FTC Issues Policy to Codify Final Rule on ‘Made in USA’ Claims Unqualified and Allowing Penalties | Hogan Lovells
FTC “Made in USA” policy
In 1997, the Commission issued an Enforcement Policy Statement on U.S. Origin Claims (Policy Statement) in accordance with Section 45 of the FTC Act, which does not allow the use of financial penalties for violations. Under a separate section of the FTC Act, Section 45a, the FTC was allowed to seek sanctions and other remedies for Made in USA fraud, but only after the Commission formally codified a rule. . Until recently, there had been a consistent bipartisan consensus among FTC commissioners that Made in USA fraud should not be penalized. Therefore, the enforcement policy remained an informal document applied under Article 45, rather than a codified rule applied under Article 45a.
The 1997 policy statement set the so-called “all or almost” standard for unqualified Made in USA claims. Specifically, the standard requires that for an unqualified Made in USA claim, the product must (1) undergo final assembly or processing in the United States and (2) the contents of the product must be “all or substantially all” of the product. American origin. Under this standard, only “negligible” or minimus amounts of foreign content are permitted. If a product contains more than a minimum of foreign content, it may still be eligible for a qualified claim, such as “made in the United States from American and foreign ingredients”.
Rule making process
In September 2019, the FTC hosted a Stakeholder Workshop on Made in USA Claims. According to the FTC, participating stakeholders have expressed near universal support for the Commission to exercise the power, pursuant to 15 USC 45a, to issue a rule dealing with Made in USA claims, arguing that it could have an effect. Significant deterrent against illegal Made in USA claims without imposing new burdens on law-abiding companies that met the decades-old “all or virtually all” standard.
In July 2020, the Commission published a notice of a proposal for a regulation on Made in USA labeling. The draft rule proposed to codify the “all or almost” standard, to extend the application to online labeling and to allow sanctions. The draft rule received over 700 comments. According to the Commission, the majority of comments were in favor of finalizing the rule as proposed.
The final rule covers labels on products that make unqualified Made in USA claims. It prohibits traders from making Made in USA claims on labels unless: (1) final assembly or processing of the product occurs in the United States, (2) any significant processing that goes into the product occurs in the United States, and (3) all or substantially all of the ingredients or components of the product are made and originate in the United States. The rule also covers labels with unqualified Made in USA claims appearing in mail order catalogs or mail order (electronic) advertisements.
- All or almost all standard. By codifying the long-standing “all or virtually all” standard, the Council expressly refused to adopt or incorporate any of the various standards recommended by commentators. For example, the FTC considered but rejected a percentage-based assessment, the ability to exclude foreign content not available in the United States, or the incorporation of the Customs Border Patrol’s “substantial transformation” standard (CBP ). The FTC also declined to revise or further clarify any of the definitions or examples of “Made in USA” claims, noting that “there are too many ways to communicate American origin to list” and “the list Non-exhaustive examples provided provide sufficient guidance on the scope of the express and implied claims covered.
- Interaction between labeling and advertising. The FTC conducted this regulation under a special provision in Section 45a of the FTC Act, which authorizes the Commission to issue rules governing “Made in USA” claims specifically on “labels”. This authority differs from the general authority of the FTC under Sections 5 and 12 of the FTC Act to regulate advertising in general. The FTC concluded that Section 45a allows it to regulate labels “that appear in all contexts, whether they appear, for example, on product packaging or online.” However, the FTC clarified that “the final rule does not cover Made in USA claims in all advertisements.”
Thus, the final rule applies to “Made in USA” claims appearing on product labels and in mail order catalogs or mail order promotional material (including email). While the final rule focuses only on labels, the FTC also notes that its “general power under Sections 5 and 12 of the FTC Act covers advertising, including the advertising of qualified and unqualified MUSA claims.” Therefore, the FTC could continue to take action against advertising that does not involve ‘labels’, but in doing so, the Commission should rely on its Sections 5 and 12 authorities, and not on the final rule published in under section 45a.
- Penalties. The FTC law allows the Commission to seek civil penalties of up to US $ 43,792 per violation of the final rule.
