This week msnbc.com published a series of articles on manufacturing in the United States. (Here, here, and here.) In a companion photojournalism piece, Newsweek highlights twelve iconic American products that are now made overseas, from baseballs to Stratocasters. While these stories document the reasons for the loss of American manufacturing jobs, they also celebrate the products that are still made in the United States, such as the Cozy Coupe manufactured by Little Tikes in Dublin, Ohio. Of particular interest to our readers is the third msnbc.com article linked above reporting on the FTC’s Made in U.S.A. standard and guidance.
In our experience, companies often don’t understand how stringent the FTC’s "all or virtually all" made in the United States standard is. It first requires that the product's final processing or assembly occur in the U.S. This is only a starting point, however. Having an American manufacturing plant is not the end of the story. For the FTC to be satisfied that a product with an unqualified “Made in U.S.A.” claim is "all or virtually all" of U.S. origin, often times at least 90%, or perhaps more, of the product’s cost of goods sold must be attributable to U.S. parts and processing. In the mid-90s, the FTC proposed changing the "all or virtually all" standard to a 75% threshold. The FTC reversed course in response to pressure from consumer groups, labor unions, businesses and business groups, agriculture organizations, and members of Congress.
Made in USA claims can be valuable to companies, as evidenced by the msnbc.com article on Little Tikes: “Selling products carrying a ‘Made in U.S.A.’ sticker has given [Little Tikes] a marketing advantage, especially after the 9/11 terrorist attacks and again during the recent recession.” As the article indicates, however, maintaining such a high level of domestic costs can be difficult. U.S. suppliers can go out of business, or continuing to source domestically for certain components can place a company at a significant cost disadvantage. Once a “Made in U.S.A.” claim is no longer viable, companies often have little reason to continue to source domestically, particularly when there is a cost differential. Of course advertisers are not limited to unqualified Made in U.S.A. claims. Substantiated qualified claims, such as “Assembled in the U.S.A.” (meaning your manufacturing plant is domestic) or “Made in U.S.A. of U.S. and Foreign Components” (meaning that final processing occurs in the U.S. and domestic content is greater than 50%) can also be used. Even if substantiated, whether these claims are valuable from a marketing standpoint is another matter, and we tend to see these claims fairly infrequently.
One wonders whether the FTC might have had it right in the first place. Would a standard such as 75% that is easier for companies to meet but still provides for substantial domestic content strike a better balance between consumer’s understanding of the claim and maintaining sufficient incentives for manufactures to continue to source domestically?