Federal Trade Commission Received Documents July 1, 1996 P894219 B18354900186 HOGAN & HARRISON "Made in USA" Policy Comment FTC File No. P894219 July 1, 1996 BY HAND DELIVERY Office of the Secretary Federal Trade Commission Room 159 Sixth & Pennsylvania Ave., N.W. Washington, D.C. 20580 Re: Comments of the American Hand Tool Coalition Dear Sir/Madam: The American Hand Tool Coalition (the "Coalition") hereby submits clarifying and rebuttal comments in connection with the Federal Trade Commission's (the "Commission") March 26-27, 1996 Public Workshop Regarding "Made in USA" Claims in Product Advertising and Labeling ("Workshop"). The Coalition's comments address issues raised at the Workshop and the Commission's Supplemental Questions for Comment ("Supplemental Questions"). See 61 Fed. Reg. 18600-603 (Apr. 26, 1996). Appendix A addresses the proposal of several Office of the Secretary July 1, 1996 Page 2 and/or Labeling Claims "(Proposed Guidelines"), which the Coalition strongly opposes. Overview The information and argument presented at the Workshop establish a single fact that should dictate the outcome of the Commission's review of unqualified "Made in USA" claims: a substantial proportion of consumers would be deceived by any of the proposed standards that would permit products with more than de minimis foreign content to be advertised as "Made in USA." Indeed, the consumer perception evidence before the Commission demonstrates that many American consumers interpret a "Made in USA" label consistent with the "all or virtually all" standard. The Workshop discussion revealed that the asserted objections to the all or virtually all standard have nothing to do with the Commission's mandate to prevent consumer deception. Arguments regarding the difficulty of satisfying the current standard, achieving uniformity with other origin rules, and the cost of complying with the all or virtually all standard have no bearing on the question how consumers perceive an unqualified "Made in USA" claim. Moreover, these objections do not stand up to scrutiny. First, the Coalition's truly "Made in USA" hand tools demonstrate that the current standard in fact can be met. Second, neither of the proposed alternatives to the all or virtually all standard would result in uniform country of origin rules or product labeling standards. Even if the Commission were to change its rule to coincide with future internationally harmonized rules of origin, it still would conflict with the origin rules used by other U.S. Government agencies, and other requirements still would prevent internationally uniform product labeling. Third, "Made in USA" is a discretionary advertising claim, not a government-imposed burden. Therefore, the cost of compliance should not be the Commission's concern. Individual companies will determine whether the benefits of advertising "Made in USA" justify the cost of substantiating the claim. When these irrelevant and false arguments are peeled away, it becomes clear that the industry groups and companies that support changing the "all or virtually all" standard simply want the commercial advantages of a "Made in USA" claim. This is an understandable commercial interest, but the Commission cannot permit consumer deception so that some companies or industries have access to effective advertising. The Commission's role is to guard against consumer deception. Even if it were appropriate for the Commission to consider companies' commercial interests over consumer protection -- and it is not -- it could not craft a rule that would satisfy every company and industry that participated in the Workshop. The Commission therefore should remain dedicated to its consumer protection mission and should resist pressure to re-craft its rule to assist selected U.S. industries. Moreover, the Commission's long-standing adherence to a strict "Made in USA" standard dictates that it should not change its rule in the absence of affirmative evidence that the rule is inconsistent with consumers' understanding of "Made in USA." Companies such as the Coalition members have invested (and continue to invest) in U.S. manufacturing and sourcing in reliance on the "Made in USA" rule. Conversely, companies that have chosen to use foreign sources for materials, parts, or labor, did so knowing that a long-standing Commission rule would allow only qualified "Made in USA" claims for their products. For all of these reasons, the Commission should maintain and enforce the all or virtually all standard for unqualified "Made in USA" claims. To the extent that the Commission believes that companies need additional guidance regarding the standard, it should resume the practice of issuing case-by-case opinion letters based on specific facts. This practice would provide guidance while appropriately preserving the Commission's authority to consider the context of a claim. In addition, to clarify the rules for products that do not satisfy the all or virtually all standard but have substantial U.S. content, the Commission should develop guidelines regarding the use of qualified alternatives to "Made in USA." Such claims received little attention at the Workshop, despite evidence that they may provide a means of effective and non-deceptive advertising. Focusing future efforts on qualified claims would protect consumers' interests, while accommodating companies' desire to advertise the U.S. content of their products. Responses to Supplemental Questions Set forth below is an analysis of the three standards for an unqualified "Made in USA" claim that were proposed and addressed at the Workshop: (1) the "all or virtually all" standard; (2) a percentage content standard; and (3) a substantial transformation standard. In each case, the discussion first focuses on the consumer perception evidence presented at the Workshop and then responds to the Commission's Supplemental Questions regarding the relevant proposal. 1. All or Virtually All Standard The Coalition strongly supports the Commission's current rule under which a product may not bear an unqualified "Made in USA" label unless it is all or virtually all of U.S. origin. Consumer perception evidence demonstrates that this standard is consistent with consumers' interpretation of a "Made in USA" label and is necessary to prevent deception of a substantial percentage of American consumers. Clarification of this standard is not necessary, and in fact, a strict formula would limit the Commission's consideration of all of the relevant facts and circumstances regarding a claim. Instead, to provide guidance regarding the application of the standard, the Commission should resume its former practice of publishing case-by-case determinations regarding "Made in USA" claims. A. Consumer perception The Commission's policy regarding deceptive practices is well-established: "[a] material practice that misleads a significant minority of reasonable consumers is deceptive." (1) The consumer perception surveys presented at the Workshop demonstrate that "Made in USA" is a material claim to the vast majority of American consumers. (2) The surveys also demonstrate that a substantial percentage of consumers -- far more than a "significant minority" -- would be deceived if the all or virtually all standard were diluted. This conclusion is supported by all of the surveys that tested consumers' interpretation of "Made in USA" using widely different methodologies. (3) Three surveys conducted over five years specifically asked consumers what percentage of a "Made in USA" product is U.S. origin and obtained strikingly similar results. These surveys consistently indicate that a majority of consumers would be deceived if the standard were altered to allow products with more than de minimis foreign content to be labeled "Made in USA." Bourget Survey: In response to the question what percentage of a hand tool labeled "Made in USA" is made in the United States, 53% of the participants stated 100%. (4) No other interpretation received a response level higher than 9%. (5) FTC Copy Test: When asked what a "Made in USA" label suggests or implies about how much of the total cost of making a product was from the United States, 57.8% of the respondents answered 100%. (6) 1991 FTC Survey: When asked about the meaning of a "Made in USA" label, 77% of the participants stated that all or almost all of the product was made in the United States.(7) When asked specifically about the percentage of parts and labor that were provided in the United States for a "Made in USA" product, 54% stated 100%.(8) The survey findings also demonstrate that consumers interpret the "Made in USA" label to apply to both the parts and labor used to make a finished product. The Bourget Survey asked hand tool consumers whether "Made in USA" pertains mostly to labor or to materials. Forty percent of the participants responded "both," more than those who selected either labor or materials.(9) Because the question did not suggest "both" as an option, this "top-of-the-mind" response is particularly meaningful. Responses to more general questions reveal that consumers believe "Made in USA" simply means what it says. In response to the open question "what does a Made in USA' label mean," 60.8% of the sample in the FTC Attitude Survey stated the product was made in the United States.(10) An additional 18.0% apparently considered the meaning of "Made in USA" to be obvious and interpreted the question to seek qualitative associations with a "Made in USA" label.(11) 6.3% offered that the label means a product is "all made" in the United States. No other interpretation of "Made in USA" received a significant response level.(12) Contrary to arguments of some at the Workshop, there is no evidence that when consumers say "Made in USA" means "Made in USA" they are referring to the creation of a new article or product from existing parts or materials.(13) This contention, which purportedly rests on the definition of "made," attributes to consumers a specific and detailed interpretation that none of the survey participants articulated.(14) To understand what consumers mean when they say "Made in USA" means "Made in USA," a follow-up question is necessary. When such a question is asked, a majority of consumers respond that the product must be all U.S. made. Thus, the consumer perception evidence flatly contradicts speculation that consumers interpret "made" to mean bringing a new product into being. Responses to questions about the origin of the parts and labor used in a "Made in USA" product confirm this conclusion. In response to general questions as to what "Made in USA" says about the origin of parts or the location of assembly, a majority of consumers provide a literal response: "Made in USA" does not specify the origin of parts or labor. But, as described above, if that response is probed with a specific question regarding the percentage of parts and labor that are attributable to the United States, a majority of consumers consistently state 100%.(15) Even taking at face value the response that "Made in USA" does not state anything about the origin of parts or labor, it does not reflect an affirmative expectation that the product's parts or labor are foreign. As noted in the Supplemental Questions, the Commission historically has presumed that, in the absence of an origin disclosure, consumers believe a product is U.S. made.(16) The Customs country of origin marking statute reflects the same assumption.(17) In light of that assumption, it would be illogical for the Commission to conclude that an affirmative "Made in USA" statement would place consumers on notice that a product may have more than de minimis foreign content. Finally, some Workshop participants argued that consumers are confused regarding the meaning of "Made in USA" and therefore that the Commission should adopt a new standard and educate the public regarding that standard. The consumer perception data described above demonstrates that most consumers are not confused regarding "Made in USA" and interpret the phrase consistently with the Commission's current standard. Moreover, consumers overwhelmingly oppose weakening the standard. Individual consumers who responded to the Commission's request for comments unanimously have stated that "Made in USA" should continue to mean that a product is "all or virtually all" U.S. origin.(18) Thus, to the extent that the Commission believes that clarifying "Made in USA" would be helpful to some segment of the consuming public, it should reaffirm the current standard. B. Clarification of the all or virtually all standard. The all or virtually all standard itself is simple, and unlike the proposed alternatives, it raises few definitional issues. Moreover, the Commission rarely, if ever, has had to draw fine lines in enforcing the "Made in USA" standard.(19) Instead, past cases generally have involved products with substantial foreign content that clearly did not qualify as "Made in USA."(20) For these reasons, the all or virtually all standard does not require significant clarification or redefinition. To the extent that individual companies require clarification regarding the application of the standard to a specific product, the Commission can best provide guidance by issuing case-by-case opinion letters as it does in the antitrust area.(21) If the Commission believes that a general codification of the all or virtually all standard is necessary, the formulation of the standard should coincide with consumers' understanding that an unqualified "Made in USA" label means that a product is all or virtually all U.S. origin and applies to both the parts and labor used to manufacture a product. For this reason, the Coalition would support a guideline stating that a "Made in USA" product should have only de minimis foreign content: The unqualified phrase "Made in USA" constitutes an affirmative representation that all or virtually all of the processing, materials, components, and labor used in the production of a product are of U.S. origin. A product satisfies this requirement if all of the foreign processing, materials, components, and labor used to produce the product are de minimis. C. Proposed one- or two-step-back analysis The Coalition strongly opposes the proposal to define the "all or virtually all" standard so that manufacturers need only look one or two steps back in the manufacturing process to determine the origin of a product's components and therefore the origin of the product. This approach would nullify the all or virtually all standard and would conflict with consumers' understanding of "Made in USA." First, a one- or two-step-back analysis would be inconsistent with the evidence that a majority of consumers interpret the "Made in USA" label to describe the entire process of making a product.