By John Di Leo -
Much of the business news in 2018 has concerned the Trump administration’s impositions of new tariffs on imported goods. While there is enormous debate over the question of whether this is the best response to the problem or not, it is difficult to deny that there is, in fact, a problem, and that it’s high time this problem received some national policy attention.
The United States was long a manufacturing powerhouse. From the mass-produced automobile to the Troy Shirtmakers’ Guild, American industry topped the world for at least half a century in innovation and output. We wore American clothes, drove American cars, used American appliances in our kitchen and American power tools in our workrooms.
Slowly, however, we started seeing fewer American goods on the shelves, and we noticed more imported goods, all the while hearing of factory closures, blue collar unemployment, the demise of the Rust Belt, and so many more signs that point to the precipitous decline of American manufacturing.
To the extent that it is true, this is indeed a problem, meriting great attention.
But it isn’t quite as true as one might expect, with causes – as one might expect – settled deep in the regulations of our federal bureaucracy:
U.S. Customs Marking Regulations
Among the many objectives of the U.S. Bureau of Customs and Border Protection (CBP) is the very reasonable requirement that American consumers must know – through product marking – the country of origin of the imported goods they are considering, so they can make an informed purchase.
On its face, this sounds logical, doesn’t it? How do I know whether a bottle of wine is worth its price tag? Knowing whether it’s imported or domestic, and more so, whether the imported one is French, Italian, or Moldovan, will help me judge its value. Or how do I choose a car? Knowing that a sports car was made in Italy might be a plus; knowing that a family sedan was made in Italy doesn’t provide the same reassurance. Different countries are respected for different things.
So, CBP has provided extensive guidelines, enforced at both our borders and our internal Customs ports, making importers and resellers of imported goods responsible for marking their goods, and/or their packaging, clearly, legibly and permanently, in a manner that informs the consumer of the product’s country of origin. Those who violate this rule risk significant consequences, ranging from 10% of the imported goods’ value all the way to denial of entry of imported merchandise, embarrassing audits of the importer’s customers’ warehouses, even seizure or destruction of the unmarked products.
As logical as these rules may be, they can be quite challenging. Is every level of packaging marked? Are kits that hold goods of multiple origins clearly marked? How do we address vendors who commingle goods from multiple sources? Do we take advantage of the many reasonable exceptions to these rules, in a way that enables us to return to compliance when a product loses its qualification for such exceptions?
Most countries have similar rules for origin marking, though the USA is among the most detailed in both its regulations and its exceptions, and is certainly also among the most rigorous in enforcement.
Thanks to these rules, and to their broad understanding in the importing community, if a product is imported, you generally know it.
You walk through a store, and your field of vision is bombarded with foreign origin marks: “Made in Mexico,” “Made in Japan,” “Made in China.” Even in a small font size, we see the mark and we take note. Those news reports aren’t lying; we do indeed import a lot.
The Federal Trade Commission and the “Made in USA Standard”
Reading the above, one would assume that the same rule applies to our domestic products; surely we have the same obligation to mark the goods made here in the United States, so that the consumer can make that “informed purchasing decision” about US-made goods as well, right?
Oddly enough… No.
Most other countries have the import marking rule, of course; imported goods made in the USA will be expected to say “Made in USA,” “Product of USA,” “Assembled in USA,” or some such variant when they are exported and arrive in South Korea, Saudi Arabia, Canada or Mexico. Most of our trading partners take the same approach we do, and expect their imported goods to be marked with their country of origin.
But there are exceptions. A few countries – the USA, Canada, Australia, Brazil, and most Middle East nations – are so concerned that consumers will misunderstand an origin statement on a domestic product, they set forth all sorts of limits on the wording that can be allowed in the origin statement… again, we are only talking about domestic sale of domestic products here.
Let’s say an air conditioner, power drill, or swivel chair was made in Mexico. We in the USA would expect to see a “Made in Mexico” statement on the product and its box. If we thought about it, we might assume that the product contained parts of various origins… the nuts and bolts might be made in China, the motor and casters in Japan, the power cable in Taiwan. We know that manufacturers source parts all over the world, so their finished products include parts of a multitude of origins, but we don’t particularly care. As consumers, we are interested in where the parts came together to become a new product… that’s the primary interest of Customs, in their import marking rules.
So, where did these huge bills-of-material of components come together to become an air conditioner, power drill, or swivel chair? If in Mexico, we expect it to say “Made in Mexico.” If in China, we expect it to say “Made in China.” Close enough for government work, as they say.
