A handful of companies recently faced lawsuits over supposed false “Made in USA” claims. Consumers are suing companies for claiming their products are American-made, when in reality they may not be or too many parts of the product are produced in foreign countries. Companies facing these lawsuits include food company Heinz, energy drink maker Rockstar and a number makers of jeans: True Religion, AG Adriano Goldschmied and Citizens of Humanity.Americans apparently really want their denim to be domestic.
But what does it take for a company to be able to declare their product is truly “Made in USA”? What does its supply chain look like? Who are the suppliers? There are federal standards set out by the Federal Trade Commission on this subject in addition to state regulations, which in some cases can be even more stringent. We took at a look at these regulations and how a company can legally slap that “Made in the USA” label on their product.
To be correctly identified as a “Made in USA” product, “all or virtually all” of it must have been made in America, according to the FTC. But what does “all or virtually all” really mean? The FTC says this requires all significant parts and processing included in making the product must have come from the U.S. or been completed in the U.S. The final assembly of the product must also take place in the United States.
The FTC’s definition does get a bit blurry when it talks about foreign content in a product. It says a “Made in USA” product cannot contain up to a “negligible” amount foreign content. If a product contains “more than negligible” amounts of foreign content, it cannot be a “Made in USA” product. The FTC also takes into account how much foreign processing may have taken place to make a product. But again, what does the FTC consider a “negligible amount”? That still is a bit hazy. Apparently there is no set percentage and no specific definition of “negligible.” The FTC said there is “no bright line” to establish when a product is or isn’t “all or virtually all” made in the U.S.
Is a Part Essential to the Product? It Can’t Be Imported
Some examples of what the FTC accepts as a Made in USA product versus what it does not may be able to add some clarity to this conversation. In the case of raw materials used to create a product, the further removed that raw material is from the finished product, the better. On its website, the FTC gives the example of clock radio made in the USA. Even if the petroleum to make the plastic case for the final product was imported, the final product can still be classified as “Made in USA” because “ the petroleum is far enough removed from the finished product, and is an insignificant part of it as well.” However, a gold ring made with imported gold cannot have a “Made in USA” label as the value of that imported gold is likely to be largely represented in the finished product. The imported gold, FTC says, is an integral component of that gold ring.
The FTC sent a letter to one company in October 2015 explaining why its product could not meet the Made in USA claim. The company, Spray Pal, makes cloth diaper cleaning devices. The product uses a clip to fasten the diapers to the device. The clip is imported. Despite other parts of the product being made in the U.S., the FTC argues that the imported clip is essential to the overall product and cannot be claimed as a “Made in USA” product.
Can You Trust Your Suppliers?
When companies are purchasing parts from suppliers, can they trust those suppliers to report the true origin of that part? The FTC believes that, yes, generally, manufacturers and marketers can rely on suppliers to provide true information about the domestic content in parts and components. However, it never hurts to ask, the FTC added. Manufacturers should also not assume those parts are 100% U.S. made, and the FTC said it is worth asking your supplier for specific information about what percentage of U.S. content is in it.
The FTC also gave this advice for manufacturing companies: “To determine the percentage of U.S. content, manufacturers and marketers should 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 often will be less significant to consumers than content that is a direct part of the finished product or the parts or components produced by the immediate supplier.”
ROI: Is it Worth it?
Some companies may be wondering, “Is this worth it?” It is worth the extra time it takes to truly look deep into your supply chain to determine if your products are actually “American-made” according to federal standards? Research points to “Yes.” A number of studies show consumers would rather buy products made in the U.S. and are willing to pay more for those products over foreign-made goods.
For example, a Consumer Reports survey showed 80% of consumers would rather buy American-made products than an imported product. Additionally, more than 60% of consumers would purchase American-made products even if those goods cost 10% more than imported counterparts.
Consumer Reports also pointed out that while the FTC provides guidance for companies on how to use the “Made in USA” label, it doesn’t necessarily investigate every product being sold in the U.S. A lawyer for the agency also told Consumer Reports misrepresentation is a problem — a company may put an American flag on a product, making consumers think at first glance it’s American made. However, in the fine print, it says the products contains all imported materials.
As a consumer, it may be smart to check the “Country of Origin” mark on a product, which is something the U.S. Customs and Border Protection requires and identifies where a product was made. For manufacturers and other companies, doing some research on your suppliers seems to be key to finding your way through this “Made in USA” maze.