Federal Trade Commission Received Documents Jan 19 1996 B18354900063 Secretary COMMENTS on behalf of THE COMMITTEE OF DOMESTIC STEEL WIRE ROPE AND SPECIALTY CABLE MANUFACTURERS: "MADE IN USA" CLAIMS IN PRODUCT LABELING AND ADVERTISING FTC FILE NO. P894219 January 19, 1996 Counsel: Herbert E. Harris II, Esq. Cheryl Ellsworth, Esq. Jeffrey S. Levin, Esq. HARRIS & ELLSWORTH 2600 Virginia Avenue, N.W. Suite 1113 Washington, DC 20037 (202) 337-8338 I. INTRODUCTORY STATEMENT This submission is made on behalf of the Committee of Domestic Steel Wire Rope and Specialty Cable Manufacturers (Committee), in response to notices published at 60 Fed. Reg. 53922 (October 18, 1995) and 60 Fed. Reg. 65327 (December 19, 1995). The Committee presents these comments regarding the domestic content standard for "Made In USA" claims as they apply to steel wire rope with or without end attachments, and respectfully requests the opportunity to participate in the public workshop to be conducted by the Federal Trade Commission (FTC) on March 26 and 27, 1996. The Committee is composed of most major U.S. manufacturers of steel wire rope, accounting for a substantial majority of U.S. wire rope production.{1} The Committee has substantial expertise in the issues which are the subject of these comments and the FTC's scheduled workshop, and reflects the views of the domestic steel wire rope industry with respect to these issues. II. DESCRIPTION OF THE PRODUCT AND MANUFACTURING PROCESS Steel wire rope is a machine which is used for applications which require force to be transmitted, such as for earth-moving and materials-handling equipment including clamshells, cranes, bulldozers, mining machines, hoists and conveyors; for elevators; for logging; for marine applications; for aircraft control cables and for fish net trawling. Steel wire rope is also the only acceptable product which may be used by the oil field industry for drilling and well servicing. All wire ropes consist of three basic components: 1) a core; 2) wires that form a strand; and 3) strands laid helically around a core. These components are illustrated below: Diagram - Text Not Available - See Image Strands consist of individual wires, with the number of wire per strand usually ranging upward from seven. The individual wires are formed around a center, which is usually a single wire, so that all wires in a strand can move in unison to distribute load and bending stresses. Physical characteristics of the finished wire rope, such as flexibility, fatigue resistance and abrasion resistance, are directly affected by the design of the strands, i.e., the number of wires in the strand and manner in which these wires are arranged within the strand. The core is the foundation of a wire rope around which the main strands are laid. The core keeps the strands properly spaced within the design standards and length of lay. It is made of materials such as steel (typically an independent wire rope or IWRC), or hard vegetable or synthetic fiber, which will provide proper support for the strands under normal bending or loading conditions. While all wire ropes are characterized by the three fundamental components, specific wire ropes can be distinguished and described by diameter, the number and construction of strands, the grade and type of steel, the number and arrangement of wires in the strands, and the kind of core. Wire ropes are identified in commercial practice by a nomenclature which describes these factors. A complete description of a specific type of wire rope would appear as follows: 3/4" 6x19 IPS IWRC This particular wire rope is 3/4" in diameter, with 6 strands of 19 wires per strand.{2} The grade of steel is improved plow steel, and the strands in the rope are closed around an independent wire rope core. Generally, wire rope production requires hot rolled, high carbon steel wire rod or wire drawn from the same. For wire rope making purposes, high carbon steel wire may come in a variety of grades, such as improved plow steel (IPS) and extra improved plow steel (EIPS). The use of a particular grade of steel will affect the strength and flexibility of the finished wire rope. The rod is controlled cooled or is passed through a special patenting furnace to improve ductility and give a uniform grain structure. After being cleaned, the rod is drawn through progressively smaller dies to achieve the wire diameter required for specific rope uses. High carbon steel wire may be left uncoated ("bright") or given a zinc coating ("galvanized"). The latter process improves the corrosion resistance of wire rope. Individual wires are brought together in the stranding operation. Two basic types of stranding machines may be used. First, in planetary stranders, spools of wire are held in cradles which revolve around the central axis and pay out wires which are brought together at the stranding die. Alternatively, in tubular stranders, spools of wire ride in freely floating cradles inside and along the center line of a long, revolving tube. The spools and cradles remain stationary. Wires pay off from spools, are guided by sheaves to the outer edge of the strander, pass along the length of the tube through guides and are brought together at the stranding die. Regardless of whether a planetary or tubular strander is used, strand used for making wire rope is generally lubricated as the wires move into the stranding