The impact of California’s rules for a “Made in USA” label

An article in the Wall Street Journal (October 1, 2014) titled “‘Made in USA” Spurs Lawsuits” describes the California Law that even one rivet in a product with such a label that is not made in the USA constitutes false advertising.  Basketball hoops with just a few bolts and net imported, USA made helium tanks shipped with imported balloons, rubber rings and light bulbs in Maglite flashlights – are all termed a violation in California even when the Federal Trade Commission (FTC) permits the label on all products that are “virtually all” made in the USA.  Is California’s 100% requirement a reasonable requirement to ensure that the intent of the label is satisfied and the benefits accrued only to manufacturers who comply? Will the impact of California’s stringent requirement be a decrease in the number of US manufacturers if they cannot get the market benefit of such labels ? Should states be required to generate consistent requirements for labeling so as to eliminate the ambiguity in Federal labeling laws ?

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18 Responses to The impact of California’s rules for a “Made in USA” label

  1. Ramesh Pudhucode says:

    I think given the high unemployment in the nation, there is no harm in forcing such rules. China has such restrictions and with the result there is hardly any unemployment there. Simiarly, Japan and S Korea encourages local industry with the result that Japan’s unemployment (3.8) is less than a very “advanced” state like Minnesota (4.1%).

  2. vijay raisinghani says:

    I think Made in USA label as described by California law is an extreme definition and hard to support in the global manufacturing industry as of today. I would consider a definition based on percentage of components/bill of material approach or the manufacturing plant location as possibilities to consider as alternate approaches. The reality we know that if anything was manufactured 100% in USA the price would not be competitive so companies would either put the other country’s name or choose not to make it. Alternately Apple’s branding strategy of “designed in California” serves as a good one to have people be proud of what they have designed but I am not sure if anybody else can use it as this might be trade marked.

    • Sarah Rosnick says:

      I concur with Vijay. There are so few products anywhere that are manufactured entirely in the United States that taking the regulation to that level of specificity seems like it’s bordering on counter-productive. Exclusivity to the point of becoming unattainable seems a little pointless to me, but I suppose it depends on the purpose of the label. If the intent is to generate revenue for those US only manufacturers, then maybe there is goodness.

      Overall, I just have a hard time imagining that a label would have that much of an impact on the consumer. I’d also imagine that companies would have less of a desire to focus on Californian consumers if this was a stringent demand and made it hard for them to do business.

  3. Freddy Horn says:

    I was not aware that requirements for labeling can differ to such an extent within the US. In my opinion, this confuses consumers in the US as well as importers from around the world. If the goal is to establish “Made in USA” as a recognizable label for consumers, the requirements should be consistent in all states.

    Furthermore, the definition of California’s “Made in USA” is too strict and impractical. It makes me wonder where to draw the line. What about a US tire manufacturer that uses crude oil from Saudi Arabia? Or a US tire manufacturer that uses crude oil from the US, but parts of the offshore oil rig that captured the crude oil were manufactured in other countries? In today’s globalized world, a real 100% requirement is almost impossible. I like Vijay’s idea of a definition based on the location of the final assembly, the percentage of components, the value of the components, or a combination of them all.

  4. April King says:

    The law has been slightly relaxed with the following amendment:

    The California law, SB 633, takes effect Jan. 1, 2016. Consumer Product Matters, a product safety and consumer-related regulation and litigation blog, says, “CA SB 633 allows merchandise made, manufactured, or produced in the United States to carry a ‘Made in USA’ label if the merchandise has one or more articles, units, or parts from outside the United States if they do not constitute more than 5% of the final wholesale value of the product or if the manufacturer makes a specified showing regarding the articles, units, or parts from outside the United States and they do not constitute more than 10% of the final wholesale value of the product.”

    This amendment adds the percentage of components / product value that Vijay and Freddy mentioned. I agree that the “Made in USA” requirements are too prescriptive, even with last year’s amendment. I have noticed manufacturers using other language such as “Assembled in USA” in lieu of “Made in USA”. I believe the typical US consumer cares more about the cost and quality of a product, than whether it meets the requirements to be labeled as “Made in USA”, therefore I don’t think there will be a significant impact to US manufacturers. This does, however, give some benefit to products or industries where there is a prevalence of US manufacturers for the raw materials and subcomponents. Food and clothing industries come to mind, and wine and liquors, as well as niche handmade goods. These types of consumer products make up a small portion of the US economy. A majority of the manufacturing in the US involves petroleum and chemical manufacturing and processing, automobiles, aerospace, electronics, telecommunications, mining and lumber, which aren’t even impacted by these laws.

    States should not be required to have their own laws regarding labeling, and the federal laws need to be clear and specific. Having different laws in different states within the US would be a nightmare for manufacturers as they would need to control which labeling could go to which state if they wanted to take advantage of the “Made in USA” labeling. At that point, it would probably be too cumbersome and costly to bother with.

