FTC: Made In The USA Comments Concerning 16 Attorneys General--P894219
MADE IN U.S.A. POLICY COMMENT
JULY 25, 1997
COMMENTS OF THE ATTORNEYS GENERAL OF THE STATES OF CONNECTICUT, CALIFORNIA, FLORIDA, IOWA, ILLINOIS, MICHIGAN, MISSOURI, NORTH CAROLINA, NEW JERSEY, NEVADA, NEW YORK, PENNSYLVANIA, RHODE ISLAND, TENNESSEE, WASHINGTON, AND WISCONSIN
The Attorneys General of the States of Connecticut, California, Florida, Iowa, Illinois, Michigan, Missouri, North Carolina, New Jersey, Nevada, New York, Pennsylvania, Rhode Island, Tennessee, Washington, and Wisconsin, are pleased to submit these comments in response to the Federal Trade Commission's Proposed Guides for the Use of U.S. Origin Claims. We urge the Commission to refrain from diluting its traditional Made in U.S.A. enforcement standard and to retain the integrity and accuracy of the label by requiring any product bearing the unqualified Made in U.S.A. label to contain at least 90 percent actual U.S. content.
The Attorneys General have already addressed many of these issues in comments submitted on January 16, 1996 for the Commission's Made in U.S.A. workshop that was held in March, 1996.(1) Today's comments are submitted in response to the Commission's proposal, and will only supplement the previous comments where necessary.
II. THE COMMISSION'S PROPOSED GUIDELINES.
Made in U.S.A. is a powerful marketing tool that is sought out by consumers and highly valued by marketers. Since the 1940s, the Commission has required that the unqualified "Made in USA" label be restricted to products that were all or virtually all made by U.S. workers using component parts that were also made by U.S. workers. To prevent consumer deception, the Commission had required that Made in U.S.A. claims on products that were not entirely Made in U.S.A. be qualified, (e.g. Made in U.S.A.; contains some foreign component parts).
In reaction to objections from industries that seek to utilize the Made in U.S.A. claim for products containing component parts manufactured outside of the U.S., the Commission has proposed to dilute the meaning of Made in U.S.A. The Commission's proposed standard would allow companies to market their products as Made In U.S.A. without disclosing that the product contains foreign content when either (1) 25 percent or less of the costs of manufacturing the product is from foreign sources or (2) the final manufacturing stage of the product and its significant component parts took place in the U.S.A. The Attorneys General believe that weakening the standard to this extent will lead to consumer confusion and will mislead substantial numbers of consumers who wish to purchase American products.
III. CONSUMERS WOULD BE CONFUSED AND MISLED BY MADE IN U.S.A. LABELS ON PRODUCTS WITH SIGNIFICANT LEVELS OF FOREIGN CONTENT.
The Commission's two consumer perception surveys on this topic demonstrate the need for a strong Made in U.S.A. standard. A 1991 FTC copy test on this subject ("1991 FTC Copy Test") revealed that absent any disclosure to the contrary, a majority of consumers interpret Made in U.S.A. to mean that "all or almost all" of the product and its component parts were made in the U.S.A., not simply assembled in the U.S.A. out of foreign component parts.(2) In a 1996 survey, commissioned by the FTC specifically for the Made in U.S.A. workshop, consumer reaction was solicited for Made in U.S.A. claims for various hypothetical products. When asked their opinion of the accuracy of a Made in U.S.A. label applied to a product that had 70%(3) actual U.S. content only 26 percent of consumers tested unqualifiedly agreed with the accuracy of the label. Forty one percent of consumers "somewhat agreed", 11 percent "somewhat disagreed" and 20 percent "strongly disagreed." When the question was asked to individuals who indicated that the Made in U.S.A. label was very important to them, the number of consumers who strongly disagreed actually outnumbered the number of consumers who strongly agreed. (33.3 percent strongly disagreed while 29.2 percent strongly agreed). These two surveys interpreted together establish that consumers interpret unqualified Made in U.S.A. claims to require a level of U.S. content substantially above 75 percent.
To interpret the response "somewhat agree" to connote actual consumer agreement with the claim would set a dangerous precedent for interpreting consumer perception surveys. Because the claim applied to a product that was partially made in the U.S.A., it should be expected that the majority of consumers would respond that the claim is either partially accurate or partially inaccurate. The deception standard, however, prohibits claims that would be likely to mislead consumers, regardless of whether such claims may be characterized as "somewhat" accurate. Because so few consumers felt that Made in U.S.A. claims were entirely accurate with respect to products with 70 percent U.S. content, there is a compelling likelihood that substantial numbers of consumers will be misled by unqualified claims on such products.
Perhaps the most persuasive evidence that Made in U.S.A. labels on products with significant foreign content are confusing to consumers is the testimony of multinational manufacturers themselves. Many manufacturers at the workshop stated flatly that if they were forced to disclose significant foreign content, they would in all likelihood cease to make such claims. See e.g., Transcript of FTC Made in U.S.A. Workshop, March 26, 1996, pp. 303, 337-38, 341-43, 351. One representative of a large number of manufacturers candidly stated that qualified claims are "not good advertising." Id. pp. 303, 341-43.