die. This lubrication is necessary to enable the wires, and the strands, to move freely in the wire rope, and to protect and preserve the individual wires. The type and amount of lubrication used varies depending upon the ultimate use to which the finished wire rope will be put. In the last stage of production, the strands are "closed" around a core. Most wire ropes are formed by helically closing six strands in a single layer around the core. Closing is performed on either a planetary or tubular closer which operate in much the same way as do stranders. Spools or bobbins of strand are placed in cradles in the closer, and simultaneously dispense the strands necessary to make a completed wire rope. A completed wire rope is almost always assembled into a wire rope sling, or fitted with fittings at either or both ends of the rope. Certain end attachments adapt the wire rope to the purpose for which it is to be used, while other attachments merely facilitate handling of the wire rope. End attachments may be affixed to the wire rope and sold as an assembly by the manufacturer. More commonly, the assembly is fabricated by a separate entity from the manufacturer of the wire rope, such as a distributor. III. THE IMPACT OF IMPORT COMPETITION ON THE DOMESTIC STEEL WIRE ROPE MARKET DEMONSTRATES THE IMPORTANCE OF SOUND AND UNIFORM "MADE IN USA" CLAIMS As a result of substantial import competition and industry restructuring and rationalizations, particularly since the late 1970's, there remains a relatively few, highly efficient domestic steel wire rope producers.{3} However, there are hundreds of U.S. companies which import steel wire rope,{4} and several thousand companies which either fabricate, distribute or use the article. Apparent domestic consumption of steel wire rope in 1994 stood at approximately 185,000 net tons.{5} Domestically-manufactured wire rope accounts for approximately 60 percent of this total, with imports accounting for the remaining 40 percent. This is a significant change from the late 1970's, when imports accounted for little more than 20 percent of the U.S. market. Indeed, the signal characteristic of the domestic wire rope market over the last twenty years has been the insidious incursion of imports in the U.S. wire rope market - often based on unfair trade practices - and a proliferation in the number of significant foreign suppliers.{6} The vast majority of imported wire rope is sold in the U.S. market at prices significantly below that of domestically-manufactured wire rope. Since domestically-manufactured and imported wire rope may appear interchangeable to U.S. consumers, purchasing decisions are often made solely on the basis of price. The lack of sound and uniform guidelines for determining whether a wire rope or assembly is in fact made in America has allowed for questionable, if not fraudulent, claims regarding the country-of-origin of the article. These factors have greatly abetted foreign suppliers' ability to capture an increasing share of the domestic steel wire rope market at the expense of U.S. producers. The establishment of sound and uniform guidelines for determining whether wire rope may be labeled and advertised as "Made In USA" will curtail foreign suppliers' ability to avail themselves of this form of deceptive trade practice. It will promote fair competition. Furthermore, many U.S. purchasers have a marked allegiance, developed over years of consistent and reliable use, to wire rope produced by domestic manufacturers. The preference for wire rope made in America is particularly pronounced where the article is employed for uses which pose a potential risk to life or property. Sound and uniform guidelines for "Made In USA" claims would permit U.S. purchasers to make informed purchasing decisions on the basis of all relevant facts, and would avoid fundamental deceptions. IV. COUNTRY-OF-ORIGIN RULES FOR STEEL WIRE ROPE UNDER U.S. CUSTOMS LAW As the FTC notes, U.S. Customs law does not impose any requirements regarding the disclosure of domestic content, and therefore does not address preconditions for "Made In USA" claims. However, several determinations by the Customs Service have defined country-of-origin marking requirements for steel wire rope. When imported wire rope enters the United States, its container must conspicuously state the name of the foreign country in which the wire rope was produced. The "container" for wire rope is typically a reel, but may also be a crate or the straps by which a coil is secured. If imported wire rope is repackaged after entry into the United States and then offered for resale, the new container must also conspicuously state the foreign country of origin of the imported wire rope. The Customs Service has determined that the attachment of fittings or loops in the United States to imported wire rope does not constitute a "substantial transformation" of the wire rope. Therefore, the same country-of-origin marking requirements described above for imported wire rope are applicable to wire rope fitted with fittings or other end attachments in the United States, i.e., the assembly or its new container must indicate the foreign country-of-origin of the wire rope.