Anyone paying attention has noticed a significant trend this
year in Western politics: protectionism. In international trade references, the
definition of “protectionism” is:
“the theory, practice, or system of fostering or developing
domestic industries by protecting them from foreign competition through duties
or quotas imposed on importations”[i]
I can cite several examples this year of protectionism in Western
politics:
1.
The “Brexit” vote by Britain to leave the EU
2.
The appeal of Donald Trump’s anti-free trade
message in the USA
3.
The rise of the National Front in France
In case you are getting worried – don’t! I will not be
making any comments on the value of any of these political movements! This is a
trade compliance blog, and I intend to leave it at that…. This political movement
is real, and I just want to focus on what impact it may have on us trade
compliance folk.
With that said, you have probably already formed a
conclusion about where this is going: clearly he is going to talk about free
trade, specifically the TPP and the TTIP, right? Well, as much as that deserves
its own post (hmmmnn…) I actually wanted to talk about something a little
different: existing US country of origin product marking regulations.
Many in our industry can recite from memory the country of
origin “marking rules” found in 19 CFR 134[ii].
These rules govern what country of origin must be shown on an imported foreign
good, and how that needs to be shown. These rules explicitly only apply to
goods of non-US origin (19 CFR 134.11 directs an importer to ensure that any “article
of foreign origin” is appropriately marked with the country of origin). These
regulations actually make no requirements or even offer guidance about the
marking of a US origin good. Does that mean that you are free to mark a US
origin good however your marketing group prefers? Not according to the Federal
Trade Commission (FTC).
According to the FTC, for most items of US origin[iii],
you have absolutely no obligation to state that US origin. However, they
caution that if you choose to do so, then the “FTC Made in USA standard applies”.
I fear that too many businesses are making claims of US origin on their
packages, without fully understanding this FTC standard.
The FTC standard for a Made in USA claim is extremely
strict. Their standard is:
“For a product to be called Made in USA, or claimed to be of
domestic origin without qualifications or limits on the claim, the product must
be "all or virtually all" made in the U.S”[iv]
What does this mean? It 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.”
I don’t know about you, but I have a feeling that a walk
around your local big box retailer will find many items marked “made in USA”
that actually contain more than a “negligible” amount of foreign content…. So
how can this be? Surely any businesses in violation of the requirements would
be penalized and ordered to change their label? The truth is, the FTC has not
enforced this standard very much historically. A quick look at the press
releases in the FTC web site will show you that they have a long way to go, to
catch up with other trade regulating agencies like BIS, Customs and State in
the enforcement game….
Ok, so you can take a breather right? This is not a big
deal. Well, historically that may be true. However, in an environment of
increased protectionism, and public distrust of globalisation and multinational
corporations, can you be sure these rules will continue to be ignored? As we
have seen with the recent US Customs seizures of goods manufactured with forced
labor, sometimes the rules don’t need to change: they just need to be enforced
more (See here: http://intltradecompliance.blogspot.ca/2016/04/import-controls-on-products-produced.html).
I think now is an excellent time for any company making US
origin claims to have a good look at their products and ensure they are
compliant. Waiting for the political winds to change is not great risk
management, in my opinion…. Something else to keep in mind is the recent rise
of False Claims Act enforcement. This sure sounds like a pretty close fit with
the False Claims Act, and those penalties are significant.
Oh – and one final parting shot. If you make products that
you sell globally and need to mark their US origin for other national
requirements (i.e. Canada or Mexico country of origin marking rules) you have a
real decision to make. Do you make two separate skus? (One with “Made in USA”
on it and one without) Or come up with another creative solution? Whatever your
personal solution, I recommend you start thinking about it now: 2016 could be a
big deal in trade compliance.
Kevin Riddell
[i] http://www.dictionary.com/browse/protectionism
[ii] http://www.ecfr.gov/cgi-bin/text-idx?rgn=div5&node=19:1.0.1.1.28
[iii]
As they state at the following link, some products of US origin such as
textiles are in fact required to state their origin due to other regulations: https://www.ftc.gov/news-events/media-resources/tools-consumers/made-usa
[iv] https://www.ftc.gov/tips-advice/business-center/guidance/complying-made-usa-standard
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