DKT/CASE NO.:P894219  

TITLE:MADE IN U.S.A.                

PLACE:Washington, D.C.

DATE:March 26, 1996

PAGES:1 through 366

C O R R E C T E D  C O P Y

PUBLIC WORKSHOP

Date:March 26, 1996

Docket No.:P894219

FEDERAL TRADE COMMISSION

WITNESS:PAGE:

None.

EXHIBITS:PAGE:

Exhibit 235

Exhibit 3114

FEDERAL TRADE COMMISSION

In the Matter of:             )

                              ) Docket No. P894219  

MADE IN U.S.A.                )

Tuesday,

March 26, 1996

Federal Trade Commission 

Sixth and Pennsylvania 

  Avenue, N.W.

Washington, D.C.

The above-entitled matter came on for hearing,

pursuant to notice, at 8:13 a.m.

Participants:

ROBERT PITOFSY, Chairman, Federal Trade Commission.

JODIE BERNSTEIN, Director, Bureau of Consumer Protection, Federal Trade Commission.

ABBY ARNOLD, Facilitator, Resolve.

ELAINE KOLISH, Associate Director, Division of Enforcement, Bureau of Consumer Protection, Federal Trade Commission.

BETH GROSSMAN, Attorney, Division of Advertising Practices, Bureau of Consumer Protection, Federal Trade Commission.

ROBERT EASTON, Special Assistant, Division of Enforcement, Bureau of Consumer Protection, Federal Trade Commission.

KENT HOWERTON, Attorney, Division of Enforcement, Bureau of Consumer Protection, Federal Trade Commission.

LAURA KOSS, Attorney, Division of Enforcement, Bureau of Consumer Protection, Federal Trade Commission.

KIMBERLY NELSON BROWN, Attorney, Division of Enforcement, Bureau of Consumer Protection, Federal Trade Commission.

KEITH ANDERSON, Economist, Bureau of Economics, Federal Trade Commission.

MANOJ HASTAK, Consumer Research Specialist, Division of Advertising Practices, Bureau of Consumer Protection, Federal Trade Commission, and Professor of Marketing, the American University.

CLARK RECTOR, American Advertising Federation.

MICHAEL GALE, American Apparel Manufacturers Association.

GAIL T. CUMINS, Sharretts, Paley, Carter & Blauvelt, and MARY ALEXANDER, Matsushita Electric, on behalf of the American Association of Exporters and Importers.

JEFF BOBECK, American Automobile Manufacturer's Association.

JEANNE ARCHIBALD, Hogan & Hartson, GEORGE MOORE, Danaher Tool Group, and ALBERT C. BOURGET, Bourget Research Group, on behalf of the American Hand Tool Coalition.

HARDY B. POOLE, American Textile Manufacturers Institute.

KIMBERLY KORBEL, American Wire Producers Association.

MICHAEL C. THOMPSON, Whirlpool Corporation, and JOHN R. JIAMBALYO, on behalf of the Association of Home Appliance Manufacturers.

PHILIP A. HUTCHINSON, JR., Association of International Automobile Manufacturers, Inc., and BARRY CUTLER and JULIA OAS, McCuthen, Doyle, Brown & Enerson, on behalf of the Association of International Automobile Manufacturers.

RICHARD BLUMENTHAL, Attorney General, and ROGER REYNOLDS, Assistant Attorney General, State of Connecticut, on behalf of the Attorneys General of 19 states.

JOEL R. PLATT, BGE Ltd.

MICHAEL R. KERSHOW and JUDITH L. OLDHAM, Collier, Shannon, Rill & Scott, and HOWARD BEALES, on behalf of the Bicycle Manufacturers Association of America.

HERBERT E. HARRIS II and JEFFERY S. LEVIN, Harris & Ellsworth, and CHARLES W. SALANSKI, Wire Rope Corporation of America, on behalf of the Committee of Domestic Steel Wire Rope and Specialty Cable Manufacturers.

FRANK SCHAPIRO, Crafted with Pride in the USA Council.

JEROME A. BERMAN, Dynacraft Industries, Inc., and JEFFREY GRIMSON, Grunfeld, Desiderio, Lebowitz & Silverman, on behalf of Dynacraft Industries, Inc.

TIM HARR, Motorola, on behalf of the Electronics Industries Association.

JOHN B. PELLEGRINI, Ross & Hardies, on behalf of the Footwear Distributors & Retailers of America.

MICHAEL BROOKS, Rocky Shoes & Boots, LAUREN HOWARD and FAWN EVENSON, on behalf of the Footwerar Industries of America, Inc.

SARAH VANDERWICKEN, International Brotherhood of Teamsters.

DAVID J. LEVINE, McDermott, Will & Emery, on behalf of the International Electronics Manufacturers & Consumers of America.

ROBIN W. LANIER, International Mass Retail Association, and DEBRA P. CHRISTENSON, the Gallup Organization, on behalf of the International Mass Retail Association.

JIM CLAWSON, International Business-Government Counselors, and CHRISTINA EGGE, Polaroid, on behalf of the Joint Industry Group.

DEBORAH SWARTZ, Economic Consulting Services, Inc., on behalf of the Luggage and Leather Goods Manufacturers of America.

JOEL JOSEPH, Made in the USA Foundation.

JAMES P. PALMQUIST, Minnesota Mining and Manufacturing ("3M").

DARLENE ADKINS and LINDA GOLODNER, National Consumers League.

CYNTHIA VAN RENTERGHEM and TIM FELDMAN, National Electrical Manufacturers Association.

PAUL GAURON, Goodwin, Procter & Hoar, and JIM DAVIS, on behalf of New Balance Athletic Shoe.

MITCHELL J. COOPER, Law Offices of Mitchell Cooper, on behalf of the Rubber & Plastic Footwear Manufacturers Association.

RICHARD ABBEY, Ablondi, Foster, Sobin & Davidow, on behalf of Stanley Works.

STEVE BECKMAN, UAW.

CHARLES E. MERCER, Union Label & Service Trades Department, AFL-CIO.

JERRY COOK, Sara Lee Knit Products, on behalf of the United States Apparel Industry Council.

SANDRA L. GETHERS, U.S. Customs Service.

P R O C E E D I N G S

8:13 a.m.

CHAIRMAN PITOFSKY:  Good morning.  I'm Bob Pitofsky, Chairman of the Federal Trade Commission.  And I want to welcome all of you this morning to these sessions on the question of Made in America.  I know many of you have already put in much time and effort and produced filings with us.  And we look forward to a lively exchange and we look forward to your help in addressing this difficult regulatory issue.

We recognize that many consumers care a great deal about the origin of products that they buy.  They may believe that the quality is better if it's entirely made in America.  They may simply care about jobs and economic welfare in this country.  We also recognize that they're entitled not to have their expectations disappointed by acquiring products that are not made in America.  But that doesn't really answer the question.  In fact, it begs the question.  The real issue is what do they think made in America means and what are they entitled to think it means.

At this agency, we have for over 50 years pursued a policy in which made in American means virtually entirely made in America.  That derives from some cases that were decided in the 1940s and 1950s.  Now, even during the last 40 or 50 years, you could always qualify your claim by saying -- by labeling the product, Assembled in America from Foreign Parts, that sort of thing.  But if you say made in America, under FTC law that meant virtually 100 percent.

But the fact is that since those cases were decided, there have been vast changes in the commercial world.  We -- we held some hearings fairly recently.  For example, one change is that imports and exports have increased by a factor of ten -- ten-fold since 1970.  And of course, the -- the intensity of international competition has increased along with it.  So we felt it was time to revisit this question of made in America.  

We have done a fairly extensive consumer survey which will be introduced into the record.  You'll have an opportunity to comment on the FTC survey.  On the basis of some conversations I had this morning just waiting to start, I gather many of you also have surveys on this question.  Indeed the issue is whether it's true that every single person here has a survey on what made in America means.

Aside from perception, however, there's a background against which this question needs to be measured.  And the background has to do with issues of international trade.  Other agencies in the United States we know do not adopt the same definition of made in America as the FTC although they're defining it for somewhat different purposes.  

There are also efforts in international conferences and by treaties and agreements to define the country of origin which again may differ from the way in which the FTC has been defining made in America in terms of consumer protection.  All of these issues will be addressed over the next several days.  And we have very high hopes that with your help and with a lively and candid exchange, we can come closer to the mark or perhaps we're already at the mark.  But at least we can revisit whether these cases decided some time ago deserve to be -- to continue to be controlling law in this area.

All right, let me introduce two people who will be starting off today.  First, Abby Arnold will be facilitating our discussion.  She's senior mediator with the dispute resolution firm of Resolve, and you'll be seeing and hearing a good deal of her as the day goes on.  

Another -- our keynote speaker -- our lead off speaker is Richard Blumenthal, Attorney General for the state of Connecticut.  And he will kick off the sessions.  It's a pleasure for me to welcome him and to introduce him to you, Attorney General Blumenthal.

ATTORNEY GENERAL BLUMENTHAL:  Thank you, Mr. Chairman.

(Applause.)

Thank you.  Well, I thank you for that very kind introduction.  I know that I'm the lead off or kick off speaker.  I hope I'm not the keynote speaker because I'm going to be fairly brief and I hope not too simple, although fairly straight forward in what I have to say.  And let me first not only thank you for the time and effort that you personally are devoting to this critically important subject, but also  to your staff for the preparation that they've given and no doubt the continued work that they will give. 

I am here on behalf of Connecticut and 18 other states.  And I should emphasize right at the outset that these states are a really diverse group; diverse economically, geographically, politically; Republican, Democrat, north, west, east, south and really very different in terms of their economic base as well as their geography.  And what they have united in advocating is essentially the standard that now applies.  And we feel very strongly, all of us as attorneys general that the all -- and virtually all standard makes sense not only on its merits, but in terms of consumer perception.

We know what the studies are, but as much as anything else in terms of what we see day in and day out from our enforcement perspective, the consumer expects and rightfully so that made in the U.S.A. means exactly that, made in the U.S.A.; that all or virtually all of the product is not only assembled but actually comes from this country.  And the surveys that we've seen show for example that a product that consists of less than 70 percent or 70 percent of its value is perceived as not made in the U.S.A. by the majority of Americans.

And the message that we have is very simple:  To dilute the standard threatens to destroy it.  And in order to be valuable at all, the standard has to continue to be credible, comprehensive and consistent, as well as being very comprehensible to the ordinary consumer.  And we propose with all due respect that the standard ought to be ten percent; that the value, the components, the assemblage, the labor, all of what goes into the product ought to consist of at least 90 percent made, manufactured with origins in this country.

As -- as commerce globalizes, we think that standard is all the more important because consumers will expect more and more products to come from outside this country and will look more to made in the U.S.A.  And I can tell you from my contacts and appearances and conversations with people, that standard is tremendously important.  Not only does it mean something to people, but they base their decisions on it.  

If they were to see, for example, the kind of demonstration that I think could be repeated with countless other products but very graphically with this one where the substantial transformation standard essentially would permit this tool to be converted to this tool simply by taking out this part; cutting, etching, putting some grooves in here and thereby substantial transform the product and qualify under made in the U.S.A. standards that are being proposed, that it be diluted to, they would be not just bothered, they would be outraged.  They would be very angry.  

And I think that kind of simple truth has to be reinforced to the Commission.  I know you're very much aware of what -- what consumers feel and sense from the surveys that you'll be hearing.  But what we offer as attorneys general I think is perhaps some of the street talk or consumer protection as we see it from an enforcement standpoint.  

So just to conclude, once again, my thanks to you for giving so much time and effort to considering a very, very important, albeit complicated subject that we believe is extraordinarily important in consumer protection.  And we offer our continued assistance in any way that we can give it in the course of the weeks or months ahead as you consider this subject.  Thank you, Mr. Chairman.

CHAIRMAN PITOFSKY:  Thank you.  

MS. ARNOLD:  Okay.  Thank you.  Thank you both of you for your introductory remarks.  Good morning, everybody.  We're going to need to roll up our sleeves and hope the air conditioning works.  We have a lot to talk about over the next few days.  Before we start, however, what I'd like to do is ask each one of you not only the people at the table, but also those of you who surround us to introduce yourselves.  

All of you are deeply invested and concerned in this issue, and I think that we need to acknowledge the full range of individuals and perspectives that are here.  So if you don't mind, I'll turn to my right and I'll ask you to just introduce yourself; your name and what organization, company or association you're with. 

MS. BERNSTEIN:  Okay.  I'll start.  I'm Jodie Bernstein and I'm with the Bureau of Consumer Protection at the FTC.

MS. ARNOLD:  Right.  I know you, Chairman.

CHAIRMAN PITOFSKY:  Bob Pitofsky, again.

MR. BLUMENTHAL: I'm Richard Blumenthal, Attorney General for Connecticut.  And a member of my office, Roger Reynolds, is here with me and will be substituting for me when I have to return to the meeting of the National Association of Attorneys General.

MS. ARNOLD:  Great.  Thank you.

MS. OLDHAM:  I'm not Michael Kershow.  I'm Judy Oldham.  I'm here from Collier, Shannon, Rill and Scott representing bicycle manufacturers.  And Michael Kershow is sitting behind me along with Professor Howard Beales. 

MS. ARNOLD:  Great.  Great, thank you.

MR. POOLE:  I'm Hardy Poole with the American Textile Manufacturers Institute. 

MS. ARNOLD:  I'm glad you're here.  Jerry?

MR. COOK:  I'm Jerry Cook here with Sara Lee for the United States Apparel Industry Council.

MR. GALE:  I'm Michael Gale with the American Apparel Manufacturers Association.  Here with me is Michael Ragierio (phonetic) who also works for the association, and Carl Pieson (phonetic), our chief economist, will be joining us later. 

MS. ARNOLD:  Okay.

MS. CUMINS:  I'm Gail Cumins.  I'm a member of the law firm of Sharretts, Paley, Carter, and Blauvelt.  I'm here representing the American Association of Exporters and Importers.  And a little bit later on, I will be joined by Mary Alexander of the Washington office of Matsushita Electric. 

MS. ARNOLD:  Great, great.

MR. PELLEGRINI:  John Pellegrini from the law firm Ross and Hardies, today representing the Footwear Distributors and Retailers of America.

MR. BROOKS:  Mike Brooks with Rocky Shoes and Boots and I'm here to represent the footware industry.  And Lauren Howard and Fawn Evenson.

MS. ARNOLD:  Great.  Thank you.

MR. GAURON:  I'm Paul Gauron from the firm of Goodwin, Procter and Hoar.  I'm representing New Balance.  And behind me is Jim Davis, president of New Balance.

MS. ARNOLD:  Okay.

MR. COOPER:  I'm Mitchell Cooper.  I'm the attorney for the Rubber and Plastic Manufacturers.

MS. ARNOLD:  I acknowledge all of your voices.  I hear you on the phone, yes.

MR. COOPER:  That's because we spend so much time pestering you.

MS. ARNOLD:  Well, whatever.  Go ahead.

MR. LEVINE:  I'm David Levine with the law firm McDermott, Will and Emery representing the International Electronic Manufacturers and Consumers of America. 

MS. ARNOLD:  Okay.

MR. RECTOR:  I'm Clark Rector with the American Advertising Federation.

MS. ARNOLD:  Unfortunately, folks, we're going to have to speak into the mics.  So as you move down the table, could you share the mics.  I'm also going to ask you all to put your tent cards up to the end of the table, especially from this side, so that I can see them.  My weak eye is here.  Thanks.  Because I need to know who you are by name, not just hey you.

MR. HARR:  I'm Tim Harr representing the Electronics Industry Association.

MS. ARNOLD:  Jerome?

MR. BERMAN:  I'm Jerry Berman from Dynacraft Industries, importer of bicycles, Magnabicycles.  And behind me is Jeff Grimson from Grunfeld.

MS. ARNOLD:  Great.

MR. HUTCHINSON:  I'm Phil Hutchinson representing the Association of International Automobile Manufacturers.  And we have our counsel with us, Barry Cutler and Julia Oas.

MS. ARNOLD:  Great.  Thank you.

MR. THOMPSON:  Hi.  I'm Mike Thompson.  I'm representing the major appliance industry as well as the portable appliance industry today under the name, The Association of Home Appliance Manufacturers.  Today I have with me also Stephen Zielenzienski sitting behind me, and John Jiambalyo.

MS. LANIER:  I'm Robin Lanier.  I'm with the International Mass Retail Association.  I hope somewhere in the room is Deb Christenson from the Gallup Organization.

MS. ARNOLD:  She's here.  She talked to me.

MS. LANIER:  Okay.  It was a madhouse this morning and I missed her.  She will be making a presentation on our consumer study a little later.

MS. ARNOLD:  My namesake is next.

MR. ABBY:  I'm Richard Abbey.  I'm with Ablondi, Foster, Sobin and Davidow, and I represent the Stanley Works.

MS. ARNOLD:  Great.

MR. CLAWSON:  Hi, I'm Jim Clawson from International Business-Government Counselors and representing the Joint Industry Group.  And with us today is Christina Egge who is just walking in and sitting down.

MS. ARNOLD:  Great, thank you.

MS. VAN RENTERGHEM:  Hi, Cynthia Van Renterghem with the National Electrical Manufacturers Association.  I will be joined for part of the two days by Tim Feldman.

MS. ARNOLD:  Okay.  Thanks, Cynthia.

MS. GETHERS:  Sandra Gethers, U.S. Customs Service, the Office of Regulations and Rulings.

MR. MERCER:  Charlie Mercer, Union Label AFL-CIO, and Jim Cosnik will be working in joining me today.

MS. ARNOLD:  Okay.

MS. VANDERWICKEN:  Sarah Vanderwicken with the law firm DePres, Schwartz and Gegan representing the International Brotherhood of Teamsters.  And I am hoping that the counsel for the Teamsters, Earl Brown, will be here.

MS. ARNOLD:  Great.  Thank you.

MR. MOORE:  George Moore with Danaher Tool Group representing the American Hand Tool Coalition.  With me today are Jeanne Archibald and Joanne Leasure from the law firm of Hogan and Hartson, as well as Dan Giarromone and Gary Henning with Snap-On Tools; Ronald Miller with Vaughn and Bushnell and his counsel, Simeon Kriesberg, counsel for Vaughn and Bushnell.

MS. ARNOLD:  Okay.  Thank you.

MR. BECKMAN:  I'm Steve Beckman of the United Automobile and Aerospace and Agriculture Workers of America, and I'm an international economist here in the Washington office.  And I'm all by myself.

MS. ADKINS:  Darlene Adkins with the National Consumers League.  And I'll be joined later by Linda Golodner.

MS. ARNOLD:  Great.  Thanks.

MR. PLATT:  I'm Joel Platt with BGE Limited.  I'm here representing one of our affiliated companies, the Bradford Exchange, the world's largest marketer of collectable plates.

MR. JOSEPH:  I'm Joel Joseph.  I'm with Made in the U.S.A. Foundation.

MS. ARNOLD:  Thank you.

MS. KORBEL:  I'm Kimberly Korbel with the American Wire Producers Association.  I'm also representing the Domestic Committee for Wire Rope and Cable.  I'm joined today by Jeff Levin of Harris and Ellsworth and will be later joined by Charlie Salanski who serves on both organizational boards, and Herb Harris also of Harris and Ellsworth.

MR. PALMQUIST:  Good morning.  I'm Jim Palmquist, Minnesota Mining Manufacturing, better known as 3M Company.  And with me today also is Jack Ryan.  He is also representing a dual hat of the National Council on Trade Development.

MS. SWARTZ:  Good morning.  I'm Deborah Swartz with Economic Consulting Services.  I'm here on behalf of the Luggage and Leather Goods Manufacturers of America.

MS. GROSSMAN:  I'm Beth Grossman of the FTC.

MS. KOLISH:  I'm Elaine Kolish of the FTC.

MS. ARNOLD:  Okay.  We're going to need name tags -- tent cards for Michael Gale and Steve Beckman.  I'm not going to be able to remember folk's names.  So if we could get that, I'd appreciate it.  I'd like just to add those of you who weren't introduced by someone at the table, just to quickly just give us your name and the organization you're representing.  Would you like to start?

(Inaudible).

MS. ARNOLD:  Okay.  Great.

(Inaudible).

MS. ARNOLD:  Okay.

MR. VORTAY (phonetic):  Al Vortay representing (inaudible).

MS. ARNOLD:  Okay.

MR. JOHNSON:  Doug Johnson with DIA (phonetic).

MR. KELLY:  Richard Kelly with (inaudible) representing (inaudible).

MS. ARNOLD:  Okay.  Great.

(Inaudible).

MS. ARNOLD:  Okay.  Miss, would you mind?  I don't think you were -- were you introduced?

MS. GREEN:  No.  Shawn Green of Ire, Bowman (phonetic), Executive Director, U.S. Apparel Industry Council.

MS. ARNOLD:  Great.  Thank you.  The third row out.  Would you like to go ahead?

(Inaudible).

MS. ARNOLD:  Okay.

(Inaudible).

MR. MARSH:  Dick Marsh with the Buy America Foundation.

MR. MARSH:  And I'm Chuck Marsh with the Buy America Foundation.

MS. ARNOLD:  You found the mic.

MR. BERNARD:  I'm Ted Bernard with the Furnas Electric Company; a member of National Electric Manufacturers Association.

MS. GUARINO:  I'm Tony Guarino with Drinker, Biddle and Reath.

MR. HALBERSON:  My name is Neil Halberson.  I'm here representing the Westbend Company.

MR. JIAMBALYO:  John Jiambalyo, Association of Home Appliance Manufacturers.

MS. CUMM (phonetic):  Deborah Cumm, also with the Westbend Company.

MR. POMPER (phonetic):  I'm Brian Pomper from Arnold and Porter.

MR. OSHAY (phonetic):  I'm Brian Oshay from McKenna & Cuneo.

MS. LAFAY (phonetic):  Cynthia Lafay from the Orbis Company (phonetic).

MR. FOWLER:  Chip Fowler, Howry and Simon.

MS. OLSEN:  Carol Olsen, the Trade Partnership.

MS. HENDERSON:  Francis Henderson, Grand and James.

MS. DUTEIL (phonetic):  Kathy Duteil, Millican and Company (phonetic).

MS. HAMILTON:  Amy Hamilton, Cisco Systems.

MS. ROCCATIA (phonetic):  Michelle Roccatia, Ductco (phonetic) Group.

MS. BLOCK (phonetic):  I'm Margo Block from Arent, Fox.

MS. RACHE (phonetic):  Caroline Rache with New Balance Athletic Shoe.

MS. SHEPPARD:  Cathy Sheppard from New Balance.

MR. WAYNE (phonetic):  Jerry Wayne; the Wharton School, University of Pennsylvania, New Balance.

MS. SMITH:  Barbara Healy Smith; Goodwin, Procter and Hoar (phonetic).

MS. TIDAMORE:  Goodwin, Procter and Hoar.

MS. BADRA:  Cheryl Badra; U.S. International Trade Commission.

MS. BERKIN (phonetic) :  Christine Berkin representing Acer (phonetic) Corporation.

MR. HUGHES:  Alex Hughes; Balluff, Incorporated.

MS. ROZELL:  Linda Rozell, FTC.

MR. SHEPERDSON:  Dan Sheperdson, U.S. International Trade Commission.

MS. KASUBUCHI:  My name is Isao Kasubuchi; Embassy of Japan.

MS. BLACKET (phonetic):  Kasa Blacket; H.D. Hudson and Company (phonetic).

MS. ARNOLD:  Folks, would you like to introduce yourselves?  Just stand and speak loudly, please.

MS. RICE:  Hi, I'm Monica Rice.  (Inaudible).

(Inaudible).

MR. HENNING:  Gary Henning, Snap-On.

MR. FRAME (phonetic):  David Frame; Mayor, Brown and Platt (phonetic).

(Inaudible). 

MS. ARNOLD:  And are you all with the FTC staff?  And the FTC.

(Laughter).

MS. ARNOLD:  Let me walk through what our purpose is and what I'd like to see as a product of the workshop.  And then what I'm going to do is get up and walk through our agenda as we have designed it.  However, it's my assumption that we'll have to be flexible and it may change as we walk through our period.  Am I on or off?  On?

The purpose of the workshop is really for all of you to hear from one another and, if you can, put yourselves in the shoes of the FTC staff who have the task of developing a policy that needs each of your interests and will satisfy the Chair and the rest of the chairs of the FTC.  So at the least what we're going to do over this session is exchange ideas; hopefully offer one another and the FTC clarification of why you have the concerns and positions that you do.

And I see this -- as a mediator, I see this as a very big challenge.  It's a very political issue.  I have experienced that over the wire for the past two months.  There's a great deal at stake for many of you.  There is a lot of money at stake.  There are the futures of different companies and organizations at stake.  And what I'm going to try to do with you over the next few days is see if we can explore with one another the why behind your position; why you care about what you care about; and see if there's any common ground, any commonality amongst you.

On the surface it appears, if you read many of the comments, that there's very different perspectives.  And some of you are on very polar opposite perspectives -- opposite sides of the question.  And I think that what we need to do as a group is put ourselves in the shoes of the FTC and see what kind of policy recommendations might we make that will satisfy the interests of the folks around the table.  So at the least we'll have an exchange of ideas.  And maybe we'll be able to start identifying some common ground so the FTC can take it and move forward with their development of a staff recommendation to the FTC chairman.  

In order to do that, what we've done is we've designed what some have called the marathon agenda, some have joked me about it.  And let's see how we deal with it.  This morning what we're going to hear is the Consumer perception data that a number of the organizations who are represented here and the organizations that have come have collected.  And what we're going to do is we're going to hear from these individuals -- we're going to hear from the individuals and then what we'll do is open the floor for discussion, okay?

And in a moment, I'll go back to the ground rules of how we're going to operate and how we're going to try to focus on the parties at the table but hear from those of you visiting or observing.  Then we'll have lunch.  And then this afternoon after lunch, what I would like us to do is try to focus on the definition of terms; what do we mean by virtually all, what do we mean by percent content standard, and what do we mean by substantial transformation.

If you have an opportunity to read the comments, as many of you may, there are many other variations of each those.  However, rather than going into a definition of all the variations, I think what we'll probably do at the least is define as a group what we mean by these three (inaudible).  Then what we're going to do for the remainder of today, into the evening and then tomorrow is start walking through what do we think about these particular options and why.  And we'll have lots of opportunities for discussion questions.  

So this afternoon we'll focus on the all -- the all standard and we'll have a break.  I've had three or four people come up to me and ask me to not break for dinner, but have a 15 minute break for dinner, and then continue on into the evening.  And we all -- those of us sitting around the table will make that decision right before lunch.  And I may need a reminder right before we break for lunch.  We need to decide whether we actually want to break for dinner which frankly my experience is that people need a break.  But if you don't want to do that, if you really want to make this a marathon, then what we'll do is have a short break for dinner and then come back and end earlier tonight and get home by 10:00.

And tonight or later this evening, we'll talk about (inaudible) entered.  Then tomorrow morning, we'll come back and we'll talk about the substantial transformation standard.  I am pretty clear in my mind that we need all to be fresh when we start focusing on this one.  And then we'll take a break for lunch.  And then in the afternoon what we'll start doing is having a discussion.  And we'll see where we are tomorrow.  

My vision was that by tomorrow afternoon -- by tomorrow afternoon what we'll do is see if we can start pulling together some of our ideas and variations and approaches on one of the three options or the three options, okay, with the goal by 3:00 tomorrow afternoon to see if there are any ideas (inaudible) -- see if there are any areas of agreement amongst at least those of us who are sitting around the table.  And then we'll be able to hear from those of you who are observers about those potential areas.

I'd like to have a short period before we end the workshop on what worked and what didn't work with this workshop.  In my discussions with many of you on the telephone, I found that a lot of you are used to the fairly structured administrative public hearing process.  This is different and the FTC is interested in knowing, and I'm interested in knowing, if this works for you.  This may -- if this -- if in your minds it's a useful workshop; if it was worth your spending time here.  So I'd like to have just a brief review of the workshop tomorrow afternoon.  And then we'll adjourn.

The FTC is recording -- we have a court reporter over there.  So our discussion is being recorded.  And it's my understanding that after the workshop, the FTC will have a transcript available for those of you who are interested in getting a transcript.  You can order it from the court reporter, and so we will get that address on the overhead during break.  Okay?

Let me just propose to you some ground rules.  And I need your help.  This is a large group.  Some people say God, have you ever done anything like this.  Well, I do lots of policy dialogues.  I do regulatory negotiations.  I do workshops with lots of people.  There's usually more than one facilitator.  And so I need all of your assistance in this and cooperation.  

And we sent out a set of ground rules to you in your indication letter.  And I will walk through them very briefly.  One, we're asking all of you to just act in good faith.  I know this is a heated issue.  Some of you may get upset because I don't call on you the moment you put up your card or you raise your hand.  I will get to you as quickly as I can.  And those of you who are observers, it's going to require even more patience on your behalf.

I'm here to serve all of you.  During breaks or lunch if there's something that you don't like that's going on, let me know.  If the structure isn't working, let me know and we'll try to modify it, okay, particularly those of you sitting around the table.  I really want this to be as much of your workshop as possible. 

Those of you who are at the table are here at the invitation of the FTC and observing participation.  There's two ways for you to participate.  One is if you have a comment you want to make at the time that those of us who are sitting around the table are discussing something, tap someone who represents you -- tap someone who represents you on the shoulder and ask them for some time.  And they will raise their hand -- so Joel would raise his hand.  I would call on him and he would turn over to someone from -- from -- one of his colleagues.

The other way for observer participation is we have identified on the agenda certain points in time over the next two days.  Well, I will ask for -- are there any observer comments.  Generally, it's at the end of each of the -- the discussion items.  There are index cards available out in the ante room.  Pick up an index card.  And if you want to make a comment -- if you know you're going to want to make a comment, please just write your name down and get it in to me.  We'll ask you guys to help.  But get them in to me so I have in my mind how many minutes I need to reserve before a break time to hear from -- 

So those are two ways for the observers to participate.  We're going to see how it works.  If we -- we're actually a little bit ahead of time right now.  We gained 15 minutes.  If over the course of the day we've lost an hour and we're really running late, I may close down the opportunity for participation by observers.  And my advice to you is to go to people who are sitting at the table and grab them and say hey, you didn't say this.  This is what needs to be said, so on and so forth. 

So those are the ground rules for the workshop.  Are there any questions of those of us around the table to start out with?  Any comments on the agenda?  Okay.  I'm not going to ask if there are any questions of the observers.  Ask me at a break.  Why don't we move ahead then to our consumer perception data presentation.  And what that's going to require is a number of us -- what do I do?  

Sorry, Elaine.  I apologize.  I'm running from my overhead.  I was doing it in my head.  I apologize.  We're going to move to Elaine Kolish -- I apologize profusely -- to a presentation on the role of FTC.  What we -- let me just introduce.  What we thought would be useful to do is for you to hear what the FTC staff perceives as their role in development of a recommendation on this policy.  So Elaine.

MS. KOLISH:  Thank you, Abby.  I'd like to introduce Jodie Bernstein who is the director of the Bureau of Consumer Protection.  She just said she was with it as if she didn't run us all.  

My name is Elaine Kolish.  I am the associate director for the Division of Enforcement.  And that division has the privilege and the responsibility for coming up with recommendations for the Commission at the end of this proceeding.  This, however, is a very large team effort.  And I'd like to introduce the other members of the team to you.  

It's also an effort that spans several divisions and several bureaus.  We do partnerships right within the FTC.  To my left is Beth Grossman.  She is an attorney with the Division of Advertising Practices, and she is the project manager.  Many of you may have dealt with her.  Also from Ad Practices, we have Dr. Manoj Hastak who is a marketing expert.

From the Division of Enforcement, we have the following attorneys:  Bob Easton, Kent Howerton, Laura Koss, Kimberly Brown.  These people are all available during breaks to answer questions.  We also have Mike Welther (phonetic) who is a program analyst many of you may have dealt with in setting up conversations and with Abby and in getting faxes from him.

From the Bureau of Economics, we have Dr. Keith Anderson.  He's an economist and he will be presenting our consumer perception data with Dr. Hastak later.  

Now I'd like to turn it over to Beth who's actually going to talk about the substance of the role of the FTC.

MS. GROSSMAN:  Good morning.  I'm Beth Grossman.  I'm the one who's been sending you all the faxes and packages over the last few weeks.  I just wanted to cover a few points.  I want to speak very briefly first about the basis for the FTC's jurisdiction in this area.  

I know a number of you have dealt a lot with the FTC and are very familiar with what we do.  I suspect that some of you may be less so.  Also, many people have raised concerns about the harmonization of the FTC standard with that of other agencies, in particular Customs.  And so I thought that an explanation of the direction from which the FTC approaches this issue might provide a good point of comparison.

Section 5 of the Federal Trade Commission Act prohibits unfair and deceptive acts and practices.  And a deceptive act has been defined as a -- as occurring when there is a material representation that is likely to mislead a consumer acting reasonably.  While the Commission's mandate is to act broadly in the public interest -- and so  necessarily encompasses many factors -- this fundamental concern with consumer perception is why we're so concerned with consumer understanding of what made in U.S.A. is and it is why we've commissioned our own survey and why we're devoting much of this morning to learning about the other surveys that others of you have conducted.

A couple of other points may be obvious but I think also bear emphasis.  First, is that the FTC's concern is with claims of domestic origin.  Foreign origin labeling is handled by the Customs Service under the Tariff Act, and we generally defer to their rulings on that subject.

The second point is that for most domestically made products, there is no requirement that they bear the label, "Made in U.S."  That is a voluntary claim and marketers who do choose to promote their products that way must simply make sure that those claims are not deceptive. 

I also want to make a point about the Textile Act.  I know that there are a number of people here from the apparel and textile industries.  The Textile Act statutorily mandates country of origin disclosures including made in U.S.A. labels for certain products.  I want to clarify that our purpose here today is not to try to revisit the determinations made under the Textile Act and our implementing regulations.  We really consider that beyond the scope of what we're doing today.

I -- I also want to make a note about the role of the FTC staff at this workshop.  From -- we -- from time to time, we will ask questions of you to try to clarify points that you're making.  We're also very happy to try to answer factual questions that you might have.  But primarily our purpose here is to listen to what all of you have to say.  We are hoping that this dialogue will help illuminate the important issues here for us.  And also, I mean, even though our goal is not to reach consensus, we're very interested in hearing your suggestions for how to bridge the differences that exist among the participants here.

And I have two further disclaimers about the role of the staff.  One is that we can't comment on specific cases.  And two, that the views staff expresses are our own and do not reflect the views of the Commission or any individual commissioner. 

And finally, two procedural matters.  The record in this matter will remain open until April 30th so that if there are new issues that are raised in the workshop and that you have not addressed in your previous comments to the Commission, you will have an opportunity to submit additional comments until April 30th.

Second, as Abby mentioned, the proceedings are being transcribed.  We expect a transcript will be available in approximately two weeks.  It will be posted on the FTC's worldwide web site on the Internet.  For those of you who are less technologically inclined, it will also be available  in our public reference room or you can order it directly from the court reporter.  That's it.  Thank you.

MS. ARNOLD:  Okay.  Let's -- we're going to change our overhead and we're going to ask those of you who are presenting to us on the consumer perception data to please come up.  And we will volunteer our seats up here for you.  So please, panel come up.  We're going to have a quick change of the overhead now, please.

(Simultaneous conversation among participants.)

MS. ARNOLD:  Okay.  What we're going to do for this session -- thank you for your patience.  I think our technology is now working for us.  What we're going to do for this session is ask each one of the presenters to make their presentation and not have any questions except material effect.

In other words, if you can't read a statistics or the chart doesn't make sense to you, say, "Well, what does that chart mean?"  All right?  And then what we'll do, we'll walk through all the presentations and then we will have a discussion and ask questions.  Okay?

The reason for that, if you're wondering, "Why is she doing that?"  Is my sense is that if we start on questions of the FTC survey or any one of them, we could end up sending all of our time on questions and discussion of that survey.  So, I wanted all of you to have the opportunity to share your ideas and your concepts.  I wanted all of us to sit back and listen and then we will ask questions.  Okay?

Keith, we are ready for you when you are ready for us. 

MR. ANDERSON:  My name is Keith Anderson, I'm a staff economist, Bureau of Economics here at the Federal Trade Commission.  I am here today to provide an overview of the research the Commission has conducted as part of its review of its policy.  With me is Manoj Hastak, who is the professor of marketing at American University and marketing consultant with our Bureau of Protection.

Because of time limitations, I will only be able to touch quickly on the details of the research.  More detail is available in this Summary of Results document, which has been provided to all the participants of this workshop.  For anyone who does not have a copy, additional copies are available in the hall.  Further detail is available in the nine volumes of tabulations prepared by the contractor.  These are available on request, as are the underlying data files.

Because of time limitations, I will only be able to touch quickly on the details of the research.  I said that.  While I will highlight some of the findings of our research, I will not attempt to draw policy conclusions from this at this point.

Let me begin with just a little background on the study.  The data for the research were collected in approximately 1,500 interviews conducted at shopping malls at 13 geographically dispersed markets across the United States during November and September of 1995.  The interviews, data coding, and tabulation were done for us by the marketing research firm of Gallup & Robinson in Princeton, New Jersey.

The research consisted of two separate, though simultaneously conducted studies.  Approximately 1,200 interviews involved a traditional copy test methodology in which participants were shown an ad or product package with the simple, unqualified, made-in-USA claim of a qualified made-in-USA claim.  The remaining 300 interviews were for an attitude survey.

Let me talk about the attitude survey first.  In the attitude survey, no products or ads were shown to participants.  Rather, they were asked to indicate whether they would agree or disagree with a made-in-USA label if that label was found on a series of hypothetical products that were described to them.  

Up to five scenarios were described to each participant.  These differed to the extent to which the cost of making the product was incurred in the United States.  Thus, in the first scenario, the product might be described as having 90 percent U.S. and 10 percent foreign content.  The second product would then be 70 percent U.S. content and 30 percent foreign, etc., down to 10 percent U.S. and 90 percent foreign.

In addition to describing the amount of domestic content in the product, participants were told that the product was either a pen or a stereo and that either the product was assembled in the United States, that the product was assembled in a foreign country, or in some cases nothing was said about where the product was assembled.

I would note that the type of product and what, if anything, was said about where the product was assembled changed only across participants.  The only thing that changed for a particular participant was the level of domestic content.  

After each product or scenario was described, the respondent was asked whether they strongly agreed, somewhat agreed, neither agreed nor disagreed, somewhat disagreed, or strongly disagreed with the made-in-USA label on the hypothetical product.

With that background, let me turn now to the results of this attitude survey.  First, participants' willingness to accept a made-in-the-USA label on a product generally did not depend on whether the product described was a pen or a stereo.  Therefore, for the rest of the discussion of this study, I will combine the results for the two products.  

The key results from the attitude survey are on this slide, which shows the percent of participants who agreed or disagreed with a made-in-the-USA label on products with various amounts of U.S. content that were either assembled in the U.S. or were assembled in a foreign country.  The first thing I would note about these results is that many respondents were willing to accept a made-in-the-USA on products that contained significant amounts of foreign parts, provided the product was assembled in the United States.

For example, 67 percent of participants indicated that they were willing to accept a made-in-the-USA label where the product was assembled in the U.S. and contained 70 percent U.S. cost and 30 percent cost.  So foreign parts accounted for 30 percent of the total cost of making the product.