  5. Kim Coldiron says:

    Great follow-up April, it sounds like California is realizing the burden and impracticality of such restrictive regulations. I too agree that the US should regulate such standards on a federal level. As Beau mentioned, the US is quite inconsistent on many levels regarding legislation and regulations. States and even cities vary on many issues, I am not saying that everything should be federally regulated but consumer communication such as labeling should be consistent. However, as we experience with the FDA, although labeling is federally regulated, the US is much less restrictive than many other countries. Therefore, your food may be labeled the same from one place to the next but it may not necessarily be telling you the whole truth. If we are going to standardize manufacturing labels I think clear guidelines based on percentages may be a solution but as Freddy points out, there will always be a grey area when it comes to raw materials such as oil and minerals that most manufacturers may argue is too difficult or minuscule to account for… let the games begin!

  6. D. Zekveld says:

    Interesting that this blog post is dated 2014. Certainly lots has happened since then with respect to the importance of “Made in USA” in light of “America First”!
    I would question how much this sticker actually improves sales for a manufacturer? Compared to the real impact that will be felt with Tarif and Taxes applied to imports.
    Given what is happening currently in North America with NAFTA, I think the manufacturer’s will be significantly more affected by the tax / tarif implications if NAFTA is not successfully renewed.
    A sticker that helps promote your product is one thing … higher tax on your imported components is quite a more direct impact.
    North of the board, this has been a big news item and if NAFTA is scrapped could have big implications for Canadian business.

  7. Jordan McCroskey says:

    I agree with Freddy’s comment that this seems to be better suited for the federal government to determine, and not left at the state level due to consumer confusion.

    In Switzerland regulations regarding “Made in Switzerland” have become as restrictive as California’s regulation. Like April’s comment – companies have found alternative methods to imply the quality. For BERNINA – even our products that our assembled in Switzerland do not comply as the computer chips and boards are made in China. Due to this we use “Swiss Engineering” to imply our quality messaging and get around the restrictive Swiss government regulation. While this regulation was intended to provide safety for the Swiss watch industry, it’s had some negative effects on other Swiss industries.

    Regarding the US law, I think the law should vary depending on the product being produced. Certain products, like tech items, should be rewarded even for US assembly, while other items, perhaps food products, should be entirely US produced to qualify. Let’s use the law to reward companies that invest in the US, and to showcase quality products from the US.

    Especially since the label is shown to increase sales in the US – it’s important for our country to get this right.

  8. Michael Minor says:

    I see the reason for California’s well-intended 100% requirement rules for the “Made in USA” label. If you look below you’ll see a steady decline in U.S. made apparel from 1960 to today. You will also notice that American households spend almost 2/3 less of their income on apparel. This doesn’t mean Americans buy less clothes today then in 1960, if anything it should emphasize the lower production costs overseas.
    There is only one benefit to complying with these rules, which is doing business with the government where they will absorb the additional cost from meeting the requirements. A sole source contract with the government can be fruitful but still unsustainable long term. States should not be allowed place additional requirements to Federal laws.

    1960
    • The average U.S. household spent about $558 each year on apparel (clothing and shoes).
    • That’s equivalent to $4,388 in today’s dollars.
    • So, about 10.4 percent of the household’s budget was spent on apparel.
    • And about 95 percent of this apparel was made in the U.S.

    1990
    • The average U.S. household spent about $1,741 each year on apparel (clothing and shoes).
    • That’s equivalent to $2,583 in today’s dollars.
    • So, about 5.1 percent of the household’s budget was spent on apparel.
    • And 50 percent of this apparel was made in the U.S.

    Today
    • The average U.S. household spent about $1,740 each year on apparel (clothing and shoes).
    • So, about 3.5 percent of the household’s budget was spent on apparel.
    • And about 2 percent of this apparel was made in the U.S.
    Source: American Apparel and Footwear Assoc., Bureau of Labor Statistics

  9. Peter Rigakos says:

    I feel that California’s laws are a bit extreme, and although many states have different laws, this should be consisted or close among states. Moreover, if they want to as such laws and 80% of the product is indeed made in the USA, then maybe they should add the percentage. Sounds overboard I know, but it is the truth and may get people thinking about the percentage that is built in the USA. I don’t think it will affect a company coming to the California to produce in this market, since there are other laws California has that are more stringent than other states and manufactures are still here. As for manufacturing to come to the state, there are other issues that may prevent that since cost of living is higher, however, I feel the “made in the USA” is not a deal breaker. As stated, I feel that although it may be a lot of work, a percentage should be added to the label in small print for transparency.

  10. Camilo Rodriguez says:

    this seems a bit weird because, as Freddy says, since it is a national label, I would’ve assumed that the rules would be federal. I think eventually the world is just going to have to adopt the WTO for pure simplicity. After all, there are already clear WTO guidelines about this.