(22) Second, this analysis would permit products with substantial foreign content to be labeled "Made in USA" contrary to the interpretation of a majority of consumers. For example, under almost any definition of a "step," a refrigerator manufacturer could use a compressor produced in the United States from a foreign housing and foreign parts, assemble the compressor with other components made from entirely foreign parts and materials, and advertise the refrigerator as "Made in USA" even though it contains 100% foreign parts. Various possible definitions of a manufacturing "step" illustrate the problems of this approach. If a step is defined as a discrete manufacturing process, industries would be free to divide their operations as necessary to achieve the appropriate number of U.S. steps to label a product "Made in USA." This result would not produce a consistent definition, much less a definition that corresponds to consumers' understanding of "Made in USA." For example, the refrigerator manufacturer in the above hypothetical simply could designate the combination of the compressor and other components into the finished appliance as a distinct manufacturing step to satisfy a "one-step-back" rule. If a step were defined in terms of an arms' length transaction, the result would turn on whether or not a manufacturer is vertically integrated. Two products that contain identical foreign parts could be treated differently, depending on whether the production steps are performed by one or more companies. In the above hypothetical, the manufacturer could use a "Made in USA" label if it purchased the compressor and other components from an unrelated party, but could not use the label if it produced them itself. From the perspective of consumers, such conflicting results could not be reconciled. Even if a "step" is defined as a particular level of processing, a one- or two-step-back approach would allow a product with significant foreign content to be labeled "Made in USA." If the Commission were to require substantial transformation one-step-back, the refrigerator in the above example still would qualify as "Made in USA" because the foreign parts would be deemed to have undergone a substantial transformation when combined into the compressor and other components. Defining a "step" at a level of processing less than a substantial transformation, of course, would lead to even more egregious results. As to the costs and benefits of a one- or two-step-back rule, it is clear that any benefits would accrue solely to companies in terms of a reduced burden to substantiate a "Made in USA" claim, while consumers, who would be deceived regarding the meaning of "Made in USA," would be materially disadvantaged. As discussed in Section 1.F. below, the commercial advantage to marketers is irrelevant to the underlying purpose of the Commission's rule. Finally, there is no reason to limit the origin inquiry to one or two steps back when a manufacturer affirmatively knows that the parts or materials used to make a product are foreign or when the burden of tracing the origin of such parts or materials would not be significant. Therefore, if the Commission were to adopt this approach -- which the Coalition opposes for the reasons set forth above -- it should apply only to complex products, and the "all or virtually all" rule should continue to hold for simple products, including hand tools. D. Exclusion of "raw materials" The Coalition sees no justification for changing the current all or virtually all standard, which permits de minimis foreign content, to exclude so-called "raw materials" from consideration in determining whether the standard is met. However, if the Commission chooses to create such an exclusion, it should be limited to "natural resources" as discussed below. The consumer perception data indicates that excluding "raw materials" would promote consumer deception and confusion. The Bourget Survey included an explicit question regarding whether a "Made in USA" label relates to labor or materials. As noted above, 40% of the sample stated that it relates to both. An additional 22% stated that it relates primarily to materials.(23) Other survey evidence confirms that consumers believe that the label applies to all of the costs of making a product.(24) Accordingly, excluding raw materials from the all or virtually all standard would conflict with the available evidence regarding consumer perception. Moreover, including raw materials in the "all or virtually all" standard should not impose a hardship, even for products that contain raw materials that are not available in the United States. If such raw materials typically constitute more than a de minimis amount of a product, no company that produces the product will be able to use an unqualified "Made in USA" claim. A product with substantial U.S. content still could bear a qualified label or a comparative claim distinguishing it from products with higher foreign content. If the Commission nevertheless opts to exclude certain materials from the all or virtually all standard, the exclusion should be carefully limited. First, the exclusion should apply to "natural resources" rather than "raw materials," which has different meanings within different industries.(25) Natural resources are by definition substances that have not been processed or "made" in any sense of the word as pointed out by the Attorneys General. An exclusion for natural resources is more consistent with consumer perception data, which shows that many consumers buy U.S. products expressly to support U.S. jobs; natural resources have little or no labor component. Second, to avoid consumer deception, a natural resources exclusion should be limited so that it does not permit a product with substantial foreign content to bear an unqualified "Made in USA" label. An exclusion limited in the following manner would satisfy these requirements: "Foreign materials" exclude imported natural resources (for example minerals, plants, animals) that are processed no more than necessary for normal transportation, unless an imported natural resource constitutes a substantial and essential part of the finished product (as in the case of coffee beans and roasted coffee). As an alternative to a general statement of interpretation, the Commission could address natural resources through case-by-case application of the de minimis standard in advisory rulings. E. Proposed percentage content definition The Coalition strongly opposes the proposal to define the all or virtually all standard using a percentage domestic content test. This approach is effectively the same as discarding the current standard in favor of a percentage content definition of "Made in USA." As set forth in Section 2 below, a percentage content standard would deceive a substantial percentage of consumers, would be susceptible to abuse, and would impose a significant enforcement burden on the Commission. Moreover, an across-the-board percentage would eliminate the Commission's flexibility to consider all of the facts and circumstances in determining whether a specific claim is deceptive. If the Commission nevertheless were to include a percentage content element in the all or virtually all standard, this approach would have to be carefully limited as set forth in Section 2.B.iv. below. F. Cost of compliance Concerns regarding the burden or cost of complying with the all or virtually all standard are irrelevant to the issue of consumer deception. Indeed, if the Commission were to waive the prohibition against deceptive advertising simply because companies find it burdensome or costly to ensure compliance, deceptive claims would become the norm. The question whether the benefits of a "Made in USA" claim justify its costs is a matter of business discretion best left to individual companies. 2. Percentage Content Standard The Coalition, like many of the Workshop participants, opposes a percentage content standard for "Made in USA" claims. First, the proposed thresholds, 50% or 70%, are inconsistent with consumers' interpretation of "Made in USA" and would result in deception of a large proportion of the U.S. consuming public. Second, a percentage content standard at any level would lead to unpredictable results, would be subject to manipulation, and would impose a significant enforcement burden on the Commission, which would be forced to conduct audits to determine compliance. A. Consumer perception The consumer perception surveys presented at the Workshop demonstrate that either of the proposed percentage content standards (i.e., 50% or 70%) would result in deception of a substantial percentage of consumers. The FTC Attitude Survey found that 22.0 to 33.3% of consumers disagreed with a "Made in USA" label for a product with 90% U.S. content.(26) This finding is significant because the survey did not offer a 100% option and therefore may have implied that a lower percentage was appropriate. An additional 25.9 to 33.0% only "somewhat" agreed with the 90% content standard, implicitly suggesting that they considered the product only "somewhat Made in USA." When the U.S. content was reduced to 70%, 31.0 to 50.0% of the Attitude Test respondents disagreed strongly or somewhat with the "Made in USA" label and an additional 25.9 to 41.0% only "somewhat" agreed.(27) At 50% U.S. content -- the level favored by many proponents of a percentage content definition -- 46.0 to 63.9% of the respondents to the Attitude Survey disagreed with the label, and 13.0 to 22.0% "somewhat" agreed. Only 5.6% to 14.0% of the survey's participants said they agreed strongly with a "Made in USA" label for a product with 50% U.S. content. The surveys that directly asked what percentage of a "Made in USA" product is U.S. origin confirm that a substantial percentage of consumers would be deceived by the proposed 50 or 70% percent content standards. As set forth above, the Bourget Study, the 1995 FTC Copy Test, and the 1991 FTC Survey found respectively that 53%, 58%, and 54% of consumers believe a "Made in USA" product has 100% U.S. content.(28) These results indicate that a majority of consumers would be deceived by a standard permitting 30 or 50% foreign content. B. A Percentage Content Standard Would Be Unpredictable, Manipulatable, and Burdensome and Therefore Would Result in Consumer Deception The Coalition opposes a percentage content standard, regardless of the percentage threshold chosen. Any percentage content standard would lead to inconsistent results, would be open to manipulation, and would be costly to administer. For these reasons, the Coalition believes that the Commission could not formulate a percentage content test that would avoid consumer deception. i. Unpredictable and Inconsistent Results Abrupt changes in inflation rates, commodity prices, exchange rates, and other elements of valuation would produce rapidly shifting content calculations. For example, within the past twelve months the yen/dollar exchange rate has varied as much as 30% from a high of 91.340 yen/dollar in June 1995 to a low of 118.830 yen/dollar in June 1996.(29) This degree of fluctuation easily could affect the outcome under any percentage content definition of "Made in USA." If the Commission chose not to accommodate these shifts in valuation, a product's "Made in USA" claim could oscillate in and out of the standard several times a day. On the other hand, if the Commission were to accommodate exchange rate fluctuations and similar changes by establishing a percentage within which such changes would be tolerated, the margin of tolerance would enlarge the percentage of foreign content permitted and thus increase the extent of consumer deception. Regardless of exchange rate fluctuations, a percentage content approach would lead to conflicting results. In fact, different results could apply to two products made in the United States using an identical mix of imported and domestic parts and identical U.S. processing. For example, assume that a product is assembled using imported parts from a low wage country that are correspondingly low in cost. The product would satisfy even a high percentage content standard. But, if the same product were assembled from parts imported from a high wage country, the percentage content standard would not be met. From the perspective of consumers, there would be no difference in the foreign content of the products or in the processing performed in the U.S. that would explain, much less justify, the differing outcomes. ii. Manipulation of the Standard Any formulation of a percentage content standard would be susceptible to manipulation. Most of the Workshop participants agreed that a percentage content standard would have to reflect direct manufacturing cost and therefore would have to exclude profit and general selling and administrative costs at a minimum. Such exclusions, however, simply raise further issues regarding the classification of manufacturing costs. The standard still could be manipulated by including or excluding certain costs from the total direct manufacturing cost. In addition, companies could inflate or deflate direct manufacturing cost as necessary to satisfy the standard, and it would be difficult for the Commission to identify or challenge such circumvention. A percentage content standard based on direct manufacturing cost could be manipulated by classifying costs as "indirect" or "direct." For example, to make a combination wrench, a manufacturer typically uses a wrench forging die that lasts for a discrete number of production runs. If the cost of the forging die is amortized over the total number of wrenches it is used to produce, it can account for as much as 12% of the "direct manufacturing cost" of each finished wrench. Thus, whether a foreign forging die is characterized as a "direct" cost would have a significant impact on the percentage of U.S. cost. A wrench manufacturer that uses foreign forging operations could classify the die as indirect "overhead" to decrease the overall direct manufacturing cost and satisfy a percentage content standard. There also would be room for manipulation of a percentage content formula within well-defined direct manufacturing costs such as raw materials and labor. Companies could inflate or deflate the calculation of such costs through assumptions that would be difficult for the Commission to examine or challenge. For example, the cost of raw materials for a foreign wrench forging could be deflated substantially by claiming a marginally higher material yield than actually applies (i.e., by discounting the amount of wasted material). A similar result could be achieved by slightly inflating the run rate, the number of wrenches made by a worker per hour, thereby reducing the total labor cost. A percentage content standard also would create problems in establishing the cost basis for a component in the case of non-arm's length transactions. In such affiliated-company transfers, the price of a component could be adjusted to lower the percentage of foreign content of the final product. The companies most able to manipulate a percentage content approach in this way (and therefore those most likely to benefit from it) would be large, multi-national companies that have the ability to adjust sourcing and account for currency fluctuations to reach the desired percentage. Smaller firms would be less able to pressure suppliers to reduce prices (lowering the foreign content level) or to shift operations abroad. Thus, weakening the current standard through use of a percentage content threshold could have an anti-competitive effect. iii. Administrative Burden Even if a workable percentage content standard could be developed, this approach would impose a huge administrative burden on the Commission, which would be forced to conduct costly and time-consuming audits to monitor extremely complex foreign content determinations. A representative of the Customs Service at the Workshop, reflecting on the Customs Service's experience with percentage content standards described their administration as an "accounting nightmare."(30) The Commission could preview that nightmare by examining the regulations promulgated by the Customs Service to guide the calculation of regional content value under NAFTA, which cover nearly 80 pages in the Federal Register.(31) Furthermore, a percentage content standard would place a heavy administrative burden on companies seeking to comply with the standard. iv. Consumer Deception As described above, although superficially a percentage content standard may seem simple and clear, it is nothing of the sort. Such a standard would lead to conflicting results and would be easily circumvented. Moreover, the high cost of conducting audits would hamper effective enforcement. Thus, regardless of the percentage chosen, a percentage content standard would result in consumer deception. At the proposed levels of 50 or 70%, the standard itself would conflict with consumers' interpretation of "Made in USA."