At the same time, a sizable minority of participants disagreed with a made-in-the-USA claim on a product if it contained even small amounts of foreign content.  For example, 22 of participants disagreed with a made-in-the-USA label on a product that was assembled in the U.S. that contained only 10 percent foreign cost.

Consumer willingness to accept a made-in-the-USA label declined significantly if either the value of the foreign parts increased to one-half of the total cost of the product, in these ranges here, or if the product was assembled in a foreign country, and this tended to be true regardless of the level of U.S. content.

For example, even if a foreign-assembled product contained U.S. parts that accounted for 90 percent of the product's total cost, only a little more than half the respondents, about 55 percent, were willing to agree with a made-in-the-USA label on the product.  If U.S. content was only 70 percent, less than 40 percent of participants were willing to agree with a made-in-the-USA label on that product.

Let me now turn to the copy test, which explored consumer perceptions regarding a simple or unqualified made-in-the-USA claim and for what I will call "qualified made in the USA" or just qualified claims, 70 percent made in the USA, assembled in the USA, assembled in the USA from foreign parts, and assembled in the USA from 50 percent U.S. and 50 percent imported parts.  These claims were presented to participants either in a print ad or on a package.  The print ads were for one of three products -- a stereo receiver, a coffee maker, or a pen --  or those who were shown a package saw a package of pens.

One example of the ads that we used -- this one happens to be for the stereo receiver and shows the claim, assembled in the U.S. from 50 percent U.S. and 50 percent imported parts.  Here is a copy of the pen package that we used, again, with the assembled in the U.S. from 50 percent U.S. and 50 percent imported parts.  

The other ads I failed to mention were of a similar format and approximately the same amount of text in them, and the made-in-the-USA claim was put in the same sized type.  You'll note that in looking at these two slides we did not use actual ads and we did not use well-known brand names.  We did this to avoid any effect of the participants' preexisting beliefs about where a particular brand is made.

The copy test questioning involved two types of questioning.  First, after a participant had examined the ad or package, it was removed from sight and the participant was asked what he or she could recall about what the ad or package said about the product and, in particular, about where the product was from.  After this, the ad or package was again shown to the participant and was left in front of him or her during the remainder of the interview.

Interviewers were also directed to call the participant's attention to the made-in-the-USA-related claim while asking a series of questions that probed the meaning and implications of that claim.  In addition to asking a general question about what the claim meant, questions in this part of the interview dealt with whether participants thought the claim suggested or implied anything about, one, where the product was assembled; two, where the parts that went into the product were manufactured; and, three, how much of the total cost of making the product, including both parts and assembly, was from the United States.

In each case participants were first asked whether the claim suggested or implied anything about an issue, for example, about where the product was assembled.  Those participants who indicated that the outer package did suggest or imply something about an issue were then asked what was suggested or implied and/or how much of the parts or costs was from the United States.

With that background, let me now briefly summarize some of the results of the copy test.  First, participants' interpretations of a made-in-the-USA or a qualified claim did not depend on the product presented or whether the claim was presented in an ad or on a product package.  Therefore, again, we would combine the data for all three products and for both packages and ads. 

One caveat to that is that I would note that participants who were shown an ad were somewhat more likely to recall that something had been said about where the product was from than were participants who were shown the product package.  

Let's look now at those who were exposed to the unqualified or simple made-in-the-USA claim.  I would first note that many participants gave only a very general interpretation of what made-in-the-USA meant and seemed to take nothing specific about assembly parts or total costs from that claim.  In particular, one-third of participants did not indicate any specific meaning or implications in either the open- or close-ended ad interpretation questions.  That is, they answered "no" to each of the closed-end questions, the question about assembly, the question about parts, the question about total cost.  

In addition, in response to the open-ended question about what the claim meant, they gave only a general response, such as saying that the claim meant that the product was made in the United States or that it was a high-quality product.  Of those who gave answers that indicated a more specific interpretation of made in the USA, almost three-quarters said that the claim suggested or implied something about where the product was assembled.  This amounts to 49 percent of all those who were shown the made-in-the-USA claim.

Almost all of these people then indicated that the claim implied that the product was assembled in the United States.  Only roughly half as many people, 28 percent of those who were shown the claim, said that made in the USA suggested or implied something about where the parts were manufactured.  Again, almost all of these said that the claim suggested or implied that at least some of the parts were made in the United States.

Only 11 percent of participants said that made in the USA suggested or implied something about how much of the parts that went into the product were made in the United States, and almost all of those people said that all of the parts were made in this country.  

Finally, 23 percent of participants said that made in the USA suggested or implied something about how much of the total cost of making the product was incurred in the United States.  Of these, a little more than half, 13 percent of all those who were shown the claim, said that 100 percent of the cost of making the product was incurred in the United States.

In sum, a sizable share of participants did not indicate more than a general understanding of what made in the USA means.  Of those who took a more specific meaning, the most common response was that it implied that assembly occurred in this country, while smaller numbers indicated that the claim suggested or implied something about where parts were made or how much of the total cost of making the product was incurred in the United States.

Let me close with a few tentative thoughts about qualified claims.  First, participants were somewhat more likely to recall the moire detailed qualified claims than the simple made-in-the-USA or assembled-in-the-USA claims.  Of participants who saw a qualified claim that did not contain any numbers, that is, they saw assembled in the USA or assembled in the USA from U.S. and imported parts, about half of those who recalled the claim at all, or about 25 percent of all those who were shown the claim, since about half the people recalled something about the product saying something about where it was from, did not indicate any qualification in describing what they recalled the ad or package saying about where the product was from.  Rather, they simply said something like the product was made in the U.S., was from the U.S., was made by an American company, etc.  

On the other hand, when shown the qualified claim again and asked about the meaning of the claim in an open-ended context, more than 70 percent of the participants who saw one of the more detailed claims -- 70 percent made in the USA, made in the USA from U.S. and imported parts, or made in the USA from 50 percent U.S. and 50 percent imported parts -- indicated that at least some part of the product was not produced in the U.S.  The number of people explicitly qualifying their responses was somewhat lower when the assembled-in-the-USA claim was used.  

Finally, virtually none of the participants said that any of the qualified claims suggested or implied that all of the cost of making the product or all of the parts that went into the product were from the United States.

That concludes my presentation, and I think Debra Christenson goes next; so let me turn it over to her.

MR. CHRISTENSON:  The Gallup organization was commissioned by IMRA to conduct a survey to examine shoppers' opinions toward international products and trade, and there are a number of issues that we discussed in the survey and, of course, has been discussed with time limitations.  I was told I have seven minutes, and so I will keep it at that for you.  I'll just kind of highlight for you some of the things that I think, and as Robin and I discussed, are probably kind of important to the discussion that's going to be held here today and tomorrow.

The survey results are based on telephone interviews with a national random simple of 1,003 adults, 18 years of age or older, who identified themselves as being primarily response for the clothing and household goods purchases for their households.  And the surveys were conducted the last week in April and the first week in May of 1994.  So the survey is about a year and a half or so old, and some research that we've done recently -- actually, a couple of groups in this audience -- are finding very similar results.

Overall, most Americans say they prefer American products to those produced overseas.  Thirty-two percent feel strongly about that and 52 percent moderately, with a total, then, of 84 percent.  A somewhat smaller percentage, however, say they will buy a U.S. product, even if it is 10 percent more expensive than a comparable product made in a foreign country.  Nineteen percent strongly agree with that, 45 percent moderately, with a total of 64 percent.

Despite their preferences for buying American, most people generally express positive attitudes about the effect that imports have on the market in the U.S.  A majority agree that imports provide a greater variety of products available, at 56 percent, and 53 percent of the group said that it helps keeps prices of U.S. products down.

Americans indicate a preference for American-made products, but, in practice, they often do not pay much attention to where the product was produced.  When asked to rate the importance of five factors, -- quality, features, price, warranty, and country of origin -- you can see that just 27 percent of the respondents gave country or origin as a factor in terms of importance.  The most important factor was quality, at 82 percent; 57 percent said features; 53 percent, price; and 53 percent, warranty.

Respondents were also asked how often they would try to determine a product's country of origin before purchase, and just one in three, about 34 percent, said they always did, 44 percent said sometimes, and 22 percent said they never or rarely determined what country a product was made before they purchased it.

Views did vary a little bit by age.  Younger people were much less likely to say they always were concerned about the product's country of origin, at [inaudible] percent, and, of course, the group who was more concerned was that older group of 61 years of age or older.  

Of those who say their purchase decision is strongly influenced by their product's country of origin, 65 percent say they always try to determine where the product was produced, and among those who say price, quality, the product's features, the product's warranty are key factors in their decision, only about a third, ranging from 32 to 38 percent, always try to determine the product's country of origin.

The key is that for many people the country of origin is important for some products and not for others.  The types of products that receive the most scrutiny for their country of origin are cars at 54 percent, clothing at 51 percent, electronics at about a third, and half of that, small appliances, we have at 15 percent; and you can see that.

As shown earlier, most people say that quality is the most important factor that influences their purchasing decision, and for the most part, American products are generally perceived as higher in quality than foreign products.  Among the product categories tested in the survey, one that does best is tools, with 76 percent.  And other product categories that do especially well include clothing, by a margin of 69 to 11 percent; and toys, 69 to 13 percent; candy or confections, 67 to 10 percent.

More competitive in the public's mind, if you look at the chart, are cars and small appliances, where we do not have a great different there:  cars, 46 percent U.S. versus a 34 percent in foreign; and small appliances, 48 percent to 29.  So they viewed more competitively in the consumer's eye.

In terms of who has more expensive products, for all the products categories examined, except for candy, more Americans believe that U.S. products cost more than foreign-made products rather than the reverse, the biggest margin being clothing, where 52 percent say the American products are more expensive, while only 22 percent say foreign products are more expensive.  Cars are the most competitive, apart from the candy product area, with 40 percent saying American cars are more expensive than foreign cars and 34 percent saying the opposite.

We asked them in general, Do you think that the quality of goods manufactured in the U.S. is a lot better now than it was a few years ago, a little better, a little worse, or is the quality of goods a lot worse now?  And, according to the poll, 38 percent of the Americans today believe the quality of U.S. products is getting a lot better, about 21 percent from four years ago -- actually, that would have been four years in 1990 -- overall, 85 percent of Americans believe U.S. products are getting better, and only 14 percent believe U.S. products are getting worse, down from 23 percent four years earlier.

And, in terms of the future, will the quality of U.S. products gain or lose ground, Americans believe overwhelmingly, at 72 percent, that compared to such Asian countries as Taiwan, South Korea, and Japan, the quality of U.S. products will gain ground rather than lose ground.

DR. WIND:  Thank you.  I'm Jerry Wind from the Wharton School.  I'm the -- professor and professor of marketing there, and I was asked by New Balance, in the context of another FTC case, to prepare for them two studies.  The study that I'm going to discuss here is partial results from one of these two studies, and the objectives here were to determine consumers' perceptions and understanding of the term "made in the USA" and specifically to assess whether consumers believe that made in the USA means 100-percent domestic content.

The second objective that we're going to discuss here is to determine the relative importance of country of origin and, specifically, made in the USA in consumers' decision to buy athletic shoes.  The research design that I developed included a universe of potential buyers of athletic shoes for running, working, or court sports, and the idea was primarily to focus on this specific universe.

The sample was 207 respondents randomly selected in three-step procedures around the country and included primarily representatives from 12 cities in the four census regions.  

The respondents received the following stimulus:  an actual New Balance shoe that clearly indicated on the label "made in the USA," and the respondent task included a number of specific questions.  First, to determine consumers' perceptions and understanding of made in the USA, we asked them an open-ended question, What does the term mean to you?  Then we primarily presented them with a variety of combinations or shoes that had different levels of domestic content.  

We had, for example, to present them with the six cards, and you can see Card K will indicate on this 100 percent U.S. material components, 100 percent U.S. labor and U.S. company, and ask them to sort each one of these cards whether they perceive that this type of product is made in the USA or not made in the USA.  

Card S is especially the one I would like to focus on.  This is the one we believe represents the New Balance situation of more than 50 percent U.S. material and components, 100 percent U.S. labor and U.S. company.  So this was the way to establish the consumer's perception of the term "made in the USA."  

To try to determine the relative importance of made in the USA to the consumer's decision process, asked primarily again, started with open-ended questions, and then we gave them a task of allocating 100 points among a set of factors.  This forced the consumer for a trade-off between country of origin and other factor, and you will typically get a more realistic assessment as opposed to just in a rating situation where you ask them how important is it.

In terms of we also had a few controls in terms of asking them in terms of what brands of shoes they buy, that the idea was to try to see to what extent those who consider made in the USA important buy athletic shoes made in the USA or not.  The interesting finding is that most of them buy shoes that are not made in the USA, even those who say it's important.

Data collection was conducted in mid-December '94, and the result of the study, I will summarize in four exhibits.  The first one, in terms of mention of country or origin of raw materials and components, we found out when consumers were asked the question, How would you describe these shoes? not even one of the respondents mentioned anything about the country or origin of the raw material or component, and when asked a second question, also open ended, What in particular did you consider when deciding what specific brand of athletic shoes to buy? again, not even one respondent mentioned, despite probing, the country or origin of the raw materials or components.

Interesting, this is quite consistent with the findings from the hand-tools survey that I believe we will hear a little later, where they found that only one percent of the people actually mentioned anything to do with made in the USA when asked what are the determinants of the purchase decision.  

The second exhibit I would like to share with you is the result concerning the relative importance of country or origin.  And these were the set of factors given to the respondents.  You can look at them here.  That's the task of allocating 100 points that I mentioned before among these various factors.  They also had an option of adding any other factors that were important to their decision which brand to buy.  Not too many additional factors were mentioned, but some of them were included here. 

When you look at this, you find out that, for example, 95 percent of the people mentioned comfort and fit, 74 percent mentioned durability, but only 22 percent mentioned nationality of country, 20 percent nationality of labor, and 10 percent country of origin of raw materials components, such as the sole or upper.

In terms of the relative importance of the factor, when you look at the 100 points, they were allocated, on average, in the following way, and you will find that it were as the comfort and fit was 34 percent important, country-of-origin factors were each one of them about 22 percent.  That's, in effect, quite consistent with one of the results we just saw in the Gallup study that focused in terms of the relative importance of country of origin when you looked at shoes.  They got, I believe, three percent.  So the Gallup study showed three percent; we came here with about two percent.  It was a different methodology, a different study.

The third exhibit summarizes consumers' perception and understanding of the term, "made in the USA."  It's a response to an open-ended question, What does the term "made in the USA" mean to you?  And when you look at the responses, you find out that 40 percent of them indicate make, manufacturer, USA; some of them talk about assembly, assembled in the U.S., about 18 percent; and some general reference.  You will find that most of the meaning relates to it's assembled here, the positive economic consequences of made in the USA, and you will see here, in terms of quality, that 21 percent indicated some response relating to quality.

When you're looking at the rest of the responses, that we look at the materials or components here, we find out that only six percent indicate all materials are U.S. made.  You have here, interesting is that an equal number of people almost indicate that materials and components may come from other countries, four percent there.  This is quite consistent with a number of other studies that I reviewed, presented in these proceedings, which basically also indicate the importance of the economic factors, the importance of the assembly, and the importance in relation to quality, and not necessarily to the components, the percent of the components done.

The final exhibit I would like to share with you is the result of the task where we asked consumers to indicate to what extent, if you recall Card S that we talked about before, to what extent this card that says "More than 50 percent U.S. material components, 100 percent U.S. labor and U.S. company," to what extent it is perceived by the consumers as made in the USA or not made in the USA.  We found out that among the people who understood the task, there were few people, about 13 percent of the people who did not understand the task.  

So, for example, if we gave them a card that says all of them -- if you look, for example, at this card here, all of them would look at Card K, "100 percent U.S. material and 100 percent U.S. labor and U.S. company," some of the people said this is not made in USA.  Obviously, they did not understand the task.  So we took these guys out, and when you look at people who really understood the task, in a sense, all of their responses were consistent.  We found out that 85 percent perceived this situation to be made in the USA.  

Again, I think it's a finding which is very consistent with a lot of the other studies we've heard, even the FTC study that talks about the fact that consumers are accepting a wide variety of percentage of content as being made in the USA, that they do not expect 100 percent of the content of the material to be made in the USA.

The conclusions, therefore, are straightforward.  The country of origin, U.S. or other; country of raw materials components, such as the sole or upper, is of no importance, relevance in consumers' decision to buy athletic shoes.  This does not mean it's unimportant in other categories; our study focuses only on athletic shoes, and similar to the results of the Gallup study, you will see there is a wide variability with respect to products and consumers' perceptions of the importance of this in different products.

With respect to athletic shoes, it is clearly not very important.  It's consistent with the finding that country of origin of raw is not an important relevant factor in consumers' decision to buy athletic shoes.  The third conclusion is that for the vast majority of consumers, made in the USA does not mean that the raw material components are made in the U.S.  It does mean, however, that it is made and manufactured within the U.S., assembled has positive  economic consequences for the U.S., jobs for America and probably also has high quality.  

The current situation, at least for New Balance, in terms of presented by our Card S, which are athletic shoes made with more than 50 percent U.S. material component, 100 percent U.S. labor, and by U.S. company is viewed by the vast majority of consumer as made in the USA.  One possible explanation for this phenomenon is a study that I'm not sure is going to be presented, which I reviewed as part of this, which was the Bradford Collectible study that showed that in response to a specific question that focused on a trade-off, do people perceive that there have been a lot of things about products made in the USA and the like, most parts are made entirely, including parts and labor, from a single country; or the alternative, in today's world, only some products are entirely made within a single country.  And 94 percent of the respondents selected in today's world only some products are entirely made within a single country.

Lots of times products come from one country and the product assembled or created in another country.  So this may be one of the explanations, going back to the changes in economic reality that explains this type of finding.  Thank you very much.

MR. THOMPSON:  Abby?

MS. ARNOLD:  Yes.  

MR. THOMPSON:  Abby?  

MS. ARNOLD:  Yes.  

MR. THOMPSON:  In addition that much of this presentation being more than just the results of the survey, many of the items was mentioned was not -- does not correspond to what was on the table on Exhibit 2, the country of origin and raw materials and components was mentioned by 10 percent.  It was mentioned by eight different survey respondents.

MS. ARNOLD:  Okay.  Exhibit 2, are you suggesting that --

MR. THOMPSON:  It's hard to read on the --

MS. ARNOLD:  Could you use the mike.  

MR. THOMPSON:  Sorry.  

MS. ARNOLD:  On Exhibit 2, we'll put it up.

MR. THOMPSON:  Page 11. 

MS. ARNOLD:  Page 11.  

DR. WIND:  The first page or the second?

MR. THOMPSON:  That one.  The third item in the bottom.  

MS. ARNOLD:  Country of origin.

DR. WIND:  You are right.  I apologize.

MS. ARNOLD:  That's okay.  Okay, as a point of fact.  Thank you.  

The beginning of your comment wasn't a point of fact, but we will accept the second point of comment.

Okay, why don't you go ahead.  

MR. SCHAPIRO:  Good morning.  I am Frank Schapiro.  I am here actually for the firm Demand Factors in St. Louis.  I am here representing Crafted with Pride, and I am going to be talking about a bit different sort of survey.  This talks very narrowly to textile.  More specifically, it was a consumer survey clothes, in a category that was broadly defined as "home fashions or home textiles," which to the consumer the first item was draperies, sheets, towels and so on.  

It's not one survey, but a sequence of surveys; all of which were done to control essentially marketing and advertising controls by the Crafted with Pride certification mark, Crafted with Pride USA.

Let me briefly discuss the method with you, and then it's really a data base.  I'm going to select a small amount of data to show you.

It's a series of surveys that essentially telephone conducted from central locations four times a year from 1985 through 1993.  With some minor exceptions, each wave is approximately 1,000 people, co-terminus U.S.  So that there is no mistake about this, the sample itself was selected to represent retail traffic, not population.  

And you can see the stratification on the chart.  You can in fact take the results, recast them to populations since it's a national probability sample very easily.  There are very few demographic differences, and I will talk about them.  So the result of recasting it into population numbers would be essentially the same as the results you see.

And, finally, I want to stress that this survey was not done specifically to look at labels, consumer perception of labels, et cetera.  It was done entirely for marketing controls.

And I guess one last comment, since I might as well start now, we have tried from time to time to change the leading questions, the genre of the survey, to ask about not just made in the USA but to try to ask assembly questions, and what have you.  And very much in line with the results that everyone else, we simply didn't do it because we couldn't get consumers to understand very well.  It was a vague and nebulous area.  Well, it's made in the USA, it's made in the USA, which is pretty much the results you are seeing out of the surveys.  They are just very vague about this.

So let me start first and talk first about perception data, and then about actions, entirely confined to clothes.

And I should comment also that because of the nature of the survey many of the items are reversed.  It isn't just put U.S. in positive, but also put the importer to foreign item in the positive vein, and the first one does.  This is typical of what you have seen.  

It asks the question at the top, "Clothes made in foreign country of better workmanship than closthes made in the USA."  The red area is percentage disagreeing over time.  

By the way, I have selected to just show the last five years.  These charts are confusing enough as is.  But from 1985 through 1993, the percentage of people in red who disagreed, foreign-made clothing had better quality, it was quite large, unchanged.  

As you will see, the chart suggests there isn't a great deal of change among consumers.  There isn't any great groundswell.  The green suggests those who agreed.  And the yellow areas on each of the charts will be those who either had expressed a neutral opinion or had no opinion at all.

Along this line they were also asked very similar questions asked in other surveys, quality of clothing made in the USA has steadily improved over the past few years.  There was general agreement to it.  It remains relatively unchanged, although it's uptrended, and has been.  We have seen in some more recent work a similar pattern.

You can take other aspects of the product itself, and one of the questions always about quality is, is this kind of some generalized political reaction, or does it seem to have some kind of base.  

And I want to stress that one of the problems it the consumers do not think in components from what I have seen in surveys.  So they tend to talk about sizing, which is a result of many of the components.  

We asked about have you more confidence in the consistency of sizing in clothes made in the USA than foreign-made clothes.  And this is an area of strong agreement.  

It's important because they now use the USA identification as a point of information about sizing and consistency of sizing.  So it serves more than simply a purpose in terms of -- perhaps it serves a purpose in terms of information in shopping.

We have also asked the question about value.  They agree that value in USA is better, though not at extremely high levels.  It's about half, a little bit under.  Disagreements not very strong.  

I am not going to show out the pricing item.  They generally agree that foreign-made items are a little bit less expensive.  

Finally, one of the issues when you get into clothing and home textiles is fashion.  And it shouldn't be overridden.  I had asked somebody if country of origin important when they get their choice between something totally unfashionable and something fashionable.  They are going to take the fashionable item.  

Similarly, with fit, they are going to take an item that fits.  

So we asked the question about fashion in U.S. goods, and in fact the U.S. industry is perceived as providing generally, in this case we asked if foreign countries have more up-to-date fashion, generally disagreed.  

All right, we have looked at some of the perceptions.  What does this lead to in terms of reactions to the actual product they buy?  

And this question, unfortunately, was not asked until the first time, I believe, in June of '93.  This particular chart represents the wave in December '93, the most recent wave.

MS. ARNOLD:  Use the pen.  

MR. SCHAPIRO:  Great presentation today here.

All right, we asked the question about -- I am going to come to this in a moment -- you open the survey and you simply ask have you been shopping in the past week, the past two weeks, the past three months.  And if they say yes to any of those questions, we say what did you buy.  It's a real simple little opening on clothing.

And then we asked the question essentially did you notice where it was -- did you notice the country of origin, some data I am going to show you in a minute; what was the country of origin.  And we asked them the satisfaction question, how satisfied were you.  And this compares all respondents.  It's not quite all the respondents in the survey because a few didn't shop in the past few months.  But 718 respondents reported they shopped for clothing and home textiles in the last month.  Compared their responses and satisfaction with those who noticed the country of origin and the country of origin was USA.  

We find that 56 percent of the total sample reported that they were very satisfied with their purchase versus 73 percent very satisfied with their purchase for USA made.

It tends to be a reflection of how they are responding to what they have.  It is a select, in a self-selection group.  This is a group that had noticed the country of origin and knew that it was made in the U.S..   I want to be clear about that because it isn't everybody that's concerned with this.  

Turning to the issue of what sorts of behavior might be associated with the issue of looking for and buying USA made, the survey asked it in two different ways.  And I apologize for doing this, but survey results are always accused of it's how you ask the question.

This particular survey asked it two different ways.  There is an average frequency question.  What did you do when you were out shopping recently, which is a typical response.  It's what a consumer responds to.  Some of you are familiar with medium measurement recognized rather quickly.  

This particular set of measures is based on an average method.  It goes all the way back to 1985 in this case.  The blue line represents those who report that on recent shopping trip they looked for USA made.  It's a little under half.  It has been rising.  It is not everybody.  There are some demographic differences, and I want to be clear.  

Consumers over 35 are more apt to tell you that they in fact than consumers under 35 years of age.  Younger women are the least apt to.  Of those who do look, it tends to be people who also report that they bought USA made.  And you are going to see rather consistent pattern here.

That looking for country of origin is usually related to an interest in USA made for clothing.  Now, I want to be very clear that we are talking about clothing in this case.  

The other method you can use to look at this is the so-called recency method.  I said that we opened the survey by asking them what they bought.  We asked -- we asked them where they bought it.  And then we asked them if they noticed the country of origin.  And you can look at those data, and they are very similar.  

In this case the blue bars represent notice country of origin.  It's about 40 percent have noticed the country of origin the last purchase they made.  And they are free to say anything, and believe me, it can be anything.  It can be any raincoat to towels to shirts and so on, and they usually give us a rather detailed response.  

And, again, the patter is the same.  If the item was -- if they noticed the country of origin, it is likely to be it was USA made.  

Now, I want to address quickly a secondary issue that concerned me a little bit when I looked at a couple of the submissions, and I apologize if this comes to a surprise to anybody.

The question comes up who are these people.  There were some suggestions that people who look for USA made might not be typical of the population, and this isn't quite the way to put it.  

What this is is a profile of people who look for and bought, reported buying.  It's based on the average question, both are similar, from December '93.  And if you look at the chart, for example, 20 percent of the sample is between 18 and 24 years of age.  Thirteen percent of that group said they looked for USA made.  It's less than the sample.  It would index low.  There is what would be described as an age skew.

I want to be clear.  Contrary to some suggestion, this is not the gray market.  Half of the people in the sample are between the ages of 25 and 49.  Well, maybe it is the gray market.  

(Laughter.)

And half the people who look for USA made are also between 25 and 49.  Younger single people were a little less apt to look.  As I recall, at the age when I would have been reporting single, I wasn't looking much at country of origin either.  

Education, there is some difference.  It is not as extreme as might be suggested, were a little more apt.  High school education reporting looking for USA made.  This is in line with other surveys.  Thirty-eight percent of the sample reported a high school education versus 44 percent reported looking.  But it's not a huge skew.

Further, the suggestion that college educated people are not concerned with this issue is not correct.  Approximately 25 percent are college graduates or post-graduate degrees, and approximately 20 percent of the sample with those kinds -- or 20 percent looked for USA made.

There are some slight difference by occupational category.  One of the characterizations that I haver heard made is that this is a blue collar issue.  It is not entirely.  

I want to stress two things to people looking at this chart.  First, proprietor, professional, technical and managerial proprietor comes out pretty much as the sample does.  So upper level occupations tend to follow the -- and this would fall out in the sample.  Clerical sales is unusually low, and that has been in every wave.  I have just selected this wave because it's easier to look at.  Craftsmen foremen, I would use the blue collar groups, tends to be a bit stronger, as is service worker.

It is not a low phenomenon though.  It's not that I get a usually large number of "laborers."  So perhaps that sheds a little light on who is involved with this.  

And I guess one other comment I want to make is that it seems to me that what these charts do in the end, or this kind of thing, it squares very much with data we are being shown.  Much of it is a matter of interpretation as to what it means.

But what we have is clothes made in the USA are seen as providing better quality, fit and so on.  To some it doesn't seem surprising.  They are more apt to be satisfied with USA made, which is important here.  There are very substantial numbers of consumers who do look for USA-made clothes and home textiles.  It's not even a majority, but it's a very large number; just below a majority.  

USA made is associated with specific recent purchases.  It sufficient to be noted by many, and this is different from an experimental design.  

I guess the final comment I want to make is that what I am not showing you today, and it is not hiding something, is that I am not showing you the importance data.  There are methodological problems which are quite severe with asking for the consumer's importance and conceptual data.

This survey asked for country of origin.  It gets roughly 29 percent saying it's important or very important.  A parallel survey had the data here that asked USA made gets 77 percent.  A simple change of wording.  

If you stop and think about it, there is a conceptual problem though.  For many of you, certainly for me, if I am offered a size 14 shirt, I just can't wear it, so you have multiple cut offs.  This is not packaged goods. This is not confections that I work in frequently where you ask about tartness and sweetness and what have you.  Price is an important issue.

There are sales data as well that support the issue of the importance of USA made.  One way to look at the sales issue simply is the consumer's vote with their pocketbooks.  If you sell more with the USA made, and that's a topic I suspect will come up here, then in fact the consumer is voting for something that in fact is important to them.  

So I guess on that note I will simply end, and turn it over to Al Bourget.  

MS. ARNOLD:  We will hear from Al, and then I am going to ask you if you want to take a break before we have a question and discussion, or if we want to move into the question and discussion for awhile and then take a break.  

MR. BOURGET:  I am Al Bourget with Bourget Research Group, and I represent the American Handtool Coalition.  And I appreciate the time to review this study.

My first question, I am wondering if the first projector was American made or not since it began to smoke quite readily.  

First, I would like to just briefly review the research objectives.  And as you can see here, one, to determine the importance of made in the USA label for handtools; two, to determine what a made in the USA label means; three, to determine perceptions of made in the USA label in terms of labor and materials.

Our research methodology was basically an national telephone survey, the sample size with 600 adults, 21 years and older.  The screening question pertained to their owning and using handtools, which is sockets, ratchets, and wrenches.

We further subdivided the sample into 200 professionals, 200 serious do-it-yourselfers, or DIYs, and 200 casual do-it-yourselfers.  Professional obviously were plumbers, mechanics and so forth who basically earn their living using handtools.  Serious do-it-yourselfers are people who do rather extensive projects around the house.  And finally, casual do-it-yourselfers are people who do have some tools, but do very unimportant projects, and that -- I fall into that category and I buy more bandaids than I do tools.

(Laughter.)

As it turned out, 63 percent of the sample were male and 37 percent were female.  And interestingly enough, the DIYs use handtools on an average of 64 times a year, so they were quite active.

With this arrangement here, it would help to have three hands.  I apologize.

A "Made in USA" label is considered highly important to 70 percent of the handtool consumers.  The label is a significantly more important when these consumers are buying handtools than when they are buying cars, clothing or home electronics.  

As you can see, both the eighth, tenth scores and the mean scores, handtools are 70 percent; cars, 60 percent; clothing, 49 percent; and home electronics, basically TVs and stereos, were 32 percent.  

This question was asked, whether or not handtool manufacturers define "Made in USA" label the same way.  And as you will note here, that six out of 60, or 61 percent of the handtool consumers assume that if two manufacturers use a "Made in USA" label on their handtools both define it in the same way.  

This simply asks whether a "Made in USA" label pertains to mostly labor or material in making handtools.  And as you can see, 40 percent said both equally; 38 percent said the labor; and 22 percent said materials.

This chart shows that a majority, 53 percent of handtool consumers assume that a "Made in USA" label means that 100 percent of the tool is in fact made in the USA.  

On a direct question asked what does a "Made in USA" label on a handtool mean, in addition to the obviously that the "Made in USA" label means the handtool is made in America, 46 percent said that, handtool consumers said that the "Made in USA" label also means high quality materials, high quality fit and finish, best made or best available, and then it falls off to good value for the money, purchasing helps support the U.S. economy, and are strong and durable.

This chart shows that a "Made in USA" label is as important as price in buying handtools, and significantly more important than brand name or reputation of the store.  The only thing considered more important when buying handtools than the "Made in USA" label is the warranty itself.

Asked about handtools owned, respondents estimated that about 80 percent of the handtools, such as sockets, ratchets and wrenches, are American made.  More than one in five, or 22 percent, said that all of their handtools are American made.  

In this case, the reasons most handtools owned are American made, 41 percent said they wanted to support U.S. economy and labor; 25 percent felt it was better made, better materials, stronger and, again, it falls off, better warranty, better value, fit and finish.  

In summary, we feel our study shows that most handtool users take a "Made in USA" label at its face value, and believe it signifies high quality in terms of workmanship and materials.  And this is borne out by the findings that on average 80 percent of the handtools in consumers' toolboxes are in fact American made.

Two, most handtool users feel that a "Made in USA" label means that 100 percent of the tools is made in the United States, and the survey results show emphatically that a "Made in USA" label is highly important to handtool users in this country.

Thank you very much.  

MS. ARNOLD:  Do you want to have questions now and discussions, or should we take a break?

Who wants to have a break?  Raise your hands.  I'll go around the table.  It looks like more want to take a break.

Why don't we take a 15-minute break.  I have exactly 10:00.  We will come back at 10:15, please.

(Whereupon, a recess was taken.)

MS. ARNOLD:  Okay, those of you have attended large, formal negotiations generally know that a way to get acknowledged is to either raise your hand or put up your card, and I am happy for you to do either.  And what I will do is write down your name on my sheet, and we will develop a running tally, and start with discussions.

So I know that Judy has already raised her hand and, Mitchell.  Are there others who have questions?  

Okay, let's get those down.

Judy, why don't you go ahead?  

MS. OLDHAM:  Okay, I would like to introduce Professor Howard Beales from the George Washington Department of Strategic Management, who has a few comments he would like to make about the FTC's consumer perception study.  

MR. BEALES:  Thank you, very much.  

MS. ARNOLD:  As a point of explanation, Judy had called last week and asked if he could be added to the panel.  And instead of adding another person to the panel, what we decided to do was ask for the comments to come during the discussion phase.  This is the last formal presentation that we have that I know of.  

MR. BEALES:  Thank you, very much.  

Due to this morning's difficulties, I decided to use a computer for a paper weight instead of a pen, so we will see whether that works a little bit better.

I want to focus on the copy testing claims that a product is "Made in USA" with special emphasis on the FTC survey, because I think it underlines some methodological problems that are present in a lot of the other research that we are looking at.  

Like a lot of the other surveys, the FTC starts by asking consumers a general claim about what is the phrase "Made in USA" mean to you.  And like a lot of the other surveys, what it finds is that most consumers play back the general phrase "Made in USA" means made in USA.  You get some other general responses.  You get a handful of people that say it's all made in the USA, and a handful of people that say it's some imported parts, but mostly people say it means made in the USA.  

To try to understand what consumers are telling interviewers, I thought it might make sense to look at a dictionary as to what "made" actually means to consumers.

Now, this is a little novel in FTC proceedings, and I am looking at the dictionary in a different way.  Not to understand what the advertiser is trying to say to the consumer, but rather to try to understand what the consumer is trying to say to the interviewer when they say that this claim means that it was made in USA.  

The dictionary definitions of "made" focus on creating the product; to cause to exist or happen; to bring into existence by modifying materials; to create by putting together component parts.

And I would like to call your attention to one particular illustration of that second definition, to make a coat.  Now, think about a consumer who understands "Made in USA" that way, and ask this consumer who made a coat, how much of the coat did you make.  

Well, the answer is likely to be all or virtually all, but they are talking about the process.  They don't mean they made the cloth.  They don't mean they made the components.  They are talking about the process of bringing the coat into being from some things that weren't a coat.   And in that sense, and that's likely to be the way that they will respond to the survey questions.

Similarly, if you think about somebody who made a meal, and ask them how much of the dinner did they make.   The answer is likely to be all or virtually all.  It doesn't mean they grew vegetables or slaughtered the livestock.  They are talking about the process of creating the dinner.

Given that possible understanding, it's crucial that surveys give consumers a chance to tell the interviewer I don't think about this that way.  And the FTC survey is one of the ones on this record that did that.

The first thing the FTC asked specifically was do you think that the claim says something about whether the product was assembled in the U.S., and you get about half the consumers who say, yes, it is.  That's not surprising given that's one of the fairly specific definitions of "made" out of the definition.

But on the other hand, the other half who say no, it's not about assembly also make some sense if consumers understand this as the process of bringing the product into being.  After all, I bought my kid a bicycle.  It came out of the box, and I had to assemble it, but I would hardly say that I made the bicycle.

The FTC survey then asks consumers does this claim have any suggestion about where the parts went into the product were manufactured.  And most consumers say no.  We get about a quarter of consumers who say, yeah, it says something about the parts.  But even for consumers who think it says something about parts, most of those consumers don't think it says anything quantitative about parts.  

There is only about 10 percent of the sample who think that the claim "Made in USA" says something quantitative about how much of the parts were made in the United States.  The rest of the consumers have this more general understanding.

Now, of those who do think that it says something about how much it was made in the U.S.  Most consumers think it means it was all made in the U.S., which, again, it should not be surprising.  

But think about the other surveys that ask consumers to agree or disagree with particular definitions based on how many parts were made in the United States.  For 90 percent of consumers, that question is not consistent with the way their thinking about "Made in USA."  They don't think the claim says anything about how much of the parts were made in the U.S.

And if you give them the chance to tell you that, that's what they specifically said.  Most consumers are going to answer this question from a frame of reference that's very different from what the interviewer might expect, and may lead to very different answers and very different interpretations than you might otherwise expect.

You get a very similar picture if you focus on cost.  Again, most consumers don't think that the claim said anything about how much of the total cost of producing the product was from the United States.  You get a little over 20 percent who will agree that there is some such implication.   And of those we've got about 10 percent who again say -- a little over 10 percent -- who again say it was 100 percent made in the U.S.

This raises the same methodological problem.  If you do what the FTC did in the attitude survey, and say would you agree or disagree with this definition based on costs, you are not eliciting the consumer's definition because 80 percent of consumers specifically say we don't think about it that way.  We don't think it means anything to do -- to do with cost.

And I might just add this 100 percent of consumers who think about this in terms of -- in terms of 100 percent made in the U.S. is essentially the same consumers who also say all of the parts were made in the U.S.  There is a relatively small group, about 10 percent, that thinks "Made in USA" means both parts and costs.  Most other consumers seem to have a more general understanding of the phrase.

I think it's important to think about the implications for this.  And to me it seems to me that the survey results mean that the FTC should regulate "Made in USA" claims using its traditional reasonable basis doctrine.  From the survey results we can tell that consumers understand the "Made in USA" as a claim about where the product came into being, not some specific part of it, but where the product as a whole came into being.

Undoubtedly, consumers expect that that process was somewhat substantial.  They would be surprised to find that the last steps that brought it into being were trivial.  If you think about the making dinner example, the consumer who made the bread by popping a frozen loaf in the oven probably feel the need for some disclosure because they are claiming that they made the bread.

On the other hand, I think it's also fair to say the consumers probably expect that most products were brought into being somewhere. They were made somewhere.  And some of the definitions at issue here, like all or virtually all, have the peculiar property that there is a lot of products that weren't made anywhere.  

I think if we think about the claim as one that the product came into being, this is a claim that could be substantiated by any of several existing regulatory standards.  As is generally the case with the reasonable basis notion, there is a lot of different ways that people could establish the validity of a claim.  And as the general advantage of the reasonable basis notion, it preserves flexibility both for advertisers and the Commission in dealing with the wide array of circumstances for different products that are likely to be relevant.

