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by Nathalie Mitard

Made in the USA:
What It Means

In 1997, the Federal Trade Commission developed enforcement guidelines for determining whether a product could be labeled “Made in the USA.” At issue was under what conditions the use of “Made in the USA” would violate the FTC’s “unfair or deceptive acts or practices” law. The critical section of the enforcement guideline follows:

“A product that is all or virtually all made in the United States will ordinarily be one in which all significant parts and processing that go into the product are of U.S. origin. In other words, where a product is labeled or otherwise advertised with an unqualified ‘Made in USA’ claim, it should contain only a de minimis , or negligible, amount of foreign content. Although there is no single ‘bright line’ to establish when a product is or is not ‘all or virtually all’ made in the United States, there are a number of factors that the Commission will look to in making this determination. To begin with, in order for a product to be considered ‘all or virtually all’ made in the United States, the final assembly or processing of the product must take place in the United States. Beyond this minimum threshold, the Commission will consider other factors, including but not limited to the portion of the product’s total manufacturing costs that are attributable to U.S. parts and processing; and how far removed from the finished product any foreign content is.”

Each of these three criteria—final processing, cost, and the foreign content’s distance down the supply chain—are described further:

“… in order to be considered all or virtually all made in the United States, it is a prerequisite that the products have been last ‘substantially transformed’, in the United States… [If a product was] manufactured primarily in the United States (and last substantially transformed there) but sent to Canada or Mexico for final assembly, any U.S. origin claim should be qualified to disclose the assembly that took place outside the United States.

“ … the Commission will also examine the percentage of the total cost of manufacturing the product that is attributable to U.S. costs (i.e., U.S. parts and processing) and to foreign costs. Where the percentage of foreign content is very low, of course, it is more likely that the Commission will consider the product all or virtually all made in the United States.

“ … Finally, in evaluating whether any foreign content is significant enough to prevent a product from being considered all or virtually all made in the United States, the Commission will look not only to the percentage of the cost of the product that the foreign content represents, but will also consider how far removed from the finished product the foreign content is. As a general rule, in determining the percentage of U.S. content in its product, a marketer should look far enough back in the manufacturing process [supply chain] that a reasonable marketer would expect that it had accounted for any significant foreign content.“

Source: Federal Register , Vol. 62, No. 231, Tuesday, Dec. 2, 1997

The term, “Made in the USA” is found on products across the world. For U.S. companies, the phrase stands as a symbol of pride, confirming that the product is manufactured and built with hard work and integrity. Production and manufacturing in the United States, by small and large businesses alike, is a critical mission for keeping the country economically and emotionally strong. It supports not only the renewal of U.S. pride, but of U.S. spirit, too.

Everyone has read labels or seen marketing with the “Made in the USA” phrase or something similar, but what exactly does it mean? In 1997, the Federal Trade Commission reaffirmed the “all or virtually all” standard. (See the sidebar, “Made in the USA: What It Means” on page 28.) According to the FTC, everything, or virtually everything, must be “made in the USA” before a company can claim or imply that an item is made in the United States. Automobiles, textiles, wood, and fur products must disclose the percentage of U.S. content—but there’s no requirement for most other products to do so. It is up to the discretion of the individual manufacturer or marketer, under indirect FTC oversight, to accurately disclose the true origin of their product.

The first part of the standard, specifically the word “all,” is self-explanatory—it means that all raw materials, every part, and all assemblies utilized to process the product are of U.S. origin. The term “virtually all” is more ambiguous and (according to the FTC definition) 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.”

It should be noted that there is a different, somewhat lesser, standard for government procurement as defined in the Buy American Act (United States Code 41 USC 10a-10d). This act requires that a product manufactured in the United States must be made of a substantial amount of U.S.-made parts to be considered for government procurement purposes. The act seems less stringent than the FTC’s ruling, using the term “substantial” rather than FTC’s “virtually all”:

“…only such unmanufactured articles, materials, and supplies as have been mined or produced in the United States, and only such manufactured articles, materials, and supplies as have been manufactured in the United States substantially all from articles, materials, or supplies mined, produced, or manufactured, as the case may be, in the United States, shall be acquired for public use.”

