FTC’s New “Made in America” Rule Effective Today

Good morning. This is George Thompson and today I’d like to talk about the Federal Trade Commission’s new rule on Made in America marking.

The Federal Trade Commission, or FTC, has finally adopted a regulation that codifies its longstanding approach to labels claiming a product is Made in the United States. The new rule doesn’t break much new substantive ground, but it does, however, expand the remedies the FTC can seek for misleading claims. It also provides a good recap of what’s required and, more importantly, what’s prohibited.

First, the new rule deals with unqualified claims of U.S. origin. “Unqualified claims” simply means that a product label indicates that a product is in whole or substantial part of domestic origin. Labels stating Made in America, or Made in USA, are classic examples of unqualified claims.

The FTC’s long-standing position is that an unqualified U.S. origin claim requires three conditions.

First, final assembly or processing of the product occurs in the United States. Second, all significant processing for the product occurs in the U.S. And third, all or virtually all of the product’s ingredients or components
are made and sourced in the U.S.

This standard remains in effect, but it now applies to labels appearing in all contexts, such as on product packaging or online.

The FTC rejected requests for a different criterion, such as a percentage of U.S.-origin value or one of the substantial transformation standards applied by U.S. Customs and Border Protection. Instead, the agency stated that it considered the current rule to be clear enough in its coverage, and also provide flexibility to address different industries and changing market conditions.

Now, I’m not sure I agree, because in my view the FTC’s standard has always carried a degree of uncertainty in its application, but this is the best we’re going to get.

The FTC also rejected suggestions that it provide a carve-out for businesses that act in good faith, because, in its words, “Courts have long held good faith is not a defense for a violation of Section 5 of the Federal Trade Commission Act. Violative claims made in good faith can still deceive and cause significant harm to consumers.”

Thus, companies that mistakenly believe they are in compliance do not get a safe harbor from enforcement actions.

Very importantly, the new rule does not address qualified claims, which indicate that a product does have foreign content. Nor does it address advertising in general, only labels.

By adopting the “all or almost all” standard in a regulation, the FTC has expanded its enforcement options. Knowing violations can give rise to civil penalties, plus liability for injury caused to consumers.

The rule is effective as of August 13, 2021. My suggestion is that companies labeling products to claim U.S. origin should confirm they are in compliance with the regulatory standard.