Federal Trade Commission Received Documents Jan. 16, 1996 P894219 B18354900043 Office of the Attorney General State of Connecticut Richard Blumenthal, Attorney General MacKenzie Hall 110 Sherman Street Hartford, CT 06105-2294 (203) 566-5374 January 12, 1996 Office of the Secretary Federal Trade Commission Room 159 Sixth Street and Pennsylvania Avenue, N.W. Washington, D.C. 20580 RE: MADE IN U.S.A. WORKSHOP REQUEST TO PARTICIPATE MADE IN U.S.A. POLICY COMMENT FTC FILE NO. P894219 Dear Secretary: Richard Blumenthal, the Attorney General of the State of Connecticut, respectfully requests to testify in the FTC's Made in U.S.A. Workshop. As outlined in the attached comments, the Attorney General joins with other state Attorneys General to urge the FTC to retain its current standard which requires a manufacturer claiming that its product is Made in the U.S.A. to conspicuously disclose the existence of significant foreign component parts or labor. Please direct any correspondence to Assistant Attorney General Roger Reynolds who may be contacted at the above listed address and telephone number. Very truly yours, Roger F. Reynolds Assistant Attorney General BEFORE THE FEDERAL TRADE COMMISSION MADE IN U.S.A. POLICY COMMENT JANUARY 16, 1996 FTC FILE NO. P894219 COMMENTS OF THE ATTORNEYS GENERAL OF THE STATES OF CONNECTICUT, CALIFORNIA, FLORIDA, HAWAII, IOWA, KANSAS, MARYLAND, MICHIGAN, MISSOURI, NEVADA, NEW HAMPSHIRE, NEW YORK, OHIO, RHODE ISLAND, WASHINGTON AND WEST VIRGINIA I. INTRODUCTION The Attorneys General of the States of Connecticut, California, Florida, Hawaii,{1} Iowa, Kansas, Maryland, Michigan, Missouri, Nevada, New Hampshire, new York, Ohio, Rhode Island, Washington and West Virginia are pleased to submit these comments in response to the request of the Federal Trade Commission (FTC) for comments regarding the proper standard for unqualified representations that a product is Made in the U.S.A.{2} Our comments are based on our experience enforcing our state laws which prohibit the use of unfair and deceptive representations and business practices.{3} We fully support the FTC's current standard which requires a manufacturer making a claim that its product is Made in the U.S.A. to conspicuously disclose the existence of significant foreign component parts or labor. Such a standard allows consumers purchasing products based on a Made in the U.S.A. claim to make a fully informed choice. We further propose that the FTC codify its standard, giving consumers, manufacturers and law enforcement agencies clear and certain guidance as to when the representation may be used. II. CONSUMER PERCEPTION OF MADE IN THE U.S.A. A. Consumer Perception Surveys As the FTC is no doubt aware, the origin of products is increasingly international and fewer and fewer products can be said to have one easily identifiable country of origin. As the perception grows that America is losing jobs due to a shrinking manufacturing base, and the availability of truly U.S.A. products declines, the fact that a product is Made in the U.S.A. becomes increasingly valuable to consumers who wish to buy American. In such a climate, we believe that it becomes more, not less, important to ensure that manufacturers are not using deceptive claims regarding relative domestic and foreign content to market their products. In determining whether a representation is deceptive, the primary factor to consider is how consumers perceive the claim. A 1991 FTC copy test on this subject ("1991 FTC Copy Test") reveals that consumers interpret Made in the U.S.A. to mean that the entire product is made in the U.S.A., not simply assembled in the U.S.A. out of foreign component parts. When asked what the claim meant with respect to how much of the product was made in the U.S.A., 77 percent of consumers responded that the product was made all, or almost all, in the U.S.A.{4} When asked if that meant parts or labor, another 77 percent responded both parts and labor.{5} Only six percent of consumers initially responded that they interpreted the claim to mean that the product was merely assembled or put together in the U.S.A.{6} Unless new research discloses that consumer perception of Made in the U.S.A. has changed dramatically in the past five years, there is little justification for diluting the FTC's current standard requiring conspicuous disclosure of foreign content. The FTC's deception doctrine, of course, does not permit claims regarding material facts that would tend to deceive a reasonable consumer.{7} The evidence shows that the belief that a Made in the U.S.A. claim applies to an entire product is not only reasonable, but is held by the majority of consumers. Opening the market to claims that do not meet this standard, therefore, would be inconsistent with the FTC's deception doctrine and contrary to good public policy. B. Materiality and Consumer Harm Not surprisingly, surveys reveal that consumers often wish to support the American economy and workers by "buying American" and are more likely to purchase a product if it is represented to be Made in the U.S.A. A recent Gallup survey conducted for the International Mass Retail Associations in 1994 found that 84 percent of Americans either strongly or moderately prefer American-made products to those produced in foreign countries. More than 75 percent of the respondents said that they either always or sometimes try to determine a product's country of origin before purchasing a product. Similarly, when asked to circle items in advertisements that were important, over half of the respondents in the 1991 FTC Copy Test circled the Made in the U.S.A. claim with respect to a Smith Corona typewriter and one third circled the claim with respect to a Huffy bicycle.