Federal Trade Commission Received Documents Jan 19 1996 B18354900068 Secretary SENATOR JOHN KERRY COMMENTS SUBMITTED TO THE FEDERAL TRADE COMMISSION THE "MADE IN AMERICA" ENFORCEMENT STANDARD January 10, 1996 I am pleased to submit comments to the Federal Trade Commission in connection with its review of the "Made in America" enforcement standard and to request that I or a representative of my office be allowed to participate in the public workshop on "Made in the USA" claims in public advertising. I am encouraged that the commission is re-examining its enforcement standard for "Made in America" advertising claims. The Commission is charged with an important mission in assuring consumers have truthful information about products. This information is particularly useful for those American consumers who wish to purchase American-made articles. However, the current standard -- that a U.S. company may not label or advertise its product as "Made in America" unless all, or virtually all, of the component parts are made in the United States and all, or virtually all, of the labor in assembling the end product is performed here -- does not ref lect the reality of today's global marketplace for manufactured goods. The FTC' s selective application of this standard has proven injurious and costly to domestic manufacturers that have made a commitment to maintain production -- and jobs -- here in the United States. Moreover, the current standard is inconsistent with U.S. and foreign trade laws regarding an article's domestic content and country of origin. The FTC's "Made in America" standard is outdated, creates confusion for consumers here at home and our trading partners abroad, increases production costs for American export companies and threatens the jobs of American workers. It is my judgment that the best course is for the Commission to alter its legal standard regarding the use of unqualified "Made in America" claims, and adopt clear guidelines for domestic content that are consistent with other United States laws relating to domestic content as well as with domestic manufacturing standards established in foreign and international trade law. American companies that produce non-agricultural goods with substantial domestic content should be allowed to make American consumers aware of that f act. Unqualified "Made in USA" claims should not be limited to companies whose goods are virtually 100 percent American-made. U.S. companies should be permitted to import some components and a minimum of finished goods without losing their authorization to make "Made in America" representations in advertisements. This would allow a company that manufactures, for example, 75 percent of its product line in the United States to advertise its products collectively overseas as "Made in America." As Chairman Pitofsky recognized during his confirmation hearings before the Senate Commerce Committee, the economy of the United States has changed dramatically in the last two decades. A November 1995 report by the Massachusetts Technology Collaborative, "Technology Development in Massachusetts," states that: Manufacturing employment has fallen precipitously in recent years even as manufacturing output has continued to rise. However, these statistics may be masking another important phenomenon. When it comes to actual fabrication, many manufacturers' in the Commonwealth are sourcing subassemblies and even final products from plants located outside the state. Depending on the nature of particular products and processes, the cost of production in Massachusetts related to other parts of the country -- let alone Mexico, Thailand or China -- make [sic] it difficult to justify manufacturing within the Commonwealth. Cost differentials of 20 to 30 percent are not uncommon. The nonrubber footwear industry offers a good example of a sector in which low wages and unfair trade practices abroad have enabled imports to capture almost 90 percent of the U.S. market over the past 25 years. Imports have cost the domestic nonrubber footwear industry 75 percent of its production and workforce, and many U.S. footwear manufacturers have moved production off-shore. When viewed against this background, the commitment of such companies as New Balance Athletic Shoe of Massachusetts, to keep their manufacturing base -- and maintain jobs -- in this country is all the more exceptional. New Balance employs same 1,000 workers in four plants in New England, including 700 in Boston and Lawrence, Massachusetts, and in Maine. The company, with worldwide sales exceeding $300 million a year, pays its workers an average of between $10 and $12 an hour. The company has plans to invest $25 million to expand the Lawrence plant and to boost its production from 2.5 million to 4 million pairs a year. In many New Balance shoes, between 70 and 80 percent of the parts and labor are American. According to New Balance, despite 11 significant and sustained efforts, 11 it has been unable to find a domestic source for a limited number of shoe components, particularly soles for some of its models. These injection-molded soles represent at most 20 to 30 percent of the cost of the shoes, according to the company. The capital investment and research and development costs necessary to establish manufacturing facilities for this component in the United States greatly outweigh the production scale needed to justify the investment. Should New Balance be denied the opportunity to label its shoes "Made in America?" I do not believe so. The move toward globalization of manufacturing is not unique to the domestic footwear industry; indeed, improved communications, transportation and financing have made, global sourcing of inputs a hallmark of the U.S. economy of the 1990s. With manufacturing industries throughout the United States dramatically increasing their Imports of raw materials and components since the 1960s, the FTC's "Made in America" standard is no longer workable In this intensely competitive International marketplace. The FTC's "all, or virtually all" rule is inconsistent -- and significantly higher than -- a broad array of domestic and foreign standards applicable to country of origin labeling, export financing assistance requirements and other so-called "domestic content" laws. Consumers would benefit from a clear standard that is applied consistently across the range of U.S. laws. Unfortunately, that is not the case today. The Buy American Act governing federal procurement requires that "substantially all" of an item must be manufactured from articles produced or manufactured in the U.S., interpreted as meaning that an item must be manufactured in the U.S. and the cost of its U.S. components must exceed 50 percent of the cost of all components. Items qualify as "American-made" if the U.S. componentry accounts for more than 50 percent of the total cost of the product's inputs. The 1988 Omnibus Trade Act established within the Commerce Department a Market Development Cooperator Program to promote exports of nonagricultural goods and services produced in the United States. Products qualify for assistance under this program if they have "substantial inputs of materials and labor originating in the United States, with such inputs constituting at least 50 percent of the value of the good or service to be exported." The U.S. Export-Import Bank, which provides federal financing and insurance for exports of U.S. products, uses a similar standard. A 50 percent standard is also incorporated in the preferential tariff rules of the North American Free Trade Agreement, and like most foreign customs laws, the U.S. Customs Service, pursuant to the Tariff Act, required that products entering the U.S. designate one foreign country as the country of origin. To determine a single country of origin, customs laws generally provide for a "substantial transformation" standard, meaning an imported good used in a domestic manufacturing operation that resulted in the article having a new name, character or use is deemed to be an item produced in the country in which the final manufacturing operation occurs. The FTC's "Made in America" standard stands in stark contrast to these U.S. and foreign trade laws and standards. Indeed, the FTC's "Made in America, standard is an exception rather than the rule in both determining the country of origin and measuring domestic content. In conclusion, it is my recommendation that the Federal Trade Commission adopt a "Made in America" standard that reflects the reality of today's global marketplace and is consistent with U.S. and foreign trade laws regarding domestic content and country of origin determinations. Accordingly, I recommend that the Commission modify its labeling standard to permit a claim of "Made in America" if U.S. componentry and direct labor exceed 50 percent of all such costs, and that the FTC provide clear and reasonable guidelines for advertisements which would allow U.S. manufacturers to import some end products and still qualify for "Made in USA" representations when such representations are related to product exports. Such a modification to the "Made in America" standard will benefit U.S. consumers, businesses and workers, and should be adopted at the earliest possible time.