BILL ANALYSIS �
AB 2624
Page 1
Date of Hearing: April 29, 2014
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Susan A. Bonilla, Chair
AB 2624 (Medina) - As Amended: April 21, 2014
SUBJECT : False advertising: Made in North America.
SUMMARY : Prohibits the sale or offer for sale in California
and product claiming to be "Made in North America," "North
American Made," or similar words, unless all or virtually all of
the product was made in the United States, Canada or Mexico, the
violation of which will constitute an unfair business practice.
Specifically, this bill :
1)Declares it unlawful for any person, firm, corporation, or
association to sell or offer for sale in California any
product claiming to be "Made in North America," "North
American Made," or similar words unless "all or virtually all"
of the product has been made in the United States, Canada, or
Mexico.
2)Deems the sale or offer for sale of a product unlawfully
claiming to be "Made in North America" or "North American
Made" to be an unfair method of competition, and an unfair or
deceptive act or practice.
3)States that no reimbursement is required by this bill pursuant
to the California Constitution because the only costs that may
be incurred by a local agency or school district will be
incurred because this act creates a new crime or infraction,
eliminates a crime or infraction, or changes the penalty for a
crime or infraction, or changes the definition of a crime, as
specified.
EXISTING LAW :
1)States that it is unlawful for any person, firm, corporation
or association to sell or offer for sale in California any
merchandise advertised with 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 (BPC) Section
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17533.7)
2)Establishes the Made in California Program in the Governor's
Office of Business and Economic Development which conforms to
the same standards as required by the "Made in U.S.A" label.
(Government Code Section 12098.10)
3)Enumerates unfair methods of competition and unfair or
deceptive acts or practices, including representing that a
product is made in California by using a Made in California
label if not participating in the Made in California Program.
(Civil Code Section 1770)
FISCAL EFFECT : Unknown
COMMENTS :
1)Purpose of this bill . This bill creates an "all or virtually
all" standard to use the terms "Made in North America," "North
American Made," or similar terms, based on the same federal
standard for "Made in USA" products. The aim is to provide
certainty in content standards to manufacturers in order to
facilitate the use of commercially valuable "Made in North
America" labels and promote regional manufacturing. This bill
is author sponsored.
2)Author's statement . According to the author's office,
"Existing California law requires that a product be 100%
produced in the U.S. in order to be labeled as "Made in the
USA." The federal government and other states use a more
flexible "all or nearly all" standard, usually 70% to 80%
produced. Given California's access to global markets, these
requirements may become an impediment to marketing California
businesses. The current labeling standards are a problem and
do not reflect current supply chain practices.
"AB 2624 authorizes the optional use of the "Made in North
America" label on products sold or distributed in California.
A "Made in North America" label would be a useful marketing
alternative for California businesses and the labeling
standard can reflect the real-world market in which companies
make products using components from around [North] America."
3)North America Free Trade Agreement . The North American Free
Trade Agreement (NAFTA) is a trade pact signed by the United
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States, Canada, and Mexico in 1992. NAFTA called for the
elimination of all trade barriers over a 15-year period,
granting U.S. and Canadian companies access to certain Mexican
markets, and incorporating agreements on labor and the
environment.
According to the Office of the United States Trade
Representative, trade between the United States and its NAFTA
partners has soared since the agreement entered into force.
This bill would provide for an origination label that covers
materials and parts from all three countries.
4)The FTC's "all or virtually all" standard . The FTC is charged
with preventing deception and unfairness in the marketplace.
The FTC Act gives the FTC the power to bring law 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 "all or virtually all" standard requires that the product's
final assembly or processing must take place in the US. The
FTC 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.
FTC offers two illustrative examples of its standard: First, a
propane barbeque grill's major components are made and
assembled 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."
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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."
This bill would require individuals to adhere to that federal
standard when advertising a product as "Made in North
America."
5)Arguments in support . Star Milling Company writes, "Currently
the Federal Trade Commission (FTC) allows for a 'Made in USA'
designation if 70% of the product is either sourced or
manufactured within the US, this is most reasonable in a
global economy. The State of CA requires a 100% threshold
which is unreasonable and in most cases unattainable within
the parameters of the current legislation. Despite several
efforts to change this legislation in the past few years,
considering at the most a 90% threshold, which is still for
the most part unreasonable, I would like to give my support
for a bill to create a 'Made in North America' label."
6)Previous legislation . SB 12 (Corbett), Chapter 541, Statutes
of 2013, established the Made in California Program in the
Governor's Office of Business and Economic Development for the
purpose of encouraging consumer product awareness and to
promote the purchases of products manufactured in California;
and provides that it is an unfair method of competition or
unfair business practice to use the designated "Made in
California" label without participating in the Made in
California Program.
AB 890 (Jones) of 2013 would have aligned 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. That bill was held in Senate
Judiciary Committee.
SB 661 (Hill) of 2013 would have permitted the use of a "Made
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in the USA" label for those items whose United States
manufacturing costs constitute 90% of the total manufacturing
costs for the merchandise; no more than 10% of the total
manufacturing costs for the merchandise were either incurred
outside of the United States as a result of the unavailability
of raw materials in the United States, or incurred as the
costs of a component, part, article, or unit of the
merchandise imported into the United States as a result of the
unavailability of the same component, part, article, or unit
of the merchandise from a domestic manufacturer; and the
merchandise was last substantially transformed in the United
States. That bill was held in Senate Judiciary Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
California Chapter of the American Fence Association
California Fence Contractors' Association
Coalition of Small and Disabled Veteran Businesses
Flasher Barricade Association
Marin Builders Association
Star Milling Company
Opposition
None on file.
Analysis Prepared by : Sarah Huchel / B.,P. & C.P. / (916)
319-3301