{8} When asked their reasons for preferring American products, consumers responded that they believe they should buy U.S.A., that buying U.S.A. supports the economy, and that buying U.S.A. keeps Americans working.{9} Consumers who wish to purchase a product because it is purportedly Made in the U.S.A. are entitled to know if the product is made entirely, or only partially, in the U.S.A. Once the manufacturer uses a claim that creates the impression that the consumer is purchasing an American product, the manufacturer cannot fairly conceal that the product consists of foreign component parts or labor. If it is important to consumers that a product is made in the U.S.A., it will no doubt be important that a significant part of that product was in fact made in China. The harm resulting from deceptive representations regarding a product's foreign or domestic content is compounded by the fact that consumers have no way of verifying the origin of a product or its component parts independently of the manufacturer's representation. With respect to many representations such as "most powerful car in its class" or "cleans better than leading brands" motivated consumers are often able to verify the truth or falsity of the information for themselves independently of the manufacturer's representation.{10} Based on this information, the consumer can refuse to buy the product in the future, demand a refund for a product they have already purchased or complain to a law enforcement agency. Consumers, however, have no reasonable way of verifying claims regarding the origin of a product's component parts or labor.{11} Consumers who purchase a product based on the mistaken belief that the entire product is made in the U.S.A., therefore, will never realize that they were deceived. In this context, deceptive representations pose a particular harm to the effective functioning of markets and should be guarded against particularly zealously. C. Non-deceptive Representations Any legitimate concerns that manufacturers have regarding their ability to take advantage of the fact that a significant portion of a product is made in the U.S.A. are adequately addressed by the FTC's current standard, which allows manufacturers to make Made in the U.S.A. claims concerning products so long as they disclose the foreign content of the product. Thus, a manufacturer of a product wishing to take advantage of the significant domestic content of its product may do so using the following non-deceptive representations: "Made in the U.S.A. of 80% U.S. component parts" or "We support American Jobs -- contains more U.S.A. components than any other leading brand." A company may also use representations that do not imply that the product is wholly manufactured in the U.S.A. such as "Assembled in the U.S.A."{12} Such claims will allow consumers to choose products based on their U.S.A. content, without deceiving customers into believing that the entire product consists of U.S.A. component parts or leaving them to guess exactly what the representation means. The fact that full disclosure of component parts might dilute the power of a Made in the U.S.A. claim cannot justify weakening the standard. Indeed, the reality that full disclosure makes a claim less attractive is a strong indication that consumers generally interpret the claim to imply a higher level of U.S.A. content than actually exists. Manufacturer's insistence that consumers understand that products represented to be Made in the U.S.A. have substantial foreign content simply cannot be reconciled with their separate claim that disclosure dilutes the attractiveness of the claim. If consumers are, in fact, aware that a certain type of product tends to be made of less than 40% U.S.A. parts, such consumers will be attracted by a claim that 75% of the manufacturer's version of that product is made in the U.S.A. On the other hand, if consumers generally are not aware of the level of foreign content in any given type of product, as the FTC's 1991 Copy Test indicates that they are not,{13} consumers would be particularly susceptible to claims implying a higher domestic content than actually exists. While a market advantage based on a deceptive claim might be real, it is inconsistent with the basic principles underlying the FTC Act in general and the FTC's deception doctrine in particular. D. FTC's proposed formula While application of the formula proposed by the FTC in its notice announcing this workshop{14} can be helpful as a starting point, we believe such a formula should not be mechanically applied. In applying the formula, the FTC would need to create strict definitions of raw materials and would have to anticipate an endless number of contexts in which a manufacturer might wish to make a Made in the U.S.A. claim. While cost might be the best way to compare domestic and foreign content in many instances, sheer monetary measures are not universally appropriate. Indeed, rote application of any formula could lead to the anomalous result that a shirt made in a "sweatshop" in a foreign country from materials originating in the U.S.A. could be labeled as Made in the U.S.A. if the cost of the labor comprises a small portion of the product's total cost. Moreover, we have seen no consumer surveys linking consumer perception of Made in the U.S.A. to the cost of component parts as opposed to size, prominence or number of the component parts.