FACTS ABOUT THE FTC’S PROPOSED
GUIDES FOR THE USE OF U.S. ORIGIN CLAIMS

The guides propose that to be called "Made in USA," a product must be substantially all made in the United States.

A product will be considered substantially all made in the United States if:

• The product was last substantially transformed in the United States and U.S. manufacturing costs are at least 75% of total manufacturing costs; OR
• The product was last substantially transformed in the United States and all significant parts or components of the product were last substantially transformed in the United States.

(Note: "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).

The FTC is accepting written comments on the proposed guides until August 11, 1997. After reviewing the comments, the Commission can accept, reject, or modify the proposed guides. Written comments may be submitted to the Office of the Secretary, Federal Trade Commission, Room 159, Sixth and Pennsylvania Avenue, N.W., Washington, D.C. 20580.

Further information about the proposed guides is available in the May 7, 1997 Federal Register and on the FTC’s web site (http://www.ftc.gov).

Q. Why is the FTC proposing new "Made in USA" guides now? How did it get to this point?

A. The FTC’s existing standard for "Made in USA" claims -- that a product had to be "wholly domestic" in order to be called "Made in USA" -- has its origin in 1940's case law, but has never been formally defined. In 1994, the FTC brought cases against two sneaker manufacturers alleging that the companies were deceptively advertising their sneakers as "Made in USA" when some of those sneakers, although assembled in the U.S., contained some foreign parts. In response to these cases, the FTC received many comments from the public, as well as letters from over 30 members of Congress, asking the FTC to reconsider its standard. These commenters argued that the "wholly domestic" standard (also known as the "all or virtually all" standard) was too inflexible and should be modified to take into account the increasing globalization of the economy.

The FTC agreed that it was worthwhile to re-examine its approach to "Made in USA" claims after over 50 years. Accordingly, the Commission, beginning in October 1995, solicited comment on whether its traditional standard for "Made in USA" claims continued to be appropriate. The FTC also held a public workshop in March 1996 to discuss these issues. A wide variety of interested parties and many divergent views were represented in both the comments and the public workshop.

Q. Why don’t the proposed guides require a product called "Made in USA" to be 100% U.S.-made?

A. The FTC believes that it is important that products labeled "Made in USA" contain a high amount of U.S. content in order to ensure that the "Made in USA" claim is not deceptive to consumers. Therefore, the FTC has proposed what it believes to be a high threshold for "Made in USA" claims. The Commission also believes, however, that a certain amount of flexibility is necessary and appropriate given the realities of the global marketplace. For example, under a strict 100% standard, a clock radio assembled in the U.S. from all U.S.-made parts could not be called "Made in USA" if the plastic in its case was made from foreign petroleum. Similarly, a manufacturer of a product assembled in a U.S. factory of primarily U.S. parts would be precluded from labeling the product "Made in USA" if one of its minor parts is not manufactured by anyone in the U.S.

Q. Don’t consumers expect that a good labeled "Made in USA" is 100% made in the U.S.?

A. As part of its review, the FTC commissioned a two-part consumer survey to learn more about how consumers understand "Made in USA" claims. From that survey, the FTC found that while consumers generally understood a "Made in USA" claim to denote a high level of U.S. content, consumers also were willing to accept a "Made in USA" label on goods that were primarily made in the United States but had some relatively minor amount of foreign content. Thus, where consumers were presented with a scenario in which a product had 70% U.S. content and was assembled in the U.S., two-thirds said they agreed or strongly agreed with a "Made in USA" label on that product. (Interestingly, far fewer were willing to agree with a "Made in USA" label if the product had only 50% U.S. content or was assembled abroad). The "substantially all" standard and its accompanying safe harbors are, the FTC believes, consistent with these views, as they are designed to allow for the exclusion of minor foreign-made parts or materials far back in the manufacturing process where a good is in fact primarily made in the U.S.

Q. How does the FTC’s proposed standard compare to other country-of-origin standards?

A. Various standards exist in this and other countries that relate to when a product can be considered "Made in USA" or made in some other country. The FTC’s proposed standard is more rigorous than the following existing standards:

Buy American Act - Requires that a product be manufactured in the United States of 50% U.S. parts in order to be considered Made in USA for government procurement purposes.

American Automobile Labeling Act - Requires that an automobile component be 70% U.S. or Canadian in order to be considered a U.S./Canadian part, i.e., if 70% of the value of a part is U.S. or Canadian, the value is "rolled up" and counted as 100% U.S./Canadian.

Tariff Act - Under this statute, the U.S. Customs Service considers an imported product to be made in the country in which it was last substantially transformed (thus, a product may be labeled "Made in Australia if it was last substantially transformed in Australia, even if all its parts came from other countries).

Other countries’ standards for domestic origin claims - Most commonly, other countries require that a product be last substantially transformed in that country, and/or that 51% of the value of the product be attributable to work in that country, in order for the product to bear a domestic origin label (e.g., Canada requires that a product be 51% made in Canada in order to be called "Made in Canada").

In addition, the FTC proposal is comparable to the regulations under the Textile Fiber Products Identification Act, which permit a "Made in USA" label on clothing and other textile products if the final product was manufactured in the U.S. of fabric that was manufactured in the U.S., regardless of where materials further back in the manufacturing process (i.e., the yarn and fiber) came from. (This approach is very similar to the second safe harbor in the proposed guides, which permits a "Made in USA" claim where a product is substantially transformed in the U.S. from parts that were themselves substantially transformed in the U.S.).

Q. Will the proposed standard lead to the export of U.S. jobs?

A. There is no empirical evidence either way on the effect of this relatively small shift in the standard for "Made in USA" claims on the number of U.S. jobs. Some commenters have argued that a change in the standard will encourage U.S. manufacturers to increase the amount of work they do abroad. On the other hand, others have contended that a more realistic or attainable standard will encourage some manufacturers to increase their U.S. content to meet such a standard. Of course, the ability to claim that a product is "Made in USA" is only one factor in the complex decision by a company about where to locate its production facilities and get its parts.

Q. Will goods that formerly had to be labeled with a foreign country of origin (e.g., "Made in China") now be able to be labeled "Made in USA" under the new proposal?

A. No. Goods that had to be labeled with a foreign country of origin, such as "Made in China," will continue to have to be labeled this way and cannot be called "Made in USA" under the new proposal.