(32) Accordingly, the Coalition urges the Commission not to adopt a percentage content definition of "Made in USA." If notwithstanding the above arguments, the Commission does opt for a percentage content standard, the percentage selected should reflect the interpretation of a majority of consumers that "Made in USA" means that a product is all or virtually all U.S. origin. As noted, the FTC Copy test found that 36% of consumers would be deceived if an unqualified "Made in USA" claim were permissible for a product with as little as 10% foreign content. Thus, to avoid deception of a substantial percentage of consumers, the Commission would have to set the U.S. content percentage well above 90%. For products that meet a lower percentage content standard, a specific qualified claim such as "50% Made in USA" would continue to be appropriate. In addition, if a percentage approach were adopted, it would have to operate as an exclusion rather than a safe harbor. Under this approach, a product with less than the specified percentage of U.S. content never could bear an unqualified "Made in USA" label. The question whether "Made in USA" would be deceptive for a product with more than the specified percentage of U.S. content would depend upon the context of the claim. This approach would preserve the Commission's flexibility to consider all of the relevant factors in determining whether a claim is deceptive. Third, any percentage content formula would have to be based on the cost of manufacturing the product and would have to exclude profit and indirect overhead. However, as pointed out above, a cost-based approach would not eliminate the drawbacks of a percentage content standard. It would reduce only the most blatant forms of manipulation; substantial abuse of the standard still could occur. 3. Substantial Transformation The Coalition also opposes the proposed substantial transformation standard. There is no evidence to support the argument that consumers interpret "Made in USA" consistent with such a standard. Moreover, because a substantial transformation standard would allow products with far more than de minimis foreign content to be labeled "Made in USA," the consumer perception evidence demonstrates that it would result in deception of a substantial number of consumers. Finally, contrary to the claims of some Workshop participants, a substantial transformation standard would not harmonize the Commission's rules with other U.S. Government standards and would not facilitate internationally harmonized product labeling. A. Consumer perception The consumer perception surveys presented at the Workshop do not support a substantial transformation test for "Made in USA." None of the respondents to any of the surveys stated that "Made in USA" means that a product underwent a substantial transformation (or a tariff shift reflecting substantial transformation) in the United States. In fact, none of the survey respondents suggested the concept of "creating" a distinct article or product from parts or materials as the meaning of "Made in USA."(33) Such a concept would require consumers to distinguish among various manufacturing processes and to identify the point at which the final product came into being. But the consumer perception evidence demonstrates the opposite: consumers view "Made in USA" as applying to all of the materials and labor used to make a product and do not distinguish among manufacturing steps or processes.(34) As many of the Workshop participants noted, a substantial transformation standard would allow products with significant (in some cases a majority of) foreign content to be labeled "Made in USA."(35) Sandra Gethers of the U.S. Customs Service candidly stated that products with very little domestic content could pass a substantial transformation standard: MS. SWARTZ: Sandra, I wonder if you would just clarify something you said earlier because I think it's an important point. And that is, with respect to determinations both under the NAFTA marking rules and substantial transformation the value of domestic content, the amount of content is not necessarily the most important factor. And, in fact, you could have situations where you have very little labor, very little domestic content, and still meet substantial transformation, and the NAFTA marking rules; is that fair? MS. GETHERS: That is a possibility because the [name] character and use test does not necessarily equate to high cost and labor. . . . So because of that we are not focusing on how much it cost, we are not focusing on the time, and that's why we have been discounting the factor of value.(36) Other Workshop participants echoed this statement.(37) Based on the consumer perception evidence cited above, allowing products with very little U.S. content or value to be labeled "Made in USA" would result in deception of a substantial percentage -- indeed a majority -- of consumers. B. Harmonization with alternative substantial transformation rules The choice between the two Customs' substantial transformation rules makes little difference: neither the case-by-case analysis nor the tariff shift approach corresponds to consumers' perception of "Made in USA." Moreover, because the two rules do not reach the same result for every product, adopting one test to apply to all countries would produce different results than the Customs' origin rule.(38) Conversely, following both rules by applying the tariff-shift rules to NAFTA countries and the case-by-case analysis to all other countries would produce inconsistent results for the same product depending on the country of origin of its parts. The question of harmonizing the "Made in USA" standard with Customs' rules is a red herring. As the Workshop discussion revealed, even the proponents of the substantial transformation option endorse a modified substantial transformation test that would not be consistent with the Customs test. If the Commission attempted to adopt a test consistent with Customs' rules of origin, the only way to ensure consistent results in all cases would be for the Commission to defer to Customs' rulings. Yet those rulings would not even consider consumers' interpretation of "Made in USA" or the likelihood of consumer deception regarding the origin of a product. Moreover, a unified Customs/Commission standard still would not be consistent with the Buy American Act standard applied by the General Services Administration, which, like Customs, has urged the Commission to follow its rule for the sake of harmonization.(39) Finally, as the Commission recognizes, the Customs country of origin rules are likely to change if the United States adopts internationally harmonized rules of origin. The suggestion that the Commission again might change the definition of "Made in USA" to conform to the international rules only underscores that the rationale for applying the substantial transformation test has no relevance to the question of consumer deception. There is no reason to believe that consumers' understanding of "Made in USA" would change based on the adoption of a trade agreement on the obscure topic of customs rules of origin. C. Confusion with foreign country of origin marking Proponents of the substantial transformation test claim that consumers are confused regarding the meaning of "Made in USA" versus "Made in a foreign country." No evidence was submitted, however, to indicate that consumers believe a "Made in foreign country" claim is as important as a "Made in USA" claim.(40) Moreover, no evidence was submitted to demonstrate that consumers believe that the two phrases have the same meaning. In the absence of such evidence, the Commission's determination should be governed by the substantial evidence that consumers interpret "Made in USA" consistent with the "all or virtually all" standard. D. Other countries' origin marking rules In response to the Commission's request for information regarding other countries' origin marking rules, a description of the laws of Canada, Mexico, the European Union, Japan, and Australia is attached as Appendix B. These countries do not have consistent or harmonized rules regarding country of origin labeling; in some cases, they do not require disclosure of a product's country of origin, and in few cases is the good itself required to be marked. The European Union does not require foreign origin disclosure for imports. Australia requires disclosure of the country of origin for all products packaged for retail sale. Canada requires a country of origin label only for certain specific products. According to the U.S. Department of Commerce, a country of origin label is required for almost all products imported into Mexico. Japan does not have an explicit origin marking law, but its consumer protection law effectively requires disclosure of foreign origin by prohibiting the use of packaging or lettering that would make it difficult for consumers to determine a product's foreign country of origin. All of the countries also have requirements regarding consumer information labeling. Like the Commission, some of these countries have begun to wrestle with issues relating to domestic origin claims. Each has a consumer protection law that generally would prohibit a deceptive country of origin claim (including a domestic origin claim). As noted above, Japan's law would prevent a manufacturer from untruthfully implying that a product is Japanese by using exclusively Japanese lettering. The Australian parliament is considering legislation that would govern a broad range of Australian origin claims. The proposal for food products recognizes distinct claims for all-Australian products and those made in Australia using foreign ingredients. The Queensland Office of Consumer Affairs and Australian consumer organizations favor a similar distinction for manufactured products. Canada allows products to be labeled "Product of Canada" so long as the product came into being in Canada and contains at least 51% Canadian materials or direct labor. As the above description demonstrates, other countries have adopted or are considering a variety of approaches to domestic origin labeling. This trend no doubt will continue as the world continues moving toward a single global marketplace.(41) The General Agreement on Tariffs and Trade permits countries to apply a more strict standard to qualify for domestic origin than the standard to qualify for foreign origin. Strict regulation of domestic origin claims therefore may increase. Thus, there is no internationally recognized standard for domestic origin claims. The Commission in any case should be guided by U.S. consumers' perception of "Made in USA" claims. E. Harmonization of product labels Some companies have suggested that the all or virtually all standard for an unqualified "Made in USA" label conflicts with the country of origin marking requirements in other countries, preventing them from developing multi-lingual packaging and labels for use around the world and forcing them to maintain separate inventories of products for the U.S. and export markets. This argument is untrue for several reasons. First, as the above description demonstrates, origin marking and labeling laws vary from country to country. In many cases, a country of origin mark or label would not be required, and therefore, there would be no need to maintain separate packaging or labeling for the U.S. and export markets. Second, neither of the proposed alternatives to the all or virtually all standard would harmonize the FTC rule with other countries' origin marking requirements. Thus, for many products a universal product label still would not be possible under those alternatives. Third, even if it were possible to harmonize the FTC's "Made in USA" standard with every other countries' origin marking requirements, other packaging, labeling, and consumer disclosure requirements would necessitate separate labels or packaging for specific markets. Finally, the concern regarding multi-lingual product labeling, like other objections to the all or virtually all standard, is a question of convenience for manufacturers and retailers. The issue is entirely irrelevant to the Commission's mandate to prevent consumer deception. 4. Qualified claims The Commission permits non-deceptive qualified U.S. origin claims for products that have less than all or virtually all U.S. content. This rule allows U.S. companies and consumers to distinguish truly "Made in USA" products from those that have more than de minimis foreign content. Many Workshop participants who support a diluted "Made in USA" standard nonetheless acknowledge the need for two levels of claims to retain this distinction.(42) The Commission's rule permitting qualified claims enables companies to inform consumers in a non-deceptive manner of a product's U.S. content. In addition, the Customs country of origin marking requirement ensures that foreign origin products are distinguishable from those that undergo at least a substantial transformation in the United States. For these reasons, the current two-tiered approach to "Made in USA" claims is both fair and workable. Some companies have argued that the standard for an unqualified "Made in USA" claim should be weakened because qualified claims are less appealing to consumers. But the effectiveness of "Made in USA" advertising does not justify weakening the "all or virtually all" standard. On the contrary, if qualified "Made in USA" claims are less compelling, that fact demonstrates that consumers consider more than de minimis foreign content to be a material consideration. Thus, the effectiveness of an unqualified "Made in USA" label supports maintaining and enforcing the current standard. Moreover, the consumer perception evidence suggests that qualified claims can be effective advertising. For example, the FTC Copy Survey found that consumers are more likely to notice and recall a qualified "Made in USA" claim.(43) The Commission received comments from private companies that successfully use qualified claims.