BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2015 - 2016 Regular Session
SB 633 (Hill)
Version: April 14, 2015
Hearing Date: May 12, 2015
Fiscal: No
Urgency: No
TH
SUBJECT
Consumer Protection: "Made in U.S.A." Label
DESCRIPTION
Existing law prohibits the sale of any merchandise labeled "Made
in U.S.A.," "Made in America," "U.S.A.," or similar words if the
merchandise or any article, unit, or part thereof, has been
entirely or substantially made, manufactured, or produced
outside of the United States. This bill would instead make it
unlawful to sell merchandise that advertises itself as being
made or manufactured in the United States unless the merchandise
has been all or virtually all made 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, 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]" for over 70 years. (Bus. &
Prof. Code Sec. 17200.)
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Consumer protection regarding country of origin labeling is no
less a matter of fundamental public policy. Since 1961,
California has expressly required that businesses meet certain
standards before they can claim that their products are "Made in
U.S.A." 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 observed that "[this law] does
not state . . . that a product may be represented as "Made in
U.S.A." if a substantial number or a majority of its parts are
made in the United States," but rather that "merchandise cannot
be represented as "Made in U.S.A." if the merchandise, or any
article, unit, or part of that merchandise, was entirely or
substantially made, manufactured, or produced outside of the
United States." (See e.g. Colgan v. Leatherman Tool Group, Inc.
(2006) 135 Cal.App.4th 663, 684 [emphasis added].) Because the
law prohibits the use of the label if any component part of a
product is entirely or substantially made outside the United
States, California law essentially requires a product to be
entirely made in the United States in order to be labeled as
such.
This bill would lower California's domestic content threshold
for labeling a product as "Made in the U.S.A." by making it
lawful to sell merchandise with this label so long as all or
virtually all of the product was made in the United States.
This bill would specify that the "all or virtually all" standard
has the same meaning as in the Enforcement Policy Statement on
U.S. Origin Claims issued by the Federal Trade Commission.
This bill is substantially similar to SB 661 (Hill, 2014), AB
890 (Jones, 2013), and AB 858 (Jones, 2013), all of which failed
passage in this Committee.
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. (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
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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.
(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. (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 country of origin claims pursuant to authority granted
to it under the Federal Trade Commission Act, which prohibits
"unfair or deceptive acts or practices." (15 U.S.C. Sec. 45.)
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. Sec. 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 make 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 unless the merchandise has been all
or virtually all made in the United States.
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This bill would specify that merchandise that is "all or
virtually all" made in the United States has the same meaning as
in the Enforcement Policy Statement on U.S. Origin Claims issued
by the Federal Trade Commission (62 Fed. Reg. 63756 (Dec. 2,
1997)).
COMMENT
1.Stated need for the bill
The author writes:
Under existing California law (Section 17533.7 of the Business
and Professions Code), a product may not be sold in California
as "Made in U.S.A." or "Made in America" if the product, or
any article, unit, or part of the product, has been entirely
or substantially made, manufactured, or produced outside of
the United States.
California's "Made in USA" labeling standard was created in
1961 to "prevent foreign firms from taking advantage of 'buy
American' promotions." This was a different era, when the
global economy was nascent. The statute establishes a 100
[percent] domestic requirement, meaning that all products used
in a manufactured product must come from domestic sources. In
today's complex and global economy this is an unrealistic
threshold for many modern companies that manufacture products
with many different components, some of which may not be
available domestically.
California is the only state in the country that establishes a
100 [percent] domestic requirement. All 49 other states and
the federal government use the more flexible "all or virtually
all" standard for determining when a product is eligible to be
labeled as "Made in USA." This standard requires that the
significant parts of a final manufactured product come from
domestic sources. But, the standard also allows a product to
contain a negligible amount of foreign sourced material. As
an example, New Balance sneakers are made from roughly 70
[percent] domestic sources and the Federal Trade Commission
allows them to advertise as "Made in USA."
Even if a company goes out of their way to meet California's
100 [percent] "Made in USA" labeling threshold, it is not
always possible due to the nature of our global economy.
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Certain components are simply not available in the U.S. . . .
To help promote manufacturing in California, to encourage the
establishment of small businesses, and to help create jobs in
the state, SB 633 amends Section 17533.7 of the Business and
Professions Code to make the "Made in USA" labeling standard
consistent with the "all or virtually all" standard used by
all 49 other states and the federal government. By making
this change, SB 633 will also eliminate the burden on
California companies of having to create two separate product
packing lines for their products.