The government may waive this self-imposed requirement in the event of undue cost to the public, or in the case of certain reciprocal agreements with other countries.

Why should we care
Why is the country of origin important, and why should U.S. consumers care where a product is made? The answers to these questions can be categorized into quality, cost, warranty, legal, socioeconomic, and emotional issues. These summarize just some of the reasons why buying a product made in the United States can be beneficial.

This article will focus primarily on the industrial- equipment market segment to simplify the analysis.

Quality
Quality can be a significant reason to purchase a product manufactured in the United States. Generally speaking, it’s difficult for U.S. companies to manufacture low-cost items at a profit. U.S. companies tend to focus more on enhanced features, better manufacturing, and higher quality to give their products a competitive edge. U.S. manufacturers cannot price their product too much higher than certain lower-featured imports, so a consumer of the U.S.-made products generally realizes more features at a better price.

It’s true that U.S. quality wasn’t always the best. It’s also true that when faced with better quality coming from other countries, the United States stepped up and embraced quality systems and standards to ensure that it would still produce high-quality products at a reasonable price, providing ample reason for U.S. citizens to continue buying U.S.-made products.

Following World War II, the United States slowly lost its way in quality while the Japanese embarked on a quality revolution. Helped by W. Edwards Deming and Joseph M. Juran, Japan converted from producing military goods for internal use to producing civilian goods for trade. Initially, “Made in Japan” was synonymous with lesser quality, and the idea of “buying American” had economic as well as emotional traction. But that changed.

As the Japanese incorporated the teachings of their American mentors, their quality and productivity improved and, at the end of the 1970s, the United States found itself in a quality crisis. It became clear that the Japanese had fully embraced the quality techniques of Deming and Juran—techniques that U.S. industry had first developed and then largely ignored—and that Japanese quality far outstripped the quality of many U.S.-made products. It was a serious situation that gained much attention from the U.S. government and national media, particularly from the 1980 NBC white paper, “If Japan Can, Why Can’t We?” which some credit with starting the U.S. quality revolution.

U.S. industry responded. The total quality management (TQM) initiative emphasized statistical reporting and approaches that encompassed the entire structure of quality in manufacturing. In 1987, the International Organization for Standardization released the ISO 9000 series of quality management standards, which many U.S. companies embraced. Also in 1987, The Malcolm Baldrige National Quality Award Program was established by the U.S. Congress as a means to encourage and reward U.S. companies that achieved exemplary quality. To raise the awareness of the importance and techniques of quality improvement, Baldrige winners are required to share their successful strategies with other companies.

The National Institute of Standards and Technology, which administers the Baldrige program, is instrumental in keeping the United States at the forefront of quality and technology though its commitment to research and development of new technologies and quality standards.

Stricter standards, the deployment of quality frameworks, the willingness to share successful techniques, and the desire to be the best has led U.S. industry to create products that are as good, or better, than ever before. Although quality may have lagged for several decades, U.S. industry fought back, and there is no reason, from a quality perspective, that consumers shouldn’t be looking for the “Made in the USA” label with confidence.

Cost
Generally speaking, the costs to manufacture most industrial products to similar standards, in either the United States or elsewhere, should be substantially on par. Worldwide raw material costs and manufacturing equipment costs are virtually identical, but labor rates, taxes, energy costs, facilities costs, and environmental-impact costs allow some overseas manufacturing locations to realize a lower cost basis. However, the locations where a lower cost basis can be realized are not always staffed with personnel of a technologically competent level. Industrial equipment manufacture requires engineering and manufacturing talent not necessarily available in low cost-basis regions.