{15} If the FTC does utilize a formula, we believe it should be in the context of guidance, and should not be binding upon the FTC's enforcement of the all or virtually all standard. Thus, the FTC could clarify that in no instance may a manufacturer claim that a product, found under the formula to contain less than 90% U.S.A. parts and labor, is Made in the U.S.A. without disclosing the product's foreign content. While such a per se rule ensures that the more blatant deception cases can be dealt with quickly and efficiently, it does not unduly constrain the FTC in enforcing the "all or virtually all" standard in situations where specific circumstances so warrant. III. ASSEMBLED IN THE U.S.A. We believe that the phrase "Assembled in the U.S.A." has a substantially different import than Made in the U.S.A. and is interpreted differently by consumers.{16} Whereas the term "make" connotes a process of creation, the term "assemble" conveys a process of fitting or joining together pre-existing parts. For example, products that require pieces to be put together at home by the consumer will often bear the label, "Assembly Required." It would be awkward at best, and incoherent at worst, to state that a consumer must "make" or "manufacture" a product at home before it is ready for use. Given this different connotation of the two terms, we believe that strict disclosure of foreign component parts is not required if a manufacturer represents that a product is "Assembled in the U.S.A." While the phrase "Assembled in the U.S.A." does not imply that a product consists of all, or almost all, U.S.A. parts, it does imply that the domestic assembly comprises more than an insignificant proportion of the product's overall cost. By representing that a product is "Assembled in the U.S.A." the manufacturer is inducing the consumer to purchase a product based on the manufacturer's use of U.S.A. labor. After making this representation, it would be unfair for the manufacturer to conceal that little, if any, of the product's value is derived from its U.S.A. assembly. Accordingly, we propose that the FTC adopt a standard requiring the value of U.S.A. assembly to comprise a "significant percentage" of the total value of the product represented as being "Assembled in the U.S.A." Such a standard allows manufacturers to communicate the fact that a product was assembled in the U.S.A., without conveying the false impression that the component parts are also American. We believe that the determination of what is "significant" is best resolved on a case by case basis, considering the context within which each representation is made. IV. CONTENT OF COMPONENT PARTS The FTC's standard should prevent manufacturers that make Made in the U.S.A. claims from concealing that the product is constructed from component parts that have significant foreign content. As the FTC is no doubt aware, many products consist of almost entirely "component parts" with minimum assembly taking place at the final stage. Allowing manufacturers to dilute the claim with respect to component parts, therefore, would lead to the dilution of the entire claim in many instances. Moreover, the concerns of manufacturers who wish to make domestic content claims regarding products that contain component parts manufactured partially in foreign countries are adequately addressed by the present standard. The standard does not, of course, require the product to be 100% American, but simply requires all, or virtually all, of the product to be American. If a product does not meet this standard, it makes little difference that it doesn't meet the standard because of the substantial foreign content of one component part or the less substantial foreign content of many component parts. While we acknowledge that the global nature of the market may make it increasingly difficult to verify the country of origin of each component part, this complexity does not justify allowing manufacturers to make misleading claims. Once a manufacturer makes an affirmative representation aimed at inducing consumers to purchase a product, the manufacturer cannot plead ignorance when asked to substantiate its claim. Moreover, if a manufacturer is uncertain as to whether a significant part of its product is manufactured in a foreign country, the manufacturer may still make a non-deceptive representation regarding the portion of the product that the manufacturer can verify is made domestically: e.g. Made in the U.S.A., of at least 80% U.S.A. component parts. A manufacturer that does not have access to information regarding the country of origin of the other 20 percent of the product, simply cannot make a non-deceptive representation regarding that portion. While Made in the U.S.A. connotes the use of U.S.A. component parts, we do not believe that the phrase implies the use of domestic raw materials. Raw materials are not generally understood to be "made" by people, but are extracted from the land in their natural condition.