2.Bill would adopt a misleading standard for "Made in America"
claims
Since 1961, California law has prohibited products from being
sold 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 lower the standard for labeling a product as "Made in
America" by instead requiring that all or virtually all of the
product be made in the United States in order to bear this
label. The bill's proposed "all or virtually all" standard is
drawn from the Federal Trade Commission's (FTC) current federal
standard for labeling products as "Made in U.S.A." Under
federal law, it is permissible to label a product with an
unqualified "Made in U.S.A." label if the product is all or
virtually all made in the United States. In its guidance on
interpreting the "all or virtually all" standard, the FTC has
stated that a product may still employ an unqualified "Made in
U.S.A." label even though it contains a "de minimis, or
negligible, amount of foreign content." (Federal Trade
Commission, Enforcement Policy Statement on U.S. Origin Claims,
62 Fed. Reg. 63756 (Dec. 2, 1997.)) The FTC has rejected a
percentage benchmark approach to determining whether a product
is all or virtually all made in the United States, and has
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." (Id., 62 Fed. Reg. 63756, 63765.)
As noted in Comment 1, the FTC's "all or virtually all" standard
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has been satisfied in cases where products contained only 70
percent domestically manufactured components. Consequently,
this bill's "all or virtually all" standard would implement a
labeling requirement that allows manufacturers to claim American
origin for goods containing, in some cases, up to 30 percent
foreign content. Put another way, this bill would permit
products sold in California to be labeled as "Made in America"
when, in fact, that statement is not entirely true.
The policy question raised by this bill is whether it is
appropriate to adopt a standard for labeling products as "Made
in America" that permits manufacturers whose products contain
overseas content to enjoy the economic benefits of the label,
but which could result in less truthful and less accurate
product labels. 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.
3.Ensuring consumers get the benefit of their bargain and
assuring consumer confidence
California's "Made in U.S.A." law, along with California's other
strong statutes on false advertising and misrepresentation, are
intended to protect both consumers and competitors in the
marketplace. Collectively, these statutes promote fair
competition and help to ensure that consumers have the
information that they need to make informed purchasing
decisions. The key to ensuring that consumers are able to make
informed purchasing decisions and get the benefit of their
bargain-i.e. get what they pay for-is to make sure that product
labels are accurate and truthful, including labels stating that
a product is "Made in America."
Many consumers have indicated that whether or not a product is
American-made is important to them, and market research
indicates that they are willing to pay more for a product if
they know that it is made in the United States. These consumer
sentiments came to light when, in 1997, the FTC considered
revising its "Guides for the Use of U.S. Origin Claims" in a way
that would have weakened the federal standard. Overwhelmingly,
consumers opposed the proposed revisions and "generally
supported an 'all or virtually all' standard or advocated a
specific percentage, usually 90 percent or, more often, 100
percent." (Federal Trade Commission, Enforcement Policy
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Statement on U.S. Origin Claims, 62 Fed. Reg. 63756, 63758 (Dec.
2, 1997).) The FTC noted that "[s]everal commenters asserted
that changing the current standard would confuse consumers who
wish to buy American products, leaving them unable to determine
whether a product was truly made in the United States." (Ibid.)
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. (Ibid.)
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. (Ibid.)
In January 2011, the California Supreme Court further described
the importance of truthful and accurate claims of domestic
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 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.
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(Kwikset Corp. v. Benson (2011) 51 Cal.4th 310, 329 [citations
omitted].)
4.Bill could have the effect of increasing the percentage of
overseas labor or overseas materials in goods and products
that have the "Made in America" label
Some proponents of SB 633 argue that existing California law
disincentivizes companies from making their products in
California because California's labeling standards are so
strict. For example, the San Francisco Chamber of Commerce
writes:
This update of California's labeling standard reflects today's
complex global economy in which many companies manufacture
products with components supplied from countries around the
world. The "all or virtually all" standard still requires
that significant parts of a final manufactured product come
from domestic sources while allowing for a negligible amount
of foreign sourced material . . . This flexibility in labeling
will promote manufacturing in California while encouraging the
growth of small manufacturing businesses.
