BILL ANALYSIS Ó
AB 312
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Date of Hearing: April 7, 2015
ASSEMBLY COMMITTEE ON PRIVACY AND CONSUMER PROTECTION
Gatto, Chair
AB
312 (Jones) - As Introduced February 12, 2015
SUBJECT: Advertising
SUMMARY: Aligns California with the federal domestic content
standard for use of the terms "Made in U.S.A.," "Made in
America," "U.S.A." or similar words on merchandise, by requiring
merchandise to have been 'all or virtually all' made in the
United States (US). Specifically, this bill:
1)Requires all or virtually all of any merchandise with the
words "Made in U.S.A.," "Made in America," "U.S.A.," or
similar words to have been made in the US, and deletes an
existing prohibition on such labels on merchandise, or any
article, unit or part thereof, that has been entirely or
substantially made, manufactured or produced outside the US.
2)Defines merchandise that is "all or virtually all" made in the
United States as having the same meaning as that provided in
the Enforcement Policy Statement on U.S. Origin Claims issued
by the Federal Trade Commission (FTC) (62 Fed. Reg. 63756
(Dec. 2, 1997)).
3)States the intent of the Legislature to clarify existing state
law with respect to federal law in order to improve the
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state's ability to successfully compete with other states and
nations for jobs, investments, and manufacturing.
4)Makes other technical and nonsubstantive changes.
EXISTING LAW:
1)Generally protects consumers from unlawful, unfair and
fraudulent business practices. (Business and Professions Code
(BPC) Section 17200, et seq.)
2)Generally protects consumers and competitors against false or
misleading advertising. (BPC 17500, et seq.)
3)Makes it unlawful for any person, firm, corporation, or
association to sell, or offer for sale, merchandise that
advertises itself as being made or manufactured in the US when
any article, unit, or part of the merchandise has been
entirely or substantially made, manufactured, or produced
outside of the US. (BPC 17533.7)
4)Provides that the following are unfair methods of competition
and unfair or deceptive acts or practices:
a) Using deceptive representations or designations of
geographic origin in connection with goods or services;
and,
b) Misrepresenting the source of goods or services. (Civil
Code Section 1770)
5)Authorizes the FTC to regulate claims of US origin pursuant to
authority granted to it under the FTC Act, which prohibits
"unfair or deceptive acts or practices." (15 United States
Code (USC) Section 45)
6)Requires that a "Made in U.S.A." label be consistent with
orders and decisions of the FTC. (15 U.S.C. 45 (a))
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7)Provides, in the form of a policy statement, that a product
may be labeled as "Made in U.S.A." if the product is all or
virtually all made in the US; however, a product using such a
label may contain-in a negligible amount-components made
outside of the US. ("Enforcement Policy Statement on U.S.
Origin Claims," FTC, 62 Federal Regulations Section 63756
(Dec. 2, 1997))
FISCAL EFFECT: None. This bill is keyed non-fiscal by the
Legislative Counsel.
COMMENTS:
1)Purpose of this bill . This bill is intended to apply a looser
federal domestic content standard for lawful use of the "Made
in USA" designation, to the exclusion of California's own
stricter - and unique - domestic sourcing law. Proponents
argue that such a change would encourage California
manufacturers to make greater efforts to domestically source
their products, while opponents contend that this move would
actually reduce the incentive to manufacture domestically
while misleading consumers. This bill is author-sponsored.
2)Author's statement . According to the author's office,
"[T]here is an inconsistency between California and 49 other
states, all of whom hold to federal labeling laws for 'Made in
America' products. This discrepancy results in complications
for manufacturers because products legally labeled for sale in
the rest of the country that come into the California
marketplace may not legally be sold here. 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'?This bill - by statute - will define if a
product meets guidelines as established by the Federal Trade
Commission, it would, meet the requirements for 'Made in
America' labeling."
3)The FTC's "all or virtually all" standard . California is
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unique within the US for having its own statutory standard for
use of the term "Made in U.S.A." California's law is
different from - and, in practice, stricter than - the federal
standard laid out in the FTC's December 1997 Enforcement
Policy Statement on US Origin Claims (the "FTC Standard").
The FTC is charged with preventing deception and unfairness in
the marketplace. Federal law gives the FTC power to bring
enforcement actions against false or misleading claims that a
product is of US 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 US. 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 FTC's "all or virtually all" standard does require that the
product's final assembly or processing take place in the US.
The FTC also considers other factors as well, including how
much of the product's total manufacturing costs can be
assigned to US 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.
