BILL ANALYSIS                                                                                                                                                                                                    Ó






                             SENATE JUDICIARY COMMITTEE
                             Senator Noreen Evans, Chair
                              2013-2014 Regular Session


          AB 890 (Jones)
          As Amended June 14, 2013
          Hearing Date: June 25, 2013
          Fiscal: No
          Urgency: No
          TH


                                        SUBJECT
                                           
                                  False Advertising

                                      DESCRIPTION  

          Under existing California law, a product may not be sold in  
          California as "Made in U.S.A." or "Made in America" when the  
          product, or any article, unit, or part of the product, has been  
          entirely or substantially made outside of the United States.   
          This bill would provide that, for purposes of the California law  
          described above, any merchandise has been substantially made,  
          manufactured, or produced within the United States if it meets  
          all of the following requirements:
           United States manufacturing costs constitute 90 percent of the  
            total manufacturing costs for the merchandise;
           at least 90 percent of the components, parts, articles, or  
            units of the merchandise were manufactured in the United  
            States;
           no more than 10 percent of the total manufacturing costs for  
            the merchandise were either incurred outside of the United  
            States as a result of the unavailability of raw materials in  
            the United States, or incurred as the costs of a component,  
            part, article, or unit of the merchandise imported into the  
            United States as a result of the unavailability of the same  
            component, part, article, or unit of the merchandise from a  
            domestic manufacturer;
           no more than 10 percent of the components, parts, articles, or  
            units of the merchandise were manufactured outside of the  
            United States as a result of the unavailability of raw  
            materials in the United States, or the component, part,  
            article, or unit of the merchandise was imported into the  
            United States as a result of the unavailability of the  
                                                                (more)



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            component, part, article, or unit of the merchandise from a  
            domestic manufacturer; and
           the merchandise was last substantially transformed in the  
            United States.


           
                                           
                                     BACKGROUND  

          The Legislature has long considered consumer protection to be a  
          matter of high public importance.  State law is replete with  
          statutes aimed at protecting California consumers from unfair,  
          dishonest, or harmful market practices.  The Consumer Legal  
          Remedies Act (Civ. Code Sec. 1750 et seq.), for example, was  
          enacted "to protect the statute's beneficiaries from deceptive  
          and unfair business practices," and to provide aggrieved  
          consumers with "strong remedial provisions for violations of the  
          statute."  (Am. Online, Inc. v. Superior Court (2001) 90  
          Cal.App.4th 1, 11.)  Similarly, for over 70 years, California's  
          Unfair Practices Act (Bus. & Prof. Code Sec. 17000 et seq.) has  
          protected California consumers from "unlawful, unfair or  
          fraudulent business act[s] or practice[s]."  (Bus. & Prof. Code  
          Sec. 17200.)  Consumer protection regarding the labeling of  
          products is no less a matter of fundamental public policy.   
          Since 1961, California has expressly required that businesses  
          meet certain standards in order to be able to claim that their  
          products are "Made in the U.S.A."  Specifically, California law  
          prohibits a product from being labeled and sold in California as  
          "Made in U.S.A." or "Made in America" when the product, or any  
          article, unit, or part of the product, has been entirely or  
          substantially made outside of the United States.  California  
          courts have construed this statute as requiring that component  
          parts of a product be entirely or substantially made in the  
          United States in order for a "Made in the U.S.A." claim to be  
          permissible.  (See, e.g., Colgan v. Leatherman Tool Group, Inc.  
          (2006) 135 Cal.App.4th 663.)  California's "Made in the U.S.A."  
          law protects consumers against false or misleading advertising  
          while at the same time protecting businesses and ensuring that a  
          company that engages in false or misleading advertising does not  
          gain a competitive advantage by doing so.

