Federal Trade Commission Received Documents Jan. 19, 1996 B18354900061 January 16, 1995 Office of the Secretary Federal Trade Commission, Room 159 Sixth and Pennsylvania Avenues, N.W. Washington, D.C. 20580 RE: COMMENT IN RESPONSE TO REQUEST FOR PUBLIC COMMENT IN PREPARATION FOR PUBLIC WORKSHOP REGARDING "MADE IN USA" CLAIMS IN PRODUCT ADVERTISING AND LABELING To Whom It May Concern: I am writing this comment in response to the Federal Trade Commission's request for comment on the legal standard for "Made in USA" Claims, appearing in the FEDERAL REGISTER, Vol. 60, No. 201 at 53922 (Wednesday, October 18, 1995). These comments are made on behalf of the Jefferson Democratic Club of Flushing, in Queens, New York, of which I am President. I am an accountant with 15 years' experience in the garment industry, I am very familiar with the economics of the industry and the issues surrounding the use of the "Made in USA" label. During my term as President, the Jefferson Democratic Club has held extensive discussion on trade issues, especially the NAFTA and GATT treaties and so I also understand the wider economic context of the labeling question. I am the Club's expert on trade and American manufacturing issues. Finally, I am an American consumer who looks for the "Made in USA" label religiously and I feel strongly that the standard should not be diluted. Today, the "Made in USA" label is like the goose that laid the golden egg -- the label creates wealth because it sells product, pure and simple. A 1992 case study commissioned by the "Crafted with Pride" council found that prominently displaying the "Made in USA" label increases garment sales 23% (a copy of this study is enclosed). This, I believe, is the heart of the issue. People want to buy garments made in the USA and manufacturers -- whether they actually make their products in the USA or not -- know it and want access to the selling power of the label. However, playing a word game with the meaning of "Made in USA" will undercut -and ultimately destroy -- the commercial value of the label. If the Federal Trade Commission allows the dilution of the legal standard for "Made in USA" claims on a garment, it will kill the goose currently laying golden eggs for American consumers, manufacturers and workers. Section V of the Commission's request for comment seeks to elicit comment on consumer perceptions of the "Made in USA" label. When I read "Made in USA" on the label of a garment, I -- like most people -assume that the garment and the material the garment is made of are made entirely or almost entirely in the United States. This is simply the plain meaning of the words. Speaking to constituents, friends and co-workers about the Federal Trade Commission request for public comment on changing the meaning of "Made in USA," I discovered that most people are very surprised that the Federal Trade Commission would change the standard for legal use of the label "Made in USA" to guarantee anything other than the plain meaning of the words -- that the product so labeled is made entirely or almost entirely in the United States. The words "Made in the USA of imported materials" conveys the impression that the garment is assembled in the United States. When it comes to country of origin rules, I prefer to see exactly which country it is imported from. When I see the word "imported" by itself, without a country specified, I assume the worst and do not purchase the product. The garment label is the only reasonable means for a consumer to get good information about the product they are purchasing -- that is why the label is so valuable. People want to know accurately what is made in the USA and what is not. They do not want to feel that they are being sucked into some sort of slick advertizer's word game. In the complex world of garment manufacture, a consumer is almost completely dependent on labeling in making their choice of products and the content of the label and thus carries great weight and strongly influences consumer perception. Garment manufacture is complex and tracking how and where a product is made can be difficult. As an accountant I understand the garment manufacturing process quite well. But without that specialized training and years of experience in the industry, -- in other words, if I were an average consumer -- I would not. As an accountant, I can track production of a garment through the paper trail left by the bill paying process, as a consumer I am at the mercy of labels. However, most consumers don't have the time to acquire enough dependable information to know what is truly made in the USA and what is not. For example, in 1994, Egypt was a good source of high-quality cotton, which found its way into the American garment market. In 1995, however, the production tapered off and Egyptian cotton was much less prominent in the industry. Suppose a consumer wished to avoid buying clothing made with this cotton -- it would be highly unlikely that consumers could become experts on the complexity of the manufacturing process so as to be able to track the subtleties of the industry and how they affect the components of various garments. Greater prominence and frequency do lead consumers to believe there is a higher domestic content. After all, since most consumers do not have the time to acquire the information from other sources, they must depend on the label for their information. My own experience with New Balance shoes, mentioned in the request for comment, represents illustrates my point. I remember when New Balance began advertising that its product -- running shoes -- were made in the USA and further, that they were produced in the inner cities. These concepts are great. I was so excited that I told many people about the shoes and worked hard to find and purchase the shoes myself. I was an enthusiastic potential consumer until I had to go looking for these domestically-produced, economically-progressive shoes. To my deep disappointment, I found I had been tricked. The New Balance shoes I