Federal Trade Commission Received Documents Jan 22 1996 B18354900086 Secretary BEFORE THE FEDERAL TRADE COMMISSION COMMENTS OF THE BICYCLE MANUFACTURERS ASSOCIATION OF AMERICA, INC. REGARDING "MADE IN USA" CLAIMS WITH RESPECT TO BICYCLES "MADE IN USA" POLICY COMMENT FTC FILE NO. P894219 Michael R. Kershow Judith L. Oldham Collier, Shannon, Rill & Scott 3050 K Street, N.W. Suite 400 Washington, D.C. 20007 (202) 342-8400 Counsel to the Bicycle Manufacturers Association of America, Inc. January 22, 1996 BEFORE THE FEDERAL TRADE COMMISSION COMMENTS OF THE BICYCLE MANUFACTURERS ASSOCIATION OF AMERICA, INC. REGARDING "MADE IN USA" CLAIMS WITH RESPECT TO BICYCLES "MADE IN USA" POLICY COMMENT FTC FILE NO. P894219 These comments are submitted on behalf of the Bicycle Manufacturers Association of America, Inc. ("BMA") in response to the Federal Trade Commission's notice soliciting public comment on the FTC's policies relative to "Made in USA" and similar claims made in connection with the labeling and advertising of products. See 60 Fed. Reg. 53,922, 65,327 (1995). In a letter accompanying this submission, representatives of BMA have requested an opportunity to participate in the Commission's upcoming public workshop on this issue. BMA is a non-profit trade association representing the interests of U.S.-based manufacturers of bicycles and their suppliers. A copy of its membership list is attached. The three manufacturer members of the association Ä Huffy Bicycle Company, Murray, Inc. and Roadmaster Corporation Ä account for approximately 95 percent of the bicycles made in the United States. In calendar 1995, these three firms produced over 8.4 million bicycles in seven separate U.S. facilities employing more than 6,500 workers in connection with the manufacture of bicycles.{1} The association also has 18 supplier members which supply the BMA manufacturer members and other U.S. bicycle producers with materials and components. While several of these supplier member firms are based offshore and supply bicycle manufacturers throughout the worldwide bicycle industry, many others are relatively small U.S.-based firms that depend heavily on their sales to Huffy, Murray and Roadmaster. Collectively, BMA's supplier members account for nearly 1,300 additional U.S. manufacturing and related jobs. In the first of its two Federal Register notices, the Commission outlined an extensive list of specific questions that it would like the public to address during the upcoming workshop. Most of these issues have already been addressed by BMA in comments it filed in connection with the Commission's proposed Consent Agreement with Hyde Athletic Industries, Inc., the withdrawal of which stimulated the Commission's decision to convene the upcoming workshop.{2} In that submission, BMA urged the Commission to discontinue its general policy of restricting "Made in USA" claims to products that are "all, or virtually all" of U.S. material and labor content in favor of a more commercially realistic standard Ä that is, contribution of at least 50 percent of a product's value (using the specific formula prescribed by the North American Free-Trade Agreement ("NAFTA")). BMA further argued that, at the very least, this should be the operative standard for products, like bicycles, which are assemblies of discrete components that can be (and frequently are) separately labeled with their own countries of origin. Indeed, BMA showed that the Commission effectively recognized this basic principle in a 1961 stipulated order involving bicycles.{3} From an examination of the public record in the Hyde proceeding, it appears that the positions expressed in BMA's November 22, 1994 submission are consistent with those expressed by representatives of a number of other U.S. industries. Since that submission addresses most of the central policy issues raised in the Commission's Federal Register notices in connection with the workshop, we wish simply to incorporate our November 22, 1995 submission herein by reference and to focus in this submission on the unique circumstances of the U.S. bicycle industry and how those circumstances affect the application of "Made in USA" claims in the context of bicycles. The nature of the product itself (and how it is manufactured) and conditions of competition in the U.S. bicycle market distinguish bicycles from virtually every other consumer product to which a "Made in USA" claim could be applied. Viewed in this context, there is nothing at all deceptive about affixing an unqualified "Made in USA" label to a bicycle that is assembled in the United States and which contains a substantial percentage of U.S. material and labor content. Anyone visiting the manufacturing facilities of Huffy, Murray and Roadmaster would not confuse them with simple "screwdriver" operations. All three firms fabricate bicycle frames and forks Ä the "heart" of every bicycle Ä from steel tubing that is either purchased in bulk or rolled