The U.S Federal Trade Commission (FTC) recently codified product labelling rules related to unqualified “Made in USA” (MUSA) claims under 16 CFR Part 323. In summary, the rule does not impose any new requirements on businesses; instead, it codifies the FTC’s longstanding enforcement policy statement regarding U.S.-origin claims. However, by codifying this guidance into a formal rule, the Commission can increase deterrence of MUSA fraud in the form of increased penalties and seek restitution for victims.
This codification follows an extended review of the FTC’s longstanding program to prevent deceptive MUSA claims, including a 2019 public workshop and public comment period, followed by a July 202 Notice of Proposed Rulemaking (NPRM). The NPRM proposed to codify the established principle that unqualified U.S.-origin claims imply to consumers no more than a de minimis amount of the product is of foreign origin.
The FTC’s original approach to MUSA compliance and enforcement consisted of compliance monitoring, counseling, and targeted enforcement pursuant to the FTC’s general authority under 15 U.S.C. 45. Further, under the original approach sellers and marketers had to look primarily to the FTC’s 1997 Enforcement Policy Statement on U.S. Origin Claims (the ‘‘Policy Statement’’) regarding actual FTC rules related to unqualified MUSA claims.
The Policy Statement set forth the general (but very strict) criteria that “all or virtually all” of the production and content of the subject product be of U.S. origin. The Policy Statement further provided that “A product that is all, or virtually all, made in the United States will ordinarily be one in which all significant parts and processing that go into the product are of U.S. origin. In other words, where a product is labeled, or otherwise advertised with an unqualified “Made in USA” claim, it should contain only a de minimis, or negligible, amount of foreign content.”
However, the FTC never provided definitions for the terms “de minimis’ or “negligible”, nor did they provide a “bright line” such as a percentage of non-USA content that could be permitted while still complying with the MUSA requirements. Also, the FTC’s policy was not to issue MUSA rulings, unlike U.S. Customs that issues binding rulings regarding country of origin marking for customs purposes.
While the codification of the MUSA rules is designed in large part to permit the FTC to usher in a new era of enforcement, unfortunately, the codified rules leave much of the previous ambiguity in place. The new FTC rules reiterate the “all or virtually all” standard, without adding any meaningful interpretative guidance.
Specifically, the rule covers labels on products that make unqualified MUSA claims. It codifies the Commission’s previous MUSA Decisions and Orders and prohibits marketers from making unqualified MUSA claims on labels unless: (1) Final assembly or processing of the product occurs in the United States, (2) all significant processing that goes into the product occurs in the United States, and (3) all or virtually all ingredients or components of the product are made and sourced in the United States. The rule also covers labels making unqualified MUSA claims appearing in mail order catalogs or mail order advertising.
The FTC however expressly declined to adopt definitions of ‘‘all or virtually all’’ and “significant processing”. Rather they referred to the guidance provided under the earlier Policy Statement which is articulated above. Therefore, the Policy Statement continues to be relevant as the primary resource for interpretation of the MUSA standard. As the codification does not change the substance of the otherwise strict “all or virtually all standard”. See: https://www.ftc.gov/system/files/documents/plain-language/bus03-complying-made-usa-standard.pdf
The FTC press release statement announcing the MUSA rules codification is unambiguous in its intention: “FTC Issues Rule to Deter Rampant Made in USA Fraud”. The statement further relates its intention to “crack down on marketers who make false, unqualified claims that their products are Made in the USA”, and “marketers making unqualified Made in USA claims on labels should be able to prove that their products are “all or virtually all” made in the United States.” Most importantly, the new rule “will enable the Commission for the first time to seek civil penalties of up to $43,280 per violation of the rule.” Illustrating the seriousness of the FTC’s new resolve, in October the FTC announced $750,000 settlement with a U.S. company to settle charges that they made unsubstantiated claims related to imported mattresses, holding out that the mattresses were “proudly made with 100 percent USA-made premium quality materials”, while in reality the mattresses were finished abroad, and in some cases, were completely imported or contained significant imported materials.
It is therefore clear that sellers and marketers that make unqualified MUSA claims on their product labelling must be aware of the longstanding compliance responsibilities associated with MUSA claims and make sure that they can demonstrate compliance with the strict “all or virtually all” standard. If there is any significant non-USA content in any given product, or if the product undergoes any manufacturing steps outside of the USA, careful consideration should be made as to whether an unqualified MUSA claim is defensible, or whether a “qualified” MUSA claim would be a more prudent approach. Prior to this codification, Made in USA (MUSA)