The FTC offers two illustrative examples of its standard:
First, a propane barbeque grill's major components are made in
the US, 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 US from
American-made brass, with an American-made lampshade but an
imported base. The base accounts for a small percent of the
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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."
4)California's domestic sourcing standard . Conversely,
California's Business and Professions Code 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, holding 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 for use of
the "Made in USA" designation is effectively 100%.
5)The Kwikset decision and enforcement of false advertising law .
In January 2011, the California Supreme Court issued its
decision in Kwikset v. Benson (51 Cal.4th 310), in which the
court held that four California consumers had standing to
bring an action against Kwikset for falsely labeling its locks
as "Made in U.S.A." in California. While the decision largely
addressed a separate legal question, the Court also discussed
the importance of truthful claims of origin, stating:
"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
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industries and workers? 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." (citations omitted) (Kwikset Corp. v.
Benson (Jan. 27, 2011) 51 Cal.4th 310, 329.)
The practical import of the Kwikset case is that it made clear
that consumers "who can truthfully allege they were deceived
by a product's ['Made in America'] label into spending money
to purchase the product, and would not have purchased it
otherwise" have a right to bring suit under the Unfair
Competition Law for violations of BPC 17533.7.
6)The New Balance settlement . As evidence of the relative
weakness of the federal standard, the Consumer Federation of
California (CFC) cites a 1996 settlement between shoe
manufacturer New Balance and the FTC over the company's
improper "Made in America" claims.
According to a September 6, 1996, press release from the FTC,
the FTC's enforcement action led to a consent decree in which
the company agreed not to label as "Made in USA" shoes that
were entirely made overseas. However, the proposed settlement
did not address false advertising claims related to shoes made
from both foreign and domestic parts and labor.
In its same 1996 press release, the FTC stated that the
question of whether or not unqualified "Made in USA" claims
for products made partially from foreign content could be made
was "currently under review by the FTC, following a public
workshop the FTC held in March [1996]". Charges against the
company for the claims related to shoes with 30% foreign
content were withdrawn by the FTC pending conclusion of the
review and never reinstated. CFC contends that New Balance
afterwards continued to sell shoes with that label when they
had as much as 30% foreign content - without further
enforcement action or opposition from the FTC.
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According to the California Attorney General's office, the FTC
did not ultimately change its standard upon conclusion of its
review.
7)"Made in America" products sold in California . CFC has
compiled a list of 28 products or brands that carry a Made in
USA label and are sold in California. According to CFC,
"[t]hese are a few examples of California-based companies who
succeed in bringing manufacturing jobs to California and the
US by meeting the higher labeling standards in our state".
Those products or brands are: American Apparel; Blue Canoe
clothing; Chippewa boots; Carhartt clothing; Loggerhead
Apparel; Occidental Leather; Rag and Bone apparel; Slainte
Bags; Stetson hats; True Religion jeans; Vermont flannel;
Wigwam socks; 9b Apparel; Kiehl's beauty products; California
North beauty products; Lodge cookware; Nordic Ware cookware;
Kirby vacuum cleaners; Pyrex glass; Tide detergent;
Channellock hand tools; Duraflame logs; Aspen Fishing Reels;
Crayola crayons; Louisville Slugger wooden bats; Mead
envelopes; Kong dog toys; and Post-It notes.
8)Questions for the Committee . As noted above, this bill
replaces California's standard with the FTC's "virtually all"
domestic production standard, effectively applying the more
flexible federal content standard in the stead of California's
stricter requirement. The key question for consideration is
whether or not this lower standard would, on the whole,
encourage more California companies to domestically source
their products, or simply degrade the existing incentive to
achieve 100% compliance and mislead consumers to boot.
Proponents of this bill contend that California's standard, as
interpreted by the courts, is simply too strict; so
"unrealistically rigid [and] anachronistic," in fact, that it
discourages some manufacturers who sell here in California
from making best efforts at domestically sourcing their
products to earn the "Made in U.S.A." label because
California's standard is prohibitively difficult to meet.
Conversely, opponents argue that this bill would dilute
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California's tougher standard with an "inconsistent,"
"inferior" and "vague standard that invites mislabeling."
Opponents also fear that the federal standard could lead to
situations where manufacturers enter into settlements with the
FTC that would permit companies to use the "Made in U.S.A."
label when a substantial minority of the product is foreign
sourced, with the end result being increased outsourcing of
product parts and the resulting loss of California
manufacturing jobs. Finally, opponents point out that goods
made in other states would still be held to the same high
standard when sold here in California, so there is no economic
disadvantage to manufacturers here in the state.