I might just add, I don't think it's possible to go much farther than this based on consumer survey evidence.  Consumers in shopping malls don't understand enough about the process by which goods are made to give intelligent answers as to whether or not a particular process had to be in the United States or might have occurred somewhere else.

If you think about the process of bringing the goods into being, to say whether that was or was not in the U.S. is something that requires some understanding of that process, and what it involves, and it's something typical consumers aren't likely to -- aren't likely to have.

I think, as well, the policy considerations argue that the Commission should not adopt a separate FTC definition of "Made in USA".

MS. ARNOLD:  Are you going to continue making comments on the actual data results, or are you going to be making a proposal, your proposal for what the standard should be?  

I feel like we are moving into the next step.  

MS. OLDHAM:  We are not making a specific proposal, and this is his last comment right here.

MS. ARNOLD:  Okay, I am hearing him moving into the next part of our discussion.  Okay, go ahead.

MR. BEALES:  Okay.  There are widely accepted regulatory definitions, and advertisers should be able to use them.  That's the policy the FTC has used in other areas like food labels, and one that it should follow here.  New definitions would only create consumer confusion.  

There are consumers who care, as the survey result makes clear, about the 100 percent U.S. parts and the 100 percent U.S. cost.  For those consumers who are interested, advertisers could qualify their claim.  The survey results indicate however the advantage of that approach, which is that it puts the burden of disclosure on the minority who are interested in that particular feature rather than the majority.  

Just to summarize, I think survey results make clear, and it's consistent with essentially all of the survey evidence that's introduced, that "Made in USA" to consumers is a claim about where the product came into being.  Consumers do not understand the claim as an implied reference to parts or cost.  They think about it in a more general way, and the FTC should not impose a different definition.  

MS. ARNOLD:  Okay, I have on my list Mitchell and then Jerry Berman.  Who else raised your hand when I asked?  George.

Okay, let's start out with Mitchell.  

Can we have the lights, please.

MR. COOPER:  I would like to personally thank Professor Beales for helping me as a nonstatistician make my way through some of these surveys, and put it to some degree in effect of what the FTC should be concerned about.  I think he did a very competent job.

Secondly, I would like to suggest a caveat with respect to some of the perception.  I made my own survey, as I assume many of you around this table did, and my survey group was -- were consumers, sophisticated consumers of athletic footwear, namely my ninth grade grandson's basketball team.  

And I asked them where they thought Nikes are made.  And without question they all said in the United States.  And I said why so?  And they said, well, everybody knows that they are an Oregon company, and there are all of these great American athletes who wear Nikes.

I don't think that's an uncommon view, and if the majority were to feel that Nikes are made in the USA, does that mean that Nikes has a right to make the claim of "Made in USA".  Obviously not.  Every product they sell is an imported product.

So you have to be very wary of a consumer perception, I would suggest.

Secondly, one problem I had in going through these surveys is that it does seem to me, and again looking at it from what we understand, particularly from the description of the FTC's mission, what we understand that mission is, I would suggest that the only consumers who matter for this purpose are those who care where the product came.

It shouldn't just be a random review of consumer perception.  If a consumer buys a product and doesn't care whether it's made in the United States or abroad, that consumer is not in danger of being deceived.  It's of no interest to him.

And the other question which it seems to me should have been asked and wasn't is with respect to those who do care, why do they care.  And I would hope that if we can arrive at a consensus on nothing else in the course of this proceeding that we, or at least most of us would agree that those consumers who really care about whether a product is made in the USA, however that term is defined, have as their major interest the protection of a American jobs, or at least of a major interest, the protection of American jobs.

And with the possible exception of the New Balance Survey, I don't think any of these surveys go to that question.  And in the last analysis it does seem to me that when you make a judgment as to whether or not a consumer was deceived in his view of "Made in USA", the deceived consumer has to be one who was somehow adversely affected by the claim. 

And if his view is that "Made in USA" is important to him because he wants to protect American employment, then it is important to understand what you have to do in making an American product in the global economies that were sell described by the Chairman this morning, what you have to do in order to protect American jobs.  

MS. ARNOLD:  Okay.  Jerry?  

MR. BERMAN:  Well, I had some of the same comments as this gentleman had, but "Made in USA" means just that, "Made in USA".  And with all these surveys, that's true.  I don't think they really got down to the bottom of it.  "Made in USA" or assembled, a lot of these people may be confused by that statement.  

What is assembly?  Is it the same as being made here, or does it mean that you are bringing parts from some foreign country and bringing them here?

I am in the bicycle industry, and my office is in Ashland, Mass.  Does that mean that I have the right to put "Made in USA" on my product?  Of course, not.  I hire maybe 30 people in the United States, but I don't hire several hundred.  And I have no right to put "Made in USA".  And if I did put "Made in USA," I would be very proud of it, and I would put that on there and know that I had 100 percent of my product was made in this country.

You see in advertisements in a lot of newspapers in the State of Connecticut, Ohio, that the attorney generals are against deceiving the public with big letters "Made in USA," drawing the person into the store, on the cartons in six-inch letters "Made in USA."  Taking the product out of the box, and I talking about bicycles, not shoes right now.  Taking the product out of the box and in seven or eight areas on this product "Made in USA."  Well, really it's assembled in the United States.

Yes, some of the laborers here, some of the jobs are here, but some of these companies are closing their factories, moving to areas in the United States where they can get cheaper labor; deceive the public.  

MS. ARNOLD:  So, Jerry, help me with what questions you have either with the survey or what the survey lacked from your perspective.

MR. BERMAN:  Okay, I felt the last --

MS. ARNOLD:  You will have lots of time to walk through what the -- what you're thinking is about the "virtually all" standard.  

MR. BERMAN:  All right.  

MS. ARNOLD:  Try to move back to the discussion of these poll results.

MR. BERMAN:  Okay.  Just to -- I believe, "Made in USA," of course, is a very strong thing, and the surveys didn't show how strong "Made in USA" really is.

MS. ARNOLD:  Okay.  

MR. BERMAN:  And they didn't ask the customer between assembly and manufacturing.

MS. ARNOLD:  Okay.  

MR. BERMAN:  I don't believe the customer is stupid.  As the last gentleman who got up here and said the customer is not smart in its surveys in the shopping centers, I think is a disgrace.  I don't think anyone here should rise themselves, or raise themselves to a position that they are better than the U.S. customer.  

That's all I have got to say.

MS. ARNOLD:  Okay, great.   Thank you.

George?  

MR. MOORE:   Yes.  I think very clearly I represent handtools, and with the American Handtool Coalition.  We have companies who produce the vast majority of handtools in the U.S.

I think today and tomorrow you are going to see and hear many surveys of what does "Made in USA" mean.  Clearly, I think from even all of the surveys "Made in USA" is important to the consumer. 

We saw in our Bourget study 70 percent of the consumers rated "Made in USA" as very important in buying handtools.  In 1995, the FTC survey copy test, 70.8 percent of the consumers said it was very or somewhat important.   The Gallup survey done by IMRA, 84 percent of those polled all expressed a strong to moderate preference for American products.  

As we look at where we are going, "Made in USA," especially in the handtools, clearly it is easy to apply both labor and materials, and that came through, not only from the customers, but they understand that it can be all made in the USA.  

Our feeling is that the FTC was set up and intended unclear and deceptive acts and practices which are fine, and it's pretty clear what's made in the USA when it comes to handtools.  It's not necessary that all consumers be deceived when you say that only 10 percent really care.  We disagree with that.  

In any of these surveys, the substantial majority would be deceived at anything less than a "virtually all" standard.  We think that's very important, and that we need to continue to stay with the current standard and protection.

If we look at these New Balance survey, clearly, there would be some things that will come to question.  I think the opening comments said there are two surveys done, of which we will hear the results of, or partial results from one survey as least I recall.

My question, what were some of the other results and what's missing?  The survey itself said 13 percent of the respondents were thrown out because they didn't understand the survey.  So if 13 percent didn't understand and we're talking those out, we come to a decision as to what is and is not important, a large portion not understanding the question themselves.  

And that, I think, brings the total response of less than 200, and I am not sure what the margin of error would be once you have thrown out that many responses.

MS. ARNOLD:  Okay, there were quite a few questions, George, and I assume you are directing them to Dr. Wind.

Do you want to answer?  

DR. WIND:  I would be delighted to.  

MS. ARNOLD:  Restate the question that you are trying to answer.  

DR. WIND:  The first was the question as to what were the other -- the other parts that we have not shown here.  I can clearly state that none of the results that we did not show here contradict in any way or call to question any of the conclusions we presented here.

There was another study that focused on advertising themes, but did not deal at all with the issue that we are dealing with here that I presented.  

Substantial part of the report, the first report, were presented here.  Because of time limitation, I did not show all of the report.  Categorically and conclusively you can be assured that what you saw is the essence of the report.  Nothing is hidden here.

Going to concerning the 13 percent who did not understand, this relates to one task.  This is only with respect to the specification of the cards.  When we gave Card S, if you remember the six cards that I had on the screen, we -- first of all, there is no sense to include good data with bad data.  We want to make sure that the people understand the task they are given.  And it's a standard research procedure to do it.

So we had a convenient test.  If the consumer tells you that a product which is 100 percent -- if you look at one of the cards, 100 percent U.S. material component, 100 percent U.S. labor, and a U.S. company, but the respondent classifies this as not made in the USA, it's obvious that this responded did not understand the task, and there is no sense in including his or her data in these calculations.  

But this is the only place in the four exhibits that I showed you that we looked at the partial of the data.  This was 180 respondents, of whom 85 percent clearly classified Card S, that more than 50 percent U.S. material component, 100 percent U.S. labor, and U.S. company as "Made in USA."  That's highly significant.  And the importance in terms of generalizing from result, it is not the sample size that determines, but the way the sample is being selected.

And the sample was selected here as close to probability sample as possible using the three-step procedure that I suggested originally. 

The other statement I think that you made was -- I'm not sure it was a question or not, but you made a statement that the consumers are deceived by anything which is not 100 percent made in the USA.  

This statement is not consistent with any of the data that had been shown here today in any of the studies.  It is inconsistent with my study.  It is inconsistent with the FTC study.  It's inconsistent with the other studies presented here.  

MR. MOORE:  It is certainly not inconsistent with our study.  And when you look at the other studies, I believe, if there is a substantial minority, in fact we feel that it's 100 percent.  

DR. WIND:  If you look at the -- let's say the question of the 100 percent of parts of the product, and if you look at the various studies, then in my study the 85 percent clearly speaks for itself; that you have over 55 percent of the component that it's being perceived as made in the USA. 

The FTC, I think we saw it twice, the data that you chose, that for only 29 percent perceived anything concerning assembled.  

The National Consumer League study that is around has four tables that represented, and you can look at them, it's Table 1-AB, 4-AB, if you want to get into this, I will be glad to do it.  

And even in your study, the handtool study, if you look at the study, you have the data on page 15, when you look at the percentage "Made in USA" suggest that, and I read here, of the percentage of the handtool they assume is made in the USA when they see in the "Made in USA," more than half, 53 percent, not 100 percent; an additional 27 percent, 27 percent, but 50 percent to 99 percent, and then later on you have another respondent assumed that less than half, nine percent of the respondents of the handtool is made in the U.S., or did not know. 11 percent.  

So I am not sure that based on these data included in your own study you can conclude that unless it's 100 percent the consumers are deceived.  

MS. ARNOLD:  Okay, let's -- go ahead.  You want to respond?

MR. MOORE:  Yes, I mean, I think from our study it shows that a substantial majority would be deceived, and the goal was not to see how low you can go, but not deceive the consumer. 

Also, if I can just respond, you threw out the 13 percent responses that clearly were misunderstood.  I would be interested in, when you look at Card K, how many stated that 100 percent U.S. material, components and labor made in the USA would be deceived when you drop below that.  Or in your responses if they were able to place one of these cards and say this means made in the USA as long as -- they could still be misunderstood, put it in the wrong category, but wouldn't necessary drop out of your survey.

You only took the ones that were adamant, clearly had to be wrong, not possibly misunderstood and misclassified.

DR. WIND:  If you would like to, I can provide you with very detailed breakdown of those 13 percent.  

The consumer that indicated that Card K was not made in USA were four percent of the respondents.  Those who indicated Card M was 100 percent non-USA materials, 100 percent non-U.S. labor, and non-U.S. company, and yet they classified it as made in USA were seven percent.

And then you have three other kind of groups which showed an inconsistency between the responses here.  When you examine these responses, I don't think they change materially any of the conclusions that of the people who clearly understood the task, 85 percent of them classified Card S as made in the USA.  

MS. ARNOLD:  Okay.  Why don't we try to move on.  I have Philip, Roger, Steve, Kimberly, John Pellegrini and Joel.

Philip?  

MR. HUTCHINSON:  For the benefit of the group, I represent international automobile companies that do business in the United States.  These are importing companies, and these are also companies that build cards here in America.

And I want to say with regard to these surveys that we have seen, we do agree that country of origin is important to consumers.  In fact, we are a very heavily regulated industry, and we are required on various labels on automobiles to indicate where these cars come from; where they are assembled; where they major components are made.

We are also required to report to government agencies the domestic content of our vehicles.  And for the benefit of this group and also for the Federal Trade Commission, we have regulations that are intended to provide consumers with helpful information about their products.

Furthermore, in all of our dealerships, in all of our dealerships there are posters answering that important question that a child will ask you, where does your car come from, Daddy?  What is an American car?  And these posters indicate pictures of cars, where they are made, and it's all intended to provide helpful information to consumers.

Our perspective is that we would prefer to stand on a case-by-case advertisement, and justify whatever claim it is we make in an ad, and we don't think that one size necessarily fits all; that we should substantiate any claim that we make, we make individually.  And that's the comment that I wish to make.

MS. ARNOLD:  Okay.  Do you have a question for anybody up here?  

MR. HUTCHINSON:  I do not have a question.  I wanted to indicate that I agree with the points of these studies that the country of origin and where products are assembled are important to consumers, and that we agree with the studies that bring forth that finding.

MS. ARNOLD:  Okay Roger?  

MR. REYNOLDS:  Yes.  I had one point about the FTC survey which was somewhat confusing to me.  I noted that approximately when asked does "Made in USA" say anything about where the product was assembled, approximately 50 percent said -- consumers responded no.  

And then when asked, when it says anything about the component parts, where the component parts were manufactured, about 69 percent -- I may be a little off on that -- said no.  

And if the majority of consumers does not believe it says anything about assembly, or where the component parts are from, I am curious as to what those consumers believe that "Made in USA" means.  And if you would conclude from this that there is large confusion in this area, which perhaps needs to be cleared up through full disclosure of what the claim actually means.  

MR. ANDERSON:  I don't know that I can go much beyond what I see in the survey results.  As I noted, you do seem to get a large number, a fairly large number of people, about a third of the people said no to assembly, said no to parts, no to total cost, and whose answers to the open-ended question, when you see this claim, what do you think it means, seem to just repeat back basically "Made in USA".

So, yes, there does seem to be a sizeable number of people who just have some kind of general notion; don't have a very specific, or at least our questionnaire didn't get them to bring forth anything in particular. 

As to policy implications, I will stay away from that for the moment. 

MR. REYNOLDS:  I have one other probably brief comment, and a question to Dr. Wind.

From what I saw of the surveys from all of the data taken as a whole, there seemed to be three basic responses.  The first is made in the USA, and I'm not going to elaborate on that.  And the second most popular seems to be the all or the "virtually all" standard, or some formulation of that.  And then the rest, which is the majority, seems to be just confusion; no consensus whatsoever.

And, again, I would think that that confusion as to what this terms means on behalf of the public would counsel the FTC to make sure that consumers are educated to know what these claims mean, and make sure that these potentially deceptive representations are fully explained when made to the part of the public which -- a substantial part of the public which seems to be confused by them. 

One short question, Dr. Wind.  I know that the survey presented, I understand, was based on a small "Made in USA" label within a New Balance shoe.

Is my perception of that correct, or was it based on more aggressive representations of "Made in USA"?

DR. WIND:  No, the stimulus the consumer responded to was the actual shoe.

MR. REYNOLDS:  Okay.  

DR. WIND:  And basically if you took the tongue you, I could demonstrate this, the "Made in USA" was very clear as shown in the picture that was given in the report.

MR. REYNOLDS:  Right.  

Okay, do you have any studies, I understand that New Balance has also made a number of much more aggressive representations, the exact wording fails me right now, and I was wondering if New Balance had done copy tests with respect to an actual marketing claim, prominently featured in an advertisement, aggressively featured in an advertisement.  And if so, what were the results of such a test?  

DR. WIND:  I am not familiar with all of New Balance studies.  All I am familiar with is the study that I did which was primarily just copy themes.  It was not a copy test.  It did not show people actual advertisement.  And we basically asked them for reactions to specific themes like "Made in USA" and others.  

MR. REYNOLDS:  Okay, if there is another representative from New Balance, I would like to pose the same question to them.  

MS. ARNOLD:  Paul?  

MR. GAURON:  We have -- we still have some issues with the FTC, and so we -- you know, we have not included them in the material.  One of the issues that we had raised with the FTC is whether the focus of this panel should be broader and deal with not only the issue of the labeling but what does it mean when you advertise that you are an American manufacturer; what does that mean.

And my understanding is the focus of this, which probably makes sense, it's a big enough issue to just bite off the labeling, although we have that -- I mean once you decide whether a product is made in the USA or not, you still have an advertising issue of whether you are an American manufacturer.  

MS. ARNOLD:  Okay.  Does that answer your question?

MR. REYNOLDS:  Yes, it responds to it.  

MS. ARNOLD:  Steve Beckman is next.  

MR. BECKMAN:  Yes, I have a general question regarding the surveys and a specific question regarding the New Balance one.

In the FTC study, for instance, in the study that was asked whether 90 percent U.S. and 10 percent foreign assembled in the U.S. 25 percent of the people did not agree that this was a U.S. product.  

Is 25 percent enough people to be misled to worry about the standard?  Is this something that the survey people have a notion of or that the FTC has a notion of?  Is there some percentage of people who are misled that is okay, and how is that determination made, and whether the people who do surveys believe that something is statistically accurate and correct unless the people who don't agree is over a certain minimum standard?  

Those are the general questions, and we will get to my own views on that.

I have a question though with respect to the --

MS. ARNOLD:  Let's hold on. 

MR. BECKMAN:  Okay.  

MS. ARNOLD:  We will get to your second question.

The first question can be answered in two ways.  One is statisticians, what is a statistically significant number?  That's the first question.  The second number would relate to the FTC.  

So let's start out when you are doing a survey, when you are -- is there a threshold number that you think makes something more or less statistically significant? 

And let me have you say that six times before you answer the question.

(Laughter.)  

MR. SCHAPIRO:  Thanks.  If I might, I guess I would comment that the problem is the term "consistent with."  I do a lot of legal testing.  All the numbers we are seeing are in the range that no matter which side you are on you can say it's consistent with it.  It's not down to the range where you say, well, that's the lunatic fringe.  

MS. ARNOLD:  Okay.  

MR. SCHAPIRO:  I guess that's enough said.  

MS. ARNOLD:  Okay. 

DR. WIND:  The approach I would recommend is not so much to try to look for the magic number.  Courts in consumer deception typically look from 10 to 20 percent.  But instead of looking for the magic number, why not design it as an experiment when you have a test and control.  And then you ask a very simple question, is there any statistical significance difference between the test and control.  And this will give you an answer, a kind of conclusive answer to are they misled or not.

If I may, a subcomment on this.  The fact that there are consumer perception in a certain area does not mean they are misled.  That doesn't mean also that they are confused, going back to Roger's statement before.  It is just reporting on what are consumer perceptions.   And I think you have to separate the facts of what is the level of consumer perceptions from emotional statements of misled, deceived, confused and the like.  

MS. ARNOLD:  Okay.  I would just totally agree with this in terms of a perception.  

Manoj.  

MR. HASTAK:  Just one thought.  

The issue I thought you were raising was is a percentage statistically significant or not.  And that simple question can be addressed by looking at the sample size issue.  Beyond that, I think you are raising issues that, you know, how meaningful is the difference.  And, you know, my answer would be the same.  

MS. ARNOLD:  Thank you.

I want to see if you can help me with rephrasing the second question, which is does FTC have a number in mind?  

MR. BECKMAN:  Or is there a standard that they use in other areas of case law or practice in the field of claims.  

MS. ARNOLD:  Okay.

MS. GROSSMAN:  Briefly, the FTC standard is if the claim is likely to deceive a substantial minority of people.  Various numbers have been attached to that, but there is not a firm cutoff point.  But it need not be a majority of consumers being deceived, or all of consumers taking that deceptive claim, but it needs to be a substantial minority.   That's how we define it.

MS. ARNOLD:  Okay.  Kimberly ---

MR. BECKMAN:  I have --

MS. ARNOLD:  Oh, I apologize.  You are right.  You have a second question.  Go ahead.  Keep me straight, guys.

MR. BECKMAN:  With respect to the very popular Card S, the way you have described it, the waiver involved in making the components that are imported appears to be zero.  

Is that an accurate reflection of what that card means?  

DR. WIND:  I'm not sure I understand the question.

MR. BECKMAN:  The card says that 100 percent of the labor in the product is U.S. labor.  And yet the product has foreign components.  

Are those foreign components entirely provided by nature or is there some labor involved in the production of those components?  

DR. WIND:  The assumption here was that basically the U.S. labor will relate to the assembly here.  You are right that this was not explicitly stated.  But it seemed that in the pre-test that the consumer did understand the context of this.  They did not assume it's by nature or magic.  

MS. ARNOLD:  Okay, Steve, is that your second question?  Are you done?

Okay, Kimberly.  

MR. HARRIS:  My name is Herb Harris.  And as I have heard the surveys here, I find the definition a problem.  It appears to me that there may be a culture here that says the consumer has to live in a single-family dwelling with a two-car garage.  I hope that's not the case, because consumers, it occurs to me, is a broader definition than that.  And I would specifically represent to the FTC that the whole nature of our responsibility here is to all consumer; not just to a certain category of consumers.

I obviously represent a product that may go to small businessmen, large businessmen, small businesswomen and large businesswomen.

(Laughter.)  

I'm a little bit out of practice, but I'm trying.

(Laughter.)

MS. ARNOLD:  Just make sure you use the microphone.

MR. HARRIS:  Did someone say they couldn't hear me?  No.  

I think it's important that we not treat this casually; that we understand that consumers may also be business persons.  It's important to note that whether a handtool is bought by a do-it-yourselfer or a small businessman that is repairing automobiles, it's as consumer.  And as we work with a product, we have to remind ourselves that the labeling of "Made in America" as distinguished from made in a foreign country is one that is voluntary.  It's one that a person is applying to the product in order to gain a market advantage as perceived by them.  

So when you deal with deception, you have to deal with the fact that for some reason they are putting it on the product.  And in order to say something to the consumer, that may be another businessman.  And I think it's important that we not get tied up in -- my question is have we got tied up in our statistics and viewing a very discrete number of consumers rather than the broad spectrum of consumer?

MS. ARNOLD:  Anybody want to respond to that? 

DR. WIND:  I think the question is a relevant universe in each case.  We did not exclude business people from the New Balance study to the extent that they qualified in term of either they bought or planned to buy athletic shoes.  So we did not screen out and say if you are a small business person, you don't qualify.

And I think the critical question is to make sure that you are dealing with people who are either buying the product are intend to buy the product.

I think the second question was raised by Mitchell before was do you want to look at a smaller subset, only those who care about the issue, which is a different question altogether.  But I feel that the correct research procedure is to focus on those who are involved in the buying decision.  

MS. ARNOLD:  Any other comments on the definition of consumer?  

Okay, John Pellegrini?

MR. PELLEGRINI:  The question has been answered.

MS. ARNOLD:  Okay, thank you.  

Joel?  

MR. JOSEPH:  Yes.  I am following up to George Moore's observation that consumers want tools that are 100 percent USA made.  

You know, I consider myself one of those consumers.  However, some products, for some materials, for example, chrome, which are used on some handtools, is not available in the United States.  So then if your handtool is chrome-plated, which many are, it's not 100 percent or it's not virtually all.

You have stated that there is a current, and you want to keep the current standard.  Well, I submit that there is no current standard.  That's a slippery slope you get on that does substantially all mean 99 percent or 100 percent or 90 percent. 

And I think your handtools are not 100 percent made in the USA because of some of the materials that are included in them.  

Our position is that "Made in USA" Foundation is that we want a definition so the consumers are informed.  And I think that you can't -- that right now we don't have a standard.  And whether we set it at 70 percent, or 80 percent, or 85 percent, is not that important.  

I think it's also important that the FTC allow someone that makes something 100 percent in the USA to put 100 percent made in the USA.  

Thanks.

MS. ARNOLD:  Okay, let's try to keep our comments on the consumer surveys that we have heard, or new information that you have that you want to bring to the table.

Gail, James, Michael, Darlene, Jerome, and the other Joel.  I apologize.  Go on, Joel.  

MR. PLATT:  Thank you.

I have got just a few comments and then a couple of questions.  First of all, most of you should have received a copy of our survey on Bradford Exchange collectible plates.  It was a fax copy, so I brought some originals.  I will just pass them along.  

When you get a chance to look at the survey, I would just like to draw your attention to the graphs starting on page 4.  It makes it a lot easier to go through it.  

Also, our survey focused on perceptions of the informed consumer which I think is very distinct than some of the other surveys done here.  We believe that the facts are the facts.  And it's not very meaningful to ask consumers their perceptions when they aren't fully informed.  

So, I'm sorry, I didn't bring a sample of our product.  I should have one tomorrow.  But it will better illustrate how our product is transformed in the United States. 

There is a description of the transformation contained on page 9 of the survey.  

But an interesting point, and I think it's counter to what some people have said here, is -- and we were surprised by this result -- that 90 percent of our customers after being fully informed of how our products are made concluded that they were made in the United States, even though the components for those products were from Japan and France.  So that's a very important fact to keep in mind.

I have two questions to members of the panel.

Mr. Schapiro, your results were very summary fashion.  Could you furnish us with a copy of the full survey and the full results?  

MR. SCHAPIRO:  I have talked to you about how it takes half a moving van.  I just moved.  

MR. PLATT:  Maybe we could get it into the public record, and we can get off the Internet.  

But I don't think the -- I think everybody else, or most people tried to furnish as backup.  They furnished summaries but they also furnished the full survey.  And I think as you yourself pointed out the way the question is asked is very important.  

MR. SCHAPIRO:  We will find a way to get you a copy.

MR. PLATT:  And, Mr. Anderson, I noticed in your survey that the word "assembly" was used.  The question I have is from our perspective our product is a blank plate that's imported, and then it's transformed into collectible plate, a piece of art as our customers perceive it.  

Was there any discussion among your respondents about processing as opposed to just simple assembly?

MR. ANDERSON:  I don't think so.  I mean, I can't think of where in the survey it would have come in.  It wasn't a term that we were particularly looking at.  

MR. HASTAK:  Right.  The only place where I think it would come in the open-ended where we asked people what did the term mean to them.  And we can go back to the open-endeds and look at whether people gave the kind of detail that you are interested in.  But I don't believe so. 

I mean, the responses generally tended to be at the level at which the concept was described, assembled, put together, et cetera.  

MR. PLATT:  I think if you do have some comments on that point, I think that would be helpful as well.  

MS. ARNOLD:  Okay.  Thank you.

Gail Cumins.

MS. CUMINS:  This is a question for George Moore, or whoever you wish to designate.  

I am having difficulty in rationalizing in my mind of finding four, the majority 53 percent of handtool users assume that "Made in USA" label means 100 percent.

MS. ARNOLD:  What page are you on, Gail?

MS. CUMINS:  I am looking at page 5 on your key finding, and both findings are on that page.  

But when I look at the question that elicits that response, I go back to the dilemma, well, did you make the dinner or did you grow the vegetables.  At the same time finding three on that page says that less than 50 percent, namely, 40 percent, assume that "Made in USA" applies to both materials and labor.

I would be interested in knowing how you rationalize those two findings.  Are we talking about made in the creation of the product, or are we talking about all of the components or the vegetables of the product as well?

I see in my mind inconsistent conclusions.  

MR. MOORE:  I would answer and then ask Al Bourget to respond as well.

MS. CUMINS:  Sure.  

MR. MOORE:  With a hand tool unlike a dinner where you are eating rolls, okay, a wrench is a very simple object.  When it comes to component parts to a wrench, there is not a lot.

MS. CUMINS:  But you did ask about labor and materials, and you come up with a much lower percentage for both, which is what 100 percent would mean to me, or am I misreading your definition of 100 percent? 

"Made in USA" label means that 100 percent of the tool, and yet you say only 40 percent believe that "Made in USA" applies to both materials and labor.  So I am trying to get an understanding in this survey of what you mean by the various terms.

MR. BOURGET:  Well, these were very separate and distinct questions, and we like to ask questions in a very direct way and allow the respondents to give us their top of mind responses. 

And then when we asked the question what does "Made in USA" mean, again, 53 percent said it's 100 percent made in USA. 

A second question, a related question was asked, then you are asked again, asked the same question, "Made in USA," does that pertain to both labor and material or what is your understanding of that.

And they responded as you quote.  Forty percent said labor and material, and 38 percent said it pertains to most of the labor, and 20 percent the material itself.

I don't think there is an inconsistency there.  I think they are two separate questions.  And again, it was a very direct answer on the part of the respondents, and that was their response in terms of the way the questions were phrased, but they were separate and distinct.

And I think for the most part we tried very hard, this English language is very difficult as you might recognize, and talk about semantics and so forth.  But we made every effort to ask the question in a very direct way.  We didn't supply answers.  It wasn't multiple choice.  And this is the top of mind response.

And I think, again, we were suffering the same, in terms of the labor and material question, Bill indicates that they expect a large degree of the product is made in the United States in both labor and material.  

MS. CUMINS:  I am not questioning your intentions, and I want to thank you and everybody else for having gone to the effort for having created these surveys.

But from your perspective, would it at least evidence some confusion, or we have heard the word "vagueness" as to the unqualified term "Made in USA" from a point of reliability of these surveys, where we have a conclusion as to "Made in USA" without defining what we mean by the term.

MR. BOURGET:  I would like to defer a response to attorney Archibald.  

MS. ARCHIBALD:  Let me just say that I think there is a difference, and it may cast some light on this question, that was asked, "What does percentage of content," I think is a good question. 

And Mr. Bourget has said, it wasn't a multiple choice.  It just asked a flat question, and you got 53 percent of the response said "Made in USA".

The other question was asked does it pertain mostly to labor, mostly to parts, or equally to both.  And so you have got 40 percent is equal to both, 30 percent said mostly to labor.  I have to say that when it says mostly to labor, or when it said for 22 percent mostly for parts, because of that word "mostly" in there, there is a certain lack of precision that you don't have a problem with if you perfected the other question with "specific" or "numerical," what do you think the amount is.

I am not sure that fully answers the question, but there is a slight way the question was presented that may explain in part why you got a slightly different answer.  

MS. CUMINS:  But am I correct in concluding that there might also be a lack of precision in what do you mean by "Made in USA" unless you define that term, or elicit the respondent's understanding of what that term means?

MS. ARNOLD:  Would you turn on the audio?  Just push the audio button out?  Thank you.  

MS. ARCHIBALD:  Got it.

Again, I will defer to the experts here, but I would point out that you are talking about a difference between a 53 percent response on the one question, which said what was the percentage, and 53 percent said 100 percent.  And a 40 percent response that said it pertains equally to parts and labor.  

I don't think -- I mean, I am not saying that that's totally insignificant, but I don't think it's as big a difference as you are making it out to be.  

MS. ARNOLD:  We have a clarifying question?  Let's just see if this helps, this dialogue.

Keith.

MR. ANDERSON:  Al, my question is on that question about primarily parts, primarily labor or both, was the both options stated to people, or did they have to volunteer it?  

MR. BOURGET:  It was stated.  

MR. ANDERSON:  It was stated.

Well, it's not clear to me from -- but the question doesn't seem to contain both.  

MS. ARNOLD:  Was it read?  

MR. ANDERSON:  Was it explicit.  

MR. BOURGET:  The question was read, do you assume that a "Made in USA" label pertains mostly to labor involved in making the tool, or the material involved in making the tool?  It was totally, in my view totally unbiased.  And they responded as they saw fit.  

MR. ANDERSON:  But they weren't presented with both as an option, right?  

MS. ARNOLD:  Did you read to them the labor/material both equally, or did yon not read one, two and three to them?   That's the question.  

MR. BOURGET:  Oh, we said labor, material or both equally.  

MS. ARNOLD:  They read all three.  

MR. ANDERSON:  Okay.  What Al just read to us did not include "both equally," and the text here seems to say that.  So I am -- 

MS. ARNOLD:  It appears that they volunteered that.  But if you ask me that question, I would say it was equally labor and material, and so then it was coded as a "both."  

MR. BOURGET:  I'm sorry, I misunderstood.

We only read the question  -- the answer, when I  hear labor, material and both equally were there to facility our interviewer's response.  

MR. ANDERSON:  Right.  

MS. ARNOLD:  Which you needed to do.  

MR. ANDERSON:  Which you obviously needed to do.  But they sort of -- consumers weren't presented with the option of saying "both equally."  They had to come up with it on their own?  

MR. BOURGET:  They did, yes.  

MS. ARNOLD:  Gail, go back.  Now, do you want to go back to your question?

MS. CUMINS:  No. 

(Laughter.)

MS. CUMINS:  But maybe somebody else wants to take up the question.  

MR. BOURGET:  I would like to add that if we had supplied the answers -- again, it wasn't multiple choice.  If we had suggested, now, would your response be mostly labor, mostly material, or both equally, I think that would have biased the response, where we left it totally open, and top of mind what did they think.  

And, again, I don't think it's inconsistent with the 53 percent who, again, based upon their own view of "Made in USA" 100 percent.  Now, at that point we didn't probe again and say, do you mean materials to mean labor and so forth.  We took it at face value.

And I think the bottom line of our response, our report, is that the consumers, much like some of these other gentlemen have mentioned, take the "Made in USA" label at face value.  That's what it says.  Some of the people seem to be afraid to ask that question, "What does `Made in the USA' mean?"

We asked that question right out of the box.  We asked it about mid part through the survey because we were interested in what it did mean to them.  

And as you recall, 41 percent said, we'll, it's simple, it's made in the USA.  But when we probed they said, okay, it's better materials, higher quality, better fit, finish, and that's their rationale for buying and wanting American made tools.  And as you know, 80 percent of the tolls in their toolbox are in fact American made, so they are following up with their perception about the quality of American-made products.  

MS. CUMINS:  I guess my problem, Mr.Bourget, is that doesn't tell me when they have answered the question whether they are saying, well, yes, the tool came into being in the United States, or, yes, the steel or the chrome or what have you used to bring that tool into being also was made in the United States.  

I am trying to grope with are we looking at a process-oriented definition or an -- for lack of a better term, every atom originated in the United States, to use the Customs' term.  And I don't get a clear understanding by your respondents of what they are answering.  In other words, what is in their mind when they say 100 percent made in USA.  

Is it process?  Is it everything?  Is it something in between?  

MR. MOORE:  Again, if I can go back to wrench.  It's a pretty simple item.  Okay, when you say, okay, material on a wrench.  I don't think there is as much confusion as there is in some of the other product lines.  

MS. CUMINS:  Well, George, do you think they care if you're talking let's say stainless steel, where the steel came from?  

Do you know from this survey?  

MR. MOORE:  You have got the answers to our survey.  We did not turn this into a 100-page survey.  And if all the consumers exactly all thought about the same thing, we wouldn't be here today.  

MS. ARNOLD:  Okay, why don't we move on.

Dr. Wind, did you want to -- go ahead.

DR. WIND:  I am trying to -- I think Gail asked a very good question.  I don't think you got an answer to the question that you asked.  

We try to help see what it does.  You may want to try to do a study between question seven and eight to see what is the relation between the two, but it doesn't answer the process question you had.  

But a brief comment on question eight --

MS. ARNOLD:  He's looking at the actual survey, not on the results.  

DR. WIND:  Question eight does not -- basically every single respondent classified in those three areas, which sounds a little strange given the other evidence we have, so it's kind of forcing them into these three categories.  I would be very careful in interpreting the results.  

MS. ARNOLD:  Okay, let's move on.  

Jim Palmquist, Michael, Darlene, Jerry and Sarah. 

MR. PALMQUIST:  Yes, thank you.  Jim Palmquist from 3M.

Dr. Wind, just a question to clarify my mind on that, and we had an awful lot of conversation about the handtool study, and question seven.

The precise question there is, "When you see a "Made in USA" label on a handtool such as a socket, ratchet, or wrenches, what percent of tools assumed there?"

By defining the precise words to those products, don't we in fact bias the results, and it applies only to just those products?  

DR. WIND:  In my interpretation of this would be you are limiting it to these products and others the consumer perceives as being similar to.  

MR. PALMQUIST:  Yes.  

DR. WIND:  Because it said "such as."  So it's an empirical question, how did the consumer interpret the meaning "such as." 

But your point is well taken, the fact that we really don't know.  

MR. PALMQUIST:  Okay, I would just make that comment that we have to be careful with respect to not a percentage, but precisely how the question is asked. 

The other comment that I want to make, and that relates to the comments that opened this whole meeting, and that is that we are in fact moving into a different time frame, and we have different degrees of things that we ought to be looking at.  

And there are at least two things that have not been mentioned at all today, and they have not been mentioned in any of these consumer studies.  And it's important for the FTC to consider that as we look at a standard that's going to be in place for how many years in the future.  

Obviously what 3M and all the companies are interested in is avoiding the problems and confusion or deception of consumers.  But we are faced today with the situation in which we have two different standards currently being applied.  We have the Department of Commerce telling us what standard to apply when we mark "Made in Italy" on something.  And we have the FTC telling us what standard to apply when we have "Made in USA".  

Nothing has been mentioned here of the confusion that the consumers must face, and I am sure totally misunderstand, that there is a completely different standard of "Made in Italy" versus "Made in USA".  

The second thing, and the practical problem of companies like 3M is that we are now in NAFTA.  We are moving in the direction of multilingual labeling packaging.  And in fact the U.S. Government as part of the NAFTA statutes is supposed to be negotiating those uniform things.

We have Canada under the laws in bringing those laws into Canada where you have substantial transformation taking place in the U.S. are going to require some sort of "Made in USA" on that.  

So in fact if we develop a multilingual Canada/U.S. label right now under existing standards, that portion of the label that's for the U.S. consumer is not going to have a "Made in USA" on it.  That portion of the label that is going to be for Canada, of course, is going to have the French on it, is mandatorily going to have a "Made in USA" on it.  

And I just want to make sure that the FTC is taking into consideration the practical aspects of where we are going, and we don't get hung up on just examining the last 25 years.  

Thanks.  

MS. ARNOLD:  And does that comment relate to anyone of the surveys that --

MR. PALMQUIST:  Well, only that none of the surveys even come close to covering that issue, and I am afraid we can get lost looking at whether 53 percent is really 53 percent or 52 percent, and miss the intent of what I perceive to be the opening comments; that we have a chance to really look in the future, and we are going to really miss that if we don't consider some of these other aspects.

And if we don't consider that as we really look to trying avoiding the confusion that -- of the U.S. consumers.  If that's our desire, then we need to very clearly broaden the look at what we are trying to do.

