Federal Trade Commission Received Documents Jan 22 1996 B18354900103 Secretary January 22, 1996 Office of the Secretary U.S. Federal Trade Commission Room 159 Sixth and Pennsylvania Avenue, N.W. Washington, D.C. 20580 RE: FTC File No. P894219 Enclosed you will find the comments of the American Automobile Manufacturers Association (AAMA) in response to the Federal Trade Commission's request for comment regarding "Made in the USA" advertising claims (60 Fed. Reg. 53923, October 18, 1995). AAMA also wishes to participate ;in the proposed workshop on this issue. Please contact Jeffrey Bobeck at (202) 326-5535 regarding this matter. Sincerely, Robert E. Moss Vice President Government Affairs Enclosure Headquarters: Detroit Office: 1401 H Street, N.W., Suite 900 7430 Second Avenue, Suite 300 Washington, D.C. 20005 Detroit, MI 48202 202-326-5500 313-872-4311 Fax 202-326-5567 Fax 313-872-5400 American Automobile Manufacturers Association Comments to the Federal Trade Commission Regarding "Made in the USA" Advertising Claims January 22, 1996 Introduction The American Automobile Manufacturers Association (AAMA) hereby responds to the request for comment by the Federal Trade Commission (the Commission) regarding "Made in the USA" claims in product advertising (60 Fed. Reg. 53922, October 18, 1995). AAMA is the trade association comprised of Chrysler Corporation, Ford Motor Company, and General Motors Corporation, the three traditional U.S.-based manufacturers of passenger cars and light trucks. General Motors, Ford, and Chrysler are truly global companies, individually ranking first, second, and fifth, respectively, among producers of motor vehicles worldwide and together accounting for over one-third of the world's production of cars and trucks. Notwithstanding AAMA members' increasingly strong presence in world markets, the United States remains the most significant market and source of production for America's car companies. Over 80 percent of the cars and trucks built in the U.S. are Chrysler, Ford, or General Motors products and 95 percent of Americans employed in auto manufacturing work for those three companies. In all, AAMA members employ 600,000 Americans in auto manufacturing, while foreign-based auto assembly plants ("transplants") employ 35,000. AAMA members annually account for between four and five percent of the nation's Gross Domestic Product (GDP) economic output. As such, AAMA's members have an important interest in accurate and meaningful use of "Made in the USA" claims. Summary of Views During the past decade, the United States again has become the most important producer of motor vehicles in the world. For AAMA's three members, as well as for the nine foreign-based manufacturers who assemble vehicles here, the term "Made in the USA" connotes quality and economic commitment to the community and, as such, has an intrinsic value to consumers. AAMA and its member companies appreciate the efforts of the Commission to ensure that consumers can have confidence that a "Made in the USA" claim means what they expect. However, as an industry that already must calculate the domestic content of its products under three separate U.S. laws, as well as comply with dozens of foreign marking requirements, we are concerned about efforts to establish additional new rules, specifically content percentages, to judge characterizations of products as "Made in the USA." Moreover, we note that consumers' contextual understanding of a "Made in the USA" claim may vary greatly from product to product and, for our industry, has changed in recent years and may continue to evolve. Therefore, we suggest that the Commission reject setting rigid standards that may soon become obsolete or cause more confusion than they resolve. Rather, we suggest that the Commission continue to consider specific challenges to "Made in the USA" claims on a case-by-case basis. In doing so, we recommend the Commission apply well-established principles of advertising law, considering the express and reasonably implied meaning of the claim, the materiality to the consumer of the claim, and whether the advertiser has a reasonable basis from which to make the claim. This approach will allow regulators to account for changing consumer perception and public policy interests. Development of Today's U.S. Automotive Market Building an automobile is among the most complex manufacturing tasks in the world and consumers have benefited from the growing globalization of the industry. American new car and truck purchasers have more choices than consumers anywhere else in the world, with the opportunity to choose from vehicles assembled in eight countries containing significant content added by many more. Because of the array of choices facing consumers, AAMA believes a new car or truck buyer should have access to information regarding the origin of the vehicle. However, an examination of the U.S. automotive market's recent development demonstrates how difficult it may be to monitor and characterize that information using rigid, "bright-line" rules.. A generation ago, American consumers had little difficulty distinguishing between an "American" auto and an "import." During the 1960s, virtually all models offered by AAMA members were assembled in the U.S. with components of virtually 100 percent U.S. origin. Accordingly, "imports" were assembled overseas and contained, usually, 100 percent foreign content. Four trends changed that simple equation: ÀÀ First, the 1965 Automotive Products Trade Agreement eliminated auto and auto parts tariffs and harmonized standards between the U.S. and Canada. The pact has benefited both nations economies, while building the case for later regional free trade pacts. Today, Canada and the U.S. are truly a single market for vehicles: For instance, parts made in Canada may be assembled into a new vehicle at a U.S. plant later that day, while vehicles rolling off a Canadian assembly line may consist of 80 percent or higher U.S. content. The economic benefits of this relationship are undisputable, however the implications for country-of-origin claims are less clear. ÀÀ Second, during the 1970s, American companies began to offer imported products under American nameplates ("captive imports"), allowing consumers to choose, from Buicks and Fords built in Germany, or Plymouths from Japan. Today, captive imports continue to provide retailers with products, and manufacturers with sales outlets, that otherwise would be unavailable. Regarding country-of-origin claims, we have no evidence that consumers are confused about the origin of captive imports. ÀÀ Next, domestic manufacturers began utilizing imported components, especially powertrain equipment, to fill voids in their own product lines. At first, this practice allowed domestic manufacturers to bring new U.S.