found were all made overseas. Had I been able to look at New Balance's accounts, I would have been able, as a highly-trained, experienced professional accountant, to trace the origin of the shoes and see through the company's advertising. Since I was not able to check the books, I had to rely on advertizing and labeling. Had I not examined the product very carefully, I would have purchased the shoes, believing that I was buying a domestically produced product. The importance of accurate information and consumer confidence in the source of information -- product labeling -- brings us to the costs and benefits of a change in the labeling standard from an "all or virtually all" standard to another, weaker standard. The cost of any lower threshold (be it 50% or 70% or some other standard) for legal use of "Made in USA" is first and foremost the loss of the very credibility which makes the label valuable. Any lower threshold would also damage the economy and deprive consumers of choice in the marketplace. The enclosed article shows foreign manufactures could made the 70% made in the USA with as little as 35% actually being made domestically, depending on the accounting methods employed. Lowering the standard for the legal use of "Made in USA" reduces the label to the level of the accounting tricks necessary to make the claim. Consumers would eventually realize this and the label would lose its force as a selling tool. It is important for those of us who look for the label that advertising means what it says -- that we can rely on a purchasing a product made in the USA when those words appear on the product or in an advertizing campaign. Moreover, a less stringent standard will entail a massive monitoring effort which will cost an enormous amount of money. The Federal Trade Commission will have to hire a team of accountants to help it try cases of deceptive use of the "Made in USA" label. In these days of government cutbacks, additional funds for auditors seem unlikely. In addition to increased costs to taxpayers, benefits to companies that make watered down claims that their products are made in the USA will be, short-lived. Consumers, quickly drawing the conclusion that "Made in USA" means little, would cease to pay any attention to the label when buying clothes. Domestic manufacturers would thus be deprived of an important selling tool in the competitive domestic garment market. Domestic manufacturers will then find the "Made in USA" label about as useful as expired patent rights -- the market will be flooded with cheap imitations. If consumers do not have a reliable way to find and purchase American garments, the American garment industry will likely lose out to low-cost foreign imports. If the domestic garment industry suffers, the country will suffer as well. The costs to the American consumer will come in the form of the loss of manufacturing jobs -- exactly the higher paying blue collar jobs which the economy can ill-afford to lose. Since American consumers and American job-holders are actually the same people, loss of good jobs will also result in a further loss of buying power in the domestic market. This will, in turn, lead to the all-too-familiar phenomenon of workers unable to afford to buy the products they make, directly contributing to weak demand in all sectors of the economy. Crafted with Pride has reported that every manufacturing job creates as many as 7 indirect jobs. Thus, the manufacturing jobs not only support jobs for blue collar workers, but also for people like myself -- accountants -- as well as computer programmers, lawyers, product designers and many others. Moreover, let's not forget that Federal employees' salaries are paid out of the tax dollars of these same American workers and consumers. Falling wages mean falling tax revenues and increased spending as more people apply for unemployment, food stamps and other benefits. This, in turn, means less money left for education, defense and trade law enforcement. Finally, changing the meaning of "Made in USA" has disturbing Orwellian overtones. If the label is changed to mean something other than its current -- and logical meaning, American consumers will lose their liberty to operate as rational consumers in the free market. For me, and millions of other Americans, buying American is an expression of our liberty as Americans -- a key reason that the accurate labeling on product origin is so important. The "Made in USA" label provides consumers the opportunity to look not only at price and quality of garments, but also at the other elements of value -- such as the opportunity to support the American economy and, by extension a political and social system of which we approve. I look for liberty when I purchase. As a consumer making choices in a free market, I look to trade only with countries whose citizens have the same right that I do. Most people, myself among them, would rather purchase a garment made in Canada, with its strong democratic tradition and commitment to human rights over a garment made in China, a country whose commitment to democracy and civil rights is suspect, to put it mildly. Therefore, if the Federal Trade Commission changes its ruling, to allow deceptive labeling of foreign-made products as made in the USA consumers will lose the right to determine what social, political and economic systems to support with their hard-earned dollars. Poor information will thus make us less free. The costs of changing to the standard of the U.S. Customs requirements, and the Buy American Act are accuracy and truth. It is important to understand the stated mission of the Federal Trade Commission is to protect consumers against deception. As I wrote earlier in these comments, a lesser standard can only come at the price of a loss of credibility which will directly translate into serious damage across a wide sector of the economy. The mission of the U.S. Customs is to enforce trade and tariff laws, and purpose of the Buy American Act is to determine how federal funds