MS. ARNOLD:  Thank you.

Michael, Darlene, Jerry, and Sarah.  

MR. THOMPSON:  Mike Thompson with the Association of Appliance Manufacturers.  

I have got two questions.

MS. ARNOLD:  Michael, I'm sorry.  I didn't -- I had put down Gale, and I didn't know that you had raised your hand.  So you will be next, how is that?  

MR. THOMPSON:  Okay, great.  

MS. ARNOLD:  Michael Gale, go ahead.

MR. GALE:  I would like to go back to the panel and ask a question about perceptions.  And I am curious as to whether any of the surveys tested symbols or ancillary slogans with the survey.

For instance, if a consumer saw "Made in USA" or the phrase "Made in USA" or saw an American flag on the advertising or the box of the product, whether the American flag by itself or in conjunction with the label affected the consumer's perception as to whether it was an American product. 

Also, when you see the slogan "Sponsored by the U.S. Olympic Team," is that in effect the consumer's perception as to whether a product is of American origin or not?  

I don't think any of the surveys tested any of these other symbols or ancillary wording that may lead the consumer in a different direction.  

MR. HASTAK:  We did not.  

MR. ANDERSON:  We stuck to the simple plain. 

MR. SCHAPIRO:  There is one survey that's in the record.  It's not mine.  It's an older survey that does look at that.  I don't recall if the results are very consistent, frankly.  I will have to look at that.  

MS. ARNOLD:  Michael?  

MR. THOMPSON:  Thanks.  I have got two questions. 

One of them is to Keith Anderson, and the other is the FTC in general.  

I noted in the survey results there was a question that posed the hypothetical situation of where a product is assembled in the United States with 50 percent U.S. parts and labor, and 50 percent offshore parts and labor, should that manufacturer be able to label or apply the symbol "Made in USA" --

MS. ARNOLD:  What question number are you reading and what page?  

MR. THOMPSON:  Well, I am looking at Table 1 actually, the results on Table 1.

MS. ARNOLD:  So that everybody has a reference point.  

MR. ANDERSON:  Table 1 of tab 2 of the --

MS. ARNOLD:  Right, thank you.  

MR. THOMPSON:  I think that's correct.

MR. ANDERSON:  Yes, I believe so.  

MR. THOMPSON:  Should the manufacturer be able to label it being made in the United States, and I note here that certainly a number disagree, less than half disagree with that, at 46 percent.  There is about 18 percent neither agree nor disagree, and there is 36 percent that agrees either strongly or somewhat.  

I guess my question comes to the point that doesn't this lend credence to the impression or the fact, I think, that there are widely different expectations certainly of what "Made in USA" is, number one?

And number two, that the old all, or virtually old standard, all or "virtually all" standard of the Federal Trade Commission is somewhat outdated for the times; that consumers do in fact have perceptions that what they are buying very often is going to contain a percentage of offshore content?  And that it shouldn't necessary exclude that product from being labeled "Made in USA"?

MR. ANDERSON:  I'm going to restrict my comments today to sort of the fact numbers, these are the numbers, and try to not get into the question of what the policy implications are for the Commission.

I work at the Commission, and that's something that the Commission and he staff are going to have to grope with.

You are right, you accurately present the number, about the 36 percent agree somewhat or strongly with the claim even at a 50 percent, even where U.S. assembly and parts only account for 50 percent.  A somewhat larger percents, 46 percent, disagree in that case, and there are about 18 percent in the middle.

MR. THOMPSON:  Let me just give you one minute of why I asked the question.

We are a pretty large industry in this country.  We have annually a production of some 52 million appliances in the major home appliance area, and a significantly larger number of portables.  For us, as I looked across all of our members, it was very difficult to find any members who are able to advertise under the current standard of "all or virtually all" components and parts being from the United States.

A large portion of that reason is because a significant number of parts that we have to use in the very complex appliances we put together can't be sourced here.  Eighty-four percent of the products that we manufacture here are U.S., or the products that are sold in the United States are of U.S. origin.  They are assembled and manufactured here.  

I don't know what it says for our industry.  I also noted that only two percent look for a label on a major home appliances being, you know, from the United States in the portables areas.

But I think all this bodes for a need, which was alluded to a little bit earlier, that regardless of what standard the Federal Trade Commission comes up with ultimately as the label standard, that there is some kind of educational process associated with that as well on your part. 

And I am asking, is that part of your forward thinking as we go forward from here?  

MS. ARNOLD:  Keith is going to defer.  

Keith is with a different part of the FTC, from those who are actually developing the staff recommendation.

Beth, do you want to respond to it?  

MS. GROSSMAN:  We are really just interested in hearing what your interpretations of these studies are, and we think it's premature to offer what our conclusions are yet on this.  We are interested in hearing what your conclusions are.  

MS. ARNOLD:  But thank you for the question.

Would you put up your temp card, Michael?  And I will now remember who you are, but anyway.  

Darlene?  Where is Darlene?

MS. ADKINS:  I am with the National Consumers League, and I also have some difficulty with some of the survey findings because of the usage of the word "made."  I see it as a very vague term, and that when you ask consumers what do you -- how do you define "Made in USA", I think most people right off the bat would just shoot back the same answer.  It means the product was made or manufactured in the U.S. without thinking more deeply on issues such as the components and things like that.

I know there has been some hypothetical situations given in some of the surveys regarding if you see a product that's 90 percent U.S., 10 percent foreign, do you think this is made in the USA?

But I am wondering if any of the surveys directly ask consumers what minimum percentage of U.S. labor do you think needs to be in a product for it to be labeled "Made in USA"?  What minimum percentage of components, U.S. components need to be in a product before it can be labeled "Made in USA"?

It's something we did on an informal basis with our own members, but I would like to see some scientific research done in this areas if it hasn't been already.  I don't know if any of you can respond to that, if consumers were just directly asked those questions.  

MR. ANDERSON:  No.  I mean, our attitude survey was in part an effort to get at that.  I guess I would be concerned that -- I mean, there has been a lot of discussion of consumers not have very well defined notions here.  And if you just sort of ask them the open question, I don't know whether they would be able to process that information.  

So our thought was by posing the scenarios to them we would get somewhat along that line, but would -- but we felt we needed to help them a little more than that.  

MS. ARNOLD:  Anybody else have an answer?  Did anybody else look at the question?

[UNIDENTIFIED]:  We didn't ask the question either, but I agree here.  I think it might be difficult for a consumer.  I think you would find percentages all across the board, and somebody is going to at some point in time make a decision upon that.  

DR. WIND:  We did not ask it specifically the way you are asking, but I looked at your study actually.  And if you look at the first part of your questions, which is the question 1(a) and (b), they are very similar to some other questions that we asked, and similar to the FTC.  So basically you have a fair amount of consistency in the result you got there, which is the amount of U.S. parts and components assume is in a product.  And basically state the minimum percentage, but it's still giving basically similar to what percent it is.

So you're getting very similar results in these question.  So one can hypothesize that it will lead to similar results, but we don't have other than your study any direct evidence of this.  

MS. ARNOLD:  Okay, Jerry, you had your hand up?

MR. GRIMSON:  Actually, I have a question.  I am Jeff Grimson from Grunfeld, Desiderio, Lebowitz and Silverman.  And my question is for Professor Wind.  

At the conclusion on page 4, number 4, for example, are based on the rankings of the soft card.  That's my understanding.

I am wondering what the basis for concluding U.S. company or non-U.S. company on the stimuli, which form the basis of the -- and is it your assumption that the location of a corporate shell has some relevance to where the product is made?

Most of the other surveys seems to be oriented towards a parts and labor analysis.  I am just wondering who you injected this additional third factor in the stimuli?

DR. WIND:  This is based on my understanding of possible variables that will affect consumer response, and that's the reason it was included here.  

There was, in a sense, defining the characteristics of the company about the nature of the company, if it's a U.S. company or non-U.S. company, whether it was a GM or a Toyota, made a difference to the consumer.  So I thought it would be fair to include it in this card.

This is the only place where we explicitly included this in the study. 

If you look at the question on page 11, Exhibit 2, we separated the three components, and asked them in term of importance as part of the allocation of hundred points, nationality of company, U.S. or other countries, nationality of labor, and country of origin of foreign material.

MR. GRIMSON:  Okay, Exhibit 2 is open-ended, responses to open-ended questions though.

DR. WIND:  No, it's not.  Exhibit 2 is primarily we gave them those variable.  They basically received a card which included these factors.  They were asked are there any other factors that affect your purchase decision.  If they had any, they added them to the list.  

And then we asked now take 100 points, and allocate them among these factors in a way that best represent the relative importance of each one of these factors.  It's not an open-ended question.  It's basically a task of allocating 100 point among these variables.

MR. GRIMSON:  Okay.  So you made the soft card after you reviewed the data compiled in Exhibit 2?

DR. WIND:  No.

MR. GRIMSON:  So you sought beforehand that you would put this U.S. company on, U.S. company.

My question is basically if I buy a Honda from Honda USA, would that be Card S?  Was there a Card Q that said more than 50 percent U.S. materials and components, 100 percent U.S. labor and non-U.S. company?  Was there any difference between those two?  I don't know.  

DR. WIND:  The only cards that the consumers were shown are the six represented on page 5.  There was no such card as the one you just described.  

MR. GRIMSON:  All right, so Card S really described the New Balance situation.

DR. WIND:  Correct.  

MR. GRIMSON:  And there was no card which would describe the question I described.  Okay.

DR. WIND:  Correct.  This is not ---

MR. GRIMSON:  I was trying to figure out what kind of general equitabilty your study has for other product.

DR. WIND:  It does not.  The study basically is in the context of shoes.  The consumers responded to their seeing a New Balance shoes in front of them, and there was no design to generalize across product.

MR. GRIMSON:  Okay.  

DR. WIND:  I think if we look at the Gallup study, it clearly indicates a huge difference among product categories, and the conclusion of the New Balance study applies only to athletic shoes.  I would not be comfortable generalizing from this.

The reason for including the three factors was this was my conceptual understanding of the dimension of the made in.  That's the reason we focused on these three components.

MR. GRIMSON:  Okay.   So the "made in," your conceptual understand was that the "made in" also include the location of incorporation of the company selling them.

DR. WIND:  Or as defined here, the nationality of the company as defined in Exhibit 2.

MR. GRIMSON:  Okay, thank you very much.  

MS. ARNOLD:  Sarah?

MS. VANDERWICKEN:  My question is a follow up along the lines of other questions asked, and it seems to me that there is a certain amount of bootstrapping that is involved in these surveys, and I would like to know if there is some way to control for that, or if anybody has attempted to control for the fact that people know that there are companies who are misusing the label, or according to the FTC's standard.  

And then I would ask, you know, they know they are being lied to and then they are asked do they believe the lies.  

People know that there are a lot of products that are being used with the "Made in USA" label that are not in fact made here, and build that into their answer.

And is there some way to control, is there some way to ask a question what do you think ought to be the "Made in USA," the meaning of the "Made in USA" label?

MS. ARNOLD:  Does anybody have a response to Sarah's question?  

MR. HASTAK:  Well, I think to some extent, and I would be interested in your judgment on this.  You know, my sense was that the FTC attitude survey, which give people scenarios, and then ask them to indicate whether they agreed or disagreed with the "Made in USA" label might be getting at what you were interested in, as opposed to the copy test which sort of showed them an ad and tried to get their interpretation in the claim in the ad.

I would be really interested in your assessment of whether that gets closer to what you were talking about.

That was my understanding of it, and my sense would be the attitude survey perhaps tries to get at this notion of how consumers, given a choice to do so, would wish to label a product with varying amount of U.S. and foreign content.  

MS. VANDERWICKEN:  I have one other question which is, these surveys and the discussion has pretty much focused on the deception issue.  And the other aspect of the FTC's mission is to prevent unfairness, which I understand is defined as practices that prevent consumers from effectively deciding among competing products or services.

And I wonder if any of the people on the panel now can speak to how their surveys show whether or not that aspect of the FTC's mission can be met by something less than all or "virtually all" standard.

MR. SCHAPIRO:  I think I can answer personally what you just raised.  I never asked the question about what is deceptive, what have you.  But in this survey I said it was used for control of advertising, what have you breakthrough.  You always get about two to three percent, and I noticed in another survey that pop out to you, oh, they are lying about it's made in the USA, those kinds of responses.  

That kind of represents the bottom limit.  This question is never asked directly.  It's something they want to volunteer to you.

Of how many people suspect that there is something deceptive what have you, it seems to be fairly consistent what I have seen from one category to another, and one survey to another.  It's a relatively small group for the minimum.

I say with a caution that when you go to focus groups or whatever they are worth, and I'm not sure they are worth a lot in this case, you tend to hear an awful lot of this kind of talk.

But that kind of sets a bottom of how many people are suspicious.  There are certainly people out there that think they are being deceived now.  

DR. WIND:  If you want specifics, if you look at our survey on Exhibit 3, in terms of consumer perception under setting of the term, we had two percent of the people who said it's deceptive shoe; isn't really entirely made in the USA.  So we had two percent.

I think the focus should be that these studies, all of them, I think, focus on perceptions, not necessarily on deception; definitely not on the normative position which you are asking for in terms of consumers say what it should be. 

What is their current understanding of the meaning, and I am not sure that I will have shared some of your interpretation of this that says this is an indication of deception or misperception or confusion.  It says these are, this is the fact.  These are their perceptions.  

It may differ from the FTC rule of 100 percent or virtually 100 percent, but it doesn't mean that this is wrong.  It means that these are their perceptions.  And that's the interpretation that I have for this study here.

MS. ARNOLD:  Okay, Cynthia?  

MS. VANRENTERHEM:  Yes, I just have a brief comment that's been touched on throughout the discussion.  It is not addressing a specific survey, but it's a general, I guess, note of concern.  That I think we should keep in mind that a lot of these surveys address very specific industries that have unique characteristics, and I am thinking of our industry, in particular, electric products sector, but I could probably throw in electronics and appliances, though I am not speaking on their behalf.

But we have issues in terms of process, and our products are generally produced under a complex manufacturing process, and issues such as the definition of subcomponents and components, subassemblies and how you draw that out in a consumer survey is obviously extremely difficult. 

But when we compare how a consumer can look at say, for example, what we have heard a lot, a wrench versus looking at a complex, or a compact fluorescent lamp, one such product that has undergone multiple manufacturing steps, it is very -- you are comparing apples and oranges.  And it's just something, I think, needs to be noted.  

Thank you.  

MS. ARNOLD:  Okay, thank you.

Roger, Jerry Cook, Robin Lanier and Darlene.

MR. REYNOLDS:  I have another question for my two neighbors here from the FTC.  

Darlene's question brought to mind, reminded me of a 1991 survey that I understand was done by the FTC on this issue, and it was referenced in the invitation to come.  And I was wondering if you are at liberty to elaborate on this study, or its results, or its relation to the current study, or why you haven't presented it.

I guess I was wondering, as I said, if you're at liberty, if you could elaborate on what you understood to be the results of that survey and how they relate to the issue at hand and to the FTC's current survey.  

MR. HASTAK:  Well, actually I am not prepared to discuss in detail the results of that survey, but basically, you know, this set of studies was conducted, were conducted for this workshop, and we chose to focus on those.

Let me just note very broadly that the studies do differ in terms of the products we looked at, and those people who have looked at the 1991 study will understand what I am talking about.  

The current study looked at a broader set of claims.  We went beyond the main USA to qualified claims.  And we used somewhat different methods, somewhat different questioning approaches to try and get this idea of how people interpret "Made in USA" claims.  You know, partly because that's the standard -- standard recommended approach in consumer perception research.

If you are trying to get at a fuzzy idea, which I think most people here I heard them saying this concept is in terms of what it might convey to consumers, that you do want independent different methodologies to get at that concept.

And I would be certainly interested in those reactions to how those studies compare, but we weren't prepared to present that point.  

MS. ARNOLD:  Okay.  

Jerry Cook.

MR. COOK:  I guess my question is really kind of one of relevance.  In any of the surveys that someone has done, have they compared to the consumer when it says "Made in USA," does that have the same meaning to someone where it says "Made in Mexico" or "Made in Taiwan," just on an equivalent basis of any product or products in general?  

MR. ANDERSON:  Not -- not -- I mean, our research was focused solely on -- solely, I say, but it seems to be a broad enough question to keep us busy, on what "Made in USA" meant.  

MR. COOK:  The concern there is that is there a different interpretation for "Made in USA" to a consumer for the country of origin purposes that means something differently than a claim "Made in Mexico"? 

And I think that's something that needs to be kept in perspective, certainly for future studies or surveys that are going.  

MS. ARNOLD:  Do you have any comment?  

MR. ANDERSON:  The only sense in which maybe we get a little bit towards that is, as I mentioned, one group was exposed to the claims on a package of pens.  They were still "Made in USA" claims, but they were presented in the kind of way that one might see them "Made in Mexico" claim, the general country of origin claim.

And other than the fact that a smaller percentage recalled its presence on the package when -- you know, we showed them the package, we took it away, we said, "Did it say anything about where the product was from?"  A somewhat smaller percentage tended to recall it when they had seen it on the package than on the ad. 

When we called their attention to it, their interpretation of what it meant was generally the same on the package or on the ad.

MR. COOK:  I guess my question really, in looking for that, is is the question of the hierarchy of the product means the same when you say to the consumer "Made in USA" versus "Made in Mexico".  

Do they interpret that same, whatever that basis is, as saying, or is there a different conceptualization for what does "Made in USA" mean versus "Made in Mexico"?

MR. ANDERSON:  I can't answer that.  

MR. SCHAPIRO:  In mine, if you will notice, when they -- they first indicate whether they looked for the "Made in USA."  And if you will notice, there were an awful lot of consumers who reported in there that it's USA made that they either recall its being, or that they actually saw it.  

We have got a split in the study which splits it up into various areas of origin, and have looked at it.  And, frankly, it's, I suspect, a nightmare everybody thinks it is.  As soon as you get into it, you get rather different perceptions, rather different reports of satisfaction levels, and so on.

I am not sure even within a very narrow range of the kinds of garments that people were talking about, that you can get a single clear answer to your question.  

DR. WIND:  In our study the question of relative importance was generic in the sense that it asked nationality of company, nationality of labor, and our emphasis was U.S. or other countries that was not specific to this.  Everything else was basically from a "Made in USA" only.  We don't have any data on other countries.  

MS. ARNOLD:  Okay.  Robin Lanier, Darlene, and then I think we are going to break.  

MS. LANIER:  I have one comment, and I guess one question.  

I guess sitting here now for a couple of hours I am more convinced than ever, than when I walked into this room, that perceptions are clouded.  I think that's the best way to say it.  I don't think there is deception.  I am not sure there is -- I know there is confusion.  I think we are confused sitting here and playing a role other than consumer.

I realized this when I looked at our own study, and probably Deb will scream in horror because I am going to interpret it a way she probably wouldn't.  

And if you looked at one of our charts that talked about who provides the highest quality for different kinds of products, and one number jumped up at me.  It was the results about the toys, where 66 percent of our respondents said that American-produced toys were of higher quality than foreign.

Well, I found that very interesting because we don't make toys in the United States.  There is virtually --

[UNIDENTIFIED]:  I have to object to that.  It's not true.

MS. LANIER:  Well, okay.  There is such a small amount of toy manufacturing in the United States that the U.S. agreed to drop tariffs on that in the Uruguay Rounds.   We do not have substantial manufacturing.

And it occurred to me, although our study clearly does not prove this, although I would be interested in asking the panel if there is any other study that show this, our study clearly shows that people respond as a claim that represents quality in some way.  

I suspect what's going on here, although I can't prove it and I am not even trying to prove it, okay, but I suspect that it comes back to what was said earlier, that people are responding to brand name.  People are responding ancillary of the Craftsman brand; you know, perhaps the Family brand.  They may perceive that as USA made, and that you get very confused responses from consumers because this issue of "Made in USA," I mean, I think there is even one of these studies that we looked at this morning where someone asked what does it mean to you, and they said, well, it means high quality.  

And so I guess that's a comment.  It's something that I know we in the retail industry are very concerned about, okay.  And I think we are coming at this -- I think we are coming at this from a slightly different perspective than many people who represent only one industry about everything that we talked about here.

And so it takes me to another -- the question I want to ask the panel, or anybody else.  I think the Bradford Exchange study may get closer to it.  And that is has anybody asked the consumer what the word "made" means?

I know we had a dictionary definition put up here.  I thought it was rather illuminating.  But what does the word "made" mean to the consumer?  I am not sure we really know that.  I'm not sure that anybody has answered that.  I would be interested if anybody knows of an answer, or a study that gets to that question.

And a related question to anybody who cares to call on, and that is you see in the conversations this morning to be hung up on words like "assembly."  In some of the results, the FTC result, in particular, you talk about assembly, assembly, assembly.

Well, it seems to me that you could make a product and have substantial processing, a substantial amount of labor, and value added or however you wanted to slice the dice at, and not assembly a damn thing.  Okay, you may process it.

Has anybody ever asked the question of, first, of anybody else, that cut to a processing; that is, this is really sort of the same side -- the flip side of the same thing, what is "made."  I don't think you assemble a dinner.  You make it, okay.  You don't assemble it.

Okay, you go for a process of making dinner, okay.  Assembly may be a significant part of a process, but there is something that goes beyond that, and I guess I am asking, I don't see in any of these surveys, including our own, we didn't have copy tests, obviously, that question asked about what does "made" mean.  Is it process?  

MS. ARNOLD:  Why don't we get comments from those of you who have been conducting the consumer surveys on whether you have asked the consumer what their definition of "made" means, and whether or not they have offered, or you have asked them the question of what is their definition of assembly and processing.

My guess is that different people around this room have different definitions for all three of those terms, and it may be a task for the FTC is to help clarify what those three terms might mean in terms of a policy.  But let's get some answers here.  

MR. ANDERSON:  Other than the open-ended question when you see "Made in USA," what do you think that means, which as I mentioned, or may not have mentioned, we got, you know, 60 percent of the people come back and say it means "Made in USA," or some variant thereon that is not particular much more illuminating than that, you know, we did that. 

We did the is it assembled, is it parts, is it cost.  One can think of that as asking the question you are asking.  As my colleague observed, all of this is pretty fuzzy and somewhat imprecise, and it may not be the perfect way to ask it, but, you know, I mean, I think we tried to take a crack at it, and I will leave it to others to judge whether we succeeded or not.  

MS. ARNOLD:  Any other comments?

MR. PLATT:  Abby, may I comment on a survey?

MS. ARNOLD:  Of course.  Whose survey?  

MR. PLATT:  We didn't specifically ask the question what does "made" mean to you, or what processes does it mean.  But in our description on page 9 of the survey results, we very carefully go through all the steps involved in creating a collectible plate, and step six and seven describe a processing.

Now, someone might describe it as assembly.  There is a combination of components.  But it really goes into the process of how a piece of dinnerware is transformed into a piece of art work.  And that's about as close as we came to asking that question.

But like I said before, from the consumer's perception that processing was sufficient to make that produce of the United States.  

MR. SCHAPIRO:  I would like to come back to your question.  I have asked the question trying to develop the questionnaires, and I would like to put a little perspective around this.

Crafted With Pride Group represents a lot of different folks, so there is always pressure to try to develop alternatives.  And we asked that question innumerable times trying to develop questionnaires.  I can probably get you the verbatim per se.  But I think the important thing to bear in mind is about respondents and people like us who do polls.  

One, you try not to ask people things they go "Huh?"  It terminates interviews and raises costs in a hurry.

(Laughter.)

I would also like people to notice something else.  That while you all are talking assembly, which is a word I have never heard out of a consumer interestingly, and I realize this morning I had never heard it, there is not a one of you that has asked about co-tab or edit.  

Depending on your business and your perspective, you look at things differently.  The problem we always had when we tried to develop new questions was the same, which was you ask people what they meant by "Made in USA," and by the way, we tried once NAFTA was in to talk about "Made in North America" as a possibility, all sorts of things.  

And the milder responses are "Huh?"  Some of the less mild responses have four letter words.  They generally don't get typed up in the transcripts.  But I think that you need to keep a little perspective that as hard as you may push on this you are pushing a concept on to them.

And the question really is a matter of values, not of fact.  There are values of manufacturers versus values of consumers.  They are not questions of fact.  Consumers don't think about this.  They think about buying, as you properly point out.  

So we never were able to generate an answer to it, and it's kind of a difficult thing.  And I would like to suggest to you that it's one of the bases that really this whole debate is about.  It has to do with consumer education, and just what is it that you want to set as a standard because their response -- I literally mean this -- is "Huh?"

MS. ARNOLD:  Okay.  Darlene?  No.  

Are there any questions that observers have not had an opportunity to ask?  

Mr. LEVIN:  I'm Jeff Levin.  

MS. ARNOLD:  Audio?   Turn it -- turn audio up?  

MR. ANDERSON:  Turn it back on.  You turned it off.

MS. ARNOLD:  I want to get this before lunch.

MR. LEVIN:  Hopefully you can hear me.

Okay, I think one of the -- under Customs law if a product is manufactured in a foreign country, of course, it has to have a country of origin label on it.  And one of the difficulties that I see arising with the FTC's current all or "virtually all" standard is that certain products would not necessarily qualify for a "Made in USA" label; yet, would not have a country of origin marking on it as required under Customs law.  That being, it would not be marked at all.

Now, I was wondering if in any of the surveys consumers were asked a variant of the question as to whether or not they interpret a product that is not marked at all either with a foreign country of origin, or with a "Made in USA" label, whether or not they infer that to mean that the product is in fact made in this country?  

MS. ARNOLD:  Comments?

I think the question is if a product is not marked at all, what do consumers infer the country of origin is.

Is that a fair way to restate the question?

MR. LEVIN:  Yes.  

MR. SCHAPIRO:  We did not.  

MS. ARNOLD:  Anybody have a comment on that?

VOICES:  There is no such thing in clothing.

MR. SCHAPIRO:  There is no such thing in clothing. 

MS. ARNOLD:  No answer, okay.

We need to make a decision about what we want to do with our dinner break before we go to lunch?  

VOICE:  Eliminate dinner. 

MS. ARNOLD:  Forget the dinner break.  You guys all want to go on a fast food diet?  

VOICE:  And finish at 7:00.  

MS. ARNOLD:  Finish at 7:00.  

Just a second.  I don't know about finishing at seven.  

(Miscellaneous conversations among participants.)

MS. ARNOLD:  We will finish at about 7:15.  

MR. ANDERSON:  Some of the parking lots close at seven. 

MS. ARNOLD:  Some of the parking lots close.  

MR. ANDERSON:  If you parked across the street in 601, it's open until midnight.  

VOICE:  That one is, but the one next door to it closes at seven.

MS. ARNOLD:  You better get your car at seven then.  We will try to adjourn at seven.  But if people want to talk, people should be able to talk.  People flew in here.

We're going to break.  Just one moment.  Excuse me.  Excuse me.  Excuse me.  We haven't adjourned yet. 

We will just have some concluding remark from Deborah. 

MS. SWARTZ:  I think what we are seeing this morning is the consumer perception studies that have been done are fairly narrow.  I think they have proved that perhaps the kinds of questions that need to be asked of consumers, we can't get through standard consumer perception study, that they are inadequate.  They are not going to lead to the results that we want; that far more consumer perception education is needed.  

To a large degree, I think that what we do have is inadequate for our purposes and I would like to see something broader.  If I could just give one example that's been touched on this morning.  

I work for an industry that we have an import penetration rate that is very, very high.  Footwear similarly high.  Most of the products that are being sold to consumers are not under the same labelling requirements as are U.S. goods.  It is a completely different standard, and I would suggest for what portion of the market is left in the U.S., which is the higher portion of the market is left in the U.S., which is the higher portion of the market, that if you have a product from Italy, it may have all sorts of components from say from China, but it is not so labeled, yet it's competing at the same price point with the very few products that are left here.

With so many imports in these particular industries, I think that these consumer product -- I mean, these perception studies that you have are incredibly inadequate.  I can't say that across the board for all industries, but certainly for a lot of the industries around the table.  So I hope we don't place too much credence on them.  

I guess that's all I would have to say on that.

MS. ARNOLD:  After that comment, does anybody want to make another comment?  

Okay, before we break, before we break for lunch a reminder that we are going to come back at 1:15.  We will start talking about the standards by starting with a definition of what do we mean by these standards, what is it that each of us are thinking, and then start talking about the pros and cons of the particular standards.

After lunch there will be name cards available for those of you who are observers who didn't have a name card prepared for you yet, at the front table, and in case you didn't hear it we are not going to adjourn for dinner.  We are going to have a 15-minute break, at 5:30, and then we will continue until between seven and 7:15 tonight.

So see you at 1:15.  Thank you.

(Whereupon, at 12:02 p.m., the meeting was, recessed, to reconvene at 1:15 p.m., this same day, Tuesday, March 26, 1996.)

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A F T E R N O O N   S E S S I O N

                     (1:15 p.m.)

MS. ARNOLD:  Hello, hi.  We are going to get going now.  Thank you to all of you who have come back on time.  We need to turn off the fan.  

(Pause.)  

MS. ARNOLD:  Okay, I hope that you all had a good lunch and not too heavy a lunch.  I know it's warm in here and I'm hoping that we can all stay alert.  I am not trying to be a marketer for Starbucks.  In fact, I like another coffee maker in town, but there is a Starbucks across the street during the break if you need it.  They've got good, strong coffee for those of you from parts of the country where weak coffee just doesn't muster anymore, doesn't pass muster.  

What we are going to do now is -- oh, I have a couple of messages.

One, those of you who speak please speak into the mikes.  Our court reporter is having a hard time hearing.  And I have been asked by quite a few people to please give us your name before you make a comment which I frankly think is awkward, so try it if you can, if you can remember.  

What we are going to do now is we are going to try to work right up through what I hope is a fairly brief discussion of the definition for the "virtually all" standard, percentage content standard, and then a somewhat longer discussion that is going to be led for us by Sandra Gethers from U.S. Customs on the substantial transformation standard.

And the purpose of this session is before we get into what I think will be an interesting and stimulating debate is for us to at least agree on the definition of terms that we are using.

I found in my phone calls to many of you that particularly with the transformation standard and the value-added or the percentage content standard different members of the people -- there is differences in how you define those terms, and what you mean by them.  And part of that depends on who you are representing.

So what we will first do is focus on a definition, and then after we have completed our definition discussion, we will move to more of a debate, for lack of a better word, on the pros and cons of the different standards that are before us.

Any questions before we move ahead? 

Okay, I, in my interviews, had the opportunity to speak with a lot of you, and I can be blamed for asking Steve, Michael and Sandra to just begin. launch us in the definition discussion.  And what I asked them to do in, particular, Steve and Michael, is to try to sit back for a moment from their role as advocate, either for labor or for bicycle companies, and share a somewhat, hopefully somewhat neutral definition of the particular terms that they are going to be speaking about.  And the test will be in whether or not we think their definition is in fact one that we can all accept.

So with that, Steve, why don't you go ahead and see what we can do.   

MR. BECKMAN:  Well, I am not sure how this is going to go.  I notice that you left off all, or "virtually all" definition as one of the ones that people disagreed about, so maybe I don't really have to do much here.

I certainly hope this will be brief, and I think Richard Blumenthal, when he commented this morning, did much of what I may try to do here.  And I do feel a little awkward in trying to define something that presumably the Federal Trade Commission is enforcing.

So the all or "virtually all" standard for made in the USA, by my definition, would cover cost of production, not total value, not, you know, entire wholesale value, but cost of production, excluding those costs that are entirely administrative and nonproduction-oriented.

Within those production costs there would be direct production costs, which would include raw materials, components, processing, and fabrication, assembly, whatever is done to make a final product.  And then there would be nonproduction costs such as R&D, engineering, and some administrative costs that go along with any normal production process.

In general, again, the "all or virtually all", the only question -- we presumably understand what "all" means.  It's the "virtually" part that's a little hard to define.  And I would side with, as I say, with Richard Blumenthal this morning when he said that at least 90 percent would  meet the virtually part of the all.  As high as you can go is clearly what seems to be the intent.  Prior to being "all or virtually all" the standard was apparently wholly domestic, which didn't leave a whole lot of room for imagination.

So the predisposition would be to keep it very high as this is a distinctive marking.  It's not something that is the only marking you can put on a product or the only advertising claim you can make.  It's one that has historically been used only for products that are wholly domestic, and that, I think, ought to remain the focus.

With respect to components, the component part is something that we have a lot of experience with in the auto industry, and I am sure we will be discussing how you define whether a component is or isn't domestic.  It's not a clear cut, easy definition to arrive at.

For purposes of discussion, I would apply the same standard for components and parts that are supplied to a processor or a manufacturer as for the final product; that in order to be counted as part of the high, 90 percent or higher made in the USA standard, that component itself would have to be at least 90 percent, by the same definition, made in the USA.  

With respect to raw materials, this is a difficult area, but there are, despite our vast beneficence in natural resource availability here in the United States, there are some products that are not available in the United States, and I think it's very difficult to draw a line as to what those products are, because there are gradations of steels, and there are gradations of plastics, some of which are more or less available in the United States.  And if there were people looking for a way of not procuring them here, they would find someplace else, and there is lots of cases where this has already been found to be true.  So I will leave that sort of a gray area because I don't think it's possible to entirely find that.

So I think that's as far as I can go in trying to elucidate this definition.  

MS. ARNOLD:  Let me just see if I caught it.  The "virtually all" standard, you are dividing, I think, up into two different components.  One is cost of production; the other is nonproduction cost?  

MR. BECKMAN:  Well, no, there are production costs, but some are direct production and some are indirect.

MS. ARNOLD:  Okay, so those would be indirect?

MR. BECKMAN:  Right.  

MS. ARNOLD:  You are excluding cost of administrative, but you are including raw materials, processing, assembly, and then there is the indirect cost which is associated with R&D, engineering, and you are defining "virtually" to be equal to -- equal or less than 90 percent.

MR. BECKMAN:  Greater than or equal to.

MS. ARNOLD:  Oh, greater than or equal to.  Okay, I got it wrong.  

And in terms of components you would use the same 90 percent standard; is that right?  

Okay, why don't we have a discussion of that definition.  Why is that not your definition and what would you suggest instead?

Paul?  

MR. GAURON:  I guess I am supposed to introduce myself.  Paul Gauron.  

MS. ARNOLD:  Thank you.  

MR. GAURON:  I guess I have two questions, two points of clarification about the definition.

The first is the 90 percent cut off which we heard this morning.  I am not sure from my own experience whether that is what the Commission perceives the percentage to be.  And so if -- we need to be -- I guess I need to know whether this is a hypothetical "virtually all" standard, or in fact whether the standard is 98 percent, 99 percent or something; that there is no definition of.

The second point, I guess, and I think what I hear in the definition that's described, is that we don't apply a one-step back test.  We keep going back all the way to the source of the raw material.  So, for example, as a shoe maker it means we need to go back and determine where the cow came from; whether it was from Texas or from Argentina.  I mean, that's -- and I am not trying to make this ridiculous, but that, I think, is what we are hearing here.  So we need to -- I think it is important that we understand what that standard is.  And if that's not what the standard is, then we ought to clarify that.  

MS. ARNOLD:  How far back in process, okay.  

Do you have any comments on that, or do you want me to --

MS. GROSSMAN:  Sure.  There is not right now a precise number associated with the "all or virtually all" standard, and we have never defined it quite that precisely.  Certainly incidental components would not have been included in it.  And as a matter of prosecutorial discretion, certainly things with, you know, high domestic content would probably not have been gone after.  

VOICE:  Can't hear you.

MS. GROSSMAN:  Sorry.  Certainly as a matter of prosecutorial discretion products with over 90 percent probably would not have been -- we would not have gone after, but we've never set a precise cut off.  The virtually all was meant to indicate a very high content, but there is not 97, or 98, or 90 associated with that.  

MS. ARNOLD:  Paul, for purposes of this discussion is it -- I mean, what would happen is Steve gave us a percentage which I am not sure we need to go down the percentage road.  For purposes of this discussion, do you think it's a better idea to have a percentage or not in the definition of "virtually all"?  

MR. GAURON:  Well, I think for purposes of the analysis we should be looking at the FTC definition.  I mean, that's what presumably we are measuring that against.

MS. ARNOLD:  And they don't include a percentage.

MR. GAURON:  And they don't include a percentage.  So I mean, I would leave it as a question mark, I guess.  

MS. ARNOLD:  Steve, for purposes of this discussion can we not define it so specifically?  

MR. BECKMAN:  Well, yes, that's fine with me.

MS. ARNOLD:  Okay.  

MR. BECKMAN:  It's hard to arrive at a number given --

MS. ARNOLD:  Okay, okay.

MR. BECKMAN:  There does have to be at some point a distinction between what is and what is not virtually all.  And a percentage does at least give you some hook to hang on.  But it is -- it is problematic.  

Certainly the -- and, again, we will be discussing various other attempts at arriving at something distinctive, such as major components, or critical components, and percentages of a variety of different things.  But I wanted to indicate that we were talking about something quite high rather than something less than -- something not quite absolute, but close.  

MS. ARNOLD:  Okay.  Phil?  

MR. HUTCHINSON:  Yes, Phil Hutchinson, Association of International Auto Makers.  

When I made my introductory comments this morning, I indicated that we would prefer a case-by-case basis, and that we were heavily regulated by other statutes.  And I want to just give you a couple of examples of the problems that this would cause.

MS. ARNOLD:  Okay, okay.  I am going to ask you, I am going to put you down as the first person to give a pros or cons for the "virtually all" standard.  

What we are trying to do right now is define for all of us what we mean by these different terms at this point. 

Okay, Phil?  So when we get to the discussion on virtually all, I am going to turn to you first.  

MR. HUTCHINSON:  Okay.  

MS. ARNOLD:  All right, we are trying to -- I am going to ask for your patience.  In order to get 100 people moving in the same direction on the same train of thought we are going to just have to walk through a couple of steps so we can get there together, okay, Phil?

MR. HUTCHINSON:  Fair enough.  

MS. ARNOLD:  Okay, and I promise to keep up with that.

Any more comments on this definition of  virtually all?  

Mitchell, thanks for putting up your card; Jean, and James.  

MR. COOPER:  I would like to know if the definition allows for any exclusion for raw materials not available in this country, or, indeed, for components not available in this country?  

MR. BECKMAN:  I would, and, again, you know, this is just me.  

(Laughter.)

MR. BECKMAN:  I am sitting around the table just like everybody else.

MR. COOPER:  Don't be so modest. 

MS. ARNOLD:  Well, give a proposal, Mitchell.   Instead of putting him on the spot, what do you think?

MR. COOPER:  Well, I think clearly that you cannot put someone who is otherwise a domestic manufacturer, a United States manufacturer, at a disadvantage if he uses a component, for example, which simply is not available in this country.  There is no quality comparison.  It's not available.  

And by like token, when you have an industry which has gone largely overseas you have suppliers which are no longer in business, and it therefore becomes necessary to import a component, which is not available in this country.

Would the standard permit and accept such a thing?

MS. ARNOLD:  Well, I am hearing you suggest that the standard ought --

MR. COOPER:  Ought to.

MS. ARNOLD:  -- to consider raw materials that don't originate in the U.S.  

MR. COOPER:  That's right.  

MS. ARNOLD:  Is that right?

MR. COOPER:  That are not available.  

MS. ARNOLD:  Okay.

MR. COOPER:  And also components.  

