FTC: Made In The USA Comments Concerning John D. Dingell--P894219

U. S. House of Representatives
Committee on Commerce
Room 2125, Rayburn House Office Building
Washington, DC 20515-6115

July 10, 1997

The Honorable Robert Pitofsky
Chairman
Federal Trade Commission
Sixth and Pennsylvania Avenue, N W.
Washington, D.C. 20580

Dear Mr. Chairman:

On May 7, 1997, the Federal Trade Commission (FTC) published a notice in the Federal Register requesting public comment o n proposed "Guides for the Use of U.S. Origin Claims". The FTC's proposal would permit manufacturers to use the label, "Made in the U.S.A.," if a percentage (75%) of the cost of manufacturing the product is attributable to U.S. parts and U.S. labor and if the last substantial transformation of the product took place in the U.S.

As you know, I have opposed any weakening in the current standard the FTC uses to determine when it is appropriate for a manufacturer or marketer to label a product "'Made in U.S.A." To date, the FTC has held that it is deceptive for a product to bear the "Made in U.S.A." label, unless all or virtually all of the labor and parts involved in the manufacture of the product are attributable to the U.S. This standard makes sense to consumers, and has served American industry and workers well.

Therefore, I have a number of concerns about the FTC's proposed new guides, but at the same time, I want to gain a deeper appreciation of the information the FTC used in developing its proposal. I am enclosing a list of questions to this letter, and I would greatly appreciate your assistance in seeing that they are answered in a thorough and timely manner.

Please submit your responses to my questions not later than close of business on Monday, July 21. 1997, so that I may give them full consideration prior to submitting my comments on this matter to the FTC. In addition, I would request that my questions, as well as your responses to them, be included in the FTC's official record of comments on the proposed new Guides.

Thank you for your cooperation, and I look forward to hearing from you.

Sincerely,

John D. Dingell

JOHN D. DINGELL
RANKING MEMBER

Enclosure

QUESTIONS FOR FTC

1.Congress, in enacting the Violent Crime Control and Law Enforcement Act of 1994 Public Law 103-322), included section 320933 regarding "Made in U.S.A." or "Made in America" (or the equivalent) labels on products introduced, sold, advertised, and offered fin sale in interstate commerce, The section requires that such labels "shall be consistent with decisions and orders" of the Federal Trade Commission (FTC) issued pursuant to Election 5 of the FTC Act. On March 10, 1995, the FTC published a notice implementing it.

Since section 320933 states that it "governs the use of certain Made in USA claims," please explain why this section is not mentioned or discussed in the FTC's May 1997 "Guides for the Use of U.S. Origin Claims". How is the section relevant to the proposed Guides?

2.In an October 214, 1994 letter to me the FTC said (footnotes omitted):

Historically, the Commission has treated unqualified "Made in USA" claims as strong, affirmative claims of domestic content. From the 1940's through the 1960's, the Commission brought more than fifty cases challenging deceptive representations about the origin of products. These cases established that a "Made in USA" claim meant that the product was "wholly of domestic origin," In addition, in the late 1960's and early 1970's, the Commission issued numerous advisory opinions stating that a manufacturer could claim that a product was "Made in USA" only if the product was comprised wholly of domestic parts and labor.

The letter also referred to two footwear cases and said (footnotes omitted):

In particular, Part I of the order prohibits misrepresentations of the extent to which footwear is made in the United States, and further provides that:

. . . [A] representation that any such footwear is made in the United States will not be in violation of this Order so long as all, or virtually all, of the component parts of the footwear are made in the United States and all, or virtually all, of the labor in assembling the footwear is performed in the United States.

Additionally, as is also made clear at Part I of the Hyde order, manufacturers remain able to make numerous properly qualified claims about product origin (e.g.,Made in USA of foreign components).

On September 20, 1994, the Commission also issued a complaint against New Balance Athletic Shoe, Inc. (Dkt. No. 9628). Because the New Balance matter is pending in adjudication before the Commission, it would not be appropriate for the Commission to comment on it.

Footnote 2 of the Guides explains that in "light of the decision to review the standard for U.S. origin Claims," the Commission modified the above complaints to "eliminate the Obligations" based on the "all or virtually all" standard and that consent agreements based on "revised complaints" were issued last December. The March 1995 notice Implementing section 320933 of the Violent Crime Control and Law Enforcement Act of 1994 notes that under the section the FTC "may reexamine the application of its legal standard," and authorizes rulemaking. The notice then states (footnote omitted):

The Commission has made no determination whether rulemaking would be appropriate. However, the comments the Commission has received in response to a proposed consent agreement in Hyde Athletic Industries, Inc. suggests that additional guidance may be appropriate in this area. Should the Commission so determine, further opportunity for public input will be considered.