{17} The term "make," which connotes a process of creation, simply does not apply to material such as petroleum or coal. Thus, we believe a company that designs and manufactures a plastic product entirely within the U.S.A. but uses petroleum from a foreign country, could fairly claim that the product was made in the U.S.A. with no foreign component parts. We would propose, therefore, that the calculation of foreign content not include raw materials, i.e. materials that are not significantly transformed from their natural condition, unless such materials comprise an unusually substantial portion of the product's value.{18} V. FEDERAL LAW DEALING WITH DISCLOSURE OF FOREIGN CONTENT Federal laws that address disclosure of foreign and domestic content of products to consumers support our contention that the globalization of commerce demands more, not less, disclosure of products' foreign content to consumers. The relevant federal laws are: (1) the Wool Products Identification Act, 15 U.S.C. 68; 15 CFR 300.3(a)(4); (2) the Textile Products Identification Act, 15 U.S.C. 70; 15 CFR 300.33 and (3) American Automobile Labeling Act, 49 U.S.C.  32304. Each of these laws requires manufacturers to fully disclose the foreign and domestic content of the product in question.{19} Although cars are one of the more complex products on the marketplace, and wools and textiles are some of the most difficult to label, Congress has determined that the value of the information to consumers outweighs the burdens imposed upon manufacturers. It is noteworthy that these laws not only require such disclosure in the context of a possibly deceptive claim, but require disclosure universally, regardless of whether the manufacturer makes specific affirmative claims. If manufacturers have been required to provide this information with respect to every car, textile and wool product that is sold, surely it is not unduly burdensome for a manufacturer who wishes to benefit from a claim that a product is Made in the U.S.A. to provide such information for its product. Moreover, we have trouble accepting manufacturers' claims that they have space to make a conspicuous Made in the U.S.A. claim, but lack space to disclose what the claim means. Even the most cursory review of NAFTA and U.S. customs law reveals that there is no conflict between these laws and the FTC standard requiring full disclosure of foreign content of products labeled Made in the U.S.A. As the FTC has pointed out in its invitation to comment, both NAFTA and U.S. customs law deal with the country of origin for the purposes of tariffs and quotas, not with consumer perception of Made in the U.S.A. claims. Moreover, nothing in these laws requires products with foreign content to be labeled or marked for retail sale as Made in the U.S.A. Accordingly, we believe that these laws bear no relation to the question at hand, and any reliance upon them would be misplaced. VI. CODIFICATION OF EXISTING STANDARD Due to the increasing relevance and popularity of Made in the U.S.A. claims, consumers, manufacturers and law enforcement agencies need clear and authoritative guidance regarding their meaning. The Attorneys General submitting these comments believe that there is a proliferation of Made in the U.S.A. claims that do not meet the FTC's current standard. While the FTC and the States have pursued individual cases against significant national or regional marketers,{20} it is simply not possible to address all claims through case by case adjudication and resource intensive copy testing. Accordingly, we urge the FTC to promulgate a regulation, or an enforcement guideline, incorporating the FTC's current standard that requires products unqualifiedly represented to be Made in the U.S.A. to be assembled all, or virtually all, within the U.S.A. using all, or virtually all, U.S.A. component parts. VII. CONCLUSION The Attorneys General submitting these comments wish to commend the FTC for bringing national attention to this increasingly prevalent market practice through the conduct of this workshop. As the production process continues its trend toward globalization, it is inevitable that there will be increasing consumer interest in the relative domestic and foreign content of products. Accordingly, we urge the FTC to continue its aggressive protection of consumers and to pass effective regulations or guidelines preventing manufacturers from making claims that deceive consumers into purchasing products based on a mistaken belief that the entire product is Made in the U.S.A. By requiring full disclosure of significant foreign content of products represented to be Made in the U.S.A. the FTC will help consumers who prefer to buy American to exercise their preference in a fully informed manner. Respectfully submitted, RICHARD BLUMENTHAL Attorney General of Connecticut Office of the Attorney General 110 Sherman Street Hartford, CT 06105 On behalf of: DANIEL LUNGREN Attorney General of California 300 South Spring Street Los Angeles, CA 90013 ROBERT A. BUTTERWORTH Florida Attorney General Office of the Attorney General Department of Legal Affairs Tallahassee, Florida 32399-1050 JO ANN UCHIDA Executive Director of the Office of Consumer Protection State of Hawaii Office of Consumer Protection 828 Fort Street Mall Ste. 600B Honolulu, Hawaii 96813 THOMAS J. MILLER Iowa Attorney General Hoover State Office Building Des Moines, IA 50319 CARLA J. STOVALL Kansas Attorney General 301 SW 10th - 2nd Floor Judicial Center Topeka, KS 66612-1597 J. JOSEPH CURRAN, JR. Maryland Attorney General 200 St. Paul Place 16th Floor Baltimore, MD 21202 FRANK J. KELLEY Michigan Attorney General