BILL ANALYSIS Ó
SB 633
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Date of Hearing: July 7, 2015
ASSEMBLY COMMITTEE ON PRIVACY AND CONSUMER PROTECTION
Mike Gatto, Chair
SB
633 (Hill) - As Amended July 2, 2015
SENATE VOTE: 39-0
SUBJECT: Consumer protection: "Made in U.S.A." label.
SUMMARY: Permits merchandise with the words "Made in U.S.A." to
be offered for sale if no more than 5% of the product is foreign
made, or no more than 10% foreign made if the content could not
be produced or obtained domestically, regardless of cost.
Specifically, this bill:
1)Permits merchandise with the words "Made in U.S.A." to be sold
or offered for sale in California if not more than 5% of the
final manufactured product consists of articles, units or
parts obtained from outside the United States (US).
2)Permits merchandise with the words "Made in U.S.A." to be sold
or offered for sale in California if not more than 10% t of
the final manufactured product consists of articles, units or
parts obtained from outside the US, and the manufacturer shows
that it cannot produce or obtain the article, unit or part
domestically, regardless of cost.
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3)Declares that the prohibitions and exceptions for use of the
"Made in U.S.A." label shall not apply to merchandise sold for
resale to consumers outside of California.
4)Clarifies that goods sold or offered for sale outside of
California shall not be deemed mislabeled if the label
conforms to the law of the forum state or country within which
they are sold or offered for sale.
5)Makes other technical or 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;
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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))
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))
8)Prohibits the use of a brand name of viticultural significance
on wine produced, bottled, labeled, offered for sale or sold
in California unless that wine meets the appellation
requirements of federal regulation, as specified. (BPC 25242)
9)Provides, pursuant to federal regulation, that an American
wine is entitled to use an appellation of origin if at least
75% of the wine is derived from fruit or agricultural products
grown in the appellation area indicated, as specified. (27
U.S.C. 4.25(b)(1))
10)For purposes of inclusion in the Made in California Program,
deems a product to be substantially made in California if at
least 51% of the final product's wholesale value was
manufactured, assembled, fabricated or made in the state to
create a final, recognizable product. (Government Code Section
12098.10)
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FISCAL EFFECT: None. This bill has been tagged nonfiscal by
the Legislative Counsel.
COMMENTS:
1)Purpose of this bill . This bill is intended to permit a
domestically produced product to bear a "Made in USA" label
even if up to 5% of the product contains foreign-produced
content, or up to 10% foreign content if the article, unit or
part could not be obtained in the US. SB 633 is
author-sponsored.
2)Author's statement . According to the author, "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% 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."
"Even if a company goes out of their way to meet California's
100% 'Made in USA' labeling threshold, it is not always
possible due to the nature of our global economy. Certain
components are simply not available in the U.S.
Bulldog-Lighting in Senator Hill's district has experienced
this issue. They make LED lights for vehicles and have done
everything possible to manufacture their product domestically,
creating jobs in California?However, some of the components
for their printed circuit board are not made in the USA. They
have tried to find them, but they don't exist so they can't
legally label their product as 'Made in USA' under the current
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standard.
"The real world impact of this is if Bulldog-Lighting wants to
sell their products in any other state, they can label the
products as 'Made in America.' If Bulldog-Lighting wants to
sell their products here in California they cannot advertise
them as 'Made in America.' Bulldog-Lighting, or any other
California company in a similar situation, has to have two
product packing lines with two separate labels - one for
California and one for the rest of the country. By creating a
realistic level of flexibility to California's 'Made in USA'
labeling?California companies like Bulldog Lighting would be
able to utilize the 'Made in USA' label."
3)The Federal Trade Commission's (FTC) "all or virtually all"
standard . California is 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
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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
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.
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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 Corp v. Super. Ct. (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
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.
Super. Ct. (Jan. 27, 2011) 51 Cal.4th 310, 329.)
The practical import of the Kwikset case is that it made clear
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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.
The author points out that in the earlier, preceding opinion
from the California Court of Appeal (Fourth District) in
Benson v. Kwikset from June 2007, which upheld the trial
court's narrow reading of the statute, the majority raised the
possibility of a legislative solution:
"We also share our dissenting colleague's angst about both
the effect of this law, particularly in an age of global
trade, and the potential for abuse that may arise under the
unfair competition law. If we had the power to do so, we
would rewrite the statute to address those concerns. But
our Supreme Court has cautioned 'the judicial role in a
democratic society is fundamentally to interpret laws, not
to write them. The latter power belongs primarily to the
people and the political branches of government. [Citation]
It cannot be too often repeated that due respect for the
political branches of our government requires us to
interpret the laws in accordance with the expressed
intention of the Legislature. This court has no power to
rewrite the statute so as to make it conform to a presumed
intention which is not expressed."
6)Other labeling standards used in California . Other types of
labeling requirements for California products are more
flexible than those for manufactured products. For example,
California law for the labeling of wine defers to a federal
regulatory standard that requires on 75% of a wine's grapes to
come from the county of origin. California's own "Made in
California" marketing program requires that only 51% of a
product be made in the state in order to qualify.
