Examples of Applications: FTC Proposes New Standard for the "Made in USA" Claims

EXAMPLES OF APPLICATIONS: FTC PROPOSED GUIDES FOR THE USE OF U.S. ORIGIN CLAIMS(1)

The standard for unqualified U.S. Origin Claims (e.g., "Made in USA"):

A marketer making an unqualified U.S. origin claim should, at the time it makes the claim, possess and rely upon a reasonable basis that substantiates that the product is substantially all made in the United States.

75% U.S. CONTENT SAFE HARBOR

It will not be considered a deceptive practice for a marketer to make an unqualified U.S. origin claim if, at the time it makes the claim, the marketer possesses and relies upon competent and reliable evidence that: (1) U.S. manufacturing costs constitute 75% of the total manufacturing costs for the product; and (2) the product was last substantially transformed in the United States.

Example 1: A bicycle is assembled in the United States, and its frame is manufactured in the United States. Of the remaining parts of the bicycle (tires, derailleur, gear shift, etc.), some are manufactured in the United States and some are imported from foreign countries. Overall, U.S. costs constitute 75% of the total costs of manufacturing the product. In addition, under U.S. Customs Service rulings, the bicycle would be considered to have been last substantially transformed in the United States. It would likely not be deceptive for the bicycle to be labeled "Made in USA."

Example 2: A toaster is made from primarily U.S. parts and is assembled in Canada in a process that constitutes a substantial transformation. U.S. costs account for 75% of the total costs of manufacturing the product. A claim that the toaster is "American Made" would likely be deceptive, as the last substantial transformation occurs outside the United States.

The following example shows in more detail how marketers might calculate U.S. content:

Example 3: A company manufactures lawn mowers in its U.S. plant, making most of the parts (housing, blade, handle, etc.) itself from U.S. materials. The engine, however, is bought from a supplier. The engine's cost constitutes 50% of the total cost of producing the lawn mower, while the manufacture of the other parts and final assembly costs constitute the other 50% of the total. The engine is manufactured in a U.S. plant from U.S. and imported parts; U.S. manufacturing costs constitute 60% of the engine's total cost. Thus, U.S. costs constitute 80% of the total cost of manufacturing the product (50% [U.S. cost of final assembly and other parts] + (60% x 50%) [U.S. cost of engine]). Because U.S. manufacturing costs exceed 75% of total manufacturing costs and the last substantial transformation of the product took place in the United States, a claim that the lawnmower is "Made in USA" would likely not be deceptive.

TWO LEVELS OF SUBSTANTIAL TRANSFORMATION SAFE HARBOR

It will not be considered a deceptive practice for a marketer to make an unqualified U.S. origin claim if, at the time it makes the claim, the marketer possesses and relies upon competent and reliable evidence that: (1) the product was last substantially transformed in the United States; and (2) all significant inputs into the final product were last substantially transformed in the United States.

Example 1: A tape recorder is made up of three major subassemblies, and a few additional minor parts (which account for only a small fraction of the finished product's cost). Each of the subassemblies is manufactured in the United States, using primarily imported components. Final assembly of the tape recorder takes place in the United States. The assembly of each of the subassemblies as well as the final assembly would be considered substantial transformations under the Tariff Act. A label that said "Made in America" would likely not be deceptive.

Example 2: A refrigerator is assembled in the United States from a number of components, and this assembly process constitutes the last substantial transformation of the product. Several of the refrigerator's components are themselves assembled in the United States, but certain other major components, such as the compressor and the motor, are manufactured abroad. Because the last substantial transformation of these major components occurred abroad, unless manufacturing and assembling costs attributable to the United States constitute at least 75% of the total manufacturing costs of the refrigerator, an unqualified claim that the refrigerator was "Manufactured in USA" would likely be deceptive.

Example 3: A blank compact disk is manufactured in the United States from imported materials, in a process that constitutes a substantial transformation. Music is then encoded onto the compact disk in the United States, in a process that also constitutes a substantial transformation and is the last substantial transformation of the product. Because both the manufacture of the compact disk and the encoding of music onto the disk would be considered substantial transformations under the Tariff Act, the last two levels of substantial transformation take place in the United States, and a printed statement on the compact disk that said "USA" would likely not be deceptive, even if the imported materials used in the manufacture of the compact disk account for more than 25% of the total manufacturing costs.

QUALIFIED U.S. ORIGIN CLAIMS

Example 1: A piece of luggage is produced in the United States from leather that was tanned and processed in Italy. U.S. manufacturing costs account for 50% of the total manufacturing costs of the luggage; the leather, 40%; and miscellaneous imported parts, 10%. A claim that the luggage was "Made in the USA of Italian leather" would likely not be deceptive.

Example 2: A snowblower is assembled in the United States. The engine is manufactured in the United States and other parts, such as the frame and the wheels, are imported from several different countries. Together, the U.S. assembly and U.S. parts account for 55% of the total cost of manufacturing the product. An advertising circular that described the snowblower as "Proudly made in America with U.S. and imported parts" would likely not be deceptive.

Example 3: A typewriter is produced in the United States from a mix of U.S. and imported parts. Assuming that the marketer can substantiate that U.S. costs constitute 60% of the total costs of manufacturing the typewriter, a label that said "60% American Made" or "U.S. Content: 60%" would likely not be deceptive.

U.S. ORIGIN CLAIMS FOR SPECIFIC PROCESSES OR PARTS

Example 1: Computer software is designed and written in the United States and copied in the United States onto floppy disks that are manufactured in Japan. A package label that stated "Software written in the United States" would likely not be deceptive.

Example 2: A U.S.-based furniture maker designs a sofa in the United States and has the sofa manufactured in Denmark. Because the Tariff Act would require that the sofa be marked with a foreign country of origin, a tag that said only "Designed in USA" would not be permitted by the U.S. Customs Service. Were the furniture maker, however, to note the U.S. design of the product in conjunction with an appropriate foreign origin marking, e.g., "Made in Denmark from U.S. designs," the statement would likely be both permissible under the Tariff Act and not deceptive under Section 5 of the FTC Act.

Example 3: A faucet is manufactured in the United States from a U.S.-made cartridge (which controls water flow) and other parts, all of which are foreign-made. The foreign parts account for sufficient cost that an unqualified U.S. origin claim could not be made for the faucet. The marketer of the faucet has a World Wide Web page on the Internet that advertises the faucet as "Made with our exclusive U.S.-made cartridges." The claim is likely not deceptive.

COMPARATIVE U.S. ORIGIN CLAIMS

Example 1: In an advertisement for its stereo speakers, the manufacturer states that "We do more of our manufacturing in the United States than any other speaker manufacturer." The manufacturer assembles the speakers in the United States from U.S. and imported components. U.S. costs, from final assembly operations at the manufacturer's U.S. factory and from U.S.-made parts, are significant but constitute less than 75% of the total cost of manufacturing the speakers, and, therefore, the manufacturer cannot substantiate an unqualified U.S. origin claim. However, provided that the manufacturer can substantiate that the difference between the U.S. content of its speakers and that of the other manufacturers' speakers is significant, the comparative claim would likely not be deceptive.

1.   Some, but not all, of these examples appear in the proposed guides.