BILL ANALYSIS Ó SB 12 Page 1 Date of Hearing: August 13, 2013 ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER PROTECTION Susan A. Bonilla, Chair SB 12 (Corbett) - As Amended: June 26, 2013 SENATE VOTE : 30-9 SUBJECT : Consumer affairs. SUMMARY : Creates the Made in California Program (Program) within the Governor's Office of Business and Economic Development (GO-Biz) to promote products manufactured in California, and authorizes GO-Biz to develop and adopt standards that would permit a company to represent that a product is made in California. Specifically, this bill : 1)Declares the sale or lease of goods or services which represent that a product is made in California if it does not comply with the standards adopted by GO-Biz to be an unfair method of competition and an unfair or deceptive practice or act. 2)Establishes the Program, a public and private collaboration within GO-Biz, and declares that the purposes of the Program are to encourage consumer product awareness and to foster the purchase of high-quality products manufactured in this state. 3)Authorizes GO-Biz to develop and adopt standards that permit a company to represent that a product is made in California. Those standards may include any of the following: a) The company has a California-based workforce; and, b) The product must be entirely or substantially manufactured in the state. 4)Defines "manufacture" to mean the process of taking raw materials or components and adding value to those materials and components in order to create a final, recognizable product. "Manufacture" does not include the process of completing a final assembly from subassemblies made elsewhere, or the act of packaging a product. SB 12 Page 2 5)States that the Program and the standards shall not apply to those agricultural products subject to the Buy California Program, as specified. 6)Authorizes GO-Biz to issue and make effective a marketing agreement, including but not limited to, issuance of a Made in California label, and be advised by those California businesses willing to participate in the Program on a voluntary basis via funding or in-kind contributions in a manner defined under the marketing agreement. 7)Requires each company to apply to GO-Biz for use of the Made in California label. 8)Authorizes GO-Biz to require a fee to accompany the Program application. 9)Requires GO-Biz to determine the application fee, and restricts that amount to the reasonable costs in providing the services for which it is charged. Proceeds from the fee shall be used to cover the costs of implementing the Program. 10)Permits GO-Biz to begin accepting applications prior to fully developing and implementing the Program. 11)Authorizes GO-Biz to accept monetary donations or other donations from businesses, nonprofit organizations, or individuals for the purpose of implementing the Program. 12)Requires GO-Biz to report to the Legislature on January 1, 2015, and each successive January 1, regarding its expenditures, progress, and ongoing priorities with the Program, as specified. 13)Establishes the Made in California Fund as a special fund in the State Treasury consisting of the revenues contributed pursuant to this bill, and, upon an appropriation of those funds by the Legislature, to be available for purposes of this bill. EXISTING LAW : 1)Prohibits unfair methods of competition, acts or practices by any person which either results in or is intended to result in the sale or lease of goods or services to any consumer, and SB 12 Page 3 enumerates several methods of unfair competition, acts or practices. (Civil Code (CIV) Section 1770) 2)Provides that any consumer who suffers damage as a result of a practice declared to be unlawful under the Consumer Legal Remedies Act (CLRA) may bring an action against that person to recover damages, as specified. (CIV 1780) 3)Allows for a class action suit to be filed on behalf of a class of consumers adversely affected by an unfair method of competition, act or practice. (CIV 1781) 4)Authorizes California to enter into marketing agreements and to create the "Buy California Program." (Food and Agriculture Code Section 58750) 5)States that it is unlawful for any person, firm, corporation or association to sell or offer any merchandise in California that uses 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. (Business and Professions Code Section 17533.7) 6)Establishes GO-Biz within the Governor's Office for the purpose of serving as the lead state entity for economic strategy and marketing of California on issues relating to business development, private sector investment and economic growth. GO-Biz also serves as the administrative oversight for the California Business Investment Service and the Office of the Small Business Advocate. (Government Code (GC) Sections 12096 - 12098.5) 7)Establishes processes and accountability measures for GO-Biz to accept private monies to fund, establish and operate international trade offices. (GC 13997) FISCAL EFFECT : Unknown COMMENTS : 1)Purpose of this bill . This bill would create a public-private partnership Program within the Governor's GO-Biz office to promote the marketing of products manufactured in California. SB 12 Page 4 SB 12 would authorize the Program to develop and adopt standards for representing a product as "Made in California," and require products using that term to be approved by the Program or be subject to legal action. The Program would also engage in voluntary marketing agreements to promote California-made products paid for by participants or other donors. This bill is author-sponsored. 