On Tuesday September 1, 2015, California Governor Jerry Brown signed a bill that will enable products to be labeled and marketed with an unqualified “Made in USA” statement even if not entirely made in the United States – a major departure from California’s current more stringent standard. The bill, to be effective January 1, 2016, will permit unqualified Made in USA labeling of products with foreign content not exceeding 5% of the final wholesale value, or in cases where the manufacturer cannot domestically produce or source the needed parts or components obtained outside of the U.S., the foreign content cannot exceed 10% of the final wholesale value. Albeit closer to the Federal Trade Commission’s (FTC) “Made in USA” standard, the California bill does not directly align the standards.

Although the FTC sets the federal standard for Made in USA labeling, which requires a product to be  “all, or virtually all” made in the USA, California is the only state to have its own – and much stricter – standard. Under Section 17533.7 of the California Business and Professions Code, California currently bars the use of Made in USA claims unless 100% of the content is domestically sourced. To the applauding cheers of retailers and manufacturers alike, this new signed bill – SB 633 – replaces California’s 100% US content requirement with a much easier standard.

New California Made in USA Standard

Up to 5% of the final wholesale value of the item may be foreign sourced

If articles can be neither domestically produced nor supplied, up to 10% of the final wholesale value may be foreign sourced

The California bill provides that a Made in USA representation can be made if foreign materials do not exceed 5% of the final wholesale value of the item. Alternatively, if the manufacturer shows that it can neither domestically produce nor supply a necessary part, component or article, then up to 10% of the final wholesale value of the manufactured product may be foreign content. The determination that the article cannot be domestically produced or manufactured cannot be based on the cost of the article.

Textile and apparel manufacturers should note that the foreign content assessment includes buttons, zippers, thread, interlinings, etc.

Key Factor in California Made in USA Analysis: Value

This new bill also sheds light on how to analyze foreign content—by value. The bill makes clear that foreign content is determined by examining its value compared to the final wholesale value of the manufactured product.

New California Standard v. FTC Standard

Although the California bill attempts to align its Made in USA standard with that of the FTC, as of yet, it is unclear whether these two standards will directly align. The FTC standard is notoriously vague in providing exact guidelines for determining “all, or virtually all” US content, whereas the new California standard sets out clear parameters by its 5% and 10% foreign threshold requirements.