Our Regulatory Oversight Blog has been abuzz with news about the newly galvanized Federal Trade Commission (FTC or Commission). Besides beginning to flex its antitrust muscle, the FTC is also taking on deceptive trade practices, with its latest target being the deceptive use of the “Made in USA” or “Made in America” labels. On August 14, the Commission issued a final rule, seeking to codify the established principle that the “Made in USA” (MUSA) label must mean that “all or virtually all” of a product is made in the United States.
Since at least 1940, enforcement of the MUSA “all or virtually all” requirement has been pursued under Section 5 of the FTC Act, which prevents unfair or deceptive acts or practices in commerce generally. The process of codifying the policy began in 2019 when the nonprofit Truth in Advertising filed a petition, asking the FTC to promulgate a rule because of alleged rampant “Made in USA” fraud. According to the FTC, the final rule will strengthen the FTC’s enforcement program, make it easier for businesses to understand and comply with the law, and enhance deterrence by authorizing civil penalties against unlawful MUSA claims.
The final rule applies only to “unqualified” claims, or claims that do not include statements that indicate what percentage or which parts of a product were made in the United States. Qualified claims will continue to be evaluated under Section 5’s unfair or deceptive trade practices standards.
For unqualified claims, the final rule provides that “it is an unfair or deceptive act or practice within the meaning of section 5(a)(1) of the Federal Trade Commission Act, 15 U.S.C. 45(a)(1), to label any product as “Made in the United States” unless the final assembly or processing of the product occurs in the United States, all significant processing that goes into the product occurs in the United States, and all or virtually all ingredients or components of the product are made and sourced in the United States.” “Made in USA” includes unqualified representations “express or implied” that a product or service, or a specified component thereof, is of U.S. origin, including statements that something is “made,” “manufactured,” “built,” “produced,” “created,” or “crafted” in the United States.
No bright line rule as to what constitutes “all or virtually all” or “significant processing” has previously existed, and none is being promulgated by the FTC now. The FTC expects that companies will continue to look to its existing guidance and enforcement documents, including its 1997 Enforcement Policy Statement on U.S. Origin Claims; decisions and orders enforcing the “all or virtually all” standard; and staff closing letters for clarification on the expectations. For instance, the policy statement states that “a product that is all or virtually all made in the United States will ordinarily be one in which all significant parts and processing that go into the product are of U.S. origin.”
Penalties for violating the new MUSA rule are set by the FTC Act and are currently capped at $10,000 for each violation. In cases of continuous failure to comply after receiving a cease-and-desist order, each day of noncompliance will be treated as a separate violation. The new MUSA rule does not supersede, alter, or affect the application of any other federal statute or regulation relating to country-of-origin labeling requirements, but the Notice of Final Rulemaking indicates that the U.S. Department of Agriculture will soon begin a review of its own labeling standards, including the existing standard that foreign-raised beef may be labeled “Product of USA” as long as it is processed in the United States.