          This bill would provide that, for purposes of California law, a  
          product sold in California could carry the label "Made in  
          U.S.A." if it was substantially made, manufactured, or produced  
          in the United States as measured by the following criteria: at  
                                                                      



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          least 90 percent of the components, parts, articles, or units of  
          the merchandise were manufactured in the United States; United  
          States manufacturing costs constitute at least 90 percent of the  
          total manufacturing costs for the merchandise; and the  
          merchandise was last substantially transformed or assembled in  
          the United States.

          This bill is nearly identical to SB 661 (Hill), which was held  
          in this Committee on May 7, 2013.

                                CHANGES TO EXISTING LAW
           
           Existing law  protects consumers and competitors against  
          unlawful, unfair or fraudulent business acts or practices and  
          unfair, deceptive, untrue or misleading advertising.  (Unfair  
          Practices Act, Bus. & Prof. Code Sec. 17200 et seq.)

           Existing law  makes it unlawful for any person, firm, corporation  
          or association, or any employee thereof, to make or disseminate  
          before the public in this state, in any newspaper or other  
          publication or in any other manner or means whatever, any  
          statement concerning personal property which is untrue or  
          misleading, and which is known, or which by the exercise of  
          reasonable care should be known, to be untrue or misleading."   
          (False Advertising Law, Bus. & Prof. Code Sec. 17500 et seq.)

           Existing law  provides that the following are unfair methods of  
          competition and unfair or deceptive acts or practices:  (1)  
          using deceptive representations or designations of geographic  
          origin in connection with goods or services; and (2)  
          misrepresenting the source of goods or services.  (Consumer  
          Legal Remedies Act, Civ. Code Sec. 1770.)

           Existing law  makes it unlawful for any person, firm, corporation  
          or association to sell or offer for sale in this State any  
          merchandise on which merchandise or on its container there  
          appears the words "Made in U.S.A." "Made in America," "U. S.A.,"  
          or similar words when the merchandise or any article, unit, or  
          part thereof, has been entirely or substantially made,  
          manufactured, or produced outside of the United States.  (Bus. &  
          Prof. Code Sec. 17533.7.)

           Existing federal law  authorizes the Federal Trade Commission to  
          regulate claims of U.S. origin pursuant to authority granted to  
          it under the Federal Trade Commission Act, which prohibits  
          "unfair or deceptive acts or practices."  (15 U.S.C. 45.)   
                                                                      



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          Existing federal law requires that a "Made in U.S.A." label be  
          consistent with orders and decisions of the Federal Trade  
          Commission.  (15 U.S.C. 45a.)

           Existing federal policy  provides that a product may be labeled  
          as "Made in U.S.A." if the product is all or virtually all made  
          in the United States, however a product using such a label may  
          contain-in a negligible amount-components made outside of the  
          United States.  (Federal Trade Commission, Enforcement Policy  
          Statement on U.S. Origin Claims, 62 Fed. Reg. 63756, 63765 (Dec.  
          2, 1997).)

           This bill  would provide that, for purposes of California's "Made  
          in the U.S.A." law, any merchandise has been substantially made,  
          manufactured, or produced within the United States if it meets  
          all of the following requirements:
           United States manufacturing costs constitute at least 90  
            percent of the total manufacturing costs for the merchandise;
           at least 90 percent of the components, parts, articles, or  
            units of the merchandise were manufactured in the United  
            States;
           no more than 10 percent of the total manufacturing costs for  
            the merchandise were either incurred outside of the United  
            States as a result of the unavailability of raw materials in  
            the United States, or incurred as the costs of a component,  
            part, article, or unit of the merchandise imported into the  
            United States as a result of the unavailability of the  
            component, part, article, or unit of the merchandise from a  
            domestic manufacturer;
           no more than 10 percent of the components, parts, articles, or  
            units of the merchandise were manufactured outside of the  
            United States as a result of the unavailability of raw  
            materials in the United States, or the component, part,  
            article, or unit of the merchandise was imported into the  
            United States as a result of the unavailability of the  
            component, part, article, or unit of the merchandise from a  
            domestic manufacturer; and
           the merchandise was last substantially transformed or  
            assembled in the United States.