from steel sheet. This process involves extensive cutting, forming and welding operations. All three firms also fabricate such components as seat posts, handlebar stems, handlebars, rims and some sprockets. Wheels are built using specialized machinery and frames and other parts are painted and finished largely by hand. Finally, these fabricated components are assembled together with various purchased parts into substantially complete bicycles, with certain parts (e.g., the front wheel, the handlebars, the pedals and the saddle) packaged separately in the carton for ease of shipment. While the amount of in-house component fabrication may differ for particular bicycle models as commercial factors dictate Ä for example, for some individual models, the rims or handlebars might be purchased, rather than made in-house Ä the U.S. material and labor content of bicycles manufactured by Huffy, Murray and Roadmaster always exceeds 50 percent of total product cost. In many cases, U.S. material and labor content accounts for a very large majority of product cost. Since (as discussed below) many essential bicycle components are simply not available from U.S. sources, this is no small feat. Fundamentally, a "Made in USA" claim on a bicycle does nothing more than distinguish it from bicycles labeled "Made in Japan," "Made in Taiwan," or "Made in China." As the employment figures cited above attest, the manufacture of bicycles in the United States contributes importantly to domestic employment among both bicycle manufacturing firms and their U.S.-based material and component suppliers. For this (if no other) reason, U.S. bicycle manufacturers should have the right to distinguish their products clearly from bicycles "Made in Taiwan" or "Made in China." Using a straightforward, unqualified "Made in USA" statement to do so cannot be regarded as deceptive when viewed from the perspective of the relevant "reasonable" consumer. BMA is well aware of the Commission's 1991 "Print Advertising Study," in which better than half of the randomly-surveyed individuals interpreted the "Made in USA" statements in a print advertisement for Huffy bicycles as meaning that over 90 percent of the parts and labor used in the bicycle were of U.S. origin. While the survey also showed that almost half of those polled interpreted the Huffy ad as meaning that some lesser percentage of Huffy bicycles' labor and material content were of U.S. origin, the results of the Print Advertising Study are of little, if any, relevance to the question of how consumers of bicycles Ä as opposed to "consumers" as a generic class Ä perceive "Made in America" claims as they apply to bicycles. It is hardly surprising that a substantial number of individuals plucked at random from the corridors of various American shopping malls and asked to view an advertisement for a Huffy bicycle or a Smith Corona typewriter (or virtually any other consumer product imaginable) would interpret a "Made in USA" statement made in such ads, in isolation, as implying a high percentage of U.S. content in those products. But few, if any, bicycles are purchased by mail order solely in response to print advertisements; bicycles are ordinarily purchased in mass merchant stores or in specialty shops, where any "Made in USA" claims will necessarily be viewed in the context of the designations of origin on competing products. When consumers of bicycles confront such claims during the course of making actual purchasing decisions in retail stores, few, if any, of those consumers would interpret a "Made in USA" claim as necessarily implying "all, or virtually all" U.S. content. Rather, consumers spending even a modest amount of time scrutinizing and comparing the bicycles offered for sale in retail establishments would unavoidably interpret "Made in USA" on a bicycle Ä just as they would interpret "Made in Taiwan" or "Made in China" Ä as signifying only that the final assembly of the bicycle occurred in that country and that a substantial portion (e.g., 50 percent) of the material and labor content of the bicycle originated in that country. There is, in short, no basis for concluding that consumers interpret "Made in USA" as different in concept from other statements of origin (e.g., "Made in China"). Both statements of origin simply refer to where the bicycle was "brought into being," and neither implies that "all, or virtually all" of the components of the bicycle necessarily originated in the United States or China. BMA's members are committed to producing bicycles with as high a percentage of U.S. labor and material content as economically feasible. Precluding unqualified "Made in USA" claims in the bicycle industry would cause the proliferation of a bewildering variety of qualified claims that would increase the possibilities for consumer deception and dilute valid claims by domestic manufacturers. For example, a claim that a bicycle was "Assembled in the USA from 75% US