FTC Proposes New Standard for "Made in USA" Claims; Seeks Public Comment

The Federal Trade Commission today proposed new guidelines for the use of "Made in USA" and other U.S. origin claims in product advertising and labeling. The 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. Under existing law, tracing its origin to cases decided 50 years ago, "Made in USA" claims cannot be made if a product has more than a small amount of foreign content. The Commission has tentatively concluded that is not what consumers expect in an increasingly global economy.

Under the new guidelines, products bearing unqualified "Made in USA" claims should be "substantially all" made in the United States. To assist in determining whether products meet the "substantially all" standard, the proposed guides provide specific examples of where "Made in USA" claims are appropriate, how to calculate U.S. content, where qualified U.S. origin claims are appropriate, how to substantiate "Made in USA" and other origin-related claims, and how the proposed guidelines interact with Customs rules.

"The claim that a product is "Made in USA" is important to many consumers as they make purchasing decisions," said Jodie Bernstein, Director of the FTC’s Bureau of Consumer Protection. "Understanding what the claim means to consumers is difficult given today’s world marketplace. After listening to interested parties, the Commission sought to strike a balance between these two important concerns: the Commission’s recognition that our policies must keep up with changes in the global economy and ensure that consumers are not deceived."

The proposed Guides for the Use of U.S. Origin Claims will be published in the Federal Register shortly. In light of the great interest surrounding this subject and its complexity, the Federal Register notice contains a thorough discussion of the issues raised by the Commission’s review and the Commission’s proposed policy to address them. Written comments will be accepted until August 11, 1997.

The Commission’s proposal comes after a comprehensive review of these claims.

On October 18, 1995, the Commission published a Federal Register notice requesting public comment on various issues related to the evaluation of such claims and a review of the costs and benefits of continuing to use the previous "wholly domestic" or "all or virtually all" standard. On March 26 and 27, 1996, a public workshop was held where representatives of industry, consumer groups, unions, government agencies and others exchanged views. A subsequent Federal Register notice extended the deadline for post-workshop public comments until June 30, 1996. Contemporaneous with the solicitation of public comment and the workshop, a two-part study was commissioned to examine consumer understanding of U.S. origin claims. The results of the study are discussed in the Federal Register notice.

Under the proposed new guidelines, a marketer making an unqualified claim of U.S. origin must have a reasonable basis substantiating that the product is "substantially all" made in the United States. In addition, the guidelines provide guidance to marketers as to how to meet this standard by including two "safe harbors" under which an unqualified U.S. origin claim would not be considered deceptive. The first is a "percentage content" safe harbor, requiring that U.S. manufacturing costs constitute 75% of the total costs of manufacturing the product, and that the product was last "substantially transformed," under U.S. Customs Service standards, in the United States. The second option is a "processing" safe harbor, requiring that the final product was last substantially transformed in the U.S., and that all significant inputs into the final product were last substantially transformed in the U.S. "Substantial Transformation" is a U.S. Customs Service term that refers to a manufacturing process that results in a new and different article of commerce, having a new name, character, and use that is different from that which existed prior to the processing.

The "substantially all" standard and the safe harbors ensure that products labeled or advertised as "Made in USA" have a substantial amount of U.S. content, consistent with consumer perception, yet provide marketers with needed flexibility and opportunity to make the claim truthfully. Under the previous "wholly domestic" standard, only a "de minimis" or small amount of foreign content was acceptable for products advertised as "Made in USA."

The proposed guides would allow marketers to make qualified U.S. origin claims even where their products would not meet the standard for an unqualified "Made in USA" label. Thus, a product that was assembled in the U.S., but was made with primarily foreign parts, could be labeled or advertised as "Made in USA of foreign parts."

The proposed guidelines also address claims regarding specific processes and parts, multiple-item sets, and changes in costs and sourcing. They also authorize specific origin claims for certain products that are both sold domestically and abroad. Throughout, the proposed guidelines address the interaction of FTC deception law with U.S. Customs Service requirements, which govern the labeling of imported products.

Guides are administrative interpretations of laws administered by the FTC. Guides themselves, unlike rules, do not have the force and effect of law. Rather, they are intended to provide the public with guidance as to how the Commission is likely to apply the principles of Section 5 of the FTC Act to a particular issue -- in this case, the use of U.S. origin claims. The claims addressed by the guides pertain only to claims that advertisers voluntarily choose to make: advertisers are not required by law to disclose domestic origin for the products covered in the guides.

Interested parties are invited to submit comments on the proposed Guides for the Use of U.S. Origin Claims. Commenters are welcome to submit comments on any aspect of the proposed guides, but are requested to avoid merely resubmitting views or information submitted in response to the Commission’s earlier requests for public comment in this matter.

Comments on the guides will be placed on the public record and on the Internet at the FTC’s World Wide Web Site. They are due by August 11, 1997 and should be identified as "Made in USA Policy Comment," and addressed to the Office of the Secretary, Federal Trade Commission, Room 159, Sixth and Pennsylvania Ave., N.W., Washington, D.C. 20580.

The Commission vote to announce the guides for public comment was 5-0 with Commissioner Roscoe B. Starek, III, issuing a concurring statement. In his statement, Commissioner Starek said, "I have voted in favor of issuing the proposed Guides for comment, because I believe that the copy tests discussed in the Federal Register notice show that substantial minorities of consumers take contradictory meanings from "Made in USA" claims.

In these circumstances, it is appropriate to engage in a form of balancing that may minimize the injury to all consumers from claims inconsistent with their understandings of "Made in USA. ...Over time we will know if this undertaking -- when combined with a consumer and business education campaign -- reduces confusion, encourages compliance, and provides consumers with more information on which to base their purchasing decisions."

Copies of today’s Federal Register notice, transcripts from the March workshop, all public comments, previous Federal Register notices and FTC news releases are available from the FTC’s World Wide Web site at http://www.ftc.gov and from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. The Public Reference Branch also has a summary of the FTC-staff commissioned consumer research results. To find out the latest news as it is announced, call the FTC’s NewsPhone at 202- 326-2710.

(FTC File No. P894291)