The costs to relocate required talent and overcome cultural, language, and other barriers would offset the initial low cost basis and make manufacturing of industrial equipment in these regions prohibitive. Therefore, the cost of a U.S. product and that of a foreign product must be similar unless features or manufacturing standards are not equivalent. That being the case, why not buy the U.S. product?

Warranty
Warranty commitment is an important issue to consider when purchasing any industrial product. The most critical questions to ask are, if something should go wrong with a newly purchased product, how fast will the manufacturer react, and how easy is it to get a response? Product support from U.S. manufacturers to U.S. consumers is normally considered excellent when compared to that offered by the best foreign manufacturers. How often does a U.S. consumer try to obtain support for a purchased product by calling an 800 number and speaking to a representative who struggles to communicate? Warranty support for an imported product is rarely as good as that of a U.S.-made product.

Legal jurisdiction
Legal jurisdiction must be a consumer concern when purchasing industrial equipment. All U.S. manufacturers are under the same jurisdiction of federal and state laws as their consumers. Should litigation between a consumer and manufacturer ever become necessary, it is always available. This is not always an option when considering litigation against a foreign manufacturing company.

Socioeconomic
Many consumers base the decision to buy a U.S. product exclusively on socioeconomic reasons. When a U.S. company buys a U.S.-manufactured item, the transaction remains entirely in the United States. The U.S. consumer of the U.S. product is creating and maintaining the U.S. economic cycle, thereby creating jobs for domestic families, friends, and neighbors. The company that receives money for a purchased item employs individuals who will purchase U.S. goods and services from individuals who will then purchase U.S. goods or services from individuals who will then….

The cycle continues as U.S. consumers and U.S. jobs are retained and created. In addition to creating and maintaining U.S. jobs, supporting this cycle also lowers the federal trade imbalance, lowers the federal deficit, and generates taxes, which pay for a better U.S. infrastructure. Public schools, universities, libraries, police agencies, medical facilities, and roads are primarily funded by this cycle.

When presented with purchasing decisions, the majority of U.S. citizens do not really seem concerned as to why they should purchase U.S.-made products. Everyone in the United States should be tremendously concerned with the “Made in the USA” issue. They are the ones most affected, whether they know it or not. For example, on the way to work, a U.S. citizen might complain of a lack of job security and a decreasing salary, while at the same time driving a foreign car and wearing imported shoes.

A popular Internet site ( www.madeinusa.com ) states, “There are 293 million people living in the United States. If each one would shift $20 a month in spending from foreign-made products to U.S.-made products, that would create 5 million new jobs.”

Emotional
U.S. companies put pride in manufacturing a product with “Made in the USA” on the label. Where I work, we are proud that we have control over keeping our costs and purchases domestic. The employees here know each other’s highs and lows, wives and husbands. There is great self-esteem in our abilities to manufacture good products. We take the time to make sure that we build high-quality products. Customer service is of the utmost importance. There’s never a concern about being able to service a customer’s needs for new or old products.

Summary
For reasons of quality, cost, warranty, litigation, socioeconomics, and emotion, those in the quality industry have a strong incentive to purchase and use “Made in the USA” products and services. Our customers rely on us to help them ensure quality for their customers, so the quality and reliability of our own equipment must be unquestioned. “Made in the USA” products and services can help.

Although the United States doesn’t have a monopoly on quality, those that purchase U.S. goods (whether consumers or business partners) understand that the “Made in the USA” designation carries significant weight. In these days of massive product recalls and questions about the quality practices of international manufacturers of everything from pet food to toys, “Made in the USA” still has meaning. Quality professionals in the United States should realize that partnering with U.S. companies is an investment in ourselves.

About the author
Nathalie Mitard is the marketing manager for Dorsey Metrology International, a position that she has held for 11 years. Dorsey offers “Made in the USA” products for industrial measurements including indicators, gauges, optical comparators and more. Visit online at www.dorseymetrology.com