Made in USA Labeling Rule
| Published date | 14 July 2021 |
| Citation | 86 FR 37022 |
| Record Number | 2021-14610 |
| Section | Rules and Regulations |
| Court | Federal Trade Commission |
Federal Register, Volume 86 Issue 132 (Wednesday, July 14, 2021)
[Federal Register Volume 86, Number 132 (Wednesday, July 14, 2021)]
[Rules and Regulations]
[Pages 37022-37035]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-14610]
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FEDERAL TRADE COMMISSION
16 CFR Part 323
[3084-AB64]
Made in USA Labeling Rule
AGENCY: Federal Trade Commission.
ACTION: Final rule.
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SUMMARY: The Federal Trade Commission (``FTC'' or ``Commission'')
issues a final rule related to ``Made in USA'' and other unqualified
U.S.-origin claims on product labels.
DATES: This final rule is effective August 13, 2021.
FOR FURTHER INFORMATION CONTACT: Julia Solomon Ensor (202-326-2377) or
Hampton Newsome (202-326-2889), Attorneys, Division of Enforcement,
Bureau of Consumer Protection, Federal Trade Commission, Room CC-9528,
600 Pennsylvania Avenue NW, Washington, DC 20580.
SUPPLEMENTARY INFORMATION:
I. Background
On July 16, 2020, the Commission published a Notice of Proposed
Rulemaking (``NPRM'') (85 FR 43162) seeking comments on a new rule
regarding unqualified U.S.-origin claims (``MUSA claims'') on product
labels. The NPRM was preceded by a review of the Commission's
longstanding program to prevent deceptive MUSA claims.\1\ The review
included a 2019 public workshop and public comment period, where
stakeholders expressed nearly universal support for a rule addressing
MUSA labels.\2\
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\1\ This program consisted of compliance monitoring, counseling,
and targeted enforcement pursuant to the FTC's general authority
under 15 U.S.C. 45 (``Section 5'' of the FTC Act). Section 5
prohibits unfair or deceptive acts or practices in or affecting
commerce. An act or practice is deceptive if it is likely to mislead
consumers acting reasonably under the circumstances and is
material--that is, likely to affect a consumer's decision to
purchase or use the advertised product or service. A claim need not
mislead all--or even most--consumers to be deceptive under the FTC
Act. Rather, it need only be likely to deceive some consumers acting
reasonably. See FTC Policy Statement on Deception, 103 F.T.C. 174
(1984) (appended to Cliffdale Assocs., Inc., 103 F.T.C. 110, 177
n.20 (1984) (``A material practice that misleads a significant
minority of reasonable consumers is deceptive.''); see also FTC v.
Stefanchik, 559 F.3d 924, 929 (9th Cir. 2009) (``The FTC was not
required to show that all consumers were deceived . . . .'').
\2\ Commenters argued such a rule could have a strong deterrent
effect against unlawful MUSA claims without imposing new burdens on
law-abiding companies. See generally Transcript of Made in USA: An
FTC Workshop (Sept. 26, 2019) at 63-72, available at https://www.ftc.gov/news-events/events-calendar/made-usa-ftc-workshop; FTC
Staff Report, Made in USA Workshop (June 2020) (``MUSA Report''),
available at https://www.ftc.gov/system/files/documents/reports/made-usa-ftc-workshop/p074204_-_musa_workshop_report_-_final.pdf.
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The Commission published a new rule in the NPRM pursuant to its
authority under 15 U.S.C. 45a (``Section 45a''). Section 45a declares:
``[t]o the extent any person introduces, delivers for introduction,
sells, advertises, or offers for sale in commerce a product with a
'Made in the U.S.A.' or `Made in America' label, or the equivalent
thereof, in order to represent that such product was in whole or
substantial part of domestic origin, such label shall be consistent
with decisions and orders of the Federal Trade Commission.'' The
statute authorizes the agency to issue rules to effectuate this mandate
and prevent unfair or deceptive acts or practices relating to MUSA
labeling.\3\ Specifically, under the statute, the Commission ``may from
time to time issue rules pursuant to section 553 of title 5, United
States Code'' requiring MUSA labeling to ``be consistent with decisions
and orders of the Federal Trade Commission issued pursuant to [Section
5 of the FTC Act].'' The statute authorizes the FTC to seek civil
penalties for violations of such rules.\4\
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\3\ See Section 320933 of the Violent Crime and Law Enforcement
Act of 1994, Public Law 103-322, 108 Stat. 1796, 2135, codified in
relevant part at 15 U.S.C. 45a. Section 45a also states: ``This
section shall be effective upon publication in the Federal Register
of a Notice of the provisions of this section.'' The Commission
published such a notice in 1995 (60 FR 13158 (Mar. 10, 1995).
\4\ Under the statute, violations of any rule promulgated
pursuant to Section 45a ``shall be treated by the Commission as a
violation of a rule under section 57a of this title regarding unfair
or deceptive acts or practices.'' For violations of rules issued
pursuant to 15 U.S.C. 57a, the Commission may commence civil actions
to recover civil penalties. See 15 U.S.C. 45(m)(1)(A).
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Consistent with these statutory provisions, the NPRM proposed a
rule covering labels on products that make unqualified U.S.-origin
claims. Consistent with the Commission's MUSA Decisions and Orders
since the 1940s,\5\ 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.\6\
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\5\ See, e.g., Vulcan Lamp Works, Inc., 32 F.T.C. 7 (1940);
Windsor Pen Corp., 64 F.T.C. 454 (1964) (articulating this standard
as a ``wholly of domestic origin'' standard).
\6\ This principle was incorporated into the Commission's 1997
Enforcement Policy Statement on U.S. Origin Claims (the ``Policy
Statement'') following consumer research and public comment, as the
``all or virtually all'' principle. Specifically, the Policy
Statement provides a marketer making an unqualified claim for its
product should, at the time of the representation, have a reasonable
basis for asserting ``all or virtually all'' of the product is made
in the United States. FTC, Issuance of Enforcement Policy Statement
on ``Made in USA'' and Other U.S. Origin Claims, 62 FR 63756, 63766
(Dec. 2, 1997). The Commission first used the ``all or virtually
all'' language in Hyde Athletic Industries, File No. 922-3236
(consent agreement accepted subject to public comment Sept. 20,
1994) and New Balance Athletic Shoes, Inc., Docket 9268 (complaint
issued Sept. 20, 1994). In the 1997 Federal Register Notice
requesting public comment on Proposed Guides for the Use of U.S.
Origin Claims, the Commission explained the ``all or virtually all''
standard merely rearticulated longstanding principles governing MUSA
claims. FTC, Request for Public Comment on Proposed Guides for the
use of U.S. Origin Claims, 62 FR 25020 (May 7, 1997). The Commission
has routinely applied this standard in its MUSA Decisions and Orders
since 1997. See Compilation of cases at https://www.ftc.gov/tips-advice/business-center/legal-resources?type=case&field_consumer_protection_topics_tid=234.
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[[Page 37023]]
The NPRM, consistent with the Commission's prior rulings and
consumer perception surveys, proposed a rule prohibiting marketers from
including unqualified U.S.-origin claims on labels unless: (1) Final
assembly or processing of the product occurs in the United States; (2)
all significant processing for the product occurs in the United States;
and (3) all or virtually all of the product's ingredients or components
are made and sourced in the United States. By codifying existing
guidance, the proposed rule sought to impose no new obligations on
market participants.
To avoid confusion or perceived conflict with other country-of-
origin labeling laws and regulations, the NPRM contained a provision
specifying the rule does not supersede, alter, or affect any other
federal or state statute or regulation relating to country-of-origin
labels, except to the extent a state country-of-origin statute,
regulation, order, or interpretation is inconsistent with the proposed
rule.\7\
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\7\ See, e.g., Textile Fiber Products Identification Act (15
U.S.C. 70b); Wool Products Labeling Act (15 U.S.C. 68); American
Automobile Labeling Act (49 U.S.C. 32304); Agricultural Marketing
Act (7 U.S.C. 1638a); Buy American Act (41 U.S.C. 10a-10c); and
implementing rules.
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In response to the NPRM, the Commission received hundreds of
comments, discussed infra Section II. Although some raised concerns or
recommended changes to the Commission's proposal, the majority
supported finalizing the rule as drafted. Accordingly, the Commission
adopts the proposed rule with limited modifications as discussed
below.\8\ The rule will take effect August 13, 2021.
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\8\ As discussed in Section III of this Notice, the Commission
has added a provision (section 323.6) in the final Rule related to
petitions for exemption.
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II. Response to Comments
The Commission received more than 700 comments \9\ in response to
the NPRM from individuals, industry groups, consumer organizations, and
members of Congress. Commenters generally supported the rule,\10\
stating it provided much-needed clarity \11\ and would deter bad actors
\12\ without imposing new burdens on marketers.\13\ Most commenters
agreed the rule should incorporate the longstanding ``all or virtually
all'' standard.\14\ Additionally, the majority of commenters addressing
the issue agreed the proposed rule represented a proper exercise of the
Commission's rulemaking authority under Section 45a.
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\9\ Comments appear on FTC Docket FTC-2020-0056 and are
available at www.regulations.gov. For purposes of this Notice, all
comments are referred to by their short docket number (e.g., ``1''),
rather than long docket number (e.g., ``FTC-2020-0056-0001'').
\10\ See, e.g., Senators Sherrod Brown, Tammy Baldwin,
Christopher Murphy, and Richard Blumenthal (``Senators'') (373);
North American Insulation Manufacturers (631); see also Letter from
Representative Frank Pallone, Jr., Chairman, and Representative Jan
Schakowsky, Chair, Subcommittee on Consumer Protection and Commerce,
U.S. House of Representatives (Oct. 15, 2020). But see Retail
Industry Leaders Association (``RILA'') (570) (arguing low levels of
enforcement activity suggest codifying the guidance into a rule is
unnecessary).
\11\ UIUC Accounting Group A13 (5); Delphine MUREKATETE, iMSA
Program, University of Illinois at Urbana Champaign (21); Anonymous
Anonymous (24); UIUC-BADM 403-A02 (25); Nirma Ramirez (26); Jaymee
Westover (358); Joy Winzerling (419); United Steelworkers (526);
Anonymous Anonymous (533); R-CALF USA (588).
\12\ Chris Jay Hoofnagle (613) (advocating use of civil
penalties to deter MUSA fraud).
\13\ UIUC Accounting Group A13 (5); Chris Posey (7); Family Farm
Action Alliance (543).
\14\ See, e.g., United Steelworkers (526); Alliance for American
Manufacturing (``AAM'') (611).
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Although the Commission received mostly supportive comments, some
commenters raised concerns with the Commission's proposal to codify the
``all or virtually all'' guidance through rulemaking, suggesting the
standard may not reflect current consumer perception. Others proposed
specific additions to the rule, including additional definitions,
guidance on implied claims, and an effective date. Members of the beef
and shrimp industries requested specific guidance for their industries.
A few stakeholders proposed changes outside the scope of the FTC's
Section 45a rulemaking authority. For example, some commenters proposed
making country-of-origin labeling mandatory in all instances. Finally,
some raised miscellaneous concerns about particular businesses'
practices or claims.\15\ As discussed below, these comments do not
provide a compelling basis to change the substantive requirements of
the rule proposed in the NPRM.
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\15\ Honey Boynton (32); Holly Mastromatto (33); Doug Thompson
(123); Lucilla Rinehimer (702).
