May 17, 1997

This Toaster's an All-American (Import, That Is, Sort of)

 -- JOHN M. BRODER   

WASHINGTON -- For 50 years, "Made in the U.S.A." was supposed to mean just that: a product bearing such a label was assembled in the United States from U.S.-made parts.   The government gave manufacturers a little wiggle room in their patriotic-sounding claims -- a "small amount" of foreign content was permitted -- but the standard was strict, even if rarely enforced.   Today, however, America is just another boutique in the global bazaar, with millions of products sold here having both domestic and imported content. So what should "Made in the U.S.A." mean now?   

The Federal Trade Commission spent two years studying the issue and has decided it's time to loosen the standard in recognition of new international manufacturing realities. If draft regulations published this month are approved, a product can be labeled "Made in the U.S.A." if it is "substantially all" made here.   Fie! say many of those who urge consumers to "buy American" to save domestic jobs. They argue that under the proposed new rules manufacturers could more easily dupe the public into believing their products are true-blue American when they're not.   For, after all, what does the phrase "substantially all" mean?   The agency's new regulations -- written in language that only a lawyer could love -- include 16 pages of examples elaborating on when a "Made in the U.S.A." claim is permissible. The rules also suggest ways for manufacturers to qualify their claims.   How the rules can be effectively enforced is an open question. Some of the guidelines follow.

Here, "substantially all" made in the United States is defined as 75 percent of the overall cost of making a product:   A bicycle is assembled in the United States, and its frame is manufactured in the United States. Of the remaining parts of the bicycle (tires, derailleur, gear shift, etc.), some are manufactured in the United States and some are imported from foreign countries. Over all, U.S. costs constitute 75 percent of the total costs of manufacturing the product. In addition, under U.S. Customs Service rulings, the bicycle would be considered to have been last substantially transformed in the United States. It would likely not be deceptive for the bicycle to be labeled "Made in U.S.A."   But meeting the 75 percent standard won't suffice if a product's final assembly takes place in another country:   

A toaster is made from primarily U.S. parts and is assembled in Canada in a process that constitutes substantial transformation. U.S. costs account for 75 percent of the total costs of manufacturing the product. A claim that the toaster is "American-made" would likely be deceptive, as the last substantial transformation occurs outside the United States.   A company can avoid trouble if it qualifies claims of domestic manufacture by noting imported content:   A piece of luggage is produced in the United States from leather that was tanned and processed in Italy. U.S. manufacturing costs account for 50 percent of the total manufacturing costs of the luggage; the leather 40 percent, and miscellaneous imported parts 10 percent. A claim that the luggage was "Made in the U.S.A. of Italian leather" would likely not be deceptive.   Similarly, if a seller is specific about what is made in the United States, he can usually keep the regulators off his back.   

Computer software is designed and written in the United States and copied in the United States onto floppy disks that are manufactured in Japan. A package label that states "Software written in the United States" would likely not be deceptive.   A manufacturer can claim his product has more domestic content than a competitor's, even if is substantially made abroad:   In an advertisement for its stereo speakers, a manufacturer states that "We do more of our manufacturing in the United States than any other speaker manufacturer." The manufacturer assembles the speakers in the United States from U.S. and imported components. U.S. costs, from final assembly operations at the manufacturer's U.S. factory and from U.S.-made parts, are significant but constitute less than 75 percent of the total cost of manufacturing the speakers, and, therefore, the manufacturer cannot substantiate an unqualified U.S. origin claim. However, provided that the manufacturer can substantiate that the difference between the U.S. content of its speakers and that of the other manufacturers' speakers is significant, the comparative claim would likely not be deceptive.   

A clever lawyer or wordsmith can find a way to make a product sound as American as apple pie (well, almost):   A faucet is manufactured in the United States from a U.S.-made cartridge (which controls water flow) and other parts, all of which are foreign-made. The foreign parts account for sufficient cost that an unqualified U.S. origin claim could not be made for the faucet. The marketer of the faucet has a World Wide Web page on the Internet that advertises the faucet as "Made with our exclusive U.S.-made cartridges." The claim is likely not deceptive.   Packaging foreign-made components in an American plant does not justify a claim that the product is made here:   A cordless telephone is made up of a base unit, a handset and a power cord. Each of these inputs is last substantially transformed in the United States and is made from primarily foreign parts or materials. The final assembly of the inputs into a complete telephone, however, is not considered a substantial transformation by the U.S. Customs Service. Thus, two levels of substantial transformation do not take place in the United States, and an unqualified claim that the telephone is "American-made" would likely be deceptive.   But a little sanding and painting can be sufficient to justify a qualified "Made in the U.S.A." label.   

A fireplace poker is made from an iron forging that is imported from Canada and finished and painted in the United States. U.S. processing accounts for 40 percent of the total cost of manufacturing the poker. Assuming that the U.S. processing constitutes a substantial transformation and thus a foreign country of origin marking is not required under the Tariff Act, a label claim that the fireplace poker was "Made in the U.S.A. from imported forging" would likely not be deceptive. (Were a foreign origin marking required, a claim on the label such as "Made in Canada. Finished in U.S." would likely be appropriate.)   Still, sometimes a coat of paint just doesn't make U.S. grade:   A ceramic figurine is fabricated in Kenya and then painted and glazed in the United States. The figurine is packaged in a clear plastic box for sale. The Customs Service, pursuant to the Tariff Act, requires that the figurine be marked "Made in Kenya," and a label to this effect appears on the bottom of the figurine. Affixed to the top of the box is a large sticker that says "Painted in U.S.A." The statement on the sticker would likely not be permitted by the U.S. Customs Service because it fails to include in close proximity to the statement concerning U.S. origin the name of the country of origin preceded by "Made in" or a similar formulation as required by U.S. Customs regulations. A single statement that the figurine was "Made in Kenya, painted in the U.S." would likely be permitted by U.S. Customs and is unlikely to be deceptive under Section 5 of the FTC Act.