                                        COMMENT
           
          1.  Stated need for the bill  
          
          The author writes:
          
                                                                      



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               The inconsistency between federal labeling laws and  
               California law for "Made in America" products has resulted  
               in difficulties for manufacturers because products legally  
               labeled for sale in the other 49 states that find their way  
               into California can't legally be sold here.  This unfairly  
               handicaps California businesses, places the retailer and  
               manufacturer at risk, and increases costs to separately  
               label products for sale in California.

               What is the standard for a product to be called Made in  
               America without qualification?  According to the Federal  
               Trade Commission, for a product to be called Made in USA,  
               or claimed to be of domestic origin without qualifications  
               or limits on the claim, the product must be "all or  
               virtually all" made in the U.S. 

               What does "all or virtually all" mean?  "All or virtually  
               all" means that all significant parts and processing that  
               go into the product must be of U.S. origin. That is, the  
               product should contain no - or negligible - foreign  
               content.

               Why did California establish different criteria?  In  
               response to foreign companies taking liberties with "buy  
               American" campaigns, legislation was introduced in 1961  
               that required 100 [percent] of a product's parts be  
               domestically made.  While this was an effective tool in the  
               last century, this is an impractical and discriminatory  
               policy in today's global economy.   

               How does AB 890 compare to the federal standard?  AB 890  
               actually creates a more robust standard than the federal  
               government, yet will provide needed flexibility for most  
               modern companies that make products with many components,  
               some of which are not available in the U.S.  Some companies  
               have been permitted to label their products as "Made in  
               America" with just 75 [percent] produced domestically, yet  
               AB 890 has a 90 [percent] criterion.




          2.  Ensuring consumers get the benefit of their bargain and  
            assuring consumer confidence  

          California law prohibits products from being sold as "Made in  
                                                                      



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          U.S.A." or "Made in America" when the product, or any article,  
          unit, or part of the product, has been entirely or substantially  
          made outside of the United States.  This bill seeks to expand  
          the use of the "Made in U.S.A." label by specifically allowing  
          the label to be used when, in fact, only 90 percent of the  
          product is made in the U.S.A.

          The proposed standard is nearly identical to SB 661 (Hill),  
          which was held in this Committee less than two months ago due to  
          concerns about weakening California's strong consumer protection  
          laws.  Those strong statutes on false advertising and  
          misrepresentation are intended to protect consumers and  
          competitors.  The statutes promote fair competition and help to  
          ensure that consumers have the information that they need to  
          make informed purchasing decisions.  Many consumers support  
          American jobs and industry and are willing to pay more for a  
          product if they know that it is made in the United States.

          The key in ensuring that consumers get the benefit of their  
          bargain-i.e., they get what they pay for-is to make sure that a  
          label stating "Made in U.S.A." is accurate and truthful.   
          Consumers have indicated that this is important to them.  For  
          example, in 1997, when the Federal Trade Commission (FTC)  
          considered revising its "Proposed Guides for the Use of U.S.  
          Origin Claims" in a way that would have weakened the standard,  
          numerous commenters indicated that labels matter.  One commenter  
          noted:

            If a product is only partially made in our Country, I want to  
            know.  I do not wish to purchase items made in other countries  
            and falsely labeled "Made in America."  I want the entire  
            truth on the label.  I don't want to be tricked into buying an  
            item I think is made here when in fact it is not.

          Another commenter wrote, "The concept of 'Made in the U.S.A.'  
          has been specific and definite for the last 50 years.  Please  
          leave it as it is.  If manufacturers want to say an item is  
          'Made in the U.S.A.' then make sure it is exactly that.  'Made  
          in the U.S.A.' should mean that an item is 100 [percent]  
          manufactured in the United States of America and not in another  
          country."

