Federal Trade Commission
Received Documents
Jan 16 1996
B18354900032
Secretary

UNITED STATES OF AMERICA
BEFORE THE FEDERAL TRADE COMMISSION

In the Matter of
MADE IN USA POLICY COMMENT
FILE NO.  P894219

SUBMISSION OF RUBBER
AND PLASTIC FOOTWEAR
MANUFACTURERS ASSOCIATION

     The Rubber and Plastic Footwear Manufacturers Association is a trade association whose
members manufacture most of the rubber-soled fabric-upper footwear, protective footwear and
slippers produced in this country.  These manufacturers take pride in the fact that they are the
survivors of a labor-intensive domestic industry sorely beset by imports from low-wage foreign
countries.  A significant portion of these imports are sold by American-based companies such as
Nike and Reebok, who have found it more profitable to produce abroad than at plants in this
country which employ American workers at American wages with American environmental and
safety standards.

     RPFMA companies label and/or advertise products produced in their domestic plants as
Made in the USA.  They do so in the belief that, other things being equal, American consumers
have a preference for American-made footwear.  There is a rational - not merely an emotional or
chauvinistic - basis for such a preference: Americans would rather that the footwear they buy is
made by workers in this country.

     Domestic rubber footwear and slipper manufacturers rely substantially on materials and
components produced in this country; materials and components are imported only when they are
not available domestically or are too costly to make it competitively possible to manufacture the
finished footwear in domestic plants.  In no instance is quality sacrificed where an imported rather
than a domestic component is used and in every instance an imported component helps preserve
the jobs in America of employees making the final product.  In short, if we are right that
consumers buy American in order to maintain American employment and quality, every RPFMA
member can fully justify its claim of Made in USA.

     The rigid "all or virtually all" standard set forth by the FTC in its earlier complaints against
New Balance and Hyde is in fact a disservice to consumers who wish to buy American-made
footwear, since it is a standard which hardly any domestic producer can meet.

     Imports of fabric-upper, rubber-soled footwear currently constitute in excess of 80% of
our domestic market and imports of waterproof footwear constitute in excess of 40%.  This has
happened in large part because wages in foreign plants where such footwear is produced are
roughly one-tenth to one-twentieth of what they are in this country.  The ironic fact is that the
flight of so much American footwear production abroad has diminished the size of the domestic
industry to the point where it is no longer economically feasible for domestic suppliers to produce
some of the needed components.  The result is that in many cases domestic producers have no
choice but to rely on one or more imported components.  Having said this, it is important to add
that there is not a single member of the RPFMA whose domestic products do not consist of well
over 50% of component parts made in, and labor performed in, the United States.

     A more realistic guide in today's global economy than the Commission's "all or virtually
all" standard would be a standard which requires a "substantial" share of components and labor to
be of American origin and which requires that final assembly take place in the United States. 
Such a standard would encourage rather than deter the continued operation of American footwear
plants and would also satisfy consumer preference for products produced by American workers. 

     There is support for this proposed alteration of the Commission's view of "Made in USA"
in the very cases on which the Commission has relied in Hyde, in the language of the recently
enacted Crime Bill and in the standard set forth by the Government for promoting exports of
American-made products.

     As for the Commission's Opinions, there is none more recent than an Advisory opinion of
26 years ago, a matter where the Commission stated that "if the product was made of foreign
components and assembled in the United States, it would be improper to describe the finished
product as  Made in USA'" (emphasis added).  We have no problem with the concept that the
mere assembly of foreign components does not result in an American-made product.

     In the matter of Joseph H. Meyer Bros., a 1950 decision involving imitation pearl
necklaces, the Commission found the company's claim that its products were "Made in the USA"
to be false in that those products were "composed in substantial part of imported imitation pearls"
(emphasis added).

     In the matter of Windsor Pen Corp., et al., a 1964 decision, the Commission found that
one of the two principal items in the pen and desk sets sold by respondents was in fact imported
and that in a second set consisting of a pen holder, pens and a telephone index, the index was
imported.  Accordingly, the Commission held that neither of these desk sets could be labeled
"Made in USA" since they "contain substantial items made in Japan" (emphasis added).

     Thus, in the cases relied on by the Commission in its consent agreement with Hyde, the
Commission found that a "substantial" part of the product in question was imported.  We
therefore think it consistent with the Commission's earlier views that where domestic products are
comprised of components which are substantially domestic and where a substantial portion of the
labor performed in the production of the product is domestic, the product may be labeled "Made
in the USA".

     Given the competitive world as we now know it, it is relevant to the Commission's
consideration of the proper standard for "Made in the USA" that its most recent decision on this
issue goes back to 1968.  We think it accurate to say that there is now virtually no labor-intensive
domestic industry which does not find it necessary to import some part of its product.  Surely it
was for this reason that the Congress saw fit to include a Made in USA provision in the recently
enacted Crime Bill which describes American-made products as "in whole or substantial part of
domestic origin," (emphasis added).

     The only problem we see with a "substantial" test is that it, like "virtually all", has an
inherent vagueness of meaning which could create problems of interpretation.  It is for this reason
that we suggest that the standard should be in percentage terms, and there is much to recommend
that the appropriate percentage figure for Made in USA should be at least 50% of components
and labor of domestic origin.  Not only would this formula adequately distinguish American-made
footwear from imports, it would also be in accord with the distinctions made by other
Government agencies concerned with when a product can claim to be domestic.

