The Federal Trade Commission is charged with preventing deception and unfairness in the marketplace. The FTC Act gives the FTC the power to initiate investigations and law enforcement actions against false or misleading claims that a product is of U.S. origin.
With increasing regularity, the FTC has aggressively pursued U.S. origin (“Made in USA”) claims. Marketers and manufacturers that promote their products as Made in USA must meet the “all or virtually all” standard.
Generally speaking, the FTC will find an advertisement or label deceptive under Section 5 of the FTC Act, and therefore unlawful, if it contains a representation or omission of fact that is likely to mislead consumers acting reasonably under the circumstances, and that representation or omission is material. Objective claims carry with them the implication that they are supported by valid evidence. It is therefore deceptive to make a claim unless, at the time the claim is made, the marketer possesses and relies upon a reasonable basis substantiating the claim. Thus, a “Made in USA” claim, like any other objective advertising claim, must be truthful and substantiated.
Made in USA Law
In order to advertise a product as Made in USA, it must be “all or virtually all” made in the United States. Consult with an experienced Made in USA – U.S. origin claims attorney to discuss regulatory guidance regarding unqualified Made in USA claim under the “all or virtually all” standard and qualified Made in USA claims.
The Made in USA enforcement policy applies to U.S. origin claims that appear on products and labeling, advertising and other promotional materials. It also applies to all other forms of marketing, including marketing through digital or electronic mechanisms, such as Internet or email.
U.S. origin claims can be express (“Made in USA” or “Our products are American made”) or implied. When identifying implied claims, the FTC considers the overall next impression of the advertising, label or promotional material (e.g., U.S. symbols or geographic references). The Commission is also keenly sensitive to overbroad representations about entire product lines.
Example: A company promotes its product in an advertisement that describes the “true American quality” of the work produced at the company’s American factory. Although there is no express representation that the company’s product is made in the U.S., the overall — or net — impression the advertisement is likely to convey to consumers is that the product is of U.S. origin.
The FTC’s U.S. origin claims policy applies to all products advertised or sold in the U.S., except for those specifically subject to country-of-origin labeling by other laws. Other countries may have their own country-of-origin marking requirements. Exporters should determine whether the country to which they are exporting imposes such requirements.
Other than automobiles and textile, wool and fur products, there is no law that requires most other products sold in the U.S. to be marked and labeled “Made in USA” or have any other disclosure about their amount of U.S. content. However, manufacturers and marketers that choose to make claims about the amount of U.S. content in their products are required to comply with the FTC’s Made in USA policy.
Unqualified Made in USA Claims
Unqualified Made in USA claims must meet the “all or virtually all” made in the U.S. standard. “All or virtually all” means that all significant parts and processing that go into the product must be of U.S. origin. The product should contain no, or only negligible, foreign content. Manufacturers and marketers much possess a “reasonable basis” to substantiate claims that a product is “all or virtually all” made in the U.S.
Consumer perception evidence available to the FTC indicates that the country in which a product is put together or completed is highly significant to consumers in evaluating where the product is “made.” Regardless of the extent of a product’s other U.S. parts or processing, in order to be considered “all or virtually all” made in the United States, it is a prerequisite that the product have been last “substantially transformed” in the United States, as that term is used by the U.S. Customs Service — i.e., the product should not be required to be marked “made in [foreign country].”
Even where a product is last substantially transformed in the United States, if the product is thereafter assembled or processed (beyond de minimis finishing processes) outside the United States, the FTC is unlikely to consider that product to be “all or virtually all” made in the United States.
The product’s final assembly or processing must take place in the United States. The FTC then considers a number of factors when determining whether a product is “all or virtually all” made in the U.S.
For example and without limitation:
- How much of the product’s total manufacturing costs can be assigned to U.S. parts and processing;
- How far removed any foreign content is from the finished product;
- Where the major components are produced;
- Whether imported parts make-up a negligible portion of the product’s total manufacturing costs; and
- Whether imported parts are insignificant parts of the final product.
FTC guidance suggests that manufacturers and marketers should consider the cost of goods sold or inventory costs of finished goods when analyzing the percentage of domestic content in a particular product. Such costs generally are limited to the total cost of all manufacturing materials, direct manufacturing labor, and manufacturing overhead.
Manufacturers and marketers should be cautious when relying upon information from American suppliers about the amount of domestic content in the parts, components and other elements they buy and use for their final products. A safe approach is to request and obtain specific information about the percentages of U.S. content from suppliers prior to making U.S. origin claims.
When assessing the percentage of U.S. content, manufacturers and marketers should also be sure to look back far enough in the manufacturing process to be reasonably sure that any significant foreign content has been included in their assessment of foreign costs. Foreign content incorporated early in the manufacturing process is often less significant than content that is a direct part of the finished product or the parts or components produced by the immediate supplier.
Raw materials may be included in the evaluation of whether a product is “all or virtually all” made in the U.S., depending upon how much of the product’s cost the raw materials make up and how far removed from the finished product they are.
