Member Article

A client asks, "Can I say ‘Made in USA’ for my product if it has some imported content"? While the question seems simple enough, the proper response requires the advisor to inquire into the reason for the question and the company’s specific objective. Depending on the client’s response and the pertinent facts, the resulting analysis and legal conclusion may differ considerably.

If the company wants to assert a "Made in USA" or other U.S.-origin claim in the advertising or promotion of its product to U.S. consumers, the analysis will turn on the Federal Trade Commission’s law and enforcement policy regarding deceptive advertising. If, however, the company wishes to assert a U.S.-origin claim for purposes of sale to the U.S. Government or to comply with other U.S. laws involving country of origin, the analysis will focus on how U.S. Customs and Border Protection would view the product pursuant to the agency’s jurisdiction over the marking of imported products. This article examines the key factors involved in each of these related but different analyses.

FTC "Made in USA" Analysis
The Federal Trade Commission (FTC) includes U.S.-origin claims under its broad jurisdiction to regulate deceptive advertising, which applies to claims in labeling, advertisements and other promotional materials, and includes digital and other electronic formats. A claim that a product is made in the U.S. is an objective claim that must be supportable, i.e., it must be truthful and substantiated. There are two types of U.S.-origin claims: unqualified and qualified.
 Unqualified U.S.-origin claims
A marketer or advertiser making an unqualified claim of U.S. origin (e.g., "Made in USA," "Produced in USA," "Manufactured in USA") must be able to show that "all or virtually all" of the product has been made in the U.S. This standard means that the product must have no more than a negligible amount of foreign content.

To meet the standard for making an unqualified "Made in USA" claim, the marketer must satisfy three criteria: (1) the last significant manufacturing or processing must have been done in the U.S. (i.e., the product must have been last "substantially transformed" in the U.S., which means that the article that emerges from the manufacturing process in the U.S. has a name, character or use that differs from the original material subjected to the process); (2) the product must have a very high proportion of U.S. versus foreign content; and (3) the article must not have foreign components that consumers reasonably would view as significant to the final product.

There is no quantitative test for judging when the extent of foreign content (parts or labor) is enough to preclude use of an unqualified U.S.-origin claim, and the extent of foreign content, even if small, must be measured along with the significance of the foreign content to the final product. For example, the FTC has held that a product made in the U.S. with parts that comprised 18% of the total cost of the final product could not be labeled with an unqualified U.S.-origin claim.
 Qualified U.S.-origin claims

Qualified U.S.-origin claims may cover a broad spectrum of possible phraseology. The marketer may state that its product is made in the U.S. with foreign parts, without specifying the country of origin, the specific parts, or percentage of foreign parts. Alternatively, if the manufacturer wants to draw attention to particular foreign content (e.g., African teak wood), he may do so. Percentage-content claims (e.g., "70% U.S. content") are also allowed as long as the methodology used to calculate the cost percentages is a generally accepted one. (In this context, "costs" refers to the total cost of all manufacturing materials, direct manufacturing labor, and manufacturing overhead.)

If the qualified U.S.-origin claim denotes or implies manufacture in the U.S., however, the FTC will require that the product have been last substantially transformed in the U.S. Therefore, labels such as "Made in USA with foreign parts," "Produced in USA with imported raw materials," or "Manufactured in USA with sub-assemblies from Taiwan," would be allowable only if the product underwent its final "substantial transformation" here in the U.S. This test is the same test applied by U.S. Customs in its foreign country-of-origin determinations, as discussed below.

"Assembled in USA" is a common claim that is considered to be a qualified U.S.-origin claim. The distinction between this particular claim and other qualified U.S.-origin claims is that the "Assembled in USA" claim allows the marketer to link its product with the U.S. without making any reference to foreign content, even when the product components may be sourced from abroad. To use this claim, however, the FTC requires that the product have undergone its last substantial transformation in the U.S. and its principal assembly here. Thus, to be able to use an "Assembled in USA" claim, the product must have undergone substantial and final assembly in the U.S.

Customs Analysis
To ensure compliance with U.S. Customs requirements regarding the marking of imported products with the proper country of origin, companies often will request advisory rulings from Customs. Customs also issues advisory rulings and final determinations of country of origin for the purpose of granting waivers of Buy American restrictions for products offered for sale to the U.S. Government.

Country of origin means the country of original manufacture, production or growth of the article. The original country of origin will change only if the product has undergone a "substantial transformation" into a new or different article. (Rules of origin for products traded between NAFTA countries (U.S.-Canada-Mexico) differ somewhat.) "Substantial transformation" means the article has undergone a transformation creating a "new and different article, having a different name, character or use." This rigorous standard typically requires significant manufacturing, assembly or processing of the original article before Customs will consider the original article to have been substantially transformed into a new or different article. Simple assembly, packaging or repackaging of items generally will not constitute a substantial transformation and thus will not change the country of manufacture of the article.

Country-of-origin determinations are highly fact-specific. As Customs stated recently: In order to determine whether a substantial transformation occurs when components of various origins are assembled into completed products, CBP considers the totality of the circumstances and makes such determinations on a case-by-case basis. The country of origin of the item’s components, extent of the processing that occurs within a country, and whether such processing renders a product with a new name, character, and use are primary considerations in such cases. Additionally, factors such as the resources expended on product design and development, extent and nature of post-assembly inspection and testing procedures, and the degree of skill required during the actual manufacturing process may be relevant when determining whether a substantial transformation has occurred. No one factor is determinative.

In this June 2011 ruling involving office chairs assembled in the U.S. from U.S. and foreign components, Customs ruled that the chairs were of U.S. origin based on the following key facts: The two models had 15 and 35 parts, respectively; the parts were assembled in the U.S. into the final product; some major components of the chairs were of U.S. origin; and the seat backs were designed in the U.S. Although the assembly process in the U.S. was not especially time-consuming, Customs ruled that based on the above facts the foreign components lost their individual identity and when combined with the U.S. components were substantially transformed into a new article of commerce. In reaching this determination, Customs cited a previous ruling on office chairs where Customs held that an office chair consisting of 70 U.S. and foreign parts was of U.S. origin where the numerous parts were assembled in the U.S. and certain key components of the chair were made in the U.S.

As the above discussion indicates, country of origin is not determined by a formulaic approach, but rests on the specific facts of the importation in question. In some instances, the origin determination may be relatively straightforward if, for example, a key component clearly gives the final product its recognizable character and function. For example, in a case involving importation of unfinished brake calipers and rotors from Italy which were then finished by drilling, slotting, and other operations in the U.S. to make the final brake assembly, Customs ruled that the essential identity of these critical components was not substantially altered by the U.S. operations and thus the finished brake system was a product of Italy.

In other cases, however, where multiple domestic and foreign components are involved and no one component imparts the essential character to the final product, Customs will examine all potentially relevant factors, including the source, number and importance of the components; location, nature and complexity of assembly operations; location of the product design and research and development; and location of any proprietary technology (patent/copyrighted/trademarked hardware or software). If a U.S. importer in these circumstances wishes to establish U.S. origin for its product, the importer ideally should attempt to make the strongest argument that the imported components did not themselves establish the essential character of the product, that the U.S. assembly was substantial because of its cost, complexity or the large number of parts that required assembly, and that there are other important U.S. contributions to the final product in the form of U.S.-origin components, technology, etc.

Paul M. Laurenza is Managing Member of the Washington, D.C. office of Dykema. He represents manufacturers, importers, and retailers on product safety, advertising, importation, and other regulatory compliance and enforcement issues involving various federal agencies.