FTC: Made In The USA Comments Concerning Herbert E. Harris II--P894219
on behalf of
THE COMMITTEE OF DOMESTIC STEEL
MADE IN USA POLICY COMMENT
I. INTRODUCTORY STATEMENT
This submission is made on behalf of the Committee of Domestic Steel Wire Rope and Specialty Cable Manufacturers (Committee),1 in a response to notice published at 62 Fed. Reg. 25020 (May 7, 1997) which requests public comment on the proposed guidelines issued by the Federal Trade Commission for "Made In USA" claims in product advertising and labeling. The Committee is composed of most major manufacturers of steel wire rope, and accounts for a substantial majority of U.S. wire rope production.
The Committee has fully participated in these proceedings. Comments were submitted on behalf of the Committee on January 19, 1996 (hereafter referred to as "Committee Comments") in response to the FTC's October 1995 notice.2 Additionally, the chairman of the Committee, Charles W. Salanski, along with counsel, attended and participated in the public workshop conducted by the FTC on March 26 and March 27, 1996.
As we detailed in the Committee comments and in our statements at the public workshop, the Committee submits that the "Made In USA" standard should be premised on the "substantial transformation" principle. For wire rope, this means that only wire rope which contains U.S. produced strand and IWRC can be
1 The Committee consists of the following member-companies: Bridon American Corporation, Wilkes-Barre, PA; Broderick and Bascom Company, Kenosha, WI; Macwhyte Company, Kenosha, WI; Paulsen Wire Rope Corporation, Sunbury, PA; The Rochester Corporation, Culpeper, VA; Union Wire Rope, Kansas City, MO; and Wire Rope Corporation of America, Incorporated, St. Joseph, MO.
2 Request for Public Comment In Preparation for Public Workshop Regarding "Made In USA" Claims In Product Advertising and Labeling, 60 Fed. Reg. 53922 (October 18, 1995).
labeled as "Made In USA. This standard properly reflects the realities of the wire rope manufacturing process, is consistent with the standard used by the U.S. Customs Service for determining country of origin, is transparent, and is readily enforceable.
II. DESCRIPTION OF THE PRODUCT AND MANUFACTURING PROCESS
Steel wire rope is a machine which is used for applications which require force to be transmitted, such as for earth-moving and materials-handling equipment including clamshells, cranes, bulldozers, mining machines, hoists and conveyors; for elevators; for logging; for marine applications; for aircraft control cables and for fish net trawling. Steel wire rope is also the only acceptable product which may be used by the oil field industry for drilling and well servicing.
All wire ropes consist of three basic components: 1) a core; 2) wires that form a strand; and 3) strands laid helically around a core. Strands consist of individual wires, with the number of wires per strand usually ranging upward of seven. The individual wires are formed around a center, which is usually a single wire, so that all wires in a strand can move in unison to distribute load and bending stresses. Physical characteristics of the finished wire rope, such as flexibility, fatigue resistance and abrasion resistance, are directly affected by the design of the strands, i.e., the number of wires in the strand and the manner in which these wires are arranged within the strand.
The core is the foundation of a wire rope around which the main strands are laid. The core keeps the strands properly spaced within the design standards and length of lay. It is made of materials such as steel (typically an independent wire rope, or IWRC), hard vegetable or synthetic fiber, which will provide proper support for the strands under normal bending or loading conditions.
Generally, wire rope production begins with hot rolled, high carbon steel wire rod. The rod is controlled cooled or is passed through a special patenting furnace to improve ductility and give a uniform grain structure. After being cleaned, the rod is drawn through progressively smaller dies to achieve the wire diameter required for specific rope uses. High carbon steel wire may be left uncoated ("bright") or given a zinc coating ("galvanized"). The latter process improves the corrosion resistance of wire rope.
Individual wires are brought together in the stranding process. Strand used for making wire rope is generally lubricated as the wires move into the stranding die. This lubrication is necessary to enable the wires, and the strands, to move freely in the wire rope, and to protect and preserve the individual wires. The type and amount of lubrication used varies depending upon the ultimate use to which the finished wire rope will be put.
In the last stage of production, the strands are "closed" around a core. Most wire ropes are formed by helically closing six strands in a single layer around a core.
A completed wire rope is almost always assembled into a wire rope sling, or fitted with fittings at either or both ends of the rope. Certain end attachments adapt the wire rope to the purpose for which it will be used, while other attachments merely facilitate handling of the wire rope. End attachments may be affixed to the wire rope and sold as an assembly by the manufacturer. More commonly, the assembly is fabricated by a separate entity from the manufacturer of the wire rope, such as a distributor.
III. A MADE IN USA STANDARD BASED ON THE SUBSTANTIAL TRANSFORMATION PRINCIPLE WOULD BE READILY ENFORCEABLE
As we detailed in the Committee Comments, the Committee submits that the "Made In USA" standard must be based on the substantial transformation principle. Only steel wire rope manufactured from U.S.-produced strand and IWRC (steelcore) should qualify as "Made In USA."
