BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2013-2014 Regular Session
AB 2624 (Medina)
As Amended April 21, 2014
Hearing Date: June 24, 2014
Fiscal: Yes
Urgency: No
TH
SUBJECT
False Advertising: Made in North America
DESCRIPTION
This bill would make it unlawful to sell or offer for sale in
this state 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
also add 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.
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.)
(more)
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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 make it unlawful for any person to sell or offer
for sale in this state 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 also provide that a violation of the "Made in North
America" labeling standard shall be actionable under the
Consumers Legal Remedies Act.
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
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.
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(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 provide that it is unlawful for any person,
firm, corporation, or association to sell or offer for sale in
this state 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 also provide that representing that a product is
made in North America in violation of the above provision is
among the unfair methods of competition and unfair or deceptive
acts or practices actionable under the Consumers Legal Remedies
Act.
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COMMENT
1. Stated need for the bill
The author writes:
Existing California law requires that a product be 100
[percent] 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
[percent] to 80 [percent] 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.
Studies show that economies of Canada, Mexico, and the United
States have become increasingly integrated, with Mexican
products having upwards of 40 [percent] U.S. content and
Canadian products having 20 [percent] U.S. content. Given the
highly integrated markets of the U.S., Canada, and Mexico, a
"Made in North America" label would be a useful marketing
alternative for product labeling and would reflect and enhance
North American market integration.
2. Bill would adopt a misleading standard for "Made in North
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 implement a different standard for labeling a product as
"Made in North America" or "North American Made," requiring all
or virtually all of the product to be made in the United States,
Canada, or Mexico in order to bear this label. Staff notes that
the bill's proposed "all or virtually all" standard mirrors 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
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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.) However, as noted in Comment 1, the author
has represented that the "all or nearly all standard usually
[means] 70 [percent] to 80 [percent] produced [domestically]."
Thus, this bill's "all or virtually all" standard would
implement a labeling requirement for goods made in North America
that allows manufacturers to claim North American origin for
goods containing some measure of overseas or non-North American
content. Put another way, this bill would permit products sold
in California to be labeled as "Made in North America" when, in
fact, that statement is not true.
The policy question raised by this bill is whether it is
appropriate to adopt a standard for labeling products as "Made
in North 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.
The effect of the new standard created by this bill would be to
essentially weaken California law in a way that allows consumers
to be misled by the "Made in North America" label.
WOULD THE PROPOSED "MADE IN NORTH AMERICA" LABELING STANDARD
AUTHORIZE THE USE OF MISLEADING LABELS?
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
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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 North 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 of virtually all' standard or advocated a
specific percentage, usually 90 percent or, more often, 100
percent." (Federal Trade Commission, Enforcement Policy
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,
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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. (Kwikset Corp. v. Benson (2011) 51 Cal.4th 310, 329
[citations omitted].)
This bill seeks to introduce a new, weaker standard for labeling
a product as "Made in North America" by specifically allowing
the label to be used on products with foreign-made components.
The policy question raised by this bill is whether, by adopting
a weaker standard that could result in less truthful and less
accurate "Made in North America" labels, the bill would impair a
consumer's ability to rely on labels and to make fully informed
decisions.
WOULD THE USE OF INACCURATE COUNTRY OF ORIGIN CLAIMS UNDERMINE
CONSUMER CONFIDENCE IN PRODUCT LABELS?
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 North America" label
Some proponents of AB 2624 argue that existing California law
disincentivizes companies from making their products in
California or the United States because California's labeling
standards are so strict. For example, Star Milling writes:
The State of [California] requires a 100 [percent] 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,
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considering at the most a 90 [percent] 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.
. . . Consumers whether domestic or abroad look for this label
and in 195 countries and 49 states this label is used as a
symbol of quality above all other products imported or
exported abroad. If [California] companies are going to be
restricted by the inability to label a "Made in USA" product
in its own state that is standard with the rest of society,
then a new designation should be allowed and introduced to
replace the "Made in USA" designation. This is why I am
personally supporting "Made in North America" as a way to give
product identity of a [California] and USA produced product in
[California], while circumventing the ridiculousness of our
current legislators inability to change a 40 [year] old law.
However, staff notes that because the "Made in North America"
label may have 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
North America, thus creating domestic jobs among North American
countries. 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
"Made in North America" label, this bill arguably reduces
current market incentives for manufacturers to find ways to
source all of their components in North America. 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 North America."
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A key policy question, therefore, is whether California should
use its truth in advertising laws to incentivize businesses to
manufacture products in North America, or whether it should
relax labeling standards and officially embrace a certain
threshold of overseas-sourced components in "Made in North
America" products. Creating lower labeling thresholds of the
sort envisioned in this bill might undercut existing market
incentives that drive continent-wide manufacturing, and, for
those products that are not or have not historically been
produced in North America, might defeat market pressure to
innovate and start such production in this continent.
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 North
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 law
applies to every product "offered for sale" in our state, all
businesses - whether located in Nevada, Mississippi, Mexico, or
China - must adhere to California's labeling requirements.
Thus, a business manufacturing products outside of California
that is not subject to 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
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products with a qualified country of origin claims
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 North America." For
example, labels that truthfully state "90 percent Made in North
America," "Assembled in North America," "Assembled in
California," "Designed in Mexico," or "Assembled in Canada 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 North
America" label when the product at issue is not truly made in
North America.
Qualified country of origin claims accurately inform consumers
that, although a product was mostly made in one country or
continent, parts of the product were made in another place. 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 North 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 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
Opposition : Del Mar Law Group
HISTORY
Source : Author
Related Pending Legislation : None Known
Prior Legislation :
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
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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) would have amended California's "Made in
U.S.A." law to specify that merchandise has been entirely or
substantially made, manufactured, or produced within the United
States if the merchandise is a product that is made all or
virtually all in the United States, within the meaning of the
Enforcement Policy Statement on U.S. Origin Claims issued by the
Federal Trade Commission (62 Fed.Reg. 63756 (Dec. 2, 1997)).
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
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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Prior Vote :
Assembly Floor (Ayes 69, Noes 4)
Assembly Committee on Appropriations (Ayes 16, Noes 0)
Assembly Committee on Business, Professions and Consumer
Protection (Ayes 12, Noes 2)
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