Federal Trade Commission Received Documents Jan. 16, 1995 B18354900047 BEFORE THE FEDERAL TRADE COMMISSION WASHINGTON, D.C. MADE IN USA POLICY COMMENT FTC FILE NO. P894219 COMMENTS ON BEHALF OF THE FEDERATION OF THE SWISS WATCH INDUSTRY The Federation of the Swiss Watch Industry (hereinafter the "Federation"), by its undersigned counsel, hereby submits these comments in response to the Federal Trade Commission's ("FTC") Request for Public Comment in Preparation for Public Workshop Regarding "Made in USA" Claims in Product Advertising and Labeling (60 Fed. Reg. 53922, October 18, 1995; 60 Fed. Reg. 65327, December 19, 1995). The Federation, which is headquartered in Bienne, Switzerland, is the Swiss watch industry's trade association. Currently, more than 90% of the Swiss watchmaking companies involved in all sectors of the industry are members of the Federation. Most of them do business in the United States. The Federation's principal activities involve legal, economic and commercial matters for the industry on a worldwide basis. The Swiss watch industry has had considerable experience dealing with the question of origin marking of products. As a result, the Federation can provide some perspective on the analogies between its experience and the issues surrounding "Made in USA" marking. Among other things, Switzerland's efforts to promote adequate disclosure to consumers of the origin of watches have in recent years involved refinements to the definition of "Swiss Made" watches. We are submitting these comments on behalf of the Federation in order to provide the FTC with the benefit of the Swiss experience on this subject. As far back as 1966, the Federation has submitted comments on questions involving origin marking to the FTC, and more recently has submitted comments on such questions to the U.S. Customs Service. The Federation submitted extensive comments on September 25, 1992 in response to the FTC's Request for Public Comments Concerning the Guides for the Jewelry Industry, the Guides for the Watch Industry and the Guides for the Metallic Watch Band Industry.1/ The Federation made many of the same points in a July 10, 1995 submission to the Customs Service in response to a Notice of Proposed Rulemaking regarding "Rules for -------------- -1/ In its September 1992 comments to the FTC, the Federation urged the FTC to revise Guide 10 so as to abandon reliance on the origin of a watch movement and its substantial and significant parts as the sole basis for determining country of origin. The Federation proposed instead that Guide 10 provide for an origin- marking category reserved for single-source finished watches, i.e., a watch (1) whose movement is assembled in one country with more than 50% of its parts manufactured in that same country and (2) whose casing and final inspection following assembly of the movement take place in that same country. The Federation submitted that single-source designations such as "Swiss" or "Swiss Made" should be reserved to such single-source watches. At the same time, the Federation suggested that "hybrid" watches (i.e., watches whose movement is manufactured in one country with subsequent processing taking place elsewhere) should be clearly marked to show the origin of their movements, with terms such as "Swiss Movement," "Movement Japan." -2- Determining the Country of origin of a Good for Purposes of Annex 311 of the North American Free Trade Agreement; Rules of Origin Applicable to Imported Merchandise." ****** As an overall matter, we urge the FTC to give consideration to means by which the U.S. government can establish a uniform approach for country of origin determination. At present, there are several sets of differing requirements. The Customs Service still generally utilizes the rule of "last substantial transformation" for determining country of origin. The NAFTA rules incorporate a "tariff line shift" methodology. Guide 10 of the FTC Watch Guides is also being reconsidered. ****** The Federation does not believe that an origin marking scheme with "qualified claims" based on some percentage of U.S. parts would be effective for Made in USA markings. The Federation's policy is "one product, one origin." In the case of a watch containing 80% U.S. parts, it is possible that the remaining 20% may include some of the most crucial parts of the watch. In other words, a percentage-of-parts marking would ignore the relative importance of different parts of the product. Additionally, such a percentage-of-parts marking scheme for "Made in USA" would ignore the importance of manufacturing steps that might be performed outside of the U.S. With the global sourcing of components becoming increasingly prevalent in many industries including the watch manufacturing industry, and with -3- the evolution that has taken place in the types of watches (power source and method of timekeeping), methods of manufacturing, protective and other important features (chronograph and water resistance), design features, and time and quality control, the party responsible for casing and control of the watch (including assembly, casing and final inspection) has an increasingly important responsibility for ensuring quality control of the various components and for making sure that the various components fit together and work together properly. These casing and control steps are much more important and bear a greater relationship to the "value" of a watch than in the past. Accordingly, if a watch were permitted to bear a "qualified" marking such as "80% US parts," this marking might significantly overstate the importance of the watch's U.S. content. ****** At the same time, the Federation agrees with the proposition that the FTC's current standard of "all or virtually all" U.S. parts and labor for an unqualified "Made in USA" marking is too stringent. The Federation proposes that the FTC consider adopting a "Made in