Federal Trade Commission Received Documents Jan 17 1996 B18354900050 Secretary Law Offices Stewart and Stewart 2100 M Street, N.W. Washington, D.C. 20037 (202)785-4185 General@stewartlaw.com January 16, 1996 Honorable Donald S. Clark Office of the Secretary Federal Trade Commission Room 159 Sixth and Pennsylvania Avenue, N.W. Washington, D.C. 20580 Dear Mr. Secretary: Re: Made in USA Policy Comment On behalf of the Gates Rubber Company, a U.S. manufacturer of rubber belts and belting for industrial and automotive applications, of rubber hoses for like applications, and of various other products, we submit the following comments concerning the policy of the Federal Trade Commission with respect to the marking of manufactured products as "Made in U.S.A." Request for Public Comment in Preparation for Public Workshop Regarding "Made in USA" Claims in Product Advertising and Labeling, 60 Fed. Reg. 53,922 (Oct. 18, 1995). 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 policy concerns identified by the Federal Trade Commission include (1) consumer perceptions, (2) impact on domestic commerce, (3) impact on international trade, (4) costs and benefits of compliance with origin-rules of other agencies, and (5) computation of domestic content. 60 Fed. Reg. at 53924-26. The Gates Company does not have direct knowledge or consumer surveys that would address consumer perceptions. Our sales force, however, has often encountered the view in the market that "made in U.S.A." is associated with the labor content of the end product. Our customers would not be mislead by a "made in U.S.A." label where the import content was limited to some fraction of the raw materials constituent to a manufactured article. Adoption of the Customs rules at least as establishing a presumptive "safe harbor" for domestic manufacturers, moreover, would serve the other policy interests identified by the Commission. From a manufacturing standpoint, uniform marking standards are predictable, fair, cost effective and reduce the likelihood of inadvertent mismarking. Use of consistent rules from the consumer's perspective will ensure that "Made in U.S.A." has the same content and meaning as "Made in Germany" or "Made in Japan." Just as a foreign-origin marking in compliance with Customs rules would not ordinarily be deemed deceptive or misleading by the Federal Trade Commission, so too, the use of a U.S.A-origin mark in identical or substantially similar circumstances should at least carry a presumption of "fair use," absent evidence that consumers in fact are deceived or that the manufacturer intended to be misleading. In our U.S. facilities, we currently manufacture hoses and belts that are exported to Canada, Mexico, and around the world. Exports to Canada and Mexico must currently comply with the marking rules applicable under the Annex 311 of the North American Free Trade Agreement. Customs has proposed uniform rules of origin for all imported merchandise from all countries, in order that country-of-origin rules under NAFTA will be consistent with marking rules generally. Rules for Determining the Country of Origin of a Good for Purposes of Annex 311 of the North American Free Trade Agreement; Rules of Origin Applicable to Imported Merchandise, 60 Fed. Reg. 22,312 (Customs Service, May 5, 1995). At the same time, the United States is working with the World Customs Organization to formulate international norms for rules of origin. See International Harmonization of Customs Rules of Origin: Inv. No. 332-360 (U.S. Int'l Trade Comm'n, April 7, 1995). Given that our position as an exporter requires conformity with NAFTA rules of origin and, in the likely future, with harmonized international rules of origin, it is in our interest and the interests of other U.S. manufacturers similarly situated to have consistent marking rules. Not only manufacturing efficiency, but also fairness, transparency, and predictability are served by enforcement of domestic labeling laws that are similar to international marking rules. From the enforcement standpoint, it should also be noted that the NAFTA and Customs rules dispense with a "value-added" or domestic content approach. Having for many years enforced a "substantial transformation" standard based upon "name, character, and use" of a particular article, the Customs Service abandoned that standard because it was not objective, transparent, or predictable. Notice of Proposed Rulemaking: Rules of Origin Applicable to Imported Merchandise, 59 Fed. Reg. 141, 142 (Customs Service, Jan. 3, 1994). The FTC can draw upon the experience of Customs and the difficulties encountered in its enforcement. Measurement of "content" that depends upon assigning value or allocating costs and can be both time consuming and arbitrary. Differences in relative domestic content may be found where identical constituent parts are imported from different countries at different costs. Alternatively, the same operations can be performed in the United States, yet the domestic content will vary based on wage rates, yields, variable material costs, capacity utilization, or other factors. As noted by the Commission, fluctuations in exchange rates could cause origin to change over time, if a bright-line percentage-of-value test is adopted. 60 Fed. Reg. at 53930. In the production of Gates' industrial and automotive belts, for example, there are certain tensile fibers or fabrics incorporated into some belts, which textiles cannot be purchased in the United States. Likewise, there are certain wire products used in our hoses that must be imported from Europe for lack of a U.S. producer. Customs rules are objective and transparent in establishing that belts manufactured from such raw materials are "made in U.S.A." for purposes of NAFTA, because the tariff classification headings for textile fibers and steel wire are easily identified and separate from the classifications for rubber belts or hoses. Nor should consumers be mislead by a label "Made in U.S.A." where the raw materials consumed in manufacturing the belt or hose (and inseparable from the finished product) are to some degree imported. So long as such materials are not sufficiently advanced in condition to be identified as "parts" or "blanks"--and therefore to be classified under the same heading, chapter, or provision as the finished merchandise--"Made in U.S.A." fairly discloses the fact that the finished article was the product of U.S. labor applied in a U.S. facility to the raw material. Raw materials used in belt manufacture should be distinguished from "parts." Thus, for example, the Commission's notice refers to parts content and to the perceptions of consumers that "parts" are domestic in goods labelled "made in U.S.A." In the case of belts and hoses, however, the tensile cords and wire materials are not typically described as "parts." These components do not retain a separate identity in the finished product and are not separable in the manner of electronic components on a printed circuit board, or even shoe soles and uppers. This distinction between treatment of parts and raw materials is well known in Customs law and is generally incorporated into the Customs rules of origin. Under the Customs rules of origin, assembly of imported parts will rarely confer origin, except where the value of the parts is de minimis (e.g., no more than 7% of the value of the good). 19 C.F.R.  102.13. Customs regulations also consider whether there identifiable parts of components "that merit equal consideration for determining the essential character of the good." 19 C.F.R.  102.11(b). Hence, to the extent that a company imports essential parts for final assembly in the United States, the principles applied under Customs rules of origin would not consider the finished U.S. product "made in U.S.A." This approach comports with the public perceptions described by the FTC study. The "all or virtually all" standard historically applied by the Commission appears to require not only that value-added or foreign and domestic content be measured, but that the domestic content be greater than "substantial part," as used in 5 U.S.C.  45a. Indeed, the 1991 Smith-Corona/Huffy study showed that 77% of the respondents in the case of the Smith-Corona typewriter identified the "made in U.S.A." claim with "at least 70%" U.S. value-added. This suggests that a higher minimum content is unwarranted. For the foregoing reasons, the Gates Rubber Company endorses the use of a "made in U.S.A." test that is identical to the Customs rules of origin under NAFTA and proposed for application to all imports. Alternatively, the FTC could presume in the absence of evidence of deception that marking consistent with the Customs rules is not misleading. In any event, to the extent that a bright-line domestic content percentage is announced, the standard ought not be higher than 70% domestic. Respectfully submitted, Terence P. Stewart James R. Cannon, Jr. STEWART AND STEWART 2100 M Street, N.W. Washington, D.C. 20037 Special Counsel for The Gates Rubber Company