Federal Trade Commission Received Documents July 1, 1996 P894219 B18354900184 IMRA INTERNATIONAL MASS RETAIL ASSOCIATION 1700 North Moore Street Suite 2250 Arlington, VA 22208 ADDITIONAL REBUTTAL AND CLARIFYING COMMENTS OF THE INTERNATIONAL MASS RETAIL ASSOCIATION BEFORE THE FEDERAL TRADE COMMISSION ON COMPREHENSIVE REVIEW OF "MADE IN USA" CLAIMS FTC FILE NO. P894219 JULY 1, 1996 Phone: (703) 841-2300 0 Fax: (703) 841-1184 INTRODUCTION The International Mass Retail Association (IMRA) represents 170 mass retailers that include discount department stores, home centers, catalogue showrooms, dollar stores, variety stores, warehouse dubs, deep discount drugstores, specialty discounters and off-price stores. Collectively, IMRA retail members operate more than 54,000 stores in the U.S. and abroad and employ over a million people. The retail members represent the overwhelming majority of the $346 billion mass retail industry. IMRA's member companies have a strong and direct interest in the issue of how country of origin information--particularly "Made in the USA" claims--are presented to the consuming public. We filed our original comments on this matter in January 1996, and participated in the Federal Trade Commission's (Commission") March workshop. Since the workshop, IMRA served as the chair for a small group of other workshop participants ('The Ad Hoc Group') that has met numerous times over the last three months in an effort to craft a consensus advertising guide for a range of U.S. origin marketing and marking claims. Today, nine associations and companies have jointly submitted, under separate cover, a proposed advertising guide ("The Proposed Guide') which represents the product of these meetings and negotiations. IMRA believes that The Proposed Guide represents a first step toward developing a consensus alternative to the Commission's "all or virtually all" standard, because the guide has been crafted to provide flexibility across many different types of manufacturing operations. We believe The Proposed Guide answers many of the 1 questions posed by the Commission in its April 26, 1996, Federal Register notice. Indeed, we believe "The Proposed Guide actually moves the discussion beyond the questions posed at the end of the March workshop. For this reason IMRA's main purpose in commenting today is to urge the Commission, in the strongest terms, to publish The Proposed Guide in the Federal Register and seek additional comments on its 'safe harbor' approaches. IMRA's views on selected questions follow. THE ALL OR VIRTUALLY ALL STANDARD In our initial filing, IMRA opposed the all or virtually all standard currently in use by the Commission. We continue that opposition. We do not believe that changing the way in which value is calculated can ever make such a narrow standard workable in today's global manufacturing environment. We believe the current standard harms American companies who have made a commitment to manufacturing in this country, and who employ many American workers. PERCENTAGE CONTENT AND SUBSTANTIAL TRANSFORMATION In our initial filing with the Commission we cautioned that a 'one-sized-fits-all' alternative to the 'all or virtually all" standard would not work for everyone. For this reason, we proposed the adoption of a guideline, like the Green Advertising Guides, that might attempt to define by example a variety of approaches, both to qualifying U.S. origin claims and to substantiating them. 2 At the same time, IMRA advocated--and continues to advocate--for an approach that tries to satisfy consumer needs. To do that, IMRA believes any standard or guideline must attempt to define when and where a product is actually 'made,' in the plain meaning of that word. While this sounds like a simple premise, it proves elusive in the defining. Nevertheless, IMRA believes the Workshop discussion about what it means to "make Thanksgiving dinner," provides a real road map for arriving at a guideline for advertisers. For example, to make Thanksgiving dinner, a cook doesn't have to raise and slaughter the turkey; grow, harvest and cook the yams; sew, reap, and mill the wheat into flour before baking the bread; or raise and milk cows before skimming the cream and churning the butter. By the same token, a cook who claims to have made Thanksgiving dinner would be stretching the point if all he or she did was to assemble the major components of Thanksgiving dinner by obtaining a fully cooked and stuffed turkey from a caterer; buying the packaged rolls from the market; assembling a salad from a salad bar; buying canned cranberry sauce; and getting Aunt fane to make the sweet potato casserole. The average American knows what making dinner requires: The cook must assemble the basic, undedicated building blocks of dinner (the meat, the vegetables, the grain, and the dairy products) and put those ingredients together to actually make dinner. A cook who roasts the turkey, makes a casserole, and bakes a pie, fir makes dinner even if some of the components are pre-assembled, like store-bought rolls and 3 canned cranberry sauce. You can still bake a pie, even if the dough was store-bought. So a cook doesn't even need to undertake all of the baking and all of the cooking to meet the general definition of having made the dinner. IMRA submits that this is the standard that the Commission must strive to find in order to provide guidance to advertisers and avoid consumer deception. IMRA believes The Proposed Guide provides a very good first step in that direction. The Proposed Guide rejects both a simple value-added standard as well as the simple adoption of the Customs Service's substantial transformation standard. Neither of these approaches really gets to the plain idea of what it takes to 'make' something. Instead, The Proposed Guide takes the middle ground, providing two alternate, but essentially equivalent, approaches for substantiating U.S. origin claims. Each of these approaches require manufacturers to make some, assessment of the nature of the manufacturing process as well as the value added. Using one approach, advertisers look first to the amount of value added, as measured by well-accepted direct costs of manufacturing. Under this alternative advertisers must be convinced that significant value is added. Once over that hurdle, the