Federal Trade Commission Received Documents July 2, 1996 P894219 B18354900197 GOODWIN, PROCTER & HOAR LLP COUNSELLORS AT LAW EXCHANGE PLACE BOSTON, MASSACHUSETTS 02109-2881 July 1, 1996 VIA FEDERAL EXPRESS Office of the Secretary Federal Trade Commission Room 159 Sixth and Pennsylvania Avenue, N.W. Washington, D.C. 20580 Re: Made In USA Post-Workshop Comments, Submitted by New Balance Athletic Shoe Inc., FTC File No. P894219 New Balance Athletic Shoe, Inc. ("New Balance") hereby submits the following comments in response to the request by the Federal Trade Commission for additional public comments following the "Made in USA" workshops held March 26-27 1996. ________________________________________________________________ As New Balance previously and consistently has urged, the dramatic changes in global economic, manufacturing and trade conditions have made unreachable and obsolete the "all, or virtually all" domestic content standard articulated by the Commission in its earlier complaints against New Balance and Hyde Athletic Industries. New Balance has therefore supported a more realistic standard that would encourage rather than disadvantage U.S. manufacturing, and yet would still be consistent with consumers' understanding that a product with an unqualified "Made in USA" label was manufactured at a facility in the United States by U.S. manufacturing workers. Since the March workshop, New Balance has participated in an ad hoc group made up of most of the industry representatives who attended the workshop. The focus of that group has been on the development of guidelines for the use of "Made in USA" claims, including the drafting of some "safe harbor" provisions and illustrative examples. These guidelines have been filed with the FTC by the ad hoc group, in a document entitled "Guidelines for Making U.S. Origin Advertising and/or Labeling Claims" (the "Guidelines"). The Guidelines represent the consensus views of a broad cross-section of the industry representatives who participated in the workshop and in general are consistent with the results of the consumer perception studies presented and discussed at the workshop. New Balance strongly endorses these Guidelines, with one important exception, outlined in paragraph 1 below. New Balance also wishes to address some of the questions raised by the Commission in its notice regarding the Extension of Time for Comprehensive Review of "Made In USA" Claims. 1. Unqualified "Made In USA" Claims/Majority U.S. Value. While New Balance agrees in general with the position stated in the Guidelines, New Balance believes that any "safe harbor" standard for making unqualified "Made In USA" claims should require that a product have a majority (over 50%) domestic value. The proposed Guidelines currently contain three "safe harbors": i) NAFTA Preference Rules; ii) Value Added Standard; and iii) Majority of Processing Standard. The first two of these standards require that a majority of the value of the product be domestic, while the third, the "majority of processing" standard, does not. Moreover, it is New Balance's understanding that the NAFTA preference rules also do not require a greater than 50% domestic value for certain products. To that extent, New Balance's comments with respect to an overriding 51% minimum value requirement are also applicable. New Balance believes that the requirement that in all instances a product must have a majority of U.S. value is consistent with consumer expectations regarding U.S. origin claims. As New Balance has pointed out previously, an unqualified "Made in USA" label on a product that has more than 50% U.S. labor and components and for which final assembly has taken place inside the United States, would provide consumers with truthful information consistent with their understanding that buying U.S.-made goods supports our economy and helps to provide jobs for U.S. workers, while at the same time encouraging struggling U.S. manufacturers to maintain their domestic manufacturing bases and allowing them to compete fairly with imports. Such a standard is consistent with what the majority of U.S. consumers think: in the study conducted by the FTC for the workshop, for example, only 4 out of 316 respondents replied to an open-ended question about what a "Made in USA" label means by saying that "parts" or "all parts" or "most" of the products' parts are made in the U.S. Made in USA Study, Summary of Results, Table 2. New Balance believes that without a majority U.S. content/value requirement, products with low domestic content that undergo only final assembly in the United States could qualify for "Made in USA" labeling in some instances, and that in those instances such a label would be deceptive. At least in the footwear industry, "substantial transformation" or "majority of processing" standards without a "more than 50% domestic value" requirement will be problematic. As an example, New Balance, because of limitations on its domestic manufacturing facilities at certain times, has produced athletic shoes that are assembled of imported uppers and soles. These shoes have not been labeled "Made in USA" because New