The Problem With the FTC’s Made In The USA Regulations

The Problem With the FTC’s Made In The USA Regulations

July 14, 2016 | Made In The U.S.A.

Assembled or Made in USA. Attached to such labels is American pride and the idea that the product was fabricated with American hands for others in the United States. Yet, despite the forever changing global economy and relationships with foreign countries, the Federal Trade Commission (FTC) continues to uphold a strict, double-edged and obsolete standard from 1998. Recent run-ins with the popular watch-making business Shinola proves that there are problems with the FTC’s Made in USA labeling policies.

Interpretation of FTC’s “Made in USA” and “Assembled in USA” labels is left mainly to a company that seeks to manufacture goods. As long as the goods being created and sent out into the American market have been “all or virtually all” made in the United States, they can don the elusive “Made in USA” label. To be “virtually all” means to have undergone significant construction and processing on American soil. In other words, no foreign content whatsoever. That’s where the “Assembled in USA” label gets value. A product assembled in America that includes foreign pieces must undergo “substantial transformation” on U.S. soil.

The FTC's Case Against Shinola's "Built In Detroit" Labels

In the case of the Detroit-based company called Shinola, the FTC made a case against their “Built in Detroit” claims because pieces of their watches are manufactured in Switzerland and Thailand. The timepieces’ dials, crystals and hands are from China. Apparently, to the FTC, Shinola’s “Built in Detroit” label is misleading for consumers, since they may assume that because the watches were put together in Detroit that they were 100%--raw components and all—made in America.

In a message from Shinola’s founder, Tom Kartstotis, he says that when it comes to watchmaking, “Many of the components and raw materials are simply not available in the US, and because of that we are unable to meet the almost unattainable ‘Made in USA’ standards created by the government.” However, when one looks at “Built in USA” or “Built in Detroit,” does that not sound like a qualified claim? Since the watches are a blend of foreign and domestic goods, using “Built in Detroit” is not necessarily misleading. Even the FTC compliance guidelines state that a company can say “60% U.S. content” or “Made in USA of U.S. and imported parts.” But when looking at “Assembled in USA” rules, a computer with an imported hard drive and processor, meaning a range of 20-50% foreign materials, would be in violation of either label, regardless of the large amount of materials being utilized and assembled by an American-owned company.

FTC guidelines suggest that for a company to have a solidly backed “Made in USA” claim, they need to be able to source where the raw materials of their product have come from. This requires assessment of costs as well as the processing of those materials, tying into the “substantial transformation” prerequisite. The argument is that if the costs of certain components can be cut through overseas production, like Swiss movement pieces or Japanese nylon, then that detracts from the authenticity of a “Made in USA” claim.

What The FTC's Rules Mean For U.S. Manufacturers

So what does that mean for companies like Shinola, whose watches are made of critical parts from overseas but completely built by over 400 highly skilled American watchmakers? It places them under the FTC’s knife, so to speak. Shinola understood that it could not claim to be purely American made because of the current global economy and procurement of essential movement pieces. So the company partnered with Ronda AG, a Swiss manufacturer; and this partnership has been alluded to in the companies ads and in the approximate sourcing of all its products which is available as online content. Everything else produced by Shinola—watch straps, leather, and bike parts—is largely produced in American cities.

From that perspective, the company’s watches being “Built in Detroit” seems like a justified claim. Yet, to avoid further backlash from the Federal Trade Commission, Kartstotis decided to make the addendum “Built in Detroit of Swiss and imported parts.” An inquiry was made to the FTC about Shinola continuing to print “Detroit” on their watch faces even though the internal pieces were not manufactured in America. The response was as confusing as the guidelines—that as long as “Detroit” does not deceive consumers, it can be used. Wouldn’t that also mean “Built in Detroit” is acceptable?

When it comes to adhering to the rules and regulations set forth by the FTC’s Made in USA policies, there are undoubtedly multiple blurred lines. With changing global economy and reliance on outsourcing, “Made in USA” has been made impossible for some manufacturing companies. The contradictory regulations of the FTC are plainly seen with the case against Shinola, whose “Built in Detroit” merely states their pride in having quality timepieces assembled by American workers.