USA" test similar to Switzerland's "Swiss Made" rule. Under the Swiss law, which was adopted by the Swiss Federal Council in 1992, unqualified designations such as "Swiss," "Swiss Made," and "Made in Switzerland" can only be used on Swiss watches. A watch is defined as Swiss only if it meets three cumulative requirements: (1) it must contain a Swiss movement, -4- (2) the movement must have been encased in Switzerland, and (3) the watch must have undergone final inspection by the manufacturer in Switzerland.2/ The Swiss statute provides that a movement is Swiss if at least 50% of the value of all of its components parts is of Swiss manufacture, and if the movement is assembled and inspected in Switzerland. The "Swiss Made" rule recognizes both the continued importance of the movement3/ and the new importance of casing and control to the quality of today's watch. Thus, a "Made in USA" rule that followed the approach of the Swiss statute, would provide that the "Made in USA" marking could only be used for a watch (1) with a U.S. movement (i.e., a movement assembled and inspected in the U.S. with more than 50% of its parts manufactured in the U.S.), (2) with the movement having been encased in the U.S., and (3) with the watch having undergone final inspection by the manufacturer in the U.S. ****** We note that, among other things, the FTC is seeking evidence of how consumers view Made in USA claims. The Federation has not recently studied this precise issue, but we --------------------- 2/ Watches that do not meet this standard, but which contain a bona fide Swiss movement, must be marked "Swiss Movement." 3/ In the Federation's view, no other component of the watch (as contrasted to manufacturing process) has as much importance as the movement. Neither the watch case nor the watch dial should be a substitute for the movement in such a test. Thus, a watch with a non-U.S. movement, a U.S.-manufactured case, and which is cased and finally inspected in the U.S., should not qualify for an unqualified Made in USA marking. -5- have carefully examined the question of how U.S. consumers view the country of origin of watches. Since the U.S. is the single largest national market for ultimate purchases of Swiss watches, this question is of considerable significance to the Federation. The Federation commissioned a poll by the Gallup Organization in 1992 of U.S. adults, the results of which were provided to the FTC in our September 1992 comments on the Watch Guides. Half of the adults surveyed by Gallup reported that the country in which a watch is manufactured is important to them when deciding to purchase a watch; more than a quarter of those polled actually described this as a "very important" factor. At the same time, the poll revealed that more than two-thirds of the adults surveyed reported that if they had a choice, they would prefer to have a watch manufactured in Switzerland, rather than in France, Hong Kong or Japan. (The U.S. was not included in the list of countries for the poll, since there is no significant watch manufacturing in this country.) The Gallup Poll also surveyed the respondents' confidence that an unqualified "Swiss" marking on a watch meant that the complete watch was manufactured in Switzerland. More than half (52%) of the adults surveyed were at least "somewhat confident" that a watch marked "Swiss" was completely manufactured in that country. The percentage was even higher (59%) among those who stated that they would prefer a watch manufactured in Switzerland. -6- These polling results confirmed that, at least with respect to watches, consumer buying preferences are certainly influenced by perceptions of quality associated with the manufacture in Switzerland of such products. If the U.S. consumer were to have similar favorable associations for U.S. manufacture of other products (as a function of perception of quality, national pride, economic self-interest, or the like), the results of the Federation's Gallup Poll support a correlation between such feelings and purchase decisions. The polling results also indicate that, at least with respect to watches, substantial numbers of consumers would believe that an unqualified country of origin marking on the watch meant that the product was completely manufactured in that country. ****** As noted above, the Federation's chief purpose in commenting at this time is to provide the benefit of our experience on these subjects. While the Federation does not have as direct an involvement in FTC rules on "Made in USA" marking as U.S. manufacturers might have, the Federation views "Made in USA" origin markings as very powerful in the U.S. and international marketplace. Consequently, the Federation has a strong interest in seeing that such markings are reserved for products that truly deserve them. The "Made in USA" rule should not be so liberal as to permit a watch to bear that marking even though it fails to meet a test for U.S. origin that would be similar to the "Swiss Made" rule. At the same time, an overly liberal "Made in USA" -7- rule might permit watches that should not be eligible for a "Swiss" marking to be sold in the U.S. as "Swiss" watches, thereby improperly capitalizing on the Swiss reputation for quality in watch manufacturing. The Federation is not requesting an opportunity to be a participant in the upcoming public workshop on "Made in USA" claims. Nevertheless, if the Commission or its staff feel that the Federation could provide any additional information or perspective on this subject, please do not hesitate to contact US. Respectfully submitted, Michael G. Kushnick Andrew R. Plump ZUCKERT, SCOUTT & RASENBERGER, L.L.P. 888 17th Street, N.W. #600 Washington, D.C. 20006 Attorneys for the Federation of the Swiss Watch Industry Jean-Daniel Pasche, Esq. Director Federation of the Swiss Watch Industry Rue d'Argent 6 CH-2501 Bienne, Switzerland January 16, 1996 -8-