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A. Rulemaking Authority Regarding Mail Order Advertising
Eleven stakeholders filed comments addressing the FTC's rulemaking
authority under Section 45a, with the majority agreeing the proposed
rule is consistent with that grant of authority.\16\ As described in
Section I, Section 45a authorizes the Commission ``[to] issue rules
pursuant to section 553 of title 5 [of the U.S.C.]'' to govern the use
of `` `Made in the U.S.A.' or `Made in America' label[s], or the
equivalent thereof'' when a person ``introduces, delivers for
introduction, sells, advertises, or offers for sale [a product] in
commerce.'' The statute provides such labels must be ``consistent with
decisions and orders of the Federal Trade Commission issued pursuant to
[Section 5 of the FTC Act].'' \17\
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\16\ UIUC Accounting Group A13 (5); UIUC Group A06 Anonymous
(22); Truth in Advertising, Inc. (``TINA.org'') (369); Senators
(373); Southern Shrimp Alliance (380); Council for Responsible
Nutrition (``CRN'') (569); Personal Care Products Council (``PCPC'')
(587); Anonymous Anonymous (592); Alliance for AAM (611); National
Association of Manufacturers (``NAM'') (623); Coalition for a
Prosperous America (625).
\17\ 15 U.S.C. 45a.
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1. Comments
Eleven commenters addressed the Commission's authority under
Section 45a. The majority asserted the proposed rule was within the
scope of Section 45a's grant of rulemaking authority, and the proposed
rule appropriately covered labels in mail order (electronic)
advertising.\18\ For example, TINA.org argued the Commission properly
interpreted Section 45a as authorizing coverage of electronic labels
because Section 45a does not limit the term ``labels'' to physical
labels, and physical and digital labels are ``functionally equivalent''
in terms of providing product information to consumers.\19\ TINA.org
further noted ``[w]hen Congress seeks to limit `labels' to the
physical, it knows how . . . [and here] the statute makes no attempt to
restrict the definition or distinguish physical labels from digital
labels.'' \20\ Moreover, TINA.org explained, limiting the proposed rule
to physical labels without addressing electronic labels
[[Page 37024]]
would ``leave American consumers unprotected.'' \21\ Accordingly,
TINA.org concluded, ``[a]s a matter of statutory interpretation, the
Commission can regulate digital MUSA labels. As a matter of consumer
protection, the Commission ought to regulate digital MUSA labels.''
\22\
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\18\ UIUC Accounting Group A13 (50); UIUC Group A06 (22);
TINA.org (369); Senators (373); Southern Shrimp Alliance (380); AAM
(611); Coalition for a Prosperous America (625).
\19\ TINA.org (369) (emphasis in original) (also arguing the
Commission may draw support from the dictionary definition of
``labels,'' which includes digital labels).
\20\ Id. at 2. TINA.org also suggested ``courts regularly
interpret laws expansively in the face of technological
innovation,'' and the ``possibility that Congress may not have
anticipated the application of the term label to apply online does
not change [the] outcome.''
\21\ Id. at 5.
\22\ Id. at 3 (emphasis in original).
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The Southern Shrimp Alliance (``SSA'') and AAM agreed, arguing
Congress made an affirmative decision to defer to the FTC when it
removed a definition of ``labels'' that appeared in initial drafts of
the legislation.\23\ Moreover, AAM argued the text of Section 45a
specifically authorizes coverage of electronic labels because of the
words ``the equivalent thereof'' in the phrase authorizing coverage of
products introduced into commerce ``with a `Made in the U.S.A.' or
`Made in America' label, or the equivalent thereof.'' \24\ AAM argued
the phrase refers to the ``equivalent'' of introducing a product into
commerce with a label, i.e., making a claim on a website.\25\
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\23\ Southern Shrimp Alliance (380); AAM (611).
\24\ AAM (611). Coalition for a Prosperous America (625) agreed
Section 45a's plain language permits coverage of electronic claims
(arguing coverage is authorized where a ``substantial part'' of the
product is of domestic origin) (citing Section 45a (``To the extent
any person introduces, delivers for introduction, sells, advertises,
or offers for sale in commerce a product with a `Made in the U.S.A.'
or `Made in America' label, or the equivalent thereof, in order to
represent that such product was in whole or substantial part of
domestic origin, such label shall be consistent with decisions and
orders of the Federal Trade Commission issued pursuant to section 45
of this title (emphasis added).'')).
\25\ AAM (611).
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In contrast, four commenters asserted the proposed rule exceeds the
scope of the Commission's rulemaking authority under Section 45a.\26\
CRN and PCPC argued Section 45a's consistent use of the term ``label''
demonstrates Congress's intent to authorize a rule limited to labels on
products, not one that would cover advertising generally.\27\ An
anonymous commenter argued Section 45a does not provide authority to
regulate claims in mail order advertising materials as proposed in
Section 323.3, so the proposed rule ``should be revised to only cover
labels on products.'' \28\ Should the FTC finalize a rule that purports
to cover more than labels on products, NAM warned, the result could be
``lengthy litigation [, which would leave] manufacturers and consumers
alike . . . without clear guidance at a time when manufacturers need as
much regulatory certainty as possible.'' \29\ Given these concerns over
the scope of the Commission's rulemaking authority, Shirley Boyd stated
the Commission should proceed pursuant to the Magnuson Moss Warranty-
Federal Trade Commission Improvements Act to issue a broader rule
covering MUSA advertising generally.\30\
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\26\ CRN (569); PCPC (587); Anonymous Anonymous (592); NAM
(623).
\27\ PCPC (587); CRN (569).
\28\ Anonymous Anonymous (56).
\29\ NAM (623) at 5.
\30\ Shirley Boyd (6).
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2. Analysis
After reviewing the comments, the Commission has concluded proposed
Section 323.3 falls within the scope of its authority under Section
45a. As described above, Section 45a authorizes the Commission to issue
rules to govern labeling of products as ``Made in the U.S.A.'' or
``Made in America,'' or the equivalent thereof. Section 45a specifies:
``[t]o the extent any person introduces, delivers for introduction,
sells, advertises, or offers for sale in commerce a product with a
`Made in the U.S.A.' or 'Made in America' label, or the equivalent
thereof, in order to represent that such product was in whole or
substantial part of domestic origin, such label shall be consistent
with decisions and orders of the Federal Trade Commission.'' The
Commission is empowered to ensure such labels are consistent with
decisions and orders of the Federal Trade Commission defining unfair or
deceptive acts or practices under Section 5. The Commission agrees with
SSA and AAM that Congress's removal of a definition of ``label'' from
Section 45a before its passage strongly suggests Congress deliberately
chose to defer to the FTC's interpretation of the term in the context
of MUSA claims.\31\ Moreover, the Commission agrees with TINA.org that
digital and physical labels are functionally equivalent, especially
with the growth of e-commerce, and a failure to cover labels in print
or electronic mail order catalogs or promotional materials would leave
consumers without much-needed protection.\32\
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\31\ Southern Shrimp Alliance (380); AAM (611).
\32\ See TINA.org (369).
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The final rule does not cover MUSA claims in all advertising.
Instead, as Section 323.3 explains, the rule covers labels appearing in
all contexts, whether, for example, they appear on product packaging or
online. With this clarification, the Commission adopts Section 323.3 as
proposed.
B. ``All or Virtually All'' Standard
As described in Section I above, the NPRM proposed to codify the
Commission's longstanding interpretation of Section 5's requirements
governing substantiation of unqualified MUSA claims. This
interpretation was first articulated in Commission cases dating back to
the 1940s \33\ and was formalized in the 1997 Policy Statement.
Specifically, the NPRM proposed to prohibit 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.
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\33\ See, e.g., In re Vulcan Lamp Works, Inc., 32 F.T.C. 7
(1940).
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Although many commenters, particularly those with interest in food
products, supported the decision to incorporate the ``all or virtually
all'' guidance, others raised concerns. In particular, commenters
questioned whether the ``all or virtually all'' standard represents
current consumer understanding of MUSA claims. Some proposed
alternative standards for consideration.
After analyzing these comments, as discussed below in Section
II.B.3., the Commission has determined it has a reasonable basis to
adopt the longstanding ``all or virtually all'' standard, and the rule
provides appropriate and clear guidance to marketers.
1. Consumer Perception Testing
Six commenters argued the FTC should conduct new consumer
perception testing before codifying the ``all or virtually all''
guidance into a rule.\34\ They noted the Commission has not conducted
comprehensive testing since the 1990s. CRN explained ``codifying a
standard for unqualified U.S.-origin claims that is based on consumer
perception data that has not been reanalyzed by the Commission in over
20 years'' is potentially problematic because ``[g]iven significant
changes to the global economy, consumer perceptions of U.S.-origin
claims are very likely to have changed over time and consumer
perception in 1997, and even 2013, could be very different from how
consumers perceive U.S.-origin claims today.'' \35\ CTA agreed and
asserted that proposing to codify the ``all or virtually standard''
without conducting new consumer perception
[[Page 37025]]
testing ``put the cart before the horse.'' \36\ NAM also encouraged the
FTC to undertake a comprehensive review similar to the Commission's
process in the 1990s before promulgating any rule.\37\
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\34\ CRN (569); Consumer Technology Association (``CTA'') (579);
Global Organization for EPA and DHA Omega-3s (604); American
Association of Exporters and Importers (``AAEI'') (605); NAM (623);
Pharmavite LLC (695).
\35\ CRN (569).
\36\ CTA (579).
\37\ NAM (623).
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2. Alternative Standards
In addition to requesting the FTC conduct new perception testing,
numerous commenters proposed alternatives to the ``all or virtually
all'' standard. These proposals, which were based on policy arguments
and were not accompanied by supporting consumer perception evidence,
fell into two groups. On one hand, more than twenty commenters, mostly
individual consumers, suggested unqualified MUSA claims should be
limited to products 100% made in the United States. On the other hand,
other commenters, mostly manufacturers, argued ``all or virtually all''
is too strict, and by incorporating it into a rule, the FTC could chill
unqualified claims, discourage innovation, and harm industries where
parts or ingredients are not available in the United States.\38\ To
address these concerns, this second group of commenters suggested
alternatives: (1) Introducing a percentage-of-costs standard; (2)
adopting a standard that makes allowances for imported parts or
materials not available in the United States; (3) aligning with U.S.
Customs and Border Protection's (``CBP'') substantial transformation
standard; or (4) adding a safe harbor for ``good faith'' efforts to
comply.
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\38\ See, e.g., CTA (579) (arguing the ``all or virtually all''
guidance deters innovation because many electronic product
components are only made internationally); Personal Care Products
Council (587) (guidance deters manufacturers from using maximum
levels of U.S. parts and materials); AAEI (605) (guidance negatively
impacts U.S. companies that will not risk making the claim).
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i. Percentage-Based Standards
Several commenters argued the Commission should provide marketers
greater certainty by promulgating a ``bright line'' rule outlining a
specific percentage of manufacturing costs that must be attributable to
U.S. costs to substantiate an unqualified claim.\39\ For example, NFI
suggested the FTC could align the rule with California state law,\40\
which permits manufacturers to make unqualified MUSA claims for
products with up to 5% of the final wholesale value of the product
attributable to articles, units, or parts of the merchandise obtained
from outside the USA.\41\
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\39\ National Fisheries Institute (``NFI'') (628); RILA (570);
TRAVIS HEDSTROM (600); Acuity Brands (609); NAM (623); American
Coatings Association (``ACA'') (666) (stating marketers need
guidance on percentage values or other guidance on how to deal with
trace components of foreign/unknown origin).
\40\ NFI (628).
\41\ See Cal. Bus. & Prof. Code Sec. 17533.7 (as revised in
2015).
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RILA agreed a rule providing a bright-line percentage would help
marketers comply, and suggested the FTC consider ``analogous federal
regulations that incentivize U.S. manufacturing,'' and incorporate a
70% threshold for unqualified claims.\42\ Alternatively, one commenter
suggested a rule that would permit an unqualified claim for a product
assembled in the United States where more than 50% of its value is
based on components of U.S.-origin.\43\
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\42\ RILA (570).
\43\ TRAVIS HEDSTROM (660).