(44) No evidence was presented to support the argument that qualified claims would be ineffective. The Coalition also opposes any proposal to weaken the standard for an unqualified "Made in USA" claim and to require companies that meet the all or virtually all standard to use a higher qualified claim. The Coalition particularly objects to the suggestion that products meeting the all or virtually all standard be labeled with variations such as "All U.S. Made" or "Wholly Made in USA." A consumer faced with two similar products, one labeled "Made in USA" and one labeled "Wholly Made in USA" likely would assume that the two are equivalent. Thus, requiring this type of qualified label for products that meet the all or virtually all standard would prevent companies like the Coalition members from distinguishing their products from those that meet a lesser standard. Moreover, companies like the Coalition members have made a substantial investment in U.S. manufacturing operations to ensure their right to advertise "Made in USA." In light of the Commission's long-standing "Made in USA" rule, it would be unfair to require these companies to use an alternative claim. On the other hand, requiring a qualified claim is entirely fair for companies that elected to move manufacturing and sourcing abroad with full knowledge of the all or virtually all rule. For all of these reasons, the Coalition believes that the current standard reserving the unadorned phrase "Made in USA" for products that are all or virtually all U.S. origin is appropriate. For products that do not meet this standard, the Coalition believes that the interest of preventing consumer deception would be best served by developing guidelines for non-deceptive, qualified "Made in USA" claims. The Commission therefore should focus future consumer perception studies and workshops on such claims. * * * The information and argument presented at the Workshop unequivocally supports maintaining the current all or virtually all standard for unqualified "Made in USA" claims. The Coalition, however, notes that to adopt either of the proposed alternatives to the all or virtually all standard, the Commission would have to undertake a formal rulemaking and provide parties the opportunity to comment on a specific proposal. The Coalition appreciates the opportunity to present its views on this important topic and would be happy to provide further information at the Commission's request. Respectfully submitted, ________________________ Jeanne S. Archibald Joanne L. Leasure Hogan & Hartson L.L.P. Columbia Square 555 Thirteenth St., N.W. Washington, D.C. 20004-1109 Telephone: (202) 637-5740 Facsimile: (202) 637-5910 Counsel for the American Hand Tool Coalition cc: American Hand Tool Coalition Comments on Proposed "Guidelines for Making U.S. Origin Advertising and/or Labeling Claims" The American Hand Tool Coalition (the "Coalition") strongly objects to the proposed Guidelines for Making U.S. Origin Advertising and/or Labeling Claims (the "Proposal") submitted by a group of Workshop participants. The Proposal, which contains two distinct "Made in USA" tests and three separate safe harbors, makes clear that its proponents were not guided by the evidence regarding consumers' interpretation of "Made in USA." Instead, the companies attempted to develop a standard that they all could meet. The result is a conglomeration of vague and potentially unequal tests that would promote rather than prevent consumer deception. The Proposal has the following major flaws: It would result in deception of a substantial percentage of U.S. consumers by permitting products with significant foreign content -- in some cases more than 50% -- to be labeled "Made in USA." The proposed "processing" tests are inherently vague and therefore open to abuse. The Proposal would render the "Made in USA" label meaningless and thereby eliminate its appeal to consumers. Although it recognizes two tiers of "Made in USA" claims, the proposed labels would not enable consumers to distinguish between all or virtually all U.S.-made products and those that meet one of the lower tests. The Coalition believes that appropriately tailored guidelines could be developed. The Coalition respectfully proposes the following principles as the basis for such guidelines: (1) the unqualified "Made in USA" label should be reserved for products that are all or virtually all of U.S. origin; (2) qualified claims should be established for products that meet a lower standard of U.S. content; and (3) consumers should be able to distinguish between the two categories of products based on clearly different labels. Description of the Proposal The Proposal consists of non-binding guides for compliance with the Commission's consumer deception standards. Under the heading "Unqualified Made in USA Claims," the guides set forth a standard for "Made in USA" based on either of two alternative tests. The first test would allow the claim if "the last significant manufacturing process occurs in the United States and substantial value is added in the United States as measured by the percentage of the cost of U.S. processing to the cost of goods sold." The second test would allow a "Made in USA" claim if "the majority of all manufacturing processes that create a new product occur in the United States, including the last significant process, and the value added in the United States, as measured by the percentage of the cost of U.S. processing to the cost of goods sold, is not insignificant." The Guidelines exclude from the cost of U.S. processing "profit, selling expenses, [and] packing or shipping costs attributable to sale of the finished product." Aside from this general exclusion, the Guidelines do not provide a formula for determining the cost of U.S. processing, and require only that it should be calculated in a "reasonable and internally consistent manner." In identifying U.S. costs, the guides specify that an advertiser need only look one-step-back in the manufacturing process. The Proposal sets forth three separate safe harbors for substantiating that a product satisfies one of the two "Made in USA" tests. The first safe harbor, "Value Added," states that the last significant manufacturing step, which must be more significant than simple assembly or minor processing, must be performed in the United States and that the cost of U.S. processing must be at least 50% of the cost of goods sold. The second safe harbor, "Majority of Processing," requires that "(i) a majority of all the processing that is normally undertaken to produce a product (including the last significant manufacturing process or processes) take place in the United States, (ii) such process or processes result in the creation of a new article of commerce that has a different name, character and use than the materials parts or components from which it is made, (iii) such process or processes, when taken together, are more significant than simple assembly or minor processing and result in a ratio of the cost of U.S. processing to the cost of goods sold that is not insignificant." The third safe harbor is a modified version of the NAFTA Preference Rules. A product that falls within any one of these safe harbors would be permitted to be labeled "Made in USA" under the Proposal. The Proposal Would Lead to Deception of a Substantial Percentage of Consumers All of the surveys presented at the Workshop confirm that a substantial percentage of consumers would be deceived if the Commission were to permit an unqualified "Made in USA" claim for products with more than de minimis foreign content: Surveys consistently demonstrate that a majority of consumers believe that 100% of the parts and labor in a "Made in USA" product are U.S. origin. Bourget Study, Question 7, p.15-16, Data Table p.38; FTC Copy Test, Detailed Tables, Question 7a; 1991 FTC Survey at 25. 77% of the respondents in the 1991 FTC Survey stated that "Made in USA" means that all or almost all of the product was made in the USA. Survey, p. 19-20. According to the 1995 FTC Attitude Survey as many as 33.3% of consumers would be deceived by using a "Made in USA" label for a product with as little as 10% foreign content. Detailed Tables, Question 7a. The Proposal would permit products with far more than 10% foreign content to bear an unqualified "Made in USA" label. It therefore would deceive a substantial percentage of U.S. consumers. The first test for "Made in USA" would require only that the "last significant manufacturing process occurs in the United States" and that "substantial value is added in the United States." This definition would recognize a product as "Made in USA," even though (1) every manufacturing step except the last significant step occurred outside the United States; and (2) all of the parts used to make the product were foreign origin. The safe harbors indicate that "substantial value added" can be as low as 50%. NAFTA Safe Harbor, Example 2; Value Added Safe Harbor, Example 1. The FTC Attitude Survey found that 63.9% of consumers would be deceived at this percentage level. The second test of the definition would require only that "a majority" of the manufacturing processes occurred in the United States and that the U.S. content is "not insignificant." The examples suggest that "not insignificant" U.S. content falls somewhere between 50% (which qualifies as "substantial U.S. value added") and 20% (which is "insignificant"). Majority of Processing Safe Harbor, Example 4. Thus, the Proposal might allow a "Made in USA" label for a product with far less than 50% U.S. content, despite the evidence that a majority of consumers would be deceived even at a 50% standard. In determining the percentage of U.S. costs, the Proposal limits the inquiry to one step back in the manufacturing process. Components and materials that have 100% foreign content can be counted toward U.S. costs, so long as they were subject to a manufacturing step in the United States. There is no basis for this approach in the consumer perception data. Indeed, there is affirmative evidence that a one-step-back rule would lead to deception of a substantial number of consumers. This rule would not count foreign content when the advertiser knows or should know that it exists. Each of the proposed tests contains a vague "processing" requirement that would open the door to abuse of the Proposal. The Guidelines do not define "last significant manufacturing process." Thus, it is unclear whether a substantial transformation is required to satisfy either of the alternative tests. If not, the Proposal would allow a finished product to be marked with conflicting claims of U.S. and foreign origin. If the definition of the "last significant manufacturing process" is left to companies, the requirement could be met by declaring U.S. operations to be the "last significant manufacturing step." Thus, the Guidelines would provide little clarity and would allow individual companies to define "Made in USA" as they choose. For the second test, the Guidelines do not specify how to identify the "majority of all manufacturing processes that create a new product." This could be interpreted to require an assessment of all the steps necessary to produce the materials, parts, and subparts used to make a finished product. If so, companies could manipulate the standard by dividing the manufacturing processes into many U.S. steps and few foreign steps so that the "majority" are deemed to take place in the United States. The "majority of all manufacturing processes that create a new product also could be interpreted to consider only the "steps" necessary to create a "new" article. This interpretation would render the second element of the "Majority of Processing" safe harbor (that the U.S. processes create a new article of commerce) redundant. Moreover, if some of the steps that create a new article were permitted to occur abroad, the Guidelines would allow products that do not undergo a substantial transformation in the United States to be labeled "Made in USA." The Use of Two Alternative Tests Is Itself Deceptive The Proposal also would be deceptive to a majority of consumers because it includes two different definitions of "Made in USA" and provides three unequal safe harbors for meeting the definitions. The Bourget Survey specifically asked whether consumers believe that two manufacturers using a "Made in USA" label define the term in the same way. A majority (61%) of the respondents stated that they assume "Made in USA" has the same meaning across different manufacturers. Bourget Survey, Summary p.17, Data table p.41. The results of the FTC Survey corroborate this finding. In both the Copy Test and the Attitude Test, consumers understanding of "Made in USA" remained consistent across different products: Attitude Test: First, participants' willingness to accept a made-in-the-USA label on a product generally did not depend on whether the product described was a pen or a stereo." Workshop Tr. at 38 (Keith Anderson, Federal Trade Commission) Copy Test: First, participants' interpretations of a made-in-the-USA or a qualified claim did not depend on the product presented or whether the claim was presented in an ad or on a product package. Id. at 41. For these reasons, the alternative definitions in the Proposal would be deceptive to consumers. The Proposed Labels Would Be Confusing The Proposal appropriately recognizes the need for two levels of "Made in USA" claims, one for "all or virtually all" U.S. made products and one for products that meet a lower standard. The Coalition supports this two-tiered approach, which is consistent with current Commission policy permitting qualified "Made in USA" claims for products that do not meet the standard for an unqualified claim. The labels set forth in the Proposal, however, would be confusing to consumers, and would not distinguish between the two categories of products. Common sense suggests that consumers would equate "Wholly Made in USA" and "Made in USA," particularly when the two claims appear on similar products. This conclusion is confirmed by the substantial consumer perception evidence that consumers already interpret an unqualified "Made in USA" label consistent with the proposed definition of "Wholly Made in USA." Thus, the labels in the Proposal would increase consumer deception and would make it more difficult for companies to distinguish wholly U.S. made products from those that meet a lesser standard. By requiring a qualified claim for the highest tier, the Proposal would reverse the current rule. In the absence of evidence demonstrating a need to change the rule and in the face of evidence demonstrating that the rule is necessary to prevent consumer deception, such a reversal would be unfair to companies like the Coalition members who have made substantial investments in U.S. manufacturing and sourcing based in large part on the Commission's rule. These companies have chosen to manufacture their products consistent with the all or virtually all standard to ensure their right to advertise "Made in USA." In contrast, companies that have elected to use foreign manufacturing or sourcing were aware that Commission's rule would permit only qualified claims for their products. The Proposal Would Not Harmonize Origin Standards The asserted objections to the all or virtually all standard focus primarily on issues of corporate convenience such as harmonizing U.S. Government standards, harmonizing international standards, and reducing the burden of substantiating the claim. None of these concerns is relevant to the Commission's mission to prevent consumer deception, and therefore should have little weight in the review of "Made in USA" claims. If the Commission does consider these issues, however, it is notable that the Proposal would not address them. The Proposal is not consistent with any U.S. Government standard and therefore would not reach the asserted aim of harmonization. Indeed, the Proposal apparently would conflict with the Customs rules of origin by permitting a "Made in USA" label on a product that does not undergo a substantial transformation in the United States. The "Value Added" safe harbor requires only that the "last significant manufacturing process or processes" occurred in the United States and that these processes constitute more than "simple assembly or minor processing." This safe harbor does not correspond to Customs' substantial transformation test. In fact, the processing of a hand tool forging described in example two does not qualify as a substantial transformation.(1) In this situation, Customs would require the finished hand tool to bear a foreign origin marking, but the Proposal would allow the hand tool to carry an unqualified "Made in USA" label. The proposed definition of "Made in USA" also would not achieve the asserted goal of harmonizing the Commission's standard with the origin and product labeling rules of other countries. The Coalition is not aware of any country that follows either of the proposed "Made in USA" tests in determining country of origin. * * * The Proposal would achieve only one goal -- one that the Commission should reject: it would enable the greatest possible number of companies to advertise their products as "Made in USA" despite the inclusion of more than minimal foreign content in such products. The Commission's role is not to help companies advertise products at the expense of consumer deception. On the contrary, the Commission is charged with preventing consumer deception. Finally, weakening the "Made in USA" standard as proposed would not provide access to effective advertising. Consumers prefer "Made in USA" products precisely because they are all or virtually all U.S. Made. If the standard were weakened, consumers would cease to value the "Made in USA" label. COUNTRY OF ORIGIN LABELING LAWS OF MAJOR U.S. TRADING PARTNERS 1. Canada Canada requires country of origin marking of certain classes of products.