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The Federal Trade Commission And
Complying With The Made In USA Standard

June 27, 2008

Both the Federal Trade Commission (FTC) and U.S. Customs & Border Protection have responsibilities related to the use of country-of-origin claims.

The U.S. Customs Service regulates foreign-origin markings on imported products (e.g., "Made in China"), specifically, those markings required under section 304 of the Tariff Act (19 U.S.C. § 1304). These provisions require that unless exempt, all foreign origin products and their immediate containers be marked with the name of the foreign country of origin.

The FTC regulates claims of U.S. origin under its general authority to act against deceptive acts and practices*. The agency’s authority is derived from Section 5 of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. § 45, which prohibits "unfair or deceptive acts or practices."

The Federal Trade Commission (FTC) has issued guidance to the public (http://www.ftc.gov/bcp/conline/pubs/buspubs/madeusa.shtm) regarding the use of “Made-in-USA” claims, and statements with a similar connotation, in product labeling and marketing. The FTC is charged with preventing deception and unfairness in the marketplace, and has the power to bring law enforcement actions against false or misleading claims that a product is of U.S. origin.

As many of the products assembled, manufactured, or produced in the United States contain parts or materials that are of foreign origin, the FTC’s rules on the use of “Made-in-USA,” have a significant impact on how products are labeled and marketed here in the US.

Traditionally, the FTC has required that a product advertised as Made in USA be "all or virtually all" made in the U.S. After a comprehensive review of Made in USA and other U.S. origin claims in product advertising and labeling, the FTC announced in December 1997 that it would retain the "all or virtually all" standard. At that time, the FTC also issued an Enforcement Policy Statement on U.S. Origin Claims (http://www.ftc.gov/os/1997/12/epsmadeusa.htm) to provide guidance to marketers who want to make an unqualified Made in USA claim under the "all or virtually all" standard, and those who want to make a qualified Made in USA claim.

The FTC’s publication provides additional guidance about how to comply with the "all or virtually all" standard. It also offers general information about U.S. Customs’ requirement that all products of foreign origin imported into the U.S. be marked with the name of the country of origin.  A summary of this document follows.

The Standard for Unqualified “Made In USA” Claims

For a product to be labeled or marketed as Made in USA, or otherwise claimed to be of domestic origin without qualification or limitation, the product must be "all or virtually all" made in the U.S. (The term "United States," includes the 50 states, the District of Columbia, and the U.S. territories and possessions.)

What is the "all or virtually all" Standard?

"All or virtually all" means that all significant parts and processing that go into the product must be of U.S. origin. That is, the product should contain no — or negligible — foreign content.  The publication gives an example of knobs as “non-significant” parts that could be of foreign origin, and still not have the unqualified statement of origin be considered false.

Expressed & Implied Claims of U.S. Origin

A representation of US origin may be either expressed or implied. "Made in USA" and "Our products are American made" are examples of express U.S. origin claims.

Whether any particular symbol or phrase, including an American flag, conveys an implied U.S. origin claim will depend upon the circumstances in which the symbol or phrase is used. Ordinarily, however, the Commission will not consider a marketer's use of an American brand name, or trademark to be an implied U.S. origin claim. Similarly, the mere listing of a company's U.S. address on a package label in a non-prominent manner, such as would be required under the Fair Packaging and Labeling Act, to constitute a "Made in USA" claim.

What Substantiation is Required for a Made in USA Claim?

According to the FTC, when a manufacturer or marketer makes an unqualified claim that a product is Made in USA, it should have — and rely on — a "reasonable basis" to support the claim at the time it is made. This means a manufacturer or marketer needs competent and reliable evidence to back up the claim that its product is "all or virtually all"made in the U.S. These are typically bills of materials, assembly process documents, and vendor affidavits for purchased materials.

If given in good faith, manufacturers and marketers can rely on information from suppliers about the domestic content in the parts, components, and other elements they produce. Rather than assume that the input is 100 percent U.S.-made, however, the publication recommends that manufacturers and marketers ask the supplier for specific information about the percentage of U.S. content before they make a U.S. origin claim.

Making Qualified Claims of U.S. Content or Processes

The publication reviews the appropriateness of “qualified claims” (claims that describes the extent, amount or type of a product’s domestic content or processing; but indicate that the product isn’t entirely of domestic origin), and claims that a particular manufacturing or other process was performed in the U.S.

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. For the "assembly" claim to be valid, the product’s last "substantial transformation" also should have occurred in the U.S. The publication notes that a "screwdriver" assembly in the U.S. of foreign components into a final product doesn’t usually qualify for the "Assembled in USA" claim.

What is the U.S. Customs Service’s Jurisdiction
Over Country-of-Origin Claims?

The Tariff Act of 1930 gives U.S. Customs the authority to administer the legal requirement that imported goods be marked with their country of origin (for example,"Made in Japan"). 

Under the Customs laws, the failure to properly mark goods, and/ or their containers, with the origin of the article can result in the detention of goods until properly marked, as well as, the assessment of 10% marking penalties and the assessment of liquidated damages equal to the value of the merchandise.

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.

The Customs Service also regulates imported goods, which are subject to post-importation processing, so as to evaluate whether the subsequent processing substantially transforms the goods from a product of foreign origin. Under Customs’ rules, if the foreign article does not undergo a “substantial transformation” after importation, it must retain its original country-of-origin marking.

Customs makes country-of-origin determinations using the "substantial transformation" test on a case-by-case basis.** Typically, the origin of an article can be confirmed through a ruling request to Customs.

The FTC cautions that if a product is of foreign origin (that is, it has been substantially transformed abroad), manufacturers and marketers should make sure the imported goods also satisfy Customs’ markings statute and regulations that require such products to be marked with a foreign country of origin.

What is the Interaction between the FTC and Customs
Regarding Country-Of-Origin Claims?

Even if Customs determines that an imported product does not need a foreign country-of-origin mark, it is not necessarily permissible to claim that the product is Made in USA. The FTC considers additional factors in deciding whether a product can be advertised or labeled as Made in USA.

Manufacturers and marketers should check with Customs to see if they need to mark their products with the foreign country of origin. If they don’t, they should look at the FTC’s standard to check if they can properly make a whole or qualified Made in USA claim.

George R. Tuttle, III is an attorney with the Law Offices of George R. Tuttle in San Francisco. For more information on Customs’ Country-of-Origin marking requirements or the use of the “made-in-USA” statement on your products, contact George Tuttle, III at (415) 986-8780 or geo@tuttlelaw.com


* The FTC also has jurisdiction over foreign origin claims in packaging insofar as they go beyond the disclosures required by the Customs Service (e.g., claims that supplement a required foreign origin marking, so as to represent where additional processing or finishing of a product occurred). In addition, the Commission has jurisdiction over foreign-origin claims in advertising, which the U.S. Customs Service does not regulate.

** In some instances, Customs uses a "tariff shift" analysis, comparable to "substantial transformation," to determine a product’s country of origin.

 

 

The information in this article is general in nature, and is not intended to constitute legal advice or to create an attorney-client relationship with respect to any event or occurrence, and may not be considered as such.

Copyright 2008 by Tuttle Law Offices.

All rights reserved. Information has been obtained from sources believed to be reliable. However, because of the possibility of human or mechanical error by our offices or by others, we do not guarantee the accuracy, adequacy, or completeness of any information and are not responsible for any errors, omissions, or for the results obtained from the use of such information.

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