-assembled products to market more quickly without developing an entire new line of engines and transmissions. Today, joint production ventures between auto manufacturers are commonplace and technology and products flow both directions between import and domestic automakers. Because powertrain equipment represents a significant portion of a new vehicle's content, the American Automobile Labeling Act (AALA) requires that consumers be provided with clear information regarding the origin of that equipment. ÀÀ Finally, economic considerations, including the reliability of the American workforce and of American component manufacturers, prompted many foreign-based automakers to move final assembly of some models to the U.S. Both transplant production and the domestic content of transplant products has increased during the past decade but in most instances does not equal the domestic content of traditional U.S. car companies' products. Meanwhile, as "Made in the USA" advertising by transplant manufacturers has increased, so has consumer confusion about the country of origin of certain automotive products. Automotive Made-in-USA Claims and Federal Law Only a decade ago, few experts were predicting either that the American car companies would prosper, or that foreign manufacturers would find the U.S. to be such an attractive location for new assembly plants. Today, the U.S. again has become the high-quality center of auto production for the world, not only for AAMA's member companies, but for a growing number of foreign manufacturers, as well. For the auto industry and, we believe, for American consumers, the term "Made in the USA" connotes high quality and economic commitment to the community. This is demonstrated most clearly by the increasing frequency with which transplant manufacturers have utilized their U.S. manufacturing presence as a selling point in product advertising. If information about a new vehicle's country of origin is important enough to be used prominently in advertising, we believe it follows that consumers should have access to accurate, meaningful information about a new vehicle's content at the time of purchase. Automobile manufacturers are required to calculate domestic content separately using different methods under three federal laws: 1. CAFE. The Energy Policy and Conservation Act of 1975 (EPCA) led to the creation of corporate average fuel economy (CAFE) standards, which each manufacturer must meet separately for its import fleet and its domestic fleet. Under CAFE, content must be calculated for any model a manufacturer wishes to count under its domestic fleet. Models having less than 70 percent domestic content are counted as imports. 2. NAFTA. The North American Free Trade Agreement (NAFTA) requires that a vehicle must have 50 percent domestic content, increasing to 62 percent as the agreement takes full effect, to be eligible for NAFTA duty-free treatment. 3. AALA. AALA requires manufacturers to calculate a carline's U.S./Canadian content and report that information, along with powertrain country-of-origin and the point of final assembly, to consumers on labels affixed to all new vehicles. All three laws utilize different methods to calculate domestic content, thus a particular carline likely has three separate domestic content percentages. Of the three, AALA is alone in not requiring that a vehicle be labeled as either a "domestic" or an "import," thus AAMA submits there is no need for added rules on this issue. At a minimum, however, "Made in the USA" claims should not conflict with the information conveyed by the AALA label. Conclusion and Recommendations The Commission states that its own study of the subject found that, "77 percent of consumers [believe] that, in general, "Made in the USA" references mean all or nearly all' parts and labor are domestic.'" If this is the meaning reasonable consumers attach to unqualified claims, advertisers should be responsible for substantiating the claim or adding appropriate qualification to clarify the meaning of the claim. Automotive industry research confirms that consumers believe information regarding a new vehicle's country of origin is useful to them and expect it to be consistent and accurate. The Commission asked whether it would to useful to require that "Made in USA" advertising claims be accompanied by domestic content percentages. Under AALA, this information is required to be available to new car or truck buyers on the showroom floor prior to purchase. Advertisers should not be permitted to make "Made in the USA" claims that a reasonable consumer would consider to conflict with the AALA information. The expansion of trade with the world has brought benefits to American consumers. However, different industries have achieved different levels of globalization and, therefore, there may not be a single standard for what constitutes a product "Made in the USA." Therefore, we recommend that the Commission continue to consider the challenges to "Made in the USA" claims on a case-by-case basis using well-established advertising law as criteria, and to require qualification where necessary to convey an accurate meaning. While international trade will continue to expand, the Commission must continue to ensure that consumers may have confidence that a product advertised as "Made in the USA" is, in fact, one whose creation was dependant on the value added by U.S. workers and the U.S. economy. The fact that standards may change and may vary from industry to industry only makes the Commission's task of safeguarding the meaning of "Made in the USA" more important. # # #