(1) Hand tools are not included on this list. Separately, Canada's Consumer Packaging and Labeling Act requires that all imported goods be labeled to indicate: [1] the product name; [2] the identity and principal place of business of the manufacturer, processor, or importer; and [3] quantity, and other information, such as quality, content, composition, as may be prescribed. Goods imported into Quebec must also satisfy provincial requirements that they contain instructions for use in French and English.(2) With respect to domestic origin claims, Canada permits a product to be labeled "Product of Canada" so long as the product came into being in Canada and it contains at least 51% Canadian materials or direct labor.(3) 2. Mexico Mexico does not have a universal origin marking or labeling rule, and the country currently is implementing a regulatory regime for standards and labeling of products.(4) For certain specific classes of products, Mexico has adopted labeling standards that include a requirement to disclose the country of origin in Spanish.(5) Separately, Mexico has general commercial labeling standards that apply to most imported products destined for retail sale. These products must have a Spanish language label that includes the name of the product, name and address of the importer, quantity, and relevant warnings.(6) Although this list does not specify that the country of origin must be disclosed, the U.S. Department of Commerce takes the view that it is required and so advises U.S. companies.(7) As a practical matter, including the country of origin is not burdensome given the other mandatory items. 3. Japan Japan does not have a universal country of origin marking or labeling requirement. Japanese law does include generic requirements that prohibit the use of a misleading or false country of origin marking, label, or other indication. Whether a specific claim is "misleading" or "false" is decided on a case-by-case basis.(8) The prohibition applies to representations that "make it difficult for general consumers to distinguish the goods as made in the foreign country in question." Japan FTC Notification No. 34 at  2. This provision is broadly interpreted to include using all or principally Japanese lettering for representations regarding a foreign product. Id. at  2(iii). As a practical matter, therefore, Japanese law requires disclosure of a product's foreign origin either by the use of lettering consistent with such origin or by a disclaimer connected to the use of Japanese lettering. 4. European Community Under Article 30 of the Treaty of Rome, the European Community ("EC") prohibits member countries from imposing a country of origin marking requirement.(9) Companies may mark or label their products with the country of origin on a voluntary basis, so long as the origin claim is not misleading. Individual countries within the EC regulate origin labeling under generally applicable consumer protection laws. For example, the United Kingdom prohibits the use of a false trade description which can include the place of manufacture. Trade Descriptions Act 1968; Control of Misleading Advertisements Regulations 1988. Similarly, Belgian law prohibits a false or misleading country of origin label. Fair Trade Practices Act 1991. Separately, Belgium requires products to be labeled with the name of the manufacturer, distributor, or representative agent within the EC. Product Liability Act (Feb. 25, 1991). 5. Australia Under the Commerce (Retail Descriptions) Act of 1905, Australia requires country of origin labeling on imported products that are packaged for retail sale.(10) For certain specified classes of products, Australia also requires that the product itself be marked with the country of origin. Separately, Australia's consumer deception laws prohibit misleading origin claims, including domestic origin claims.(11) Prior to the recent presidential election, the Australian House of Representatives passed legislation to regulate the use of Australian origin claims, but Senate has not yet acted on that legislation. Trade Practices Amendment (Origin Labeling) Act 1995. The National Food Authority proposed a series of labels for food products that would distinguish between those with all Australian ingredients and those made in Australia from foreign ingredients. The Queensland Office of Consumer Affairs proposes a similar approach for manufactured goods. EXHIBIT 1 SCHEDULE I (Subsection 3(1)) 1. Goods for Personal or Household Use (1) Bakeware and cookware made of aluminum (2) Bakeware and cookware made of cast iron (3) Bath mats, towels and wash cloths, knitted or woven (4) Batteries, dry cell (5) Blankets (6) Brushes, including toothbrushes and their handles (7) Candles (8) Cards, the following credit identification, made of any material that has a diameter that exceeds, or a side the length of which exceeds, « inch (1.27 cm) in width and that is imported in sheet form or otherwise (9) Chrome-plated ware and utensils for use in serving food and beverages (10) cigar and cigarette lighters, except lighters for incorporation into motor vehicles (11) Clocks and movements, except clocks and movements for use as original equipment by motor vehicle manufacturers (12) Containers, thermostatic, the following: carafes, flasks, jars, jugs and vacuum bottles, and refills or inserts therefor (13) Cutlery, chrome-plated or stainless steel (14) Dishes and ornaments made of china earthenware, ironstone, porcelain, semi-porcelain, stoneware or white granite (15) electronic equipment, the following: phonographs, radio receiving sets, radio-phonograph sets, radio-phonograph-television sets, record players, tape recorders and television receiving sets (16) Ironing board covers and pad (17) Kitchenware made of metal or plastic, coated, lithographed, painted or otherwise, the following: bread boxes, cake humidors, canisters, foil and paper dispensers, range sets, serving ovens and step-on waste cans (18) Knives, the following: jack, pen and pocket; scissors and shears (19) Lawn mowers (powered) (20) Matches in books, boxes or folders (21) Pencils (22) Pens, the following: ballpoint and fountain; and nib penholders (23) Pillowslips and sheets made of cotton (24) Razor blades (safety type) (25) Thermometers (26) Tiles, glazed, unglazed and ceramic mosaic, the following: hearth, floor and wall (27) Umbrellas (28) Utensils, kitchen type and chrome-plated or stainless steel (29) Watch bracelets (expansion type) 2. Hardware (1) Caps, made of metal, lithographed or printed, for containers, the following: lug, screw and vacuum (2) Copper tubing (3) Drapery I-beam rails, made of aluminum, brass, steel or other metals or plastic, and component parts of drapery I-beam rails (4) electrical measuring devices for panel mounting designed to indicate alternating or direct current microamperes, milliamperes or amperes, millivolts, volts, or kilovolts and such other variables as pressure, resistance and temperature that may be translated into alternating or direct current or voltage (5) Glass in panes or sheets, the following: common or colourless window, laminated, plate and sheet (6) Goods made of porcelain for electrical use (7) Files and rasps (8) Sink strainers (basket type) (9) Tubes, electronic (10) Twines, the following: baler and binder (11) Wire insect screening (12) Iron or steel pipes and tubes 3. Novelties and Sporting Goods (1) Articles in the style of Northern American Indian handicrafts (2) Athletic gloves and mitts, including baseball and hockey gloves and mitts (3) Bicycles (4) Decorations, novelties and ornaments (5) Enameled emblems and silver-plated or sterling silver bracelets, brooches, pins and spoons, all designed as souvenirs of Canada, its provinces, territories, cities, towns or other geographical locations (6) Gift wrappings, the following: bindings, braids, ribbons, tapes, ties and trimmings, made chiefly or wholly of textile fibers (7) Toys, games and athletic and sporting goods 4. Paper Products (1) Boxes and cartons, empty folding or set up, made of paper, paper board, plain or corrugated fibre or fibre board, for use as shipping containers (2) Paper matter and products, lithographed or printed 5. Apparel (1) Boots, shoes and slippers (2) Brassieres, corselettes, garter belts, girdles and lacing corsets (3) Fabrics, braided or woven, containing rubber yarns, not exceeding 12 inches (30.48 cm) in width; boot and shoe laces (4) Gloves made partially or wholly of leather (5) hair pieces, the following: wigs, half wigs, switches, postitches, pony tails, toupees and other types of hair pieces designed to be worn on the head of a person (6) Handbags and purses, except handbags and purses made of beads, metal mesh or similar material (7) Hats, including berets, bonnets, caps, hoods and shapes made of felt fur, wool felt and wool-and-fur felt (8) Knitted garments (9) Raincoats and rain wear made of plastic (10) Apparel made substantially or wholly of natural or synthetic textile fibres 6. Horticultural Products (1) Tubers, tuberous roots and rhizomes, dormant, in growth or in flower--of paconias (2) Tubers, tuberous roots, corns, crowns and rhizomes, dormant, of irises or other perennials, except begonias (3) Tubers, tuberous roots, or rhizomes, in growth or in flower, of begonias (4) Bulbs, dormant or in growth, except tulip bulbs (5) Unrooted cuttings or slips of fruit or nut trees, shrubs or bushes (6) Trees, shrubs, bushes, vines, or seedling stock, grafter or not, including those capable of bearing fruits (7) Christmas, trees, rooted or unrooted (8) Rose bushes, grafted or not, except cut roses SCHEDULE II (Subsections 3(2) and (3)) 1. Goods for charitable purposes and not for the purpose of sale 2. Goods that are gifts or bequests 3. Goods that are antiques or goods produced more than 20 years prior to importation 4. Used goods, with he exception of iron or steel pipes and tubes 5. Goods that are for the exclusive use of the importer or the importer's employees and not for resale to the general public, with the exception of iron or steel pipes and tubes EXHIBIT 2 12. MISLEADING REPRESENTATIONS CONCERNING COUNTRY OF ORIGIN OF GOODS (Fair Trade Commission Notification No. 34 of October 16, 1973) In accordance with the provisions of Section 4 (III) of the Act against Unjustifiable Premiums and Misleading Representations (Act No. 134 of 1962), Misleading Representations Concerning Country of Origin of Goods shall be designated as follows, and shall come into effect on May 1, 1973. Misleading Representations Concerning Country of Origin of Goods 1. Representations provided for in the following paragraphs, which, when applied to domestically made goods, is found to make it difficult for general consumers to distinguish the goods as domestically made: (i) Representations comprising the name of a foreign country, the name of a place in a foreign country, the flag or crest of a foreign country, or any other similar representations; (ii) Representations comprising a name or trade mark of any foreign entrepreneur or designer; or (iii) Representations in which all or a principal part of the literal description is made in foreign lettering. 2. Representations provided for in the following paragraphs, which, when applied to foreign-made goods, is found to make it difficult for general consumers to distinguish the goods as made in the foreign country in question: (i) Representations comprising the name of any country, the name of any place in any country, and flag or crest of any country other than the country of origin of the goods, or any other similar representations; (ii) Representations comprising a name or trade mark of any entrepreneur or designer in any country other than the country of origin of the goods; (iii) Representations in which all or a principal part of the literal description is made in Japanese lettering. Addenda: (1) The term "the country of origin of the goods" as used in this Notification shall mean a country in which a treatment or process affecting a substantial change to the substance of the goods is performed. (2) In those cases where it is not appropriate to indicate the origin of the goods by the name of a country, the reason being that the origin in question is generally better known by the name of the place than by the name of the country, the place of origin shall be deemed the country of origin for the purpose of this Notification. (Place for Examinations of Goods) Article 69. An examination as proscribed in Article 67 (Export or import permit) shall be carried out at the lace designated by the Director-General of Customs. 2. Any person who is to undergo an examination as proscribed in Article 67 (Export or import permit) at any place other than those designated under the preceding paragraph shall obtain the permission of the Director-General of customs 3. The Director-General of Customs shall give the permission as prescribe in the preceding paragraph, if he consider that it is adequate to examine the goods at the place designated by the Director-General of customs due o their nature or quantity of the goods and that the examination may be efficiently carried out at a place other than the designated place. (Certification of Verification) Article 70. In the case of any goods with respect to which there shall be required a permit, approval or other disposal of any administrative agency or any other similar actions relating to exportation or importation of the goods under the provisions of any other laws and regulations (hereinafter in the paragraph referred to as "permit or approval, etc."), there shall be certified to the customhouse upon export or import declaration that such permit or approval, etc. has been obtained. 2. In the case of any goods with respect to which an examination is necessary or certain conditions are required to be met as to their exportation or importation under the provisions of any other laws and regulation, there shall be certified, upon examination of goods as prescribed in Article 67 (Export or import permit) and examination by the customhouse of export or import declaration, to the customhouse for their verification that the examination is completed or certain conditions are met, so proscribed by the provisions of. such laws and regulations. 3. No export or import permit shall be given to those goods which are not certified under paragraph 1 or are not verified under the preceding paragraph. (Importation of Goods with False Indication, etc. of Origin) Article 77. No import permit shall be given to any foreign goods showing, directly or indirectly, a false indication of origin or showing any indication of origin which may lead to misconception. 