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Two representatives of the dietary supplement industry, the Global
Organization for EPA and DHA Omega-3s (``GOED'') and Pharmavite LLC,
made an alternative percentage-based proposal with different standards
for active and inactive ingredients. Specifically, they argued
consumers likely interpret an unqualified MUSA claim to mean 100% of a
dietary supplement's active ingredients are made and sourced in the
United States. They claimed, however, consumers care less about the
origin of inactive ingredients. Accordingly, they contended the rule
should incorporate a 10% tolerance for foreign-made or sourced inactive
ingredients.\44\
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\44\ GOED (604); Pharmavite LLC (695).
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ii. Unavailability Exemption
Other commenters argued the rule should allow marketers to make
unqualified MUSA claims for products that include imported content only
if the imported components are not available in the United States.\45\
Some argued there should be a blanket exemption for such content. For
example, Bradford White Corporation (``BWC'') suggested the rule
broadly allow marketers to exclude foreign parts from the analysis if
those parts cannot be ``reasonably sourced'' from a domestic
manufacturer.\46\ Others agreed the rule should permit unqualified
claims for products that contain foreign content that cannot be sourced
in the United States, but argued this exemption should be capped at a
certain percentage of manufacturing costs. In NAM's view, a rule
permitting marketers to incorporate an appropriate percentage of
imported components or labor, not otherwise unavailable domestically,
``would give manufacturers clear and predictable rules and play a
significant role in helping to encourage manufacturers to increase
domestic investments in order to meet an attainable standard.'' \47\
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\45\ The California law makes such an allowance, although it is
not unlimited. Specifically, California permits up to 10% (instead
of 5%) of costs to be attributable to imported content if that
content cannot be made or obtained in the USA for reasons other than
cost. Cal. Bus. & Prof. Code Sec. 17533.7.
\46\ BWC (622). Indeed, BWC argued, given consumer expectations
and current supply chains, rather than analyzing the percentage of
costs attributable to U.S. versus foreign costs, it might be more
appropriate to analyze the proportion of an entity's overall
manufacturing workforce in the U.S. Id.
\47\ NAM (623). See also Glenda Smith (612) (requesting more
detail on how to handle raw materials not capable of being sourced
in the USA).
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iii. Substantial Transformation Analysis
Several commenters suggested the FTC adopt a ``substantial
transformation'' standard for unqualified claims.\48\ Three commenters
from U.S. trade associations \49\ explained harmonizing the FTC's rule
with the CBP standard for determining foreign country of origin
pursuant to the Tariff Act, 19 U.S.C. 1304, would provide clarity and
alleviate the burden on U.S. companies that ``must navigate a number of
different country of origin requirements.'' \50\ AAFA explained
adopting the ``substantial transformation'' standard would result in a
``clear, simple, and easy-to-understand rule.'' \51\ The People's
Republic of China (``China'') also argued, to avoid uncertainties and
bias, the FTC should incorporate CBP's ``change in Tariff
Classification'' analysis, as suggested in Article 9 of the World Trade
Organization's (``WTO'') Agreement on Rules of Origin.\52\
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\48\ CBP defines ``substantial transformation'' as a
manufacturing process that results in a new and different product
with a new name, character, and use different from that which
existed before. This standard does not take into account the origin
of materials or parts. See 19 CFR part 134; Energizer Battery, Inc.
v. United States, 190 F. Supp. 3d 1308 (Ct. Int'l Tr. 2016) (holding
a substantial transformation occurs when a product emerges from a
manufacturing process with a new name, character, and use, and the
``simple assembly'' of a limited number of components does not
constitute a substantial transformation).
\49\ International Precious Metals Institute, Inc. (``IPMI'')
(520); AAEI (605); American Apparel and Footwear Association
(``AAFA'') (675).
\50\ AAEI (605). See also BWC (622) (raising concerns about
increased regulatory burden).
\51\ AAFA (675) (also suggesting the FTC ``eliminate'' qualified
claims for any products that do not meet the ``substantial
transformation'' threshold).
\52\ China (699).
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iv. Good Faith Efforts To Comply
PCPC and RILA recommended the Commission provide safe harbors for
two types of good-faith efforts to comply. PCPC, a trade association
[[Page 37026]]
representing manufacturers, distributors, and suppliers of personal
care products, suggested incorporating a safe harbor for ``good actors
who are trying to overcome the difficulties in sourcing domestic
components and materials.'' \53\ PCPC explained, ``[a] safe harbor
provision for unqualified claims would not dilute the purpose of the
FTC's goal with this proposed rule--to deter bad actors from making
false claims. Rather, such a provision would provide businesses who in
good faith make every reasonable effort to make as much of their
product as possible in the U.S. the flexibility to comply with any new
regulations.'' \54\
---------------------------------------------------------------------------
\53\ PCPC (587). Although not specifically advocating for a
good-faith claim safe harbor, the Family Farm Action Alliance
similarly argued the FTC should continue its practice of counseling
inadvertent offenders into compliance (543).
\54\ PCPC (587) at 3.
---------------------------------------------------------------------------
Alternatively, RILA suggested that to avoid deterring retailers and
marketplaces from offering products with MUSA labels the final rule
should ``include an express statement . . . that allows retailers and
marketplaces that have exercised reasonable due diligence to rely on
documented supplier and vendor certifications to substantiate MUSA
labeling claims.'' \55\
---------------------------------------------------------------------------
\55\ RILA (570).
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3. Analysis
The Commission has concluded it is not necessary to undertake
additional consumer perception testing before adopting the proposed
Rule. Accordingly, the Commission adopts the ``all or virtually all
standard'' to govern unqualified claims as proposed in the NPRM.
Although some commenters speculated consumer perception may have
shifted over time, or argued the Commission should adopt a new standard
for unqualified claims, there is no evidence on the record disputing
the Commission's past findings that at least a significant minority of
consumers expect a MUSA-advertised product to be ``all or virtually
all'' made in the United States. Nor is there evidence suggesting new
perception testing would find otherwise.
Indeed, the limited survey evidence submitted in conjunction with
the 2019 workshop on MUSA claims suggested consumer perception has
remained stable since the 1990s. Specifically, one panelist, Mark Hanna
of Richline Group, Inc. submitted a survey, conducted in 2013, which
found almost 3 in 5 Americans (57%) agree ``Made in America'' means all
parts of a product, including any natural resources it contains,
originated in the United States.\56\ Additionally, the survey found 33
percent of consumers thought 100 percent of a product must originate in
a country for that product to be labeled as ``Made'' in that
country.\57\ These findings are consistent with the FTC's 1995 survey,
which found roughly 30 percent of consumers would be deceived by an
unqualified MUSA claim for a product where 70 percent of the cost was
incurred in the United States.\58\ As Hanna explained during the
workshop, ``at least 25% of the consumers were skeptical that if
there's something introduced to that finished product other than
something that originated in the US now, they didn't think it should be
made in the USA.'' \59\ Accordingly, the Commission has a reasonable
basis to conclude the ``all or virtually all'' standard accurately
represents current consumer perception regarding unqualified MUSA
claims. Should future consumer research clearly establish the ``all or
virtually all'' standard is inapplicable to a specific class of
products, entities may petition the Commission for an exemption from
the Rule's requirements, as discussed in Section III of this document.
---------------------------------------------------------------------------
\56\ Commission staff considered this study previously as part
of a request for a staff advisory opinion on unqualified MUSA claims
for recycled gold jewelry products. See Response to Request for FTC
Staff Advisory Opinion (Sept. 9, 2014), https://www.ftc.gov/system/files/documents/closing_letters/made-usa/140909madeisusajvc.pdf
(declining to provide an opinion stating MUSA claims for recycled
jewelry do not deceive consumers based on perception evidence
provided by Richline Group).
\57\ See also Hanna, Transcript of Made in USA: An FTC Workshop
(Sept. 26, 2019) (hereinafter, ``MUSA Tr.'') at 14 (study showed
``25% or 30% of [American consumers] really did feel that
everything, including the natural resource, including the gold, had
to be part of the final product in order to say it was made in the
USA'').
\58\ 62 FR 25020, 25036.
\59\ Hanna, MUSA Tr. at 15.
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While commenters proposed alternative standards that might promote
certain policy goals, the Commission declines to adopt these
alternative proposals for the reasons discussed below. Section 45a
authorizes the Commission to issue rules to ensure products labeled as
``Made in the U.S.A.,'' or the equivalent thereof, comport with the
requirements of Section 5 of the FTC Act that prohibit unfairness or
deception. The ``all or virtually all'' standard is designed to prevent
consumer deception and, therefore, the Commission declines to: (1)
Adopt a bright-line, percentage-based standard; (2) include a broad
carve-out for inputs not available in the United States; (3)
incorporate CBP's ``substantial transformation'' standard; or (4)
provide a safe harbor for good-faith efforts to comply.
First, percentage-based, bright-line rules could allow deceptive
unqualified claims in circumstances where the low cost of the foreign
input does not correlate to the importance of that input to consumers.
For example, the Commission's enforcement experience has established
unqualified U.S.-origin claims for watches that incorporate imported
movements may mislead consumers because, although the cost of an
imported movement is often low relative to the overall cost to
manufacture a watch, consumers may place a premium on the origin and
quality of a watch movement and consider the failure to disclose the
foreign origin of this component to be material to their purchasing
decision. Under those circumstances, the foreign movement likely is not
a de minimis consideration for consumers, and an unqualified U.S.-
origin claim for a watch containing an imported movement would likely
deceive consumers.\60\ The Policy Statement has instructed marketers
since the 1990s that the cost of foreign versus U.S. parts and labor is
only one factor to consider in determining how material a part may be
to consumers.\61\ Accordingly, the Commission declines to adopt a
percentage-based standard because the ``all or virtually all'' standard
is better tailored to prevent unqualified U.S.-origin claims that will
mislead consumers in making purchasing decisions. By maintaining this
precedent, the rule accounts for the likelihood consumers interpret
MUSA claims somewhat differently for different product categories.
---------------------------------------------------------------------------
\60\ See, e.g., FTC Staff Closing Letter to Niall Luxury Goods,
LLC (Nov. 20, 2015), available at https://www.ftc.gov/system/files/documents/closing_letters/nid/151120niall_letter.pdf.
\61\ See Policy Statement, 62 FR 63756, 63768.
---------------------------------------------------------------------------
Second, the record similarly does not support excluding foreign
content unavailable in the United States from the ``all or virtually
all'' analysis. Specifically, as described above, consumer perception
testing has consistently shown consumers expect products labeled as
MUSA to contain no more than a de minimis amount of foreign content.
There is no evidence this takeaway varies in scenarios where some parts
or inputs are not available in the United States. Indeed, the Policy
Statement explains unqualified claims for such products could be
deceptive, for example, ``if the [nonindigenous] imported material
constitutes the whole or essence of the finished product (e.g., the
rubber in a rubber ball or the coffee
[[Page 37027]]
beans in ground coffee).'' \62\ However, the flexibility inherent in
the ``all or virtually all'' analysis accounts for the possibility a
marketer could substantiate an unqualified claim for a product
containing nonindigenous raw materials if the manufacturer has evidence
demonstrating the specific claim in context does not deceive
consumers.\63\
---------------------------------------------------------------------------
\62\ Id. at 63769 n.117.
\63\ The Policy Statement explains in some cases ``where [a raw]
material is not found or grown in the United States [and that raw
material does not constitute the whole or essence of the finished
product], consumers are likely to understand that a `Made in USA'
claim on a product that incorporates such materials (e.g., vanilla
ice cream that uses vanilla beans, which, the Commission
understands, are not grown in the United States) means that all or
virtually all of the product, except for those materials not
available here, originated in the United States.'' Id. The Policy
Statement provides that this guidance applies only to raw materials,
not manufactured inputs.