Balance does not believe it has or ought to have a reasonable basis to treat these products as domestically manufactured. Under the proposed "majority of processing" standard in the Guidelines, or under a substantial transformation test, these shoes could be labeled as "Made in USA." However, using the various formulations for calculating domestic value percentages which have been suggested, these shoes range from between 17% to 30% domestic content -- far below the majority of value which we believe appropriate. We note that this is not necessarily consistent across all industries. In many instances, to meet substantial transformation or majority of processing, more than 50% US value will occur out of necessity. However, at least in the footwear industry, this does not seem to be the case. The addition of the "50% safety valve" will serve as a check against results that seem neither logical nor consistent with consumer perceptions. 2. Currency Valuation and Product Sourcing Fluctuations. The Commission has sought comment on the issues of currency valuation and product sourcing fluctuations in the context of a percentage content standard. New Balance believes that a "majority U.S. value" requirement would sufficiently meet consumer expectations regarding unqualified "Made In USA" claims because such a standard would require a manufacturer to build in a percentage of U.S. value above 50% in order to ensure that it consistently meets the majority standard irrespective of fluctuations in currency valuation and product sourcing issues. In addition, the same currency valuation and product sourcing issues would exist if the Commission rejected a percentage content standard and retained the "all, or virtually all" standard allowing a de minimis amount of foreign content. In short, wherever the line is drawn, market realities would necessitate manufacturers leaving a safety zone above the cut-off to ensure "compliance" with the standard; without such a margin a manufacturer would be at risk of inadvertently falling below the line. This would also suggest that a slight "reduction" of the "all, or virtually all" standard (such as a 90% test, as was suggested by a workshop participant) would have little practical effect. 3. Importance of Foreign Origin Claims. While consumers may not view a "Made in [X foreign country]" exactly the same way that they view a label indicating a product was made in the U.S., it is clear that for some products consumers believe that one country or other produces a higher quality product. According to the International Mass. Retailers Association/Gallup Study, for example, 61% of American consumers perceive foreign electronic products as better made than comparable U.S. products. See "Consumer Attitudes Toward Product Sourcing," May 1994, at Figure 2-1. These consumers presumably will look for products from foreign countries when making purchasing decisions about electronics. Unless the labeling on imports and domestically-produced goods are equivalent, therefore, consumers will be confused and/or deceived because they will have no way of knowing that the label "Made in [X foreign country]" signifies something different about the product's content than the label "Made in USA." 4. The "All, or Virtually All" Standard. New Balance believes it was extremely significant that, with the exception of a representative from the handtool industry, the only industry representative at the workshop who supported the "all, or virtually all" standard was an importer who makes not a single product within the borders of the United States. See Transcript of Proceedings, "Made in USA" Public Workshop, March 27, 1996 at pp. 632-634. That fact is particularly troubling in the context of weighing the impact that the standard has on U.S. labor, whose representatives at the workshop indicated an apprehension that U.S. manufacturing jobs would be lost if the standard were changed. These representatives found support for the status quo from a company that provides no manufacturing jobs here, while many of the U.S. manufacturers who are providing U.S. manufacturing jobs (and attempting to compete with importers whose labor costs are dramatically lower), argued that an updated standard would protect U.S. manufacturing jobs -- a goal shared by the labor representatives. See, e.g., Transcript of Proceedings, "Made in USA" Public Workshop, March 27, 1996 at pp. 603-606. In conclusion, New Balance strongly supports a standard which will allow products which are in fact made in the United States to be labeled "Made in USA." The "all, or virtually all" standard does not achieve this goal. New Balance believes that the standards set forth in the Guidelines, coupled with an overriding requirement of greater than 50% domestic content in the product, meet this test and in doing so meet the needs and expectations of both U.S. consumers and manufacturers. Respectfully submitted, NEW BALANCE ATHLETIC SHOE, INC. By its Attorneys, ______________________________________ Paul R. Gauron Barbara Healy Smith Lisa M. Tittemore GOODWIN, PROCTER & HOAR LLP Exchange Place Boston, MA 02109 (617) 570-1000 230507.a1