American consumers are becoming increasingly more discerning and patriotic when buying products. It is now common when out shopping for customers examine country-of-origin labels when selecting clothing, food products, children’s toys, and even dog and cat food. Businesses are being likewise affected by this new sensitivity. Manufacturers now strive to slap “Made in the USA” labels on their products and advertise that fact. This is generating a new “Made in America” legal practice area.
President Trump issued an executive order https://whitehouse.gov/the-press-office/2017/04/18/presidential-executive-order-buy-american-and-hire-american on April 18, 2017 designed to invigorate existing “Buy American and Hire American” laws, executive orders, and regulations.
In addition to a spate of congressional “Buy American” and “Made in the USA” bills pending, states and even some municipalities are getting into the protectionist game with legislation of their own. Recently, the following states and cities have either enacted or introduced such legislation:
- New York
- New Jersey
Texas Governor Greg Abbott recently signed Senate Bill 1289 http://capitol.state.tx.us/BillLookup/history.aspx?LegSess=85R&Bill=SB1289 into law. The bill requires state infrastructure construction projects to use only steel made in America if the cost doesn’t exceed 20 percent more than the price of cheaper, foreign imports.
A Murky Designation
“Made in the USA” and “Made in America” have a long history. Manufacturers have found them to be popular designations that, most of the time, resulted in selling more product. Today, that is even more the case.
Determining that a product is, in fact, made here is an increasingly complex matter, raising issues of false advertising. That has been compounded by a vast increase in multinational companies and the globalization of both product manufacturing and the supply chain. Today it is often no simple matter to determine definitively where a product is made.
T-shirts are a classic example. While making one may appear to be a simple process, it is actually quite complex, involving nine discrete steps which, in the extreme, could involve nine (or more) different countries, i.e.:
Farming. Most T-shirts are cotton, so cotton farming is step one. Cotton grows in narrow climactic bands around the world, thus there are only a few places where manufacturers can obtain the raw material for their T-shirts.
Ginning involves separating cotton (lint) from the seed and compressing it into bales for shipment.
Spinning requires a number of machines that turn the cotton into yarn.
Knitting turns the yarn into cloth, with a separate cloth tube is needed for each garment size.
Finishing is a multi-step process beginning with washing out any particulate matter, then bleaching or dyeing the knit cloth to a consistent color, shrinking the fabric, and softening it to prevent holes from opening up when sewed.
Cutting. Bodies, sleeves, and collars are cut out of the fabric tube.
Sewing, the last step in the actual construction of the T-shirt, is very labor-intensive (thus its disproportionate presence in low-wage countries), requiring one individual to operate each sewing machine. Note: Not much has changed here in 200 years, a remarkable contra-indicator of technological progress.
Printing. T-shirt panels are printed using screen, spray or digital printing, or heat embossing.
Dyeing, the final step, is done to add more value to the product and only takes place if the T-shirt has not been dyed during finishing. Once dyed, the T-shirt is shipped to the retailer.
T-shirts are just one example of seemingly simple products whose manufacture may take place in multiple countries. This creates a problem for manufacturers who want to place a “Made in the USA” label on their goods. With more complex products (a typical automobile contains more than 30,000 parts), the dilemma escalates exponentially. This is where government steps in to protect the consuming public from possible false advertising claims.
The Regulatory Structure
All three levels of government have enacted laws and promulgated rules covering when a “Made in the USA” label may be applied to a product.
Federal Trade Commission (FTC)
The FTC https://ftc.gov monitors “Made in the USA” advertising. The agency has issued an extensive standard governing the use of the “Made in the USA” designation https://ftc.gov/tips-advice/business-center/guidance/complying-made-usa-standard. The current standard, dating from the late 1990s, represents a loosening of the FTC’s approach in response to the transition from a largely domestic to an increasingly global economy.
For an unqualified “Made in the USA” claim (one without further information or qualification) to pass muster, the goods must be “all or virtually all” made here. While pretty vague, some light is cast by examining FTC decisions https://ftc.gov/enforcement/cases-proceedings/commission-decision-volumes enforcing the standard. Note: These decisions make for ponderous reading, but for aspiring “Made in the USA” attorneys, they are a “must read.”