---------------------------------------------------------------------------
Third, the record also does not support adopting government
standards developed for other purposes (e.g., the CBP substantial
transformation standard developed for the imposition of tariffs) as
part of the rule. Based on its enforcement experience, the Commission
is concerned the standards adopted by CBP for purposes of calculating
tariffs are not an appropriate fit for the Commission's regulation of
MUSA claims on product labels for purposes of consumer disclosure. For
example, there is ample evidence consumers care deeply about the source
of the components used to manufacture drywall for construction
projects. Under a substantial transformation analysis, drywall made
wholly of materials from one nation, but substantially transformed in a
different country, would be labeled as originating from the country
where those materials were ultimately transformed into a final product.
Marketers would not need to disclose the origin of the inputs other
than labor (information highly material to many consumers). Thus,
employing such a standard would in some cases conflict with the Rule's
purpose of ensuring consumers have the material information necessary
to make informed purchasing decisions.
Finally, the rule does not include an explicit carve-out for
businesses that act in good faith. Courts have long held good faith is
not a defense for a violation of Section 5 of the FTC Act,\64\ and the
Commission intends to enforce the rule consistent with this precedent.
Violative claims made in good faith can still deceive and cause
significant harm to consumers. However, the FTC clarifies it will
continue to: (1) Advise marketers that, if provided in good faith,
marketers can rely on information from suppliers about the domestic
content in the parts, components, and other elements they produce; \65\
(2) generally conserve enforcement resources for intentional, repeated,
or egregious offenders; and (3) provide informal staff counseling where
appropriate.
---------------------------------------------------------------------------
\64\ See, e.g., FTC v. World Travel Vacation Brokers, Inc., 861
F.2d 1020, 1029 (7th Cir. 1988).
\65\ See FTC, ``Complying with the Made in USA Standard,'' at 7-
8 (Dec. 1998), available at https://www.ftc.gov/system/files/documents/plain-language/bus03-complying-made-usa-standard.pdf (also
providing an example of a certification a marketer could request
from a supplier that generally would constitute an acceptable basis
for determining the appropriate country-of-origin designation for a
product).
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C. Requests for Additional Definitions and Other Clarifications
The Commission received several comments arguing the proposed Rule
was unclear or provided insufficient guidance for marketers. To remedy
these asserted problems, several commenters urged the FTC to add
definitions for particular terms, including ``all or virtually all''
and ``significant processing.'' Other commenters expressed concern the
Rule was not sufficiently clear about the range of claims it would
cover, suggesting the FTC list additional synonyms for ``Made in USA''
to which the rule would apply. Finally, others requested a delayed
effective date to allow marketers to update materials and come into
compliance.
1. Definitions
More than twenty commenters recommended adding definitions or
providing more information to clarify the rule. Without definitions,
the commenters feared marketers would ``lack clear guidance for
verifying MUSA claims'' and thus ``may be deterred from'' making them
altogether.\66\ Some of these commenters offered clarifying edits or
proposed definitions, often as fallback positions to their main
arguments advocating alternative standards entirely.\67\
---------------------------------------------------------------------------
\66\ RILA (570).
\67\ E.g., AAEI (605) (advocating adoption of the ``substantial
transformation'' standard).
---------------------------------------------------------------------------
In particular, in addition to commenters who recommended specifying
percentage thresholds for ``all or virtually all,'' several commenters
requested the Commission generally define the phrase, without providing
specific information on what that definition should include (e.g.,
factors considered, etc.).\68\ As AAEI elaborated: ``One of the FTC's
stated reasons for this proposed rulemaking is to `provide more
certainty to marketers about the standard for making unqualified claims
on product labels.' Yet, the proposed `all or virtually all' standard
does not provide that certainty . . . It simply codifies the FTC's
already existing ambiguous standards.'' \69\ Two commenters
specifically asked the Commission to incorporate information on whether
marketers should consider the origin of product packaging into such a
definition.\70\
---------------------------------------------------------------------------
\68\ See, e.g., Shirley Boyd (6); Pacific Coast Producers (27);
RILA (570); Vietnam (577); AAEI (605); NFI (628); ACA (666); AAFA
(675).
\69\ AAEI (605).
\70\ Deontae Lafayette (20); Jaymee Westover (358).
---------------------------------------------------------------------------
Similarly, three commenters requested the Commission define
``significant processing.'' \71\ As Pacific Coast Producers explained,
the ``significant processing'' and ``all or virtually all'' ``terms
have always been ambiguous, and the proposed rule does not help to
remove the ambiguity or provide any meaningful guidance to industry.''
\72\
---------------------------------------------------------------------------
\71\ Shirley Boyd (6); Pacific Coast Producers (27); RILA (570).
\72\ Pacific Coast Producers (27).
---------------------------------------------------------------------------
Finally, more than thirty commenters, primarily representing the
domestic shrimp industry, argued the Commission should clarify that the
definitions of ``mail order catalog'' and ``mail order promotional
material'' include restaurant menus. As the Louisiana Shrimp
Association (``LSA'') explained, ``inappropriate practices by some
restaurants in offering menu items that falsely indicate to customers
that imported shrimp is domestic, such as `Gulf Shrimp'. . . not only
confuse consumers, but fatally undermine the marketing efforts of
restaurants that do carry domestic shrimp.'' \73\ To solve this
problem, SSA urged the Commission to ``exercise jurisdiction over `Made
in U.S.A.' statements on restaurant menus, as a form of `Mail order
promotional material' or `mail order catalog.' '' \74\
---------------------------------------------------------------------------
\73\ LSA (404).
\74\ SSA (380) (further explaining menus should fall under this
definition because they are used in the direct sale or offer for
sale of a product, are disseminated in print or can be delivered by
electronic means, and are solely disseminated to solicit the
purchase of a product).
---------------------------------------------------------------------------
2. Covered Claims
Several commenters suggested the Rule was not sufficiently clear
about which U.S.-origin claims it covers. In particular, commenters
requested a longer list of claims the Commission considers equivalent
to ``Made in USA,'' as well as a specific statement that the Rule
covers implied claims.
One commenter suggested adding ``constructed,'' ``fabricated,'' and
``assembled'' to the list.\75\ Another
[[Page 37028]]
proposed ``processed,'' ``fabricated,'' and ``packaged.'' \76\ Finally,
one commenter suggested, to deter unscrupulous marketers effectively,
the list should include claims that products are ``Distributed by:'' a
company name followed by a U.S. address.\77\
---------------------------------------------------------------------------
\75\ Frost Brown Todd LLC (522).
\76\ R-CALF USA (588).
\77\ Salvatore J. Versaggi (496).
---------------------------------------------------------------------------
Several commenters also asked the Commission to clarify that the
Rule covers implied claims.\78\ As AAM explained, ``the use of
iconography, such as the American flag, used in the promotion of
products should also be considered for its potential to evoke the
positive qualities consumers associate with 'Made in USA,' as well as
the prospect of such iconography being used in a deceptive manner.''
\79\
---------------------------------------------------------------------------
\78\ See, e.g., Shirley Boyd (6); Power Planter Inc. (325); AAM
(611); American Shrimp Processors Association (``ASPA'') (633).
\79\ AAM (611).
---------------------------------------------------------------------------
3. Effective Date
Finally, two commenters requested the FTC provide an extended
compliance period before the rule's effective date. Specifically, ACA
and McKenna Walsh argued companies would need time to come into
compliance with the Rule. In their view, the FTC should delay
implementation to give companies the opportunity to generate new
marketing materials and run out old stock.\80\
---------------------------------------------------------------------------
\80\ ACA (666); McKenna Walsh (581).
---------------------------------------------------------------------------
4. Analysis
After analyzing the comments, the Commission finds the rule and its
coverage clear on its face, with sufficient flexibility to address a
changing marketplace. Therefore, as discussed further below, the
Commission issues the rule without additional definitions or
clarifications, or a delayed effective date.\81\
---------------------------------------------------------------------------
\81\ As discussed in Section III, the Final Rule contains a
provision clarifying that, in appropriate circumstances, covered
entities may petition the Commission for an exemption from the
Rule's requirements.
---------------------------------------------------------------------------
i. Definitions
The Commission declines to adopt definitions of ``all or virtually
all'' and ``significant processing,'' or to expand the existing
definition of ``mail order catalog'' or ``mail order promotional
material.'' The Commission has issued extensive guidance to help
marketers understand the ``all or virtually all'' standard. As the
Policy Statement explains, ``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 claim, it should contain only a de
minimis, or negligible, amount of foreign content. Although there is no
single ``bright line'' to establish when a product is or is not ``all
or virtually all'' made in the United States, there are a number of
factors to consider in making this determination. First, in order for a
product to be considered ``all or virtually all'' made in the United
States, the final assembly or processing of the product must take place
in the United States. Beyond this minimum threshold, the Commission
will consider other factors, including but not limited to the portion
of the product's total manufacturing costs attributable to U.S. parts
and processing; how far removed from the finished product any foreign
content is; and the importance of the foreign content to the form or
function of the product. Accordingly, the Commission's existing
guidance and enforcement documents, including the Policy Statement,
decisions and orders enforcing the ``all or virtually all'' standard,
and staff closing letters, together provide ample guidance to
marketers.
As discussed above in Section II.B.3., ``all or virtually all'' and
``significant processing'' intentionally incorporate flexibility to
allow marketers to substantiate their claims consistent with consumer
perception of their particular products. The Commission's enforcement
program has long recognized the need for such flexibility as described
in the Policy Statement, which was based on the Commission's decisions
and orders. The Commission has continued to follow this flexible
approach, and incorporated it into its post-Policy Statement decisions
and orders. Adding specific definitions for these terms may increase
clarity for marketers in the short term because the rule covers so many
product categories across a range of circumstances, but the Commission
has determined adding further specificity also increases the risk the
rule would chill certain non-deceptive claims. Marketers seeking
additional guidance may look to the Policy Statement, decisions and
orders, and other Commission guidance to understand how the FTC has
analyzed ``all or virtually all'' and ``significant processing.'' \82\
---------------------------------------------------------------------------
\82\ See Policy Statement, 62 FR 63756, 63768 (Dec. 2, 1997).
---------------------------------------------------------------------------
The Commission also declines to adopt a definition of ``mail order
catalog'' or ``mail order promotional material'' that specifically
incorporates restaurant menus. The Commission has not reviewed
perception evidence regarding consumer understanding of MUSA claims on
restaurant menus, and therefore declines to define such claims as
covered ``labels'' for purposes of Section 45a.
ii. Covered Claims
The Commission also concludes it is unnecessary to revise the
definitions to provide an expanded list of synonyms for the term ``Made
in U.S.A.,'' or provide further clarification the rule covers implied
claims. Section 323.1 as proposed already defines ``Made in U.S.A.'' as
``any unqualified representation, express or implied, that a product or
service, or a specified component thereof, is of U.S. origin,
including, but not limited to, a representation that such product or
service is `made,' 'manufactured,' 'built,' 'produced,' 'created,' or
'crafted' in the United States or in America, or any other unqualified
U.S.-origin claim'' (emphasis added).\83\
---------------------------------------------------------------------------
\83\ 16 CFR 323.1.
---------------------------------------------------------------------------
The list of equivalents to ``Made in USA'' set forth in Section
323.1 is not exhaustive because the means of communicating U.S. origin
are too numerous to list. The Commission believes the non-exhaustive
list of examples given provide sufficient guidance on the scope of
covered express and implied claims. These examples are based on the
Commission's decades of enforcement experience addressing MUSA claims.
For other claims, the Commission will analyze them in context,
including the terms used, their prominence, and their proximity to
images and other text.
iii. Effective Date
Lastly, the Commission declines to delay the rule's effective date.
As discussed above in Section I, the rule codifies the FTC's
longstanding guidance on MUSA claims. The FTC has incorporated the
``all or virtually all'' standard into decisions and orders and
guidance for industry and the public since the 1990s.\84\ Because the
rule merely codifies these longstanding enforcement principles and
imposes no new requirements on marketers, the Commission concludes a
delayed effective date is unnecessary.