2. With respect to any foreign goods as prescribed in the preceding paragraph, the Director-General of Customs shall immediately notify a person, who has submitted an import declaration, of such false indication of origin or indication of origin which may lead to misconception and shall make him, at his option, obliterate or correct those indications or reship those goods within such period as may be designated by the Director-General of Customs. EXHIBIT 3 Commerce (Imports) Regulations (Page) 4 r.5 "textile products" means: (a) woven, knitted or itched materials manufactured from fibre; and (b) tops, yarns, threads and lace; "the Act" means the Commerce (Trade Descriptions) Act of 1905; "upper" means the outer covering of the part of a shoe above the inner sole, but does not include any thread, lace, eyelet, buckle, button or other adornment; "wool" means the natural fibre from the fleece of any variety of domestic sheep or lamb (1) For the purpose of these Regulations: (a) where two or more articles of the same kind are packed together for sale as a single article, they shall be deemed to be a single article; and (b) where an article is, or two or more articles of the same kind are, packed together with an article of a different kind or with articles of a different kind or different kinds for sale as a single article, the first mentioned article or articles shall be deemed to be a single article. (3) For the purpose of these Regulations, where an article is packed in a manner in which it could be sold as a single item, it shall be deemed to be packed for sale as a single item unless the contrary is shown. (4) A reference in the Regulations to the weight or measure of an article shall be read as a reference to the weight or measure of the article exclusive of the weight or measure of the package in which it is packed. (5) A reference in these Regulations to the measure of an article shall, in the case of an article of a kind that is ordinarily sold by number, be read as a reference to the quantity of that article expressed as a number. (6) For the purposes of these Regulations, words or particulars that are marked on a label attached to a package or to an article contained in a package shall be deemed to be marked on the package. (1) In these Regulations, unless the contrary intention appears: (a) a reference to a package containing an article or to a package in which an article is contained or packed includes a reference to a package to which an article is attached or round which an article is wound; and (b) a reference to an article that is contained or packed in a package includes a reference to an article that is attached to, or wound round, a package. Commerce (Imports) Regulations 5 r.6 Ships' and aircraft's stores 6. Nothing in these Regulations shall apply to ships' stores and aircraft's stores brought to Australia. Pre-packed articles 6A. (1) A reference in these Regulations to a pre-packed article shall, subject to subregulation (2), be read as a reference to an article consisting of goods that are packed in a manner in which goods of that kind are commonly packed in order to fit them to be exposed or offered for sale. (2) A reference to a pre-packed article shall be read as not including a reference to: (a) a package containing goods of a kind specified in Part 1 of the Fifth Schedule; or (b) a package included in a class of packages specified in Part II of that Schedule. PART II--TRADE DESCRIPTIONS Additional prohibition of certain Imports 7. (1) The Importation of the following goods is prohibited unless there is applied to those goods a trade description in accordance with these Regulations: (a) Articles used for food or drink by man, or from which food or drink for use by man is manufactured or prepared; (b) medicines or medicinal preparations for internal or external use; (c) fertilizer; (d) agricultural seeds; (e) plants; (f) textile products and articles of apparel including shoes; (h) jewelry; (ha) goods, the total outside area of which is not less than one under and fifty-five square centimetres, specified in the Fourth Schedule to the Regulations, going: (i) goods made form leather or a material resembling leather; (ii) goods made from fibre or vulcanite or a material resembling fibre or vulcanite; or (iii) goods made from plastic; (i) brushware; 6 Commerce (Imports) Regulations r.8 (j) china, porcelain, earthenware and enamelled holloware of the following kinds: (i) articles of a description commonly used in connection with the serving of food or drink for man; and (ii) kitchenware and kitchen utensils; (k) electrical appliances, apparatus and accessories, including electric incandescent lamps; (l) powder puffs; (m) toys; (n) cigars, cigarettes, manufactured tobacco, cigarette papers and cigarette tubes; (o) Portland cement; (p) sanitary and lavatory articles of earthenware, fireclay, viticons china, or similar substances or materials; (q) wall, hearth and floor tiles; (r) watches and clocks and movements for watches and clocks; and (s) goods that are imported in the packages in which they are customarily exposed or offered for sale, other than: (i) goods of a kind referred to in a preceding paragraph; (ii) goods of a kind specified in Part I of the Fifth Schedule; or (iii) goods contained in packages included in a class of packages specified in Part II of that Schedule. (2) For the purposes of paragraph (ha) of the last preceding subregulation, goods shall be deemed to be made from: (a) leather or a material resembling leather; (b) fibre or vulcanite or a material resembling fibre or vulcanite; or (c) plastic; if more than one-half of the outside area of the goods consists of leather, a material resembling leather, fibre, a material resembling fibre, vulcanite, a material resembling vulcanite or plastic, as the case requires. Trade description--general requirements 8. The trade description to be applied in accordance with the Regulations is a trade description that complies with the following provisions: (a) subject to these Regulations, the trade description, in the case of goods other than goods that are imported as pre-packed articles, shall be in the form of a principal label or brand affixed in a prominent position and in as prominent a manner as practicable to the goods or, if affixture to the goods is impracticable, to the coverings containing the goods; (b) subject to these Regulations, the trade descriptions, in the case of goods imported as pre-packed articles, shall be marked on the packages in which the goods are packed; (c) subject to subregulations 10 (7) and (8), the trade description shall contain, in prominent and legible characters: (i) subject to regulations 19A and 20, the name of the country in which the goods were made or produced; and (ii) subject to regulation 9, in the case of goods specified in paragraph 7 (1) (a), (b), (c), (d), (e), (f), (h), (ha), (i), (k), (n) or (s)--a true description of the goods; (d) subject to regulation 20B, where a weight or quantity is set out in the trade description, the trade description shall state whether the weight or quantity so set out is gross or net; (e) any matter included on the label, brand or package that is in addition to the manner required to be so included by these Regulations shall not be such as will, by illustration, by wording or by size of lettering read to contradict or obscure the matters required to be so included; and (f) the trade description shall be in the English language. Trade description--additional requirements in certain cases 9. (1) In the case of the goods specified in regulations 10 to 20, inclusive, of these Regulations, the trade description shall, in addition, comply with the provisions proscribed therein. (2) In the case of goods imported as pre-packed articles to which any of regulations 20A to 20P, inclusive, apply, the trade description shall, in addition, comply with whichever of the provisions prescribed in those regulations are applicable. Articles used for food or drink by man 10. (1) In the case of articles used for food or drink by man, or from which food or drink for use by man is manufactured or prepared, and containing any deleterious or preservative substance, the trade description shall include a statement setting forth that the articles contain the deleterious or preservative substance and in the case of preservative substances, the amount thereof per pint, liter, pound or kilogramme of the goods. EXHIBIT 4 51,594 Siddone Pty. Ltd. (1990) ATPR  41-044 under the general law of a party's right to rescind for breach of contact or misrepresentation. Nevertheless, in exercising its discretion under sec. 87, the court will consider the conduct of the parties after they had knowledge of the misleading quality of the conduct..." His Honour quoted, from the advice of the Privy Council in Senanayake v. Cheng (1966) A.C. 63 at p. 83, a statement of the questions arising at general law as a being "whether restitution in integrum is substantially possible and whether rescission is timely and just and fair". He added: "On this approach the court must consider all the circumstances before it in the exercise of its discretion." in the present case, a delay of some months occurred following the revelation of the obstacle confronting a strata subdivision: It may be that the extent of the difficulty was not fully appreciated all at once. It was certainly reasonable for some time to be taken in exploring the possibility of remedying it. But where an applicant chooses to attempt to rescind at once, but to seek to overcome such a problem, is must be a serious impediment to an exercise of discretion in his favour if, after the lapse of some months, and at a time when his endeavours to solve the problem appear about to bear the fruit of success, he suddenly aborts the process and seeks at that stage the remedy of rescission. However, it is unnecessary to pursue this question further, and I have reached no final conclusion upon it. It is sufficient for the present that I make declarations, in accordance with these reasons, that the respondents have in trade or commerce engaged in conduct that was misleading or likely to mislead within the meaning of sec. 52 of the Trade Practices Act, and that they have in trade or commerce in connection with the sale of an interest inland and in connection with the promotion of the sale of an interest in land made a misleading representation concerning the characteristics of the land and the use to which the land was capable of being put or might lawfully be put within the meaning of sec. 53A of the Act. I order that the matter be listed for further directions on a date to be fixed, so that the applicant may bring in short minutes of declarations in accordance with these reasons, and so that directions may be given for its further conduct. [41-044 Siddons Pty. Ltd. v. The Stanley Works Pty. Ltd. Federal Court of Australia Judgment delivered 9 August 1990. Trade practices -- Misleading or deceptive conduct -- Representations that certain products were "Made in Australia" -- Relevant products made in another country -- Effect of the words "Australia" and "Australian" and maps of Australia on the packaging of the products -- Whether a product continues to be relevantly in "trade and commerce" after it has been sold by retail -- Whether consumers would be misled by words in their natural meaning or by their own faulty mental processes and the consequences of the distinction -- Degree of influence on consumer behaviour to be expected from the representation -- Trade Practices Act 1974, sec. 52; 53(a); 53 (cb). The applicant/cross-respondent (Siddons) manufactured and sold hand tools under the trade name Sidchrome, the respondent/cross-applicant (Stanley Works) manufactured and sold hand tools under the trade name Stanley. Siddons alleged that the Stanley spanner was sold in breach of sec. 52 (general prohibition on misleading and deceptive conduct), sec. 53(a) (concerning false representations as to the origin of goods) of the Trade Practices Act 1974. It was said that the words "Made in Australia" delineated by the metal of the spanner were in breach of the Act as the spanner was made in Taiwan. It was further argued that Stanley sockets featuring the word "Australia" delineated by the metal of the socket were also said to be in breach of the Act. By cross-claim Stanley Works argued that the map of Australia and the word "Australia" on the lid of a Sidchrome box of tools infringed the above sections of the Act. It Siddons Pty. Ltd. v. The Stanley Works Pty. Ltd. (1990) ATPR  41-044 51,595 was contended that some of the tools in the box were not made in Australia, so the representation carried by the map and the word "Australian" were false. It was further argued that the packaging of single Sidchrome hand tools carrying the word "Australia" and the map of Australia was in breach of the Act as the products were not made in Australia. Held: first claim and first cross-claim upheld. Stanley tools 1. The putting by Stanley Works into trade and commerce of such a spanner in circumstances in which the words "Made in Australia" on the spanner would be read by the retail purchaser would be a contravention of sec. 52, 53(a), and 53 (cb) of the Act. Eve in the offending words were covered by packaging, the words would remain embossed or delineated on the spanner after the spanner was purchased and would continue to present potential consumers with a misleading representation. In such circumstances, the words would be likely to influence potential consumers and would be in breach of the Act. 2. The degree of influence on consumer behavior to be expected of the misrepresentation that the words conveyed was too substantial, in the absence of permanent corrective labeling of the spanners, to permit mitigation of the law's rigor. Accordingly, an injunction restraining the distribution of the spanners in trade and commerce in Australia was appropriate. 3. The word "Australia" embossed or delineated on the Stanley socket did not offend against the Act. Any consumer relevantly misled by the word would be so misled, not by the natural meaning of the words themselves, but by their own faulty mental processes. Sidchrome tools 1. The word "Australian" on the packaging and a perusal of the lid of the top of the Sidchrome box of tools would reasonably lead a consumer to believe that the tools were made in Australia. As some of the tools were not made in Australia the representation was not correct and there was therefore a contravention of sec. 52, 53(a) and 53(eb) of the Act. 2. The use of the word "Australia" and the use of a map of Australia on the packaging of single Sidchrome hand tools was not an assertion as to the origin of the goods and was not in breach of the Act. [Headnote by the CCH TRADE PRACTICES EDITORS] D. Shavin (instructed by Freehill, Hollingdale & Page) for the applicant Dr. C.N. Jessup Q.C. and S.R. Horgan (instructed by Mallesons Stephen Jacques) for the respondent. Before: Jenkinson J. Jenkinson J.: Claims and cross-claims for civil remedies in respect of conduct alleged to have contravened provisions of Pt. V of the Trade Practices Act 1974. The applicant, which I will call "Siddons", is a Victorian company which manufactures, inter alia, hand tools and sells by wholesale, inter alia, hand tools. The respondent, which I will call "Stanley Works", is a Tasmanian company which sells by wholesale, inter alia, hand tools and manufactures, inter alia, hand tools. Stanley Works has sold in this country spanners on which are delineated by the metal of which the spanner is made the words "Made in Australia", and also the word "Stanley". The spanners are made of a piece of metal which is brought to the desired shape by the application of force and of heat and is affected in its molecular arrangement by heat and cold and has its surface plated. Some of these processes are carried out in Taiwan, but other, later processes are carried out in Australia. When brought from Taiwan to Australia the 51,596 Sidney Pty. Ltd. v. The Stanley Works Pty. Ltd. (1990) ATPR  41-044 piece of metal is approximately of the dimensions of the spanner which is sold, but modification of molecular arrangement and treatment of the surface is carried out here. The strength and durability of the piece of metal is substantially less on arrival here than it is when the spanner is sold. The words "Made in Australia", in application to a tool such as a metal spanner, in my opinion mean in ordinary parlance that most of the process by which a piece of metal is brought into the