FTC: Made In The USA Comments Concerning The Luggage and Leather Goods Manufacturers of America--P894219
LUGGAGE AND LEATHER GOODS MANUFACTURERS OF AMERICA, INC.
COMMENTS TO THE U.S. FEDERAL TRADE COMMISSION (FTC) IN RESPONSE TO REQUEST FOR PUBLIC COMMENTS FOR THE USE OF U.S. ORIGIN CLAIMS
AUGUST 1, 1997
INTRODUCTION AND STATEMENT OF POSITION
The Luggage and Leather Goods Manufacturers of America (LLGMA) represents more than 200 American companies that manufacture or distribute luggage, leather goods, business cases, handbags, and travel and business accessories.
In 1996, LLGMA participated in the FTC's Made in USA workshop and also submitted comments urging a relaxation of the FTC's "all or virtually all" domestic content standard used to govern unqualified "Made in USA" origin claims.
In May 1997, following the workshop and the comment period, the FTC issued proposed new guidelines for the use of "Made in USA" and other U.S. origin claims in product advertising and labeling. In its press release accompanying the proposed guides, the FTC stated that --
[t]he guides, reflecting changes in consumer expectations about domestic origin claims and changes in today's world marketplace, would give manufacturers and marketers increased flexibility in promoting the domestic parts and labor that go into their products.
At the time of release, the FTC requested public comment on the proposed guides. LLGMA's submission responds to this request. LLGMA lauds the Commission and its staff for recognizing that a new, less rigid standard is required and that manufacturers should have the flexibility to promote the domestic parts and labor that go into their products. The "substantially all" standard, however, as defined by the FTC, does not provide this "flexibility." From LLGMA's perspective, this standard is still unnecessarily rigid. In summary, LLGMA's position is that:
LLGMA's specific comments on the proposed guides are outlined below.
II. SPECIFIC COMMENTS ON FTC'S PROPOSED GUIDES FOR U.S. ORIGIN CLAIMS
"Substantially All" Domestic Content
The FTC's proposed guidelines state that a marketer making an unqualified claim of U.S. origin must, at the time it makes the claim, possess and rely on a reasonable basis that the product is "substantially all" made in the United States. The guides set out two alternative safe harbors under which an unqualified U.S. origin claim would not be considered deceptive: (1) a double substantial transformation test(1); and (2) a 75% domestic content test combined with final transformation in the United States.
The FTC's proposed changes in criteria for unqualified origin claims represent an improvement over the previous "all or virtually all" standard. However, the proposed "substantially all" (i.e., 75%) domestic content standard falls short of what is reasonably possible for U.S. luggage and leather goods producers to achieve because today's global economy makes it virtually impossible to manufacture any article entirely with U.S.-made components. As is the case with most U.S. industries, the luggage and leather goods industry has been forced to increase its reliance on foreign materials and components. As the domestic industry has grown smaller, so has its supplier base. Therefore, domestic producers often have no choice but to source certain components off shore, particularly hardware for luggage and certain types of leather.
To fully comprehend the importance of the "Made in USA" label to U.S. luggage and leather goods manufacturers, one needs to examine the current competitive environment for these products in the United States. Foreign goods dominate the market and thousands of U.S. jobs have been lost to imports. This is because the cost structure of major foreign suppliers of luggage and leather goods is far below our own. Eighty percent of industry products originate in developing countries. Foreign suppliers in these countries utilize very cheap labor and have minimal environmental and workplace standards. Domestic manufacturers of luggage and leather goods believe that consumers have a preference for U.S. goods and that labels or advertising that promote "Made in USA" play an important role in many consumers' purchasing decisions. Therefore, it is crucial that the remaining luggage and leather goods manufacturers be able to market the unique "Made in USA" label to have any hope of competing with low labor cost countries. If the FTC continues to impose unrealistic country of origin marking requirements, the decline of the U.S. luggage and leather goods industry and its migration off shore will be hastened.
Calculation of Domestic Content
The FTC formula for determining domestic content limits what can be included in U.S. costs/content, generally confining these costs to direct manufacturing, direct labor, and manufacturing overhead. Instead of explicitly listing all costs that are excluded from the net cost calculation, the FTC simply excludes all costs that do not fall in one of these three categories as defined by general accounting principles:
FTC DOMESTIC CONTENT FORMULA
U.S. content % = Net Cost* of Good - Value of Foreign Material
Net Cost of Good
*Net Cost is defined as direct labor, materials, and manufacturing overhead. Excludes selected period costs, product design, royalties, advertising and sales, shipping and packing, and after sales servicing.
The NAFTA regional content rules define net cost more broadly than the FTC proposed guides. All costs are included in the net cost calculation except for those associated with sales promotion, marketing, royalties, non-allowable interest expenses, shipping and packing, and after sales service. As a result, many period costs, such as research and development and allowable interest costs, and product design costs that are not included in the FTC net cost calculation are included under the NAFTA net cost provision:
U.S. content % = Net Cost* of Good - Value of Foreign Materials
Net Cost of Good
*Net cost is defined as total costs (including all product costs, period costs, and other costs) minus sales promotion, marketing, and after sales service costs, royalties, shipping and packing costs, and non-allowable interest costs.
LLGMA believes that research and development costs, certain period costs, and product design costs should be allowed in the calculation of U.S. content. The Commission has not offered any real explanation as to why these costs should be excluded from domestic content. The U.S. Government has already spoken to the legitimacy of including these costs in calculating content for purposes of the NAFTA. LLGMA believes that the FTC should follow what is already established Government practice and adopt the NAFTA formulation.
C. U.S. Content in Foreign Components
In its earlier comments to the Commission, the LLGMA recommended that U.S. content present in foreign components (e.g., the value of the U.S. hide in the imported foreign leather) be counted in the calculation of U.S. costs. LLGMA is pleased that the FTC has adopted this recommendation.
"Origin USA" Labels
In order to reduce the labeling burden for exporters who are producing goods for both the U.S. and foreign markets, the FTC has proposed a special marking for goods that cannot meet the safe harbors specified above, but have, nonetheless, been substantially transformed in the United States to the extent that they are no longer considered foreign products according to U.S. Customs. Such goods may be marked or labeled with the phrase "Origin: USA" provided that: (1) there are more than de minimis exports that require the product to be marked with U.S. origin; (2) the mark is no more prominent than necessary to meet the requirements of the country of importation; and (3) substantial foreign content is disclosed to U.S. consumers by other means (e.g., stickers, hangtags, packaging).
LLGMA supports the "Origin: USA" label. It will be helpful to the Association's exporting members, particularly those serving markets in North America.
E. Use of Geographic Names or Symbols
The FTC's proposed guides cover the use of such terms as "USA" and "American," U.S. geographic references, and U.S. symbols (e.g., the U.S. flag) in such a way that they do not mislead the consumer into believing that the product is of U.S. origin when it is not. LLGMA supports the FTC's proposed guidelines in this area.
The FTC's proposed 75% value rule, like the current guidelines, imposes a standard that exceeds the average consumer's expectations. Combining the end product's country of origin with that of all of its component parts or raw materials used to produce it to achieve the 75% value rule is a false standard that results in little value for consumers. LLGMA's proposed 50% standard, which requires final product assembly in the United States, achieves the FTC's goal of providing the consumer with accurate information while offering the luggage and leather goods industry an incentive to employ Americans to produce these products.
1. LLGMA's statement does not discuss the double substantial transformation test as it probably would not apply to most industry products.