Federal Trade Commission Recieved Documents Jan. 16, 1996 P894219 B18354900030 Law Offices Conlon, Frantz, Phelan, Knapp & Pires Suite 700 1818 N Street, N.W. Washington, D.C. 20036 (202) 331-7050 e-mail: Cfpkp@aol.com January 24, 1996 HAND DELIVERED Office of the Secretary Federal Trade Commission Room 159 Sixth and Pennsylvania Avenues, NW Washington, D.C. 20580 Re: Made in USA Policy Comments FTC File No. P894219 Dear Sir: This firm represents the Automotive Parts Rebuilders Association (APRA), the trade association for those companies which rebuild or remanufacture non-functioning motor vehicle parts and equipment for resale and reuse. It also represents the firms which provide used parts, called cores, to rebuilders and the manufacturers which supply new parts, machinery and equipment to them. APRA has over 2000 members throughout the United States, Canada and the world, with the overwhelming majority in the United States. Rebuilding/Remanufacturing{1} Rebuilt vehicle parts constitute a significant portion of the parts sold in the motor vehicle aftermarket, i.e., the market for replacement parts for vehicles once they are sold by the dealer. For many types of vehicle parts, rebuilt parts represent by far the largest percentage of aftermarket sales. For example, rebuilt brake master cylinders and air conditioning compressors constitute about 70% of total aftermarket sales. For other products, like crankshafts, alternators and generators, the rebuilts' share of the market is over 95%. Rebuilders are some of the original recyclers. For well over fifty years they have been recovering and reusing metal, rubber and plastic parts which otherwise would have been thrown into the nation's landfills. The reuse of these parts preserves mineral resources and conserves the energy required to make a new part. Because of the increased environmental concerns of the last several decades and the desire to recycle products whenever possible, the concept of rebuilding or remanufacturing has been spreading to other industries. Electrical equipment, office furniture, toner cartridges and several kinds of valves are only a few of the other types of products being remanufactured. And the number of types of products which can be remanufactured is expected to continue to grow because more research is now being done, both in academia and industry, to create new remanufacturing concepts and to find new ways to make products more "remanufacturable". Recently a new group, the Remanufacturing Industries Council (RIC), was formed by nine trade associations representing nearly 10,000 companies in many different industrial areas which all engage in rebuilding activities. The RIC will assist the companies in those industries to exploit their rebuilding technologies: to promote further research into improving those technologies; and to assist nascent rebuilding technologies to emerge in other industries. Vehicle Parts Rebuilding Most vehicle part rebuilders are small businesses catering to customers in a limited area. A few distribute only locally; most, in large or small regions; and the biggest ones, nationally or even internationally. The ability of a rebuilder to advertise and label his product as "Made in the USA" is very important. Often he competes with new foreign parts and sometimes parts rebuilt outside the US as replacements for foreign and domestic nameplate automobiles and trucks. Consumers should be able to look for and find domestically rebuilt parts which have been properly labelled. However, without some special rules, use of the "Made in the USA" designation by a rebuilder will be almost impossible. However, before discussing the problems faced by the rebuilder, the FTC must understand how a used vehicle part is recycled into a rebuilt one. As their raw material, rebuilders use old motor vehicle parts (called "cores") which they obtain from many sources. A network has developed which collects the cores, transports them to the rebuilder and then redistributes the rebuilt parts to the commercial market. This network starts with the service stations, neighborhood garages, automobile and truck dealerships, tire stores and fleet repair centers. Instead of discarding the parts they remove from vehicles, these facilities retain them for return to the rebuilders as cores. The average rebuilder obtains 75-80% of his cores in this manner. In other cases the cores are collected from service facilities, junkyards and other locations by a company called a "core supplier." The core supplier acquires, sorts and aggregates large quantities of cores which he then resells to any rebuilder who needs them to supplement his returned cores. In his receiving area the rebuilder sorts the cores by part number. They are then completely disassembled. Old, worn, broken and nonreusable components are discarded. Reusable internal and external components are thoroughly cleaned and made free from rust and corrosion. Each is inspected for wear and breakage. Components which need servicing are fixed. Similar components are stored in bins until needed. When the assembly process commences, old components from a number of different cores are reassembled into a rebuilt part using new or rebuilt components in place of non-reusable, worn out, missing items or where there are insufficient numbers of old components available. Adherence to this process is not merely good industry practice, but required under the FTC's guides for vehicle parts which are to be labelled rebuilt or remanufactured. See 16 CFR Part 20, a copy of which is attached hereto. Because they must comply with these FTC standards, rebuilt parts are comparable in quality to new parts. And in cases where flaws are detected in the original part during use and corrected when rebuilt, they are even better. Often, rebuilt parts carry better warranties than new ones. Origin of Core Components Because of the nature of the rebuilding process, the ability of a rebuilder to determine the origin of the cores he uses is problematic, if not impossible. First, the rebuilder's raw material, the core, may have originally been produced either within the United States or beyond its borders and there is often no way to tell which. This is true both for foreign nameplate parts, such as Nissan and Volkswagen, and domestic nameplate parts, such as GM Delco or Ford Motorcraft. In many cases the same part is produced both domestically and abroad and used interchangeably among many different vehicle models. Thus the part number itself does not readily identify country of origin for the rebuilder. Second, while a manufacturer using new components should be able easily to trace his source of supply, the