Federal Trade Commission Received Documents June 28, 1996 P894219 B18354900174 INTERNATIONAL UNION, UNITED AUTOMOBILE, AEROSPACE & AGRICULTURAL IMPLEMENT WORKERS OF AMERICA--UAW STEPHEN P. YOKICH, President ROY O. WYSE, Secretary-Treasurer VICE PRESIDENTS CAROLYN FORREST . JACK LASKOWSKI . ERNEST LOFTON. RICHARD SHOEMAKER June 28, 1996 Office of the Secretary Federal Trade Commission Room 159 Sixth Street and Pennsylvania Avenue, NW Washington, D.C. 20580 Dear Mr. Clark: Enclosed are six paper copies of the post-workshop submission of the International Union, UAW in the Commission's "Made in USA" review (FTC File No. P894219). Also enclosed is a 3 « inch disk containing the UAW submission in ASCII text format and in Microsoft Word format. I feel fortunate to have had the opportunity to participate in the March workshop. It was well-organized and well-run, despite the large number of participants. The Commission and its staff should be commended for their effort. On an entirely personal note, I did not take the time during the workshop to comment that the two statues that grace the FTC building are my absolute favorites in Washington. Whatever the intention of the sculptor, I see them as defining the task of the FTC, to use human resources and energy to harness and guide the power ("animal spirits") of market forces. Just as the horses in the sculpture, if left to their own devices, would be wild and destructive, so can the market that the FTC has the responsibility to regulate to protect the interests of consumers and the public. That is a noble and important task, one which receives too little recognition in today's political environment. The impressive sculptures at the FTC are a constant reminder that it is our government's responsibility to ensure that people are to be served by "the market", not made subservient to it. I just couldn't resist passing this comment along. Sincerely, Steve Beckman International Economist Governmental and International Affairs Department SB:bbj opeiu494 attachments cc: Leonard Page Gerald Lazarowitz Don Stillman Made in USA Policy Comment FTC File No. P894219 International Union, United Automobile, Aerospace and Agricultural Implement Workers of America, UAW Post-Workshop Submission on Federal Trade Commission Review of "Made in USA" Claims in Product Advertising and Labeling The UAW remains ever more committed to supporting an FTC standard for "Made in USA" advertising claims and labeling that promotes the highest possible use of U.S. materials, components, parts and labor. Before addressing some of the new questions posed by the FTC in the Federal Register Notice (April 26, 1996) of the deadline extension for these comments, we would like to provide some comments on topics that came up at the workshop. 1. There are many companies that feel comfortable using "Made in USA" claims and labeling under the current standard that demands "all or virtually all" U.S. parts and labor, despite the lack of complete clarity in the current definition. This standard can be met. 2. The "Made in USA" claim must be quite valuable to sellers of products, since considerable interest in being able to use the claim was demonstrated by companies in a wide variety of industries that attended the workshop and submitted comments. This was the case despite the lack of clarity in the consumer surveys that were presented and analyzed. 3. There is a strong interest on the part of many companies and industries in weakening the current standard so that more products can use the "Made in USA" claim without raising the level of the products' U.S. parts and labor content. The continued use of a very high standard which would increase the U.S. content of their products,, such as the current "all or virtually all" standard, is not considered feasible by these firms. 4. As a result, it is not at all clear that there is any way to modify the current standard for the "Made in USA" claim or label as a means to raise the use of U.S. parts and labor by producers that cannot meet the current standard while, at the same time, avoiding putting pressure on the companies that have made the effort to meet that standard to lower their U.S. content. 5. The consumer survey data provides little useful information regarding the understanding of most consumers of the term "Made in USA". One conclusion that could be drawn from the data is that very few consumers know enough about the process of production to be able to evaluate different claims about parts content or product fabrication. This lack of familiarity on the part of consumers gives a strong edge to keeping the current standard regarding the unqualified "Made in USA" claim in order to avoid creating a new, high level of consumer confusion. This may also argue for the use of qualified claims that more specifically inform the consumer of the actual U.S. contribution to the product, such as assembly, parts and materials content, etc. 6. None of the wide variety of rules of origin and marking requirements identified by workshop participants came close to meeting a reasonable standard for "Made in USA" claims or labeling. There was no convincing evidence provided that cheapening the standard so that products with 50 percent or less U.S. value, or an unspecified U.S. contribution to production of the product (substantial transformation or change in tariff classification) could use the claim would, in any way, contribute to increasing U.S. employment or production. 7. The metaphor of "making dinner" used during the workshop to try to clarify what it means to "make" a product, in the context of using the "Made in USA" claim or label, does not work. While those eating a dinner are thankful that someone else "prepared" it, the workers who processed the frozen vegetables and potato flakes, slaughtered and cut the meat, processed the flour and formed, cut and boxed the pasta, etc. may not be willing to concede to the "assembler" of the meal that the food was "made" by the person who puts the food on the table. Having prepared many meals, some of which took many hours and others a few minutes of preparation time, I can say that the consumers of the dinner are not the best judges of who "made" it. We would like to respond to several of the additional questions posed in the Federal Register Notice. Concerning the "all or virtually all" standard, the FTC identified questions about how this definition should be applied. One of these questions was how far back in the production process to go in determining U.S. parts, materials and labor content. It is the