---------------------------------------------------------------------------
\84\ See generally https://www.ftc.gov/tips-advice/business-center/advertising-and-marketing/made-in-usa. The Commission has
explained that prior to the 1990s, this standard was described as
the ``wholly domestic'' standard, and both ``wholly domestic'' and
``all or virtually all'' refer to the concept that ``unqualified
claims of domestic origin have been treated as claims that the
product was in all but de minimis amounts made in the United
States.'' 62 FR 63756 (Dec. 2, 1997).
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[[Page 37029]]
D. Guidance for Specific Industries
Some commenters requested tailored guidance for specific
industries. Specifically, representatives of the beef and shrimp
industries requested guidance on whether the Rule would apply to their
products, and specific guidance on how to apply ``all or virtually
all'' in these contexts.
1. Beef
The Commission received more than 450 comments urging the
Commission to clarify that the rule applies to beef products. These
stakeholders, primarily U.S. ranchers and industry groups representing
domestic ranchers, generally supported the rule and argued it should
supersede United States Department of Agriculture (``USDA'') guidance
on using ``Product of USA'' claims on beef product labels. Although
they acknowledged the USDA's longstanding authority over beef labeling,
they expressed concern USDA's Food Safety Inspection Service (``FSIS'')
Food Standards and Labeling Policy Book currently authorizes producers
to place ``Product of USA'' labels on beef products processed in the
USA but comprised of cattle born, raised, and slaughtered overseas.
These commenters argued such labels deceive consumers, and ``put U.S.
family farmers and ranchers at an unfair disadvantage in the
marketplace, because they are not able to differentiate their
domestically produced meat and meat products from foreign produced meat
and meat products.'' \85\ Accordingly, they argued the ``all or
virtually all'' standard should apply to beef products, and beef
products should only bear a ``Product of USA'' label if they derive
from animals born, raised, slaughtered, and processed in the United
States.\86\
---------------------------------------------------------------------------
\85\ North Dakota Farmers Union (412).
\86\ The Commission also received more than 150 comments stating
country-of-origin labeling should be mandatory for beef products.
---------------------------------------------------------------------------
In contrast, five commenters argued Congress granted the USDA
generally, and the FSIS specifically, authority to address country-of-
origin labeling for meat and meat food products. Therefore, they
argued, the FTC should defer to the USDA on this issue.\87\ The North
American Meat Institute and the Meat Importers' Council of America
submitted a joint comment stating beef commenters' concerns ``are
misplaced because they fail to recognize that the [USDA's FSIS] has
primary jurisdiction over the meat and poultry labeling through the
authority provided in the Federal Meat Inspection Act (FMIA) and the
Poultry Products Inspection Act (PPIA).'' \88\ The Montana Stockgrowers
Association agreed, explaining that even though it ``supports USA beef
as being defined as born, raised, harvested, and processed in the USA .
. . [its members] think the [USDA] should be the lead agency to address
enforcement of labels that include all meat products.'' \89\ Moreover,
some commenters raised concerns applying the FTC's rule to beef
products could lead to challenges in, or even sanctions by, the WTO,
given past proceedings relating to beef labeling.\90\
---------------------------------------------------------------------------
\87\ See, e.g., Mexico's National Confederation of Livestock
Organizations (431); North American Meat Institute and Meat
Importers' Council of America (508); National Cattlemen's Beef
Association (589); Montana Stockgrowers Association (635); Embassy
of Canada (637). Some of these stakeholders argued the FTC should
specifically exempt meat labeling from the Rule's coverage.
\88\ North American Meat Institute and the Meat Importers'
Council of America (508). See also National Cattlemen's Beef
Association (589) (``remind[ing] FTC that the Federal Meat
Inspection Act of 1906 (21 U.S.C. 601 et seq.) grants the U.S.
Department of Agriculture (USDA) primary jurisdiction over all meat
food product oversight activities, including the approval and
verification of geographic and origin labeling claims.'').
\89\ Montana Stockgrowers Association (635).
\90\ Mexico's National Confederation of Livestock Organizations
(431); National Cattlemen's Beef Association (589); see also Embassy
of Canada (637) (stating, in light of 2015 WTO proceedings, the
Government of Canada ``will continue to closely monitor the
development of the proposed'' Rule).
---------------------------------------------------------------------------
2. Shrimp
The Commission also received dozens of comments from
representatives of the domestic shrimp industry. Most of these
expressed general support for the proposed rule, and recommended the
FTC allow MUSA labels only for shrimp caught, harvested, and processed
in the United States.
Although they expressed enthusiasm for the potential application of
the proposed MUSA rule's ``all or virtually all'' standard in shrimp
labeling, commenters acknowledged that USDA's Country of Origin
Labeling (``COOL'') regulations \91\ have primary authority in this
space. The COOL regulations require ``retail establishments'' to
provide country-of-origin information for wild and farm-raised fish and
shellfish,\92\ and incorporate specific standards under which marketers
can label shrimp as MUSA.\93\ However, commenters identified a possible
gap in regulatory coverage, explaining that, pursuant to USDA
Agricultural Marketing Service (``AMS'') regulations governing country-
of-origin labeling for fish and shellfish, COOL does not apply to
processed shrimp products, including breaded or marinated shrimp.\94\
In addition, as described above in Section II.C.1., these commenters
noted that USDA COOL regulations do not apply to claims regarding
shrimp or shrimp products on restaurant menus.\95\ Thus, these
commenters urged the FTC to ``us[e] its authority to enforce the MUSA
rule [with respect to these categories of shrimp products, thereby] . .
. filling a void in federal labeling accountability and providing
certainty to the seafood market during this time of widespread economic
instability.'' \96\
---------------------------------------------------------------------------
\91\ 7 CFR part 60.
\92\ 7 U.S.C. 1638(1).
\93\ 7 CFR 60.128.
\94\ ASPA (633) (citing 7 CFR 60.119).
\95\ See, e.g., Southern Shrimp Alliance (380).
\96\ ASPA (633), at 2.
---------------------------------------------------------------------------
3. Analysis
The FTC shares jurisdiction over country-of-origin claims for
agricultural products with the USDA and, in some instances, the Food
and Drug Administration (``FDA''). USDA and FDA have primary
jurisdiction over labeling issues for the food products within their
purview.\97\ Section 45a specifically provides that ``Nothing in this
section shall preclude the application of other provisions of law
relating to labeling.'' \98\ Accordingly, Section 323.5(a) of this rule
makes clear that the rule does not supersede, alter, or affect the
application of any other federal statute or regulation relating to
country-of-origin labeling requirements, including but not limited to
regulations issued under the FMIA, 21 U.S.C. 601 et seq.; the Poultry
Products Inspection Act, 21 U.S.C. 451 et seq.; or the Egg Products
Inspection Act, 21 U.S.C. 1031 et seq.
---------------------------------------------------------------------------
\97\ See Memorandum of Understanding between Federal Trade
Commission and the Food and Drug Administration, 36 FR 18539 (Sept.
16, 1971).
\98\ 15 U.S.C. 45a.
---------------------------------------------------------------------------
Congress has granted the USDA's FSIS specific authority to regulate
agricultural products, including, among others, beef and chicken
products. The USDA regulates labels on meat products sold at retail
pursuant to the FMIA, which prohibits misleading labels.\99\ Although
FSIS's Policy Book has permitted voluntary claims of ``Product of USA''
for imported products under FSIS's jurisdiction, including beef
products, processed in the USA, FSIS recently explained this guidance
``may be misleading to consumers and may not meet consumer expectations
of what `Product of USA' signifies.'' \100\ Accordingly, the USDA
announced plans to initiate a rulemaking to alleviate any potential
confusion in the
[[Page 37030]]
marketplace.\101\ As that proceeding unfolds, the Commission remains
committed to engaging with the USDA to ensure American consumers
receive truthful and accurate information about the beef products they
buy.
---------------------------------------------------------------------------
\99\ 21 U.S.C. 601(n)(1); 9 CFR 317.8(a) (prohibiting labels
that convey ``any false indication of origin'').
\100\ See R. Edelstein Letter to E. Drake (Mar. 26, 2020).
\101\ Id.
---------------------------------------------------------------------------
Under its COOL regulations, USDA's AMS has primary authority over
country-of-origin labels for most fish and shellfish products.\102\
Because Section 45a's general grant of rulemaking authority does not
authorize the Commission to issue regulations that would preclude the
application of existing statutes and regulations addressing
agricultural product labeling, the FTC defers to AMS's regulatory
scheme for COOL for fish and shellfish. Section 323.5 makes clear the
rule does not supersede, alter, or affect any other federal statute or
regulation relating to country-of-origin labeling requirements.
However, to the extent certain, limited categories of agricultural
products fall outside USDA's jurisdiction, the Commission will analyze
claims on a case-by-case basis and consult with other agencies as
appropriate.\103\
---------------------------------------------------------------------------
\102\ 7 U.S.C. 1638(1); 7 CFR 60.128.
\103\ The FTC notes deceptive claims on restaurant menus appear
to be largely a regional issue, and therefore are being addressed
through state legislation. See, e.g., La. R.S. Sec. 40:5.5.4
(requiring food service establishments to provide notice to
consumers if crawfish or shrimp is imported); La. R.S. Sec.
56:578.14 (``No owner or manager of a restaurant that sells imported
crawfish or shrimp shall misrepresent to the public, either
verbally, on a menu, or on signs displayed on the premises, that the
crawfish or shrimp is domestic.''). FTC staff will continue to
monitor this issue.
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E. Other Proposals
Some commenters proposed a series of other amendments, arguing
variously that the Rule should preempt state law entirely; \104\ cover
MUSA advertising generally; \105\ make country-of-origin labeling
mandatory for all products; \106\ incorporate provisions relating to
qualified U.S.-origin claims; \107\ and include language specifically
correlating penalties to firm sizes.\108\ The Commission declines to
adopt these changes, which are inconsistent with its rulemaking mandate
under Section 45a. As discussed above, Section 45a grants the
Commission authority to issue rules to prevent unfair or deceptive acts
or practices relating to MUSA labeling. Specifically, Section 45a
authorizes the Commission to issue rules to require MUSA labeling to
``be consistent with decisions and orders of the Federal Trade
Commission issued pursuant to [Section 5 of the FTC Act].'' The FTC may
seek civil penalties for violations of such rules.
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\104\ BWC (622); AAFA (675). Additionally, PCPC (589) argued the
Rule should specifically preempt a private right of action. However,
two commenters agreed with the section as drafted as a means to
``ensure regulatory certainty and consistency of product U.S. origin
labels nationwide.'' RILA (570). See also NAM (623) (recognizing the
``value of utilizing preemption to create a uniform MUSA
standard'').
\105\ UIUC Accounting Group A13 (5); Shirley Boyd (6); UIUC--
BADM 40--A02 (22); Senators (373); United Steelworkers (526); Women
Involved in Farm Economics/Pam Potthoff Beef Chairman (672).
\106\ The Commission received 30 comments arguing country-of-
origin labeling should be mandatory for all products. See, e.g., J
R. Brookshire (9). Additionally, six commenters argued specifically
in favor of mandatory country-of-origin labeling for all products
sold online. See, e.g., Made in USA Foundation (2).
\107\ Twelve commenters requested coverage of qualified claims.
See, e.g., Shirley Boyd (6); United Steelworkers (526); AAM (611);
CPA (625).
\108\ Six commenters argued civil penalties should be linked to
company size. See, e.g., Chris Posey (7).