MR. BECKMAN:  There is a lot of -- there are a variety of reasons why components are not available in the United States; some of which has to do with major customers for those components being elsewhere, and it's cheaper to supply both markets from foreign sources.

If there is some value in having that label, then there is some value in the supplier being in the U.S. market supplying that product.  And if the goal is to -- of the label is to in fact produce the highest possible value, U.S. value, then if you exclude components that aren't currently available in the United States, then you are saying nothing has been made, because there are a variety of producers that will, and industries that have moved virtually offshore because it's convenient for them to do so.  And then anybody can claim that, you know, we don't have to get this component domestically because there is no supplier.  And then can tell suppliers if you go overseas, we will be able to buy it from you, and still keep our U.S. label.  

I think the gaming of that system is quite broad.

MS. ARNOLD:  If you are concerned about including in the definition --

MR. BECKMAN:  The component. 

MS. ARNOLD:  The components?  

MR. BECKMAN:  Well, raw materials, I think, there ought to be some objective body that would determine whether or not a particular raw material was or was not available in the United States. 

In the case of natural rubber, obviously, yes.  But in the case of a certain variety of cladded steel, that's different.  

MS. ARNOLD:  Okay.  I am going to ask you to sit back for a moment, Steve, and what we are going to do is hear from others about this definition.  And then we are going to move on very quickly to the percentage content definition.  We have lots of time to talk about pros and cons of virtually all.  

I have Jean and James on my list.  Jean.

MS. ARCHIBALD:  Jan Archibald.  

MS. ARNOLD:  Jan, sorry.  

MS. ARCHIBALD:  That's all right.

Abby, I think I need a point of clarification about exactly what we are doing here.

MS. ARNOLD:  Okay.  

MS. ARCHIBALD:  You seem to be constructing a definition of "all or virtually all" that may or may not be completely consistent with the definition that in fact the FTC has been using for a period of time.

To the extent that you can construct a definition that in fact differs than the one the FTC has been using, it would appear that the rest of our discussion is going to be about definitions that in fact are not the ones used by the FTC, and it appears to leave those of us --

MS. ARNOLD:  Well, what is your definition?  

MS. ARCHIBALD:  Well, I think it would be helpful to have the FTC tell us what is their definition that they have been applying.  

MS. KOLISH:  All right, I will try to clarify that.

The Commission first used that formulation in the context of a complaint allegation.  Before it always used the formula "wholly domestic."  In the context of this, I am not going to speak about this in detail because we said we would not speak about specific cases.  

But in the context of a complaint allegation, there may have been an issue that many of these subtleties being discussed here were not really relevant to that complaint allegation, and so the Commission didn't have to make those decisions.  

And what it tried to signal, I believe, I can't put words into the mouth of the Commission, is that it was willing to be flexible.  That instead of "wholly domestic," 100 percent of everything, it was willing to allow for some de minimis foreign production or foreign parts.  You might call it de minimis.  You might call it incidentals.  It was signaling that it should be very high, but it wasn't setting a cut off level, because it didn't need to decide that at the point.

The reason your discussion here is helpful to us is because people have said we don't quite know what that means.  The Commission hasn't articulated any more contours to that definition.  So what you tell us here, your input could be valuable to us if we were to keep this standard and maybe further shaping it.

So I don't think the discussion is pointless or worthless.  I think it will be very useful to us, and if this is the standard the Commission decides to keep, and maybe flushing it out some more.  

MS. ARCHIBALD:  And in response to that let me just say that I think if you are going to have -- if you want to present an "all or virtually all" standard for the rest of the discussion, it should have within it the flexibility that Elaine has just referred to. 

And so, for example, I am not sure that putting together a definition that immediately identifies these are the costs of production that you will always look at, these are the cost of production that you will never look at, it seems to me that the minute you start putting those very tight boundaries around it you are actually going to prevent the FTC from probably doing the best job in the most cases.

So I would articulate that, you know, these may be factors that we can discuss, but I would certainly not want to say that we have all bought on that this is in fact the definition of "all or virtually all"; that if the Commission decides to stay with it, this is the one they stay with.  

MS. ARNOLD:  Okay, so I am hearing a couple of things.  One, I am hearing that there is some variation in our perspective of what the "virtually all" standard means, and maybe we haven't got enough guidance or specificity on what the definition is.

Second, I am hearing that possible factors or variables to look at when considering what the definition of "virtually all" are, are what Steve proposed to us.

Thirdly, I am hearing, and I think you are absolutely right, until -- in any dialogue or activity that I am involved in as the facilitator, until I ask the question and get a response to all the parties "do we all agree to this," we have not reached any consensus on anything.  And that's the protocol that I would adopt and recommend for the rest of our day and a half together.

What we are trying to do here is build a picture amongst, you know, 75 people, all who have spent quite a bit of time thinking about this issue of how do you interpret it, what does it mean to you, so that we can try to collectively at least identify some questions associated with the definition of the standard.  

Other comments?  I am not sure my list is -- James?  

MR. CLAWSON:  Jim.

MS. ARNOLD:  Jim?  

MR. CLAWSON:  Yes, that's fine.  

Jim Clawson, with the Joint Industry Group, and I would just concur with some of the things that have been said here.  And I think they are very important that we not cross over, and that what you are trying to say is what is the standard, and then we will have the discussion of what it ought to be, or the pros and cons following that.

And so I would submit that none of this is the standard.  We don't know what the standard is.  And particularly one of the things that hasn't gone here this morning is, as a manufacturer, no one has done the survey to say to the manufacturer what is made in.  

I think most of the manufacturers, and I won't put words in any specific in mind, that have said to me they don't know what the "all or virtually all" standard is.  I mean, they just don't know what it is.

Now, we have heard all of these things, and I'm not suggesting they are good or bad.  The point is when you say what is the standard the industry, the business community, including the private sector, they don't know right now what it is because it changes.

MS. ARNOLD:  Okay.  What is interesting me as the outsider to this arena is that I read many of your comments, and those of you who are promoting a "virtually all" standard had something in mind, and, please, that's what we are trying to identify here.

MR. CLAWSON:  But there is a difference about what they are trying to promote and what is the current standard used by --

MS. ARNOLD:  That's right, that's right.

MR. CLAWSON:  And what I am suggesting is, is that standard is not know.

MS. ARNOLD:  Okay.  James.  

MR. PALMQUIST:  Thank you.  Jim Palmquist, 3M.

I would like to focus back on the component part and the raw material one.  The basis of the question is simply this.  That unfortunately there is no way we can form an opinion and actually make comments until some of those are identified.  

And 3M is reluctant to come out as a company on a lot of these things, but one of the reasons I think I am here is because it's important for the factual aspects of what we have to deal with.  And 3M has roughly 60,000 products that we produce in 97 manufacturing plants in the United States.  

If on the average there is 10 different component parts into each of those, and certainly some of our products have hundreds and others have much fewer, but if we are going to track components and raw materials back, we are looking at in the neighborhood of 600,000 calculations just to see what we are going to do here.

So the issue as to whether or not we can figure out our position on "all or virtually all," or domestic content is going to ride heavily on exactly what that definition is of how far back do you go.  And at some point we would have to come strongly down as just it's an impossible burden.  

MS. ARNOLD:  So at this point you would agree with others who have suggested that it's not clear to you what the definition is in terms of components and raw materials?

MR. PALMQUIST:  Yes. 

MS. ARNOLD:  And do you think the definition should include more specificity?  Should it be that the FTC decided to proceed with the "virtually all," should it include that?  

MR. PALMQUIST:  Well, as long as it is not clear, then we have only one option, and that's to be against it.

MS. ARNOLD:  Okay.  Okay.

MR. PALMQUIST:  Because the ambiguity just renders it totally impossible to conceive as to how you could even do it.  

MS. ARNOLD:  Okay.

MR. PALMQUIST:  If it's going to be something that has a functionality to it, then that's going to have to be defined, and it's going to have to be defined in some sort of a workable sense rather than peal the onion back until you simply don't have anyplace left to go.  

MS. ARNOLD:  Okay, any other comments on the definition of "virtually all," other than we don't have one?  It's a virtual definition.

Yes.  

MS. LANIER:  I don't represent manufacturers, but it appears to be --

MS. ARNOLD:  Would you pass the microphone over to Robin, please?  

MS. LANIER:  This is related to what Jim was just saying, and that is that if you don't -- I don't advocate this either, so you have to take what I say with a grain of salt.  

If you don't put in some limit to how far you go back, you put everyone, particularly people who may not be principal manufacturers, but may be interested in advertising, which includes retailers, in a very difficult position in being able to figure out a standard like this.  I mean, virtually closing off all opportunities for advertising.

As an aside, I would also say that the reason that you have to put that raw material caveat in there, which I think you need to think greatly about, I am sympathetic to people who don't have raw materials in the United States, but the last thing that the FTC wants to get into is coming up with lists of items in short supply.  

I have been there.  I have done that in the textile area in NAFTA, and, trust me, it's not a fun exercise, and I don't think the FTC is in a position to make those judgements, nor do they want to.  

So if you are going to go back in this standard, all the way back to the ore that comes out of the ground without a cutoff or how many steps back you go in the process I guess you would have to put a raw material caveat in there.  And then you put, you know, manufacturers as well as retailers and others who might want to advertise in a position of, well, gee, I have got to figure out who made the ore, who dug the ore and where the ore came from for that handtool that I am selling, that I got from, you know, Stanley, you know, just to pick a name.  

And I mean, you know, that becomes incredibly difficult for everybody, including the enforcing agency.  So I am not sure that what you have got up there is right.  I would really strongly urge you to take out the raw material exemption, and start talking about how many steps back in the process you are going to go.  

MS. ARNOLD:  Okay, I do not still want to get into a debate about whether or not raw materials should be in or not right now.  We have heard different perspectives on why raw materials should be or shouldn't be specified if a "virtually all" standard went forward, and we went forward with the "virtually all" standard.

I think what is going to happen in our discussion of the pros and cons of the "virtually all" we are going to go back to this discussion,  All right?

I would like us to move to -- yes, I would like to move to the percentage of value added because I think that we are going to get back into this discussion when we move into the "virtually all."  

MR. REYNOLDS:  I will work it in somewhere.

MS. ARNOLD:  I am sure you will, Roger.  

Michael, would you launch a discussion of the value added or percentage content standard.  

MR. KERSHOW:  I will try.

Abby, I am not sure my remarks are going to be directly responsive to the question you asked.  

MS. ARNOLD:  Oh, dear.

MR. KERSHOW:  But I hope you will bear with me.

I don't know that I will be giving a description here of a sort of generic percentage content approach because all I have to deal with are the particular approaches that were recommended by ourselves and others participating here.

And as I think my remarks will show, I don't know that anybody, with the possible exception, I think, perhaps of Sunbeam, whose views, to the extent I understand them, appear to be a classic sort of percentage content approach, are only that.  

In point of fact, I think what we advocate and what many of the others putting forward similar views are advocating is something that the agenda later on calls a "hybrid" approach, and I will try to get to that in a minute.

I think it's appropriate that I was asked to speak between the "all or virtually all" and the substantial transformation presentations because I think a percentage content approach is really a -- comes somewhere in between one bright lights, one bright line standard that, in the opinion of many, including myself, requires far too much, and another standard, if it can be called that, the substantial transformation concept, that may require too little, at least where it's applied to products that want to claim a U.S. origin.

Let me summarize what our views are, and I think, Deborah, correct me if I am wrong, I think our views are totally consistent, although these formulations can be so complex and people find a need at various points, I guess, to perhaps take some departure from what's categorically provided for, that you get a little variation.

But the basic approach that both Deborah and I have advocated is resort to the NAFTA rule of duty preference as distinct from the NAFTA rule that governs marking and other origin determinations.

In the case of bicycles and for my, at least, noncomprehensive review of the rules, in the case of most other goods that are assemblies of discrete components, what this rule basically requires is that the final assembly occur in the United States.  The parts be made into the whole here, and that a certain percentage of the net cost of the product be attributable to U.S. operations.

In the case of bicycles and for many other products, but not all, the NAFTA preference rule is flat 50 percent of net cost.  

The NAFTA rules, which are statutory, I guess, define net cost as total cost, and then there is a technical definition of that.  It's all product costs, period costs, and other costs, less any sales promotion, marketing, and after-sales service costs, royalties, shipping, and packing costs, and certain interest costs which, to the extent I have looked at them, I think they are basically above market interest rates or something like that.

There is a formula, very bright line formula that NAFTA provides, and it is that regional value content under NAFTA, which I guess for this purpose we would translate to being U.S. content, equals the net cost of the product minus, as I have just defined, minus the value of non-originating materials divided by the net cost of the product times 100.  

Now, it seems at least on its face very simple.

(Laughter.)  

Nothing is ever as simple as it seems obviously.  

Just a few subtleties here, and I have to credit Deborah with making these explicit because we did not do so in our presentation.  But there probably is upon reflection a need to, as several of us have observed just a few minutes ago, to articulate a rule that governs how far back you need to look.  And Deborah has advocated, and others have advocated, the so-called one-step back approach.  And, again, for my part that seems to me a necessary aspect of this where you very quickly get bogged down in all kinds of complexities that perhaps aren't really critical.

Let's see, and I will also point out that the luggage manufacturers have recommended the value of all U.S. content be preserved.  So, in other words, if you were to send U.S. materials offshore to be processed, you would not lose that U.S. identity for purposes of this calculation.  You, of course, would not count the value of the foreign processing.  That would be counted as foreign.  But if you send hides over to be tanned and bring them back as leather, you ought to at least get credit for the value of the hides because they are, after all, made in USA.

Let me see.  Let me just mention the, and if I have forgotten anybody, I hope that they will speak up, but just for the sake of completeness there are variations on this that have been put forward by a number of other parties here.  

The first, and I believe, again, from my reading of them, that all of these are essentially consistent views, and I guess it's not surprising they should be so since they are in this case all representatives of the footwear industry.  But the footwear industries of America, the Rubber and Plastic Footwear Manufacturers Association, and New Balance all -- again correct me if I'm wrong -- seem to be advocating something very close to mine, to the definition I have advocated, which is final assembly has to occur here, and you must add 50 percent of the cost of materials, direct labor and factory overhead.

Now, I believe that, again, others who have probed this more carefully than I may find a distinction between the two, but that seems on the face of it very close to the NAFTA duty preference rule that is referenced in that cost and so forth.

They do, however, spell out in their presentations precisely how you would calculate this, and it is a somewhat different formula.  You would, let's see, divide the sum of U.S. materials, U.S. labor, U.S. factory and corporate manufacturing overhead by a total cost, which is defined as the U.S. costs plus any foreign materials and any foreign labor not accounted for in the cost of foreign parts.  

So you wouldn't have to go back and try to figure out if you purchased an imported component how much of the cost of that was attributable to foreign labor and how much to foreign material.  You would treat that as a foreign input, and not look at it separately in terms of labor.

And last but not least, I guess, as I mentioned, Sunbeam has advocated an approach, and I will just read this because, again, it's about the only elaboration I can offer on it.  They say that a product should be able to be considered "Made in USA" if the U.S. component parts equal at least 75 percent of total product cost, and U.S. labor is at least 75 percent of final assembly cost.  

Frankly, it makes -- that one kind of makes my head spin, but -- and I am not sure where they would come down as others quite decisively have with respect to the final assembly process.  But I will say, again, that it's certainly our position, and I think the position of others here that you can't just look at the percentage content or the percentage value added.  There is a threshold determination that needs to be made, and that's whether the final assembly, however you define that process, occurred in the United States.  

MS. ARNOLD:  Okay, I am going to ask for simple minds like mine for you to go back a moment.

I didn't catch your whole formula, or I don't remember it from reading the comments, so let me see if we can get it here.

Find out what the U.S. needs as the threshold the percentage net costs of the product is contributed to U.S. operations, and the net cost equals total cost, all product costs, period costs, I missed --

MR. KERSHOW:  Okay, the total cost.

MS. ARNOLD:  Yes. 

MR. KERSHOW:  The top one you have there is defined as all product costs, period costs, and other costs.  So all three of those would be what you mean by total cost.

MS. ARNOLD:  Okay.  And then there was the minus side of it.  Go through that again.

MR. KERSHOW:  You would subtract from -- I'm sorry.  You would subtract under the NAFTA approach sales promotion.

MS. ARNOLD:  Yes.

MR. KERSHOW:  Marketing, after-sales services, royalties, shipping, packing and excessive interest.  

MS. ARNOLD:  Okay, so less sales promotion, marketing, after-sales services, royalties, shipping, packaging and --

MR. KERSHOW:  Interest?

MS. ARNOLD:  Interest? 

MR. KERSHOW:  Yes.  

MR. JOSEPH:  Abby, we have a quick question over here on what period costs are.  

MS. ARNOLD:  Okay, now at least we have got it.

All right, what do you mean by period costs?

MR. KERSHOW:  Well, I know there are other customs attorneys in the room perhaps better familiar with the subtleties of NAFTA than I.  I am not sure I can speak to it.  

I assume it's -- I have always assumed it's some sort of overhead costs somehow.  In other words, a cost of manufacturing that you have over time, but I don't know that that's correct.  

MS. ARNOLD:  Deborah?  

MS. SWARTZ:  It's not all, or it's basically overhead.  I think companies -- each company would probably define it very different, but basically it is overhead.  

MS. ARNOLD:  Okay

MS. SWARTZ:  Not all overhead.  

MS. ARNOLD:  Any questions on Mike's definition, not how he has reflected the footwear or Sunbeam's formulas, just they are wrong.

Cynthia?  

MS. VANDERWICKEN:  Yes.  My question has to do with why assembly has to be included when you are talking about percent content?  

And in our industry we have very little difference between final assembly and packaging.  I mean, very often the final assembly is packaging, and that often happens outside the country, but we will have substantial content of 80 or 85 percent, but it goes to a Mexico or some other country for final assembly/packaging.  And so there seems to be some sort of contradiction there.  

MR. KERSHOW:  Well, the reason is not one based on cost considerations or economics.  It's a conceptual one.  Under the NAFTA rules, at least in the case of bicycles and many other assemblies they are sometimes called, the act of putting together parts and making and bringing into being, as I guess was used this morning, a new product, taking bicycle parts and making a bicycle out of it, that is a substantial transformation, at least under the emerging definition that Customs has developed in NAFTA and in other areas; this tariff shift concept.  

And so when I said earlier that what we are really advocating here is not a flat percentage content approach, I meant that we are really advocating a hybrid.  It's a combination of substantial transformation, or tariff shift using the NAFTA rubric, with a domestic content requirement.

I might say too that I know there are others, I believe 3M in their paper took -- did not advocate that the NAFTA rules of duty preference, which -- but rather, advocated the NAFTA marking rule.

Now, I have not done an exhaustive evaluation of those.  I wouldn't recommend it to anybody.  But at least in the case of bicycles, and my assumption in the case of other assemblies, the NAFTA marking rules just don't do enough, in our estimation, because the NAFTA marking rule basically says if you take bicycle parts and assemble them together and make a bicycle, you have done a substantial transformation.  

And what we are worried about there, quite frankly, is a simple screw driver operation, which takes wholly foreign-origin bicycle parts, puts them together for the first time as a bicycle in the United States, and wants to put "Made in USA" on that product.  That doesn't work from our perspective, and therefore we attach that concept with a 50 percent value requirement, and that happens to be the NAFTA's approach and duty preference in the duty preference area.  

MS. ARNOLD:  Okay, I have got -- can you spread your guys spread your cards out?  That really helps me.  John, Deborah, Gale, and Jerry.  

MR. PELLEGRINI:  Just to follow up on the last question about the final assembly, and you can maybe confirm this if I'm correct, and I think it might narrow some of our discussion, if final assembly doesn't take place in this country, there probably isn't any question that you can't mark it "Made in USA" because Customs is probably going to say that's foreign country of origin.  You have got to mark it made in the foreign country.  

There may be some exceptions to that but I am not aware of any.  So I think we are only talking about products who at the threshold level if they are imported have passed a substantial transformation test.  Otherwise, you have got a foreign country of origin, and the Federal Trade Commission's position is that unless you are outside of Customs jurisdiction, don't talk to us.  If there is no substantial transformation, it's Customs.  Once there is substantial transformation, then we can talk about whether you can say "Made in USA" and what the qualification is.

And another question for Michael, and maybe I am getting to the complexity of this, but would you in draft to the SEC the 60 odd pages of regulations of the NAFTA, you know, regional value content.  

MS. ARNOLD:  Okay, why don't you hold that question.

MR. PELLEGRINI:  Okay. 

MS. ARNOLD:  Hold that question, and John, I hope that you ask it when it's an appropriate time.  

MR. PELLEGRINI:  Don't worry.  

MS. ARNOLD:  Deborah, Dale and Jerry.  

MS. SWARTZ:  I think the 60 pages are probably more for automobiles that -- in any event, I would just in commenting, since Mike referred to our proposal as well, I think the reason why we selected NAFTA as a template for this is that, and Jim Clawson can comment on this as well, the government spent a great deal of time in the NAFTA negotiations on this issue, and how it should be defined.  

As part of our IFAC, we spent many, many meetings with them on these particular definitions.  And, in fact, some of them were updated from their experience under the CFTA, the Canada Free Trade Agreement, because they understood that some of them were unworkable.  So this issue has been vetted in the U.S. Government with a lot of different agencies, a lot of thought has been given to it, and why would we want to necessarily second guess them on it.

I don't know whether Jim has any thought about this, as chairman of our IFAC.  

MR. CLAWSON:  I do but I will reserve them for the discussion of the pros and cons if that's okay.  

MS. ARNOLD:  You are a good man, Jim.  Thank you.

Gail.

MS. CUMINS:  I have a question.  

I got all the NAFTA calculation of region value content for net cost.  Basically, I think you are right.  They did so where they were concerned that the operation performed in creating a final article could be a simple or noncomplex or nonvalue-added assembly.  There are others where it was concluded that the substantial transformation test in and of itself would result in significant value added. 

So my question to you is in advocating, assuming we are of a mind that it would be nice to have one rule for everything and not have different rules for different agencies for different things, are you advocating this net cost methodology for all products, or are you suggesting that where NAFTA has a net cost rule, we have a net cost rule, and where NAFTA has only a simple substantial transformation, we have -- a tariff shift rule, we have a tariff shift?  

MS. ARNOLD:  Let's move -- I am going to hold you.  I want you to write your question down, and I want you to hold on when we go into discussion.  All we want to try to do now is to agree on what definitions people have proposed, okay? 

So, Gail, you are asking him, just to start getting into the discussion, --

MS. CUMINS:  No, what I am asking whether he's proposing it for everything, or is he telling in his proposal that we adopt the NAFTA duty preference, whatever that might be for the product in question.

MS. ARNOLD:  Okay.  

MR. KERSHOW:  It's really an excellent question, and I must say, you know, I have come to this with really one set of client interest, actually, several sets of client interests in mind.  

But fundamentally my focus has been on the problem of assemblies, which took up most of our discussion this morning too.  But there are other sorts of issues.  The issue of processing and how much processing if something isn't an assembly of parts is enough, I mean, is a very valid question as well.

And the observation is correct.  The NAFTA preference rules do not, and I hope I wasn't unclear on this, the NAFTA preference rules do not say that you must have 50 percent value added for everything.  In fact, where they can the rules actually take a different approach, which is to try to define the essence of the article in some way, and to say that you can only count it as originating in a particular country if the essence of the article originates in that country.

And I guess to the extent I really pondered it, and I don't know whether it works for everybody, but it seems to work fairly well under NAFTA, and, in principle, that very different conceptual approach seems to me potentially workable in this area as well.  

MS. ARNOLD:  Okay.  Let's try to continue our comments and get to Sandra because I think we are starting to get into what some of the things that she was going to talk to us about.  

Sandra, is that right?

MS. GETHERS:  Yes.  

MS. ARNOLD:  Jerry?  

MR. BERMAN:  On the labor cost which you have in your equation here that that should be included, what do you do in the case where the labor costs are more than the product?

Let's say it's imported product, and the transformation, the labor costs are more than the product if the product is not U.S. made?  

My personal belief is that labor costs should be excluded just like packaging.  

MR. KERSHOW:  Am I to respond?

I don't know.  That strikes me as a very odd approach since I think, if anything, the survey discussions this morning established that what consumers mean more than anything when they heard "Made in USA" is that there has been U.S. jobs devoted to making the thing in the United States.  It's just, to me, a very odd way to go about the analysis here.  

MS. ARNOLD:  Okay.  Okay.  

Going back to the summary of kind of the moving definition of the percentage content approach is to use, your suggestion is to use NAFTA as guidance in defining how to calculate the percentage in development of your formula, which you went through, which I'm not going to go through again; is that right? 

MR. KERSHOW:  Yes, I think so.  

I mean just because it's out there, as Debbie mentions -- 

MS. ARNOLD:  Use it as a standard.

MR. KERSHOW:  -- is the result of a lot of hard work by some very able government workers, and why not start there.  

MS. ARNOLD:  Okay.  Is the footwear something, do you want to clarify or make any other comment on your definition, Michael, so I don't misstate it.

MR. BROOKS:  Well, I have been doing a lot of listening here.  I am a manufacturer, not an attorney or a lobbyist, so I haven't spoken much.  But it seems to me that the footwear position is that a calculation of cost of U.S. material, U.S. labor, U.S. manufacturing overhead divided by the cost of U.S. material, direct labor, that the product must be completed in the United States with a substantial transformation -- that's a word that we have used because of working with Customs over the years -- and jobs provided here for U.S. workers. 

We polled all of our members and felt that this was the right position to follow.

It would be impossible to manufacture shoes with all U.S. components today.  It may have worked 50 years ago, but it would not work today.  We are worldwide companies.  Our machines are purchased from around the world, in Germany, in Italy.  Components are sourced from around the world, and the U.S. component industry has fallen into a bare shadow of itself.  

And I think as far as the "Made in USA" standard, the footwear industry has been hurt as well as -- or as much as any industry in this room.  Eighty-nine percent of all shoes sold in the country are imported.  We think the consumers already voted that the demand for U.S. shoes is not very important to him, or shoes made in the United States of America.

MS. ARNOLD:  Okay, why don't we move on.

MR. BROOKS:  And to --

MS. ARNOLD:  Yes, sorry. 

MR. BROOKS:  Just one comment.

In our business, art work is an essential part of the product, and since we are in the direct marketing business the packaging also is an essential part of the product, because it can't be delivered to the consumer without that. 

The royalties, all the art work royalties go to United States artists.  Packaging is also sourced in the United States.  So to exclude those is to exclude a major portion of the value of our product.  So I don't think we could agree with those exclusions.  

MS. ARNOLD:  Okay.  Well, we are going to have to get back to that when we move into a longer discussion of percentage content.  

MS. ARNOLD:  Sandra, do you want to give us the definition that Customs is using for the different terms that we are discussing?  

MS. GETHERS:  In ten words or less.

Well, I know most of you, and it's a pleasure to be here.  I appreciate the FTC's invitation, and I also would like to commend them as an employee of a fellow agency for, in my view, practicing good government.  I think this represents good government.

I am going to be speaking to you this afternoon about Customs' role in making country of origin determinations, and our role essentially arises in connection with imports into the United States.  

We make our nonpreference origin determinations on one of two bases:  the country of origin can be the country in which a good is wholly produced, that is, where it's wholly produced in a single country; or if the good is not wholly produced in a single country, the country of origin of a good can be the country in which the foreign materials contained in that good last underwent a substantial transformation.

In connection with origin determination, Customs makes these determinations for purposes of administering the import tariffs, or administering restrictions on goods such as embargoes, and we also make them for purposes of country marking.

So contrary to the opinion held by some, in the area of country of origin marking, our role does not end once the goods cross over the border.  As a matter of fact, it is in the area of country of origin marking that the most judicial decisions have come out involving the issue of substantial transformation.

Substantial transformation, the concept that we have heard so much about this morning, well, we can't avoid it because as you have all mentioned in today's environment of internationally integrated corporations, global economy, we have very few origin determinations made on the basis of a good being wholly produced in a single country.  

So what is substantial transformation?  We define substantial transformation as occurring when as a result of an operation process, an assembly, it could be anything, an article becomes a new and different article, having a new name, character, and use.  

Now, although over the years the courts have not been consistent in defining that term, they started defining this new name, character, or use -- end use.  They went to new name, character, end use.  But, in practice, both the courts and Customs have required a substantial change in new name, character, and use.

The change in name is routinely discounted as being the least of the criteria.  The change in use is viewed as a significant factor.  If you have something that has multiple uses, that as a result of the processing operation becomes dedicated to a single use.  

We had a situation in a GSP case where roll stock paper was shipped to Mexico and there it was printed with Bingo game cases for purposes of Bingo game cards.  And roll stock paper, which had multiple uses, became dedicated to a single use.  So the country of origin of that article ended up being the country in which that article was printed.

On the other hand, changes in use which are predetermined for purposes are discounted when they are predetermined by the starting article.  For instance, if the operation did not change the purpose of which that starting article was created.

We followed this in the Superior Wire case.  In that case we had a situation where wire rods were imported into Canada from Spain, where the United States had  voluntary restraint arrangements.  The court noted that wire rod has few uses, if any, before being subjected to this multi-step drawing process for purposes of making the wire.

The chemical and physical properties of the wire rod predetermined the chemical and physical properties of the wire.  And the wire rod dictated the final form of the wire.  You cannot have substantially large rod and expect to make a very thin wire.  

The Superior Wire case, as well as some other cases that I will be citing in a few minutes, are all summarized in the Federal Register Notice that we issued back in May of 1995.  And for those of you who are not familiar with the citation, it was 60 Federal Register 22312, 60 Federal Register 22312.

So in determining the country of origin on the basis of the substantial transformation principle, today the Customs Service focuses on the question of whether or not there is a change in the character of the article as a result of the operation.

Customs looks at the article before the operation to see whether or not that article forms the very essence of the finished article.  Changes in characteristics of the starting article are not enough.  There must be a change in the essential character of the article, subjected to the processing in order for us to find, pursuant to judicially established precedent, that there has been created a new and different article, having a new name, character and use.

For example, the National Juice Product case, which was also a country of origin marking case, the court found that imported manufacturing orange juice concentration was the very essence of the retail frozen concentrated or reconstituted orange juice, and that the manufacturing juice concentrate was not substantially transformed by operations consisting of combining it with water, orange acids and oil, which the court noted was necessary to make the imported product suitable for retail sale.  

Even though it wasn't finished, it wasn't usable, the court found it was not substantially transformed because the essence of the article existed in the manufacturing juice concentrate.  

Now, when there is an assembly operation, the issue for substantial transformation is whether or not the assembled parts, foreign parts, lose their separate identity and become an integral part of the new article.  

So, again, focusing on the character component of the new name, character and use criteria, in the Uniroyal case, another country of origin marketing case, the court found that a fully formed shoe upper, and I had a sample that I had better not use, was the very essence of the finished shoe, and therefore was not substantially transformed when it was assembled, attached to the sole of the U.S. processor.

The Customs Service also does not consider the amount of value added to an article during an operation as a significant factor for determining whether or not that article has been substantially transformed.  

Reasons?  Well, first, this factor does not necessarily indicate the main character and use criteria have been met.  And, secondly, as was noted by the court in the National Handtool decision, the use of this factor can lead to inconsistent origin determinations for goods which are subject to the same types of process.  

For instance, labor costs may vary.  Material costs may vary because of labor costs to produce the materials.  It is also due to the same type of disconnection from the name, character and use criteria that we also do not consider the complexity of the last operation performed as the pertinent -- as the way to substantially transform something.  

We focus on whether or not those processes change the essence of the article regardless of how complex, regardless of how simple.

Both the court and Customs have found substantial transformation to exist in situations where the operation was not that complex.  Take, for example, the Data General case.  We found that the programming of a PROM, a programmable read only memory chip, was substantially transformed into a ROM.  They look exactly alike.  By the programming because the programming created, according to the court and the engineers who were there, the essence of the article.  It established the pattern of interconnections and stored memory of the article.  Once you created this ROM you couldn't go back to a PROM.  

And so sometimes it's not going to be a complex operation.  It's not going to be a very expensive operation. We are focusing on the results of that operation.  

And how do we express the standard of substantial transformation?  Well, as of today we have two systems for doing that.  Except for goods that are processed in Canada or Mexico, NAFTA countries, prior to importation to the United States, the Customs Service determines whether or not there is substantial transformation by applying on a case-by-case basis the main, character and use criteria pursuant to the judicial and administrative process that had been established.

We do this at the time the good is entered, or we do it prior to the importation by way of a ruling request that is requested by -- ruling request made by the prospective importer.

It doesn't have to be the goods also.  It could be just the issue presented to us.

The other method is through the application of the NAFTA marking rules for all goods that are traded with Mexico and Canada.  I should say all goods that are imported from Mexico and Canada, haven't been processed there one way or another.  

Now, these rules were purposely developed, because I was involved in that task, to track and codify Customs' current practice and the case law on substantial transformation while at the same time provide more predictability, transparency and certainty for country of origin determinations.

Now, unlike the NAFTA duty preference rules, these rules do not have value content requirements purposely.  Origin is determined under these rules under a hierarchy that is set up in Section 102.11.  

First, we look at whether or not the good is wholly obtained or produced.  This is just like the wholly manufactured or produced criteria for regular origin determinations except that we have added waste and scrap as a way to have a wholly obtained or produced good.  This is a situation where you have waste or scrap that is obtained as a result of production such as saw dust from milling lumber, or used goods that are collected which are only fit for the recovery of raw materials, such as scrap battery that's only fit for chopping up for purposes of getting the lead.  Those are two things that used to be considered wholly manufactured or produced that would be considered wholly obtained under the NAFTA marking rules.

If the good at issue is not wholly produced in a single country, then we look to see whether or not the foreign materials contained in the good underwent a change in tariff classification or some other operation that is specified for that classification, the classification of the good.  

These operations for change in tariff classification are designed, at least, to be consistent with those operations which previously and which currently would result in a substantial transformation.  

Now, also consistent with the tenets of substantial transformation, the specific tariff rules are designed to disallow a change from the single material that impart the essential character to the finished good.  So under this next step of the hierarchy, except for sets, which the sets are not covered by this next step, the country of origin of good would be the country of origin of the single material that imparts the essential character to the good.  

Considering that this was the purpose for the development of that provision, there is only one material, for instance, the tariff classification of the manufacturing orange juice concentrate that is outlawed by the specific tariff rule for the good, the reconstituted orange juice, then the countries or country of origin of the manufacturing orange juice concentrate will be the country or countries of origin of the orange juice concentrate.  There is no way to get around that step.

Now, in order to ensure that an origin can be determined for each imported good, there are additional steps in the rules.  But as many of you who are users of the rule already know, origin determination is either made before reaching the single material and parts essential character step, or at least at this step.  

Now, since we believe that -- since "we," being Customs -- believe that the marking rules codify on a product-specific basis, Customs' position, as well as positions of the court on how the substantial transformation principle should be applied, as well as expressed in these positions in a manner that provides transparency and predictability in country of origin determinations, the Customs Service has proposed to adopt these rules for all origin determination.  

However, this proposal is still under consideration within the department, and the Customs Service has been instructed to withhold publication of a final rule on this uniform origin principles at this time.

I am not going to get into the details, but I would just like to call your attention to the fact that new rules were developed for textile products.  They were developed and they will be in effect as of July 1, 1996.  And for these rules Congress has established specific rules for the purpose of determining when you have a growth product or manufacturer of specific country for textile products.  

Basically, the rules will allow the country of assembly to be the country of origin for most goods if it's wholly assembled there, but there is a certain class of goods that the origin will always go back to the country of origin of a fabric.  

And you should just be aware of the fact that the Customs Service has taken the position that these rules will apply for purposes of country of origin marking under  Section 1304.  That's the Customs marking statute.

And I didn't make this clear earlier, but under that statute all articles of foreign origin are required to be marked to indicate the name of the country of origin so as to indicate to the ultimate purchaser in the United States that country of origin.

So if an article is not being processed by the ultimate purchaser, and the ultimate purchaser is the person who substantially transformed that imported article, then that article after the processing will have to be marked with the foreign country of origin in order to satisfy the U.S. Customs law.

If the U.S. Customs law is satisfied that you have changed it, the ultimate purchaser is the U.S. processor, then we are not concerned about how it's marked after that point in time.  That's when the FTC would have to be consulted if he would like to mark that product "Made in USA" in any way.

Currently, I would like to just wrap up by trying to take a look at origin in the future, substantial transformation, I should say, in the future.  And that is the WTO rules or origin project.  

Now, under the WTO rules of origin the GATT members agreed to harmonize internationally the same way they harmonize internationally to the tariff rules, rules of origin.  The agreement created two committees.  We have the WTO committee that's based in Geneva, and we have the WCO technical committee that's based in Brussels.  

It's designed that each country would draft proposals for submission to the technical committee which would in turn redraft those proposals for the purpose of discussion at the meetings.

There are three phases for developing these rules.  The first phase was completed back in, I guess, early last year, at least early last year, and that was the development of the wholly obtained definition, and the development of the minimal processes definition.

The second phase, which is the development of specific rules to determine when you have a substantial transformation, is already underway.  I should remind you, however, that the GATT rules of origin agreement does not define substantial transformation, so the specific rules that are being developed will, in essence, define substantial transformation as they are developed.  There is no standard that we are weighing this against.  Each country, I am sure, will be coming with their own frame of mind as we are still coming with our frame of mind being name, character or use, but that's not necessarily the standard in this project.  

The third phase is -- oh, I should also point out that the U.S. will be insisting for these rules on no value content.  In our experiences with NAFTA has indicated that basically we cannot have a value content requirement for origin, origin determination.  

This "Made in USA" issue is not necessarily an origin determination.  This is a separate requirement.  So we are talking about something you are going to require -- actually, it's not really a requirement; this is a separate criteria.  But we are talking about things you actually have to put on.  And to have a value content requirement requires too much complexity, they are unpredictable, and they actually incorporate economic conditions which we find have no relationship to substantial transformation.

The third phrase would be to create supplemental rules when the specific rules, and the specific rules, in case I omitted this, will be for the most part tariff shift rules.  

The supplemental rules are designed to explain or express substantial transformation when the tariff shift rules don't work.  It's not clear whether or not that's going to be a totally separate task as opposed to sometimes being created simultaneously with the specific rules because of the fact that you don't want to lose sight of the supplemental rule that might be needed with a specific rule.  But that's something that we will related in more detail by the ITC.  

One thing you should also note, that in this exercise, the U.S. proposals, they are going to be expressed in terms of U.S. proposals for substantial transformation, do not necessary reflect the U.S. Customs current position on substantial transformation.  

Likewise, the proposed rules that are being made will not have any impact upon Customs current interpretation and determinations under the substantial transformation standard.  

And you should also remember that this project, under this project the WTO rules of origin agreement is not self-executing.  Whatever we come out with out of Brussels or Geneva will have to be implemented by law.  

And with that, I think I have concluded substantial transformation.  I will be willing to take any questions on that standard.  

MS. ARNOLD:  Okay.  Again, as the lowest denominator in this room --

MS. GETHERS:  You have been taking notes?

MS. ARNOLD:  Well, no, let me see if -- I tried to put down what I was hearing of the definition of substantial transformation, and tell me if I have got it.

The way you are defining country of origin is where the good is wholly produced or where it was last made transformed.

MS. GETHERS:  Right.  

MS. ARNOLD:  The way to define substantial transformation is the result of an operational process where the articles becomes a new article with a new name, character and use.