Given that California likely does have the toughest domestic
sourcing standard in the country, and has had such a standard
for a number of years, the Committee may wish to inquire of
the author as to the level of "Made in U.S.A." labeled
manufacturing occurring over time in California versus the
rest of the country. The Committee may also wish to inquire
of the author as to whether or not there are any econometric
studies or data showing a relationship between a tougher
standard and a decline in domestic sourcing or a
disproportionate loss of manufacturing vis-à-vis other states.
9)Arguments in support . According to Small Business America,
"AB 312 would provide an opportunity for small businesses in
California to successfully compete with other states and
nations for jobs and investments without removing consumer
protections. Small businesses are concerned that without a
'virtually all' standard, there is no incentive to make the
majority of the product in the USA if held to an 'each and
every part' standard."
The California Chamber of Commerce writes "[the FTC standard]
takes into account that not all parts or components of a
product are made in the United States. All other states use
this interpretation with the exception of California. This
discrepancy has the unintended consequence of putting
manufacturers and retailers at risk if their products are
labeled according to federal guidelines and sold in
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California. Our members make, market and sell products in
California, across the nation and the world. Having
California law conform to federal law in this instance removes
obstacles for labeling merchandise made or sold into
California."
10)Arguments in opposition . According to the CFC, "Assembly
Bill 312?overrides a 2011 ruling of the California Supreme
Court and would allow products to be offered for sale in
California falsely bearing a 'Made in the USA' label.
Specifically, this bill lowers the California standard for
'Made in the USA' labeling and relies on a significantly lower
standard set by the Federal Trade Commission (FTC) that does
not consistently define the amount of foreign content that can
pass its 'substantially made, manufactured, or produced within
the USA' test...AB 312 would upend this law, establishing a
standard that can include foreign content as 'Made in the
USA.' "
"Permitting a manufacturer to advertise a product with a 'Made
in the USA' label if any part of that product is not American
puts those businesses that go the extra mile to keep jobs and
manufacturing in the USA at a disadvantage. CFC has found
several examples of products, which include audio equipment,
clothing, home goods, outdoor and sporting goods, pet
products, skin care products, tools, and many more, where
businesses are able to meet the higher standard and label
their product as 'Made in the USA' in California without
outsourcing materials and manufacturing jobs.
"AB 312 would replace a truth-in-advertising law that protects
consumers who care about the origin of the products they buy
with a vague standard that invites mislabeling."
The California Teamsters Public Affairs Council contends, "AB
312 would change the California labeling standard for use of
the term 'Made in the USA' and, in our view, weaken protection
for consumers and California's workers?Simply put, AB 312
would allow businesses to mislead the public by allowing the
'Made in the USA' label on products with substantial foreign
content."
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11)Related legislation . SB 633 (Hill) states that it is the
intent of the Legislature to enact legislation that would
update California's "Made in U.S.A." labeling standard, which
was enacted in 1961, to allow California based companies that
manufacture their products within the state while employing
state residents to utilize the "Made in the U.S.A." label even
if their products contain insignificant components that are
not available in the US. SB 633 is currently pending in the
Senate Rules Committee.
12)Previous legislation . SB 661 (Hill) of 2014 would have
allowed merchandise made, manufactured or produced in the
United States that has an article, unit, or part from outside
of the US may be sold in California as "Made in U.S.A." or
"Made in America" if the manufacturer certifies that article,
unit or part cannot be produced or sourced domestically for
reasons other than cost, and the article, unit, or part is
only a negligible part of the final product. SB 661 failed
passage in the Senate Judiciary Committee.
AB 890 Jones of 2013 would have 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 US because of problems with
availability, and with the last substantial transformation
occurring in the US. AB 890 failed passage in the Senate
Judiciary Committee.
AB 858 (Jones) of 2012 would have provided that a product
which is made all or virtually all in the US within the
meaning of the federal policy statement shall be deemed to
have been entirely or substantially made in the United States.
AB 858 was held in the Senate Judiciary Committee.
REGISTERED SUPPORT / OPPOSITION:
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Support
California Chamber of Commerce
California Manufacturers and Technology Association
California Retailers Association
Small Business California
Opposition
California Conference Board of the Amalgamated Transit Union
California Conference of Machinists
California Teamsters Public Affairs Council
Consumer Attorneys of California
Consumer Federation of California
Del Mar Law Group, LLP
Engineers and Scientists of California
International Longshore and Warehouse Union
Professional and Technical Engineers
UNITE-HERE, AFL-CIO
Utility Workers Union of America
Analysis Prepared
by: Hank Dempsey/P. & C.P./(916) 319-2200