parts and labor" would not communicate the simple, accurate "Made in USA" message that Huffy, Murray and Roadmaster are entitled to convey: that their bicycles are produced in American factories and represent the highest commercially feasible level of American materials, labor and craftsmanship at a certain price level. As the Commission noted in discussing the "Smith Corona test," which in part involved Huffy bicycles, "the Made in USA claims were quite modest and made no express uniqueness or superiority claims regarding U.S. content." See 60 Fed. Reg. at 53,929 n.13. If U.S. bicycle companies are prevented from distinguishing their products from competing foreign-made products on even this modest basis, the domestic bicycle manufacturers, U.S. component suppliers and American consumers would all be adversely affected. A simple unqualified "Made in USA" statement is appropriate for labeling bicycles assembled in the United States that contain substantial U.S. material content because of a number of factors relating to the way that bicycles are made and sold, which in combination distinguish bicycles from virtually all other consumer products. These distinguishing factors are as follows: 1. Imported bicycles account for a substantial share of the U.S. market. One factor relevant to assessing "Made in USA" claims as applied to bicycles is the fact that imported bicycles have long accounted for a significant share of the U.S. bicycle market. In 1994, imports accounted for 42 percent of apparent domestic consumption of bicycles in the United States; in past years, imports have captured over 60 percent of the market. Thus, imported bicycles are widely present in the marketplace. Indeed, in the "specialty shop" or independent bicycle dealer ("IBD") segment of the market Ä which accounts for 25-30 percent of the bicycles sold in the United States each year Ä imports are extremely dominant, with only a handful of U.S. firms Ä most prominently, Trek and Cannondale Ä supplying bicycles to that channel. Although the U.S. bicycle market is certainly not the only consumer product market in which imports occupy a prominent role, this factor does distinguish the bicycle market from those product markets in which imports account for only a small percentage of apparent domestic consumption. The prominence of imports in the U.S. bicycle market presents U.S. manufacturers with an immediate challenge: how to distinguish their bicycles from the large number of bicycles labeled "Made in China" and "Made in Taiwan." The most obvious and straightforward way of doing so is for U.S. manufacturers to label their bicycles "Made in USA." As the Commission noted in summarizing many comments received in the Hyde proceeding, depriving U.S. manufacturers of the ability to utilize an unqualified "Made in USA" label could prevent use of "a selling tool that could help preserve American jobs." 60 Fed. Reg. at 53,924. 2. Many imported bicycles are labeled in such a way as to suggest that they are of U.S. origin. The need for U.S. bicycle manufacturers to distinguish their products from imported bicycles is particularly acute because imported bikes frequently bear brand names or other labeling that tends to suggest U.S. origin. In some cases, this is simply because certain brand names are commonly associated with U.S. manufacture. Perhaps the best example of this is Schwinn: even though Schwinn has manufactured only a very small portion of its bicycles in the United States over the past decade and dutifully labels its foreign-sourced bicycles as "Made in China" or "Made in Taiwan," it appears that the majority of Americans continue to believe that Schwinns Ä the "great American bike" Ä are still manufactured in the United States. Still other importers attempt to create an "American image" by adopting English-language brand names (e.g., Giant, Specialized, Diamondback, Royce Union, etc., as opposed to Fuji, Bianchi, etc.){4} or brand names that directly reference the United States or a particular U.S. locality (e.g., "Pacific USA," "Marin"-brand mountain bikes), or by affixing American flag decals to their bicycles. Last but not least is the widespread practice of labeling imported bicycles prominently with statements such as "Designed in USA" (or some locality). Even though these statements might be technically correct, anecdotal evidence suggests that many consumers interpret these statements as meaning that the bicycle was made in the United States, particularly in cases where required country-of-origin markings are positioned far less conspicuously on the bicycle frame. 