          In January 2011, the California Supreme Court further described  
          the importance of truthful and accurate claims of origin,  
          stating: 

                                                                      



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            In particular, to some consumers, the "Made in U.S.A." label  
            matters.  A range of motivations may fuel this preference,  
            from the desire to support domestic jobs, to beliefs about  
            quality, to concerns about overseas environmental or labor  
            conditions, to simple patriotism.  The Legislature has  
            recognized the materiality of this representation by  
            specifically outlawing deceptive and fraudulent "Made in  
            America" representations.  . . .  The object of section  
            17533.7 "is to protect consumers from being misled when they  
            purchase products in the belief that they are advancing the  
            interests of the United States and its industries and  
            workers."  (Sen. Holmdahl, sponsor ? letter to Governor Brown,  
            May 23, 1961) ['There are many Americans who feel that  
            American-made articles are of higher quality, and who rely on  
            the "Made in U.S.A." label'].) . . ."  The Legislature  
            evidently recognized some companies were using or might be  
            tempted to use inaccurate "Made in America" labeling, that  
            some consumers might be deceived by and rely on it, and that  
            consumers and competitors who honestly made their wares in the  
            United States and marketed them as such were being or would be  
            harmed.  (Kwikset Corp. v. Benson (2011) 51 Cal.4th 310, 329;  
            citations omitted.)

          The policy question, thus, raised by this bill is whether, by  
          adopting a weaker standard that could result in less truthful  
          and less accurate "Made in U.S.A." labels, the bill would impair  
          a consumer's ability to rely on labels and to make fully  
          informed decisions.  In opposition, the Consumer Federation of  
          California (CFC) writes:  

            As amended on June 14, AB 890 deleted the requirement of  
            California law that any product or product unit advertised for  
            sale in California bearing a "Made in USA" or similar label  
            must be substantially manufactured in the United States.  It  
            replaces this truth in advertising standard with a new  
            standard allowing a product to be lawfully offered for sale in  
            our state bearing a "Made in USA" or "Made in America" label  
            if 90 [percent] of the cost of the product's content is  
            domestic and if the final transformation of the product  
            occurred in the USA.  This would represent a substantial  
            weakening of California's "Made in the USA" law, which  
            requires products offered for sale in our state as "Made in  
            America" or "Made in the USA" to meet stringent domestic  
            content requirements.  California's law has protected  
            consumers from bogus claims that products are made in the USA  
            when, in fact they are partially made in the USA and include  
                                                                      



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            non-domestic content.
            . . .
            It would be false advertising to offer a product for sale with  
            a "kosher" label if 10 [percent] of the product is pork, or as  
            "vegan" if 10 [percent] of the product is meat or cheese, or  
            as a particular year and vintage of wine if 10 [percent] of  
            the content were grapes of another year and another region.   
            We believe that it is equally false advertising to label a  
            product as "Made in the USA" if 10 [percent] of the product's  
            content or value is not American.  The Kwikset Court pointed  
            out that an economic loss to a consumer occurs if the consumer  
            relied on the truthfulness of the label in deciding to  
            purchase a product that he or she would not have purchased had  
            it borne an accurate content label.

          Accordingly, the practical effect of this bill is to allow a  
          company to claim that a product is "Made in the U.S.A." when  
          that statement is not entirely true.

          SHOULD CALIFORNIA'S CONSUMER PROTECTION LAWS BE WEAKENED?
          
          3.  Bill would adopt weaker standard for "Made in U.S.A." claims

           Existing federal law requires that a "Made in U.S.A." label be  
          consistent with orders and decisions of the Federal Trade  
          Commission (FTC), which provides that a product may be labeled  
          as "Made in U.S.A." if the product is all or virtually all made  
          in the United States.  The FTC, in its Enforcement Policy  
          Statement on U.S. Origin Claims, rejected adopting a percentage  
          benchmark approach to determining whether a product is all or  
          virtually all made in the United States, and declined to craft  
          any specific "bright-line" standard for evaluating U.S. origin  
          claims, stating instead that "[g]iven the complex and varied  
          factual scenarios that present themselves in this area, and the  
          wide range of product for which U.S. origin claims may be made,  
          there are necessarily issues that will continue to be more  
          appropriately resolved on a case-by-case basis." (Federal Trade  
          Commission, Enforcement Policy Statement on U.S. Origin Claims,  
          62 Fed. Reg. 63756, 63765 (Dec. 2, 1997).)