advertiser must be sure that the last significant process took place in the United States, because ff the final significant process didn't happen here, then the product can't possibly have been "made" here no matter how much value is added. Using the alternate, equivalent approach, advertisers look first at the process or processes undertaken in the United States, and must satisfy themselves that the 4 majority of all the processes normally undertaken to make a product take place in the United States. That means looking at major subassemblies, one-step back in the process, but it doesn't mean more than that, any more than it does in the making dinner example. Once manufacturers are satisfied that the majority of all the processes to create a product take place here, they must be certain that the value added is not insignificant. This is to assure that simple operations that don't really add much value can't slip in under the wire. In particular, the Proposed Guide's majority of the processing "safe harbor' is an honest an attempt to convey the concept that every product, regardless of the type or process, has a number of defined steps to create it that include the creation of major components and subassemblies. If the majority of these steps take place in the United States, including the last significant step, then the product was made here, regardless of where the product's undedicated building blocks come from. The other safe harbors provided in The Proposed Guide are short cuts to arriving at the same result. The NAFTA preference rules, modified to count only U.S. processing and value, are an exhaustive compilation of our government's 'best guess' of what it takes to actually create a product on an industry-by-industry basis. The final significant processing plus 50 percent value-added is a dose approximation to a general statement of the NAFTA preference rules. By recognizing that each of these safe harbors, while not equal, are certainly equivalent, the FTC could go a long way toward bringing clarity to a difficult and 5 complex area. We urge the Commission to give The Proposed Guide's formulation serious consideration as an alternative to the "all or virtually all" standard, and the other singular standards that have been advanced by other workshop participants. FOREIGN LABELING REQUIREMENTS AND HARMONIZATION OF LABELING IMRA remains concerned, however that The Proposed Guide, while helpful to U.S. advertisers, may create yet another labeling standard that could prove difficult and costly for U.S. exporters, and those retailers who sell merchandise in more than one country. Conflicting, overlapping, and contradictory country of origin labeling requirements are potentially very costly to industry. As the economies of the world continue to become more integrated, these costs are certain to grow. We do not have an empirical assessment of the actual costs that conflicting country of origin requirements impose on industry, but we know the costs are real. While the United States is the only country that IMRA knows of that has across-the board country of origin labeling requirements at this time, the fact is, many countries are beginning to emulate the United States. For sensitive products, like agricultural products or textiles and apparel, other countries have imposed significant and sometimes burdensome labeling requirements. Mexico is moving toward a comprehensive program of labeling for all consumer products. Maintaining separate inventories of products that are to be sold domestically and abroad is one of the main costs facing U.S. exporters. Increasingly, IMRA's members who operate in the United States, Mexico, Canada, and other Central and South 6 American countries are faced with the prospect of hand tickering country of origin information on different inventories at huge cost, and loss to productivity. These retailers would like to maintain single inventories of American product and undertake centralized distribution of merchandise. Centralization enables retailers to offer better prices everywhere, and to facilitate U.S. exports that are so important to U.S. economic growth. Unfortunately, as long as conflicting and overlapping labeling requirements are in place, such economies of scale will never be realized. This is the main reason for IMRA's continued support of World Trade Organization (WTO) harmonization efforts. Admittedly these efforts will take years to complete, but once in place, the WTO standard should replace any standard or guideline adopted by the Commission as part of this comprehensive reexamination. Getting the world on a single standard for determining origin is going to be difficult job, fraught with industry and political battles. IMRA believes, however, it is truly necessary, and urges the FTC to play an active role in the WTO process. In the interim, IMRA recommends that the FTC allow manufacturers to mark products sold in the United States with the words "Country of Origin: USA' in the limited instances where actual exports of the product are subject to foreign marking requirements. We would limit this "lesser mark" in the following ways: 1) It should be as inconspicuous as possible; 2) It should not be repeated in advertising unless the claim can be substantiated using one of the methods outlined in The Proposed Guide for 7 unqualified "Made in USA" claims; and 3) It should be allowed only when the manufacturer is actually exporting products to the affected market. IMRA believes that the issue of dual labeling requirements will not recede in the coming years. As multiple country processing expands, and as other countries emulate the United States, the costs associated with conflicting, overlapping and contradictory labeling requirements will grow. In the long term, the solution is world-wide agreement on how origin is to be determined. In the short term, the Commission could eliminate many of the costs by eliminating the 'all or virtually all" standard and allowing for a lesser mark along the lines suggested above. CONCLUSION IMRA welcomes this opportunity to submit these additional comments for the record. If the Commission has any questions regarding this submission or IMRA they should direct them to Robin Lanier, Vice President, International Trade & Environment at 703/841-2300. 8