3. A bicycle is a complex assembly of discrete components, most of which are recognized as separate articles of commerce. All bicycles have a frame and fork, wheels (consisting of rims, hubs, spokes, and spoke nipples), natural or synthetic rubber tires (and usually, inner tubes), brakes, a saddle and seat post, handlebars and a handlebar stem, pedals, crank, chain, chainwheel, one or more rear sprockets, reflectors, and grips. Typical options include multiple speeds (which require front and/or rear derailleurs coupled with a multiple sprocket cluster or a rear hub with an internal gear-changing mechanism, one or more shift controls, and cables), caliper or cantilever brakes either in lieu of or in addition to coaster brakes, tape on the handlebar in lieu of grips, handlebar extensions of various kinds (e.g., bar ends or aero-bars), mudguards, luggage carriers, one or more water bottle holders, and a kickstand. While many consumer products are similar to bicycles in being assemblies of discrete components Ä an automobile or a television set are obvious examples Ä we are aware of no such product in which the principal component parts are recognized as separate articles of commerce with a unique value of their own. Consider, for example, an automobile. A consumer buying a car will ordinarily examine the car as a whole and consider the reputation of the automobile manufacturer, but will generally have little or no knowledge of or interest in who supplied the engine or the sheet metal used in the automobile body, nor will he or she have thoughts of eventually upgrading the drivetrain. For many retailers of bicycles as well as consumers, by contrast, whether the shifters are made by GripShift or the derailleur by Shimano is becoming increasingly important, even in the extremely price-sensitive mass merchant segment of the market. Moreover, consumers frequently replace individual bike components for performance or aesthetic reasons. In short, product-based competition in the bicycle market is largely component-driven. The overall value of a bicycle is largely determined by the quality Ä real or perceived Ä of the individual components with which the bicycle is equipped. 4. Many of the same components are found on both imported and U.S.-origin bicycles. Over the past four or five decades, bicycle production around the world has become less and less vertically integrated. The production process today is more or less the same everywhere in the world. Generally, the bicycle companies manufacture such components as the frame and fork, the wheel rims, the handlebars, the handlebar stem and seat post; these primary components are then assembled with other components purchased from specialized manufacturers, including tires and tubes, derailleurs, brakes, chains, pedals, sprockets, hubs and reflectors. Invariably, the bicycle manufacturer's brand name will be placed on the bicycle frame (and perhaps, less commonly, on other components (e.g., the saddle)); but most of the major purchased components (e.g., the brakes, derailleurs, rims, hubs, and crank) will typically be labeled with the brand name of the component manufacturer and perhaps, the country of origin (if the component is imported). This characteristic of the manufacturing process has a direct impact on the nature of competition in the worldwide bicycle market. One of the principal ingredients in any bicycle manufacturer's competitive strategy is how it "specs" its bicycles Ä that is, what combination of components it selects for its individual bicycles. While for certain consumers, the color of the paint on the frame might be the primary factor in a decision to buy, more sophisticated consumers will frequently decide between two different brands of bicycle based on the component packages available with each. Increasingly over the past several decades, U.S. bicycle manufacturers have been forced to rely upon foreign-based component suppliers. Four or five decades ago, U.S. firms produced virtually every specialized component needed to assemble a bicycle. Over the course of this period, specialized component manufacturers sprang up in the Far East Ä first in Japan and then in Taiwan and other lower-cost countries. Gradually, individual U.S. firms found themselves unable to compete with these Far Eastern firms, with the result that by 1972, entire categories of components were no longer available from U.S.-based suppliers. Congress responded by passing a series of temporary "duty suspension" bills over the next twenty years in order to give U.S. bicycle manufacturers duty-free access to those imported components that simply could not be sourced domestically. By the time these tariff reductions were made permanent in the Uruguay Round of multilateral trade negotiations on January 1, 1995, the list of bicycle components on the "duty suspension" list was quite long, and included derailleurs, caliper and cantilever brakes, coaster brakes, cable and casing for derailleurs and brakes, three-piece cotterless cranks, multiple freewheel sprockets, bicycle chain, tires and tubes, aluminum quick-release hubs, and multi-speed hubs with internal gear-changing mechanisms. Thus, for the past quarter century, bicycles made in the United States have necessarily contained some foreign components for the very