          This bill would provide that, for purposes of California law, a  
          product sold in California could carry the label "Made in  
          U.S.A." if it was substantially made, manufactured, or produced  
          in the United States, and meets all of the following  
          requirements:  
           United States manufacturing costs constitute at least 90  
                                                                      



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            percent of the total manufacturing costs for the merchandise;
           at least 90 percent of the components, parts, articles, or  
            units of the merchandise were manufactured in the United  
            States;
           no more than 10 percent of the total manufacturing costs for  
            the merchandise were either incurred outside of the United  
            States as a result of the unavailability of raw materials in  
            the United States, or incurred as the costs of a component,  
            part, article, or unit of the merchandise imported into the  
            United States as a result of the unavailability of the  
            component, part, article, or unit of the merchandise from a  
            domestic manufacturer;
           no more than 10 percent of the components, parts, articles, or  
            units of the merchandise were manufactured outside of the  
            United States as a result of the unavailability of raw  
            materials in the United States, or the component, part,  
            article, or unit of the merchandise was imported into the  
            United States as a result of the unavailability of the  
            component, part, article, or unit of the merchandise from a  
            domestic manufacturer; and
           the merchandise was last substantially transformed or  
            assembled in the United States.

          The California Retailers Association, in support, writes:

             California's statutory 100 percent standard disadvantages  
             California-based companies who are making every effort to  
             meet the state's stricter labeling standard but circumstances  
             such as the unavailability of the component parts has  
             prohibited them from doing so.  AB 890 contemplates some of  
             the challenges in the law and proposes a reasonable change to  
             our standard that will level the playing field for  
             California-based companies.
             The "Made in USA" label can serve as a valuable marketing  
             tool for consumers who want to support domestically based  
             companies and jobs.  All states, except for California,  
             require an "all or virtually all" standard, allowing "Made in  
             USA" labels to be used if the product's total [foreign]  
             manufacturing costs are negligible and are insignificant  
             parts of the final product.  California has a unique standard  
             that exceeds that of all 49 other states.  An unintended  
             consequence of California's strict standard is that it has  
             robbed California-based companies of the opportunity to  
             utilize these labels and compete with out-of-state companies.  
              This has created a perverse incentive for companies to  
             relocate to other states which rather than supporting  
                                                                      



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             locally-based jobs, would have the opposite effect of driving  
             that activity to another state.

          Staff notes that the practical effect of this bill is to permit  
          products sold in California to be labeled as "Made in the  
          U.S.A.," when, in fact, that statement is not 100 percent true.  
          It should also be noted that the proposed standard may not even  
          satisfy the federal standard, which, as stated above, does not  
          include a specific percentage of U.S. and foreign-made parts as  
          a measurement benchmark.  In fact, when the FTC reviewed the  
          merits of providing a domestic content safe harbor in 1997, it  
          rejected the idea and decided at that time to retain the "all or  
          virtually all" standard, observing that "[t]he vast majority of  
                                                                                    those commenting, including, significantly, a large number of  
          individual consumers as well as a number of U.S. manufacturers,  
          opposed the proposed standard, perceiving it, contrary to the  
          Commission's intent, as significantly weakening the standard for  
          "Made in USA" claims."  (Federal Trade Commission, Enforcement  
          Policy Statement on U.S. Origin Claims, 62 Fed. Reg. 63756,  
          63764 (Dec. 2, 1997).)

