September 8, 2015

California Steps Back from Strict “Made in USA” Label Requirements

By James Sawyer and Mollie Sitkowski

An audible sigh of relief from domestic manufacturers everywhere greeted California’s recent enactment of a law loosening its restrictive “Made in USA” label requirements. In fact, California’s new law may provide a degree of certainty in what has previously been an uncertain regulatory landscape.

Long considered the bane of domestic manufacturers, forcing them to maintain multiple label inventories and juggle competing domestic and foreign country of origin marking requirements, California law previously prohibited labeling products with an unqualified “Made in USA” claim if any portion of the underlying product was made outside the United States.

Such a high burden previously imposed by California was almost impossible to meet for some products, and was in direct conflict with the Federal Trade Commission’s (FTC) “Made in USA” standards, which allow for unqualified “Made in USA” claims where products are “all or virtually all” made from domestic inputs, and provided any foreign inputs had been substantially transformed. While the FTC’s standard is still quite high, California’s prior law forced domestic manufacturers who satisfied the FTC’s “Made in USA” standard to meet an almost impossible burden of 100% U.S. content or otherwise maintain separate California inventories which was economically prohibitive.

On September 1, 2015, Governor Jerry Brown signed S.B. 633 into law, amending Section 17533.7 of the California Business and Professions Code, allowing companies to label their products “Made in USA” if less than 5% of the product’s wholesale value is from foreign components, or if less than 10% of the wholesale value is from foreign components which are unavailable in the United States. This new standard more closely resembles the FTC’s “Made in USA” standard.

The FTC’s current “Made in USA” standard requires a product to be “all or virtually all” of U.S. content and have its final assembly occurring within the U.S.  However, the FTC has consistently refused to provide quantitative benchmarks as to when an unqualified “Made in USA” claim is appropriate, or specify an exact percentage for compliance.  Instead, the FTC has evaluated each claim on a case-by-case basis. The new California law arguably allows for a more practical application of unqualified “Made in USA” claims, and provides guideposts for U.S. manufacturers on when an unqualified “Made in USA” claim is authorized. Whether those guideposts are reasonably set is no doubt a battle for another day.

Although United States Customs and Border Protection (CBP) requires that all imported merchandise be marked upon entry in accordance with its country of origin marking requirements, the U.S. customs laws only require marking for products considered to be of foreign origin. Where imported goods are substantially transformed as a result of domestic processing or otherwise meet the requirements of the North American Free Trade Agreement (NAFTA) for inputs from Mexico or Canada, manufacturers may utilize an unqualified “Made in USA” label voluntarily if their goods meet the FTC standard, and, if sold in California, meet California’s loosened standard. Both California and the FTC will continue to allow for qualified “Made in USA” claims (e.g., “Made in USA of foreign and domestic materials”) for product that is not required under CBP’s laws to be marked with a foreign country of origin, but which do not otherwise meet the FTC’s or California’s threshold for an unqualified claim.

For more information on determining the origin and labeling of your products, please contact James Sawyer or any other member of Drinker Biddle’s Customs and International Trade Team.

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