Manufacturers should not be allowed to secure the substantial benefits from Made in U.S.A. claims unless they are at least willing to disclose to the public the actual U.S. content of the product. While keeping such information from consumers is arguably "good advertising," it is ultimately harmful to consumers and facially inconsistent with the deception standard.
IV. ASSEMBLED IN THE U.S.A.
Distinguishing between claims of Made in U.S.A. and Assembled in U.S.A. would allow manufacturers to effectively market their products using easily understood unqualified claims without sacrificing truth in advertising. As pointed out in the initial comments of the Attorneys General, while the term "make" connotes a process of creation the term "assemble" is generally understood to mean the final process of fitting or joining together pre-existing parts.
The Commission's 1996 consumer perception survey clearly highlights the distinction between these two terms. In asking consumers whether a hypothetical product was made in the U.S.A., the survey question distinguished between products assembled in the U.S. and products assembled in foreign countries. The questions and the consumer responses demonstrate that neither consumers, nor the architects of the study, perceived Made in U.S.A. to be synonymous with Assembled in U.S.A. See Made in U.S.A. Study, Summary of Results Tab 2, p. 2 FN 4 and Table 1. The Commission should recognize this clear and common sense distinction between the two terms, allowing products to be labeled as Assembled in the U.S.A. if the final manufacturing process took place in the U.S., and should reserve the stronger Made in U.S.A. claim for products that have at least 90% actual U.S. content.
V. THE COMMISSION'S PROPOSED STANDARD EFFECTIVELY ALLOWS PRODUCTS TO BE LABELED AS MADE IN U.S.A. WHEN SUBSTANTIALLY MORE THAN 25 PERCENT OF THE PRODUCT IS MANUFACTURED OUTSIDE OF THE U.S.
While the Commission's guidelines appear to limit the foreign content of products labeled Made in U.S.A. to 25 percent, they would, in many instances, permit far more.
The Commission measures foreign content by comparing the percentage of costs attributable to foreign parts and labor to those attributable to U.S. parts and labor. This approach, however, fails to compensate for the disparity in costs between the United States and many developing countries. Indeed, a predominant reason that American companies ship parts of their manufacturing processes overseas is the low cost of labor and capital in developing markets. A manufacturing process that might comprise almost half of the product's value if it was performed in the United States, therefore, might comprise only 10 percent of the product's value if performed in a different country. Thus, if the purpose is to ensure that no more than 25 percent of the product is made in a foreign country, the cost from foreign components and labor must, in many instances, be significantly less.
VI. THE SUBSTANTIAL TRANSFORMATION STANDARD SHOULD BE APPLIED TO PRODUCTS LABELED AS ASSEMBLED IN U.S.A.
The Commission has created an exception to the 25 percent standard, and provided that companies may use the Made in U.S.A. label in instances where a product and its significant component parts are "substantially transformed" within the United States. Because the substantial transformation test developed by customs does not require the component parts of a product to be made in the U.S.A., it is possible under this standard for a product containing 100% foreign component parts to be labeled as Made in U.S.A. Moreover, while the Commission has explained in great detail why a "one step back process" is unacceptable in the context of the percentage standard, the Commission has adopted a one step back process in the substantial transformation standard without comment. As a result, manufacturers are free to disregard substantial foreign content in component parts, so long as that component part was substantially transformed within the United States. While such a standard is consistent with the meaning of Assembled in U.S.A., it fails to meet the higher standard that should be required of the more powerful Made in U.S.A. claim.
For the reasons given above, the Attorneys General respectfully submit that the Commission should amend its proposal to ensure that any product bearing the unqualified Made in U.S.A. label contain at least 90 percent U.S. content. Products labeled as Assembled in U.S.A. should be required to have been "substantially transformed" within the United States. Any lower standard would unreasonably dilute this long-standing symbol of American pride and craftsmanship to a level that bears little relation to consumer perception.
On Behalf Of:
ROBERT A. BUTTERWORTH
Jack A. Norris, Jr.
THOMAS J. MILLER
Julie F. Pottorff
FRANK J. KELLEY
Frederick H. Hoffecker
JEREMIAH W. (JAY) NIXON
MICHAEL F. EASLEY
Mark S. Herr
FRANKIE SUE DEL PAPA
Jo Ann Gibbs
DENNIS C. VACCO
D. MICHAEL FISHER
John E. Kelly
JEFFREY B. PINE
Christine S. Jabour
JOHN KNOX WALKUP
CHRISTINE O. GREGOIRE
Donna R. Fisher
JAMES E. DOYLE
Barbara W. Tuerkheimer
1. A copy of the initial comments of the Attorneys General submitted for the Made in U.S.A. workshop is attached hereto. The initial comments were submitted by the Attorney General of Connecticut on behalf of the Attorneys General of the states of CALIFORNIA, FLORIDA, HAWAII, Illinois, Iowa, KANSAS, MARYLAND, Michigan, MISSOURI, Nevada, New Hampshire, New Jersey, new York, North Carolina, Ohio, RHODE ISLAND, Tennessee, Washington, Wisconsin and West Virginia. The states that endorsed the comments after they were submitted to the Commission, Illinois, New Jersey, North Carolina, Tennessee and Wisconsin are not listed on the initial comments.
2. The 1991 copy test is discussed more completely in the initial comments of the Attorneys General submitted for the Made in U.S.A. workshop.
3. The question was not asked regarding a product with 75 percent U.S. content.