Federal Trade Commission Received Documents P894219 Feb 13 1996 B18354900133 Secretary BEFORE THE U.S. FEDERAL TRADE COMMISSION ____________________ MADE IN THE USA POLICY FTC FILE NO. P894219 REQUEST FOR COMMENTS AND INFORMATION _____________________ COMMENTS OF WRITING INSTRUMENT MANUFACTURERS ASSOCIATION, INC. ____________________ David H. Baker Ronald A. Oleynik HOLLAND & KNIGHT 2100 Pennsylvania Avenue, N.W. Suite 400 Washington, D.C. 20037-3202 (202) 457-5925 Attorneys for Commentor Dated: February 13, 1996 BEFORE THE U.S. FEDERAL TRADE COMMISSION ____________________ MADE IN THE USA POLICY FTC FILE NO. P894219 _____________________ COMMENTS OF WRITING INSTRUMENT MANUFACTURERS ASSOCIATION, INC. ____________________ I. INTRODUCTION On behalf of the Writing Instrument Manufacturers Association, Inc., we hereby file comments regarding the FTC's Made in the USA policy. These comments are filed pursuant to the Commission's October 18, 1995 Federal Register notice, 60 Fed. Reg. 53922. II. IDENTIFICATION OF COMMENTOR The Writing Instrument Manufacturers Association ("WIMA") is one of the oldest consumer product associations in the country. WIMA has approximately 100 members, including approximately 30 manufacturers of pens and pencils. WIMA's members are responsible for the vast majority of pens and pencils manufactured in this country. III. POSITION OF COMMENTOR While WIMA is mindful of past FTC rulings regarding Made in the USA advertising claims, the increased globalization of production and the reduced availability of U.S. production inputs provides an opportunity for U.S. industry, consumers and the FTC to reconsider the "all or virtually all" standard employed by the FTC in the past. WIMA applauds the FTC's current action to establish a clear, precise definition of Made in the USA. The term should have an understandable meaning to the buying public and should establish a standard that can be effectively administered by the FTC. With these constraints in mind, WIMA proposes that the substantial transformation test of the U.S. Customs Service be used as the definition of Made in the USA. The substantial transformation test provides a bright line rule that importers and producers are already complying with for purposes of the import laws. FTC employment of this standard will have the benefit of reducing the number and complexity of requirements for U.S. manufacturers, while maintaining a definition that will be easily understood and recognized by the buying public. As noted in the Federal Register notice, the courts have stated that substantial transformation occurs when "as a result of processes performed in that country a new article emerges with a new name, use or identity." Belcrest Linens v. U.S., 741 F.2d 1368, 1371 (Fed. Cir. 1984) (Emphasis added). This definition of substantial transformation is directly applicable to a product which is made in the USA. Such a definition fits with general consumer perception that an article is made in the place where it takes on its final identity or is transformed into a new item. If a U.S. producer wants to advertise that all of the components of its product are also manufactured in the United States, then that producer should be allowed to state that the product is "Made in the USA from domestic components." This additional advertising claim should satisfy any U.S. manufacturer who believes that use of a substantial transformation standard would diminish the benefit that is currently associated with the Made in the USA label. An important benefit of adopting the substantial transformation standard is that the FTC would not have to administer a complex formula for determining the value content of each component, nor would the FTC or U.S. industry have to address certain complex issues discussed in the Federal Register notice, such as the issues of the "one or two steps back" determination of component source or whether to include profit in the final value. These issues have a level of complexity which makes formulating and administering the standard more burdensome than necessary. If a standard other than substantial transformation is adopted, questions will continually arise regarding accounting, valuation and profit methodology, including the efficacy of a policy of including the profits of a U.S. subsidiary of a foreign corporation in the calculation of a product labeled Made in the USA. Writing instruments are fairly uncomplicated manufactured products, yet they still entail a number of steps and the possibility for various sourcing channels. Through its ruling letter process, the Customs Service has held on a number of occasions what does and does not constitute substantial transformation for writing instruments. These rulings already guide the writing instruments industry for purposes of the Customs law and could easily be adopted for FTC marking requirements. Some inputs into the process of manufacturing a finished product are not available in the United States. Given sourcing constraints, and the increasing globalization of production, a Made in the USA standard set at "all or virtually all" manufacturing and components of U.S. origin is unusable by all but a few industries. Set at that high a threshold, Made in the USA becomes all but a prohibited term. Because the term Made in the USA has developed a certain amount of good will in the mind of the consuming public, relegating the term to prohibited status for all but a few, or perhaps no products, removes the term from any use in advertising. None of the alternative or qualifying terms provide a useful alternative. The term assembled in the USA does not carry the same connotation as Made in the USA, and therefore, is a poor substitute. "Assembled" does not convey any concept of manufacture or value added, but does convey a presumption of high or exclusive foreign content. The Customs Service has addressed the issue of the meaning of "assembled," and has found that "assembly operations which are minimal or simple, as opposed to complex or meaningful, will generally not result in a substantial transformation." Customs HQ Ruling 558875 citing C.S.D. 85-25. Qualified claims which include the percentage of U.S. origin have several drawbacks. A requirement of listing content percentages would require complex accounting rules for determining content valuation and expensive enforcement procedures for the FTC to maintain control of such rules. Additionally, qualifying language lessens the advertising impact of a Made in the USA claim. Likewise, as opposed to the expanding language proposed above for products Made in the USA from domestic components, a statement qualifying the percentage of components made in the USA would only tend to lessen the advertising impact of the Made in the USA label. WIMA believes that setting the domestic content requirement at any specific numerical threshold, whether it is 50 percent or any other value, also would introduce an additional accounting regime and its associated problems. The rule would continue to remain separate and different from the Customs regulations that must be followed, and would require a complex set of calculations that must be computed by U.S. industry and constantly be examined on a case-by-case basis by the FTC. For simplicity and efficiency, substantial transformation provides a reasonable, rational standard that has the benefits of already functioning and of not adding to the regulatory burden of U.S. companies. IV. CONCLUSION For the foregoing reasons, the Writing Instrument Manufacturers Association endorses substantial transformation as the standard for Made in the USA marking requirements. Thank you for your time and consideration in this matter. Respectfully submitted, David H. Baker Ronald A. Oleynik Attorneys for Commentor Dated: February 13, 1996 WAS-145900 Footnote: [1] Additionally, the Customs Service discussion of assembled in the USA versus Made in the USA should allay any fears that use of the Made in the USA standard will so dilute the term as to allow simple finishing operations to be labeled as Made in the USA.