{7} Additionally, wire rope importers must also fulfill certain certification requirements. Upon entry, importers must certify to the appropriate Customs Service district director that: (a) if the importer repackages the wire rope after entry, they will retain the proper country-of-origin marking; and (b) if the article is sold or transferred by the importer, the importer will notify the subsequent purchaser or repacker in writing at the time of sale or transfer that any repacking of the article must conform to the marking requirements. While these determinations have established clear guidelines for imported wire rope, enforcement of these guidelines has proven difficult and inconsistent, particularly after the wire rope has left the port and is beyond Customs' jurisdiction. The Committee submits that the establishment of sound and uniform guidelines for "Made In USA" claims would provide the FTC with a viable and powerful instrument with which to fill this injurious enforcement void, and exert its statutory mandate to combat unfair or deceptive methods of competition. V. THE STANDARD FOR UNQUALIFIED "MADE IN USA" CLAIMS FOR STEEL WIRE ROPE SHOULD BE PREMISED ON THE STRANDING OPERATION The Committee submits that only wire rope manufactured from U.S.-produced strand and IWRC (steel core) should qualify as "Made In USA." The stranding operation constitutes a sound and practicable "bright line" demarcation for "Made In USA" claims since the principal physical characteristics of the completed wire rope are directed by the design of the strands. Moreover, it is at this point in the wire rope production process that the raw material becomes fully dedicated to its ultimate use as wire rope. Indeed, high carbon steel rod and wire drawn from it can be used for the manufacture of a wide variety of products, including musical instrument string, hose clamps, mechanical springs, upholstery springs, tire cord as well as wire rope.{8} In contrast, strand for wire rope is not commercially suitable for any other use than wire rope production due to its unique constructions and properties.{9} The current FTC standard, as articulated most recently in Hyde Athletic Industries, Inc. (F.T.C. File No. 922-3236) and New Balance Athletic Shoes, Inc. (F.T.C. Docket No. 9268), directs that an unqualified "Made In USA" claim can only be made where the article is composed of "all or virtually all" domestic parts and labor. The standard for steel wire rope, as detailed above, would modify the "all or virtually all" standard with respect to the limited instances where some U.S. manufacturers might purchase some imported wire, and begin the manufacturing process at the stranding, rather than the drawing, stage.{10} This standard is also consistent with controlling Customs law. Since the conversion of wire to strand is considered a substantial transformation,{11} wire rope manufactured with strand which incorporates imported wire is not required under Customs law to be marked with the foreign country-of-origin of the wire. Furthermore, this standard has the advantages of across-the-board consistency and transparency, and is not encumbered by complex case-by-case determinations or calculations regarding product cost.{12} As reviewed in Section II, above, end attachments are usually affixed to steel wire rope, either by the manufacturer of the wire rope or by a separate entity such as a distributor. In accordance with the criterion detailed above, a wire rope whose wires are not stranded in the United States could not qualify for a "Made In USA" claim, regardless of whether the end attachments are manufactured or affixed to the wire rope in this country. Obviously, the wire rope is the product of value that is being purchased. However, foreign-manufactured end attachments are commonly affixed to wire rope which would otherwise qualify for a "Made In USA" claim according to the criterion detailed above. In those instances, the Committee submits that the assembly qualify for a claim of "Made In USA with foreign attachments." The criteria outlined in this submission are illustrated in the following examples: Example 1: Company A, located in the United States, manufactures strand and closes it into wire rope. The strands are composed entirely of wires of domestic origin. Company A may label and advertise the wire rope as "Made In USA." Example 2: Company B, located in the United States, purchases wire from both domestic and foreign sources. Company B strands the wires, and closes the strands into wire rope. Company B may label and advertise the wire rope as "Made In USA." Example 3: Company c, located in the United States, imports strands which it then closes in this country into wire rope. Company C is prohibited from labeling or advertising the wire rope as "Made In USA." Example 4: Company D, located in the United States, manufactures strands and closes it into wire rope. It affixes to the wire rope end attachments of domestic origin. Company D may label and advertise the completed assembly as "Made In USA." Example 5: Company E, located in the United States, manufactures strands and closes the strands into wire rope. It sells the completed wire rope to Distributor F, also located in the United States. Distributor F affixes end attachments of foreign origin to the wire rope, which it then offers for sell in the open market. Company E can and label and advertise the wire rope as "Made In USA." However, before Distributor F offers the completed assembly for sale in the open market, it must remove the "Made In USA" label from the wire rope. Distributor F