MS. GETHERS:  Right.

MS. ARNOLD:  Change in essential character of the article required doesn't consider value added, it focuses on the result of the operation.  

MS. GETHERS:  Now, those last three things really are interpretation of name, character and use.  

MS. ARNOLD:  Okay.  

MS. ARNOLD:  Okay.  And then how you express substantial transformation -- this is where I get a little bit caught here.  This is the definition that we need to concern ourselves with in terms of substantial transformation.  

MS. GETHERS:  Right.  

MS. ARNOLD:  And then there is a process for how you decide on whether or not the article has been substantially transformed, right?  What your process is for making that determination?  Right

MS. GETHERS:  Right . 

MS. ARNOLD:  Okay.  You make a ruling request on the good or the issue.  You do it through an application of NAFTA marketing rules.  

MS. GETHERS:  And I might not have been clear.  You don't have to have a ruling.  We make those determinations everyday with liquidation for entry coming.

MS. ARNOLD:  Okay, okay.

And you look at three -- you look for three different areas where there was a wholly obtained of produce goods.

MS. GETHERS:  And that's under the NAFTA marking.

MS. ARNOLD:  Under the NAFTA marking rules whether the materials went change regarding classification of a good, i.e., was it substantially transformed.  

What was the country of origin, and I think then you went into a discussion about the product. 

MS. GETHERS:  That was also part of determining country of origin, and it was not -- when it did not 

undergo --

MS. ARNOLD:  Right, right.

MS. GETHERS:  So it's all part of the same substantial transformation.

MS. ARNOLD:  Right.  Okay.  

And then you went into a discussion about textile products, substantial transformation in the future, and the fact that there is WTO, WCO committees who are developing an international standard which may or may not adopt what the using --

MS. GETHERS:  Right. 

MS. ARNOLD:  -- in terms of substantial transformation, but you will be an advocate at the table.

MS. GETHERS:  Yes.  

MS. ARNOLD:  All right.  So what I wanted to do is just summarize for all of us what I was hearing, again, as the lowest common denominator in the room.  But then also go back to this question of the definition.  

Does anybody have any questions about the definition, or are we all on the same page in terms of what we mean by substantial transformation?  That's really the question.  

Are you at the table or not, sir?  

MR. HARRIS:  I will come to the table.

MS. ARNOLD:  Okay.  

MR. HARRIS:  I think this has been so helpful, I think, to everybody in the room is because Customs has in fact gone through this process over the years and developed criteria that are intelligible.  

I do hope that at some point in the discussion we get to the point of who enforces these requirements; whether after it leaves the port FTC has to enforce it; or whether Customs has done its job after it leaves the port.  

I think all of the discussion as to definition is helpful to us, and Customs has the advantage of knowing where they are on this thing.

But is there a point that we come to where we decide whether or not these are going to be enforced in the U.S. market?  

MS. ARNOLD:  Are you going to be with us tomorrow morning?  

MS. GETHERS:  Yes.  

MS. ARNOLD:  Okay, do you want to make a brief reflection on that comment or should we --

MS. GETHERS:  Yes.  We still maintain jurisdiction to enforce the requirements so long as the good is a foreign article.

Now, whenever something is concerned to be substantially transformed here, and it is no longer a foreign article, then we no longer get involved in enforcement.  

MR. HARRIS:  May I say then, ask you again, it is Customs policy that as long as it is a foreign article, that is, requiring foreign identification, that Customs is actively engaged in the enforcement of that requirements?

MS. GETHERS:  To the extent that we have the knowledge and ability, yes.  

MS. ARNOLD:  Any other questions?  

Sandra, you were so clear.  No one has a question except for Richard, Michael and Joel.

(Laughter.)  

MS. ARNOLD:  It just took a moment for you all to wake up.  After lunch blues, I know.  

MR. ABBEY:  Dick Abbey, Stanley Works.

This is not so much a question as a clarification.  And, Sandy, if you disagree, please jump in.

The substantial transformation test as Sandy described it is applicable now to all goods and merchandise coming from all country other than Canada and Mexico.  Goods coming from Canada and Mexico are subject to the NAFTA rules of origin that both Michael and Sandy have described based on tariff shift or tariff classification change approach, plus, in some instances, the supplemental criteria of regional value content.

And Customs has proposed that the tariff change, classification change approach, minus the regional value content test now proposed as adopted for NAFTA country of origin determinations, that for country of origin marking that particular test.

And as I clarified that, I probably confused everybody.  I probably confused everybody else.

MS. GETHERS:  I think you did, Dick.

MR. ABBEY:  Confused, I am sure. 

MS. GETHERS:  Because we just didn't do that.  We created new rules altogether.  We didn't take the NAFTA preference rules and just wiped out the value content.  We looked at each product and developed tariff shift rules which would reflect a substantial transformation before tariff shift rules were even thought about.  

So it wasn't that simple.  

MR. ABBEY:  Well, if it wasn't quite that simple, but you have -- you have created tariff classification shift or change approach?

MS. GETHERS:  Yes. Yes.

MR. ABBEY:  All right.  And you propose to use that same approach -- 

MS. GETHERS:  Exactly, yes.  

MR. ABBEY:  -- for all country of origin marking determination.  

MS. GETHERS:  No, all origin.

MR. ABBEY:  All rules of origin determinations.

MS. GETHERS:  Yes.  Right.  I made that clear.

MS. ARNOLD:  Tried to.

Okay, Michael?

MR. THOMPSON:  Maybe this has just been mentioned but I want clarity on this.

You mentioned that Customs uses the NAFTA marking rules in what context? 

MS. GETHERS:  For goods that are processed in Mexico and Canada.

MR. THOMPSON:  And only for Mexico and Canada?

MS. GETHERS:  Right.  

MR. THOMPSON:  Okay. 

MS. GETHERS:  Right.  As of right now, yes. 

MR. THOMPSON:  If NAFTA were extended to Chile or some other country, would you then extend the rules there?

MS. GETHERS:  Well, we would have to have a whole new set of rules created for then.  

MS. ARNOLD:  Robin, are you commenting on this point, I have five people who are waiting in line.

MS. LANIER:  Well, no, I just wanted to make one quick, quick comment because I see some blank stares around the room.  I think there is some confusion here.

There is a different set of rules for NAFTA preferences, whether you get the duty free treatment,  and NAFTA marketing.

MS. GETHERS:  I appreciate that.

MS. LANIER:  Yes, I am not sure it's right up there.  I can't see the bottom half of it.  

MS. GETHERS:  Yes, that's right.  

MS. LANIER:  Is that right?  

Okay, I couldn't see.  

MS. GETHERS:  It's certain marking in that last one, so it's current NAFTA marking rules.  

MS. LANIER:  Yes, it's just -- it didn't say.

MS. ARNOLD:  That was silent. 

Okay, let's go back to our -- okay, Joel.

MR. PLATT:  Joel Platt from BGE.

Sandra, some of my comments may seem critical, but having been a federal regulatory attorney for a number of years before I went into business, I noticed when I was with the federal government that sometimes federal agencies take a rather anti-business point of view, and I think this is a very important point because I think it's the application.

The standard seems very reasonable.  It's the application of the standard.  If one is taking a anti-business point of view that results in, I think, unfairness.  And an example in our industry is that there was a ruling requested by another company in the collectible plate business several years ago.  And Customs determined that there was no substantial transformation.

And here we have a product where the blank is imported as dinnerware.  The final product, if it were imported, would be an art and ornamental object.  So it's definitely changing name.  And our consumer survey shows that 97 percent of our customer say that they would not use the blank product in the same way that they use the collectible plate, and 97 percent say that the two products don't have the same characteristics.

So I think too frequently Customs and other regulatory agencies try to find a way to rationalize a holding against the American business, which I don't think is fair to the consumers or to the businesses.

MS. ARNOLD:  Okay, I have been really curt with many others of you where I thought you were moving on the definitional movement to pros and cons.  And so I am going to ask those of you who are going to make comments now please hold your comments to questions of definition.

And then I want to jump, I want to launch into a discussion of the "virtually all" standard.  I can't wait to get there.  So, please, David, Tim, Robin, Jan, what are your questions, Deborah, about the substantiation transformation definition?  

David?

MR. LEVINE:  This "David" over here?

MS. ARNOLD:  Yes.  The only one in the room right now, David Levine.

MR. LEVINE:  Sandra, I don't want to put you on the spot, but you have mentioned the WTO harmonization effort, and to add one more point to your definition.  There may be a new one, and this discussion may all be premature.

As I think, like a lot of other people in the room, my constituents are interested in getting some consistency. And if the Customs standard is where things are headed or if Customs itself is headed somewhere different, consistency we reach here is going to change when the world harmonizes its rules of origin. 

MS. GETHERS:  Well, this was just a notice because we have no real control over what comes out of the WTO.

MR. LEVINE:  I understand that.  

MS. ARNOLD:  Is this a definitional question, David?

MR. LEVINE:  I was going to ask you, if you could, to comment at all on how this definition might coordinate with harmonization efforts?

MS. GETHERS:  Well, I can say that the way the proposals are being developed the ITC is coming out with the initial drafts for the U.S. proposals.  They are giving them to us.  We are reviewing them.  And, of course, we are reviewing them from our perspective, which is the definition of name, character and use, and how we've interpreted a change of origin.

We are giving them our comments, and sometimes those comments are incorporated and maybe sometimes they are not.  But that's the frame of mind that we are coming from.

So from that perspective you do have some consistency, at least, from the starting point of how we are making proposals to the WTO work project.  

MS. ARNOLD:  Okay.  Tim?

MR. HARR:  You have been talking about nonpreferential tariffs.  Is it correct that you may continue to have slightly different rules for things like the Caribbean Basin, Israel and other places where there are tariff preferences?

MS. GETHERS:  Well, only for purposes -- you are talking about if the uniform rules of origin proposal is adopted, because right now we are -- we always have had the same standard for those projects as we have for country of origin marking.

What you are speaking is an additional requirement for value content.  But the same origin criteria existed for all of those programs as well as country of origin marking..

MR. HARR:  Thank you.  

MR. PELLEGRINI:  Abby, this is the question.

MS. ARNOLD:  But five people are in front of you.

MR. PELLEGRINI:  I'm sorry.  

MS. ARNOLD:  Who want to make comments.

Robin, Jan, Deborah, Kim and Joel.  

MS. LANIER:  I think I have made my comments.  

MS. ARNOLD:  Okay.  

Jan?

MS. ARCHIBALD:  Sandra, would you just clarify that for the WTO negotiations, when you are looking to define the rules of origin, you are doing it for a variety of purposes, not just country of origin marking; is that correct?

MS. GETHERS:  The rules will serve a variety of purposes, yes.  

MS. ARNOLD:  Thank you.

Okay, Deborah.  

MS. SWARTZ:  Sandra, I wonder if you would just clarify something you said earlier because I think it's an important point.  And that is, with respect to determinations both under the NAFTA marking rules and substantial transformation the value of domestic content, the amount of content is not necessarily the most important factor.  And, in fact, you could have situations where you have very little labor, very little domestic content, and still meet substantial transformation, and the NAFTA marking rules; is that fair?

MS. GETHERS:  That is a possibility because the main character and use test does not necessarily equate to high cost and labor.  We have actually got a lecture out of the judge in the Data General case with this programming of this PROM, because we lost this case, and we were arguing that this was not a substantial transformation.  It's just too simple.  The creation of the chip, we said, was the fabrication, and it was not changing, it was still a chip.  

And the judge says, well, why should you penalize advancement of technology?  This is creating something that has a totally different function.  It can't go back.  And so for that reason it was a good argument on changing the essence of the article.

So because of that we are not focusing on how much it cost, we are not focusing on the time, and that's why we have been discounting the factor of value.  

MS. ARNOLD:  Okay, Kimberly and then Joel, and then we will move into our --

MS. KORBEL:  Kimberly Korbel, American Wire Producers Association.

My question is also one of clarification.  You seem to indicate that after a country of origin determination has been made, and there is a substantial transformation test that has been met one does not have to mark with the foreign country of origin, but one may not yet mark "Made in USA."  However we have changed the country of origin.

MS. GETHERS:  You have changed it for the U.S. Customs purposes and origin identification.  As I said earlier, maybe this whole issue with "Made in USA" should not be considered a origin issue insofar as what the FTC requires as opposed to a claim.  

MS. KORBEL:  But that same product which is re-exported would have to be marked "Made in USA" to be exported to Canada or to Mexico or any of our other trading partners.  

So for the purposes of exports it is a made in the USA product.  For purposes of country of origin, it has been determined to be a product made in the USA, but it may not be marked made in the USA because it does not meet the "all or virtually all" test of the Federal Trade Commission?

MS. GETHERS:  Whatever the test is.  

MS. ARNOLD:  Okay, Joel.

MR. PLATT:  Yes.  Sandra, you mentioned that the uniform original proposal is under consideration.  

Do you have any idea when the Customs Department might make a decision regarding that?

MS. GETHERS:  No, I don't.  

MS. ARNOLD:  Gail?

MS. CUMINS:  Just one, perhaps, clarification which is the exception to the substantial transformation test for goods returned, you might want to -- in other words, if you take a product to the United States, ship it overseas for nonsubstantial transformation, and bring it back, it becomes a product of the country where it last underwent processing.  How does that --

MS. GETHERS:  Are you referring to the marking rules?

MS. CUMINS:  Yes.

MS. GETHERS:  There is a section in the marking rules that basically says that if a U.S. good is exported, and it's advanced in value, improvement and condition, it's going to be an article of foreign origin coming back.

But in that same May 5th Federal Register notice that I just quoted we propose to repeal that, and we will be developing -- not developing -- issuing the final NAFTA marking rules hopefully sometimes within the next month or so.  And that will not be a rule anymore.

MS. ARNOLD:  Okay, thank you.

At least I think we have got a fairly decent definition of substantial transformation.  I am not sure that we all have a clear picture of what we mean by percentage standard or virtually all.  However, we are going to come now and talk about the pros and cons of the "virtually all" standard, and it may be out that it will give us some ideas for those, how to make it -- we need to fill in the gaps, what the definition needs to include if it were adopted.  

Let's take a short break.  Let's get back here by five after, and get into -- launch into this discussion here. 

(Whereupon, a recess was taken.)

MS. ARNOLD:  Phil, you are going to be first.  I made my promise.  

Okay, I interrupted Phil about a hour or so ago, and I promised you that you could start out first on comments on the "virtually all," so why don't you go for it.  

MR. HUTCHINSON:  Thank you very much.

The point that I started to make was that the auto industry is a heavily regulated industry, and that we have various requirements that are imposed upon us that have to do with that issue that we are considering here today.  

For example, we have something called the CAFE law, Corporate Average Fuel Economy law, which calculates domestic content.  And under this law you calculate your components and you consider them domestic if they are Canadian or U.S., and if you are over 75 percent, you are counted as a domestic product.

We also have something called the American Automobile Labeling Act, and similarly, U.S. and Canadian components are counted as domestic products under this act.

And I see it in this "all or substantially all" situation, we could have the unusual situation where a product would be considered to be domestic under the CAFE law, or have a very high domestic content, and was in fact assembled in the United States, in fact, substantial transformation had been made, and we would not be permitted to use the claim that this product was made in America.

And I think that whatever the Federal Trade Commission comes up with should take cognizance of other laws that impact industries like the auto industry, like the CAFE requirements, and like the labeling act, and not provide a conflict situation with these other statutes.

MS. ARNOLD:  So your concern is reconciling a "virtually all" standard with CAFE and AALA, and other laws?

MR. HUTCHINSON:  Well, yes.  

Just to give you an example, we have got products like the Mazda 626 made in Flat Rock, Michigan, by UAW workers that is considered a domestic product under the CAFE law, and yet under the "all or virtually all" requirement we would not be permitted to say that this product was made in the United States, and that doesn't make any sense.

MS. ARNOLD:  Okay.  Steve, Tim, and Jan.  

MR. BECKMAN:  Clearly, what we are talking about here is a specific kind of labeling, advertising issue.  This is not a question of harmonizing every U.S. determination of what constitutes "Made in USA" for international origining processes.  And I think it would be a serious error to lump this issue in with the Custom Service's international obligation to engage in discussions about origin, or to harmonize the use of this advertising and labeling claim with requirements for country of origin marking for international trades purposes.

This has a very different history from any other marking requirement that we are talking about in the international arena.  It says something, it has said something to American consumers for a long time.  And the objective of using this label ought to be to maximize -- to demonstrate to consumers a maximum value of domestic waiver, purchasing, contribution to the domestic economy.  That's what people think of buying when they buy a product that's marked "Made in USA."

And we shouldn't be looking for the least common denominator.  We shouldn't be looking for what other people are doing, what other agencies are doing.  There are a variety of uses and objectives in the different standards that exist, and we should be considering this one as it has been and as the FTC's mandate requires enforcing it.

It's not to be confused with the other governmental requirements that exist.  

MS. ARNOLD:  I am trying to, as hear your comments, just jot down for myself and I will share with you as I finish each sheet the pros and cons of the respective standard.

And what I heard you talking about in terms of a pro for the "virtually all" standard is that it clearly illustrates or documents the labor or other values in a product; is that --

MR. HUTCHINSON:  That's right.  

MS. ARNOLD:  Okay.  

MR. HUTCHINSON:  If I could just have one follow on.

MS. ARNOLD:  Of course.

MR. HUTCHINSON:  I think we are really in agreement here.

MS. ARNOLD:  Oh, wow.  

MR. HUTCHINSON:  Yeah, I really do, because what we are saying is take a look at every one of our claims, advertising claims on a case-by-case basis, and look at the truthfulness of our claim on that basis.  If in fact we are a domestic product according to the Environmental Protection Agency, if in fact the vehicle was assembled in Flat Rock, Michigan, by UAW workers, we -- that's what we want to say.  That's what we want to say and we will stand behind that claim.

But we don't think that these other statutes or substantial transformation necessarily should apply.  We want to be treated on a case-by-case advertising basis.

MS. ARNOLD:  Okay.  Tim?  

MR. HARR:  One of the reason that --

MS. ARNOLD:  Could you please use your mike, Tim?  The reporter is really upset with me because I am not being firm enough with that.  So, please, don't get him upset with me.

MR. HARR:  I was saying EIA wanted to play a role here, largely because our members feel that the FTC's old standard is essentially unattainable in our industry, and we therefore think it's a counterproductive standard to have in place because it's virtually unattainable in the electronics industry.  And we think there should be a standard put in that is attainable so it can have some meaning.  It can help customers, consumers, to make meaningful choices in the market.

I think we saw in the surveys that we have today that when asked the question about what "Made in USA" means consumers, to a large degree, said, well, it means they are made here.  It means they are manufactured here.  It means they come into being here.  

We looked at a dictionary definition of what that mean and sure enough, "made" does mean it comes into being here.  

And we would propose that it does not have to mislead consumers at all if that's what they think "Made in USA," to determine what the process is that brings the product into being, which is different in each industry, admittedly, but there is something that each industry does that constitutes making that product.

And if a company goes through those steps in the United States, creates that product from, again, this undifferentiated raw materials, they have in fact made that product in the United States under any reasonable interpretation of that. 

If a chair manufacturer takes raw lumber, carves all the parts of the chair out of it, finishes those parts, puts them, assembles them together and finishes the chair, that chair has been made in the United States by any common meaning. 

We believe that by applying this kind of test you can assure that there are U.S. industries making these products that consumers want to buy U.S. products, will be getting what they are trying to get.

In the electronics industry essentially what a stereo manufacturer does, for example, is take raw components, steel, rubber, transistors, and from those nondedicated could go anyway types of components it creates a product.  

And if the manufacturer goes through those steps in the United States, we believe that that is a product that is wholly made in the United States.  But looking at things like where the individual raw materials come from does not fit in with the consumer perception of what "made" means.  And if you try to force them into some percentages by sticking those in front of him, it may get them to make some choices he wouldn't make otherwise.

But what we ought to focus on here is whether the process of building a particular consumer product that we have is in fact performed by the industry, and that should be the standard, and that it meets this need to fully satisfy the consumer as to what he wants to buy.  

MS. ARNOLD:  Thank you, Tim.

Jan?

MS. ARCHIBALD:  I would like to make a couple of comments and then explain pros for the current standard.

The comments I would make are the following.  First of all, we seem to be forgetting this is a voluntary standard.  Nobody is required to make a claim of any kind about the origin of product they are selling.

And the second thing that people seem to be ignoring is the fact that there is a choice.  You can make an unqualified claim if you meet that standard, but you have full discretion to make qualified claims and, in fact, to tell the consumers whatever is the domestic content of your product.

So it isn't as if it's an either/or choice.  There are many variations that you can develop.  

So then what is the benefit of the current standard?  It seems to me the benefit of the current standard by setting it very high, and I think the current FTC standard is very high with an "all or virtually all," is that it does inform consumers who see that unadorned "Made in USA," that in fact they are getting a product, almost the entire content, all but a de minimis amount, I think, Elaine, you said "incidental" maybe was your term this morning, is U.S.

And if somebody has got a product or if there is a industry where no products meet that standard, well, then it's certainly up to the companies in that industry to use a qualified statement, and then there will be no deception to the consumer, and you will be able to compete on that basis with other companies in your industry.  

MS. ARNOLD:  Jim Clawson, John Pellegrini, Richard Abbey and Roger, and then Robin.

MR. CLAWSON:  I have a couple of comments that I want to make here, and I don't mean to be confusing about all this and bringing in some more thought.  

But what Jan said is absolutely true, that these are voluntary, and that we do have a choice to make them.  There are a number of international standards that are out there beyond the ones that Customs has talked about.

In the Paris Convention on geographic indications, which a country of origin marking is a geographic indication, it says that you can claim a geographic indication, french fries, right, because that's "France," as long as you put a qualifier on it to say where it's really from so that you aren't confusing or misleading to the consumer.

And the problem with the "all or virtually all" and the median wording that we are using is that we are terribly confusing and misleading the consumers of the United States.  And even though you have the choice, and it's voluntary, there are some specific, as you just heard from Sandra, some specific required standards when you say "Made in Japan," made in wherever, to use those same words, or "Product of," right.  And those are required under the standard, and you must do that.

Now, when I voluntarily say "Made in" or whatever, and I now have a 90 or 95 percent standard or whatever, I am really confusing the consumer, and misleading them that in fact that standard for "Made in USA" might be the standard for all other "Made in" or "Product of" products that I am going to buy in the marketplace.

And so what I am suggesting is not that you have to do away with "all or virtually all," but it needs to be, if that's what it is going to be, it needs to be defined with a number, and that number needs to be put in, not in a "Made in USA," because no one knows what it is, but it needs to be -- if it's 100 percent or 90 percent, whatever, U.S. product.  

Because even though it is voluntary and you have a choice to do it or not, as soon as you say "Made in" you have to have some kind of qualifier; otherwise it's like saying Swiss cheese, that's a geographic indication, in Switzerland.  It's not really from Switzerland.  It usually says a product of Wisconsin, or California, or Vermont, or whatever else.  You have to have something else that tells the consumer that it's not really 100 percent Swiss cheese.  And I think the same application applies here.

MS. ARNOLD:  John?  

MR. PELLEGRINI:  Yes, I would oppose, or our group opposes --

VOICE:  Microphone.

MR. PELLEGRINI:  Oh, sorry.  

MS. ARNOLD:  John Pellegrini.

MR. PELLEGRINI:  From the Footwear and Distributors and Retailers of America, largely importers, but some domestic manufacturers.

In the case of footwear under the "virtually all" standard no footwear made in this country could probably have that label.  Most of them have some rubber components.  There is no rubber here.  

Talk about -- you know, and a footwear manufacturer may only import the lining leather.  That's not going to satisfy the "all or virtually all" standard.  You have to have a complete footwear factory in this country where they take all raw materials, both domestic and foreign, and make them into an entirely different article going to three or four processes.  

If you have ever seen a hand sewing operation, you know that's real labor, and you are telling those laborers your product isn't a U.S. product, and I don't think that's fair.  

So I think there has to be some rational approach to this "Made in USA" label, and I don't think qualifying it by saying lining leather from "X" is really a good answer to that in this case.  I probably would make that distinction based upon materials versus components.  But I think that a standard which cuts out entire industries and not permitting them to "Made in USA" claim when virtually all of the labor is done in this country is not a good standard, and I think that's the best argument against the "all or virtually all" standard.  

MS. ARNOLD:  Paul?  

MR. GAURON:  I guess what I would like to do is address Jan and Steve both on a couple of points.

Firstly, the standard is voluntary, but to the extent that manufacturers in the United States are required to label their products for export "Made in the United States," the cost of that is going to be a dual inventory system for manufacturers which adds a significant cost to that product in the United States.  And, you know, the question is what value comes out of that.

The second thing is that, in terms of saying that the Customs standards and the other standards don't matter, this is something different.  Remember the product that comes in, the Swiss watch, the German running shoes, et cetera, that comes into the country is going to be governed, as Sandra said, by the Customs marking rules.  And those -- the consumers in the United States who buy those products are receiving a product that says, "Made in Switzerland," and it doesn't matter whether certain parts of that came from some other country, as long as there was a substantial transformation in Switzerland.

And so we are creating one standard for the consumers in the United States who buy foreign products, and we are creating another standard for those consumers who buy domestic products.

So if there is a qualified claim on that, I think you are leading -- a qualified claim on the domestic product, you are reenforcing the view that this foreign product must be all Swiss, or all German, or all Italian.  And I don't know whether we are answering the cause of consumer clarification, but rather, I think we are creating more confusion and potentially more deceptions.  

MS. ARNOLD:  Richard?

MR. ABBEY:  Dick Abbey, Stanley Works.

Stanley Works is opposed to the "all or virtually all" standard, and we are at the table today because we are in direct opposition with the American Handtool Coalition, who is in support of the standard.  

But the truth is that Stanley and the members of the American Handtool Coalition agree on one thing, and that is that being able to represent the product as made in the U.S. is important to our customers. 

Now, where we part ways, and I think it's very simple to understand, is that Stanley produces its forgings abroad, and the members of the American Handtool Coalition produce their forgings in the United States.  And it goes back a little bit to this question of materials.

The American Handtool Coalition wants to say that if they have produced their forging from foreign steel, then it's still American made.  We admit that we produce our forging from foreign steel, and abroad, but we bring the rough forging to the United States where it is subject to a great deal of processing to produce the finished handtool.

Now, part of being American made is sort of a euphemism for high quality.  It's no question that the handtool consumer, the professional and the advanced do-it-yourself person believes that they want to purchase high quality.  And in support of that, if you take a look at the Bourget research study done for the American Handtool Coalition, you will see that on all issues, high quality materials, low price, high quality finish, strong, durable and sturdy, Stanley either leads or is up there with all the other companies.  

And where that quality and durability and finish come from is the direct result of Stanley's domestic manufacturing operations. 

And so we believe those operations warrant the claim of "Made in USA."

If you take a look at it from the other side, if we are not permitted, if we are not permitted to make the claim "Made in USA," it perpetuates this false impression that somehow the quality, durability, et cetera, of the tool is somehow less than the products that are presented as made in the USA, and consequently that deceives the consumer.

So I think that's an important aspect of it.

The other thing is, and I quote from one of the submissions made by Vaughan & Bushnell, which is part of the American Handtool Coalition, and it says that "The domestic manufacturers -- it permits the domestic manufacturers to continue charging price premiums over a competing cheaper product."  

But if that cheaper product is of equal or better quality, not only are we deceiving the consumer, but we are taking money out of the American consumer's products.  

So I think that the "all or virtually all" standard is in fact a hidden way of saying that products produced here in the United States are better, and it's a standard that has outlived its usefulness, and, in fact, is unfair to the great majority of American companies.

MS. ARNOLD:  Can I just try to summarize the two points that I have put down here and see if I caught what you were suggesting?

Number one, that the concerns that you have with the"virtually all" standard, number one, that it excludes companies who use raw materials or components, and they thereby lose their ability to declare a high quality.  And I'm not sure that's exactly right.

MR. ABBEY:  All I am saying is that we do all our major processing, the processing that gives that tool its essence, its desirability, here in the United States.  But because that forging is abroad --

MS. ARNOLD:  I understand that. 

MR. ABBEY:  -- we are precluded from using that representation.

MS. ARNOLD:  Right.  And the second that I was hearing you, maybe in between the lines, that it could increase the cost of products, thereby hurting the consumers.  Was that your other point?

MR. ABBEY:  I am saying -- I am saying that's a possible method of deception as well as representing something to be made in the USA.

MS. ARNOLD:  And is the flip of that that a potential benefit of the "virtually all" standard, if you meet that standard, is the flip of that that the "virtually all" standards supports the perception of high quality for those companies who can sit under the mark?

MR. ABBEY:  We believe that that "Made in USA" represents high quality, yes.  

MS. ARNOLD:  Okay, thanks.  I just wanted to make sure I caught your points. 

I have Lauren, Mitchell, Michael and Sarah, and I don't have anybody else.  So keep going.  I am listening intensely to you guys.  So who else don't I have?  Robin, Michael.  Abby, you are off the mark here.  Robert and James.

Okay, Lauren.

MS. HOWARD:  Yes, Lauren Howard, representing the Footwear Industries of America.

Our industry strongly opposes the "all or virtually all" standard as being inappropriate in today's global economy.  We do not believe that a different standard would deceive consumers.  In fact, as we heard this morning, few consumers believe that "Made in USA" means that the product is 100 percent made here.  They have a general response that it is just made here.

We think that by not allowing companies who produce products with substantial domestic content you are denying consumers information that they might find useful in their purchasing decisions.

Our industry has been decimated by imports over the last 20 years.  It's a very labor-intensive industry.  It takes about 150 steps to make a shoe.  And most of our -- 90 percent of the products sold in the United States are foreign, and much of our production have gone offshore.  

The few companies that have survived often need foreign components to be competitive with the end product, and the intensive import competition, and they have made significant investments in plant and equipment, and employ a significant number of domestic workers. 

And by having a standard that's virtually impossible to achieve with FTC's position, they are denied the competitive advantage of a "Made in USA" label.

Further, as was pointed out this morning when we were trying to all decide what the FTC standard actually means, at this point in time at least nobody really knows, and even the FTC staff said that it isn't fully developed.  So at this point I think it is certainly too vague to be useful.

And if as Paul said you have to go back to the cow to figure out where each part or material or component come from, it is certainly unadminisrable, and would be a burdensome and costly nightmare to U.S. industries to comply with.  

MS. ARNOLD:  Okay.  Mitchell?

MR. COOPER:  Well, I listened with great interest to Steve's presentation and support of "all or virtually all."  And I am troubled because, as Paul and Lauren have already pointed out, it's a standard which simply would not be applicable to the rubber footwear, as well as the bond rubber footwear industry if in fact his objective is to protect American jobs.  

I would suggest to you that if anyone of you were to visit any of the plants of the three rubber footwear companies here today, New Balance, Converse and LaCrosse, you would see footwear being manufactured in American plants, and there would be no question in your mind as you went through the manufacturing operations in those plants that you were observing American products being made by American labor.  

The problem of the rubber footwear industry has to be put into the perspective of the reality that this is a labor-intensive industry, with wages in the Far East one-tenth to one-twentieth of what is paid by these American companies; that much of the import business is done by American companies such as Nike and Reebok, who make not a single shoe in this country.  

In the case of Nike, for example, they closed their domestic operation despite the fact that this is admittedly a high duty, high tariff industry.  They closed their domestic operation and went abroad.

What you have left in this industry are the survivors who want to be known as American plants and who have every right to be known as American plants by virtue of the nature of their manufacturing process.

On the other hand, there isn't one of these companies who could meet the standard of "all or virtually all."  You cannot be a survivor in the American rubber footwear industry today and rely entirely on American components.  They do not exist.

And this isn't gamesmanship, Steve.  These people are not in a position to say their supplies move overseas, and then send the stuff here.  There isn't that much business to be done to serve as an inducement to suppliers.

The unfortunate fact is that the movement of companies abroad has made it infeasible for some of these suppliers to manufacture some of the components which are required for the manufacture of this footwear.

Moreover, in order to remain competitive with companies who are manufacturing at wages ten to 20 percent of, or one-tenth or one-twentieth, rather, of what is being paid in this country, you have got to be able to price competitively.  And so to some degree it becomes necessary to use some components from abroad.

The question is what is a reasonable standard for judging then whether these companies have the right to say that they are American manufacturers, and it's a term that is very important to them.  They believe strongly in American products for American consumers, and also for consumers abroad who would like to have American-made footwear.  

And our view is what the congressional view was in the crime bill which it put forward last year, which said the test should be "substantial."  The problem is how do you define "substantial."  And to us the logical definition of "substantial" is a majority of the components.  Anything above 50 percent of components made into the final product in this country, substantial transformation occurs when the components become a shoe.  When you have that process in this country with over 50 percent of components from this country, it seems to me you have a logical case for saying "Made in USA."

You cannot, if you want to protect American jobs, if you want to see companies like New Balance, Converse, LaCrosse continuing to manufacture in this country, rather than following the parade to Taiwan, Indonesia, Malaysia, then you have got to recognize that if you want them to be American manufactures with the right to call themselves  American manufacturers, you have to take some of these factors into account, and you can't take them into account if you are going to say "all or virtually all."

MR. BECKMAN:  May I ask one --

MS. ARNOLD:  Since he was talking so directly to you.

(Laughter.)

MR. BECKMAN:  You have got the NAFTA standard which is 50 percent of the value.  You are talking about 50 percent of the parts plus the work that's done in the factories.

What's the percentage of the products that your members are making by the NAFTA definition?

MR. COOPER:  Oh, I think easily 50 percent.

MR. BECKMAN:  Well, what -- 50 percent is low.  I think 50 percent is a terrible standard, but what --

MR. COOPER:  Well, we will talk about -- we will talk about, I mean, I think every company that I represent would be above 50 percent.  There is a certain logic to the 50 percent rule, because it is the rule that other agencies  have used, the rule that the Commerce Department used.  It does meet a substantial test, the majority of the product. You want to talk to me about a standard other than "all or virtually all," let's talk about that, but you haven't.

MS. ARNOLD:  There is dinner.  

Who is going to take them out to dinner?  

MS. SWARTZ:  The FTC.

(Laughter.)

MS. ARNOLD:  No, I will.  

If you guys come to an agreement and I can show that we can do something here.  

(Laughter.)

MS. ARNOLD:  No, I'm teasing.

Michael?  Michael? 

MR. KERSHOW:  I have got two points I would like to make on behalf of our trade association, the Appliance Manufacturers.  I will give them to you first, and then I will give a little explanation.

The first point is that we do disagree with the "all or virtually all" standards for very serious reasons, and a lot of them have already been brought up by this gentleman over here.

And the second one is that we would support as an industry the use of the NAFTA rules of origin as the "Made in USA" standard.

But let me go back and explain the first point.  Our industry is composed of portables and major appliance manufacturers.  Almost every manufacturers who is a member of our trade association has to source some or a fairly minority, but a fairly significant percentage of their parts from offshore.  They just can't stay competitive otherwise.  And a lot of the reasons have to do with worldwide shortages of some components.

I have got a list here of several scores of various kinds of components that we need to manufacture products in this country.  One of the most significant ones is a worldwide shortage of compressors.  There is only a couple of places in the world where you have got major players manufacturing compressors.  

It just so happens though that compressors are a very significant component in any refrigeration product, a refrigerator, a freezer, a dehumidifier, room air conditioner, you name it.  But they are fairly significant in terms of cost, and we cannot supply all the needs from domestic manufacturers, so we have to go offshore to source those.

I can go on and on with a number of other components both in the portables and in the major manufacturing division.

But we don't feel it's fair that because 84 percent of the products that are sold in this country are also manufactured in this country, with the exceptions that I am noting, cannot be labeled "Made in America."  They should have that label.

The policy of most of our manufactures is to try to source products from within the United States, but for quality reasons, for availability reasons, in some cases, reliability reasons, and certainly cost is a factor too, we have to go offshore.

So for that reason we would disagree somewhat with the "all or virtually all," because all or virtually all our members cannot live with that kind of a standard.  We couldn't survive if we survived solely on American sourcing.

The second point is we support the NAFTA rules of origin as the --

MS. ARNOLD:  Why don't we wait for that when we move to --

MR. KERSHOW:  Okay, I can get into that letter.

MS. ARNOLD:  -- this evening's session.  

Robin?  No, I apologize.  Sarah?  

MS. VANDERWICKEN:  Okay.  

MS. ARNOLD:  I will just go down the list:  Sarah, Robin, Michael Gale, Roger, James, Gail, and Cynthia.  

I didn't see you up again, Jan.  Okay. 

MS. VANDERWICKEN  Abby started this off asking us to put ourselves in the shoes of the FTC, and I think that the FTC's mission here hasn't been very much voiced by the FTC representatives because I think they are trying to keep out of this. 

But my understanding is that the FTC is required and obligated to make rules in the interests of American consumers, and that the American consumers have accurate information.  Their mission is not to make things easy for American industry.  It's not to ensure that everybody has competitive rights.  It's to look to the American consumer and see if that person and persons are given the information accurately that allows them to make distinctions between products.

The unfairness, everybody who has spoken against the "all or virtually all" standard seems to be talking about unfairness; unfairness of having too many standards to deal with, unfairness of having competitive, you know, people with low wages competing with them; not being able to take advantage of a preference.  These all imply that there is some kind of right here; that there is some kind of kind of a due process right that is being unfairly taken away from people to not be able to use this standard.

There is nothing to prevent from somebody who is competing with a -- a shoe manufacturer who is totally foreign from saying 70 percent American made.  There is nothing to prevent anybody from saying 50 percent, whatever your percentage is.  And if that gives you a competitive edge because people prefer more American content to a product, then you can take advantage of that.

But to pretend that something is 50 percent American content is American made on equivalent with something that is 100 percent is very confusing.  And I think one of the real problems as public policy kind of matter is that for the FTC to come out and say it's okay for the "Made in America" standard to apply to something which has as little as 50 percent American content can only lead to increased cynicism, increased disbelief, increased inability of consumers to pay any attention whatsoever, and to have any of these advertising slogans or anything else to have meaning.

If in fact you are concerned about people paying attention to what your product is, the long view, I think you would be concerned, is people actually leaving you.  And I think to dilute it in a way that -- what these surveys all showed, if nothing else, was that there is confusion as to the existing standard, and FTC should not be in a position of adding to that.  

MS. ARNOLD:  Okay.  Robin Lanier.

MS. LANIER:  Thanks.

I have a couple of comments.

First of all, representing the mass retail industry, there isn't a consumer product that someone hasn't talked about, possibly with the exception of cars, okay, that our members don't sell.  

MR PLATT:  But soon. 

MS. LANIER:  But soon, yes, at least one of my members is in the used car business now.  Yes, Circuit City.

(Laugher.)

MR. PLATT:   New cars, they have a Chrysler. 

MS. LANIER:  Well, soon we will be selling cars too.  But, no, we do sell handtools, we sell bikes, we sell shoes, we sell appliances, computer, electronics; we sell it all, okay.

And we also are opposed to the "all or virtually all" standard for most of the reasons that you have heard before.  I can tick them off here.  You know, we don't think it's particularly fair or adds to the lack of confusion, okay, that the rule that applies for foreign-manufactured goods is different than the rule that applies for U.S.-made goods.