Please provide the original complaints, the revised complaints and the consent agreements in these cases. Please explain when the decision to review the standard was made and why a decision to begin this review triggered elimination of the allegation as is explained in Footnote 2 of the Guides. Were there any agreements, understandings or discussions of any kind between the FTC and those involved in the footwear cases about initiating this decision or about its outcome?

3.As I noted, section '320933 of the Violent Crime Control and Law Enforcement Act of 1994 provides that a "Made in the U.S.A." label, or its equivalent," must be "consistent with decision and orders" of the FTC issued pursuant to section 5 of the FTC Act. I understand that under such orders or decisions an unqualified "Made in USA" claim has long been considered deceptive unless the product was wholly of domestic origin. As the Guides note, "this standard was rearticulated to require that a product advertised as 'Made In USA’ be 'all or virtually all' made in the United States." The Guides explain that in both cases "the impact has been the same," namely that unqualified claims of domestic origin "were deemed to imply to consumers that the product for which the claims were made was in all but de minimus amounts made in the United States. Does the FTC propose to change this "unqualified" Made in USA standard through issuance of the proposed section VIII of the Guides? Since this proceeding is not a rulemaking, is the adoption of these Guides viewed by the FTC to be consistent with section 320933 of the Violent Crime Control and Law Enforcement Act of 1994? Is of the same character as the "decisions or orders" of the FTC pursuant to section 5 of the FTC Act that are covered by the section?

4.It is my understanding that the purpose of section 5 of the FTC Act is to prevent unfair or deceptive acts or practices and that the historic standard has served, or been consistent with, that purpose. However, the Guides state, as part of the FTC Analysis, that the present standard "likely poses the least burden in terms of calculation of costs", but it is "less flexible and does not reflect the increasing internationalization of production and (consumer recognition and acceptance of this in goods otherwise U.S. made." Please explain the relevance of increased "Internationalization" of production to the FTC deciding whether or not there should be a change in this historic standard to ensure compliance with section 5 of the FTC Act. Is this so-called "acceptance" based on any FTC study or analysis of consumer buying habits when the consumer has a choice of products Made in the USA under the present standard and other `internationalized" products, or is this merely a perception of the FTC' Where in section 5 of the FTC Act does it specify an actual or perceived duty of the FTC to foster such internationalization through the establishment of some "flexible" standard?

5.According to the guides, the FTC conducted an Attitude Survey regarding the "Made in USA" claim and drew certain conclusions from this Survey and others that are reported in the Guides under the heading "Consumer Understanding of 'Made in USA'."

a.) Using the Attitude survey, please provide the following:

(i) The percentage of the total respondents who said that a product with a "Made in USA" label meant that it was partially made in the U.S. but did not quantify "partially;"

(ii) The percentage who said that such product was 50% or more made in the U. S.; and

(iii)The percentage who said that such a labeled product meant generally that it was either "Made in the U.S." or that it was "All Made in the U.S."

b.)The discussion at pages 44-45 of the Guides regarding the results of the Attitude Survey uses the word "production." However, the table referenced in footnote 186 as part of the discussion uses the word "assembly." Were the respondents asked about "production" in the U.S. or "assembly" in the U.S., or were these terms used interchangeably? Do these terms have a different meaning?

c.)The table in the Guides at Footnote 186 sets forth some of the results of the survey that the FTC paid to have conducted by identifying responses of those interviewed to different "hypothetical scenarios". For example, respondents were asked to comment on whether they agreed or disagreed with the use of the "Made in the USA" label on products that had a U. S, content ranging from 90% to IO% and that were assembled in the U.S., assembled in another country, or assembled in some unspecified as to the place. One scenario (70% U.S. content and assembled in the U.S.) resembles the FTC's new proposed guide on use of the "Made in the USA" label. I understand that there was a second table entitled "What Docs a 'Made in USA' label Mean?"

What was the sample size for each table? Please explain the reasons for any difference in the sample sizes for the two tables, What is the margin of error for each?

d.)Of those responding that a "Made U.S.A." label could be used on a product with 70% U.S., Content and assembly in the U.S., which response was given by the larger percentage of people interviewed: that they strongly agree or that they somewhat agree with the use of the "Made in the U.S.A.” label in this circumstances What was the actual number of people who responded that they strongly agreed with the use of the "Made in the U.S.A." label in this circumstance') What was the actual number who responded that they somewhat agreed?

e.)In the preceding scenario, what percentage of the respondents strongly agreed with the use of the "Made in the U.S.A." label, and what percentage only somewhat agreed?

f..) In the preceding Scenario, was the percentage of respondents who disagreed with the use of the "Made in the U.S.A." label (both strongly disagreed and somewhat disagreed), less than the percentage of respondents who strongly agreed with the use of the "Made in the U.S.A." label? What percentage of responses either strongly disagreed or somewhat disagreed with the use of the "Made in the U.S.A.” label, and what percentage strongly agreed with the use of the label?