P.O. Box 30213 Lansing, Michigan 48909 JEREMIAH W. (JAY) NIXON Missouri Attorney General P.O. Box 899 Jefferson City, MO 65102 FRANKIE SUE DEL PAPA Nevada Attorney General 555 East Washington Avenue,Suite 3900 Las Vegas, NV 89101 JEFFREY R. HOWARD New Hampshire Attorney General 33 Capitol Street Concord, New Hampshire 03301 DENNIS C. VACCO New York Attorney General 120 Broadway, 3rd Floor New York, NY 10271 BETTY D. MONTGOMERY Ohio Attorney General 30 East Broad Street State Office Tower 25th Floor Columbus, Ohio 43215-3428 JEFFREY B. PINE Rhode Island Attorney General 72 Pine Street Providence, Rhode Island 02903 CHRISTINE O. GREGOIRE Washington Attorney General 1019 Pacific Ave South 3rd Floor Tacoma, Washington 98402-4411 DARRELL V. MCGRAW, JR. West Virginia Attorney General L&S Building, 6th Floor 812 Quarrier Street Charleston, West Virginia 25301 Footnotes: {1} Each of the participating states is represented by its attorney general with the exception of Hawaii which is represented by its Office of Consumer Protection, an agency which is not part of the state Attorney General's Office but is statutorily authorized to undertake consumer protection functions including legal representation of the state. For the sake of simplicity we will refer to the group collectively as the "attorneys general." {2} As used in these comments, the term Made in the U.S.A., refers to representations that a product is made in the U.S.A. and other similar representations such as Manufactured in the U.S.A., or American Made. {3} Many of our state laws prohibiting unfair or deceptive trade practices are linked, either directly or indirectly, to the FTC's interpretation of Section 5 of the Federal Trade Commission Act. {4} 1991 FTC Copy Test, p. 20. When the claim was viewed in the context of a specific adds, the test results were somewhat different but nevertheless compelling. After viewing a Made in the U.S.A. claim with respect to a Huffy bicycle, 58% of consumers believed that the product contained 100% U.S.A. content. Id., p. 29. In the context of a Smith Corona typewriter advertisement, 43% of consumer believed that the Made in the U.S.A. claim meant that 100% of the product was made in the United States. Id. Thus, Huffy's and Smith-Corona's claims lead a significant number of consumers to believe that the product is entirely American. Moreover, among those who responded that they did not know, or gave a figure other than 100 percent, there was virtually no agreement as to what percentage was American. {5} Id., p. 21. Ten percent said parts only and fourteen percent said labor only. Id. {6} Id., 20. {7} See, FTC Statement on Deception, October 14th, 1983; Figgie International, Inc., 107 F.T.C. 313, 374 (1986). {8} 1991 FTC Copy Test at p. 10. {9} Id., p. 12. {10} We do not, of course, imply that deceptive claims can be justified in such instances. {11} The most recent Made in the U.S.A. cases involving members of the group of states have concerned situations where the product was advertised as Made in the U.S.A., but the component parts were themselves labeled with their proper country of origin. If the component parts were not so labeled, it is unlikely that the manufacturer's deceptive conduct would have been brought to the states' attention. {12} See Section III, infra. {13} When shown typewriter and bicycle advertisements that did not bear the Made in the U.S.A. claims and asked what percentage of parts and labor were American, respondents' answers varied dramatically. 1991 FTC Copy Test, p. 34, 35. {14} In its notice announcing the workshop, the FTC proposed the following possible formula: Before making Made in USA claims, sellers must demonstrate that their products contain X percent domestic content. This percentage shall be computed by (i) dividing DOMESTIC CONTENT (purchase cost of U.S. parts + cost of U.S. labor and direct overhead in final assembly) by (ii) TOTAL PRODUCT COST. {15} For example, while the outer casing of a computer may not comprise a significant part of the computer's total cost, a Made in the U.S.A. label placed directly on a foreign made casing might inaccurately convey the impression that the casing is made in the U.S.A. {16} Our comments concerning Assembled in the U.S.A. claims are based upon the plain meaning of the words, and our experience in regulating deceptive claims. {17} The term "raw" is defined by Webster's II New Riverside University Dictionary (1994) as "[b]eing in a natural condition: not refined or processed." {18} While we believe that this is a workable definition of raw materials, we acknowledge that significant difficulties and controversies could arise in strictly applying the definition in the context of a formula. See FN 14 and accompanying text, supra. Such difficulties counsel against undue reliance upon any such formula. {19} The American Automobile Labeling Act does not distinguish between American and Canadian origin. {20} The State of Missouri conducted an investigation and entered into an assurance of voluntary compliance with Farberware in 1993, requiring that company to conspicuously reveal the existence of any foreign component parts in cookware and household products claimed to be Made in the U.S.A. The State of Connecticut has recently conducted an investigation that revealed a national manufacturer of air products has made Made in the U.S.A. claims concerning products that consist of up to 50% foreign parts and labor.