          The policy question raised by this bill is whether it is  
          appropriate to provide a lesser standard under California law  
          for products labeled "Made in U.S.A." than that used in federal  
          law.  In general, the legislative preference has been to ensure  
          that California laws are strong and sufficiently protect  
          consumers, in this case, against unfair and deceptive business  
          practices, including false or misleading advertising.  The  
          effect of the new standard created by this bill would be to  
          essentially define California law in a way that may be less  
          protective of consumers than federal law.  

          4.  Bill could have the effect of increasing the percentage of  
            foreign labor or foreign materials in goods and products that  
            have the "Made in U.S.A." label
           
          As noted in Comment 3, supporters of this bill state that  
          existing law disincentivizes companies from making their  
          products in the United States, and California in particular,  
          because the standard is so strict.  However, staff notes that  
          because the "Made in U.S.A." label can have such marketing  
          significance, existing law arguably incentivizes companies to  
          make their products here in the United States, thus creating  
          domestic jobs.  As the California Supreme Court noted in the  
          Kwikset case, "[s]imply stated: labels matter:"

                                                                      



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                The marketing industry is based on the premise that labels  
               matter, that consumers will choose one product over another  
               similar product based on its label and various tangible and  
               intangible qualities they may come to associate with a  
               particular source.  An entire body of law, trademark law  
               (see, e.g., 15 U.S.C. § 1051 et seq. [Lanham Act]), exists  
               to protect commercial and consumer interests in accurate  
               label representations as to source, because consumers rely  
               on the accuracy of those representations in making their  
               buying decisions. (Kwikset Corp. v. Benson (2011) 51  
               Cal.4th 310, 328; citations omitted.)

          Given that this bill would allow companies to use up to 10  
          percent foreign-made components and still derive the benefits of  
          a "Made in U.S.A." label, this bill would reduce the current  
          incentive for manufacturers to find a way to source 100 percent  
          of their components in the United States, thus increasing the  
          percentage of foreign labor or foreign materials in these goods  
          and products.

          A key policy question, therefore, is whether California should  
          use its truth in advertising laws to incentivize businesses to  
          manufacture products domestically, or whether it should relax  
          labeling standards and officially embrace a certain threshold of  
          foreign-sourced components in "Made in U.S.A." products.   
          Creating percentage exemptions of the sort envisioned in this  
          bill might undercut existing market incentives that drive  
          domestic production and keep businesses from surrendering to  
          cheap foreign labor costs or lax regulatory environments, and,  
          for those products that are not or have not historically been  
          produced in the United States, might defeat market pressure to  
          innovate and start such production domestically.

          5.  Existing unfair competition laws protect businesses as well  

          California's laws against false and deceptive advertising also  
          protect businesses by ensuring that unfair and deceptive  
          business practices do not take hold in the marketplace.  As a  
          result, the laws incentivize businesses to engage in truthful  
          and accurate advertising, which is critical to ensure that  
          businesses play on a level playing field.  This bill would  
          potentially upend that playing field so that a business that  
          found a way to make 100 percent of their product in the United  
          States would be at a competitive disadvantage with a competitor  
          who decided to outsource ten percent of their product's  
          components.
                                                                      



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          Furthermore, this bill is potentially more confusing and  
          deceptive for businesses relying on the new California standard  
          because their products may be held in violation of the federal  
          standard.  Although the author argues that this bill is intended  
          to provide uniformity for companies selling products in all 50  
          states, this bill would create a standard different from that of  
          the FTC, on which other states may be relying.

          Finally, this bill would not give California businesses a  
          competitive advantage based on labeling costs any more so than  
          existing law.  As the Consumer Federation of California, in  
          opposition, states:
               California's labeling law creates a level playing field for  
               all domestic manufacturers, and creates no disadvantage to  
               manufacturers located in our state.  The law applies to  
               every product "offered for sale" in our state, regardless  
               of the location where the product was manufactured.  A  
               business manufacturing products in Nevada, Mississippi or  
               another state that does not have a comparable labeling law  
               gains no labeling advantage over a California-based  
               manufacturer, should that out-of-state manufacturer offer  
               its products for sale in California.  Similarly, a  
               California manufacturer has no labeling disadvantage if it  
               is manufacturing products that will be offered for sale  
               only outside our state.