But the USA – and a few more of our friends as listed above – have a different concern with domestic products being sold domestically. Ever since the 1950s, the USA has had a fear that a consumer who sees a “Made in USA” statement on that air conditioner, power drill, or swivel chair will jump to conclusions and assume that it’s 100% comprised of domestic materials, even though such a claim is not intentionally made. Some just fear that consumers will make that false assumption, so there is a regulation to address it:
The US government does not require origin marking on domestic products, only on imported ones. And they have written a set of regulations for domestic product marking that often scares American manufacturers out of marking their US-made goods at all. Known as “The Made In USA Standard,” this 1950s-era regulation forbids American manufacturers from selling American products with an unlimited (“unqualified” is the word they use) claim of USA origin unless they can prove that the product consists of at least 95% domestic–origin materials as well. Well, in the modern era of global supply chains, that’s almost impossible for most complex manufactured goods.
So if we cannot say “Made in USA” or “Product of USA” on things that really were made here, what can we say?
If we made it here, but some of the parts are imported, we can use a “qualified” origin claim, meaning, an origin claim that includes a qualifier, such as “Made in USA of imported and domestic materials”… or “Manufactured in USA of foreign and U.S. components”… or “Produced in the United States with both foreign and domestic parts.” Only one verb – “assembled” – is considered to connote the same necessary qualification so it doesn’t need the rest of that verbiage. Any other normal verb, such as “made” or “manufactured,” must incorporate the qualifying language as described here.
The Federal Trade Commission didn’t start this concept. Like most such problems, it came down from Congress, generations ago, when competing American manufacturers argued over a theory that patriotic Americans might want to do their best to reward factories with a purchase only if they made their goods with 100% domestic materials, and that they might want to punish American factories that outsourced some of their parts to stay in business.
So it wasn’t the FTC that dreamed up the requirement, but it fell to the FTC to write the regulations and manage enforcement of this confusing rule, so they came up with this distinction between “qualified claims of US origin” and “unqualified claims of US origin” – which applies only to domestic sales of domestic products – and they’ve provided handy brochures that explain it all for manufacturer and layman alike.
As a result, for generations now, goods that were made overseas are clearly marked as such; we see them everywhere… but goods that are made right here in the USA are often unmarked because the manufacturer rightly fears saying something wrong and getting in trouble.
State attorneys general have gotten into the act, suing retailers that sell blue jeans, factories that sell doorknobs, even distributors of iPhone cases and dog collars, sometimes because they in fact claimed US origin on imported goods (perhaps true fraud, deserving punishment if intentional), but more often because they claimed US origin on genuinely US-made goods, but used the wrong wording out of ignorance of such arcane regulations, or due to an unintentional gap in complex supply chain and computer system processes.
Such errant marking can cost a manufacturer or reseller millions of dollars in legal fees and bad press, even if, in the end, after years in the state or federal courts, an understanding judge ends up giving them a break on the final penalty amount itself.
Savvy sellers do the math and decide that it’s not worth the risk, so they often don’t mark their US-made goods at all, only adding origin marking when they plan to export the goods to a country that cares about import marking.
As a result, we can walk through the stores today and see “Made in USA” quite rarely, far more rarely than deserved, because wise sellers in an overgrown regulatory state must act from an abundance of caution, risking lost sales from not proudly declaring US origin, rather than risking prosecution or lawsuits from declaring US origin with the wrong verbiage. It’s not a pretty fix to be in.
Under US law, we can assume that unmarked goods are in fact domestic, so our store shelves are chock full of unmarked goods of US origin, rightly so, though it’s a poor comparison to those aisles and aisles of products bearing foreign origin statements.
The US Congress has periodically reviewed this rule, but so far, Congress has always decided to continue to let this regulatory distinction remain in place – this distinction between 100% domestic marking and “qualified” domestic marking that allows for imported components – utterly unchanged. The FTC guidelines on the difference between qualified and unqualified origin markings still stand, complicating the lives of marketing and advertising professionals, purchasing and I.T. departments, packaging engineers and data entry clerks.
This is one of the many reasons why companies of all sorts must hire trade compliance professionals and attorneys, to help them navigate these often confusing rules (with far more twists and turns that we’ve had room to list here), to keep them, and their customers, out of trouble with regulators and out of court.
And it is also why we see fewer “Made in USA” statements on our store shelves than a nation that is still a manufacturing powerhouse really ought to see. Many more of the products we see for sale are in fact manufactured by our fellow Americans, but they just don’t dare say so, for fear of a wrong word, or a wrong font size, landing them in state or federal court, or on the front pages of the newspaper as the face of some state attorney general’s latest crusade.
Do we need to help bring back American manufacturing? Certainly! There is still much to be done, through tax cuts and regulatory reform, in the interest of restoring our manufacturing dominance. But to some extent at least, it’s good to know that it’s not quite as bad as it looks. There is in fact much more that’s really “made in USA” than you would ever dream from just reading product labels.
Copyright 2018 John F. Di Leo
John F. Di Leo is a Chicagoland-based Customs broker and trade compliance trainer, actor and writer. His columns appear regularly in Illinois Review.