6.Guides state:

The Commission believes that consumers continue to understand "Made in USA" claims as representing a significant level of U.S. derived contents Although many consumers may not be able to articulate exactly what it is that makes a product "Made in USA," the consumer survey evidence, including the 1991 and 1995 studies commissioned by Commission staff, indicates that, when given the opportunity, consumers consistently state that they understand "Made in USA" claims to connote a high degree (though not necessarily 100%) of U.S. content. This conclusion is reinforced by the overwhelming, albeit anecdotal, views of individual consumers who submitted comments.

At the same time, the Commission recognizes that there have been vast changes in the international economy since the Commission first required that goods labeled "Made in USA" be wholly domestic. Increasing globalization of production suggests that a requirement that even minor parts be all made in the United States is outdated and inflexible. Consumers appear to understand this as well. In the Commission's 1995 Attitude Survey 67% were willing to agree with a "Made in USA" label on a product where foreign inputs accounted or 30% of the total cost if the rest of the product was U.S.--made and final assembly took place in the United States.

Based on these conclusions, as well as the Commission's overall analysis of the record, the guides provide that a marketer making, an unqualified U.S. origin claim must have a reasonable basis substantiating that the product is substantially all made in the United States.

However, the Guides also state:

The large majority of consumer comments supported the current standard or some other similarly high standard. Typically, individual consumer commenters stated that "Made in USA" should mean "Made in USA." Many also stressed that they wish to buy American products, and expressed concern that if the standard is lowered, they may be deceived into buying a product that was not really made in the USA

Despite these comments, the Guides use the surveys to support the view that consumers “were willing to accept a product labeled "Made in USA' even if it had some foreign content." Please explain how the proposed standard that the "product is substantially all made in the United States" is consistent with the above consumer comments, particularly since the standard could not, even in the eyes of the FTC, stand alone but must be accompanied by "safe harbor" examples. How will the public be informed about these examples? Is the public likely to be cynical about a standard that cannot stand on its own, but needs a "safe harbor" explanation that involves cost data and other information that are not likely to be public or, if made public, are not likely to be easily understandable? Why should consumers who prefer that "Made in USA" mean just that have to "accept" a lesser standard when section 320933 of the Violent Crime Control and Law Enforcement Act of 1994 recognizes alternatives that reveal the fact of foreign content, not hide it and mislead consumers?

7.The FTC appears to propose that from a percentage standpoint, the term "substantial" is construed to mean at this time "at least 75% of manufacturing costs," saying:

The first safe harbor requires that 75% of the total manufacturing costs of producing a product be U.S. costs and that the product be last substantially transformed in the United States, The Commission believes a product meeting the threshold of 75% U.S. content is likely to conform with consumer expectations for a product labeled "Made in USA," but this safe harbor nonetheless recognizes that even a largely U.S.-made product may necessarily include a relatively minor amount of foreign content.

However, the Guides Indicate that only an alternative percentage of 50% was given serious consideration. Please explain the basis for the above belief, why the “de minimus" foreign content criterion was abandoned, why a higher percentage was not considered, and the basis for the FTC to conclude that 25% foreign content is a relatively minor amount."

8.There are a number of definitions in the Guides. Which, if any, are statute based? Is the definition of a "product" in the Guides narrower than the term in section 320933?

9.The Guides propose to also explain the term 4 substantially all made in the United States" by borrowing the term "substantially transformed in the United States" from the Tariff Act. The FTC said in its October 24, 1994 letter that the Tariff Act "does not apply in this context because it governs how products should be marked when they are imported into the United States, not when American origin claims may be made." Why does the FTC now consider that making this term applicable for interpretation of this proposed standard is appropriate? Does the FTC plan to defer to the Customs Service in applying this Tariff Act terminology? Is this consistent with the FTC's Deception policy Statement to me in 1983?

10.Section VIII of the Guides provide "that an unqualified U.S. origin claim will not be considered deceptive if the marketer possesses competent and reliable evidence either that the product contains 75% U.S. content... and was last substantially transformed in the United States ...; or that the product has undergone two levels of substantial transformation in the United States. . .”

Since the proposed new standard will require the FTC to determine both the percentage of U.S. content and the place of substantial transformation, won't the FTC's enforcement of die proposed new standard be more complicated than the FTC's enforcement of the current standard which only requires the FTC to determine whether all, or virtually all of the manufacturing costs are attributable to U.S. costs? Given the FTC's limited budget resources, is the FTC going to be able to enforce vigilantly the proposed new standard? Should it be adopted, since the new standard will require the FTC to made determinations regarding U.S. content and substantial information that it presently does not have to make?