          6.  Existing law already permits businesses to label their  
            products with a qualified claim  

          The author asserts that the need for this bill arises because a  
          business may manufacture nearly all of its product in the United  
          States but if one component of that product is made outside of  
          the United States, California law would prohibit the "Made in  
          U.S.A." label.  The author writes:

            The inconsistency between federal labeling laws and California  
            law for "Made in America" products has resulted in  
            difficulties for manufacturers because products legally  
            labeled for sale in the other 49 states that find their way  
            into California can't legally be sold here.  This unfairly  
            handicaps California businesses, places the retailer and  
            manufacturer at risk, and increases costs to separately label  
            products for sale in California.

          Although the author correctly asserts that a product not meeting  
                                                                      



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          California's high standard for labeling it "Made in the U.S.A."  
          could be required to adopt separate labeling for products sold  
          in the state, it is important to note that there is nothing in  
          existing law which would preclude these businesses from  
          employing a truthful qualified claim for its products which  
          contain some foreign parts.  As the Consumer Attorneys of  
          California, in opposition, state:

               Claims that truthfully say "90 percent Made in the U.S.A.,"  
               "Assembled in the U.S.A.," "Assembled by California  
               workers" are all fine.  Existing California law only  
               prevents the dilution of the pure "Made in U.S.A." brand .  
               . . A plethora of alternative labels can be used such as  
               "Assembled in America," "Proudly Made in USA from Domestic  
               and Globally Sourced Component Parts," "Built in America,"  
               etc.

          Qualified claims made under existing law accurately inform  
          consumers that, although the product was mostly made in the  
          United States, parts of the product were made outside the  
          country.  A manufacturer that labels their product with a  
          qualified claim is able to gain the advantage of advertising the  
          degree to which their product was truly "Made in the U.S.A."  
          without deceiving the consumer.  Further, a qualified claim  
          would arguably satisfy both California and federal law, allowing  
          a manufacturer to uniformly label a product offered for sale in  
          all 50 states.

          7.  Ambiguity in proposed amendments to California's "Made in the  
            U.S.A." law  

          Through this bill, the author intends to set out certain  
          "bright-line" standards in California law establishing with  
          reasonable certainty when a product can or cannot lawfully bear  
          a "Made in the U.S.A." label.  According to the author:

               AB 890 asserts that a product can qualify as "Made in  
               America" if 90 [percent] of the components of the  
               merchandise were made in the United States, and if the  
               manufacturing costs constitute 90 [percent] of the total  
               manufacturing costs.  The bill stipulates that no more than  
               10 [percent] of the components of the merchandise can be  
               manufactured outside the U.S. and this must result from the  
               unavailability of domestic raw materials. Also, parts of  
               the merchandise imported into the United States must result  
               from the unavailability of said parts. The bill makes an  
                                                                      



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               important specification that would prohibit a manufacturer  
               from potentially achieving the 90 [percent] benchmark, but  
               then securing 10 [percent] of the components from outside  
               the U.S, even if domestically available.  

          Despite this assertion, it does not appear that this bill  
          establishes clear standards for assessing when these  
          "bright-line" standards have been met.  As the Del Mar Law Group  
          states in opposition, "the term 'manufacturing costs' is not  
          defined . . . [f]or example, a company could include its general  
          overhead, CEO salary, etc. as a per unit calculation of  
          manufacturing costs," thereby allowing more foreign  
          manufacturing costs to be calculated into the 10 percent  
          benchmark.  Staff similarly notes that the provision stating  
          that 90 percent of components must be made in the United States  
          in order to label a product "Made in America" is also ambiguous.  
           It fails to specify both whether this measurement is taken by  
          weight, volume, or total number of components in the final  
          product, as well as how far this benchmark extends back in the  
          manufacturing process, leaving unclear whether the standard  
          would require 90 percent of raw materials to be domestically  
          produced, or some lesser standard based on intermediate  
          domestically sourced materials.