simple reason that many components have simply not been available from domestic sources. U.S. bicycle manufacturers also have been forced to rely on foreign component suppliers because of the extremely strong brand positions developed by a number of firms. Simply stated, "spec'ing" certain brand-name components is a prerequisite to competing effectively in the bicycle market, particularly in the higher-end "specialty" shop segment of the market. In recent years, for example, Shimano, a Japanese-based bicycle component manufacturer, has accounted for as much as 60 percent of the value of worldwide bicycle component sales (principally, drivetrains, hubs and brakes). Shimano components Ä which are manufactured primarily in Japan and Singapore Ä are widely found on bicycles manufactured in both the United States and the major bicycle exporting countries supplying the United States Ä that is, Taiwan and China, which currently account for more than 95 percent of the bicycles imported into the United States. No amount of creative marketing will allow a Trek or a Cannondale Ä the two largest U.S. bicycle manufacturers selling through the IBD segment of the market Ä to sell bicycles unless they are Shimano-equipped. And while many of the bicycles made by Huffy, Murray and Roadmaster are targeted at consumers for whom price is the predominant purchasing criterion, competitive pressures require these companies to compete on the basis of component "specs" as well, particularly on their higher-end models. If Huffy, Murray and Roadmaster wish to compete with higher-end imported bicycles, they have little choice but to "spec" Shimano derailleurs (for example). Again, many of these higher "spec," branded components are simply not available from domestic sources. While it might not initially be apparent to the consumer where precisely the Shimano-brand derailleur, the Lee Chi-brand brakes, or the Cheng Shin tires on a particular bicycle were made, any reasonable consumer would infer that these components were likely not manufactured in the United States. If this were not obvious enough from the Asian-sounding names of these brands or the presence of country of origin markings, it would quickly become apparent from the fact that consumers would likely find that very same derailleur, the very same set of brakes, or the very same tires on several brands of bicycles labeled as having different countries of origin Ä for example, on a Roadmaster labeled "Made in USA" and on a Magna or Pacific-brand bicycle marked "Made in China." Could a consumer confronted with such competing products reasonably infer that the Roadmaster bicycle was entirely of U.S. content? The answer, clearly, is no. Nor, for that matter, could the consumer reasonably infer that the Pacific and Magna bikes are "all, or virtually all" of Chinese content, notwithstanding their being labeled "Made in China." For upon closer examination of those bicycles, the consumer likely would notice components variously labeled as "Made in Singapore" and "Made in Taiwan," with perhaps none of them individually labeled as "Made in China." Consumers confronted with bicycles labeled with different countries of origin, yet having many of the same components, at least some of which might be labeled with countries of origin different from that of the bicycle, would quickly come to the conclusion that a statement of where a bicycle is made Ä whether it be the United States or some foreign country Ä is not intended to say anything about where any of its specific components might have originated. Rather, in context, such claims can only be interpreted as indicating where the bicycle itself "came into being" and where a substantial portion Ä but not necessarily "all, or virtually all" Ä of the material and labor content of the bicycle originated. CONCLUSION In light of these distinguishing factors Ä that is, the prominence of imported bicycles in the market; the fact that many imported bicycles are labeled in such a way as to suggest U.S. origin; the fact that a bicycle is a complex assembly of discrete, commercially-recognized components; and the fact that many of the same foreign-origin components can be found on both imported and U.S.