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The author also cites similar examples of less-than-100%
labeling standards in California: "Under the California
Organic Products Act of 2003 (Food and Agricultural Code
§46000-46029) a food product can be labeled organic even if it
contains up to 5% non-organic ingredients. Under CFR, Title
21, §101.61, a food product can be labeled as "sodium free"
even if it contains up to 5mg of sodium per serving. The
California Organic Products Act of 2003 allows a cosmetic
product to be labeled as 'organic' if at least 70% of the
ingredients are organic. In other words, to be labeled as
organic, a cosmetic product only has to be 70% organic (Health
and Safety Code §110838). Current California law bans the use
of trans-fats in certain foods and, yet, allows a product to
have up to .5 grams of trans-fat per serving and still be
labeled as containing 0g of trans-fat pursuant to federal
labeling laws (Health and Safety Code §114377)."
7)"Made in America" products currently sold in California .
According to the Consumer Federation of California (CFC), it
has compiled a list of 28 products or brands that carry a Made
in USA label and are sold in California under existing law.
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.
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CFC also notes that the label itself is valuable, writing that
"[a] 2013 Gallup poll indicated that 60% of Americans are
willing to pay more for a 'Made in the USA' product. Recent,
nationally representative Consumer Reports research further
demonstrates the value of a 'Made in the USA' label, as two
out of three of those surveyed said they were more likely to
shop in a store that sells American products."
8)The problem of measurement . One important question left
unaddressed by this bill is how the amount of permissible
foreign content would be measured: is 5% or 10% of the final
product to be determined by wholesale value, retail value,
production cost, weight, volume, surface area, number of
parts, some combination thereof, or some other unknown metric?
The available precedents (federal and California) suggest
that manufacturing cost or wholesale value would be the most
logical metrics to apply in the absence of specific direction.
For example, the FTC's "Complying with the MADE IN USA STANDARD"
FAQ notes that the FTC uses a variety of factors to measure
the foreign contribution to a product, including cost: "What
factors does the Commission consider to determine whether a
product is 'all or virtually all' made in the U.S.? The
product's final assembly or processing must take place in the
U.S. The [FTC] then considers other factors, 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."
The most comparable state statute is the Made in California
Program, which exists to promote California-manufactured
products (and uses the Made in U.S.A. label authorization as a
predicate). The Made in California Program requires eligible
products to have been "substantially made" in the state, and
defines that term as meaning "completing an act that adds at
least 51 percent of a final product's wholesale value by
manufacture, assembly, fabrication, or production to create a
final, recognizable product. 'Substantially made' does not
include the act of packaging a product."
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Given that wholesale value appears to be the most analogous
precedent for measurement of manufactured content, the
Committee and author may wish to consider amending the bill to
clarify that the 5% and 10% standards are measured by
wholesale value. A technical amendment is also needed to fix
a drafting error.
Page 2, line 20, after the word "final" add "wholesale value
of the"
Page 2, line 27, strike the words "article, unit, or part"
and add "articles, units, or parts"
Page 2, line 32, after the word "final" add "wholesale value
of the"
9)Arguments in support . According to a coalition of supporters
led by the California Manufacturers and Technology
Association, "Existing law prevents products sold in
California from having a 'Made in USA' label applied unless
100 percent of the product content is domestically produced.
SB 633 permits a very limited amount of non-domestic content
in a product labeled as Made in USA. Under this bill, five
percent of product content could be from non-domestic
sources."
"This bill also promotes California manufacturers by ensuring
that the Made in USA label be applied in accordance with
labeling laws of the jurisdiction where the product would be
sold at retail. This will ensure that California products
destined for other markets continue to enjoy the Made in USA
label advantage as compared to other products that may be
produced under lower environmental quality or labor protection
standards. SB 633 also provides some additional flexibility,
up to 10 percent nondomestic content, for products that
contain components not domestically produced. Some well-known
US brands contain a single part that is simply not available
from a domestic manufacturer, but otherwise are composed of
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domestically sourced and manufactured."
10)Arguments in opposition . According to the CFC, "[m]any
companies make extraordinary efforts to ensure that their
supply chains are exclusively American. SB 633, if passed,
would allow companies that do not share that same commitment
to American-made products and jobs to sell their products at a
premium, as many polls have shown that Americans will pay more
for the Made in USA label. A company could offshore its
manufacturing or parts to save money, and then sell their
product at a higher price to consumers who rely on the Made in
USA label to inform their purchasing?"
"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.?Americans'
spending habits are significantly influenced by the 'Made in
the USA' label and SB 633 would mislead California consumers
who care about truthful labels to suffer an economic loss when
they purchase a product they would not otherwise have
purchased, had not the label accurately stated the product's
origins."
11)Related legislation . AB 312 (Jones) 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 US. AB 312 is currently pending in
the Senate Judiciary Committee.
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12)Previous legislation . SB 661 (Hill) of 2014 would have
allowed merchandise made, manufactured or produced in the US
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 US. AB 858
was held in the Senate Judiciary Committee.
REGISTERED SUPPORT / OPPOSITION:
Support
American Coatings Association
California Manufacturers & Technology Association
California Paint Council
California Retailers Association
Consumer Specialty Products Association
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National Federation of Independent Business
Oxnard Chamber of Commerce
San Francisco Chamber of Commerce
Silicon Valley Leadership Group
Small Business California
Specialty Equipment Market Association
Opposition
Consumer Federation of California
Analysis Prepared by:Hank Dempsey / P. & C.P. / (916)
319-2200