On July 1, under the headline “FTC Issues Rule to Deter Rampant Made in USA Fraud,” the Federal Trade Commission (“FTC”) announced that it finalized a rule “that will crack down on marketers who make false, unqualified claims that their products are Made in the USA.” The announcement noted that after the North American Free Trade Agreement (“NAFTA”) went into effect, Congress enacted legislation authorizing the FTC to impose civil penalties for “Made in USA fraud,” but there has been a bipartisan view at the FTC that violations should not be penalized – until now.
On July 14, the FTC published its Final Rule – “Made in USA Labeling Rule” – in the Federal Register (86 FR 37022), effective as of Friday, August 13, 2021. According to the FTC, it received more than 700 comments in response to its July 16, 2020 Notice of Proposed Rulemaking (85 FR 431612), which generally supported the proposed new rule as a way to provide clarity and deter bad actors. The FTC also stated that the majority of commenters indicated the new rule is a proper exercise of the agency’s authority.
In recent years, Section 232 duties on steel and aluminum products, Section 301 duties on Chinese-origin, and Withhold Release Orders (“WRO”) issued by U.S. Customs and Border Protection (“CBP”) to combat forced and child labor have been imposed on various finished goods, components, materials, and other items imported into the U.S. These trade remedy and enforcement measures have provided some impetus for onshoring and nearshoring of supply chains for U.S. and non-resident importers.
For many companies, “Made in USA” (“MUSA”) claims might be a novel regulatory compliance issue that could lead to dealing with FTC enforcement actions, including civil penalties. MUSA claims can also be intertwined with country of origin marking issues governed by CBP laws and regulations when U.S.-origin components, materials, subassemblies and the like are exported to other countries such as Canada, China, Mexico, or Vietnam, for processing or final assembly before being imported into the U.S. as finished goods. Therefore, understanding and complying with the FTC’s new Made in USA Labeling Rule is critical.
Significantly, the Final Rule does not create new regulatory requirements or compliance burdens. The Final Rule expressly states it “does not supersede, alter or affect any other federal statute or regulation relating to country-of-origin labels.” Instead, the Final Rule maintains the “all or virtually all” standard and, in general, codifies the FTC’s Enforcement Policy Statement on U.S. Origin Claims, published in 1997.
The Final Rule amends Title 16 of the Code of Federal Regulations (“C.F.R.”) to add 16 C.F.R. Part 323, which defines “Made in the United States” to mean “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.”
Part 323 also prohibits and deems it to be an unfair or deceptive trade practice, within the meaning of the Federal Trade Commission Act (15 U.S.C. § 44) 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
- all or virtually all ingredients or components of the product are made and sourced in the United States.
Finally, the amendments now make clear that a violation of the amended MUSA regulations “shall be treated as a violation for which the FTC is authorized to seek a civil penalty in the current maximum amount of $43,280 per violation.
Notably, the FTC rejected suggestions from some commenters that the Final Rule extend to qualified MUSA claims, such as “Assembled in the USA” or “Made in the USA from Imported Parts.” Instead, the FTC will rely on its existing authority under § 5 of the Federal Trade Commission Act.
In light of these amendments and new penalty authority, companies should prepare for increased FTC enforcement over unqualified MUSA claims.
The attorneys at Flannery | Georgalis have the experience necessary to help you evaluate Made in USA and related country of origin claims, including responding to investigations and penalty proceedings and to liaise on your behalf with government agencies such as the FTC and CBP.
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