-origin bicycles Ä a number of basic conclusions can be drawn. First and foremost, it is apparent that, in context, a "Made in USA" label on a bicycle cannot reasonably be interpreted by a consumer as implying that "all, or virtually all" of that bicycle's material and labor content are of U.S. origin. Fundamentally, a "Made in USA" label is simply the only straightforward way of distinguishing a bicycle fabricated in the United States from a combination of U.S. and (unavoidably) foreign components from the large number of bicycles labeled "Made in Taiwan" and "Made in China" that appear on store shelves. Consumers spending even a short time comparing domestically-made and imported bicycles would quickly appreciate that, in both cases, the bicycle might well be equipped with individual components originating in countries other than the stated country of origin of the bicycle as a whole. The consumer is no more misled or deceived as to the origin of a bicycle labeled "Made in USA" that contains a Shimano drivetrain made in Singapore or Japan than he is by a bicycle labeled "Made in China" which contains that very same Shimano drivetrain. The two origin claims will necessarily be interpreted as conceptually identical Ä that is, as simply signifying the country in which the bicycle as a whole "came into being." In a market where bicycles with little or no American material or labor content have frames emblazoned with names like "Schwinn" or "Pacific USA" in large block letters, perhaps accompanied by American flags and a far less conspicuous label saying "Made in Taiwan" or "Made in China," how are consumers harmed if firms offering bicycles fabricated in U.S. facilities using a relatively high percentage of American labor and material content wish to distinguish their products by labeling them as "Made in USA?" The suggestion that such a straightforward statement is misleading in the context of bicycles is simply specious, for as noted above, any consumer who attends to how bicycles are made and sold will understand that a "Made in" statement on a bicycle frame Ä whether referencing the United States or some foreign country Ä is not intended to indicate the origin of "all, or virtually all" of the bicycle's material content. Any initial misconception along these lines will quickly give way to an awareness that a bike equipped with a Shimano drivetrain (for example) but labeled "Made in USA" is not "all, or virtually all" of U.S. content. On the other hand, we believe that consumers will fairly and reasonably interpret such a statement to mean that that bicycle represents an investment in American labor and material that is dramatically different from that represented by a bicycle labeled "Made in China" or "Made in Taiwan." BMA's representatives look forward to discussing and expanding upon these comments during the upcoming workshop. Respectfully submitted, Michael R. Kershow Judith L. Oldham Collier, Shannon, Rill & Scott 3050 K Street, N.W. Suite 400 Washington, D.C. 20007 (202) 342-8400 Counsel to the Bicycle Manufacturers Association of America, Inc. January 22, 1996 Footnotes: {1} Huffy produces bicycles in Celina, Ohio and Farmington, Missouri. Murray manufactures bicycles in Lawrenceburg, Tennessee. Roadmaster's four bicycle manufacturing facilities are in Olney and Effingham, Illinois; Delavan, Wisconsin; and Opelika, Alabama. {2} See Comments of the Bicycle Manufacturers Association of America, Inc. Regarding the Commission's Proposed Consent Agreement with Hyde Athletic Industries, Inc. Concerning Hyde's Use of "Made in USA" Claims in Connection with the Sale of Footwear (File No. 922 3236) dated November 22, 1994. {3} Standard Cycle Co., Stip. No. 9460, 59 FTC 1492 (1961). {4} By contrast, the Nishiki brand, formerly made in Japan, is today manufactured in the United States by Raleigh USA (albeit using imported semi-finished frames). BICYCLE MANUFACTURERS ASSOCIATION OF AMERICA, INC. Manufacturer Members Huffy Corporation Murray, Inc. P.O. Box 1204 219 Franklin Road Dayton, OH 45401 Brentwood, TN 37027 (513) 866-6251 (615) 373-6500 Roadmaster Corporation P.O. Box 344 Olney, IL 62450 (618) 393-2991 Supplier Members American Cycle Systems, Inc. Excel International Group 245 Eighth Avenue 328 East Main Street City of Industry, CA 91746 Barrington, IL 60010 (818) 961-3942 (708) 428-1350 Falcon Cycle-Parts Co., Ltd. Hartford Bearing Company P.O. Box 1-57 1022 Elm Street Feng Yuan, Taichung Rocky Hill, CT 06067 Taiwan, R.O.C. (203) 571-3602 886-4-5623316 Hunt-Wilde Corporation Inland Container Corporation 2835 Overpass Road 912 Nelbar Street Tampa, FL 33619 Middletown, OH 45042 (813) 623-2461 (513) 425-0830 KMC Chain Industrial Company MARWI USA No. 41, Chung Shan Road 1 Union Drive Hsin Hua Town, Tainan Olney, IL 62450 Taiwan, R.O.C. (618) 392-2000 886-6-5900711 The Clarksville Division, Persons-Majestic Manufacturing Co. Metal Forge Company 21-31 Hamilton Street 5555 Parkcenter Circle Monroeville, OH 44847 Dublin, OH 43017 (419) 465-2504 (614) 764-1413, x-736 Resentel Company, Ltd. Sate-Lite Manufacturing Co. 1825 Avenue Industrielle 6220-30 Gross Point Road Quebec, Canada J0L 1J0 Niles, IL 60648 (514) 658-2483 (708) 647-1515 Selle Royal Shimano American Corporation Via Vittorio Emanuele, 141 One Shimano Drive 36050 Pozzoleone Irvine, CA 92713-9615 (Vicenza) Italy (714) 951-5003 011-39-444-462021 Sturmey-Archer Limited Sun Metal Products, Inc. Triumph Road 2146 North Detroit Street Nottingham NG7 2GL Warsaw, IN 46580 England (219) 267-3281 011-44-1159-420800 Vari-Wall Tube Wald Manufacturing Company 1350 Wardingley Avenue P.O. Box 10 Columbiana, OH 44408 Maysville, KY 41056 (216) 482-0000 (606) 564-4078