The stranding operation constitutes a sound and practicable "bright line, demarcation for "Made In USA" claims since the principal physical characteristics of the completed wire rope are directed by the design of the strands. Moreover, it is at this stage of the wire rope production process that the raw material becomes fully dedicated to its ultimate use as wire rope .3
3 Indeed, high carbon steel rod and wire drawn from it can be used for the manufacture of a wide variety of products, including musical instrument string, hose clamps, mechanical springs, upholstery springs, tire cord as well as wire rope. See Carbon Steel Wire Rod From Brazil and Japan, Inv. os. 731-TA-646 and 648 (Final), USITC Pub. 2761 at II-11 (March 1994). In contrast, strand used for wire rope is not commercially suitable for any other use than wire rope production due to its unique constructions and properties. For this reason, a statistical "break-out" of subheadings 7312.10.10 and 7312.10.30 of the
Additionally, the stranding operation is the proper and operative focus of a "Made In USA" determination since this stage of the wire rope production process constitutes a substantial transformation.4
The standard proposed by the Committee aptly reflects the realities of the wire rope production process since its emphasis is on that stage of the process in which the essential character of the finished product is imparted. Furthermore, this standard has the advantages of across-the-board consistency and transparency, and is not encumbered by complex case-by-case determinations or calculations regarding product cost.5
Harmonized Tariff Schedule of the United States was created in 1989 to provide specifically for imported strand used for the manufacture of steel wire rope.
The U.S. Customs Service has not issued a formal ruling
on this issue. However, the Committee submits that the
conversion of wire to strand constitutes a substantial
transformation under the "distinctive name,
character, or use" test established in a series of
judicial decisions. See Anheuser-Busch Brewing Ass'n
v. United States, 207 U.S. 556 (1908); Superior
Wire v. United States, 867 F.2d 1409 (Fed. Cir.
5 Under the first safe harbor of the "Made In USA" standard proposed by the FTC, a product would qualify for a "Made In USA claim if it has last been substantially transformed in the United States, and 75 percent of total manufacturing costs are U.S. costs. The Committee is concerned that the "U.S. percentage" leg of this safe harbor will necessarily give rise to complex and inconsistent case-by-case cost determinations, and as a result, could hamper effective enforcement efforts. The FTC has itself noted that "a percentage content standard safe harbor may pose complex accounting pissues. 62 Fed. Reg. 25020, 25041 n.207 (May 7, 1997) In
A standard premised on the substantial transformation principle would render "Made In USA" guidelines consistent with the standard under Customs law for determining the country of origin of articles. Under U.S. Customs law, an imported product must bear a foreign country of origin marking unless the product is substantially transformed in the United States.6 Under the guidelines proposed by the FTC, an article can be substantially transformed in the United States so as not to require a foreign country of origin marking, but still not qualify for a "Made In USA" label. The Committee submits that this "grey area" will necessarily lead to significant consumer confusion and will undermine the benefits which the FTC seeks to attain through "Made In USA" guidelines.
The Committee's primary concern has been, and continues to be, enforcement. Any standard which the FTC adopts be readily enforceable. As we previously noted, the vast majority of imported wire rope is sold in the U.S. at prices significantly below that of
addition, the Committee submits that the "U.S. percentage" leg of this safe harbor could potentially handicap U.S. steel wire rope manufacturers in those limited instances where imported rod or wire must be used for production due to domestic supply shortages. For example, if a U.S. manufacturer is preempted from labelling steel wire rope as "Made In USA" solely because it was manufactured with imported rod or wire, a U.S. consumer is likely to equate the lack of the "Made In USA" label with the product being imported. In that instance, any comparative advantage which the product may have as a result of it being substantially transformed in the United States is effectively nullified.
6 19 U.S.C. §1304; Uniroyal, Inc. v. United States, 3 CIT 220 (1982), aff'd, 702 F.2d 1022 (Fed. Cir. 1983).
domestically-manufactured wire rope.7 Since domestically manufactured and imported wire rope may appear interchangeable to U.S. consumers, purchasing decisions are often made on the basis of price. The lack of a uniform and readily enforceable guidelines for determining whether a wire rope or assembly is made in America has allowed for questionable, and often fraudulent, claims regarding the country-of -origin of the article. These factors have greatly abetted foreign suppliers, ability to capture an increasing share of the domestic steel wire rope market at the expense of U.S. producers. The establishment of sound and uniform guidelines for determining whether wire rope may be labeled and advertised as "Made In USA" will curtail foreign suppliers, ability to avail themselves of this form of deceptive trade practice, and it will promote fair competition.
The Committee applauds the FTC's efforts to devise sound and uniform "Made In USA" guidelines. However, the establishment of sound and uniform guidelines, without an attendant and commensurate enforcement effort, is at best a vacuous intellectual exercise. Therefore, the standard adopted by the FTC must lend itself to consistent enforcement efforts. The Committee submits that guidelines based on the substantial transformation principle best serves that paramount purpose.
The FTC must commit itself, alone and in concert with the Customs Service, to effective enforcement actions. As the Customs Service claims that its enforcement authority ends once the article
7 See Committee Comments at 4-5.
leaves the hands of the importer, it is fundamentally important for the FTC to exert its authority to enforce "Made In USA claims after that point. If not, U.S. manufacturers, such as the Committee members, will continue to fall victim to an injurious enforcement void. The FTC must investigate documented instances of false "Made In USA claims. This is the essential step in order to bring substance to "Made In USA" guidelines.
The Committee submits that "Made In USA" guidelines should be premised on the principle of substantial transformation. As applied to steel wire rope, this means that only wire rope which contains U.S.-produced strand and IWRC can be labeled "Made In USA." This standard properly reflects the realities of the wire rope manufacturing process, is consistent with the standard used by the U.S. Customs Service for determining country of origin, is transparent, and is readily enforceable.
On behalf of the Committee, we appreciate the opportunity to participate in this important process.
Herbert E. Harris
Herbert E. Harris II
Counsel to the Committee of