Earlier this month, the nation celebrated its first "Manufacturing Day." Though not a national holiday, it is significant that the designation of the first Friday in October as "Manufacturing Day" resulted from bi-partisan resolutions in both houses of Congress as recognition of the contribution that US manufacturing makes to the economy. According to the resolutions, manufacturers contributed $2.17 trillion to the economy last year, and the manufacturing sector employs over 12 million people and accounts for 12% of the GDP. And it is only growing. As more and more consumers demand products that are manufactured in the US, companies are finding ways to meet that demand. In this regard, the "reshoring" movement, which has been trending over the past few years in efforts to gain advantages over imports with a focus on higher product quality and shorter delivery times, is gaining added momentum with the surge in consumer demand for products that can be claimed as being "Made in USA."
However, some manufacturers seeking to "reshore" are finding it difficult to achieve the coveted unqualified "Made in USA" claim. Some companies are so anxious to make "Made in USA" claims that they are either unaware of, or are failing to closely analyze, the Federal Trade Commission’s Enforcement Policy Statement on how to evaluate and substantiate "Made in USA" claims. Combined with the ongoing scrutiny of "Made in USA" advertising and labeling by the FTC, trade groups, and consumer groups, this has resulted in formal inquiries, investigations, and the recent issuance of more "closing letters" to companies. In each of these cases, the FTC questioned whether companies "overstated the extent to which" the products in each case were made in the United States, or otherwise inadvertently and erroneously made "Made in USA" claims. The FTC closed out each recent investigation based on the company’s agreement to implement a remedial action plan, including but not limited to such actions as removing unqualified US-origin claims from websites and social media and providing corrected qualified claims to third-party re-sellers and distributors. Based on the closing letters, it is apparent that no industry is immune from FTC's scope of inquiry. Indeed, this is illustrated by reviewing the most recent round of closing letters, which involved products ranging from ice machines and lawnmowers to data security hardware and "pipe and drape" exposition displays.
It is important for companies to remember the significant role played by imported content when making "Made in USA" claims. The FTC analyzes a number of different factors to determine whether a product is, in fact, "all or virtually all" made in the United States, including the proportion of a product’s total manufacturing costs attributable to US parts and processing; how far removed any foreign content is from the finished product; and the importance of the foreign content or processing to the overall function of the product. As we have noted in prior alerts, the FTC continues to take all "Made in USA" claims very seriously and accord them a high level of enforcement priority. We expect this enforcement trend to continue along with the "reshoring" movement, particularly under the Trump Administration, which has made it clear that US manufacturing and the use and sale of American-made products are a top priority.
It is of no small consequence that the reshoring initiatives have also increased opportunities for companies, large and small, to take advantage of the various "Buy American" provisions within government and military acquisition programs. The standards applied under various "Buy American" provisions may differ somewhat from FTC’s Enforcement Policy Statement, and should be analyzed on a case-by-case basis to determine if products supplied under these provisions can be claimed as "Made in USA."
Finally, many companies are finding that despite the reshoring of manufacturing on US soil, there are nonetheless many important components, parts, ingredients, and other inputs that simply cannot be sourced, manufactured, or otherwise found in the US. We think that there may be opportunities to pursue exemptions for such foreign input as the reshoring movement continues to develop.