"Made in the USA" Labeling

June 25, 2015

Background

In 1961, the California legislature amended the Unfair Competition Law to include a “Made in the U.S.A.” provision (Bus. & Prof. Code §17533.7) as a response to foreign companies falsely marketing their foreign-made products. The provision prohibits the sale or offer of sale of “any merchandise on which…there appears the words ‘Made in the U.S.A.,’ ‘Made in America,’ ‘U.S.A.,’ or similar words when the merchandize or any article, unit, or part thereof, has been entirely or substantially made, manufactured, or produced outside the United States.” The California Supreme Court has interpreted the law to mean that 100 percent of every piece of every part in a product must be made in the U.S.A. in order to carry the “Made in the U.S.A.” tag. As a result, California maintains the most stringent standards for “Made in the U.S.A.” labeling.

At the federal level, this issue is regulated by the Federal Trade Commission (FTC), which has set forth less rigorous standards than in California. In the eyes of the FTC, “all or virtually all” products should be manufactured in the U.S. This standard takes into account that not all parts of components of a product are made in the U.S. 

The Problem

The California law has created an interstate commerce challenge for manufacturers. Most manufacturers tend to sell products to national and international audiences, whether through distributors or directly to retailers. As such, manufacturers have limited to no control as to where their products are sold especially as products may be redistributed across state lines to meet demand cycles. Because of this reality, manufacturers that produce products meeting the FTC’s federal guidelines may not necessarily meet California’s standards. Therefore, they either have to make a different product or use different labeling for California distribution, a huge and expensive logistic challenge, or meet California law despite being compliant in the eyes of the FTC.

Consequences

While there is not a regulatory agency that oversees the California labeling law, there are legal precedents that have resulted in litigation and financial penalties for companies that fail to adhere to California’s “Made in the U.S.A.” standards. For instance, in Colgan v. Leatherman Tool Group, Inc.  a trial court ordered Leatherman to pay $13 million in restitution (though a higher court later reversed the restitution award and instead fined the company $1,000 – the penalty amount under the Consumer Legal Remedies Act). Lifetime, which sells hoops and backboards at Sports Authority stores, agreed to pay $485,000 in restitution, an additional $500,000 in legal fees, and make a $325,000 donation to a charity to settle its class-action lawsuits.

Current Action

In 2012, the California Assembly introduced a bill that would conform state law with federal law and re-define the percentage of content materials that were required to be made in the U.S.  The bill passed in the Assembly, but failed in the Senate. This year (2015), a similar bill (AB 312) was passed in the Assembly though it’s unknown whether an agreement in the Senate will be reached.  Of note, the California Chamber of Commerce is supporting AB 312.  Meanwhile, Congress has seen proposals over the years most recently S. 1518, a measure that that would pre-empt state “Made in the U.S.A.” laws. S. 1518, sponsored by Senator Mike Lee (R-Utah), is pending in committee.

A key champion for change is the Made in the USA Foundation. The Foundation bills itself as a pro jobs (not pro nor anti union, per se) organization and is funded by grants from the Ford Motor Company, Chrysler Corporation, Lifetime Products, Anheuser Busch, and Whirlpool Corporation to name a few.  Its RAMPARTS project aims to propose federal legislation that would pre-empt state “Made in the USA” laws in an effort to create a national standard.

Conclusion

A major concern to conforming California state law to federal law is that adopting the less rigid federal standard may confuse consumers who are used to the clear and unambiguous California law. While that may be the case, many manufacturers in and outside of California may benefit from the change. MAG Instrument, the maker of the popular Maglite flashlights, has gone on record to say that “because there is no labeling advantage to make almost 100 percent of a product in this country, there is a disincentive for Mag Instrument to even try to make as much of the product as possible in this country. … the reality of the present California standard is that it invites manufacturers to not even try to improve their domestic content percentage, and instead invites them to ‘outsource’ their manufacturing.” Ultimately NAMM members may be impacted by AB 312 or S. 1518 and are encouraged to monitor updates at NAMM.org/public-affairs.