FTC: Made In The USA Comments Concerning The Association of International Automobile Manufacturers ("AIAM")--P894219

Made in USA Policy Comment FTC File No. P894219

The Association of International Automobile Manufacturers ("AIAM") appreciates the opportunity to comment on the Commission's proposal for a new "Made in USA" standard. AIAM strongly supports the Commission's efforts to develop a more realistic, practical standard for such claims.

As explained herein and in AIAM's prior comments, we believe that marketplace realities, coupled with data and other empirical evidence that the Commission collected about consumer perceptions, clearly demonstrate the need for a more flexible standard than the old "all or virtually all" test. The proposal to combine a "substantial transformation" test with a numerical percentage standard for manufacturing costs is an important, but minimum, first step in the right direction. AIAM urges the Commission to use the evidence of consumer perception to go even further in the final Guides.

Our favored options for would be (1) dropping the percentage element altogether, leaving a "substantial transformation" test coupled with the traditional requirement that all express and implied claims be substantiated, or (2) lowering the percentage of the manufacturing costs element to 70 percent or less. Independent of these points, the Commission should recognize that the public perceives terms such as "assembled" and "made" as conveying different messages. The final Guides should reflect that and similar distinctions.

Notwithstanding many consumer comments and the view of state AG's about the desirability of re-adopting the original Guide, the Commission itself has recognized that the "all or virtually all" standard is unworkable in today's global economy. Few if any products can meet this inflexible standard. To enforce such a standard today would result in eliminating many USA origin claims and depriving consumers of information many of them find useful.

First, parts and components of consumer products, especially complex ones, are increasingly sourced from multiple points, often multiple countries. The New Balance matter illustrated that point in the context of a relatively simple running shoe. It is increasingly unlikely, even for products finally "assembled" in the U.S., to have "all or virtually all" manufacturing costs attributed to the U.S. To the extent that manufacturers are motivated to build or maintain assembly and manufacturing plants in the USA to appeal to consumers who prefer products built with domestic labor, a more flexible Guide fully maintains that incentive. At the same time, a flexible Guide facilitates the use of information that benefits consumer choice, especially as opposed to an outmoded standard for which few products could qualify.

Second, and more importantly, the Commission itself has accepted the proposition that consumers "increasingly recognize that products are made globally." Proposed Guides at 49. The consumer perception evidence generated for this proceeding fully supports the Commission's understanding. Given the fact that consumer perception data is consistent with the global marketplace, it would seem arbitrary to ignore it in fashioning Guides to prevent consumer deception.

The FTC's own data supports a broad change from the original standard.⁽¹⁾

For the majority of participants, the term "made in USA" did not imply much at all about such details as place of assembly or origin of parts. Sixty percent of the participants, when asked generally what is meant by a "made in USA" label, simply repeated that the product was "made in USA," but did not elaborate further as to any specific details. Only 6 percent of them thought that the whole product was made in the U.S.

More specifically, 73 percent of those viewing a "Made in USA" claim saw no implied claim about the amount (percentage or otherwise) of manufacturing cost attributable to the U.S. Among consumers shown an "Assembled in USA" claim, the number rose to 79 percent. Only about 14 percent of those shown a "Made in USA" claim saw an implied claim that 70 percent or more of the total cost is attributable to the U.S. Again, among those shown an "Assembled in USA" claim, the number fell to fewer than 2 percent.⁽²⁾

Unlike many of the commentors, the Commission cannot ignore the strong results from and implications of the copy testing. The facts are that nearly 70 percent of consumers responding to an unqualified "Made in the USA" claim in an ad or on a label did not infer anything about where the parts that went into the product were manufactured. See Study--Summary of Results, Tab 3, page 10. When the claim displayed was "Assembled in the USA," the number of consumers who did not infer anything about where the parts that went into the product were manufactured rose to 73.5 percent. Id. Thus, it is clear that the great majority of American consumers believe that the term "Assembled in the USA" means primarily that American labor was responsible for producing the final product. When a claim shown to consumers was "Assembled in the USA," more than two-thirds who saw an implied origin of parts claim assumed that the parts were imported. Id.⁽³⁾

This consumer data strongly supports the argument that the Commission needs to go even farther in lowering the numerical standard on unqualified "Made in USA" claims generally. In any event, the Commission should take an even more liberal position when alternative terms, with different meanings, such as "Assembled in the USA," are used. Because they have their own distinct meaning to consumers, they should not be treated as "unqualified Made in USA" claims in the first place. According to the evidence, few if any consumers would be misled as to manufacturing costs so long as the product actually had been assembled in the USA. For that reason, they should be treated as any qualified claims or independent claims, subject to normal substantiation requirements.

Conclusion

For unqualified "Made in USA" claims, the Commission has taken a major step forward to acknowledging both the global marketplace approach to manufacturing and the consumer perceptions about such claims for products today. Given the evidence in the record, the Commission should avoid an arbitrary result and adopt a threshold for manufacturing costs (if it chooses one) that is even lower than the 75 percent proposal and that squares with the consumer understanding reflected in the record..

As to qualified claims or the use of different words, including "Assembled in the USA," the Commission should treat them like all other advertising claims--looking for the express and implied claims and ensuring that manufacturers have substantiation for the claims they do make. As noted, the consumer perception supports this approach, but it does not support lumping them in the same Guide as unqualified "Made in USA" claims.

In sum, relying on the perception data will (1) assure final Guides that are consistent with avoiding deception, (2) reflect the growing complexity of global manufacturing and marketing, and (3) preserve the feasibility of making claims that consumers can rely upon in making choices between competing products.

1. The Commission has received several hundred comments from writers who characterized the 75% manufacturing cost test as a tool for manufacturers to mislead consumers. However strongly these commentors believe in their position, there is virtually nothing in the comments to explain why the interpretations they believe consumers will have for "made in USA" is contradicted by the empirical data of what consumers actually take those phrases to mean.

2. This data calls into question the basis for the Commission's "75 percent" proposal for manufacturing costs. Even as AIAM supports the proposal as a "step in the right direction", it seems quite arbitrary to do a copy test with questions geared to 70 percent and then adopt a 75 percent proposal. This is particularly true when the percentage of consumers who implied even a "70 percent of total cost" claim were on the bubble for satisfying the Commission's "substantial minority" test for implied claims. And the 1.5 percent who saw such an implied claim in an "Assembled in USA" copy test provide virtually no support for approving even a "70 percent of total cost" Guide for "Assembled in USA" claims.

3. The Commission did not test other words, such as "Built." Common sense suggests that terms such as "built" are nearly identical to "assembled" and also should not be lumped together in a Guide that covers unqualified "Made in USA" claims.