UAW's experience that substantial foreign content can be incorporated into parts and components purchased from suppliers located in the U.S. We believe it is important that a company using the "Made in USA" claim or label be able to demonstrate that the foreign content of parts do not undermine that claim. In most cases, looking two steps back to unrelated supplier firms (the first step is to the "first tier" parts supplier and the second is to the companies that are suppliers to those parts suppliers - the "second tier") would be sufficient to identify nearly all foreign content. Some examples of products for which such information would be critical might include: electronics products that use imported semiconductors, microprocessors, screens and other components and materials supplied by U.S. companies after they have been modified or assembled into more complex parts or components (e.g., disk drives); auto replacement parts; appliances using sophisticated subassemblies that could include imported items (small motors, electronic components, metal stampings, castings or molded pieces). It is possible that, in many cases, obtaining the first tier supplier's U.S. content level (one step back) would be sufficient for determining compliance with the "all or virtually all" standard for the final product. For instance, if a part that accounted for 10 percent of the value of the final product was 50 percent foreign value, the contribution of this part to the foreign value of the final product would be 5 percent. If, however, the 50 percent foreign part accounted for 30 percent of the final product's value (which could be the case for a refrigerator or air conditioner compressor), this foreign content alone would account for 15 percent of the final product's value. This latter amount would certainly not fit the "all or virtually all" criterion. There should be no blanket exception for raw materials in the determination of compliance with the standard. For some products, raw materials will account for a very large share of final product cost and, for others, raw material costs will be negligible. These differences should not be presumed meaningless by excluding consideration of raw materials costs. Further, the definition of "raw material" may not be standard across industries. Coated alloy steel, for example, could be considered a raw material by some companies and a manufactured product by others. As was stated in our earlier submission and re-stated at the workshop, the international trade-related standards for determining U.S. or foreign origin are inappropriate for the consumer advertising and labeling requirements for "Made in USA" which the FTC must enforce. The definitions of "substantial transformation" differ greatly from product to product. Allowing such disparate U.S. contributions to different products to be used to define a single "Made in USA" claim would certainly mislead consumers. The fact that the WTO is investigating rules of origin and considering standardizing them is relevant only to marking for determining country of origin for the purpose of generating trade data, not for providing consumer information. The international trade-related definitions are relevant to legally required product marking for imports. If companies are interested in requiring "Made in USA" product marking for all products that originate in the U.S., which would primarily serve international trade purposes, they should turn their attention to Congress, not the FTC. Only by changing the current law governing country of origin marking could such a requirement be implemented. The FTC's task regarding "Made in USA" is quite different from foreign country's requirements for product marking. The "Made in USA" label or claim that is the subject of this review is a voluntary designation that should not be a "least common denominator" measure that devalues its current usage, nor should its use be bound by any international standards developed for a different purpose. The use of an FTC-approved hierarchy of terms to indicate varying levels of domestic content (Assembled in USA, Processed in USA, etc.), without undertaking a massive consumer education campaign, would only serve to further confuse consumers rather than provide additional information. Since the surveys of consumers indicate that they have no clear idea of what "Made in USA" really means, to change the definition being used and add new claims would only undermine the confidence in the "Made in USA" claim. Qualified claims are allowed now; there is no need to change this situation. The FTC has asked if the lack of marking on goods nominally made in the U.S. is "material" to consumers. The absence of any indication that there could be substantial foreign content in such unmarked products does, at least to a degree, mislead consumers in our view. However, the ability of companies to use a "Made in USA" label or claim for products that contain significant foreign content would be far more misleading to consumers. That would be the result of modifying the FTC's current standard from the "all or virtually all" definition to any of the others under consideration. This issue highlights the danger posed by the change being contemplated by the FTC. The workshop demonstrated that there are a number of interests that seek to remove the competitive advantage that current users of the "Made in USA" label and claim now enjoy. The current users must meet a very stringent test; those opposed to the current standard seek a far more lenient test that would undermine its meaning. These interests have every right to argue for the adoption of their view. It would be inappropriate, however, for the FTC to give any significant credence to basing such views on a reading of "consumer perception" or "accounting nightmares" regarding the current "all or virtually all" standard. These arguments are convenient excuses for reducing the amount of U.S. production and employment that must be incorporated into a product to meet the "Made in USA" standard, thereby devaluing it. As stated in our first submission for this review, the UAW is willing to consider supporting a revision to the current definition for "Made in USA" that encourages an overall increase in the U.S. content of products that use this claim or label. However, the positions put forward by industry representatives at the workshop would not lead in that direction. It appears clearer now that retaining, and further defining, the "all or virtually all" standard would be the best course for the FTC. opeiu494