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1. Preemption
The Commission intends to preempt state statutes or regulations
that are inconsistent with the Commission's rules only to the extent of
the inconsistency.\109\ When it enacted Section 45a, Congress declined
to expressly preempt state regulation or otherwise demonstrate a clear
intent for federal law to occupy the field of regulation in
question.\110\ Accordingly, Section 323.5 of the Rule preempts a state
statute, regulation, order, or interpretation ``to the extent that such
statute, regulation, order, or interpretation is inconsistent with the
provisions of this part, and then only to the extent of the
inconsistency.'' Moreover, the rule makes clear that a state statute,
regulation, order, or interpretation is not inconsistent with the rule
if the protection such statute, regulation, order, or interpretation
affords any consumer is greater than the protection provided by the
rule.
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\109\ See City of New York v. FCC, 486 U.S. 57, 64 (1988) (``The
statutorily authorized regulations of an agency will pre-empt any
state or local law that conflicts with such regulations or
frustrates the purposes thereof.'').
\110\ See, e.g., Mozilla v. FCC, 940 F.3d 1, 74-75 (D.C. Cir.
2019).
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2. MUSA Advertising Generally
Some commenters encouraged the Commission to expand the proposed
rule to cover all advertising that includes any U.S.-origin claim,
rather than focusing as proposed on MUSA labeling.\111\ Section 45a,
however, is directed at labels on products declaring that a product is
``in whole or substantial part of domestic origin'' and thus may be
labeled ``Made in the U.S.A.,'' or the equivalent thereof. The statute
does not explicitly address general advertising claims beyond the
context of labeling. Accordingly, in enacting this rule, the Commission
has not focused on advertising more generally, but retains the proposed
rule's focus on MUSA claims on labels or in mail order or catalog
advertising, including in online marketplaces, that depict a product
label. However, the FTC's general authority under Sections 5 and 12 of
the FTC Act covers advertising, including advertising of qualified and
unqualified MUSA claims.\112\
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\111\ See, e.g., Shirley Boyd (6) (``The FTC's final rules
should apply to labeling, advertising and other promotional and
marketing materials in addition to labels and mail order catalogs/
promotional materials.'').
\112\ 15 U.S.C. 45(a), 52.
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3. Mandatory Country-of-Origin Labeling
Other commenters recommended the Commission make country-of-origin
labeling mandatory. For example, the Made in USA Foundation proposed
that the Rule should require that all advertisements for specified
categories of products, including all products advertised for sale on
the internet, disclose the country of origin of the products in a clear
and prominent manner.\113\ While the Commission acknowledges that many
consumers may find such information to be valuable in many
circumstances, Section 45a does not authorize the Commission to
establish a mandatory country-of-origin labeling scheme. The statute
grants the Commission authority to issue rules to ensure that Made in
USA claims are not deceptive and are consistent with the Commission's
decisions and orders defining unfair or deceptive acts or practices
under Section 5. Accordingly, the Commission lacks authority under
Section 45a to enact this proposal.
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\113\ Made in USA Foundation (2).
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4. Qualified U.S.-Origin Claims
Some commenters also argued that the rule should also address
qualified U.S.-origin claims. The United Steelworkers asserted that,
``[a]s firms with global supply chains seek to benefit from the value
consumers place in products with American content, we must ensure that
qualified claims accurately represent the level of value creation in
the United States.'' \114\ Section 45a, however, is directed to labels
on products declaring that a product is ``in whole or substantial part
of domestic origin,'' and therefore the Rule is directed to unqualified
claims, rather than more varied qualified claims. Accordingly, the FTC
will continue to address deceptive qualified U.S.-origin claims under
its general
[[Page 37031]]
authority in Section 5 of the FTC Act.\115\ Marketers should continue
to consult the Policy Statement for guidance on the application of the
Commission's Section 5 analysis to such claims including, but not
limited to, ``Assembled in USA,'' claims indicating the amount of U.S.
content (e.g., ``60% U.S. Content''), claims indicating the parts or
materials that are imported (e.g., ``Made in USA from imported
leather''), or claims about specific processes or parts (e.g., claims a
product is ``designed,'' ``painted,'' or ``written'' in the United
States).
---------------------------------------------------------------------------
\114\ United Steelworkers (526).
\115\ 15 U.S.C. 45(a).
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5. Civil Penalties
Some commenters argued that larger businesses may not be
sufficiently deterred by the current maximum civil penalty amounts for
violations of Commission rules and recommended that civil penalties
should be increased for larger firms.\116\ The Commission lacks
authority, however, to establish civil penalty maximums that depart
from the levels provided by statute. Civil penalty amounts for
violations of the Commission's rules are established by the FTC
Act.\117\ Nonetheless, the Commission believes that its civil penalty
authority generally provides an effective deterrent against rule
violations, and notes that civil penalties for violations of a rule are
assessed per violation. Moreover, the FTC Act establishes a series of
factors for courts to consider in assessing appropriate civil penalty
amounts in individual enforcement matters, including ``the degree of
culpability, any history of prior such conduct, ability to pay, effect
on ability to continue to do business, and such other matters as
justice may require.'' \118\ To the extent firm size is an appropriate
consideration within one or more of these factors, the Commission will
take that factor into account in seeking civil penalties.
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\116\ Chris Posey (7).
\117\ See 15 U.S.C. 45(m)(1)(A) (establishing civil penalties
for violations of Commission rules); see also 16 CFR 1.98 (stating
currently applicable maximum civil penalty amounts).
\118\ 15 U.S.C. 45(m)(1)(C).
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III. Final Rule
For the reasons described above, the Commission has determined to
adopt the substantive provisions of the rule as initially proposed.
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.
To avoid confusion or perceived conflict with other country-of-
origin labeling laws and regulations, the rule specifies that it does
not supersede, alter, or affect any other federal or state statute or
regulation relating to country-of-origin labels, except to the extent
that a state country-of-origin statute, regulation, order, or
interpretation is inconsistent with the rule.
Finally, the Commission has adopted a new Section, 323.6, to
address commenter concerns about the applicability of the ``all or
virtually all'' standard across product categories. This provision
allows marketers and other covered persons to seek full or partial
exemptions if they can demonstrate application of the rule's
requirements to a particular product or class of product is not
necessary to prevent the acts or practices to which the rule relates.
The Commission's rules of practice governing petitions for rulemaking
provide the procedures for submitting such petitions.\119\ Pursuant to
this process, interested persons may file relevant consumer perception
evidence and data with the Commission. If the Commission deems the
petition sufficient to warrant further consideration, it will follow
the procedures outlined in Section 1.25 of its rules.
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\119\ See 16 CFR 1.25.
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IV. Paperwork Reduction Act
The Paperwork Reduction Act (``PRA''), 44 U.S.C. 3501 et seq.,
requires federal agencies to seek and obtain Office of Management and
Budget (``OMB'') approval before undertaking a collection of
information directed to ten or more persons. The Commission has
determined that there are no new requirements for information
collection associated with this final rule.
V. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA''), as amended by the Small
Business Regulatory Enforcement Fairness Act of 1996, requires that the
Commission provide an Initial Regulatory Flexibility Analysis with a
proposed rule, and a Final Regulatory Flexibility Analysis with the
final Rule, unless the Commission certifies that the proposed Rule will
not have a significant impact on a substantial number of small
entities.\120\
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\120\ 5 U.S.C. 603-605.
---------------------------------------------------------------------------
The Commission recognizes some affected entities may qualify as
small businesses under the relevant thresholds. However, the Commission
anticipates that the final Rule will not have the threshold impact on
small entities. First, the rule includes no new barriers to making
claims, such as reporting or approval requirements. Second, the rule
merely codifies standards established in FTC enforcement Decisions and
Orders for decades. Therefore, the Rule imposes no new burdens on law-
abiding businesses.
Accordingly, the Commission certifies that the final rule will not
have a significant economic impact on a substantial number of small
businesses. Although the Commission certifies under the RFA that the
amendment will not have a significant impact on a substantial number of
small entities, the Commission has determined, nonetheless, that it is
appropriate to publish a Final Regulatory Flexibility Analysis in order
to explain the impact of the amendments on small entities as follows:
A. Description of the Need for and Objectives of the Rule
The Commission proposed the MUSA Labeling Rule for two primary
reasons: To strengthen its enforcement program and make it easier for
businesses to understand and comply with the law. Specifically, by
codifying the existing standards applicable to MUSA claims in a rule as
authorized by Congress, the FTC will be able to provide more certainty
to marketers about the standard for making unqualified claims on
product labels, without imposing any new obligations on market
participants. In addition, enactment of the Rule will enhance
deterrence by authorizing civil penalties against those making unlawful
MUSA claims on product labels.
B. Issues Raised by Comments in Response to the IRFA
The Commission received six comments specifically related to the
impact of the Rule on small businesses.\121\ Of those six, all
[[Page 37032]]
anticipated the rule would benefit small businesses, with the exception
of the Natural Products Association, which argued that the Rule would
impose costs on dietary supplement manufacturers that would have to
relabel products.\122\ The FTC notes that the rule imposes no new
requirements on dietary supplement manufacturers, and that products
requiring relabeling as a result of the FTC's rule were likely
deceptively labeled prior to the Rule's publication. The Chief Counsel
for Advocacy of the Small Business Administration did not submit
comments.
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\121\ Anonymous (24) (commenter is unaware of small entities
affected by the NPRM); UIUC--BADM 403--A02 (25) (commenter is
unaware of small entities affected by the NPRM); Family Farm Action
Alliance (543) (anticipating positive economic outcomes for small
business entities as a result of the rule); Leo McDonnell (578)
(anticipating benefits for small businesses, including ranchers and
feeders); McKenna Walsh (581) (stating the Rule will be helpful for
small businesses lacking resources to engage in MUSA litigation);
Natural Products Association (618) (stating the rule would require
small dietary supplement businesses to relabel products).
\122\ Natural Products Association (618).
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C. Estimate of Number of Small Entities to Which the Rule Will Apply
The Small Business Administration estimates that in 2018 there were
30.2 million small businesses in the United States. The rule will apply
to small businesses that make MUSA claims on product labels. The
Commission estimates the rule will not have a significant impact on
these small businesses because it does not impose any new obligations
on law-abiding businesses; rather, it merely codifies standards
established in FTC enforcement Decisions and Orders for decades.
D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements, Including Classes of Covered Small Entities and
Professional Skills Needed To Comply
The rule imposes no affirmative reporting or recordkeeping
requirements. The rule's compliance requirements, consistent with the
Policy Statement and longstanding Commission case law, require that
marketers may not make unqualified U.S.-origin claims on product labels
unless final assembly or processing of the product occurs in the United
States, all significant processing that goes into the product occurs in
the United States, and all or virtually all ingredients or components
of the product are made and sourced in the United States. The small
entities potentially covered by the rule will include all such entities
that make MUSA claims on product labels. The rule codifies the standard
for MUSA claims established in Commission Decisions and Orders, and no
new obligations are anticipated.
E. Description of Steps Taken To Minimize Significant Economic Impact,
if Any, on Small Entities, Including Alternatives
The Commission sought comment and information on the need, if any,
for alternative compliance methods that would reduce the economic
impact of the rule on such small entities. Several commenters proposed
alternatives to the proposed rule including: (1) Introducing a
percentage-of-costs standard; (2) adopting a standard that makes
allowances for imported parts or materials not available in the United
States; (3) aligning with CBP's substantial transformation standard; or
(4) adding a safe harbor for ``good faith'' efforts to comply. Other
commenters proposed that the Commission provide for a delayed effective
date to allow businesses additional time to comply. As discussed above,
the Commission has declined to adopt these alternatives because it
believes they would undermine the effectiveness of the rule. In
addition, the Natural Products Association recommended the FTC
incorporate an example specific to dietary supplements.\123\ The
Commission has declined to include examples specific to any particular
industry in the Rule. The rule codifies the standards articulated in
Commission enforcement decisions that have been applicable to MUSA
claims for decades. FTC guidance and enforcement decisions provide
numerous examples demonstrating how to apply the ``all or virtually
all'' standard in a variety of industries. Accordingly, the Commission
has concluded that it is unnecessary to provide industry-specific
examples in the Rule.
