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Patriot Games: The Great ‘Made in USA’ Illusion (cont.)

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According to the FTC standard, companies that make products in the United States can choose to provide additional details about from where their product parts come or how much of a product is made domestically. Of course, that information won’t be on the label always. You might have to buy the product first to learn that information. For example, at least 90 percent of the toys that K’Nex manufactures are made in Pennsylvania, although the percentage of U.S. materials varies from 10 percent to 100 percent depending on the product, according to K’Nex President Michael Araten. He says K’Nex doesn’t use a “Made in USA” label on its packaging, because the amount of U.S. materials that make up its toys varies. Instead, K’Nex provides a detailed description of the source components on an instruction sheet that’s inside the package.

What’s disheartening—yet unsurprising, given the confusion—is that FTC investigations rarely are triggered by consumer complaints, FTC staff attorney Julia Solomon Ensor tells Consumers Digest. “When you and I look at a product, it’s almost impossible for us to tell whether a product is truly made in the USA,” she says. In most cases when FTC gets involved, she says, it’s because a company’s competitor filed a complaint. In other words, the industry essentially polices itself. Although that might be preferable to nothing, more enforcement should exist beyond companies who merely might be on the lookout for a competitive advantage.

CONTROL ISSUES. In theory, violating FTC’s labeling guidelines could lead to a fine of $16,000 per item that’s sold each time that FTC orders a company to do something and the company ignores the order or repeats the behavior—the use of a label that FTC determined to be deceptive, for example. However, even though FTC is charged with protecting consumers from deceptive advertising, Congress didn’t give the agency the legal authority to levy fines immediately if a company violates an administrative order in a labeling case.

If FTC receives a complaint, Solomon Ensor says, the agency likely would contact the company to determine the necessary steps for the company to comply with the rules, which might include changing the wording on the label. (For instance, a company that assembles imported parts in a product in the United States and uses a “Made in USA” label might have to change the label’s wording to make clear that the product was assembled in the United States but has imported parts.) If the company doesn’t agree, then FTC can file a civil contempt order with a federal court to enforce an injunction against the company. If the company violates that court order—and only then—it faces fines. However, Solomon Ensor says cases rarely reach that point. In fact, she says she can’t recall the last time that a company paid a fine over a labeling dispute.

“It doesn’t really make sense to discuss penalties,” Solomon Ensor says. “Most companies are trying to follow the law.”

Patten argues that because FTC can’t levy fines quickly, government regulations provide “minimal” deterrence to companies that make false or exaggerated labeling claims. However, both Patten and Hasler agree that it’s difficult to determine how many companies mislabel products, because no studies investigate the composition of products that are labeled “Made in USA” to the necessary level.

California has its own “Made in USA” standard that ups the ante on the federal standard. California doesn’t allow products that have any foreign parts that are sold in the state to carry a “Made in USA” label.

Richard Holober, who is the executive director of Consumer Federation of California, says FTC’s “Made in USA” labeling rules are “violated with impunity.” Outside of California, he says, “the worst outcome seems to be for violators to say, ‘We won’t do it again.’”

In California, however, consumers can sue a manufacturer over misleading labels. Holober says lawsuits are the main enforcement mechanism in upholding the law, and that the law has sparked “several” lawsuits, although he wasn’t able to say how many. Costco, for one, is the target of a California class-action lawsuit over sales of Simpson power washers that had “Proudly Made in the USA” labels, when in fact they were made of imported parts. Costco declined to comment on the case, which was pending as of press time.

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