cores used by rebuilders have been in service for many years and come from innumerable sources. Therefore, the rebuilder usually has no way of determining where they were produced or otherwise tracing their origin. Third, because he disassembles the parts into their various components, even parts which are clearly and conspicuously marked with their country of origin (and such marks have not been worn off or distorted during use) will lose their identity once they are disassembled into components and those components are mixed with components of other similar parts. Fourth, even if he could in some manner sort out which components were domestically produced and which were not, it would be unprofitable for him to take the time to do so or set up separate assembly lines for each. Therefore, to require a rebuilder to determine country of origin for his products by reference to their original country of manufacture is a senseless and unprofitable undertaking. Moreover, it fails to recognize that the value of a rebuilt part has nothing to do with where it was originally constructed. That original value has been exhausted by its previous use on the motor vehicle. In an accounting sense, it has been completely used up or spent by such previous use. If the rebuilder did not exist, the part would either be discarded in a trash pit or resmelted into its base metals. In either case, the value added by the original manufacturer is eliminated. Therefore, when valuing a rebuilt part for purposes of country of origin identification, the origin of the used part should be ignored. For this reason rebuilders would say yes to question 5b. of the Request for Comments which asks whether US value should exclude raw materials and would define raw materials so that cores are included. At least in the rebuilding area including the value of raw materials when determining country of origin would undermine the reason for using a "Made in America" designation, i.e., to advise the consumer that the work done to process the goods into a usable product was done in the United States. The country of origin of a rebuilt part should be based on the value of the efforts of the rebuilder and the value of any replacement components he must buy to use in the rebuilt part. All or Virtually All Designation Rebuilders would also oppose a requirement that a part must be all or virtually all made in the US to be eligible for that designation. In many instances, a properly rebuilt part will require several new components as a result of breakage, wear or planned replacement. These components often are only available from one source. And for foreign nameplate vehicles that source is usually a foreign producer. In such cases, a part which has had the overwhelming majority of its value added by the rebuilder through cleaning, refurbishing and reassembly could lose its right to a "Made in USA" designation merely because one or two small replacement components are made outside the US. We do not think that consumers actually believe most products labelled "Made in the USA" are made of 100% US materials. In fact, in most instances they believe that only the final product was made in the US and are not too concerned where the various components came from. A more realistic threshold for use of the designation would be about 75%. This would allow items which were substantially processed or assembled in the US to bear that label without diluting the message it conveys to consumers. Use of Label by Rebuilders Even though rebuilt or remanufactured parts are technically not "manufactured", rebuilders should still be allowed to use the "Made in the USA" label. The label indicates that American workers have performed the work and been paid for the services which made the product usable and marketable in the US. This is what a rebuilder and his employees do to make a core into a rebuilt part. Therefore, they should be rewarded with the "Made in the USA" designation just as any other US producer. An alternative would be to allow the rebuilder to state that his product is "Remanufactured in the USA" or "Rebuilt in the USA". But while these labels may sound acceptable and even more appropriate for rebuilt parts, we believe that they would actually confuse the consumer and probably penalize the rebuilder. First, vehicle parts must already be labelled "rebuilt" or "remanufactured" under the previously cited FTC standards. Therefore, to reiterate their condition is unnecessary. Second, the consumer will not generally realize what is meant by the terms "rebuilt" and "remanufactured" and may assume that only some minor work or retooling of the original part was done in the U.S. If so, they may prefer other "Made in the USA" items over "Rebuilt in the USA" parts and rebuilders will be unfairly penalized by public misperceptions. Finally, even where there is some awareness among consumers about what the terms mean, they still could believe that a part manufactured in the U.S. is superior to one merely rebuilt here and for that reason favor a part which was labelled "Made in the USA". For all these reasons, rebuilders would not like to see distinctions made by using any terms in country of origin marking which describe the nature of the process by which the goods have been made marketable in the US. Use of Customs Tests Finally, we do not believe that the tests used by the US Customs Service to determine a product's country of origin are appropriate for FTC use. The FTC must be concerned about consumer awareness of those products which have a nexus with the US so that those consumers for which buying "American" is important can be assured that products are marked correctly. Decisions made for customs purposes are for the imposition of tariffs and the control of imports and often are based on laws, treaties and regulations which create technical or other artificial distinctions about domestic and foreign made products which are unimportant or even contradictory to consumer awareness of a good's origin. Therefore, FTC should create its own rules and not rely on those of other agencies whose missions and purposes are different. We appreciate the opportunity to present these comments. If any further information is needed or you desire our further participation in this proceeding, please feel free to contact me at the above address and telephone. Very truly yours, Michael J. Conlon Enclosure cc: William C. Gager Footnotes: {1} In the vehicle parts aftermarket, these two words describe the same process. Products bearing either of these designations must undergo the reconditioning process described in the FTC guides for used and reconditioned parts. See 20 CFR Part 20.