---------------------------------------------------------------------------
\123\ Id.
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As described previously, the rule merely codifies standards already
established in FTC enforcement Decisions and Orders. It does not impose
new substantive obligations on businesses that have already been
complying with their obligations to avoid deceptive claims under
Section 5 of the FTC Act. Under these circumstances, the Commission
does not believe a special exemption for small entities or significant
compliance alternatives are necessary or appropriate to minimize the
compliance burden, if any, on small entities while achieving the
intended purposes of the rule. Nonetheless, the Commission has adopted
a provision allowing covered persons to petition the Commission for an
exemption from the Rule if application of the rule's requirements is
not necessary to prevent the acts or practices to which the rule
relates.
VI. Other Matters
Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.),
the Office of Information and Regulatory Affairs has designated this
rule as not a ``major rule,'' as defined by 5 U.S.C. 804(2).
VII. Final Rule Language
List of Subjects in 16 CFR Part 323
Labeling, U.S. origin.
0
For the reasons stated in the preamble, the Federal Trade Commission
adds part 323 to subchapter C of title 16 of the Code of Federal
Regulations as follows:
PART 323--MADE IN USA LABELING
Sec.
323.1 Definitions.
323.2 Prohibited acts.
323.3 Applicability to mail order advertising.
323.4 Enforcement.
323.5 Relation to Federal and State laws.
323.6 Exemptions.
Authority: 15 U.S.C. 45a.
Sec. 323.1 Definitions.
As used in this part:
(a) The term Made in the United States means any unqualified
representation, express or implied, that a product or service, or a
specified component thereof, is of U.S. origin, including, but not
limited to, a representation that such product or service is ``made,''
``manufactured,'' ``built,'' ``produced,'' ``created,'' or ``crafted''
in the United States or in America, or any other unqualified U.S.-
origin claim.
(b) The terms mail order catalog and mail order promotional
material mean any materials, used in the direct sale or direct offering
for sale of any product or service, that are disseminated in print or
by electronic means, and that solicit the purchase of such product or
service by mail, telephone, electronic mail, or some other method
without examining the actual product purchased.
Sec. 323.2 Prohibited acts.
In connection with promoting or offering for sale any good or
service, in or affecting commerce as ``commerce'' is defined in section
4 of the Federal Trade Commission Act, 15 U.S.C. 44, it is an unfair or
deceptive act or practice within the meaning of section 5(a)(1) of the
Federal Trade Commission Act, 15 U.S.C. 45(a)(1), to label any product
as Made in the United States unless the final assembly or processing of
the product occurs in the United States, all significant processing
that goes into the product occurs in the United States, and
[[Page 37033]]
all or virtually all ingredients or components of the product are made
and sourced in the United States.
Sec. 323.3 Applicability to mail order advertising.
To the extent that any mail order catalog or mail order promotional
material includes a seal, mark, tag, or stamp labeling a product Made
in the United States, such label must comply with Sec. 323.2.
Sec. 323.4 Enforcement.
Any violation of this part shall be treated as a violation of a
rule under section 18 of the Federal Trade Commission Act, 15 U.S.C.
57a, regarding unfair or deceptive acts or practices.
Sec. 323.5 Relation to Federal and State laws.
(a) In general. This part shall not be construed as superseding,
altering, or affecting the application of any other federal law or
regulation relating to country-of-origin labeling requirements,
including but not limited to the Federal Meat Inspection Act, 21 U.S.C.
601 et seq., the Poultry Products Inspection Act, 21 U.S.C. 451 et
seq., and the Egg Products Inspection Act, 21 U.S.C. 1031 et seq. In
addition, this part shall not be construed as superseding, altering, or
affecting any other State statute, regulation, order, or interpretation
relating to country-of-origin labeling requirements, except to the
extent that such statute, regulation, order, or interpretation is
inconsistent with the provisions of this part, and then only to the
extent of the inconsistency.
(b) Greater protection under State law. For purposes of this
section, a State statute, regulation, order, or interpretation is not
inconsistent with the provisions of this part if the protection such
statute, regulation, order, or interpretation affords any consumer is
greater than the protection provided under this part, as determined by
the Commission on its own motion or upon the petition of any interested
party.
Sec. 323.6 Exemptions.
Any person to whom this Rule applies may petition the Commission
for a partial or full exemption. The Commission may, in response to
petitions or on its own authority, issue partial or full exemptions
from this part if the Commission finds application of the Rule's
requirements is not necessary to prevent the acts or practices to which
the Rule relates. The Commission shall resolve petitions using the
procedures provided in Sec. 1.25 of this chapter. If appropriate, the
Commission may condition such exemptions on compliance with alternative
standards or requirements to be prescribed by the Commission.
By direction of the Commission.
April J. Tabor,
Secretary.
The following Appendices will not Appear in the Code of Federal
Regulations.
Appendix I: Statement of Commissioner Rohit Chopra Joined by Chair Lina
Khan and Commissioner Rebecca Kelly Slaughter
Today, the Commission has voted to adopt a final Made in USA
rule. The final rule reflects a substantial number of comments from
the public, which overwhelmingly supported this policy change by the
Commission. By formally codifying this rule, the Commission has
activated a broader range of remedies, including the ability to seek
redress, damages, penalties, and other relief from those who lie
about a Made in USA label. The rule will especially benefit small
businesses that rely on the Made in USA label, but lack the
resources to defend themselves from imitators.
Absent this rule, the Commission would be unable to seek this
full set of sanctions. Importantly, this is a ``restatement rule,''
which affirms longstanding guidance and legal precedent with respect
to Made in USA labels--thereby imposing no new obligations on
manufacturers and sellers. Because of the stricter sanctions they
trigger, restatement rules such as this one will increase fraud
deterrence and ensure that victims can be made whole.
Background on the FTC's Permissive Policy on Made in USA Fraud
For decades, there has been a bipartisan consensus among
Commissioners that Made in USA fraud should not be penalized. In my
view, this policy posture was in direct contravention of both the
letter and spirit of the law Congress enacted.
In 1994, shortly after the North American Free Trade Agreement
took effect, Congress enacted legislation to protect the integrity
of our national brand by explicitly authorizing the FTC to trigger
penalties and other relief for Made in USA fraud, but only after
formally codifying a rule.\1\ However, the Commission never even
proposed one.\2\
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\1\ See 15 U.S.C. 45a.
\2\ See generally Statement of Commissioner Rohit Chopra
Regarding Activating Civil Penalties for Made in USA Fraud (Apr. 17,
2019), https://www.ftc.gov/public-statements/2019/04/statement-commissioner-rohit-chopra-regarding-activating-civil-penalties.
---------------------------------------------------------------------------
Instead, over the past quarter century, Commissioners
implemented a highly permissive Made in USA fraud policy, where
violators faced essentially no consequences whatsoever. Even in
cases of blatant abuse of the Made in USA label, Commissioners
routinely voted to allow wrongdoers to settle for no restitution, no
forfeiture of ill-gotten gains, no admission or findings of
liability, and no notice to victims.\3\ In adopting this rule, the
Commission acknowledges that this longstanding policy was misguided
and agrees that the codification of today's final rule is long
overdue.
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\3\ Even without a final rule, Commissioners could have sought
more in administrative settlements, given that much of the Made in
USA fraud detected by Commission staff met the definition of
``dishonest or fraudulent'' in Section 19 of the FTC Act. 15 U.S.C.
57b. Instead, Commissioners routinely accepted settlements with no
meaningful relief at all.
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Noteworthy Provisions of the Final Rule
In 2019, TINA.org filed a petition with the Commission to
promulgate a rule, given the rampant Made in USA fraud across
sectors of the economy. In 2020, the Commission issued a Notice of
Proposed Rulemaking and then analyzed a substantial number of
comments from producers, consumers, foreign governments, and
others.\4\ After considering these comments, the Commission has
adopted a rule consistent with the authority granted by Congress in
1994. There are several aspects worthy of brief discussion.
---------------------------------------------------------------------------
\4\ The Commission received over 700 comments in response to its
Notice of Proposed Rulemaking on Made in USA labeling. See FTC Seeks
Comments on MUSA Rulemaking, Matter No. P074204, Docket ID FTC-2020-
0056 (July 16, 2020), https://www.regulations.gov/docket/FTC-2020-0056.
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First, the Commission has codified the ``all or virtually all''
standard, consistent with the FTC's longstanding Enforcement Policy
Statement on U.S. Origin Claims.\5\ This standard covers unqualified
claims. The Commission must protect the public from deception, and
the agency declines to adopt alternative approaches, as explained in
the final rule.
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\5\ See ``Made in USA'' and Other U.S. Origin Claims, 62 FR
63756 (Dec. 2, 1997).
---------------------------------------------------------------------------
Second, the Commission has outlined a definition of ``label''
consistent with the Commission's expertise on labeling. While the
Commission declines to adopt a definition that includes a list of
specific examples, such as restaurant menus, the definition of label
does extend beyond labels physically affixed to a product. As
described in the rule, other depictions of labels are also covered;
in some circumstances, labels appearing online may also be subject
to the rule.\6\ The Commission declines to cover advertising more
broadly, as this is inconsistent with the authority granted by
Congress.
---------------------------------------------------------------------------
\6\ See 16 CFR 323.3.
---------------------------------------------------------------------------
Third, there was considerable interest in the rulemaking from
farmers, ranchers, and others in the meat and agricultural industry,
with the majority of comments arguing in favor of stricter
standards. The rule declines to grant an exemption sought by the
meatpacking industry, as this would be inconsistent with the
Commission's authority prescribed by Congress under the Packers and
Stockyards Act.\7\ However, contemporaneous with the FTC's vote
today, the U.S. Department of Agriculture has announced that it will
be conducting a top-to-bottom review of its labeling standard. USDA
has previously acknowledged that its
[[Page 37034]]
``Product of USA'' designation may be deceptive. I am extremely
grateful to Secretary Tom Vilsack and USDA staff for the action they
are taking.
---------------------------------------------------------------------------
\7\ See 7 U.S.C. 227.
---------------------------------------------------------------------------
I hope the USDA will study the FTC's rulemaking record carefully
and come to the same conclusion I have: The USDA's Product of USA
standard is misleading and distorts competition in the retail market
for beef and other products. I also believe that unqualified
``Product of USA'' claims for meat products are only appropriate
when the animal was born, raised, and slaughtered in the United
States. Given our shared jurisdiction, I expect that the Commission
will deepen its partnership with the USDA and closely coordinate on
any enforcement proceeding with respect to retail sales of meat and
other products.
Conclusion
The Commission appreciates the substantial public interest in
protecting the Made in USA brand. The final rule provides
substantial benefits to the public by protecting businesses from
losing sales to dishonest competitors, and protecting families
seeking to purchase American-made goods. More broadly, this long-
overdue rule is an important reminder that the Commission must do
more to use the authorities explicitly authorized by Congress to
protect market participants from fraud and abuse. I thank my fellow
Commissioners and members of the Commission staff who contributed to
the development of this final rule, as well as members of the public
for their thoughtful contributions.
Appendix II: Dissenting Statement of Commissioner Christine S. Wilson
Today the Commission announces a Final Rule with respect to
``Made in USA'' (MUSA) labels. I support the FTC's prosecution of
MUSA fraud \1\ and supported its consideration of a rule that
addresses deceptive MUSA claims on labels, consistent with the
authority granted to the FTC by Congress in Section 45a. The Rule
announced today, however, exceeds that authority.
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\1\ I have voted to support every MUSA enforcement action
recommended to the Commission by staff since joining the Commission.
