Embracing U.S. Made

Source: American Shipper     Date Posted: 5/31/2011 9:07:24 AM

Embracing U.S. Made

Companies find sales edge proving 100% U.S. content in products.

By Chris Gillis
Looking to set itself apart from the large distillers, Austin, Texas-based Fifth Generation wanted U.S. consumers to know that its Tito’s Handmade Vodka is made in this country and not somewhere halfway around the world.

However, with outsourcing and increasingly globalized supply chains, companies like Fifth Generation have a more difficult time these days proving their products are truly all-American and worthy of the “Made in the USA” label, without running the risk of violating origin and consumer protection laws.

Fifth Generation approached Made in USA Certified, a third-party verification firm, to certify that its vodka is entirely U.S.-made. “It’s a tight process and unless you’re truly made in the USA, you won’t pass,” said Nicole Portwood, Tito’s Handmade Vodka brand manager.

The company, which produces about 500,000 cases of vodka annually and sells across all 50 states, demonstrated that its ingredients, in addition to its packaging, bottles and caps, are supplied from U.S. producers. “It’s our job to conduct a full supply chain audit,” said Julie Reiser, president of Boca Raton, Fla.-based Made in USA Certified.

Reiser and her husband Adam started the business in 2008 after four years of publishing a magazine dedicated to coverage of American companies. “We heard over and over from our writers and advertisers that outsourcing was taking its toll on these businesses,” she said.

Reiser also experienced outsourcing first hand having spent most of the 1990s working in New York’s garment industry. “Outsourcing hit this industry hard and it’s now only a shadow of what it once was,” she said.

But what disgusted her most about this trend was that not only were the remaining U.S. companies competing against Chinese and other overseas manufacturers, but some sellers of these foreign-made products were blatantly marking them as “Made in the USA.”

“If they can copy a Louis Vuitton bag, then it’s just as easy to stamp a U.S. flag on it,” Reiser said.

The Federal Trade Commission is the primary enforcement agency for “Made in the USA” product labeling, advertising and marketing claims. Guidelines from the FTC require that for a product to be marked “Made in the USA” it must be “all or virtually all” made in the United States.

“There definitely are companies getting ‘Made in the USA’ wrong, easily out of ignorance if not malice,” said Don Luther, a former U.S. Customs officer and owner of 19CFR Trade Consulting.

“If ‘Made in the USA’ labeling is used, then special care should be taken to obtain documentation on the origin of components and materials used,” Luther said. “The analysis is somewhat similar to that used in NAFTA qualifications, where the origin and sourcing of components and materials are also critical.”

San Francisco-based trade attorney George Tuttle III noted many companies think if a lot of the parts come from U.S. suppliers and the product is assembled in the United States then it is a U.S. product.
“While it is true that it may no longer need to be marked with the country of origin of the foreign components, you may not use the unqualified ‘made-in-USA’ mark,” he said.

“Most of the companies that I deal with are generally confused over the standard or misapply the standard,” Tuttle said. “I also know that there are a fair number of companies that dislike the FTC’s ‘all or virtually all’ standard for components and would like to see a more relaxed rule. The FTC last evaluated this back in 1997.”

Since the FTC has a diverse mission, including telemarketing, identity theft, antitrust, sweepstakes and deceptive marketing claims, and a small enforcement department, the risk of getting caught may appear minimal to the violator. Yet, consumers and competing firms can cause FTC actions or can sue a violating company directly.

“With pressure from customers, retailers, or contractual obligations, as well as the possibility of FTC action or litigation, the careless use of ‘Made in the USA’ carries the risks of monetary penalties, lawsuits, and negative publicity,” Luther said.

“I think that it is a lot like trying to enforce a speed limit,” Tuttle said. “There are never enough policemen or there are too many roads to patrol. However, I think that they are very effective in correcting problems once the problem is identified.”

There have been a handful of “Made in the USA” cases brought before the FTC since the late 1990s.

In 2009, Enhanced Vision Systems, a maker of computer and television screen magnifiers, was found in violation of the FTC’s “Made in the USA” guidelines in that its products contained a significant portion of foreign components. The FTC said it will continue to monitor Enhanced Vision’s compliance.

The FTC has rarely imposed financial penalties. Many cases are generally resolved with a cease-and-desist letter, if the company has made a mistake in its labeling.

However, in June 2006, Stanley Works, a U.S. toolmaker, agreed to pay a $205,000 civil penalty to settle FTC charges it falsely claimed its Zero Degree ratchets were “Made in the USA.” The claims allegedly violated a 1999 FTC order issued against the company to resolve earlier allegations that it had made similar false claims. The 1999 order prohibits Stanley from, among other things, misrepresenting the extent to which any professional grade hand tools, including wrenches, ratchets, sockets and chisels, are made in the United States.

A Jan. 27, 2011 California court decision (Kwikset Corp. vs. Superior Court of Orange County, Case No. S171845) held that a plaintiff has standing to sue under the state’s Unfair Competition Law. “This new ruling may have broad implications,” warned law firm Akin Gump, in its Feb. 17 FTC and Unfair Trade Practices Alert.