shape of the tool as sold have occurred in this country. It is unnecessary to consider whether the meaning is such as to require more than that. None of those processes occurred in this country in the case of these spanners. The putting by Stanley Works into trade and commerce of such a spanner in circumstances in which the words "Made in Australia" on the spanner would be read by the purchaser by retail before purchase would in my opinion constitute a contravention of sec. 52, 53(a) and 53(eb) of the Trade Practices Act 1974 (cf. Korczinsky v. Wes Lofts (Aust.) Pty. Ltd. (1985) 10 F.C.R. 348; Neicomns (Australia) Pty. Ltd. v. Dataplex Pty. Ltd. 91988). ATPR  40-883 p. 49,564; (1988) 81 A.L.R. 101; and Thorp v. C.A. Imports Pty. Ltd. (1990) ATPR  40-996). Stanley Works still has many of these spanner on hand. Stanley Works proposes that any injunctive order be so framed as to permit sale of the spanners so packaged that the words "Made in Australia" on the spanner would no be visible until after retail sale of the spanner and removal of the packaging. The question was debated whether, if that were done, any contravention of Pt V would occur by reason of the circumstance that the purchaser and, probably, other persons would, after purchase, see those words as well as the word "Stanley". It was submitted by Dr. Jessup Q.C., who appeared with Mr. Horgan for Stanley Works, that no such contravention would occur. It was said that at the time of sale no such contravention would have occurred. That may be granted. It was said that once goods have reached a consumer they are no longer in the course of trade and two cases of high authority in the filed of trade mark law were cited in justification of that proposition; Aristoc Ltd. v. Rysta Ltd. (1945) A.C. 68; W.D. and H.O. Wills (Australia) Ltd. v. Rothmans Ltd. (1955-1956) 94 C.L.R. 182. The proposition forms a step in reasoning to the conclusion that, since the function of a trade mark is to give an indication to a potential purchaser of the trade source of the goods, acquisition of the goods by that purchaser will if he be a consumer of the goods and not a trader in the goods, result in cessation of "user" of the trade mark, within the meaning of that word in trade mark legislation. But it is not, in my opinion, correct to say that because a thing has ceased to be the subject of trading activity and is no longer in the course of trade in cannot thereafter be the instrument by which conduct of a particular description is done in trade and commerce. The article may carry to potential purchasers of goods a representation in words endorsed on that article about those goods or about the maker or the distributor or the retailer of those goods. It is nothing to the point, in my opinion, that the representation was or was not also carried to the consumer who bought the article before the purchase was made, and nothing to the point whether the representation relates or does not relate to the article on which it is endorsed or to some person concerned in the making or the selling of that article. Dr. Jessup sought to rely also on the reasoning in concrete Constructions (N.S.W.) Pty. Ltd. v. Nelson (1990) ATPR  41-022 at p. 51,359; (1990) A.L.J.R. 293. In my opinion nothing in that reasoning casts any doubt on the proposition, which I think is correct, that representations by words endorsed on an article intended to be sold for use by a consumer are being made "in trade or commerce" within the meaning of that expression in Pt V of the Trade Practices Act to those who are potential consumers of an article concerning which, or concerning the maker or distributor or seller of which, the representation is made and who read the words after the article on which the words are endorsed has passed in to the possession of the purchaser who is to use it, provided that the person making the representation contemplated that the words would be read at that time by such potential consumers. I should say that I do not intend by that general statement to comprehend the case in which the endorsement on the article is effected in compliance with a legal, usually statutory, requirement that the article bear information concerning the article. It has, as I believe, always been assumed that the endorsement or attachment of statements about an article in compliance with a legal Siddons Pty. Ltd. v. The Stanley Works Pty. Ltd. 51,597 (1990) ATPR  41-044 requirement may constitute a representation in trade or commerce. And I am not concerned to question that assumption. A common example is the requirement that the composition of the material of which an article of clothing is made be stated on the garment. But I do not intend to express any opinion as to whether, after such a garment has been purchased by retail, the statement which is on the garment, and is on the garment because it was necessary to comply with a legal requirement, is a statement made to any person thereafter in trade or commerce. I express no opinion on that question. It would be obvious to Stanley Works' officers that purchasers of these spanners would read the words endorsed on the spanner after purchase and that others might also; and obvious that such persons might thereafter have occasion to buy hand tools of the kinds Stanley Works expects in the future to be selling, as it has sold in the past. The representation inducing a belief that spanners of the kind in question, that is to say of the kind I am now considering, are made in Australia by Stanley Works, is likely to influence some potential consumers of hand tools to seek out hand tools, whether or not spanners of the same kind, sold under the name of Stanley Works, and is, in my opinion, a representation made in trade an commerce to those potential consumers. Stanley Works also sell sockets on the outer surface of which are allocated by the metal of which they are made the word "Stanley", and immediately below that word the word "Australia". the socket is made from a place of metal which is brought to he shape of the socket, as sold, by the application of force and the surface of which is hardened and plated by several processes, including a process which changes the chemical composition of the surface. There is a sequence of processes, some carried out in Taiwan, the rest in Australia. When the place of metal arrives in Australia it is approximately of the dimensions of the socket as sold, but further processes are carried out here, including hardening and plating processes. For the reasons given in respect of the spanners. For the reasons given in respect of the spanners, it would, in my opinion, be a contravention . Mr. Shavin of counsel for Siddons submitted that, on the socket, the word "Australia" would be understood by a substantial number of potential purchasers as an assertion as to the place of origin of the thing on which the word is marked. I cannot deny that some would, But any conclusion is that those who did would be thus milled, not by what the words in all the circumstances under which they stand on the metal socket mean to the reasonable member of the public who regards them, but by mental processes which are at fault. The two words the one immediately above the other, may in my opinion reasonably be taken to assert both a connection of some commercial kind between whatever entity the word "Stanley" signifies and the socket, and a connection of some kind between that entity and the place named, Australia, it cannot, in my opinion, be reasonably concluded that the words also assert a connection between that place and the socket, except the connection which the other two assertions involve. By cross claim Stanley works alleges misrepresentations in contravention of Pt v. by Siddons. On the outer lid of a box of tools, sold by retail, and on a card attached to the inner surface of the lid, there is represented above the word "Sidchrome", which is a trade name of Siddens, an outline map of Australia. On the left-hand side of that outline is the word "unconditionally", an on the right hand side of the outline is the word "guaranteed". Endorsed across the outline of Australia is the word "Australian". In each instance, namely on the outer surface of the lid and on the inner surface of the lid, the words "unconditionally" and "guaranteed" are printed in the same color. That is to say the word "unconditional" is in the same color as the word "guaranteed". In each instance the word "Australia" is in a different color from the other two words. In the case of the outer surface of the lid, below the word "Sidchrome" are the words "Quality tools". In the case of the inner surface, below the word "Sidchrome" is printed the figures and words, "112 piece combination tool chest". It was Dr Jessup's submission that in each case the word "Australian" would reasonably be understood as an assertion that the tools in the box were of Australian origin, and, if it is to say anything different, that the tools were made in Australia. Mr. Shavin, for Siddons, submits that the word should be understood as asserting only that the unconditional guarantee to which the words "unconditionally guaranteed" may be taken to refer is of an Australian character or has an Australian character, presumably in the sense that he who offers or gives or declares the guarantee is either a resident or citizen of Australia. In my opinion, the reasonable person regarding what I have described as endorsed on the top and underside of the lid, would reasonably understand the words to be asserting that the contents of the tool box are unconditionally guaranteed and that the contents of the tool box are made in Australia and have Australia as their place of origin. The evidence establishes that in respect of some of the tools in the box, as it is sold, the representation is incorrect, and accordingly the conclusion follows that the putting into trade of the box of tools thus marked constitutes a contravention of sec. 52, 53(a) and 53(eb). Another cross-claim relates to packaging used by Siddons in relation to single hand tools sold by it by retail. The packaging consists of an orthogonal piece of cardboard and a piece of molded, transparent material. The tool is covered by the transparent substance, which is attached to the surface of the card so that the tool remains against the card however the card is moved. That side of the card against which the tool rests is colored red and on that side of the card are printed words. In some instances it may well be in all, at the top of the card is the word "Sidchrome", in white against the background red, and then below "Sidchrome" a strip about a centimeter wide of yellow color on which is printed the name and dimensions of the particular tool, together with some other numbers and letters which may be some means of identifying the tools in some list of products of Siddons. Then, in approximately the middle of the card, is in yellow against the red background an outline of Australia delineated, and at the foot of the card there is a circular marking - "unconditionally guaranteed" around the word "Sidchrome". In the bottom right-hand corner in yellow against the red background are the words "Siddons Industries", to the left of which is a symbol of the letter S and the symbol of the top of a nut, and below those words in yellow, the word "Australia". Dr. Jessup submits that that face of the card on which the tool rests conveys as a whole representation that the tool was made in Australia, that its place of origin is Australia. And, in support of that submission, he draws particular attention to the prominent representation of the shape of the continent in the middle of the card and immediately below part of the tool itself. My conclusions is that neither the surface of the card as a whole nor any part of it is reasonably to be taken as making any assertion concerning the origin of the tool which is attached to the card. It may be, as in the case of the sockets, that one can conclude that it is asserted that Siddons has a connection of a commercial kind with Australia and, of course, obvious connection. And involved in those two assertions is an assertion of a connection of a kind between the tool and Australia. But reasonable reflection upon what is upon the face of the card carries one, in my opinion, no further than that. Accordingly I conclude that to put the tools into trade and commerce packaged in the way that I have described does not involve a contravention of any of the provisions of Pt V. Now, it is to me very difficult to form an estimate of the extent to which potential consumers of hand tools would be influenced in favor of buying a Stanley Works hand tool, rather than another's by the mistaken belief that a spanner which was marked "Made in Australia" and "Stanley", and which they had seen after the spanner had been sold by retail, was wholly made in this country. I am persuaded on the whole of the evidence, and particularly by the evidence of the conduct of the parties to this litigation manifesting their strong inclinations to associate their products and themselves with this country in the minds of consumers, that the degree of influence of the words on the spanners would be substantial on many potential consumers who saw the words on the spanners. The policy of Pt V is to prevent the influence of mistaken beliefs on consumers. On the other hand, the interdiction of trading by retail in these spanners in this country will, as I shall assume, result in the total waste of the production processes by which they were produced. Dr Jessup did not propose, as an alternative, labeling the spanners with a message designed to correct the misrepresentation. Further, any such labeling could be expected ordinarily to disburse the mind of only the person who first used the spanner. Stanley Works did take expert legal advice on the lawfulness of marking the words on the spanners, and got the opinion that it was probably lawful, together with a warning that it might not be. To a responsible trader, as I think Stanley Works to be, mitigation of the law's rigor might well be thought to be an encouragement carefully to observe the law thereafter. But, on balance, I have concluded that the degree of influence on consumer behavior to be expected of the misrepresentation the words convey is too substantial to permit of that mitigation. Accordingly, there will be an injunctive order against distribution of the spanners in trade and commerce is this country. _____________ [41-045] S. W. F. Hoists and Industrial Equipment Pty. Ltd. v. State Government Insurance Commission. Federal Court of Australia Judgement delivered 3 August 1990. Trade practices - Misleading or deceptive conduct - Whether false or misleading representation concerning the existence of a right - Representation that a package of insurances would cover a worker while performing his employment in another State - Worker willed while performing services in another State - Respondent rejected claim for workers compensation - Whether statements about insurance statements of fact or of law - Whether misleading or deceptive conduct confined to representations of fact - Whether breaches of contractual warranty - Trade Practices Act 1974, sec. 4; 52; 53; 82. The applicant requested insurance cover for all its needs, including workers compensation, from the respondent. The respondent replied that it could cover the applicant, even for employees required to travel and work interstate. One of the applicant's employees was killed while working in Queensland and the respondent advised the applicant that it was not covered under its workers compensation policy. The applicant was required to pay $41,463 to the Queensland Workers Compensation Board ("the Board") for compensation pad to the dependants of the deceased. The applicant then brought actions under sec. 52 and 53(g) of the Trade Practices Act 1974 ("the Act"), as well as common law actions, to recover damages from the respondent. The applicants alleged that the respondent had assured it that the workers compensation insurance issued would cover its employees during interstate commitments. The respondent contended that the applicant's employee in Queensland was permanently stationed there and that the applicant failed to inform it of this fact. There was argument as to whether the claims were statute-barred. Held" respondent was in breach of sec. 52 and 53(g) of the Act and was liable in damages. 