     For example, the Department of commerce recently created a market development
program whose aim is to develop, maintain and expand foreign markets for United States'
products.  Commerce's International Trade Administration has defined "produced in the United
States" for the purpose of this program as meaning "having substantial inputs of materials and
labor originating in the United States, such inputs consisting of at least 50% of the value of the
good or service to be exported." Moreover, to comply with the rules of origin laws of most
countries, these products must be marked "Made in USA" when exported.  An American
manufacturer can hardly be expected to maintain one label for its domestic market and one for its
exports.  Such conflicting standards can only foster a high level of frustration on the part of
rubber footwear and slipper manufacturers who are attempting to provide jobs for American
workers in the face of increasing competitive pressures from abroad.

     It is important that the standard for Made in USA be as clear, as uniform and as simple as
possible, consistent with an assurance that consumers are not being deceived.  American rubber
footwear and slipper manufacturers are already burdened with comparatively heavy production
costs in operating their plants in this country rather than abroad and that burden should not be
increased by additional accounting and legal fees likely to accrue in the absence of a clear, easily
met and consistent Made in USA standard.

     The Commission's Federal Register notice of October 18 points out that the appeal of
Made in USA may be strengthened by consumer knowledge of increased foreign manufacture.  In
the case of such footwear as tennis, basketball and running shoes, the principal manufacturers
abroad are companies such as NIKE and Reebok whose products often carry paid-for
endorsements by distinguished American athletes.  But these products of American companies are
not manufactured in this country, and it becomes all the more important for American
manufacturers to be able to point out the distinction.

     As for the Commission's request for comment on such qualified language as "Made in
USA with domestic and imported parts", it would be both infeasible and counterproductive to
label footwear in this manner.  Infeasible because of the awkwardness of labeling a shoe with such
a space-consuming logo.  Counterproductive because of the implicit suggestion that the use of an
imported part or parts means a diminution in the use of American labor, whereas in fact the use of
such a part or parts is what enables the finished product to be made with American labor;
moreover with such a formulation consumers are likely to believe mistakenly that there is a
difference in quality in the domestic and imported components.

     The Commission's October 18 notice suggests the following as a possible formula for
computing domestic content:

               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.

     The RPFMA suggests that this formula should be modified to read as follows:

               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, including fringe benefits and [direct] overhead in final
          assembly) by (ii) TOTAL PRODUCT COST. (Underlined language
          added; bracketed language omitted).

We believe that the suggested changes would better express the intent of the formula while
narrowing the possibility of conflicting interpretations.

     The RPFMA has no problem with such a formula provided the percentage represented by
"X" is a reasonable one.  Although every RPFMA member company manufactures its domestic
products with a domestic content well in excess of 50%, we suggest that the 50% figure is the
desirable one because it accords with the formula used by other Government agencies.

     How far back in the production process of components should a manufacturer have to
look in order to claim that a given component is domestic?  Anything beyond one step back
would create an unduly formidable burden which manufacturers should not be expected to meet,
particularly since the net effect on American employment and quality of product would in the vast
majority of cases be de minimis.  If, however, a manufacturer can demonstrate that a given
percentage of an imported component is of American origin, that percentage should be allowed to
be taken into account in meeting the 50% test for Made in USA.  Further, any "one step back"
requirement should exclude basic raw materials.  For example, there is no natural rubber in this
country and the natural rubber in domestic footwear must be imported.

     Such an exclusion would be consistent with the definition of "domestic end product" in
section 225.001 of the Buy American Act.  That section reads, in pertinent part, as follows:

               A component shall be considered to have been mined,
          produced, or manufactured in the United States (regardless of its
          source in fact) if the end product in which it is incorporated is
          manufactured in the United States and the component is of a class
          or kind (I) determined by the Government to be not mined,
          produced, or manufactured in the United States in sufficient and
          reasonably available commercial quantities and of a satisfactory
          quality; or (ii) as to which the Secretary concerned has determined
          that it would be inconsistent with the public interest to apply the
          restrictions of the Buy American Act.

     In short, RPFMA is of the view that consumers who prefer American-made products
because of their desire to preserve American jobs and/or quality will not be deceived by a claim of
Made in USA which can be supported by proof that the finished product consists of at least 50%
domestic parts and labor, with final assembly in the United States.  Indeed any formula which
deviates to a considerable degree from this proposal would have the effect of defeating
consumers' desires for American-made rubber footwear or slippers, since the domestic plants of
most such manufacturers are competitively dependent on the need to use one or more imported
components.  If RPFMA manufacturers cannot claim that their products are made in the USA,
consumers will have no effective way of distinguishing between the output of American plants and
that of foreign plants.

     Finally, the FTC has suggested that at the conclusion of its workshop it will have several
options for giving guidance to the public on Made in USA claims.  In our view, an enforcement
policy statement based on the kind of formula set forth above would be far preferable to either
case-by-case enforcement or a rulemaking proceeding.  A case-by-case policy would be
particularly troubling because of industry variables and the risks inherent in interpreting the
decision in one case in light of the facts of another case.

     For all of the foregoing reasons, the Rubber and Plastic Footwear Manufacturers
Association urges that footwear made with at least 50% domestic components and labor, with
final assembly in the United States, should be permitted to be labelled and advertised made in
USA.


Mitchell J. Cooper
Counsel, Rubber and
Plastic Footwear
Manufacturers'
Association

January 11, 1995