“The logic in Kwikset is not confined to ‘Made in the USA’ claims. It could be applied to advertising about any subjectively valued quantity — for example, purported environmental benefits or other socially desirable considerations. This ruling likely means that advertisers should brace for a potentially more challenging litigation climate in California.”

In some cases, misleading U.S.-made claims are less subtle, such as purchasing an American flag, which many consumers may assume is made in the United States, but in fact had been manufactured overseas. According to 2009 Commerce Department data, the United States imported about $3 million in U.S. flags, of which $2.5 million came from Chinese manufacturers. Currently, flags bought by the U.S. government require a minimum of 50 percent U.S.-made materials.

Some Capitol Hill lawmakers are incensed and have recently introduced legislation to make government agencies purchase only U.S.-made flags. In April, Rep. Bruce Bailey, chairman of the House Populist Caucus, introduced a bill requiring that government-purchased flags be 100-percent U.S.-origin.

It’s also not uncommon for tourists visiting the Smithsonian in Washington to buy American-themed souvenirs from museum gift shops that were made in China and other countries.

In March, Rep. Nick J. Rahall, D-W.Va., introduced the 2011 Buy American at the Smithsonian Act (H.R. 983) to prevent the Smithsonian from using appropriated funds to construct or alter a building unless all items for sale in any gift shop of the museum are produced in the United States. The Smithsonian hosts about 30 million visitors annually and last year alone the museum’s gift shops sold nearly $44 million in merchandise.

Product certification is a thriving business and often provides a level of comfort to consumers about the authenticity of their product purchases. For more than 115 years, Underwriters’ Laboratories has independently tested and certified the safety of products. The New York-based Orthodox Union is the world’s largest kosher certification agency, certifying more than 500,000 products made in more than 6,000 plants in 80 countries.

Depending on the complexity of the product, the certification process may take from several days to more than a month. Made in USA Certified in March completed an audit for Plymouth, Mass-based Aeronautica Windpower to certify that its wind turbines qualify for U.S.-made labeling.

“They called our suppliers and verified. I would say we were put through our paces,” said Brian D. Kuhn, Aeronautica’s vice president of product and project development.

Aeronautica’s 225 kilowatt and 750 kilowatt turbines fill a market void between an abundance of small homeowner units and the giant multimegawatt turbines used for large utility-operated wind farms. “It used to be that a government purchaser would request and be granted a waiver to purchase a non-U.S. mid-scale turbine. Now the Department of Energy knows for sure there’s a U.S. manufacturer of these machines,” Kuhn said.

“The ‘Made in the USA’ label still means something to the American consumer and I think that the country really wants to buy U.S.-made products. They understand that it means jobs for their kids and grandkids, neighbors and friends,” Tuttle said. “However, there is a tipping point. I would assume that it is different from market to market. But to ask for a premium price, you have to offer a better quality product — not just it was made here.”

Since 2008, Made in USA Certified has approved more than 45 companies to use its “Made in USA Certified Seal.” Some of these companies include Tough Traveler, Kona’s Chips, Alliance Rubber, Orchid Island Juice Co., USA Flag Supply, and USA Coffee Co.

Reiser said her firm also helps companies with promoting their U.S.-made products. “Just certifying your products are ‘Made in the USA’ isn’t enough,” she said. “We go out with press releases to increase exposure.”

Once a product is certified “Made in the USA,” it also remains important for companies to continue monitoring their compliance with the certification.

“With modern global business, sourcing changes are a huge risk in many ways — quality control, unforeseen costs, and qualification of goods for NAFTA, to name a few,” Luther said. “Purchasing personnel may find a cheaper source for material overseas and simply go with it, without being aware of the consequences.

“For a company operating globally, it’s imperative to build compliance considerations into core business decisions,” he said. “Suppliers of components and materials should be advised that no changes to origin or sourcing should be made without prior coordination with compliance personnel. Companies should also be careful with products produced in multiple locations, or with materials obtained from multiple sources. It can create real headaches if a given component is obtained from domestic as well as foreign sources.

“Imported articles must be marked with country of origin, but there’s no requirement to mark goods ‘Made in the USA’ in the U.S. marketplace,” Luther said. “Because the standard is hard to meet, it’s usually safer to have no mention of origin on domestically made products.”

Under the Buy American Act and other domestic content requirements for government contracts, companies typically have to certify goods as qualifying. Contractual penalties are assessed against those who violate this aspect of their contracts.

“For example, if you’re a manufacturer of transmissions and sell them to a truck maker with a government contract, your contract may have liability provisions such that you — the transmission maker — will be responsible if the truck doesn’t qualify because your transmission’s not qualifying,” Luther explained. “And these things are subject to audit by the purchaser or their appointed auditors.”

He said another “odd wrinkle” comes into play with goods produced in the United States for the export market, if they happen to be returned.

“Suppose you make an item in the U.S., using obvious foreign components, say a drill press with a Japanese motor,” Luther explained. “You sell this to Europe, where it must be marked with ‘Made in the USA.’ (The ‘substantial transformation’ definition of country of origin would be used; Europe is not trying to protect the ‘Made in the USA’ brand.) If these products are returned for some reason, there will be obvious violations of the ‘Made in the USA’ rules for the U.S. market.”