1. The applicant's employee was not permanently situated in Queensland. As the respondent held itself out as an expert in matters of insurance, and actually gave advice in relation to the position in Queensland, the oral and written statements of the respondent amounted to misleading or deceptive conduct within the meaning of sec. 52. This would be the case even if the statements are correctly characterized as statements of law rather than statements of fact. 2. A contravention of sec. 53(g) was established. A false or misleading statement by an insurer as to the cover which a policy will proved constitutes a contravention of sec. 53(g). The statement is one concerning the existence of a right. (See Gates v. City Mutual Life Assurance Society Limited (1986) ATPR 40-666; (1985-1986) (60 C.L.R. 1). 3. Had the true position been known the applicant would have taken out further insurance to cover itself for employees interstate. The applicant had suffered damage and was entitled to damages under sec. 82 of the Act. The claim was not statute-barred as the applicant first Endnotes 1) 61 Fed. Reg. at 18603 n. 1 (quoting Kraft, Inc., 114 FTC 40, 122 (1991), affd, 970 F. 2d 311 (7th Cir. 1992), cert. denied, 507 U.S. 909 (1993)). The Commission has not set anumerical threshold for a "significant minority." Past cases, however, have found a deceptive practice based on misleading less than 20% of consumers. See. Elg., Firestone Tire & Rubber Co. V. F.T.C. 481 F. 2d 246 (6th Cir.), cert. Denied, 414 U.S. 246 (1973) (survey evidence demonstrated that 15.3 % of consumers were misled by advertising claim). The firestone court suggested that an advertisement would qualify as deceptive if it deceived even 10 % of consumers. Firestone, 481 F. 2d at 249. 2) All of the surveys presented at the workship indicate that consumers consider a "Made in U.S.A." label to be important when making purchasing decisions: "Made in U.S.A." Hand Tool Opinion Survey: 87.3 % of hand tool consumers rate Made in U.S.A. as important, and 66.3% rate it as very important. Question 3, at 12; Data Tables at 30 (hereinafter "Bourget Survey") (Feb. 1996). In fact, "Made in U.S.A." ranks equal to price in importance to hand tool consumers . Id. 1995 FTC Copy Test: 38.9% of participants indicated that "Made in U.S.A." is a very important consideration. Made in U.S.A. Study, Copy Test, Question 8, Detailed Tables (Nov./Dec. 1995.) Only 16.5% indicated it was not at all important. Id. IMRA Study: 84 % of consumers expressed a preference for U.S. made products over imports. Consumer Attitudes toward Product Sourcing, International Mass Retail Association and The Gallup Organization Study, at Fig. 1-1 (May 1994) (hereinafter "IMRA Survey"). 78% of the survey's participants stated that they sometimes or always try to determine a product's origin. Id. at Fig 1-4. Only 8 % of the survey's respondents stated that they never try to determine a product's country of origin compared to 34 % who always check for it. Id. Good Housekeeping Institute Report: 76.2% identified Made in the U.S.A. as very or somewhat important. "Clothing for the Way Women Live" at 26 (Mar. 1988). 3) The surveys that tested consumers' interpretation of "Made in U.S.A." were the 1995 FTC Copy Test, the 1995 FTC Attitude Survey, the Bourget Survey, and the 1991 FTC Survey. The New Balance Survey purported to test the meaning of "Made in U.S.A.," but the raw data for the survey was not provided, and the available summary of the result suggest that the participants may not have understood the complicated structure of the survey. In re Made in U.S.A., No. P 894219, Workshop Transcript at 55, 90 (Mar. 26-27, 1996) (hereinafter (Tr...") (Jerry Wind, Professor, the Wharton School). For these reasons, the Coalition cannot assess the results in sufficient detail to determine their legitimacy or to draw conclusions from the survey. 4) Bourget Survey, Question 7, at 15-16; Data Tables at 38. 5) Id. The second most common response was "don't know" at 11% Id., Data Tables at 39. 6) FTC Copy Test, Detailed Tables, Question 7a. 11.1% of these respondents stated that they "assumed" or hoped that the percentage was 100%. Id. These percentages reflect only those survey participants who were asked the percentage question based on their responses to other survey questions. The Copy Test summary cites a lower percentage that is calculated based on the total number of participants. That percentage is misleading because not everyone in the sample was asked the question. 7) 1991 FTC Survey at 19-20. 8) Id. at 25. 9) Id., Question 8, at 16: Data Tables at 40; Tr... at 113 (Albert Bourget, Bourget Research Group). 10) FTC Attitude Survey, Summary of Results, Table 2. 11) FTC Attitude Survey, Detailed Tables, see Question 1. These individuals stated that a "Made in U.S.A." label means that a product is better or will last a long time. 12) Id., Summary or Results, Table 2. 13) E.g., Tr.., at 80-81 (Professor Howard Beales); at 331 (Robin Lanier, International Mass Retail Association). 14) At the Workshop, the Commission staff whether any of the surveys asked consumers what it means to "make" a product. None of the surveys included such a question, and at least one of the surveyors stated that it is difficult or impossible to develop an appropriate question that survey participants would understand. Tr... At 148. 15) See supra notes 4-8 and accompanying text. 16) 61 Fed. Reg. at 18603. 17) The purpose of the marking statute is "to mark the goods [with the foreign country of origin] so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them." United States v. Friedlaender & Co., 27 C.C.P.A. 297, 302 (1940). 18) See In re Made in U.S.A., No. P894219 (Public Comments). 19) Tr... at 169-170 (Elaine Kolish, Associate Director, Division of Enforcement, Bureau of Consumer Protection), ("[i]n the context of a complaint allegation, there may have been an issue that many of these subtleties being discussed here were not really relevant to that complaint allegation, and so the Commission didn't have to make those decisions."). 20) See, e.g., 16 C.F.R. Ch 1(1-1-89 Ed.) (setting out Commission rulings). 21) See FTC Rules of Practice, 1.1-1.4; 16 D.F.R. 1.1-1.4 (establishing advisory opinion procedure); Topic Index of Health Care Antitrust Advisory Opinions By Commission and By Staff (Feb. 15, 1996). 22) See supra notes 9-14 and accompanying text. 23) Bourget Study, Findings at 5, Question 8, at 16; Data Tables at 40. 24) FTC Copy Test, Detailed Tables, Question 7a; 1991 FTC Survey at 19-20. 25) This approach is consistent with the recommendation of 21 state Attorneys General. See Comments of the Attorneys General of the States of Connecticut, California, Florida, Hawaii, Iowa, Kansas, Maryland, Michigan, Missouri, Nevada, New Hampshire, New York, Ohio, Rhode Island, Washington and West Virginia, at 10; comment of Attorney General of Pennsylvania; comment of Attorney General of North Carolina; Comment of Attorney General of Wisconsin; Comment of Attorney General of Tennessee; Comment of the Office of the Attorney General, State of Illinois. 26) The percentage of respondents who disagreed varied depending on whether the location of the final assembly of the finished product was the United States, a foreign country, or unspecified. 27) The FTC Copy Test indicates that 64% of consumers would be deceived by a 70% content standard. Detailed Tables, Question 7a. 28) See supra notes 4-8 and accompanying text. 29) Tradeline, IDD Information Services. 30) Transcript at 322-323 ("[T]here are administrative problems with trying to determine anything, origin or any claims-based preferences based upon a value content requirement. You have an accounting nightmare.) See id. at 342 (Jerry Cook, Sara Lee Knit Products, on behalf of the United States Apparel Industry Council); id., at 346 (Gail T. Cumins, Sharretts, Paley Carter & Blauvelt, on behalf of the American Association of Exporters and Importers); id at 353 (James P. Palmquist, Minnesota Mining and Manufacturing ("3M")). 31) 60 Fed. Reg. 46334, 46389-463. 32) See supra notes 26-28 and accompanying text. 33) See supra note 14. The FTC Attitude Survey included the following question: "When you see the phrase Made in U.S.A. on a product label, what do you think it means." The 1991 FTC Survey asked the question: "What do you think of when you see "Made in U.S.A." on a product," id., at Question 4a. The FTC Copy test and the Bourget Survey asked participants what does Made in U.S.A. mean. In each case, none of the participants responded with the phrase substantial transformation or with the concept of creating a new article of commerce with a different name, character, and use. 34) See supra notes 9-14 and accompanying text. 35) A recent Customs Service determination finalizing the NAFTA rules of origin reveals that the tariff shift approach would have similar results. For example, the final rules would recognize as U.S. origin pharmaceuticals with a much as 60% foreign content by weight. 61 Fed. Reg. 28931, 28943 (June 6, 1996). 36) Tr... at 221-222. 37) Tr.. at 376-377 (Lauren Howard, Footwear Industries of America); Tr.. at 405 (John Pilligrini, Footwear Distributors and Retailers of America); Tr.. at 381 (Michael R. Kershow, Bicycle Manufacturers Association of America.) 38) For example, before the International Trade Commission, golf club manufacturers argued that the case-by-case approach and the tariff shift approach produce different results for golf clubs. In Re Country Of Origin Marketing; Review of Laws. Regulations and Practices, Inv. No. 332-TA-366, Transcript of April 10, 1996 hearing. Combining a golf club head from Taiwan with U.S. origin shaft through U.S. processing and assembly would qualify as substantial transformation under the case-by-case approach. Combining a head from Mexico with the same U.S. shaft using the same procedures would not result in a tariff shift under the NAFTA rules. Id. at 275. As a result, the golf club head would have to be marked "Made in Mexico" when the finished club is sold to the ultimate purchaser. Id. 39) Comments of the General Services Administration. 40) "[W]e don't really know whether consumers value a made in Japan claim across the board. We do have data, lots of data, that shows that consumers value a "Made in U.S.A. claim, and your presence here substantiates that claim too." Tr.. at 283 (Elaine Kolish, Federal Trade Commission). 41) The Commission recognized this trend in its report on Consumer Protection in the New High - Tech, Global Marketplace. Globalization makes the issue of consumer deception regarding the origin of products more, not less, important. In addition, while the goal of harmonizing consumer protection standards is important, preventing consumer deception is not an unnecessary barrier that should be eliminated to facilitate globalization. 42) As noted in Appendix A, the Proposed Guidelines explicitly recognize all or virtually all U.S. made products as a distinct category from products that meet a lower standard. 43) FTC Copy Test, Summary of Results, Table 3, at 1; Tr.. at 44 (Keith Anderson, Economist, Bureau of Economics, Federal Trade Commission). 44) See Tr... at 287 (Elaine Kolish, Federal Trade Commission) ("I know there are some manufacturers who currently use qualified claims, 70 percent American made, and do it successfully, and touted that success on the record..."). See also Tr.. at 426 (Clark Rector, American Advertising Federation) ("I wouldn't discount the ability to use comparative claims, the ability to use more qualified claims. There are a lot of very talented advertising agencies out here who can help you come up with marketing plans to market the domestic content of those products."). SECTION A 1) There is a dispute within the hand tool industry as to whether the type of processing described in example two would effect a substantial transformation under Customs' case -by-case analysis. The processing clearly does not result in a tariff shift under the NAFTA rules of origin. SECTION B 1) A copy of the list of covered products, which predates the creation of tariff schedules, is included as exhibit 1. Canada requires origin marking of the product itself, if possible. 2) Regulations implementing the Act require that the label appear on the "principal display panel," defined with reference to the principal display surface to the product as packaged. This suggests the label must be placed on the smallest commercial unit of packaging. The regulations require that items (1) and (3) be in English and French; item (2) may be in either English or French. The regulations provide exemptions from item (3) for non-food products that are prepackaged and sold by count, in sets, or packaged at the retail premises. 3) A Guide to "Made in Canada" Labeling and Advertising, Industry Canada (April 1994). 4) The legal framework governing standards and labeling for products imported into Mexico includes: Ley Federal Sobre Metrologia Y Normalization (Metrology and Standardization Federal Law); Ley de Comercio Exterior (Foreign Trade Law); and Nueva Ley Aduanera (New Customs Law). To be binding under the Foreign Trade Law, a country of origin labeling requirement for a specific product must be published in the Diario Oficial de la Federacion with reference to the product's tariff classification. 5) For example, NOM - 024-SCFI-1994 requires country of origin labeling for electric, electronic, and electrodomestic products. NOM -015/2 -SCFI - 1994, imposes a similar requirement for imported toys. Diario Oficial de la federacion, Dec. 21, 1995. For goods from a NAFTA country, the country of origin may be in English, French and Spanish unless a similar country of origin labeling requirement also applies to goods from Mexico. NAFTA Annex 311.3. This provision does not affect the requirement that the remaining commercial information be in Spanish. 6) Diario Oficial de la Federacion, December 26, 1995 at 52-53. 7) NAFTA Annex 311(2) reserves member countries' right to require origin marking: "Each Party may require that a good of another Party. . .bear a country of origin marking, when imported into its territory, that indicates to the ultimate purchaser of that good the name of its country of origin." 8) These requirements are embodied in the Unfair Competition Prevention Law, Item 10, 1, Art. 2; the Fair Trade Commission Notification No. 34 entitled "Misleading representations Concerning Country of Origin of Goods" (hereinafter "Japan FTC notification No. 34"): and Article 71 of the Customs Law. English translocation of Japan FTC Notification No. 34 and Article 71 of the Customs Law are attached as exhibit 2. 9) The European Court of Justice determined that such measures are equivalent to quantitative restrictions and therefore prohibited in two cases: 113-80 Commission v. Ireland, 1981 ECR 1625; 207/83 Commission v. United Kingdom 1985 ECR 1201. 10) A copy of Australia's Commerce (Retail Descriptions) Act of 1905 is included as exhibit 3. 11) Included as exhibit 4 is a copy of an Australian case applying the prohibition against misleading or deceptive origin claims. Siddons Ptv. Ltd. v. The Stanley Works Ptv. Ltd., ATPR 41-044 (Fed. Ct. Austr. Aug. 9, 1990).