Federal Trade Commission Received Documents Jan 22 1996 B18354900100 Secretary Federal Trade Commission Made in USA Policy Comment FTC File No. P894219 Comments of the American Advertising Federation The American Advertising Federation submits these comments in response to the Federal Trade Commission's request for public comment on the use of "Made in USA" claims in product advertising and labeling. The American Advertising Federation is the only national organization which represents all facets of the advertising industry including national advertisers, advertising agencies and the media. The AAF represents the local advertising industry including small and medium size advertising businesses totaling over 50,000 members across the country. Summary In today's manufacturing environment, it is not inconceivable that a single product may be assembled in one country, with components from a second country, by a company based in a third country. In fact, this scenario is likely to underestimate the complexity of the process. Components may come from multiple countries. Assembly also may be done in stages, at different locations crossing one or more international borders. In such a world, simplistic "Made in USA" claims are virtually meaningless. AAF recommends that the Commission avoid establishing a bright line definition of "Made in USA" and instead adopt an approach based on the Commissions Guides for Environmental Advertising. Under this system many different "Made in USA" claims could be made provided they are specific and adequately substantiated. Unqualified "Made in USA" Claims are Virtually Meaningless As the Commission's request for public comment makes dramatically clear, the issues surrounding whether a product should be able to be labeled or advertised as "Made in USA" are exceedingly complex. In fact, so many variables exist that simplistically claiming a product is "Made in USA" has little or no meaning to consumers. Yet many consumers are still looking for guidance in order to buy American. The difficulty for the Commission is reconciling the fact that "Made in USA" can have many legitimate, and in some cases contradictory, meanings for consumers who want to buy American. Compelling arguments can be made that under each of the following scenarios, the product in question is "Made in USA:" A product is assembled in the USA from raw materials and component parts originating in the USA. A product is assembled outside the USA from raw materials and component parts originating in the USA. A product is assembled in the USA from raw materials and component parts originating outside the USA. Adding to the difficulty is the fact that more complex products may be assembled in stages, in different countries with components from multiple countries of origin. We believe that most consumers are sophisticated enough about modern business and manufacturing processes to understand this complexity. They are, therefore, likely to view an unqualified "Made in USA" claim with some skepticism, diminishing the value of the claim for all manufacturers. Strict "Made in USA" Definitions May Penalize Both Consumers and Manufacturers The Commission should avoid strict definitions of thresholds to be met to pass a "Made in USA" test. Such thresholds are likely to penalize many businesses and deprive consumers of valuable information. Consider, for example, what would happen if the Commission sets a threshold limit of 75% domestic components and raw materials before a product can be advertised "Made in USA." Any product whose domestic components and raw materials equal only 70% would be prohibited from "Made in USA" claims. consumers, in turn, would not receive the valuable information that these products have substantial domestic content. There certainly seems to be no useful distinction between products 70% and 75% American made. It is not inconceivable that using a bright line definition some manufacturers could be barred completely from "Made in USA" claims for the foreseeable future. For many specialized and/or high tech products, there are limited sources of supplies and materials. If these components are a principal ingredient of the product, a manufacturer may not be able to meet a threshold percentage despite all best efforts. Of course, the issue is even further complicated by inconsistent "Made in USA" standards adopted by other government entities such as the U.S. Customs Service, which requires that for purposes of tariffs and quotas one country be designated country of origin. A foreign country must be named unless the item is "substantially transformed" in the United States. Due to the complexity of the modern manufacturing process discussed earlier, we believe that the Customs Service standard is unworkable for the purposes of "Made in USA" claims and should not be used. Of course in any discussion of regulating commercial speech, one must be mindful of the First Amendment protection for commercial speech. Under the Central Hudson test the government may only regulate truthful commercial speech if it can show the regulation is narrowly tailored and directly advances a compelling governmental interest. Advertising guides are based on established FTC law and ad substantiation doctrine. We believe they pass the Central Hudson test, and are proof that the test can work. Insuring consumers receive accurate information about the products they buy is certainly a compelling governmental interest. By requiring disclosures sufficient to provide complete information, but not mandating specific language or limiting claims to a pre-approved few, the guides remain narrowly tailored. The Commission Should Allow Qualified and Substantiated "Made in USA" Claims We believe that the best way to reconcile all of these difficulties is to adopt a flexible standard whereby a manufacturer has the ability to make specific, qualified and substantiated claims about a product. This approach would further competition based on American content of products, as well as increase consumer knowledge by allowing more qualitative information into the marketplace. A similar approach has been used with success in the area of environmental claims in advertising. Here, the FTC's Guides for the Use of Environmental Marketing Claims have provided valuable direction to companies wishing to market the environmental attributes of their products. As is being suggested here, the Guides are based on allowing advertisers to make specific, qualified and substantiated claims. In October of 1995, AAF submitted comments to the Commission stating that, in our view, the Environmental Guides have so far been a great success. We believe that a similar approach will be successful for "Made in USA" claims as well. Conclusion For the benefit of manufacturers and consumers alike, the AAF urges to adopt a flexible standard for "Made in USA" claims in product advertising and labeling.