For example, is it any less deceptive to say that a product is made in Japan if it wasn't wholly made in Japan, or if it wasn't all or virtually all made in Japan, or if only, you know, 50 percent of the product was made in Japan.  We have, for good or ill, decided in the context of foreign products to use a processing standard.  It's called substantial transformation, but basically the Customs Service, in its infinite wisdom, has attempted to try to come down to some assessment of processing.

We think that the continued use of different standards for domestic and foreign products is very confusing.  We do not believe that qualified claims ultimately -- this is really based on our survey results that seem to indicate that consumers really don't rate country of origin very high.  They value U.S.-made products, and I won't disagree with that.  But it's not an important factors in making a product decision for many products; not all products, but for many products that we sell.

So, I guess our feeling is that qualifying claims with all sorts of long disclaimers -- the leather liner is not imported, the this is that, and, you know, 50 percent domestic content, I'm not sure what percentage content means, okay, I'm not sure what it means to the consumer.  I am not sure that those qualified claims wind up being very good advertising.  I am not sure that they wind up being any kind of claim at all.  And I think that's where we come down to it.

I think we need to come to a place where we can have some claims, perhaps 100 percent U.S. made, and then paid in U.S. and something else.  Then perhaps some series of safe harbors, I know we will get to that question later, I won't go into now, that might help parse through this, okay?

But the "all or virtually all" doesn't work.  You can't turn back the clock.  

We in our filing made a point, and made a point earlier today that there is a huge confusion between things that are American made and products that are made by American companies.  A Ford is a Ford, whether it's a Crown Victoria or it's a Windstar, okay.  A Honda is a Honda whether it's a Civic that comes off the line in Merrysville, Ohio.  And I think the consumers do confuse brand names with "Made in America."

There ought to be a way for those manufacturers, footwear, bikes, whatever, who have significant processing in the United States, employ significant workers in the United States, to compete with that; to be able to say you may not recognize my brand name, okay, but we represent value too.

Somebody has suggested earlier that a "Made in America" claim is a voluntary claim.  It certainly is if you are only interested in selling to Americans.  But most of the supplier companies that work with my member companies, and many of my member companies, acting as export trading companies to take good U.S. products, products that reflect U.S. content, into foreign markets.  And when you go into a foreign market labeling country of origin is no longer voluntary.  You have got to put a label on it.  

And this business of having to over-label, telling a story in a sidebar conversation that one of my largest members who sells products in Mexico is in the business of re-labeling.  We don't manufacture these products.  We just re-label them.  We put stickers on them.  

And consumers in Mexico are getting more information about U.S. content than consumers in the United States.  And I think that is really ridiculous.  I think U.S. consumers need to have a reasonable way of knowing the content.

Finally, I just want to associate myself, you may be surprised with what Mitchell said here, about the fact that we do have some industries that have seen some serious import penetration.  My industry is usually blamed for that.  But I think that providing a -- providing a way for them to provide a meaningful claim, not a qualified claim that doesn't mean anything to consumers who aren't paying much attention anyway, is a way of helping to keep American jobs here.  And I think that we keep our eyes on that particular prize.

VOICE:  Here, here.  

MS. ARNOLD:  Michael Gale.

MR. GALE:  I am Michael Gale with the American Apparel Manufacturers Association.

We are covered by the Textile Fiber Identification Act.  That act has an identical standard for what we are talking about today.  It's all or virtually all.

By background let me tell you a little bit about the association I represent.  We represent approximately 70 percent of the garments manufactured in the United States.  Import penetration has ravaged our industry.  Approximately 50 percent of the apparel that people wear in the United States today are imports.  

Our members manufacture in the United States.  They also manufacture abroad. They also source from overseas.  Our companies have had no problem complying with and working with the "all or virtually all" standard.  The industry has been -- our industry is relatively united on anything, but the one thing that we appear to be united on is how the "all or relatively all" standard works in apparel.

We are very comfortable with that standard.  We have been operating under it for a number of years.  We are concerned that if there should be a change in the "all or virtually all" standard for other products, it will leave confusion in the marketplace as to how it might apply to apparel, which will only increase Robin's problems, not solve them.

So we would be opposed to any modification of the "all or virtually all" standard.  It's worked for us.  We think it can work for other industries.  Just because you are an American manufacturer doesn't mean that you have to manufacture in the United States.  It doesn't mean that you can't manufacture in the United States.  And I think there has to be a differentiation made between American manufacturers and products made in the United States 

MS. ARNOLD:  Okay, thank you, Michael.

Roger?  

MR. REYNOLDS:  Okay, as you are all aware by now that a group of 20 attorneys general support the "all or virtually all" standard.  

I just want to respond to what I have perceived as some misrepresentations of the "all or virtually all" standard.  I keep hearing people in the room saying that they are not permitted to disclose to consumers the domestic content of their products.  I keep hearing that this denies consumers information.  That is a blatant misinterpretation of the "all or virtually all" standard.  Not one person in this room has proposed denying the ability of anyone to make a made in the USA claim so long as they disclose that the product is not entirely made in the USA if that is in fact the case, so long as they disclose their significant foreign content.

If it's important to a consumer, if a consumer is buying a product based on the fact that it is made in the USA, it will no doubt be crucial to that consumer that perhaps the sole of a shoe was not made in the United States.  That may affect their decision, that may not.  

If consumers are as well informed about the international economy as many people seem to think they are, then they will understand that that shoe helps American workers.  If they are not, then they will very likely be deceived that the entire shoe is made in the USA.

I have also heard that the "all or virtually all" standard will add to the confusion.  That's another misrepresentation.  By requiring disclosure of claims, it adds to the information the consumer has to make their purchase.  This doesn't add to the confusion.  It does exactly the opposite, in that it allows a consumer who wants to make a purchase based on domestic content to actually know what that domestic content is. 

I believe when I walk into a store and when a consumer from Connecticut or New York or any of the other states walks in a store they have a right to know what "Made in the USA" means.  If you are saying, please, buy this product because it supports U.S. labor, they should know to what extent that product supports U.S. labor, and to what extent that product supports Taiwanese, Chinese, Mexican, or the labor of any other country.  

I also heard someone say that qualified claims are not good advertising; that qualified truthful claims are not good advertising.  That may be true.  But the FTC and the state attorneys general are not in the business of making sure businesses have the best marketing devices.  They are in the business of making sure consumers have access to information, and that advertising is truthful.  

It's often a very true reality that deceptive advertising is good advertising; that it sells products.  That's why the FTC is here.  That's why the attorneys general are here.  

I have also heard concerns that some industries simply cannot meet the "all or virtually all" standard.  If this is in fact the case, which I don't doubt, then that industry simply can't use claims that imply that they do meet the "all or virtually all" standard.  They can use claims, and there was an automobile example.  Mazda can use the claim this car was made in Michigan using UAW workers, and was assembled in the USA.  That's a truthful, nondeceptive claim, and I think that's a very powerful, truthful marketing device. 

And unqualified "Made in the USA" might be a powerful marketing device, but consumer perceptions have shown that it's not entirely -- that it's not consistent with the FTC's deception standard, which has been the standard traditionally applied to these claims.  

And I just wanted to correct some of those misperceptions because some people like Jan and Steve have made all these points before, but people continue to represent that they are not allowed to market their products based on U.S. content, that is just an untrue statement.

MS. ARNOLD:  Okay.  

MR. PALMQUIST:  Jim Palmquist, 3M.

I have to respectfully come down on the side of being against the "all or virtually all," and I want to point out a few key points and a few responses to what Roger just said, and some of the other very well-spoken statements here.

And in doing this I give my sympathies to the FTC to work things out.  Clearly, I am coming from the standpoint that I don't think that the "all or virtually all" is the reality of what we are now or where we are going to go.  It was at one point, but I don't think we are in horse and buggies anymore.  We are in automobiles, and I think the "all or virtually all" is he equivalent of the horse and buggy.

Deception, I think, is the total wrong point to be looking at this because we spent the entire morning finding out that for virtually all of the studies that in fact the perception is that the "Made in USA" is something less than the "all or virtually all."

So to focus this on the deception angle, the consumer studies that we have so far says that there is no deception.  Therefore, under that it would be perfectly all right for New Balance to in fact be making the "Made in USA" on the basis at least that they are not deceiving what the consumers think they were receiving.

Next, I want to talk just for a minute about the voluntary thing, and in doing I need to just take a second because I think one reason that perhaps I was invited to sit at the table is that in a sense my company represents a diversified fund by itself.  

The products that we produce are in the communication areas, the imaging area, construction products, electronic health, personal care, consumer, industrial, office products, safety, security, transportation, dental.  I perhaps, more than anybody here, do not come from a single product line or single market focus.  

Robin and I deal together, and, in fact, speaking about Robin, that's precisely what I want to do, because for a second I want to talk about this concept of voluntary.

Again, it's been kicked around repeatedly here that this is a voluntary standard, and you can simply choose to do it or not.  I think that's closing our eyes to what is happening right now in the real world and where we are going to go.

3M and the companies in our position serving the people that we sell to, and the mass retailers, are being told that we must develop multilingual labeling for the products.  Those retailers are not confined to the United States anymore.  They don't want U.S.-only labels.  They are insisting and writing in the contracts that we are going to have to supply them with multilingual labels for Mexico and Canada.  

Sandra told us earlier that if you have a product that comes into the U.S., and in fact under the substantial transformation is substantially transformed, when that product is exported to Canada it is going to have to have a "Made in the USA" on it.  

So for us to have a multilingual label, that one panel is going to be in compliance with the Canadian laws, it's going to have a "Made in USA" on it.  If we have a different standard for the U.S. label, we, in fact, I think, are going to be leading down the road to tremendous customer confusion if we don't watch it out.

I talked before about the burdensome issue of the "all or virtually all."  I won't repeat that other than to again stress that for a company such as mine if in fact we are going to try and track all of those items back, we're talking something in the neighborhood of 600,000 components or raw materials that we would have to constantly keep track of.  

And the funny thing is I would acknowledge, and I think we really do have to acknowledge the dangerous tone that is coming with now applying this standard in this day and age.  But we do have companies here, fortunately I am not one at the moment, but I can see it coming if we continue down the track, that to apply the "virtually all" would in fact encourage us to close U.S. companies because there is noh reason that exists, minus that, to have that U.S. company.  

And I don't think we want to be encouraging proposals and regulations that would have even the possibility of that.  And I believe the "all or virtually all" does.  

Having said that again, again I want to go back and say that the people who have presented those views, I think, have done so with great intelligence, and I understand that view.  I just don't think we want to adopt that as we move into the next century.  It's not going to serve us well.  

MS. ARNOLD:  Gail? 

Let me walk through the people so you all know when you're coming.  It's hard because it means that you have to make comments from people's comments 10 minutes ago, but let me try.  Gail, Cynthia, Dan, Jerry, Michael, Elaine, Michael, John Pellegrini, David, Lauren and Paul.  So we can just keep going around the table, or floating around the table, but we are going to do it this way for awhile.

Gail?

MS. CUMINS:  I am Gail Cumins.  I am appearing here today on behalf of the American Association of Importers and Exporters.  

Our membership is well over 1,000 companies, and they earn their livelihood through importing, through producing in the United States, and with more and more frequency through exporting.  

We are opposed to the "all or virtually all" standard.  Why are we opposed?

Well, first, and I think it became very clear by looking at the survey results of today, that is not a standard which is consistent with the consumer perception in the United States.  I think every survey, without exception, showed that the majority of consumers do not read "all or virtually all" to mean close to 100 percent U.S. content.

That being the case whatever standard this commission ultimately adopts you have an education task in front of you.  And so long as that education task is performed with diligence and with clarity the consumer will understand when they are buying something that says "Made in USA" what that claim means.  

We are opposed to the standard because we think its outlived its usefulness.  I haven't heard a single representative at this table, representing bicycles, footwear, handtools, home appliances, consumer electronics, automobiles, suggest that they are engaged in an industry that could meet the "all or virtually all" standard.  

So what is the basis for having a standard that might only amply to someone who is breeding cattle or raising horses?  

In today's multinational environment there are very, very, very few companies in semi-manufactured products that could meet the "all or virtually all" standard.  

So in any event, the standard should reflect a realistic common denominator as to what is taking place in industry.  Certainly you want to protect the U.S. consumer.  But you also want to protect U.S. producers, U.S. workers, and that means, to the extent that you can give producers who do more in the United States than anybody else, and who are committed to that, a competitive advantage, you should do so.  

You should not burden them with dual marking systems.  You should not burden them with hiring reams of accountants to justify a 50 percent net cost.  If it is American from a marketing point of view, then it should be so displayed.  And as far as deception goes, as long as the guidelines make it clear, for example, the Commission is considering changing from in "care" labeling from words to symbols.

One of the things which will accompany that change is an industry-supported education process.  Therefore, I don't think we need to be involved with consumer deception.  We need to do what is realistic, and no one has shown me that "all or virtually all," at a 90 percent or higher threshold applies to any industry in this room.

That being the case, it's not a practical standard in the global economy that we are in.  

MS. ARNOLD:  Okay.  Cynthia?

MS. VANDERWICKEN:  I just wanted to say again, representing the National Electrical Manufacturers Association, and I have two points to make.

First, a majority of our manufacturers, their products actually never see the consumer.  They sell their products to customers who are manufacturers, final manufacturers.  Many of our manufacturers product components.  And talking about the "all or virtually all" standard, these component manufacturers are opposed to it because of the administrative burden falls on them.  And it is so difficult and costly and really unattainable the decision is made to not even try, because you are talking about counting screws and widgets, and looking at huge inventories that have bought parts from around the world, and trying to translate that into something that makes sense, and that is accurate and defendable, to then sell it to their customer who is a final manufacturer so they may or may not try to find a percentage that falls under the current standard of "all or virtually all."

And so we are not here, it had been brought up, you know, that the FTC is not here to help the manufacturer, to help advertising or defend the manufacturer, and we understand that, and we don't expect or need them to.

But the FTC, the current standard is actually preventing the consumer from receiving accurate information because the manufacturer and the component producer have made a decision that it is too difficult to make -- to try to even start.  And so the consumer never knows.

And so you are leaving out whole industries like the electronics, or the manufacturers who buy our components.  You leave out those industries from being able to represent their products as made in America because it's not even administratively possible to attempt that. 

A second point is that some of our manufacturers are end manufacturers, for example, our lighting equipment manufacturers, face this difficulty also of just focusing on domestic content.  I think the easiest way to explain this is just to use an example.

Our fluorescent lamp manufacturers, probably the actual content of the whole lamp equals about 10 cents.  But the manufacturing process that occurs in this country, in the investment, technology, and capital, and it's not labor intensive, but some labor, it's more of a capital-intensive industry.  But that investment equals millions of dollars that happen here in this country to take basically useless components and manufacture them.  We are not talking about assembly.  We are not talking about just sticking things together.  We are talking about high tech manufacturing processes that occur; that anyone on that line feels they are creating American product, but yet they are unable, again because there is no recognition of the importance of this process, they are not able to call it made in America.

And I would also have to say that, you know, in the end our manufacturers feel -- we understand it's voluntary, and don't use the standard because they have a lot of faith in their brand, and feel that in the end it's their brand that is the best reflection of quality, and they will depend on that.  

But the frustration comes more from they feel they are making an American product, and that their consumers should know that this is an American product, but yet are prevented from telling them.  

MS. ARNOLD:  Okay.  Jan, and then Jerry, and then Michael.  

MS. ARCHIBALD:  Thank you.

I feel like I should ask for equal time since there is only a few of us who are arguing for this standard, but I will try to address as many of the issues as I can that have been raised briefly.

One issue that a couple of people raised was the issue of whether or not there should be a harmonization in the standard that is applied by the FTC for "Made in USA" claim, but the standard that Customs uses, for one, something must be labeled "Made in India," to take an example.  

And I think the answer to that is no, and it's no for two reasons.  One, I haven't seen any study that suggests that it is of material importance to consumers when they see something that says made in a foreign country to know exactly how much of it was made in all the various foreign countries that it may have come from.

But we do have consumer surveys that suggest that consumers attach a lot of importance to the question of "Made in USA," and, in fact, I would suggest even without those surveys the fact that this many people are sitting in this room for as long as we have, fighting or best for the right to use this statements, means that it's important.

But now let's talk a little bit about the Customs rule and why I think it's inappropriate.

The Customs rule of origin, as Sandra has very, very well, and very articulately pointed out to us today, serves a number of purposes.  First of all, let's remember, it's a requirement.  It is not optional the way the FTC "Made in USA" claim is optional.

MS. ARNOLD:  Jan, are you going to -- I want you to have your time.  My suggestion would be that you save your discussion of the negatives of the Customs rule, but give us more reasons --

MS. ARCHIBALD:  But, no, somebody has said that the reason why "all or virtually all" should not be used is because it's not harmonizing with the Customs rule, and I want to explain why I don't think there should be a harmonization with the Customs rule.

MS. ARNOLD:  Let's be brief on that one.  I would like you to run down all the negatives that come out, and if you all have ideas about why these negatives aren't, let's talk about them.  So let's try to encapsulate your --

MS. ARCHIBALD:  My point is it's irrelevant for the "all or virtually all" rule that there be harmonization with the Customs rule.  The Customs rule serves other purposes.  They must determine one country.  It is a requirement.  So they have to look at other factors than just what is the consumer perception.  

For "Made in USA," the issue is consumer perception.

MS. ARNOLD:  Okay.

MS. ARCHIBALD:  It has also been suggested that it is necessary to abandon the "all or virtually all" standard because we have to harmonize with the rules of origin of other countries.  Again, I disagree.  

First of all, not every other country requires country of origin marking as the U.S. does.  Several people here today have said that in Canada you must mark your produce "Made in USA" if it was substantially transformed in the U.S.  That is not necessarily true.  

Canada requires marking for certain products and certain products only.  

Thirdly, in many other countries there are very varied requirements of what must be on a label for consumer protection reasons.  They are not identical across the board so you are going to find when you are exporting, if you are exporting to a variety of countries, you are going to have to be labeling anyway because you are going to have to meet a variety of very disparate standards.

Third, someone has suggested, I believe it was Dick, that the concern he had was that even though he uses foreign forgings, and foreign steel, that he has high quality in his product, and that by being forced to use the current "all or virtually all" standard he is not able to convey adequately to his consumers the quality he has got.

Well, the answer to that is, Dick, educate your consumers.  Tell them that foreign forging and foreign steel is a good quality product.  The answer is not to tell them it's an American product.  

Gail has suggested that there is nobody in this room who can meet this standard, and I want to go on the record as saying that is not correct.  In fact, the American handtool industry feels that it can for many of its products, not every single one of its products, but certainly all the ones that it marks, does meet the standard.  

You are suggesting that the standard has outlived its usefulness.  My response to that is if its outlived its usefulness, we wouldn't all be here.  We all want to piggyback on this standard.

Thank you.

MS. ARNOLD:  Okay.  And then I guess, I think at some point I would just like to try to go back and document for you all what I have been hearing.  And that those of you who support this standard want to respond to any of the others at this point, you ought to.  

But let's keep going:  Jerry, Michael, Elaine and Sarah.  

MR. COOK:  Okay, just one procedural thing that we may want to consider.  There seems to be a lot of back and forth and multiple comments made.  Maybe it's just more effective to go around the table, offer one comment, get your one shot and move on.  Otherwise, we may be here for days.

MS. ARNOLD:  No, we won't.

MR. COOK:  Having said that, I would like to start off on the "all or virtually all."  To mimic what Michael Gale said, there is concern we have that any reinterpretation of changing in this go-around of "virtually all," we would be very concerned because there is a precedent, there is an understanding in the world of wearing apparel, I think, and I can only speak from the world of wearing apparel, that there has been a major attempt to try to help harmonize a lot of that because wearing apparel is a very fluid product that does come to the United States and leave the United States.

And just as a reference point, we particularly spend a lot of time with U.S. Customs under the reasonable care concept to help in the exportation, which is just as a regulated area as the importation.  And we find it's absolutely critical in our business survival that there be harmonization.  Our problems today exist where there is no harmonization.

One of the other comments that I would like to go back to is that there seems to be an overly amount of focusing on the concept of deception.  And, you know, from the United States Apparel Industry Council, we are very interested in selling to our consumers what our consumers want.

I would just like to read a little bit from the FTC book here that "The Federal Trade Commission deals with issues that touch the economic buys of most Americans.  In fact, that the agency has a long tradition of maintaining a competitive marketplace for both consumers and businesses."

So we need to keep that in mind.  I would hate to ask for a show of hands of how many people in here actually manufacture or make product.  But keep that in mind when you look around the room.  It is because of situations like this that we are squeezing the domestic manufacturer out.  

It is very expensive to try to constantly come to meetings like this, and most of us are here because we want to understand how this "Made in USA" is going to be used so that we have good consumer information and reasonable care on how we use that labeling so that we use it appropriately.   We try to be a compliant player.  We want to stay on a positive attribution with our customer base.  So we are here for more understanding, more so than trying to effect some type of negative change.  I would just like to go record with that.

Having said that, the last comment I want to make to you all, and keeping this in perspective, is the United States, unlike other countries, is a consumer-oriented company.  We would hate to see the concept of using like the Mexicans, some suggested their labeling concepts.  I think Mexico, and the word that the FTC has done, the Department of Commerce, and particularly the U.S. Customs, in trying to create harmonization under NAFTA is a credit, particularly with the case of the "care" labels that's coming.

So we would like to see more forward thinking in that regard.  And I think that this particular discussion, while it is virtually somewhat unbalanced because, and particularly when you get into the -- we are talking right now about percentage, is it 90 percent, 80 percent.  And I think Sandra, in fairness to the presentation you gave, really hit the core issue, and that it from a customer's perspective, which they are the enforcers of the FTC when it crosses the border, also on the exportation side, and have germane issues in our domestic place, that it's important to keep in mind that the rule of origin through substantial transformation needs to be discussed in combination with "all or virtual."  

It's very hard to have that one discussion with out the other, and that primarily because most products undergo a substantial change.  And it's that value and that content issue which I think you hear the footwear people are trying to explain from their point of view, is that I am having to deal on a global marketplace with global products, and why are you trying to legislate or regulate what content level.  And too often we discount the value added that people put in versus capital, and that's one of the things that seems to be missing in this discussion.

And in the discussion of value added there is a direct labor, there is administrative, there is a design piece, and there is a capital involvement.  And as a manufacturer we would like to see some balance, and particularly in the harmonization area.  

MS. ARNOLD:  Okay.  Jerry, with all due respect, let me ask the group, would you prefer to just keep walking around the table, or is it okay the way we are going?

Okay, the way we are going?

VOICES:  Yes.  

VOICES:  No.  

MS. ARNOLD:  Thanks for the idea though.  

Michael?

MR. KERSHOW:  I think it's --

MS. ARNOLD:  Michael Kershow.

MR. KERSHOW:  I think it's pretty clear that the current prevailing rules governing country of origin claims and "Made in USA" claims have evolved to a point, or at a point where they are very, very different.  That much is clear.  

It's been suggested here that the two really have a fundamental different conceptual basis or policy basis, and, quite frankly, I think that's a totally incorrect argument.  

The country of origin marking statute, when it was passed, and I believe the original was back in 1930, although it might have had its predecessor earlier --

MR. BECKMAN:  1890.

MR. KERSHOW:  Thank you.

But clearly, times were very different.  And if you stop to think about how times were different, I think you may begin to draw some conclusions about what's really, what's really going on here.

There was a time at which there were relatively imported products in the United States, and where the mass of products made here were, my guess is, more likely than not, all or virtually all made here.  There just wasn't a lot of international trade back in those days, for good or ill.

At any rate, if you go to the Tariff Act of 1930, at any rate, when, I guess, the current form of the statute was first passed, and I had occasion to do this some time ago so I know, there are scads of congressional debates and committee reports document in extensive detail exactly what Congress's intent was.  And what they were assuming in passing this statute, it's quite clear that they assumed, number one, that consumers, if given the choice, would prefer to buy American products.  That's all throughout the debates.

And there is even a very eloquent floor statement by some senator or so that I wish I could quote for you, but I can't.  But it's quite -- quite frankly, quite jingoistic in its approach, but the essential point is that what Congress wanted to do back in 1990, very clearly, was to give consumers a basis for exercising a preference for American products.

It's also interesting how they decided to effect that.  In the spirit of the times they did not require American-made products to be affirmatively labeled.  Rather, they decided to put the burden on the foreigners.  

And so there was a requirement, a statutory requirement passed that all foreign-made goods be labeled, and that was for the purpose, again, of allowing consumers to exercise their preference, to make a choice, to be informed, all of which we have heard here today.

And I should point out, as been observed, "Made in USA" claims have remained permissive, and that is, I think, a large part of the problem we are all having here today.  You've got one legal regime that is mandatory from port of product which has a certain set of standards, and one permissive regime for products not subject to that regime, that has a very different standard.  And some argue, I think convincingly, one that's not reachable by a large number of bona fide domestic manufacturing concerns.

After this morning's discussion, I am not sure I know very much at all about what's going through consumers' minds when they evaluate these claims.  I will tell you one thing I know for absolute certain though.  That is, that when a consumer sees a "Made in USA" claim, and a "Made in Japan" claim, they don't see any meaningful difference between the two.  

How could they?  They say exactly the same thing.  They are a straightforward statement of where the product was made.  I would love to hear somebody explain to me how the consumer perceives those as any different.  It's impossible.  It's logically impossible.

And that, to my point of view, argues absolutely forcefully for harmonization of these standards, because we are confusing consumers under the current state of affairs.  Just the failure of the two regimes to connect up in any logical fashion is the source of much of the confusion, I am convinced, that we saw reflected in the surveys this morning.

Finally, just one comment that I can't resist.  It's been urged that because there is a permissive "Made in USA" regime, and manufacturers are quite free, if they wish, to volunteer this information to consumers, that that's a perfect solution here.  

I would argue actually that it's not a very viable solution in the great majority of cases.  If you assume that everyone, all of the players in a particular industry are all similarly situated, they all have basically the same kinds of manufacturing operations, well, then you might expect that industry might be able to all march in lockstep and label their products the same way.

Let me give you a concrete example, but a contrary example.  Let's assume two manufacturers of the same product.  Let's assume they both have very well established U.S.-conative brand names.  I won't give any examples so as not to offend anybody.  But well known American brand names.  And over the years or maybe for all time these companies have imported a substantial portion of their materials or components.

Let's say that you've got two manufacturers.  One of them at this point in time, and who knows where he was years ago, but right now he only adds about 30 percent of the value to the components it imports.  But as Sandra pointed out earlier, it's quite possible under the current Customs' substantial transformation rules for those components to be regarded as substantially transformed, so that the product will not have to be labeled as made in China, for instance, it just isn't subject of country of origin marking. But again, that manufacturer let's say adds 30 percent of the value.  

Let's say that manufacturer's competitor adds 75 percent of the value to its product, but imports, perhaps out of necessity, some components as well.  The suggestion has been made, well, that producer that adds 75 percent of the value can just volunteer that to the consumer and put "Made in USA, contains 75 percent U.S. content."  

It sounds like an attractive solution to the problem, but really think about it.  They have both got great American brand names.  If manufacturer one, the one who adds 30 percent for understandable reasons, chooses to remain silent as is his privilege under the law, doesn't have to say a thing, just let's the consumer believe that his product, great American name, is made in USA.  And I think that probably is the inference of a large number of consumers who see no claim at all on the product.

The manufacturer looking to affirmatively show that he is different from that first one in an important way is deprived effectively of doing it because to put that "Made in USA of 75 percent" is going to come as a great surprise, I would suspect, to many consumers who will see that claim and say, "Company B only adds 75 percent American labor.  Well, I am going to buy Company A's, because they are made in the USA."  And without -- my point is without required disclosure in this context as well there is a tremendous disincentive to companies, number one, who add relatively little U.S. content to say anything, but even companies that do add a lot, if their only way of revealing that is to consumers is to do so in this kind of qualified way, I see tremendous disincentives to their doing that.

MS. ARNOLD:  Thank you.  Elaine, Sarah, Michael Thompson.

MS. KOLISH:  Elaine Kolish, FTC.

I would like to offer a few comments, but I don't want you to read too much into them.

(Laughter.)

MR. COOPER:  Tell us how much.

VOICE:  It's on the record.

MS. KOLISH:  I mean, one of the reasons we've been sort of, like, holding back is that we don't want you to think we have prejudged any position, because we haven't.  We are very open to hear what you have to say.  And as Sandra put it, good government, we want your input on this.

But I will offer a few observations with that caveat in mind, although a few of you have already touched on them, but I will repeat them so that you will think that the FTC is paying attention and listening to you.

Robin inspired me to say this part, which is she was talking about foreign claims, made in Japan, people will think, well, what does that mean?  Is it all made in Japan versus made in the United States claim where we are requiring it to be all or virtually all?

Well, as Jan pointed out, we don't really know whether consumers value a made in Japan claim across the board.  We do have data, lots of data that shows that consumers value a "Made in USA" claim, and your presence here substantiates that claim too.  

What has been part of the Commission lore over the years that went along with the wholly domestic claim was that there was a preference for American-made goods mostly, not always.  I mean, people understand that scotch whiskey is preferred.  The Swiss watch industry will show you surveys showing you that people prefer watches made in Switzerland.  You know, there are a few countries where there are particular products that people seem to have a preference for, at least there is some data that shows that.

The other difference that people haven't addressed, well, one difference is is that people did talk about is that it's required by Customs.  The Customs' requirement has a variety of purposes.  The principal one is tariffs.  It wasn't developed based on consumer perception, although as Mike pointed out, there was a long history where there may have been a preference for American-made goods, and so that influenced how the standard was developed.

But the other factor is that most of those required claims are made on packaging or labeling.  What we learned from this morning's survey data, the FTC study, is that people were more attentive, recalled more highly claims made in advertising than they did in packaging.  Maybe people disregard packaging labels claims a little more, thinking that it's just required government information.  Maybe they are more attentive to advertising claims because they think the advertisers are making a real effort to communicate with their customer about the content of their product.

So I want you to keep that in mind.  That's something we learned this morning, and see if people have reactions to that.

Robin, I think also mentioned, I am sorry to pick on you, Robin, but you said it so articulately, that qualified claims may not be good advertising.

The other thing we learned this morning is that there were much higher recall rates, well, the advertising and the marketing people can correct me if I am right, somewhat higher, somewhat higher recall rates for the qualified claims rather than the unqualified claims.  And in fact those recall rates went up the more detailed the claims were.  

MS. LANIER:  Can I respond just to that because I think I -- because I think I was misunderstood when I said that qualified claims are difficult, or they don't work for people.  

What I really meant by that, only it was said far more articulately than I did, was comments we just heard.  and that is, because it's voluntary, if you ask a brand name manufacturer, Ford.  Okay, I will be not so -- since my members don't sell Ford.  If you ask Ford to get up there and tell everybody that the Crown Victoria has, you know, only 25 percent U.S. content, you know, the current laws notwithstanding, they are going to be reluctant to do that because that cheapens their brand name.

And I am convinced that American consumers respond to American brands.  

In the absence of requirements, the fact that this is not voluntary -- I mean, that it is voluntary in the context of the United States -- qualified claims, if you allow us a qualified claim, it's like saying don't bother.  Okay, I mean, I'll be far more direct.  It's not that it doesn't make good advertising although it -- yes, it doesn't make good advertising for a well-recognized brand to say, "Hey, guys, we know you think we are American, but actually we are not."  In a voluntary world no one is going to make that claim.

So for those companies that are American brand name companies -- I mean, this comes back to something that was asked way earlier this morning, is it relevant that somebody is an American manufacturer.  Yes, it's extremely relevant that somebody is an American manufacturer because it goes to the question of will that manufacturer ultimately feel comfortable in making a claim, okay, if it ain't 100 percent.

And the answer is no, they won't make a claim if it's less than 100 percent so long as that's the only one can make an unqualified claim.  That is not good for American industry.

I put it to you, that is not good for the American interest.  I don't know what -- the American interest is both a consumer interest, the workers' interest, and the interests of the business community sitting here.  Okay, there has got to be a better way.  

MS. KOLISH:  I think you have very good points, but I don't know that all of your points are universally true.  Now, I know there are some manufacturers who currently use qualified claims, 70 percent American made, and do it successfully, and touted that success on the record, although they are not here today, but their comments are available to all of you.

And I also know that maybe they wouldn't want to make a 25 percent American-made claim.  Maybe they would devalue their brand doing that.  But if they are at 70 or 80 percent, or 50 percent, maybe that is a positive thing.  Or if they are an American-made company and they want to tout that part.  There are lots of different ways of making qualified claims.  No one said it has to be 70 percent value.  It could mean manufactured in the United States with imported parts, showing people that American labor was used.  There is no one qualified claim that's being put forth here as being the right claim for everybody.

Advertisers, we know, are very clever and savvy at communicating the message they want to, and we have a lot of respect for your ability to communicate a message that you want to make and do to it in an accurate and truthful way.

But anyway, to move on.  Other people have talked about the notion of dual labeling things and export claims, and how you would be required by NAFTA to mark your goods as made in the United States to export to Canada.

What I understand, and Sandra can correct me if I'm wrong, is that NAFTA doesn't require that, and that Canada itself does not have an across-the-board marketing requirements.  It has marking requirements for some products.  

I understand that Japan, another major trading partner, doesn't have across-the-board marking requirements as well.

So people are making broad statements here about the burden of that.  I would like to hear a more focused argument about how burdensome it really is across the board, because the other data we are receiving doesn't indicate it's across-the-board burden.  And if we are wrong, correct us.  But if it's a more limited burden, tell us what that is so we don't discount it, and we can, you know, accurately take that into account in our assessment.

Somebody else also said that, well, the morning studies show that really there isn't any deception with having a less than 100 percent standard for "Made in USA" claims.  And I agree that the studies show a wide variety of consumer responses.  

Don't read this wrong, but what they also show is that sometimes there is a significant minority of people who strongly disagreed with statements where there was 30 percent foreign production, even though it was assembled here.  That's something we have to take into account too.  I am not saying it has to dictate the result.  What I am saying is I don't think you can just summarily dismiss it like that.  I think you need to consider all these other things.

Other people have talked about the burdens of multilingual labels, and we know that's a burden, and I thank Gail for recognizing our "care" labeling program, because it happens to be in my divisions too, and we do have the symbol requirement out.  And Mike Thompson knows, we are trying to harmonize the energy guide on appliance labels with Mexico and Canada, and we have recently been attending meetings together to that effect.

So we are separately trying to work on harmonization issues to reduce the burden of trilingual labels.  We have done that in the textile rules recently.  We put out proposals for comment, which I hope you will all comment on if you are interested in, to try to reduce the burdens, have a shared registry of information.

So we are trying to be mindful and attentive to these different burdens you are facing, and to address them in different ways.

That harmonization issue can still be separate from this "Made in USA" issue.  

And I think that's all.  Did you want to add anything, Beth?

MS. GROSSMAN:  I wanted to elaborate just on a couple of points that Elaine said.

One is that -- one had to do with the difference between the purposes behind Customs' requirements and our requirements.  I think, to be a little bit clearer about this, we recognize that the marketing requirements of a consumer protection element, as Michael went into, there is a history behind it to suggest that the marking are for some consumer protection purposes.

But the country of origin determinations that underlie the marking requirements also serve other purposes besides just marking.  They serve tariff purposes, and quota purposes, and preference purposes as well.  And so they just don't go to the marking/consumer protection requirements.

I would also stress, as Elaine mentioned, that we are very interested in sort of hard data on what other countries' marking requirements are, and to what extent the marking requirements are widespread, to what extent they are consistent one with another from different countries.  And any information that people can provide to us, you know, either in this forum, if you have it available right now, or later on on the record would be very helpful for us to have good, reliable, factual information on that, because I hear a lot of people coming out that's from different directions saying, "Oh, you know, we can't -- you know, all these other countries are requiring us to have this label, and we have to do different production runs to meet the FTC standards," but without much concrete examples of which countries are requiring that.

That's all I have to add to Elaine.  

MS. ARNOLD:  Sarah, you were next, and then Michael, John, David, Lauren Howard, Paul Gauron, Darlene,  Steve, and Philip.  

You really don't want to have a dinner break, huh?  Okay, let's go.  Sarah.

MS. VANDERWICKEN:  Okay.  Most of what I was thinking of saying has now been said in the interim, but I wanted to just say, and this is more a summation kind of an argument.  But plus is more, simpler is better.  If you are going to talk about different approaches, the "all or virtually all" has the additional benefit of being the simplest.  And I think when we get into the other discussions and we have the 70 percent people fighting the 50 percent people, and so on and so forth, it comes to -- you know, at some point you have got to have something that's recognizable, that can be understood, that is enforceable.  You know, the difference between 70 and 65; you know, having something, that whether or not 90 percent is the floor or if you just leave it on a case-by-case basis of "all or virtually all," and keep the kind of standard you have for other things being incidental, not, you know, substantial, anything but incidental, whatever, that's much simpler; much easier for people to understand, much easier to enforce, and it is in physics' term, much more elegant.

MS. ARNOLD:  Michael Thompson.

MR. THOMPSON:  I just wanted to make two quick points regarding "all or virtually all."  

You heard me say earlier that basically our association opposes that as a standard.  I would like to offer as an example a very real possibility out there for major home appliances.  

There is lots of instances where maybe 70, 80, 85, well over 90 percent of the product is made by a U.S. manufacturer, but we can't take advantage of the "Made in USA" label.

We believe that qualified claims generally speaking can be confusing and they dilute the issue somewhat, dilute the meaning of the "Made in USA" label.  But the circumstances could exist where you have an 85 percent "Made in USA" product, and you would have to label it something like this, that says, "Assembled in the United States with parts from the United States," maybe most of them did come from the United States, most of the time they do, "but with parts also from Singapore, Brazil, Bolivia, Argentina, Dutch Antilles, Outer Hebrides," and a host of other places.  

You know, that's a possibility, because there are literally in some cases thousands of parts in our major home appliances.  And for cases where you have got a few screws and a few brackets and a few maybe toggle switches, but for one reason or another have to be sourced overseas, you have to qualify it.

And so for that reason our member, by and large, have never consider the qualified claims worth very much at all.

I would also like to put in a plug for our portables division.  A high percentage of our members in that division have to source products, major components from offshore.  And the reason that they have, as far as their standard, a 50 percent standard, which is what we will be advocating, is because it doesn't take very many parts in a blender, for instance, to get it close to that 50 percent level.  We have got some very real examples.  I will read you one.  

One manufacturer has a blender they have to source that glass jar.  The particular jar that they use has to be sourced from Mexico.  We have got motors and controls for that same blender that have to be sourced from the Far East because the components just aren't either made in the quantities and the quality, or there is not the availability for those components, and also cost is a factor.  I have to be very frank about that.

So you are quickly approaching that 45 percent foreign content.  For those same manufacturers who want to maintain those levels above 50 percent, it's a great incentive to be able to advertise against the 100 percent foreign manufactured products that come into this country with a "Made in USA" label.  

And very often we don't have a choice.  What we have a choice is don't advertise at all, qualify the heck out of it, which in most cases we are not going to do, or just compete on an even level with all the other 100 percent foreign-made small portables that come into this country.

MS. ARNOLD:  Okay.  John.

MR. PELLEGRINI:  A couple of quick comments.

People from the -- the apparel people didn't say but probably should have said that they are probably the only industry, automobiles may be another one, where they have got an affirmative obligation to show a country of origin even if it's the U.S.  So they are operating under a very different regime.  

And the Commission has a whole series of specific disclosures that have to be made on all products, whether or not made in the U.S, and qualified claims are used quite extensively.  And as far as I know, without much of a problem.