  11. Mike Carter says:

    I don’t believe it is the right of the State of California to determine what constitutes “Made in America”. California continues to implement laws the cost manufacturers money and this passes on to the consumer. US Manufactures continue to leave and or won’t relocate to California because of stringent laws regarding manufacturing, taxes, cost of living, etc. In the automotive industry, the window sticker gives the percentage of components built in what country so this could be one option. At the end of the day, I’m not sure the consumer is too interested in the “Made in America” label anymore unfortunately. I think consumers are interested in price first and foremost moving towards quality second.

  12. Paul Aoun says:

    From an impact perspective and brand benefit, yes, it reasonable. Since when a products is branded “Made in the USA”, it should really be made in the USA. There are a lot of similar examples, especially in Europe, where products have what is called “Appellation d’origine controlee” such as Camembert cheese is produced in Camembert, France, and Scotch whiskey is produced in Scotland.
    Practically, for some industries, it is going to be difficult to earn the “Made in the USA” label, especially, if they are producing complex products with multiple components sourced globally.

    I think given California’s stringent requirement, less manufacturers will qualify and thus less will be benefit will be less. Those who are able to get the label, will have an increased benefit, since the consumers will know that what they are buying is 100% made in the USA. Maybe a different label is needed such as “Assembled in the USA”, or use like someone else mentioned a percentage indication on the labels. I’ve seen such labels on cars, specifically on a Toyota, where they specified the % made in Japan v/s USA, to highlight the higher expected quality of “Made in Japan”.

    Yes, I think the requirements should be set at the federal government level, not at the state level. Otherwise the complexities and red-tape would make it very difficult for the manufacturers to use the label, especially if they are shipping nationally or globally.

  13. Wendy Mehringer says:

    State-by-state regulations in duplicate to what is covered at the federal level is excessive. The “Made in America” label should mean the same thing whether you’re at the Target in San Francisco or San Antonio. An example for illustrative purposes–several years back, we lobbied the Indiana legislature to amend the law that addresses blood transfusions. Indiana does not need a law addressing blood. The FDA writes the federal code that dictates the work of our industry, with access to guidance from within the FDA, CDC, NIH, CMS and the like. State level expertise could never rival the thought-leaders (non-political) federally. Our lobbying efforts encouraged the state to point to the federal code and remain silent on the issue. Because Indiana leaders were unwilling to budge, we now must take additional, onerous, expensive steps to comply with nuances of Indiana law, thereby increasing our prices to our customers and handicapping our ability to compete with other blood centers from across the country. I do not know specifics of the “Made in America” manufacturing requirements, but I’d think there are parallels to what I see in my blood industry example.

  14. Anna Dietrich says:

    I’m in agreement with my classmates that this regulation should be held at the federal level if the overarching goal is to promote products Made in America.
    When I purchase a good, I expect it’s branding and promotion to wholly represent the product- real cheese should be real, 100% cotton should not include polyester, and so on.
    From a practical standpoint, I think there could be provisions that manufacturers could promote components of a good made in America, or the use of 100% made in America.
    I’d also be keen to know from a regulation perspective how is this actually enforced?
    In terms of impact to manufacturers, I think it depends on product type and ultimately cost. While a sense of patriotism might spur you to pay $X more for a product, based on Michael’s assessment, Americans are comfortable buying non-US made products increasingly more and more.

  15. srinivas tadepalli says:

    There are finer nuances between Made in America, vs Assembled in America vs Designed in America (California) . I have seen numerous products that fall in the above 3 categories. As most of my colleagues of mentioned the number of products with label ” Made in America ” has drastically come down for various reasons primarily due to increase in manufacturing and labor costs. In some industries specifically in Automotive, Aerospace and Industrial equipment , you see a lot of products with labels assembled in America. Individual components that go to these large Products can be manufactured all over the planet but these are finally assembled in the country of use or delivery. In the hi-tech and consumer goods industry , you do see a lot of products with the label designed in California but these are indeed manufactured in China or else where. In this category of products it is not necessarily the manufacturing cost per say , but also the availability of skilled labor. For example A supplier like Foxcon for all major cell phone manufacturers , can build hundreds of thousands of phones in a very short span of time and that is due to the availability of skilled labor in a country like China or Taiwan . Nothing wrong for California to have stringent laws, but I believe before they have such laws, they need to introspect as to what resources the state has In terms of stilled labor, manufacturing facilities etc so that it makes sense and is relevant in today’s competitive world.

  16. Matt Slane says:

    I think made in America means made in America. If some firms chose to meet 100% then they can claim it. Otherwise, there should be alternative tiers that suggest varying degrees. For example, assembled in America means some parts are OUS but the labor to assemble was completed in the US. I agree that we should have a national standard to follow. This will allow for companies to make PPE decisions irrespective of individual state requirements. States should compete purely on the business case they can influence. I think people want to know if it is 100% or just assembled in the US.

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