However, staff notes that because the "Made in America" label
has such marketing significance, a more accurate labeling
standard than the one proposed would arguably provide more
incentive for companies to make their products here in America,
thus creating domestic jobs. As the California Supreme Court
noted in the Kwikset case, "[s]imply stated: labels matter:"
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. [Sec.] 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 permit companies who sell their goods
in California to use a certain quantity of overseas components
in their products and still derive the potential benefits of a
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"Made in America" label, this bill arguably reduces current
market incentives for manufacturers to find ways to source all
of their components in the United States. By reducing these
existing market incentives through the use of less stringent
labeling standards, this bill could bring about an overall
increase in the percentage of overseas labor or overseas
material contained in products labeled "Made in America."
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 ensuring that
businesses play on a level playing field. This bill would
potentially upend that playing field, placing businesses that
have found ways to make 100 percent of a product in America at a
competitive disadvantage with a competitor who outsources a
certain quantity of their product's components to overseas
suppliers.
Additionally, it should be noted that this bill would not give
California businesses any more of a competitive advantage or
disadvantage based on product labeling than they currently
receive under existing law. California's labeling laws create a
level playing field for all manufacturers who sell goods in this
state, and impose no more of a burden on manufacturers who
choose to locate in California than on those who choose to
locate in another state, country, or continent. As the Consumer
Federation of California, in opposition, states:
[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 country of origin claims
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It is important to note that there is nothing in existing law
that would preclude businesses and manufacturers from employing
truthful qualified claims for products that contain overseas
contents and are not truly "Made in America." For example,
labels that truthfully state "90 percent Made in America,"
"Assembled in the U.S.A.," "Assembled in California," "Designed
in California," or "Assembled in California with 85 percent
U.S.A. content" would all be permissible under existing
California law. California's existing product labeling statutes
only prohibit the use of the pure "Made in America" label when
the product at issue is not truly made in the United States.
Qualified country of origin claims accurately inform consumers
that, although a product was mostly made in one country, parts
of the product were made in another. 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 America" without deceiving consumers. Further, a
qualified country of origin claim would arguably satisfy
existing California and federal law, allowing manufacturers who
use them to uniformly label products offered for sale in all 50
states.
Support : California Association of Independent Business;
California Chamber of Commerce; California Manufacturers and
Technology Association; California Retailers Association;
Chamber of Commerce of the Santa Barbara Region; National
Federation of Independent Businesses; Oxnard Chamber of
Commerce; San Francisco Chamber of Commerce; Silicon Valley
Leadership Group; Small Business California
Opposition : Consumer Federation of California; Del Mar Law
Group, LLP
HISTORY
Source : Author
Related Pending Legislation : AB 312 (Jones, 2015) is
substantially similar to SB 663 (Hill, 2015). This bill is
pending on the Assembly Floor.
Prior Legislation :
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AB 2624 (Medina, 2014) would have made it unlawful to sell any
product that contains the words "Made in North America," "North
American Made," or similar words on the product or its container
unless all or virtually all of the product was made in the
United States, Canada, or Mexico. This bill would have also
added misrepresenting a product as made in North America to the
list of unfair methods of competition and unfair or deceptive
acts or practices actionable under the Consumers Legal Remedies
Act. This bill died on the Senate Inactive File.
SB 661 (Hill, 2014) would have provided that merchandise made,
manufactured, or produced in the United States that has an
article, unit, or part from outside of the United States may be
labeled and sold in California as "Made in U.S.A." or "Made in
America" if the following requirements are met: (1) the
manufacturer of the merchandise certifies that it can neither
produce the article, unit, or part within the United States nor
obtain the article, unit, or part of the merchandise from a
domestic source; (2) the manufacturer's determination that the
article, unit, or part cannot be produced or obtained within the
United States from a domestic source is not based on the cost of
the article, unit, or part; and (3) the article, unit, or part
of the merchandise obtained from outside the United States
constitutes only a negligible part of the final manufactured
product. This bill failed passage out of the Senate Judiciary
Committee on a 2-5 vote.
AB 890 (Jones, 2013) would have provided that 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 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 failed passage out of the Senate
Judiciary Committee on a 2-5 vote.
AB 858 (Jones, 2012) was substantially similar to SB 663 (Hill,
2015). This bill failed passage out of the Senate Judiciary
Committee on a 2-3 vote.
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 a policy 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.
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