I won’t drill down into the weeds on the FTC standard other than to point out the vagueness of both the standard and FTC enforcement: the threshold requirement for meeting the “all or virtually all” requirement is that final assembly takes place in the U.S. “Final assembly” means that the goods have undergone a “substantial transformation” in the U.S., defined as “a manufacturing or other process that results in a new and different article of commerce, having a new name, character and use that is different from that which existed prior to processing.” “Substantial transformation” is the most important term in this entire regulatory regime.
The second most important term Is “de minimis foreign content.” The FTC standard states that acceptable goods may contain a de minimis amount of foreign content, and considers two factors in determining this: (1) how much of the product’s total manufacturing costs can be assigned to U.S. parts and processing; and (2) how far removed any foreign content is from the finished product.
As you can see, much depends on the particulars of the product and the particulars of the company’s manufacturing process. This is nirvana for lawyers. Predicting what the FTC will do in a specific case is a challenge, exacerbated by the fact that different companies making the same product may do so using very different processes. This is not a realm where precedent means very much.
U.S. Customs and Border Protection
The other major federal agency involved in this regulatory jumble is U.S. Customs and Border Protection (“Customs”) http://cbp.gov/, which determines whether a “country-of-origin” marking is required for goods entering the U.S. Customs makes these determinations using the “substantial transformation” test on a case-by-case basis. Decisions are just as murky and unpredictable as those made by the FTC under the “Made in the USA” standard.
Even if an imported product does not need a foreign country-of-origin mark, that does not mean it can be promoted as “Made in USA.” In such cases, the FTC standard considers additional factors.
Complicating the situation further is that the FTC has jurisdiction over foreign origin claims on products and in packaging beyond the required Customs disclosures, and also has jurisdiction over foreign origin claims in advertising and other promotional materials.
There has to be considerable interaction between the FTC and Customs for this system to function even as uncertainly as it does today. And that uncertainty is guaranteed to escalate moving forward, given the increasing complexity caused by globalization, trade agreements, and new laws and regulations.
In addition to the FTC and Customs standards governing all products, Congress has enacted legislation mandating “Made in the USA” advertising and/or labeling rules for specific products, such as textiles, wool products, furs, and automobiles (these latter rules are administered by the National Highway Traffic Safety Administration. http://nhtsa.gov
Adding to the confusion, the Buy American Act http://fas.org/sgp/crs/misc/R42501.pdf and Federal Acquisition Regulation https://acquisition.gov/?q=browsefar require that a product be manufactured in the U.S. using more than 50 percent U.S. parts to be considered “Made in the USA” for federal procurement purposes.
The gaggle of statutes, federal and state regulations, and court interpretations have created confusion for manufacturers. Government and media “shaming” of companies that offshore plants is growing. Reaction to the escalating criticism of offshoring has seen a growth in “Made in the USA” and “Buy American” enthusiasm among U.S.-based companies and consumers. All have become more conscious of where goods are produced, which is having a major impact on purchasing decisions.
Naturally, manufacturers want to take advantage of this new public attitude. However, slapping on a “Made in the USA” label and advertising the same exposes manufacturers to significant risks. Consequently, the care with which manufacturers must approach this issue necessitates the need for considerable legal input.
Practitioner Knowledge Base
In addition to the many laws, regulations, and court decisions regarding false advertising, “Made in the USA” practitioners need to be versed in the laws and regulations governing international trade, export-import, environmental impacts, taxes, labor and employment, product liability, and unfair competition.
A “Made in the USA” specialty practice is a solid career move that is likely to be “hot” for the foreseeable future. Bilateral trade among nations steadily increases, due both to new trade agreements and of necessity, as the global middle class grows and amasses increasing wealth to buy consumer goods. This is not going to stop as the planet becomes a smaller place, linked together by inexpensive, real-time communications and more rapid means of transportation.
You are likely to be a “first-past-the-post-early-mover” if you prepare yourself now for this exciting opportunity.