can label and advertise the completed assembly as "Made in USA with foreign attachments." Example 6: Company G, located in the United States, imports wire rope to which it affixes end attachments manufactured in the United States. Company G is prohibited from labeling or advertising the assembly as "Made In USA." VI. CONCLUSION The Committee appreciates the opportunity to present these comments, and looks forward to participating in the FTC's workshop on these issues. We would be happy to provide any further information, or respond to any questions which you may have, with regard to this submission. Respectfully submitted, _________________________ Herbert E. Harris II Cheryl Ellsworth Jeffrey S. Levin Counsel to the Committee of Domestic Steel Wire Rope and Specialty Cable Manufacturers Footnotes: {1} The Committee presently consists of the following member-companies: Bridon American Corporation, Wilkes-Barre, PA; Broderick and Bascom Company, Kenosha, WI; Macwhyte Company, Kenosha, WI; Paulsen Wire Rope Corporation, Sunbury, PA; The Rochester Corporation, Culpeper, VA; Union Wire Rope, Kansas City, MO; and Wire Rope Corporation of America, Incorporated, St. Joseph, MO. {2} Use of a nominal classification, e.g., 6x19, may or may not reflect the actual specific construction of the wire rope. For example, the 6x19 class contains six strands, each of which is made up of from 15 through 26 wires. Therefore, the 6x19 nominal classification includes specific constructions such as 6x21, 6x25, and 6x26. Irrespective of the actual number of wires in each strand, all wire ropes within the same nominal classification have the same nominal strength and weight per foot. {3} In addition to the Committee members detailed supra, the other known U.S. producers may include at this time: Bergen Cable Technologies, Lodi, NJ; Carolina Steel & Wire Corp., Lexington, SC; Loos & Co., Pomfret, CT; Penn Wire Rope/Strandflex, Oriskany, NY; Williamsport Wirerope Works, Williamsport, PA; and Wire & Cable Specialties, West Chester, PA. {4} In its most recent investigation regarding the domestic steel wire rope industry, the U.S. International Trade Commission identified approximately 120 firms believed to import steel wire rope from the two countries then subject to investigation. See Steel Wire Rope From the Republic of Korea and Mexico, Inv. Nos. 731-TA-546 and 547 (Final), USITC Pub. 2613 at I-24 (March 1993). As discussed infra, several other countries are significant foreign suppliers of steel wire rope to the United States. Therefore, the Committee estimates that the number of total U.S. importers range well into the several hundred. {5} 1994 is the last full year for which complete data are available. Apparent domestic consumption is the sum of U.S. producers' domestic shipments and imports of steel wire rope. {6} South Korea has historically been the principal foreign supplier of steel wire rope to the U.S. market. Other significant foreign suppliers include: the People's Republic of China; Canada; Malaysia; Turkey; the United Kingdom; Thailand; Germany; Taiwan; Spain; Ukraine; India; and Japan. {7} The Committee notes that the tariff classification rules established under the North American Free Trade Agreement (NAFTA) for determining the country-of-origin of imported goods support Customs' earlier determination that the attachment of fittings to imported wire rope in the United States does not constitute a "substantial transformation" of the wire rope. See Harmonized Tariff Schedule of the United States, General Note 12(t)/73, 9. {8} See Certain Steel Wire Rod From Brazil and Japan, Inv. Nos. 731-TA-646 and 648 (Final), USITC Pub. 2761 at II-11 (March 1994). {9} For this reason, a statistical "break-out" of the HTSUS was created in 1989 to provide specifically for imported strand used for the manufacture of steel wire rope. {10} In its 1993 investigation of the U.S. steel wire rope industry, the U.S. International Trade Commission found that a majority of U.S. manufacturers of carbon steel wire rope purchase wire rod from which they draw wire. Steel Wire Rope From Korea and Mexico, USITC Pub. 2613 at I-13 n.19 (March 1993). {11} The U.S. Customs Service has never issued a formal ruling on this matter. However, the Committee submits that the conversion of wire to strand constitutes a substantial transformation under the "distinctive name, character, or use" test established in a series of judicial decisions. See, e.g., Anheuser-Busch Brewing Ass'n v. United States, 207 U.S. 556 (1908); Superior Wire v. United States, 867 F.2d 1409 (Fed. Cir. 1989). The Committee further notes that the conversion of wire to strand is considered a substantial transformation pursuant to the tariff classification rules established under the NAFTA for determining the country-of-origin of imported goods. See Harmonized Tariff Schedule of the United States, General Note 12 (t)/73, 9. {12} As detailed above, an IWRC core must be stranded and closed in the United States in order for the wire rope to qualify as "Made In USA." However, since there is no production process for fiber cores which are equivalent to the stranding operation, and because fiber cores are produced in limited quantities in the United States, the Committee submits that the country-of-origin of a fiber core not be considered in determining whether a wire rope qualifies for a "Made In USA" claim.