BILL ANALYSIS Ó
AB 890
Page 1
ASSEMBLY THIRD READING
AB 890 (Jones)
As Introduced February 22, 2013
Majority vote
BUSINESS & PROFESSIONS 7-1
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|Ayes:|Gordon, Jones, Bocanegra, | | |
| |Hagman, Maienschein, | | |
| |Mullin, Wilk | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Dickinson | | |
| | | | |
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SUMMARY : Aligns California with the federal standard regarding
the use of the terms "Made in U.S.A.," "Made in America,"
"U.S.A." or similar words when a product or any portion of the
product was not substantially produced in the United States
(U.S.). Specifically, this bill :
1)Clarifies that a product meeting a specified federal
definition for domestic production shall not violate
California's prohibition on the use of the words "Made in
U.S.A.," "Made in America," "U.S.A." or similar words on a
product or any part thereof.
2)States that it is the intent of the Legislature to clarify
existing state law with respect to federal law in order to
improve this state's ability to successfully compete with
other states and nations for jobs, investments, and
manufacturing.
FISCAL EFFECT : None. This bill is keyed non-fiscal by the
Legislative Counsel.
COMMENTS :
1)Purpose of this bill . This bill would apply a somewhat looser
federal standard for use of the "Made in U.S.A." label to the
exclusion of California's stricter domestic sourcing law.
Proponents argue that such a change would encourage
manufacturers to make best efforts at domestic sourcing their
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products, while opponents contend that this move would mislead
consumers and reduce incentives to manufacturer domestically.
This bill is author sponsored.
2)Author's statement . According to the author's office,
"Currently, there is an inconsistency between Federal labeling
laws and California laws for "Made in America" products. This
inconsistency has resulted in difficulties for manufacturers
because products legally labeled for sale in the other 49
states that find their way into the California marketplace may
not legally be sold in the state. This places the retailer
and manufacturer at risk, increases costs to the manufacturer
to separately label products for sale in California, and
deprives California consumers of the right to know which
products they are considering for purchase were "Made in
America.""
3)Federal vs. state standards for "Made in the U.S.A." labels .
California is unique within the U.S. for having its own
statutory standard for use of the term "Made in the U.S.A."
California's law is different from - and some would argue
tougher than - the Federal standard created by the Federal
Trade Commission's (FTC's) December 1997 Enforcement Policy
Statement on U.S. Origin Claims (the "FTC Standard").
4)The FTC's "all or virtually all" standard . The FTC is charged
with preventing deception and unfairness in the marketplace.
The FTC Act gives the FTC the power to bring law enforcement
actions against false or misleading claims that a product is
of U.S. origin. The FTC's standard requires that for any
unqualified "Made in U.S.A." claim, the product must be "all
or virtually all" made in the U.S. According to the FTC, "all
or virtually all" means that "all significant parts and
processing that go into the product must be of US origin.
That is, the product should contain no - or negligible -
foreign content." The precise meaning of "negligible" is not
provided, meaning that it will be understood and applied on a
case by case basis. Any unqualified claim must have a
reasonable basis in fact.
The "all or virtually all" standard requires that the product's
final assembly or processing must take place in the U.S. The
FTC considers other factors as well, including how much of the
product's total manufacturing costs can be assigned to U.S.
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parts and processing, and how far removed any foreign content
is from the finished product. Costs should be calculated
based on the cost of goods sold or the inventory costs of the
finished goods. Costs generally are limited to the total cost
of all manufacturing materials, direct manufacturing labor,
and manufacturing overhead.
FTC offers two illustrative examples of its standard: First, a
propane barbeque grill's major components are made in the
U.S., but the knobs and tubing are made in Mexico. According
to the FTC, a "Made in U.S.A." claim "is not likely to be
deceptive because the knobs and tubing make up a negligible
portion of the product's total manufacturing costs and are
insignificant parts of the final product."
Second, a table lamp may be assembled in the U.S. from
American-made brass, with an American-made lampshade but an
imported base. The base accounts for a small percent of the
total cost of making the lamp. Nevertheless, the FTC writes
that "[a]n unqualified 'Made in U.S.A.' claim is deceptive for
two reasons: The base is not far enough removed in the
manufacturing process from the finished product to be of
little consequence and it is a significant part of the final
product."
5)California's "entirely or substantially" standard .
Conversely, Business and Professions Code (BPC) Section
17533.7 states that it is unlawful to sell or offer
merchandise in California with the words "Made in U.S.A." or
similar wording when the merchandise or any part thereof "has
been entirely or substantially made, manufactured, or produced
outside of the United States." This provision was added to
the BPC in 1961. Courts have interpreted this requirement
strictly, meaning that any merchandise containing even one
part that is foreign made or assembled may not be marketed as
"Made in U.S.A." (Colgan v. Leatherman Tool Group, Inc.
(2006) 135 Cal.App. 4th 663). As such, California's domestic
production standard is effectively 100%.
6)Arguments in support . According to the California
Manufacturers & Technology Association, "Consumers are
well-served when they can identify companies who have gone the
extra mile to source within the U.S. Without this ability to
label, consumers faced with many choices may default to
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cheaper and possibly inferior products make wholly outside of
the U.S. California component manufacturers benefit from this
bill because it adds a reason for the ultimate product
manufacturer to stick with U.S.-made parts."
7)Arguments in opposition . According to the Consumer Federation
of California, "AB 890 would allow products to be offered for
sale bearing a 'Made in U.S.A.' label or similar claim if the
product complied with an inferior Federal Trade Commission
standard, and further provides that such a product containing
foreign content shall be deemed to be 'entirely or
substantially made, manufactured, or produced within the
United States.' This turns existing California law on its
head, establishing a standard that is inclusive of foreign
content as 'Made in U.S.A.' to replace existing California law
which prohibits the 'Made in the U.S.A.' label if the
'merchandise or any article, unit, or part thereof, has been
entirely or substantially made, manufactured, or produced
outside the United States.'"
8)Related legislation . SB 661 (Hill) would set the domestic
production standard for use of the "Made in U.S.A." label in
California at 90% of total manufacturing cost with no more
than 10% sourced from outside the U.S. because of problems
with availability, and with the last substantial
transformation occurring in the U.S. Third party
certification of compliance would create a rebuttable
presumption of accuracy affecting any burden to produce
evidence. SB 661 is currently pending in the Senate Judiciary
Committee.
9)Previous legislation . AB 858 (Jones) of 2012, was virtually
identical to this bill. AB 858 was held in the Senate
Judiciary Committee.
SB 823 (Corbett) of 2012, would have created the Made in
California Program within the Governor's Office of Economic
Development and would have made it an unfair method of
competition or an unfair or deceptive business practice to use
a designated Made in California label without participating in
the Made in California Program. SB 823 was held in the
Assembly Appropriations Committee.
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Analysis Prepared by : Hank Dempsey / B., P. & C.P. / (916)
319-3301
FN: 0000400