BILL ANALYSIS Ó
AB 312
Page 1
ASSEMBLY THIRD READING
AB
312 (Jones)
As Introduced February 12, 2015
Majority vote
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|Committee |Votes |Ayes |Noes |
| | | | |
| | | | |
|----------------+------+----------------------+---------------------|
|Privacy |6-1 |Wilk, Baker, Chang, |Gatto |
| | |Dababneh, Dahle, | |
| | |Gordon | |
| | | | |
| | | | |
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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
(U.S.). 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 U.S., 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 U.S.
2)Defines merchandise that is "all or virtually all" made in the
U.S. as having the same meaning as that provided in the
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Enforcement Policy Statement on U.S. Origin Claims issued by the
Federal Trade Commission (FTC) (62 Code of Federal Regulations
63756 (December 2, 1997)).
3)States the intent of the Legislature to clarify existing state
law with respect to federal law in order to improve the state's
ability to successfully compete with other states and nations
for jobs, investments, and manufacturing.
4)Makes other technical and nonsubstantive changes.
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
U.S.A." designation, to the exclusion of California's own
stricter - and unique - domestic sourcing law. Proponents argue
that such a change would harmonize California's standard with
the rest of the nation and incentivize 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
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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 FTC, it would, meet the requirements for
'Made in America' labeling."
3)The FTC's "all or virtually all" standard. California is unique
within the U.S. 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 U.S.
Origin Claims (the "FTC Standard").
4)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 U.S. 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 U.S.
The FTC also considers other factors as well, including how much
of the product's total manufacturing costs can be assigned to
U.S. 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 are generally limited to the
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total cost of all manufacturing materials, direct manufacturing
labor, and manufacturing overhead.
5)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 U.S.A." 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. 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.
6)California's domestic sourcing standard. Conversely,
California's Business and Professions Code (BPC) 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 U.S." 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 U.S.A." designation is effectively 100%.
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7)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 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."
8)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.' "
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
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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."
Analysis Prepared by:
Hank Dempsey / P. & C.P. / (916) 319-2200 FN:
0000104