2)Author's statement . According to the author's office, "This much needed statewide marketing strategy can help our small businesses maintain [a] competitive edge against businesses that decide to manufacture out of the state or even out of this country and thus bringing the jobs with them. "California businesses need a unifying brand targeted at consumers who care about CA jobs, the environment and quality. This label assures consumers that the product was manufactured in CA and carries the excellence and standards that this state offers. "Manufacturers that embrace California's high quality, safety, and environmental standards as a vital component of their business strategy should have this marketing advantage. The myriad of similar products on the market make it difficult for consumers to differentiate between products that are made in California versus elsewhere." 3)The Buy California Program . In 2001, the "Buy California Program" was created within the Department of Food and Agriculture to boost consumption of California's agricultural commodities and provide resources to growers of specialty crops. The Buy California Program addresses research, agricultural education, nutrition, food safety and pest and disease eradication to provide safe and nutritious food in a fair marketplace with responsible stewardship of the environment. Within the Buy California Program is the Buy California Marketing Agreement (BCMA), which was created in 2001 to be a joint effort of agricultural industry groups representing the products of California's farms, ranches, forests and fisheries. Working as an advisory board to the California Department of Food and Agriculture (CDFA), BCMA brings together industry and government resources to increase the awareness, consumption and value of California agricultural SB 12 Page 5 products. BCMA also oversees the popular "California Grown" campaign. The "California Grown" campaign is funded through public and private contributions by the U.S. Department of Agriculture, CDFA, and California agricultural organizations. The author of this bill asserts that other products made and produced in California, many by small businesses, would greatly benefit from another California labeling program. However, unlike the Buy California Program, which also provides research, agricultural education, nutrition, food safety and pest and disease eradication, the program envisioned by this bill would be exclusively a marketing effort. This bill would also add a new category of unlawful conduct under the Consumer Legal Remedies Act and designate it an unfair or deceptive trade practice for anyone to represent that a product is made in California unless the product complies with the standards adopted by GO-Biz. 4)Existing 'Made in California' programs . There are several existing for-profit and nonprofit marketing programs that promote California-made products: California Manufacturing Technology Consulting (CMTC) is a non-profit corporation affiliated with the National Institute of Standards and Technology (NIST) that operates a "Made in California" program to recognize manufacturers who produce products in southern California. CMTC's "Made in California Program" is marketing program that offers manufacturers who make products in California visibility through the CMTC website ( http://www.cmtc.com/made-in-california-program ). Manex Inc. operates a similar manufacturing promotion program for products manufactured in northern California. ( http://manexconsulting.com/made-in-ca/ ) There are also other outlets that promote "Made in California" goods, such as www.madeincalifornia.net , www.americansworking.com , and www.shopcal.com . However, there is currently no official definition for what constitutes "made in California." Consumers may seek SB 12 Page 6 compensation to recover damages for buying a product that is not made in California through the Consumer Legal Remedies Act (CLRA). CLRA prohibits unfair methods of competition, acts, or practices by any person. 