- Eligible claims. Section 45a covers labels on products declaring that a product is “wholly or in part of national origin”, and therefore the final rule covers unqualified claims, rather than more varied qualified claims. Accordingly, the FTC will continue to deal with misleading and qualified claims of US origin under its general authority under Section 5 of the FTC Act and in accordance with the policy statement.
- Exemption requests. A new section, § 323.6, has been added to address commentators’ concerns regarding the applicability of the “all or virtually all” standard in all product categories. This provision allows traders and other covered persons to request full or partial exemptions if they can demonstrate that the application of the requirements of the rule to a particular product or class of products is not necessary to prevent the acts or practices to which the rule relates.
- Effective date. The final rule comes into effect on August 13, 2021. Since, in the opinion of the FTC, the final rule only codifies these long-standing principles of application and does not impose any new requirements on traders, the Commission concluded that a deferred effective date was not necessary.
- Commissioner’s comments. The Commission vote approving the publication of the latest Made in USA labeling rule in the Federal Register was 3-2. Several of the commissioners have issued statements regarding the final rule, which can be found in the Federal Register publication and on the FTC website, here.
USDA “Product of the United States” labeling
The final rule makes it clear that it does not affect “the application of any other federal law or regulation relating to country of origin labeling requirements.” The USDA oversees two separate US origin labeling programs: Compulsory Retail Country of Origin (COOL) labeling for certain agricultural products considered “covered products” under Agricultural Marketing regulations. Service (AMS) implementing the Agricultural Marketing Act of 1946; and the Food Safety and Inspection Service (FSIS) policy regarding voluntary “Made in USA” claims on the labels of acceptable meat and poultry products. In its review of the final rule, the FTC uses the example of mandatory origin labeling of seafood under AMS COOL to reinforce that the FTC does not intend replace USDA origin labeling programs.
The FTC has received more than 450 comments seeking clarification on the rule that applies to beef products, and dozens of comments relating to shrimp products. Although the FTC says it relies on USDA origin labeling programs, the FTC also notes in its explanation of the final rule that the FSIS has expressed its intention to review its policy regarding the claims. voluntary ‘Made in USA’ on meat and poultry product labels and that ‘the Commission remains committed to engaging with the USDA to ensure that American consumers receive truthful and accurate information about the beef products they they buy.” FSIS has not initiated rule-making on this matter, although the White House Office of Management and Budget’s unified program says FSIS is working on a rule proposal with a target date of November 2021. .
The adoption of the FTC’s final rule marks a significant shift in the regulatory environment in which businesses operate, even though long-standing codified policy remains unchanged. Likewise, companies marketing meat and poultry products under FSIS jurisdiction should remain alert to FSIS regulations and the potential interaction between FTC and FSIS policies. Given the number of formal and informal applications and the attention paid to Made in USA claims at the FTC and USDA, the formalization of the FTC policy and the apparent continued attention of the FSIS suggest that the companies should take great care to ensure that sourcing, manufacturing and labeling practices are followed. well documented and fully support both qualified and unqualified Made in USA claims.
1 85 FR 43162-43165 (14 Sep 2020).
2 86 Fed. Reg. 37022-37035 (July 14, 2021).
3 FTC, “Enforcement Policy Statement on US Origin Claims” (December 1, 1997), available at https://www.ftc.gov/public-statements/1997/12/enforcement-policy-statement-us-origin-claims.
4 See 15 USC § 45a
5 See Hogan Lovells, “The FTC Proposal Codifying the ‘Made in USA’ Standard Extends Application to Online Advertising” (July 2, 2020), available at https://www.engage.hoganlovells.com/knowledgeservices/news/ftc-proposal-codifying-made-in-usa-standard-extends-enforcement-to-online-advertising-and-enhances-enforcement-capabilities_1.
6 See Hogan Lovells, “OMB Releases Spring 2021 Unified Agenda of Regulatory Actions” (July 8, 2021), available at https://www.engage.hoganlovells.com/knowledgeservices/news/omb-releases-spring-2021-unified-agenda-of-regulatory-actions.