The Federal Trade Commission (FTC) regulates claims of products advertised as being “Made in the USA” under its general authority to act against deceptive acts and practices. In order for a product to be labeled “Made in the USA,” it must meet the very strict requirement of the FTC that “all or virtually all” of the production and content be of US origin. What exactly does this mean?
A product that is “all or virtually all” made in the USA is one in which all significant parts originated in the United States and substantially all of the manufacturing or processing of the product took place in the United States. The FTC has explained that the product should only contain a “de minimus” or “negligible” amount of foreign content. But the FTC has not provided any definitions for these terms, stating instead that there is no bright line test that can be applied to determine whether “all or virtually all” of a product is made in the United States.
However, the FTC has enacted enforcement guidelines which provide some more specific factors that will be analyzed to determine whether a product qualifies for “Made in the USA” status:
1. Whether the site of final assembly or processing is in the United States – the technical term is that the item must be “substantially transformed” in the United States?
2. What is the proportion of US manufacturing costs (i.e. US parts and processing) to foreign manufacturing costs?
3. How remote is the foreign content – in other words, where in the manufacturing process is the foreign content incorporated (the more remote the better)?
The FTC evaluates these factors on a case-by-case basis and historically has strictly applied the factors.
One warning about the foregoing standards: the State of California has adopted a more strict standard for goods sold in California bearing a “Made in the USA” label. California’s rule is set forth in Section 17533.7 of the Business & Professions Code. The key difference between the FTC standard and the California standard is that the FTC looks at the foreign content of a product as a whole, while the California standard applies to articles, units or parts of a product, which potentially results in a stricter standard.
As can be seen, whether a product can be labeled as “Made in the USA” potentially involves a complicated analysis. Therefore, a business that intends to sell product labeled “Made in the USA” must consult with counsel before marketing and selling the product.