Federal Trade Commission Received Documents July 1, 1996 P894219 B18354900196 JIG Joint Industry Group THE JOINT INDUSTRY GROUP 818 Connecticut Avenue, N.W., 12th Floor, Washington, D.C. 20006-2702 Telephone (202) 466-5490 Fax: (202) 872-8696 Chairman David W. Rose Secretariat James B. Clawson July 12, 1996 Mr. Donald S. Clark Office of the Secretary Federal Trade Commission Room 159, Sixth and Pennsylvania Avenue, N.W. Washington, D.C. 20580 "Made in USA" Policy Comments, FTC File No. P894219. Dear Secretary Clark: On behalf of the Joint Industry Group (hereinafter JIG), we respectfully submit the following comments with regard to the Federal Trade Commission's (FTC) request for comments as published in the Federal Register on Friday, April 26, 1996 (61 Fed. Reg. N0. 61 18600). For the reasons discussed herein, we submit that the current policy requiring products labeled "Made in USA" to be manufactured entirely or almost entirely with United States materials and labor, is contrary to the clear, common meaning of the phrase "Made in" and is inconsistent with international standards and modern manufacturing practice. Rather, we recommend that the FTC's standard for "Made in USA" labeling should be eventually harmonized with international standards for country of origin determinations and, in the interim, with the standards administered by the United States Customs Service. At a minimum, the "substantial transformation" criteria should be adopted to allow for the designation "Country of Origin: USA" as a guideline or "safe harbor" that allows manufacturers to meet both U.S. and foreign country of origin marking requirements. JIG believes that this "safe harbor" concept has significant merit and should be considered as a viable alternative to today's "all or virtually all" criteria. JIG is a coalition of over 100 companies, associations and firms actively involved in business and trade. JIG examines the concerns of the business community, relative to customs-related policies, actions, legislation and regulation and undertakes to improve them through proactive dialogue with US Customs, Congress and other government agencies. JIG commends the FTC for its attention to this important issue and will continue to participate in this process. RECOMMENDATIONS "All or Virtually All Standard" The most obvious drawback associated with the current "all or virtually all" threshold is that many companies which produce goods within the US using some degree of foreign materials cannot advise consumers that substantial manufacturing has occurred in the US. These companies cannot take advantage of using the valuable "Made in USA" claim for marketing, advertising or other purposes. The multiple questions asked in this request for comments regarding what constitutes a "step" back in manufacturing, is indicative of the complexity and subjectivity of this yet to be defined methodology. In a practical business sense, this complexity and subjectivity can only evolve into a standard that is equally cumbersome. This in turn can only result in the establishment of a new and costly standard for business. This "step" back philosophy should not be considered as a solution, rather it would only complicate matters. Percentage Content Standard JIG believes that any origin threshold based on a "domestic content" standard, such as one calculated on domestic value, would pose enormous regulatory problems for JIG members and other domestic manufacturers. Under such systems, companies would be required to conduct detailed internal cost analyses in order to accurately determine the exact domestic content for their products. Furthermore, as sourcing patterns shift, and prices of materials, labor, and other fixed and variable cost allocations change, companies would be required to constantly update their cost/value analyses. The experience of the US under the US-Canada Free Trade Agreement, the Buy America Act and other regimes demonstrates that value-based content tests can be extremely cumbersome to administer. The cost of such administration can only be justified when it is clearly demonstrated that manufacturers, consumers and/or the US economy as a whole receive a benefit exceeding the cost. Formulating a value-based test is itself a difficult exercise. Substantial Transformation Standard The substantial transformation doctrine is well developed and supported by years of court precedence, technical and legal analysis, as well as a multitude of US Customs administrative rulings for specific products, processes and other circumstances. There are many benefits for using already established statutes and procedures to determine country of origin for "Made in USA" claims, including predictability, transparency and enforceability. JIG members believe that country of origin determinations under the substantial transformation doctrine, as interpreted by court precedents and enforced by US Customs are appropriate for use with "Made in USA" country of origin marking. This standard is already familiar to, and generally accepted by, the business community. JIG members believe that the substantial transformation doctrine and, when completed and adopted by the US, the WTO internationally harmonized rules for determining country of origin will adequately establish the threshold and will provide consumers accurate "apples-to-apples" country of origin comparison information for all products. Provision for "Safe Harbor" that Meets "Substantial Transformation" Test Should the FTC decide that the "substantial transformation" standard is not appropriate for the "Made in USA" claim, JIG believes that a "safe harbor" origin designation should be established to allow companies to provide consumers with country of origin information that also satisfies international origin marking rules. In many cases, companies must alter their product packaging simply to comply with the FTC's "all or virtually all" standard. For example a U.S. manufactured product exported to Australia, must be labeled as either "Made in the USA" or "Product of the USA" (see attachment 1). Australia will not recognize other qualifying statements. Often, manufacturers have one package designed for their English speaking customers. This allows companies to realize the efficiencies and cost savings inherent in mass production for multiple markets. Forcing companies to design one package for export, and one for domestic consumption only adds costs and encourages U.S. manufacturers to realize production efficiencies abroad. US manufacturers have encountered numerous situations where the multiplicity of origin rules has led to inconsistent results causing increased costs of manufacturing and ensuring legal compliance. Even within North America, these inconsistencies exist. For example, products manufactured in the US with the use of foreign materials are exempt from marking with a foreign origin pursuant to 19 U.S.C. Section 1304; however, the FTC's rules prevent the goods from being marked with the affirmative representation that they are "Made in USA." The products are thus marketed in the US with no statement concerning their origin. At the same time, when these products are exported to Canada or Mexico, they are required by the NAFTA to be correctly labeled "Made in USA." To meet these conflicting requirements, US companies are often required to establish special packaging and re-labeling facilities, and to design and manufacture multiple forms of packaging for different destination markets. If the FTC's rules were consistent with the country of origin marking requirements administered by US Customs, these additional costs could be avoided, and consumers could be advised of the origin of the goods which they purchase. One possible solution different from our prior comments may be to adopt a two tier system as follows: U.S. country of origin products meeting the current "all or virtually all standard" "Made in USA" For those products where U.S. country of origin meets the Customs "substantial transformation test" "Country of Origin: USA" or "Product of USA" CONCLUSIONS As mentioned in the FTC's notice, a much smaller percentage of goods produced in the US today is comprised of "all or virtually all" US materials and labor, compared to previous decades. JIG members agree that this trend will continue, increasing the need to revisit the current standard. Companies should not be presented with an additional regulatory standard addressing country of origin marking information. Such a new regulation would impose a repetitive and costly compliance burden on both the business community and the FTC. Companies are already using established statutes and procedures to determine origin such as the existing NAFTA marking rules and US Customs country of origin marking rules. The FTC should participate in the international harmonization work program now underway to develop harmonized rules of origin for the determination of country of origin. The FTC "Made in USA" standard should eventually be harmonized with those rules. In the interim, the rules could be harmonized with the current international standards administered by the U.S. Customs Service to allow for the designation "Country of Origin: USA" as a guideline or "safe harbor" that allows manufacturers to meet both U.S. and foreign requirements. In closing, JIG members appreciate this opportunity for comment and look forward to continued participation in this process. Respectfully submitted, James B. Clawson Secretariat