.-origin standard, by lowering the threshold from "all or virtually all." The proposed safe harbors would not permit mere assembly or minor processing to confer origin. Adoption of an even weaker mark, such as "Origin: USA," will lead to confusion and will further undermine the significance of U.S. origin to our customers. Even if the "Origin: USA" mark is qualified by the phrase, "substantial foreign content," 62 Fed. Reg. at 25,046, the meaning of such marks is uncertain.
The only apparent benefit of an "Origin: USA" mark would be the ability to use the same mark on exports and sales within the U.S. market. However the small additional cost incurred in those few instances in which an "Origin: USA" label might be appropriate do not outweigh the potential for confusion or deception. For these reasons, the Commission should not permit even a qualified "Origin: USA" mark.
4. The Commission should not eliminate the presumption that unmarked products are made in USA
As noted in Section VI, under Section 5 of the FTC Act, a U.S. origin claim may be "either express or implied." 62 Fed. Reg. at 25,042. The traditional presumption that unmarked merchandise was "made in USA," recognized that in the absence of any mark, origin would be implied by the location of the seller, the name of the producer or seller, or other circumstances attending the sale. The Commission now proposes to abandon that presumption, instead requiring disclosure of foreign origin only where "with respect to the particular type of product at issue, a significant minority of consumer views country of origin as material and believes that the goods in question, when unlabeled, are domestic."
In our case, we have experience with unfairly trade imports of industry belts, covered by antidumping duty orders. These antidumping duty order cover various imported belts from Germany, Italy, Singapore and Japan. In one case, a foreign manufacturer transshipped unmarked belts through Canada in order to circumvent the antidumping duty order. Customs in that case uncovered the attempt to evade the antidumping order and required proper marking. However, there remains incentive for foreign producers, in particular, to import unmarked belts.
Hence, in our view, the potential to address a lack of marking through invocation of section 5 of the FTC Act is a valuable remedy. We do not believe that access to this remedy should be diminished by eliminating the presumption that unmarked goods are U.S. origin. To the contrary, such a presumption fairly places the burden of proof on the manufacturer that fails to mark its merchandise. If unmarked, the merchandise should be held to the same standards as if labeled "made in USA."
Thank you for the opportunity to comment on the proposed guides for "made in USA" marking. Gates Corporation looks forward to publication of final guides that will relax the "all or virtually all" standard, yet retain requirements for designation of U.S. origin that are consist with the Customs marking rules.
Terence P. Stewart
STEWART AND STEWART
Special Counsel to The Gates Corporation