Federal Trade Commission Documents Received Jan. 22, 1996 B18354900089 The National Council on International Trade Development January 17, 1996 Office of the Secretary Federal Trade Commission Room 159 Sixth and Pennsylvania Avenue, N.W. Washington, D.C. 20580 Attn: Mr. Robert Easton Special Assistant, Division of Enforcement Subj.: Made in USA Policy Comment Dear Mr. Easton: These comments are submitted by the National Council on International Trade Development (NCITD), 818 Connecticut Avenue, Washington, D.C. 20006 in response to the Federal Trade Commission's Request for Public Comment in Preparation for Public Workshop Regarding "Made in USA" Claims in Product Advertising and Labeling, 60 Fed. Reg. 53,922 (Oct. 18, 1995). We also request that we be permitted to participate in the workshop announced in the Federal Register on December 19, 1995, 60 Fed. Reg. 65,327 (Dec. 19, 1995). The National Council on International Trade Development (NCITD) is a non-profit membership-driven organization actively providing direction and expertise in the international trade scene since 1967. NCITD's membership includes manufacturers, importers, exporters, banks, forwarders, brokers, transportation and consulting firms and more. Among the many companies who are members of the NCITD are Union Carbide, Citibank, American President Lines, 3M, Kodak, DuPont, Fritz Companies, General Electric, Federal Express, Sea-Land Services, IBM and Mattel. Due to the fact that our membership is so extensive and diverse, we will not be able to give specific answers to all of the questions that were asked by the FTC in the Federal Register notice. However, we will make general comments on the "Made in USA" standards. I. Current FTC "Made in USA" Marking Standard. The present "Made in USA" standard which requires that "all or virtually all" of a product originate in the United States in order to be marked "Made in USA" is not only unworkable but unreasonable from our point of view. We do not believe that the consuming public's perception of what "Made in USA" means to them is met by the present standard. In addition, the standard is difficult to follow since there is no reliable definition of what the FTC means by "all or virtually all." How far back do we go in the manufacturing process to insure that something is a product of the United States. Does the iron ore that became steel tubing that became a bicycle have to mined in the US in order for the bicycle to be marked "Made in USA"? II. Conflict with Other Marking Rules. The current marking standards conflict with a number of foreign countries' marking rules. They expect that products coming from the USA which are manufactured there be marked "Made in the USA" and may require relabeling if that is not the case. We also believe that the FTC standards conflict with current NAFTA and U.S. Customs marking regulations. NAFTA marking regulations rely on tariff shift to determine the country of origin for a product. For instance, if a company imports rolls of paper and then coats those rolls with adhesive and abrasive grains to make sandpaper, a tariff shift occurs from the tariff number of the imported paper to that of the finished product. NAFTA rules require that the country of origin be the country where that tariff shift occurred. U.S. Customs has recently rewritten their marking requirements to conform to those of NAFTA. In the past, they used the "substantial transformation" test to determine country of origin. They now have proposed that tariff shift be the standard for country of origin determination. Our membership feels that the FTC should also adopt the tariff shift standard to align themselves with U.S. Customs and NAFTA. III. Consumer Perception of "Made in USA". The NCITD believes that consumers expect a product marked "Made in USA" to contain a significant amount of U.S. parts and labor, with U.S. labor being the most important aspect of a product that is made in the United States. We believe that the present standard does not do justice to those perceptions and certainly does not consider the part that American labor plays in the calculation of origin. IV. Responses to Specific Questions. Since we do represent a varied membership, we will not be able to answer all of the questions. And those we can answer can only be responded to in a general manner. 1. When consumers see product advertisements or labels stating or implying that products are "Made in America," or the equivalent, what amount of U.S. parts and labor do they assume are in the product? We believe, as we stated above, that consumers who see such labels or advertisements believe that a significant amount of U.S. parts and/or labor went into making the product. We believe that the average American consumer is much more likely to demand that a product which is labeled "Made in America," be made here with U.S. labor and that the origin of the parts is perhaps not as important. However, this is only our opinion and not based on any direct evidence of consumer surveys or other such evidence. 2. What are the costs and benefits of an "all or virtually all" threshold for Made in USA claims, versus a lower threshold (e.g.50%)? We believe that the costs far outweigh the benefits of an "all or virtually all" threshold for "Made in USA" claims. The present standard is so stringent that a large number of products which are really made in the USA cannot be marked. This is a disadvantage to both the manufacturer and the consumer. 3. What are the costs and benefits of alternative thresholds (e.g., 50%, 75%, products "substantially transformed" in the United States)? The NCITD does not believe that any type of standard based on a threshold or on the complexities of "substantial transformation" is cost beneficial or workable. These types of standards require substantial amounts of investigation, calculation and paperwork from too many sources to be acceptable. 4. What are the costs to consumers, when the actual domestic content in "Made in USA" products is lower than consumers are led to believe? We do not think that there are really costs to the consumer when the domestic content in "Made in USA" products is lower than they may believe. We know of no evidence to support the belief that consumers worry about the domestic content. We feel, as consumers ourselves, that the place where a product is made is more important than the origin of the material the product is made from. 5. What do consumers understand the phrase "Assembled in USA" to mean? Would consumers view such terms as suggesting that the product may have substantial foreign content? What are the costs and benefits of allowing such a claim for a product where there is only minimal domestic assembly? Consumers do not give equal weight to "Made in USA" and "Assembled in USA." They believe that assembly is a less arduous task than manufacturing, and they perceive an assembled product to have fewer U.S. parts or components than a product "made" here. The NAFTA marking rules define "simple assembly" as the fitting together of five or fewer parts, all of which are foreign (excluding fasteners such as screws, etc.) by bolting, gluing, soldering, sewing or other means without more than minor processing. We feel similar definition should be adopted by the FTC. 6. Should the determination of U.S. value added by parts and components exclude raw materials? If so, what should be the definition of raw material? We do not believe that there should be a value standard for the "Made in USA" marking. Regarding raw materials, NAFTA marking rules require both components and raw materials to be analyzed to determine country of origin. 7. Should the form of guidance (with respect to Made in USA standards) be a case-by-case enforcement, an enforcement policy statement, guides, or a rulemaking. Are there other forms of guidance that would be more cost efficient? The FTC should begin with rulemaking procedures to lay out its requirements for "Made in USA" marking and advertising standards. They should then issue new, clear regulations that will enable manufacturers to easily understand what is expected of them and what will happen to them if they do not comply. We are not in favor of case-by-case enforcement strategies. The NCITD hopes that our comments have been of some value to you and looks forward to participation in the March 26-28, 1995 workshops. If you have any questions, please contact the writer by telephone at (612) 733-5310 or by fax at (612) 733-9064. Sincerely, Jack Ryan Chairman, NCITD Customs Committee