          The ambiguity that comes with adopting "bright-line" standards  
          for evaluating "Made in America" claims is precisely what  
          prompted the FTC to shy away from articulating such standards  
          and opt instead for a "case-by-case" approach in its Enforcement  
          Policy Statement on U.S. Origin Claims, "[g]iven the complex and  
          varied factual scenarios that present themselves in this area,  
          and the wide range of product for which U.S. origin claims may  
          be made."  (See Federal Trade Commission, Enforcement Policy  
          Statement on U.S. Origin Claims, 62 Fed. Reg. 63756, 63765 (Dec.  
          2, 1997).)




          8.  Pending litigation  

          In the past, this Committee has raised concerns about bills that  
          interfere with pending litigation.  Any such interference could  
          result in a direct financial windfall to a private party,  
          prevent a court from deciding an action based upon the laws in  
          place at the time the cause of action accrued, or create a  
          situation where the Legislative branch is used to circumvent the  
                                                                      



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          discretion and independence of the Judicial branch.  The  
          Committee has received notice of at least five pending  
          litigation matters against various out-of-state defendants that  
          allegedly falsely labeled products for sale in California as  
          "Made in the U.S.A." in violation of existing state law.  This  
          bill does not specify how it would impact pending litigation.


           Support  :  Bulldog LED Lighting; California Retailers  
          Association; Lifetime Products, Inc.; National Federation of  
          Independent Business

           Opposition  :  California Conference of Machinists; California  
          Labor Federation; California Teamsters Public Affairs Council;  
          Consumer Attorneys of California; Consumer Federation of  
          California; Del Mar Law Group; United Food and Commercial  
          Workers Union, Western States Council

                                        HISTORY
           
           Source  :  Author

           Related Pending Legislation  :  SB 661 (Hill) would amend  
          California's "Made in the U.S.A." law to make it lawful to  
          advertise a product as made or manufactured in the United States  
          if United States manufacturing costs constitute 90 percent of  
          the total manufacturing costs for the merchandise, and if the  
          merchandise was last substantially transformed or assembled in  
          the United States.  This bill would also create a rebuttable  
          presumption that merchandise was made or manufactured in the  
          United States if it were so certified by an independent  
          third-party verification organization.  This bill was held in  
          the Senate Judiciary Committee.

           Prior Legislation  :

          AB 858 (Jones, 2012) would have amended California's "Made in  
          the U.S.A." law to specify that merchandise has been entirely or  
          substantially made, manufactured, or produced within the United  
          States if the merchandise is a product that is made all or  
          virtually all in the United States, within the meaning of the  
          Enforcement Policy Statement on U.S. Origin Claims issued by the  
          Federal Trade Commission (62 Fed.Reg. 63756 (Dec. 2, 1997)).   
          This bill failed passage out of the Senate Judiciary Committee.

          ABX6 8 (Beall, 2010) which was identical to AB 858, was  
                                                                      



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          introduced in the Sixth Extraordinary Session but was never  
          referred to committee.

          SB 1004 (Holmdahl, Ch. 676, Stats. 1961) codified California's  
          "Made in the U.S.A." law, making it unlawful for any person,  
          firm, corporation, or association to sell or offer for sale any  
          merchandise that advertises itself as being made or manufactured  
          in the United States when any article, unit, or part of the  
          merchandise has been entirely or substantially made,  
          manufactured, or produced outside of the United States.  

           Prior Vote  :

          Assembly Committee on Business, Professions and Consumer  
          Protection (Ayes 7, Noes 1)
          Assembly Floor (Ayes 50, Noes 18)

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