Qualified U.S. Origin Claims
A qualified Made in USA claim describes the extent, amount or type of a product’s domestic content or processing. It indicates that the product is not entirely of domestic origin.
Example: “75% U.S. content.” “Made in USA of U.S. and imported parts.” “Sofa assembled in USA from Italian Leather and Mexican Frame.”
A qualified Made in USA claim may be appropriate for products that include U.S. content or processing but otherwise fail to satisfy the criteria for making an unqualified Made in USA claim. Qualified claims should be avoided unless the product has a significant amount of U.S. content or U.S. processing.
Both qualified Made in USA claims and unqualified U.S. origin claims must be truthful and substantiated. Claims that a particular manufacturing or other process was performed in the U.S. or that a particular part was manufactured in the U.S. must also be truthful, substantiated and clearly refer to the specific process or part, not to the general manufacture of the product, to avoid implying more U.S. content than exists. An FTC advertising compliance lawyer can assist manufactures and marketers to ensure that qualified claims do not imply more domestic content than exists.
The FTC also warns about using general terms, such as “produced,” “created” or “manufactured” in the U.S. because terms such as these are unlikely to convey a message limited to a particular process. Additional qualification may be necessary to describe a product that is not “all or virtually all” made in the U.S.
Additionally, if a product is of foreign origin – substantially transformed abroad – the FTC advises that manufacturers and marketers ensure they satisfy Customs’ markings statute and regulations that require such products to be marked with a foreign country of origin. Customs requires the foreign country of origin to be preceded by “Made in,” “Product of,” or words of similar meaning when any city or location that is not the country of origin appears on the product.
Assembled in USA Claims
A product that includes foreign components may be called “Assembled in USA” without qualification when its principal assembly takes place in the U.S. and the assembly is substantial. The product’s last “substantial transformation” also must have occurred in the United States. An experienced FTC defense attorney should be consulted when assessing the viability of making such representations.
U.S. Customs Service Jurisdiction
The FTC possesses jurisdiction over foreign origin claims on products and in packaging that are beyond the disclosures required by Customs. The FTC also has jurisdiction over foreign origin claims in advertising and other promotional materials. Unqualified U.S. origin claims in ads or other promotional materials for products that Customs requires a foreign country-of-origin mark may mislead or confuse consumers about the product’s origin. To avoid misleading consumers, marketers should clearly disclose the foreign manufacture of a product.
The Tariff Act gives Customs and the Secretary of the Treasury the power to administer the requirement that imported goods be marked with a foreign country of origin (e.g., “Made in Japan”). When an imported product incorporates materials and/or processing from more than one country, Customs considers the country of origin to be the last country in which a “substantial transformation” took place.
Customs defines “substantial transformation” as a manufacturing process that results in a new and different product with a new name, character, and use that is different from that which existed before the change. Customs makes country-of-origin determinations using the “substantial transformation” test on a case-by-case basis.
Even if Customs determines that an imported product does not need a foreign country-of-origin mark, it is not necessarily permissible to promote that product as Made in USA. The FTC considers additional factors to decide whether a product can be advertised or labeled as Made in USA.
Manufacturers and marketers should always check with Customs to determine whether they need to mark their products with the foreign country of origin. And of course, they should always refer to applicable FTC standards with respect to whether Made in USA claims can be properly made.
Other Federal Statutes
The Textile Products Identification Act and Wool Products Labeling Act require a Made in USA label on most clothing and other textile or wool household products if the final product is manufactured in the U.S. of fabric that is manufactured in the U.S., regardless of where materials earlier in the manufacturing process came from. Textile products that are imported must be labeled as required by the Customs Service. A textile or wool product partially manufactured in the U.S. and partially manufactured in another country must be labeled to show both foreign and domestic processing.
On a garment with a neck, the country of origin must be disclosed on the front of a label attached to the inside center of the neck — either midway between the shoulder seams or very near another label attached to the inside center of the neck. On a garment without a neck, and on other kinds of textile products, the country of origin must appear on a conspicuous and readily accessible label on the inside or outside of the product. Catalogs and other mail order promotional materials for textile and wool products, including those disseminated on the Internet, must disclose whether a product is made in the U.S., imported or both.
The Fur Products Labeling Act requires the country of origin of imported furs to be disclosed on all labels and in all advertising.
The American Automobile Labeling Act requires that each automobile manufactured on or after October 1, 1994, for sale in the U.S. bear a label disclosing where the car was assembled, the percentage of equipment that originated in the U.S. and Canada, and the country of origin of the engine and transmission.
Corrective Action Plans
While the FTC actively policies deceptive U.S. origin claims, the Division of Enforcement – Bureau of Consumer Protection often is often willing to work with manufactures and marketers in good faith to design and implement corrective action plans that address deceptive claims. Corrective actions plans often involve, notifying third-party distributors, updating websites and catalogues, revising contracts, placing stickers with appropriately qualified advertising claims over unqualified claims, placing stickers or advertising claims contained on the products themselves, ordering new packaging and implementing reasonable safeguards designed to minimize the chances of reoccurrence.