5)Comments for the Committee . The Committee may wish to take the following issues into consideration: a) Unrestricted fee authority; restricted use of standards . This bill takes the unusual step of granting unrestricted fee authority to GO-Biz, when the more common practice is to approve a fee range to ensure affordability and some measure of Legislative oversight. While the bill does state that the fees required by this bill may only be used to pay the "reasonable costs" of implementing the program, that fee amount remains completely unknown. Depending on the parameters and strictness of the standards adopted, GO-Biz may be required to travel to manufacturing sites and inspect premises, review employee files, and verify sourcing of raw materials and components - which presumably would be an expensive endeavor. Although this bill allows for in-kind contributions and donations, these funding sources have not been identified, so it is reasonable to believe that Program participants would bear the bulk of the cost or choose not to participate. As a result, some small businesses may succeed in meeting the future standard, and yet be barred from promoting their products as California-made because of the high cost of the Program. The Committee may wish to consider the prudence of asking a government agency to invest the time and expense in promulgating a California-based manufacturing standard and then prohibit businesses from advertising their adherence to that standard unless they first pay an as-yet-to-be-determined sum of money to the State to participate in a voluntary marketing program. b) Standards guidance remains unclear . The recommended standards contained in the bill include "The product is entirely or substantially manufactured in the state." The term "entirely or substantially manufactured", which is borrowed from an existing statute that imposes such a standard on products advertised as "Made in USA". Courts have previously interpreted this standard very strictly, SB 12 Page 7 meaning that any merchandise containing even one part that is foreign made or assembled may not be marketed as "Made in USA." (Colgan v. Leatherman Tool Group, Inc. (2006) 135 Cal.App.4th 663). It is functionally a 100% domestic content standard, which some contend is discouragingly high (see AB 890 (Jones) from 2013). If GO-Biz or a subsequent court followed this same interpretation, then that same 100% standard might be applied. That would make California's national and state standards consistent with one another, but it is also unclear whether even the bill's current supporters would meet that high standard if it were applied solely to in-state manufacturing. c) Continued exclusion of non-physical goods . By tying the standard to physical manufacturing, this bill would exclude intangible products like software or other intellectual property from qualifying as "Made in California." Given that California is a major producer and exporter of such products, the Committee may wish to inquire of the author as to the rationale for excluding these sectors of the California economy from the Program. The Committee may also wish to consider alternate approaches to setting a clear standard for fairly marketing a product as "Made in California." The Committee may wish to consider separating the standard and the marketing label, so that compliant companies could legitimately claim to be "Made in California" but without the time and expense of applying for a permit. GO-Biz could also develop a marketing program that is truly voluntary for those individuals who want to use a unique "Made in California" label more akin to a trademarked brand, while adhering to the same standards. 6)Technical amendment . The following corrects a drafting error by Legislative Counsel, which was supposed to make the promulgation of the standards mandatory, rather than permissive: 12098.10 (b)(1) should read "The office shall develop and adopt standards" 7)Reconsideration . This bill was previously heard in this Committee and is being granted reconsideration. SB 12 Page 8 8)Related legislation . AB 890 (Jones) would align 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. AB 890 failed passage in the Senate Judiciary Committee. SB 661 (Hill) would have amended the standards for use of the terms "Made in U.S.A.", "Made in America", "U.S.A." or similar words, so that such merchandise must have 90% of its manufacturing costs be accrued in the United States, and no more than 10% of its total manufacturing costs accrued outside of the United States, and only then if such costs are imposed because of the unavailability of raw materials or component parts. The merchandise must also be last substantially transformed in the United States. This bill was held in the Senate Judiciary Committee. 9)Previous legislation . SB 823 (Corbett) 2011, would have created a "Made in California" program within the Governor's Office of Economic Development. SB 823 was held in the Assembly Appropriations Committee. REGISTERED SUPPORT / OPPOSITION : Support American Federation of State, County and Municipal Employees (AFSCME), AFL-CIO California Chapter for the American Fence Association California Fence Contractors' Association California Labor Federation California Metals Coalition California Small Business Association dB Control Engineering Contractors' Association Flasher Barricade Association Marin Builders Association PLASTIKON Primus Power Small Business California State Building and Construction Trades Council, AFL-CIO Tesla Motors, Inc. The California Labor Federation SB 12 Page 9 Opposition None on file. Analysis Prepared by : Sarah Huchel / B.,P. & C.P. / (916) 319-3301