By Mike Montemarano, Associate Editor08.23.21
Recently, the Federal Trade Commission (FTC) finalized a new rule intended to address what it referred to as “rampant Made in USA fraud across sectors of the economy.” The final rule went into effect on Aug. 13, 2021 and would impose fines and other penalties on companies making unsubstantiated U.S.-origin claims.
“For decades, there has been a bipartisan consensus among Commissioners that Made in USA fraud should not be penalized. In my view, this policy posture was in direct contravention of both letter and spirit of the law Congress enacted,” FTC Chair Lina Khan wrote in the new rule. “Commissioners implemented a highly permissive Made in USA fraud policy, where violators faced essentially no consequences whatsoever. Even in cases of blatant abuse of the Made in USA label, Commissioners routinely voted to allow wrongdoers to settle for no restitution, no forfeiture of ill-gotten gains, no admission or findings of liability, and no notice to victims.”
This shift in approach at FTC could mean a crackdown on companies that don’t adhere to standards in the agency’s Enforcement Policy Statement on U.S. Origin Claims. Without proper legal counsel, it may be challenging to determine compliance, said contract manufacturer Lief Labs.
While the new rule doesn’t impose any new requirements, it codifies long-established enforcement policy in place to protect companies that comply with U.S. origin claims regulation. Among the consequential aspects of the rule is that FTC can fine companies up to $43,280 per violation, said Aanchal Sharma, quality assurance specialist at Lief Labs.
“If a violation came to light, it could also reduce the perceived validity of a product as a whole,” Sharma said. “Consumers will call into question the entirety of a company’s claims if they receive penalties for U.S. Origin claims.”
At face value, stating that a product was made in the U.S. on packaging may seem straightforward. However, in order to avoid infraction, companies should depend on thorough traceability practices and expert legal counsel due to many gray areas and intricacies of the regulation.
“A lot of brands think that just because a product is manufactured in the U.S.A., it’s enough,” Sharma said. “I don’t think many companies are aware that this claim is highly regulated by the Federal Trade Commission. Meanwhile, it’s one of the most popular claims we see on labels today. I don’t think brands are aware of what exactly needs to be substantiated, and what needs to be looked into in order to make such a claim.”
For example, a U.S.-origin labeled product can, in fact, contain foreign ingredients, so long as those ingredients were subject to a “substantial change” in the U.S.
“What ‘substantial change’ means is a really, really gray area,” Sharma said. “For example, if you’re making a computer and the steel used is foreign material, that claim can still be substantiated as a ‘Made in the U.S.’ claim. You have to look at how a foreign material was used, how much of the finished product is comprised of the material, production costs, and even the machine used to manufacture a product—as in whether the machine itself was made in the U.S. or if it’s of foreign origin. After all of these factors are taken into account, foreign materials can be incorporated into a final product with Made in the U.S.A. claims.”
As for third-party testing, there isn’t much organization can do to validate compliance with this regulation in particular aside from traceability and document review, Sharma continued. “The best we can do is assure that a final product is safe to consume, and that it’ll help rather than not help […] because ‘Made in USA’ is such an ambiguous claim, and the regulations on it are so broad, we don’t vet for it ourselves. We tell clients to hire professional legal counsel to look into it. I haven’t even come across a case where a company was fined as of yet, but I know the FTC intends to crack down more than ever before, so we might see it happen.”
“For decades, there has been a bipartisan consensus among Commissioners that Made in USA fraud should not be penalized. In my view, this policy posture was in direct contravention of both letter and spirit of the law Congress enacted,” FTC Chair Lina Khan wrote in the new rule. “Commissioners implemented a highly permissive Made in USA fraud policy, where violators faced essentially no consequences whatsoever. Even in cases of blatant abuse of the Made in USA label, Commissioners routinely voted to allow wrongdoers to settle for no restitution, no forfeiture of ill-gotten gains, no admission or findings of liability, and no notice to victims.”
This shift in approach at FTC could mean a crackdown on companies that don’t adhere to standards in the agency’s Enforcement Policy Statement on U.S. Origin Claims. Without proper legal counsel, it may be challenging to determine compliance, said contract manufacturer Lief Labs.
While the new rule doesn’t impose any new requirements, it codifies long-established enforcement policy in place to protect companies that comply with U.S. origin claims regulation. Among the consequential aspects of the rule is that FTC can fine companies up to $43,280 per violation, said Aanchal Sharma, quality assurance specialist at Lief Labs.
“If a violation came to light, it could also reduce the perceived validity of a product as a whole,” Sharma said. “Consumers will call into question the entirety of a company’s claims if they receive penalties for U.S. Origin claims.”
At face value, stating that a product was made in the U.S. on packaging may seem straightforward. However, in order to avoid infraction, companies should depend on thorough traceability practices and expert legal counsel due to many gray areas and intricacies of the regulation.
“A lot of brands think that just because a product is manufactured in the U.S.A., it’s enough,” Sharma said. “I don’t think many companies are aware that this claim is highly regulated by the Federal Trade Commission. Meanwhile, it’s one of the most popular claims we see on labels today. I don’t think brands are aware of what exactly needs to be substantiated, and what needs to be looked into in order to make such a claim.”
For example, a U.S.-origin labeled product can, in fact, contain foreign ingredients, so long as those ingredients were subject to a “substantial change” in the U.S.
“What ‘substantial change’ means is a really, really gray area,” Sharma said. “For example, if you’re making a computer and the steel used is foreign material, that claim can still be substantiated as a ‘Made in the U.S.’ claim. You have to look at how a foreign material was used, how much of the finished product is comprised of the material, production costs, and even the machine used to manufacture a product—as in whether the machine itself was made in the U.S. or if it’s of foreign origin. After all of these factors are taken into account, foreign materials can be incorporated into a final product with Made in the U.S.A. claims.”
As for third-party testing, there isn’t much organization can do to validate compliance with this regulation in particular aside from traceability and document review, Sharma continued. “The best we can do is assure that a final product is safe to consume, and that it’ll help rather than not help […] because ‘Made in USA’ is such an ambiguous claim, and the regulations on it are so broad, we don’t vet for it ourselves. We tell clients to hire professional legal counsel to look into it. I haven’t even come across a case where a company was fined as of yet, but I know the FTC intends to crack down more than ever before, so we might see it happen.”