are to be spent -- they are not designed to provide information to consumers. Moreover, the U.S. Customs and Buy American Act depend on specialized information gathering determine how to meet its standard standards. Consumers should not be expected to marshall the same resources for information gathering as the Federal Government when at the store trying to decide which shirt to buy. In order not to be deceived, consumers must have accurate information easily available to them. In a garment, the best way to get that information to the consumer is to sew it into the label. Different labels for different garments will not impose significant costs on clothing manufacturers. In the apparel industry, the country of origin is known when the order is placed. The label -- particularly in private label garments -- is produced separately from the apparel. Even in cases were the garment is made overseas, the label is produced in the United States and placed in the garment in the final stage of production. Thus, garment manufacturers can place accurate information on the garment fairly easily. The process is identifiable, since the garment is made to order. The labels can be made to fit the order. The process is very simple and cost-effective. In the case of private labels, the goods are normally exclusively sold in the Untied States, therefore the labeling requirements would need to meet U.S. Customs labeling standards. There are a myriad of details which must be monitored if we abandon the "all or virtually all" standard. Determining where a manufacturing process takes place could be very difficult. It would no doubt involve complicated a formula, with many opportunities for "finessing" on the part of unscrupulous manufacturers and retailers. Simplicity is what is needed, if we keep the standard what it is today, enforcement will remain relatively easy. Enforcement of the Federal Trade Commission should be done on a case by case basis. It is important that each manufacturer have the opportunity to defend themselves in keeping with the traditions of American justice. However, the standard should be kept at the same "all or virtually all" standard in effect today. As consumers deserve that right of protection and taxpayers deserve the least costly type of protection. The globalization of America is based on -- and justified by -- several myths. One, our borders are no longer important. Two, we no longer need a manufacturing base, because we live in a service-based economy. Lastly, the countries that receive our factories will be able to import products made in the USA, thus creating jobs in the United States. Myth # 1: Our borders are no longer important. One only needs to look at our federal budget to see that this is just not the case. We spend over $ 250 billion dollars to defend our borders. In these times of Federal budget cuts, the defense department budget will be spared because of the perceived importance of maintaining our borders. Further, people who live in other countries do not bear the costs of our budget deficit, medical care, social security, safety standards, ecology, schools, etc. Life inside our borders is very different from life outside our borders. Myth # 2: We no longer need a manufacturing base, now that we live in a servicebased economy. The economists will argue that the United States' move to a service-based economy from a manufacturing-based economy is as logical as moving from the farmingbased economy to a manufacturing-based economy. There is one major flaw in this theory, however, we never stopped producing food. The manufacturing base supported the farming base by producing machinery to make farming more efficient, creating a "super farmer." In fact, the United States is still so efficient in farming that it is one of the very few trade categories in which we still have a trade surplus. One needs only to visit any supermarket to see for themselves, how efficient and vital our farming base is to the United States. The same success can happen in the manufacturing sector if we allow American manufacturers to compete using a "Made in USA" label which has credibility and selling power with American consumers. Myth # 3: Countries that take our factories will be able to import products made in the United States, thus creating jobs in the United States. The results of the NAFTA speaks for themselves. In 1993, prior to the NAFTA, we had a trade surplus. In 1995, two years after the NAFTA, we have a trade deficit. Further, in the Caribbean basin nations, a favorite area of relocation of the American apparel companies, unemployment is running close to 50%. The current wages in these countries is seventy-five cents an hour. At 75 cents an hour, there is little opportunity for a worker to a new, $ 10,000 American car. With 50% unemployment there is very little hope of wages raising to allow large numbers of consumers to afford American products. America is liberty-driven, this is what drives us to succeed, the pursuit of liberty. With liberty come the natural advantages of capitalism. Liberty brings capitalism, but capitalism does not bring liberty, capitalism simply enforces the system of ownership in place. The Chinese government is reaping large advantages by our purchases of Chinesemade goods. They are continuing the testing of nuclear weapons. (June 10, 1994) They got President Clinton to discontinue the link between Most Favored Nation trading status and human rights. (June 6, 1994). The more we purchase goods in China, the more influence China will have in the world. More recently, the New York Times has been reporting abuses in the Chinese-run orphanages, where babies that are not suitable for foreign adoption are starved and die of malnutrition. Perhaps the American government can turn a blind eye to these activities. I as an American want to use my liberty to do what I can to stop them. Please let me know accurately and truthfully where products are produced. Sincerely, Edward O'Brien 300 Lake Ave. Black Rock, Ct. 06605