See In the Matter of Gennex Media, LLC No. C-4741 (Apr. 2021),
https://www.ftc.gov/system/files/documents/cases/2023122gennexmediafinalorder.pdf; In the Matter of Chemence, Inc.,
et al., No. 4738 (Feb. 2021), https://www.ftc.gov/system/files/documents/cases/2021-02-10_chemence_admin_order.pdf; In the Matter
of Williams-Sonoma, Inc., No. C-4724 (July 2020), https://www.ftc.gov/system/files/documents/cases/2023025c4724williamssonomaorder.pdf; U.S. v. iSpring Water Systems,
LLC, et al., No. 1:16-cv-1620-AT (N.D. Ga. 2019); https://www.ftc.gov/system/files/documents/cases/172_3033_ispring_water_systems_-_stipulated_order.pdf; In the Matter
of Sandpiper Gear of California, Inc. et al., No. 182-3095, https://www.ftc.gov/enforcement/cases-proceedings/182-3095/sandpiper-california-inc-et-al-matter; Underground Sports d/b/a Patriot Puck,
et al., No. 182-3113 (April 2019), https://www.ftc.gov/enforcement/cases-proceedings/182-3113/underground-sports-inc-doing-business-patriot-puck-et-al; In the Matter of Nectar Sleep, LLC, No.182-3038
(Sept. 2018), https://www.ftc.gov/enforcement/cases-proceedings/182-3038/nectar-brand-llc.
---------------------------------------------------------------------------
Section 45a of the FTC Act--the provision pursuant to which we
advance this Rule--authorizes the Commission to issue rules
governing MUSA claims on products ``with a `Made in the U.S.A.' or
`Made in America' label, or the equivalent thereof.'' The provision
is titled ``Labels on products'' and repeatedly references
``labels.'' The Commission nonetheless has chosen to promulgate a
rule that could be read to cover all advertising, not just labeling.
This Rule is not supported by the plain language of 45a. It is
clear Congress intended to extend rulemaking authority over the many
potential variations (or ``equivalents'') of ``Made in the U.S.A.''
or ``Made in America'' claims that may be found on labels, not
labels and claims made in advertising or marketing. The legislative
history for Section 45a supports this interpretation. Specifically,
the Conference Report on H.R. 3355 discusses any label
characterizing ``a product as `Made in the U.S.A.' or the equivalent
thereof,'' signaling Congress' intent that the statute should cover
not just literal invocations of ``Made in the U.S.A.,'' but also
equivalents to that claim (i.e., Made in America, American Made, and
so on).\2\
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\2\ Conf. Rep. on H.R. 3355 (filed in House (8/21/1994)).
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The Commission's Rule defines the term far more broadly than any
FTC precedent, and in a way that, in my view, exceeds our statutory
grant of rulemaking authority.\3\ The Rule we issue today will cover
not just labels, but all:
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\3\ Several commenters echoed the concerns I raised in my
statement when the Commission sought comment on this proposed Rule
and those raised by Commissioner Phillips. See Council for
Responsible Nutrition Comment; Personal Care Products Council
Comment; National Association of Manufacturers Comment; Anonymous
Comment 592.
``materials, used in the direct sale or direct offering for sale
of any product or service, that are disseminated in print or by
electronic means, and that solicit the purchase of such product or
service by mail, telephone, electronic mail, or some other method
without examining the actual product purchased'' \4\ that include
``a seal, mark, tag, or stamp labeling a product Made in the United
States.'' \5\
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\4\ See Part 323.1(b).
\5\ See Part 323.3.
This language could bring within the scope of the Rule stylized
marks in online advertising or paper catalogs and potentially other
advertising marks, such as hashtags, that contain MUSA claims.\6\
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\6\ Guidance on the definition of ``label'' can be found in
analogous FTC rules and guides in a variety of contexts. There,
``labels'' repeatedly have been defined as a distinct subcategory of
advertising (in other words, not coterminous with advertising)1 and
have been described as objects attached to a product or its
packaging.1 Given both the statutory guidance Congress provided when
it drafted this statute, and precedent concerning the term ``label''
in FTC rules and guides, the Commission has ample landmarks to draft
a Rule that falls within its jurisdictional boundaries.
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In the statement I issued when the Commission sought comment on
this proposed Rule, I noted that were Congress drafting this statute
now, it might choose language to encompass those broader contexts,
including online advertising.\7\ But there was no plausible argument
to be made that the ordinary meaning of the text when enacted in
1994 encompassed online advertising--a period when online shopping
was largely unfamiliar to most consumers.\8\ As it happens, the
Senate recently passed the Country of Origin Labeling Online Act
(COOL Act), which prohibits deceptive country-of-origin
representations. There Congress did, in fact, specify its
application to labeling as well as other forms of online
advertising:
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\7\ Statement of Commissioner Christine S. Wilson Concurring in
Part, Dissenting in Part, Notice of Proposed Rulemaking related to
Made in USA Claims (June 22, 2020), https://www.ftc.gov/system/files/documents/public_statements/1577099/p074204musawilsonstatementrev.pdf.
\8\ Report: Americans Going Online . . . Explosive Growth,
Uncertain Destinations, Pew Research Center (Oct. 16, 1995) (noting
``most consumers are still feeling their way through cyberspace . .
. [and] have yet to begin purchasing goods and services online''),
available at: https://www.people-press.org/1995/10/16/americans-going-online-explosive-growth-uncertain-destinations/.
it shall be unlawful to make any false or deceptive
representation that a product or its parts or processing are of
United States origin in any labeling, advertising, or other
promotional materials, or any other form of marketing, including
marketing through digital or electronic means in the United
States.\9\
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\9\ U.S. Innovation and Competition Act, S. 1260, Section 2510,
117th Cong. (June 8, 2021), https://www.democrats.senate.gov/imo/media/doc/DAV21A48.pdf.
This language, in contrast to Section 45a, leaves no doubt it
applies to labeling and advertising and confirms Congress views
``labeling'' as distinct from ``advertising or other promotional
materials,'' including in an online context.
To the extent the Commission seeks to issue a broader
prohibition on Made in USA fraud, as Commissioner Chopra asserted
when the Commission sought comment on this Rule, it has other
options. The Commission can institute a rulemaking proceeding
pursuant to Section 18 of the FTC Act. Several commenters suggested
that rather than promulgate a limited rule for labeling claims, the
Commission should conduct a full proceeding to address all
advertising claims.\10\ The Commission has not taken this action.
The Commission alternatively could work with Congress to effectuate
the passage of the COOL Act, which would appear to moot this Rule if
enacted.
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\10\ See UIUC Accounting Group Comment; Shirley Boyd Comment;
UIUC--BADM Comment; Senators Comment; United Steelworkers Comment;
Women Involved in Farm Economics/Pam Potthoff Beef Chairman Comment.
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Accordingly, because this Rule exceeds the scope of authority
granted by Congress to the FTC, I dissent. I do not support
creatively and expansively interpreting the agency's jurisdiction
with respect to rulemaking authority.
The Commission, for more than 80 years, built a comprehensive
program to ensure
[[Page 37035]]
consumers can trust ``Made in the USA'' claims.\11\ My colleagues
believe the Commission's 80 year MUSA enforcement program was a
failure and only a rule and the imposition of penalties will deter
false MUSA claims. I believe administrative consents, which were an
integral part of this program, can be an appropriate remedy to
address deceptive MUSA claims, consistent with the views of
bipartisan Commissions during the last 25 years. I support seeking
monetary relief where appropriate but cannot support acting outside
the constraints of our legislative authority.\12\
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\11\ The FTC has issued over 150 closing letters to companies
making misleading U.S.-origin claims. Made in USA Workshop Report at
3 (June 2020). Companies only receive closing letters if they
demonstrate to staff they will come into compliance with the FTC's
Enforcement Policy Statement on ``Made in the USA.'' The staff's
workshop report explains ``companies often produce substantiation
for updated claims to the FTC staff, and then present a plan that
includes training staff, updating online marketing materials (e.g.,
company websites and social media platforms), updating hardcopy
marketing materials (e.g., product packaging, advertisements,
tradeshow materials), and working with dealers, distributors, and
third-party retailers to ensure downstream claims are in
compliance.'' Id. at 3 n.7. The FTC has also settled over 25
enforcement actions, charging that companies refused to come into
compliance or engaged in outright fraud. Id.
\12\ I would note as well that seeking civil penalties for
deceptive MUSA claims, as defined under the Commission's Rule, could
have adverse market effects. Excessive penalties, divorced from
harm, can result in over-deterrence. Importantly, the costs
associated with over-deterrence are likely to increase with the
expansiveness of the definition of labelling.
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I fear as well this Commission's desire to promulgate or utilize
our regulatory authority in ways that exceed the boundaries of
underlying statutes and corresponding Congressional intent will
continue. The Supreme Court's recent decision in AMG \13\ has
eliminated the FTC's ability to seek equitable monetary relief under
Section 13(b) of the FTC Act to compensate consumers. Thus, the
temptation to test the limits of our remaining sources of authority
is strong. I urge my colleagues to pause. Previous FTC forays into
areas outside its jurisdictional authority have resulted in swift
condemnation from the courts and Congress.\14\ Expansive
interpretations of our rulemaking authority will not engender
confidence among members of Congress who have in the past expressed
qualms about the FTC's history of frolics and detours.\15\
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\13\ AMG v. FTC, slip op No. 19-508 (Apr. 22, 2021), https://www.supremecourt.gov/opinions/20pdf/19-508_l6gn.pdf.
\14\ See Federal Trade Commission Improvements Act of 1980,
Public Law 96-252, 94 Stat. 374 (1980) (reforming the ability of the
FTC to promulgate rules by requiring a multi-step process with
public comment and subject to Congressional review). This Act also
authorized $255 million in funding for the Commission and was the
first time since 1977 the agency was funded through the traditional
funding process after the backlash from Congress over its rulemaking
activities. See Kintner, Earl, et al., ``The Effect of the Federal
Trade Commission Improvements Act of 1980 on the FTC's Rulemaking
and Enforcement Authority,'' 58 Wash. U. Law Rev. 847 (1980); see
also J. Howard Beagles III and Timothy J. Muris, FTC Consumer
Protection at 100: 1970s Redux or Protecting Markets to Protect
Consumers?, 83 Geo. Wash. L. Rev. 2157 (2015) (describing the
``disastrous failures'' of the FTC in the 1970s and the 1980s from
enforcement and regulatory overreach and quoting Jean Carper, The
Backlash at the FTC, Wash. Post, C1 (Feb. 6, 1977) (describing the
backlash from Congress at the FTC, after a period of intense
rulemaking activity culminating in the agency's being dubbed the
``National Nanny'')); see also Alex Propes, Privacy and FTC
Rulemaking: A Historical Context, IAB (Nov. 6, 2018) (discussing how
the FTC's rulemaking history could be influencing Congressional
comfort with vesting the FTC with additional privacy authority),
https://www.iab.com/news/privacy-ftc-rulemaking-authority-a-historical-context/.
\15\ See Transcript: Oversight of the Federal Trade Commission:
Strengthening Protections for Americans' Privacy and Data Security
(May 8, 2019), available at: https://docs.house.gov/meetings/IF/IF17/20190508/109415/HHRG-116-IF17-Transcript-20190508.pdf. At this
Hearing, Rep. McMorris Rogers stated: ``In various proposals, some
groups have called for the FTC to have additional resources and
authorities. I remain skeptical of Congress delegating broad
authority to the FTC or any agency. However, we must be mindful of
the complexities of this issue as well as the lessons learned from
previous grants of rulemaking authority to the Commission.''
Transcript at 8-9. Rep. Walden similarly stated: ``it has been a few
decades, but there was a time when the FTC, as we heard, was given
broad rulemaking authority but stepped past the bounds of what
Congress and the public supported. This required further
congressional action and new restrictions on the Commission.''
Transcript at 62.
[FR Doc. 2021-14610 Filed 7-13-21; 8:45 am]
BILLING CODE 6750-01-P