I was interested in Mr. Reynolds' comments about foreign content.  I read the attorneys general position is that they would exclude materials.  In other words, "all or virtually all" does not necessarily include materials, and it's raw materials.  I don't think -- you know, whether leather is a raw material as opposed to the hide, or ore in the ground, I'm not so sure, but that's something we could probably talk about if you went to back to say you don't have to have all the materials of U.S. origin, and you have a "Made in USA" claim, I don't have much of a problem with that.  

Other countries generally require country of origin marking, far less extensive than the U.S., almost always on apparel and footwear.  It is clearly the case in Canada, for example, that you have to have the country of origin on footwear.  It's true in Mexico.  It's true generally, generally in industrialized countries that those kinds of consumer products have a country of origin mark, and their rules are not -- their rule is not "all or virtually all."

A U.S. footwear manufacturer makes footwear in this country must have a "Made in USA" more than likely on any product that he exports, and probably can't have it on most U.S. stuff, and probably could have a qualified claim of some sort.

Finally, to pick up a point that Mr. Palmquist said about the potential effect on U.S. manufacturers of some of these rules.  

We really don't know how these rules are going to affect manufacturers, but we do have a couple of circumstances right now, because of the change in the rule of textiles and apparel, which shows the country of origin of some products to the place of cutting and sewing, to the place where the fabric is formed.  

With U.S. manufacturers of things like linens now label their products "Made in USA" of imported fabric was, who as of July 1, will have to mark their products "Made in China."  Now, they are competing against people who actually make things in China.  Obviously the law is telling them you ought to move your plant to China.  I don't know if that's going to be the impact of this kind of a process.  But the process of the Congress, the rules that Congress passed in the Uruguay Round on these products clearly tells these manufacturers there is no point in employing American workers.  You have to label "Made in China."  Well, that is a real problem.  

MR. KERSHOW:  Could I just make one point of clarification?

MS. ARNOLD:  Sure.  

MR. KERSHOW:  Mr. Pellegrini is right.  We do think that raw materials are not understood by consumers to be made by people, but extracted from the earth in their natural condition, and so we would now propose including raw materials into the calculation.  

MS. ARNOLD:  David.

MR. LEVINE:  I think everybody recognize the comments by the FTC staff that there are some different reasons and different concerns in application of the "Made in USA" policy than there are for Customs rules of origin.

Notwithstanding those different reasons, I think arguably the "Made in USA" policy and its enforcement is a rule of origin.  It's a marking requirement, albeit a voluntary one.  So it is a rule of origin.

Also, notwithstanding the voluntary nature of claims of "Made in USA," what is really going on is that it's being used as a tool of competition, or competitive advantage.  I think that's the main reason we are all here arguing about who gets to use it or who doesn't get to use it.  

It also highlights -- being a tool of competitive advantage, it highlights why as a rule of origin there needs to be some sort of harmonization or consistency with application of this rule and application of other rules.  And I assume we are going to get to application of the WTO agreement on rules of origin, and I think there is a strong argument to be made that the application of the FTC's rules is one that's going to have to be made consistent with whatever the U.S. agreed to do in the agreement on rules of origin.

And again, arguably, that's something that we will require a change, and I think a change that most of us here are looking for is something a lot different than the "all or virtually all" standard.  

MS. ARNOLD:  Okay, I have a suggestion which is, since we are not going to break at 5:30, and we are going to keep going, that we take a break now.  I am just getting to the point of kind of slumping.  And my suggestion is that we take a break now.  

You're not slumping?

(Laughter.) 

MS. ARNOLD:  And that we -- some of you, I imagine, took a seven a.m. or a six a.m. shuttle.  And that we come back and hear from those who have their cards yet to go, and I can go through those names.  And then what we do before we move onto another standard, maybe another break too, is walk through these overheads where I have had to summarize what I have heard, and I am starting to now hear some repeats, and see if we are at least distilling the pros and cons of the standards, so when we come back tomorrow to our discussion of where do we go from here, we've got something to come back to.  We will have some memory, some group memory.  

So my suggestion would be, unless people significantly object, that we take a break, a 15-minute break, and that you not only go and make phone calls, but you kind of stretch your legs and get some air into your lungs.  And then we come back and continue on this "virtually all," try to summarize it, wrap it up, and then move to our percentage content standard.

(Whereupon, a recess was taken.)

MS. ARNOLD:  Let's reconvene, please.  Okay, let's get going, please.  

(Pause.)  

MS. ARNOLD:  Okay, we have got Lauren Howard and Paul, Darlene, Steve, Philip, Jan, Jim and Dick Abbey.  And I know there is at least one observer who is interested in making a comment, and there may be more.  So let's hear the comments.  We will try to summarize where were are with "virtually all," what we have heard about the "virtually all," and move on to the percentage content standard.  We will probably do a break in the middle of the percentage content standard discussion.  

So, Lauren, would you like to proceed for us?

MS. HOWARD:  Yes, thank you.

I would like to go back to the issue of qualified claims, because it's been suggested that Canada passed legislation to allow them to have universal marking requirements like the U.S.  They haven't totally implemented.  They still do it sector by sector.  

But what is happening with Mexico and some of the developing countries where you are seeing more and more what we do being imitated in those countries, and they are more and more imposing import marking requirements country of origin.  

MS. ARNOLD:  Dick?  

MR. ABBEY:  I just want to make a couple of comments.  I have to address the remarks of Elaine and Beth with respect to the Customs standard versus the FTC standard. 

The substantial transformation test data back to probably around 1907.  In 1940, the Court of Appeals in a case called U.S. v. Friedlaender, which is constantly cited by the Customs Service, and at a time before we were concerned with rates of duty, differences between countries, before there were quotas, before there was the steel problem, the trigger price mechanisms, before the modern day said with respect to Customs country of origin marking laws.

And I quote, "Congress intended that the ultimate purchaser should be able to know by an inspection of the marking on imported goods the country of which the goods is the product.  The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them."

I don't see any real difference between that and Customs' responsibility and your responsibility at the Federal Trade Commission.  The purpose is to prevent consumer from being deceived, and Congress has blessed in the as the Customs' methodology for determining that, and I see no real basis for the FTC to take a different position. 

I think the "all or virtually all" standard has seen its day.  We have lived under very many standards in the past, created at times by statutes, but at times by agency regulations, and at times by social mores that have been abandoned, and a new standard has been taken up.  And I think it's time for that.

I will just raise two other issues.  I am sure, I am sure that the people who represent labor would appreciate the fact that we might have a manufacturing operation here where all of us would be working at our desk, and suddenly there is a machine that comes in and it replaces us all, and maybe we have two people left to run that machine.  And that machine may have been purchased abroad. 

Is that still going to be a product, you know made in the USA, assuming that we are turning out a product?  

So, I mean, it's not quite as simple as people would suggest.  

The same thing goes in sophisticated manufacturing systems where a company will be producing parts, components, subcomponents from a great variety of producers.  They dealt with this under the U.S.-Canada Free Trade Act, and they hoped to have resolved -- and they are still going to deal with it in NAFTA.

And that component makers and subcomponent makers  very often use foreign-made products, and yet that finished component, at least to the manufacturers, is viewed as an American part, and will be sold to the final assembler as an American part.  

Are we going to establish a very detailed bureaucratic system for keeping track of all of those?  And will there --- if you have the "all or virtually all" standard, are you going to expect companies to keep track of these things when they represent their products as made in the U.S.?

My comments.

MS. ARNOLD:  Okay, thank you.  

I am aware of the time.  We all decided that we wanted to get out of here between seven and 7:15.  I am concerned that we give as much time as we need to the percentage content standard.  But four or five you want to speak.  I request of you that you be very short, and get to your point.  And if you don't, I am going to cut you off.  You can start early tomorrow.

Jerry, Elaine, Michael, and Deborah.  

Cut them off?  Is that what I am supposed to do.  I'm getting tired.

Jerry, Elaine, Michael and Deborah.  What is happening now is if I had done this three hours ago, you guys would have cut my neck.  Now when you guys --

(Laugher.)  

MS. ARNOLD:  So let's go, quick.  Jerry, Elaine, Michael and Deborah.  

MR. GRIMSON:  I have a comment.

MS. ARNOLD:  Okay, go for it.  Talk into the microphone, please.  Would you give him a microphone?

MR. GRIMSON:  I think there is a way out for a manufacturer who is in the quandary of the 75 percent guy completing with the 30 percent guy, or a shoe manufacturer who happens to have the most domestic content, and it is through truthful comparative advertising. 

And that's not something we are talking about here today, but if the problem is the consumers identify with particular brand names that are associated with the United States, or traditionally known as U.S. brands, and that in effect has changed over the last 10 or 20 years, why can't a New Balance say "We have the most domestic content of any athletic shoe"?  Or why can't a bicycle manufacturer say, "Our bicycles have the highest domestic content"?  Or a Toyota Camry maker say, "Did you know that GM's mid-sized sedan is actually made in Mexico"?  

Assuming those are truthful, that's a way of educating these consumers who apparently are putting manufacturers in a box.  They don't have to stay silent and sit idly by while consumers operate under this misperceptions. 

That's my point.  

MS. ARNOLD:  Great.  Thank you for your point.

Elaine?

MS. KOLISH:  Elaine Kolish, FTC.

Thanks for that comment about comparative advertising. The Commission, of course, is an ardent believer in comparative advertising, truthful comparative advertising, and that's a very good point.

Abby may yell at me because maybe this goes to the substantial transformation issue which we will discuss next, but many of you -- many of you in opposing the "all or virtually all" standard have touted the other standards that have been adopted by government agencies such as substantial transformation, pointing out that it's been thoroughly vetted and, you know, tested time and true.

One of the things I want to ask you about is that under the Uruguay Round Agreement Act, and people who may be more knowledgeable can correct me, is that, as we understand it, that Act, which our government has signed on to and many other governments, permits domestic content claims to be held to a higher standard than imports.  

So other countries may in fact be adopting higher standards for a "Made in Canada" claim, or "Made in Japan" or "Made in France" claim.  So there may not be harmonization for domestic claims anyway. 

And I want to ask you what implications it could have for us.  And the reason I think it's important is that many of you have asked us to think about the WTO standards.  They are not here yet, of course.  I think it's a good idea for us to think about them down the future and, you know, the Commission is committed to reviewing its regulations at least once every 10 years.

And although this isn't a regulation, it's on that time table.  Obviously, the Commission is very interested in keeping up to date.  

Now, many of you are talking about bureaucratic systems.  The Commission, I think, has sort of been a leader in regulatory reform and we have repealed about 25 percent of our trade regulation rules and 25 percent of our guides that we thought were outdated.  So we want to stay up to date.  And, you know, of course we are going to think about the WTO. 

But what we know is domestic content claims can be held to a higher standard.  And I want to know what you think about the implications of that for us here.  

MS. ARNOLD:  Can we go into that in a further discussion of substantial transformation?

MS. KOLISH:  Sure, I just wanted to put it out there so they know it's an issue.

MS. ARNOLD:  As a homework assignment.

(Laughter.)

MS. ARNOLD:  Michael and then Deborah.  Short, Michael.

MR. THOMPSON:  I will keep it real short.  I have got two quick points.

There was a comment made over here that we probably have a compressor factory someplace.  Well, if we, we don't focus on component parts for the most part.  We focus on the final assembly for the most part, and the assembly of major subassemblies.  We are not good at making insulated paper, ceramic glass, thermostats, dishwasher dispensers, compressors, switches, et cetera, diodes.  I can go on and on and on.

But we do go to vendors who have those core competencies.  We recognize our shortcoming and we recognize our strengths.  And that is the reason why we source, unfortunately, some of it offshore.  We go onshore as much as we can, but where those global competitors are forcing us to stay from a quality, and availability and pricing standpoint competitive, we look offshore.

The only other point I want to make, some industries are totally excluded under the "all or virtually all."  This includes, for the most part, ours as well for the very reasons I have mentioned earlier.  But sourcing is one big issue in that area.

MS. ARNOLD:  Okay, thank you. 

Deborah.  You always get the last word.

MS. SWARTZ:  I just want to say that I want to be explicit about the position of the luggage and leather goods manufacturers association.  They are very much opposed to the current standard of the Commission. 

I also want to say that when two-thirds of your market is made up of imports I don't think, which is the case in these industries, I don't think that a dual standard serves the consumer well.  The vast majority of the products on the market by units are imports, and there are two standards out there.  One for domestic producers and one for imports.  

And I notice that people conveniently mention countries like India and China.  But in the case of leather products we are often talking about Italy.  And Italy is known for leather products.  And while those products may not be fully made in Italy, that information will never be known to the consumer.  

That's all I have to say.

MS. ARNOLD:  Okay.  I am going to try to do a quick summary if I caught most of the concerns that I --

MR. COOPER:  Can I add something.  Very important.

MS. ARNOLD:  It better be good.  This better be really good.

MR. COOPER:  Back to the matter of the footwear manufacturer who would make a comparative claim as against his competitors would be inviting litigation.  That's the last thing in the world that a footwear manufacturer needs in this day and age.

Secondly, let me say that it makes no sense at all to talk about a dilution factor when you are talking about an industry where only 18 percent are domestic producers.  You don't have to worry about the 82 percent being able to claim that their products are made in American.

And, thirdly, there is a negative connotation that "Made in USA" whose experts are only domestic.  How far can you go?  You are suggesting that there is something wrong with the final component that you are going to have to -- try to put that on the tongue of an athletic shoe.

(Laughter.)  

MS. ARNOLD:  With the size they are making these basketball shoes --

(Laughter.)  

MS. ARNOLD:  My two-and-a-half year old, that's all he want to do is shoot.

Okay.  

MR. PALMQUIST:  Abby.  

MS. ARNOLD:  Okay.  First of all --

MR. PALMQUIST:  Abby, excuse me.  But Elaine raised some questions that are floating here and they haven't been answered.  I don't know if --

MS. KOLISH:  She put me off until tomorrow.

MR. PALMQUIST:  Okay.  

MS. ARNOLD:  We all agree that there is homework tonight, Jim.  You were nodding there.

VOICE:  Daydreaming.  

MS. ARNOLD:  That's okay with me.

We have a request from some of us who are trying to figure out what to do next, and that is those of you who really support the "virtually all" standard think about the definition that was discussed earlier today about what this standard could be.  And come up with an idea of if you were to have a "virtually all" standard, that you really -- that would be workable, and that you could defend defensible, what would that definition look like.

What we tried to do today is define what the "virtually all" standard is, and it's not clear, and so some folks said, yeah, but if we were to have a "virtually all" standard that we thought passed a certain test, this is what it might look like.  But we are still in debate about that.

I think we are kind of resolving it now.

So the request is if the FTC staff were to come back to their notes and say, well, what would be a "virtually all" standard, particularly those of you who were advocates for a "virtually all" standard, what would it look like, what would it be. 

Okay, so that's one request.

And let me try to summarize what I heard, and then we will move on to our percentage content discussion.  And in my mind I am wrestling with -- you know, if we had lots of time, and we were trying to build a consensus, I would ask for quite a long discussion on this because this is what we would take away from the meeting.  But I don't think we are going to do that tonight.  

I guess what I am suggesting is that if you don't think that your concerns are recorded here in your public comment, and when you come back and you decide to make comments to the FTC after this, you may want to comment on this.  You may not.  It's just a vehicle for us to try to frame where we are.  

If there is something that's just really not here that you are dying to put on, talk to me after the meeting, fine, and I will put it on the morning and note that.  That's another way to do that.  Why don't we do that.  If your concern really isn't on here, come back to me.

And I know that we still have observers that want to comment, so let me go through this quickly.

I put the pluses and minuses.  The pluses.  The "virtually all" standard clearly documents or illustrates labor and other values of a product.  

The standard informs the consumers that they are getting a product that's made in the U.S.; that you can make an unqualified claim.  If you have the standard, it's an unqualified claim.  You can make it, you can make that claim.

The negatives:  There is a problem with reconciling with the CAFE and AALA and other laws.  It's unattainable for electronics, and these do not necessarily correspond.  All these are is just thoughts that came out as we moved through our discussion.

It's unclear what "Made in USA" means.  We need to focus on process.   The "all or virtually all" is confusing and misleading regarding what it means, what to expect.  There needs to be a definition, and you need some kind of percentage content.  Is it 100 percent?  Is it 95 percent?  Is it 90 percent? 

It's not rational because it cuts out labor.  Even though not required, the cost of labeling is high.  The product governed by Customs should not have a different standard for product made in the U.S.  There is a problem here with consistency between Customs and the FTC.  

And these are available for you if you want them afterwards.

It supports the perception of high quality -- the pluses again -- it supports the perception of high quality.  It's a clear standard that provides information to consumers.  It's meaningful.  It's recognizable.  It's enforceable, and it's simple. The standard is consistent with standards that apply to the apparel industry.  

It was apparel as opposed to textile, is that right?  

MR. CLAWSON:  Both.  

MS. ARNOLD:  And of textile.  

It provides additional information to consumers so they know what the domestic content is.  

It excludes -- the negatives are that it excludes companies who use foreign materials and components and lose, they lose their ability to declare high quality.  It could and force an increase in the cost of products.  The standard is misleading, denies consumers information regarding their products, gives companies a competitive advantage.  It's not applicable to the rubber and non-rubber manufacturers.  If your objective is to protect jobs, it would put people and companies out of jobs.  They would be required to go overseas, and there is a bias against out sourcing.  It does not recognize value of the companies who are processing and assembling in the U.S.

The positives again are that many products do meet the standard.  In apparel, there is a precedent that many companies have invested in a lot of time, money and energy into meeting this standard.  This standard is valuable to consumers.

The negatives again, it does not reflect current state of the manufacturing and consumer perceptions.  And they compete with Canada's and Mexico's labeling requirements.  Could possibly encourage the U.S. companies to close down.  The standard is not consistent with consumer perception.  Burdens those who still want to continue producing in the U.S.  It's so burdensome that many companies don't even attempt to determine if they need the "virtually all" standard because it's too costly and burdensome for them to do so.  So consumers don't get information about their product.

Some of these are redundant.  

The value of the standard is that it's difficult to meet, and so it's a competitive tool.  There is a real competitive advantage to having it.  It is an objective standard.  It is being used now by many companies.  And it provides companies with incentive to do business here and try to get their products -- their components from here.

Those companies that don't fit under the "virtually all" standard could result to qualified claims.  Qualified claims are problematic because they use different products and they vary by day.  The variables within a product may vary by day, and it would be difficult to assign a percentage to it.

The "virtually all" standard is not based on empirical evidence.  It is disadvantageous to international companies who manufacture products in the U.S., and dual standards are not good for the consumer.

Those are the main items, the major concerns that I heard expressed by those of you sitting around the table.

Who has an observer comment?  I know one gentleman does.  One.  Why don't you go for it?

MR. SHULMAN:  My name is Bruce Shulman --

MS. ARNOLD:  Will you get to a mike, please?

MR. SHULMAN:  My name is Bruce Shulman.  I represent Packer Bell Electronics.

In attempting to bridge the black hole, and that's a phrase that has been used quite often in Customs jurisprudence within the last couple of years, between Customs-origin marking and "Made in America" marking, which leads those who do a lot of substantial processing with the inability to make reference to "Made in America" on their products. 

It has been suggested that qualified statements are something which are potentially advantageous and should be encouraged.  In that regard, I can think of a lot of qualified statements which not only are meaningless, but which also will be regarded by many in the room as being actually deceptive.  

For example, I can think of a number of industries, including some that I represent, that do nothing but assembly processes in this country.  Everything is imported.  And if they were to put on their product "Assembled in U.S., I can imagine that someone would come back and say to them, "Assembled in the U.S., that's factually accurate.  However, you should also be under the obligation to reveal that it's assembled in the U.S. from foreign components."

It has also been suggested that those people who don't do 100 percent in the U.S. have the burden of making the qualified statements.  I would suggest to those people who do do 100 percent, or can meet the "all or virtually all" test, that they have an option, and their option is to say 100 percent U.S. parts and components.  

Why does the burden have to be placed on the people who do a substantial portion of processing in the U.S. but who don't do 100 percent in the U.S.?

I would think that we do not generally wish to encourage litigation.  So if we stick to these sorts of things we can avoid that.  

The last thing which I wish to just mention briefly, and I think Jim Clawson picked up on it, and I think Mr. Palmquist is probably the one who is most interested in it, those of you who are interested in a very high standard today may be interested in a different standard tomorrow. 

And the reason for that is, to the extent that you are exporters, there are countries around the world which look at the U.S. to model their laws after our laws.  And we are seeing a little bit of this right now with respect to Mexican labeling which, as I understand it, is primarily aimed at China.  But it can come back to haunt you.  

And I guarantee you if Mexico or some other country comes after the U.S. by imposing a non-tariff trade barrier, whether it's on labeling or some other matter, there are going to be a lot of people in this room, most, if not all of whom are domestic manufacturers, who will beat a path very quickly down to USTR to have them negotiate that away.

And I think that that goes to the whole issue of harmonization, and I think harmonization is an important issue notwithstanding whatever has been said to the extent that it's not.

Thank you.  

MS. ARNOLD:  Okay, are we ready to switch hats, to move on?  

Where we left our percentage content approach was a definition offered by Michael of what we mean and what we are talking about when we use the word "percentage content approach."  

You don't need to turn the lights off.

And it seems to me that we need to keep -- if we don't have this definition in mind when we talk about pros and cons, and before you talk about the pro or the con that you are talking to, you need to share what definition you are using because this is the one approach that there are a number of different versions of.  

Okay, does that make sense so that we are comparing apples to apples?  

So those of you, other than Michael, who support, I didn't mean to exclude you, the percentage content standard or think that there are problems with it, why?  

Here we go.  You tell me if you need a break, guys?  

John, go for it, John Pellegrini.

MR. PELLEGRINI:  Our main objection is --

MR. COOPER:  Use the microphone, John.

MR. PELLEGRINI:  Oh, I'm sorry.

Our main objection, at a time when the Customs Service has abandoned value-added types of rules in determining country of origin, at a time when we have abandoned the -- recently abandoned chief value as a classification principle because no one could get the information in a reliable way, and it's very unwise to try to adopt a value-added system, if you will, or a content system, and determine whether you can use the "Made in USA" label.

It's very easy to slip in and out of that qualification in a value-added system, even at fairly low, 50 percent rates.  You could have the same manufacturer in this country doing the same exact processing, and using a more expensive foreign material as opposed to a lesser expensive foreign material.  One can say "Made in USA," the other can't.

A system that leads to those kind of anomalous results doesn't make a lot of sense, at least to me.

Profit, everybody says we exclude profit.  But what if you buy the components from a third party.  There is profit there.  That is going to be foreign.  By definition, you have got to include profit in there somehow unless you, unless you are going to totally integrate the operation when you have control of cost all the time.

But if you are buying components and materials, or whatever, from third parties, there is going to be a profit in there and it's going to to skew the calculation no matter what you do.  

Currency fluctuations, you could end up from month to month having a different labeling requirement because of currency fluctuations where you are sourcing foreign components and materials.  

But, again, I guess the final reason is again experience.  The Customs Service has a lot of experience with these kinds of approaches.  They don't use it for origin anymore. They have abandoned it for origin.  We have abandoned it in the chief value calculations because it's too complicated.  

Now, those of you who support percentages, how many auditors do you have?  How many auditors will the Customs Service have?  How many do the Federal Trade Commission have to get this information?

We have talked about litigation.  You make a claim that your product is qualified as made in the USA.  One of your competitors decides to challenge that.  All the lawyers will be very happy, the auditors will be very happy, but I think it's a very difficult problem.

In the automotive industry recently, not that all ago, there was an audit of a Canadian operation to see whether they qualified as -- it wasn't NAFTA, it was the FTA.  And, of course, Customs changed the rules three or four times, and they did not know whether they qualified.

That's the problem with these content rules, these value-added rules.  The rules will vary depending upon who is looking at them.  Their enforcement is a nightmare.  They are a compliance for companies, and they are enforcement nightmares for the agencies.  It's just a bad idea.  

MS. ARNOLD:  Well, who would add to that?  Who would add to that?

VOICE:  I'm sure somebody can.  

MS. KOLISH:  I just want to interject a question.  I know I am going out of order.

But does the compliance nightmare lessen if the percent content is at 50 percent rather than 75 or 80?  Because I notice some of the comments that some people thought there was a difference where you had the cutoff.

MR. PELLEGRINI:  I don't think it does because if you are at 50 and you drop to 49, you are no longer in compliance.  So you only have to be one or two percent off.  And you sometimes have tolerances that are very, very narrow.  And, again, there are lots of variables.  

Obviously, if it's 30 percent, people are going to have less of a problem.  But I think there is always going to be a problem when you have any kind of cost analysis because, again, there are so many variables, and many of the things you don't have control over.  

MS. ARNOLD:  Sandra?  

MS. GETHERS:  I just wanted to confirm --

VOICE:  Microphone.

MS. GETHERS:  As a government official and an employee of the Customs Service, I wanted to actually confirm what John just said since he's speaking from the private sector's point of view, and may not have this much objectivity.  

(Laughter.)

He is an advocate.  I am neutral.

That there are administrative problems with trying to determine anything, origin or any claims-based preferences based upon a value content requirement.  You have an accounting nightmare.  And to the extent that this is going to be -- this would be a requirement that the Customs Service would be involved in, and probably would be involved to a certain degree because of the origin.  

If you are allowing value content after the article is determined to be not foreign, which is only when the FTC gets involved in the first place, then you are going to be playing off of Customs' records or Customs enforcement of the original country of origin marking requirements.  And that is an additional administrative burden for us.

But on the other side of the coin, and I have to be totally neutral here, the 100 percent requirement is no problem whatsoever.  If we know there is any foreign content, we know it's not a product being marked "Made in USA."  

MS. ARNOLD:  Okay.  Steve Beckman, Jim, Richard, Robin, Michael Thompson, Mitchell, Paul, Jerry and Roger.

MR. BECKMAN:  Steve Beckman, UAW.  

To the extent that in discussing the content standard or using the content standard, there are a variety of methodologies that have been proposed and have supporters.  Of those, I like this one the best, the net cost, the NAFTA --

MS. ARNOLD:  He is using that definition.

MR. BECKMAN:  -- formula.  The formula that is up there.  

MS. ARNOLD:  Why?

MR. BECKMAN:  Because it excludes the costs that are largely U.S.-based, whether the product is entirely fabricated abroad or made domestically.  You know, distribution, profits, sales, administrative costs.  You know, you have got an office in Illinois that's a total importer, you bill your advertising cost, a variety of costs, and they are going to show up as U.S. costs.  And to the extent that those are included, they are misleading in determining the actual production value of the product.

This is of -- of the various proposals, this is the one that's most product-based, and that's what consumers are interested in; not how many executives are getting paid in the United States, but whether the work that makes that product is done in the United States or not.

With respect to the 50 percent though, I think it is -- clearly, it's a very low standard.  It's not that hard to meet the 50 percent standard if you assembly the product in the United States, and you do a few other relatively ancillary processes.  

And that is disconcerting, especially when we are talking about moving away from a standard that is by all accounts considerably more rigorous and requires much more U.S. production and value added, and local sourcing and all of that.

This does not require a whole lot of labor.  It does not require a whole lot of parts sourcing, so it doesn't create integrated production mechanisms here in the United States.  It allows for relatively assembly based operations that don't do a lot of R&D, that don't do a lot of engineering.  It's just not -- the 50 percent is not nearly high enough to get at real U.S. integrated production.  

MS. KOLISH:  I am going to, because you said we didn't talk enough before, I will talk now.  

Let me interject another question.  What if instead of a specific formula with various things specified, what if it was a reasonable basis formula where you guys had the option of calculating it in any way that any reasonable business person would, and in combination with that, or not, there was like a tolerance, a five percent tolerance either way so if you were off plus or minus one percent you wouldn't make a difference between meeting it or not meeting it?  

 That, you know, we approach this in a very reasonable, civilized manner.  You guys have the options of coming up with things.

Would that affect your views of a percent content standard?

MR. PELLEGRINI:  Make it better.  

MS. ARNOLD:  As we walk around if you have comments for Elaine, you can see that she is searching to interest.  So let's not only talk about why we don't like this, but let's make some suggestions as to how or whether it could be improved.

Jim?  

MR. CLAWSON:  Okay, for those in the office pool the joint industry group is opposed to this one as well.

(Laughter.) 

And I think for some of the same reasons that have already been discussed.  I think it's a difficult standard, whatever the percentage is, and the experience, and I don't have nearly as much as John, but the experience that we have had, and I think this goes to some of the work that we have done over many years in our industry functional advisory committee Deborah was referring to earlier, is that tracking all of the costs become virtually impossible.  The compliance burden becomes too heavy, not only for the company, but for the regulators who try and do it, and what Sandra is saying and others.

So if you go to -- if I can harken back -- if you go to an "all or virtually all" that has, if you will, a de minimis rule that says you can have five percent foreign or 10 percent foreign, that's really easy.  As Sandra said, if it's 100 percent, you can tell the one thing that's missing.

The problem with the ground up, even with this one, is that you get into the situation that we have already seen in many regulators who say, "We want an accounting of all 100 percent of this product."   

They are not prepared to apply.  And I guess in answer to your question, Elaine, if you would go to a normal business practice of some kind, it would be much better.  But what happens is that you have someone who says, "Okay, for me to determine whether this is 65 percent, I need to know where all 100 percent came from.  You have to account for all 100 percent."

It isn't a matter of once I get to 65 percent you let me off the hook.  The auditor says, "I need to see all because it's the only way I am going to convince myself you haven't cheated somewhere in this process."

And so we find auditors who look at it, just come at it from a different point of view.  And I don't say that in any pejorative sense.  It's their job.

MS. KOLISH:  Do you mean house auditors or government auditors?

MR. BECKMAN:  Both.  Okay?

In other words, in-house auditor.  If you are going to make the claim, right, the in-house auditor says, "Okay, demonstrate to me where they all came from before I will allow you to do that."

The government auditor, on the other side, says the same thing.  And even when it may be a 50 percent, 60 percent, 70, whatever it is.  It's very different when you start at the top and say it's 100 percent, and I cannot have five percent that doesn't count.  If I can say, okay, here is the five percent that doesn't count, and I don't have to prove it all.

Don't ask me why, but it turns out in experience to be a very different set of tests.  And so therefore it doesn't make any difference whether it's 10, 20, 30, 50, all the way up till you get, because the burden is the same.  And any time you have a subjective value content test, it becomes very difficult to administer.  

MS. ARNOLD:  Dick?  

MR. ABBEY:  I echo many of the comments of Jim and John, and on top of that whatever percentage you select will clearly be arbitrary.  

But having said that, there are, for the handtool people, we have got relatively few components, and we would have no problem in dealing with a regional value content test because so much of the value is attributable to the processing here in the United States.  

So that we can live with that, but our preference would be, but many of the -- many of the industries represented here could not live with that at all, and would have a fit if they had to, if they had to hire 300 more accountants per company to keep track of all these costs.

So we would prefer to see a little more flexibility, and we thought that the NAFTA preference rules had that, and the rules that are now being discussed at the WCO have a potential for having that because the value-added criteria would be a supplemental criteria where certain other rules were not met, and that, for most might be helpful. 

MS. KOLISH:  I don't understand, though, why using the NAFTA preference rules is a tiered approach, why that is any easier in an accounting burden, and why doesn't it have the same problems that you all identified before?

MR. ABBEY:  It is the same problem.  I am not suggesting that it isn't.  But it would not apply across the board to every industry.  As it's now drafted it only applies to certain situations, so that if you had a tariff classification change rule, and you met that rule, you might not also have a value added.  It just makes it simpler, although in most instances I don't think most people would be supportive of it.

MS. ARNOLD:  Robin?

MS. LANIER:  I echo what people have said about the enforceability and administratability of this standard, but I want to talk about something a little bit different.  

First of all, one thing that Dick just mentioned is very true.  Although what you have written up there is a percentage test and so forth, as a matter of clarity, the NAFTA preference rules are not a value-added test for all industries.  The textiles rule, for example, is not.  Okay, it is a yard forward rule, which is several steps back, okay, and my least favorite rule of origins, okay.

And there are other cases where for the purposes of NAFTA preference the government has determined that a substantial transformation or several substantial transformations was sufficient, okay, and no value added was necessary.

So this takes me to my main concern with this, two basically main concerns, but one a little bit better than the other, and that is that whatever the value-added number you pick, obviously it's arbitrary, and that -- I mean, we can argue whether 50 percent is too much or too low, but wherever you set it, it works for some people and it doesn't work for others, okay, because for some kinds of production the value is in the components, and for some it's in the labor and for some it's in the machine you buy, and, you know, it's different all over the lot.

And so no matter what bright line you pick if you don't pick a bright line for every specific kind of industry, specific kind of process, and, of course, when we get to it tomorrow morning we will hear that we do advocate a processing kind of approach -- it's not necessarily substantial transformation, but it is process -- if you don't look at the process, I think you are missing the boat. And this takes me to my second point, and that is going back to what we heard this morning, way back this morning, okay, admittedly our consumer studies are vague and they do show that perceptions are clouded and all of this.  But, you know, what we said a lot this morning was that consumers appear -- when you ask them the question, more often than not they say a product is made in America when it's made in America, okay.  

That is circular, but I think the consumers have it in their head what "made" mean.  I'm not sure I know what that means, but I think they know what "made" means, okay, on any given product.

MS. ARNOLD:  Well, they know what they think it means.

MS. LANIER:  It's getting late.

MS. ARNOLD:  Come on, Robin.

MS. LANIER:  But anyway, the point I am trying to make is that I am not sure that value added is a definition of "Made in America," okay.  You know, you can have a lot of value added and have no labor, okay.  I am not sure that meets the consumer standard for "made," okay.  You can have a lot of value in the assembly, okay.  I'm not sure that meets the definition, whatever the definition is of "made," okay, and that's my second point.  Is that really I think it's irrelevant, quite honestly.  I think that the value added is really kind of irrelevant to the question of was it made here, did it come into being here, did it take the Webster's Dictionary.  

And we would like to try to develop a standard that comes closer to the moment of conception, if you will.

(Laughter.)

MS. ARNOLD:  Michael.  

It's late.

MS. LANIER:  Yeah, right. 

MS. ARNOLD:  Michael.

MR. THOMPSON:  Let me make two quick points.  

A lot folks have already said that the value content system doesn't work for them for a lot of reasons.  Some folks have said that it -- you can't -- you know, one size doesn't fit all.

For us, that's very much the case. Our majors division is adamantly opposed to a value content standard.  One reason is because of some of the reasons already brought out.  We have literally thousands of vendors.  We would have to have, as they said, a bank of auditors to keep up with it. 

My own company, Whirlpool Corporation, a few years ago got audited under the CFTA, the Canadian Free Trade Agreement, on one type of dishwasher going in.  We knew we had something like 75 to 85 percent or higher U.S. content.  But proving it took us a couple of week.  You know, we had to drag it from a lot of different sources.  

So we supported under NAFTA the tariff classification change rule of origin, and that's what we would support here.  I know we will talk about that tomorrow.

On the other hand, for our portables division there is a whole lot less complexity.  The parts are a lot fewer.  The appliances are smaller.  We don't have as much red tape in keeping track of the value content for those products.  

And so for those products we would support a 50 percent value content rule.  

One gentleman said that it's not difficult to meet.  We would disagree, at least for our industry, that it is a very difficult standard to meet.  And we would be adamantly opposed to changing it from above 50 percent to some higher level.

MS. ARNOLD:  So let me just make sure I understand.  For those products where it's relatively easy to trace with component parts, you would be supportive of a value added?

MR. THOMPSON:  Yes, we would.  Our portables division does support a value content standard.  Our majors division adamantly opposes it.

(Laughter.)

MR. THOMPSON:  The whole reason --

MS. ARNOLD:  At least they are honest.

MR. THOMPSON:  The whole reason is complexity, one size doesn't fit all, exactly right.

MS. ARNOLD:  But it doesn't -- what you all are starting to do in your discussion of the pros and cons, I don't know if you have noticed it in our distillation of the "virtually all" standard is you are starting to develop criteria by which you judge whether or not a standard is useful to you or not.  And in a sense by distilling out those criteria we are starting to build at least a picture of what is needed by all of you.  That's why I am trying to get this down.

MR. THOMPSON:  I will point out that NAFTA in both cases addresses our concerns.  NAFTA, for the rule of origin, addresses our concern with respect to tariff classification change for the majors, which we supported and which wound up in the NAFTA rules.

It also supports a 50 percent content rule for our portables.  We supported NAFTA, and we will talk about that tomorrow. 

MS. GROSSMAN:  Can I just clarify something?

When you just said that the NAFTA rules support the standard, the 50 percent standard for the portable and also standards for the major appliances, you are talking about the NAFTA preference rules, right?  Not the NAFTA marking rules?

MR THOMPSON:  I am talking about the NAFTA rules of origin.  That's what I am talking about.  

MS. ARNOLD:  Okay.  Philip?

MR. HUTCHINSON:  We labor in the auto industries under these two statues that I mentioned to you before, the CAFE statute and the Automobile Labeling Act.  Both of these consider Canadian content to equate to U.S. content.  And so therefore I would just reiterate the objections that I had this morning.  You have got to take these statutes under consideration.

With regard to the Automobile Labeling Act, our Congress has decreed that in the auto industry if we have a part that is 69 percent pure U.S. content, that equals zero U.S. content by statute.  So we really do labor under some of these weird legislative provisions.

And I would discourage you from utilizing the AALA, in particular, but you have got to take cognizance of these two statutes.  

MS. ARNOLD:  Okay.  Mitchell?

MR. COOPER:  There was a lot of seepage in the discussion of "all or virtually all" of the advantages of a value standard, and I shan't repeat those now.  I will be very brief.

Let me say that whatever formula you adopt you are going to run into a problem, administration problems, enforcement, and there is nothing that imaginative people cannot do if they choose to do so.  And that includes overcoming whatever obstacles may exist in the development of the formula.  

I would add just one thing, and that is that the rubber footwear industry, as you know, has been advocating a standard of 50 percent.  I understand that there are other people around this table who disagree, would like a value standard of perhaps of a higher percentage.  I do want you to know that we will not step on feet.  We will consult with anybody.  We would be happy if the FTC decides that the appropriate thing to do is to have a value standard.  We are not sure of what that standard would be.  That's for another discussion, and we will be able with a consensus figure.

Thank you.

VOICE:  I think we should adjourn.  

MS. ARNOLD:  Jerry, Roger, Tim, Gale, Jan, Lauren.  Hold your cards up.  I don't have you on my list yet. 

Okay, Jerry Cook.

MR. COOK:  I've got one, I guess, mechanical question to ask on this formula.

Understanding that if you have got multi components that go into your product and you are looking at this component value, you end up with the first percentage, and you acquire component B.

Are you going to aggregate the percentage of component A and B together?  

MS. ARNOLD:  Michael, do you want to answer?

MR. KERSHOW:  Again, I am not the greatest technical expert on this, but I believe you do, and there are certain sort of first in/first out sort of rules under NAFTA for dealing with that kind of thing.  

MR. COOK:  Okay.  Under the assumption that you would do this averaging, however that would be done, I guess I would be very concerned, I guess, to go on record.  I would be very much opposed to this.

One of the first things that comes up under a reasonable care of any business acquiring component A, component B, and component C and averaging those together, and assuming that you are going to make some part of one of those components yourself, as most people do, and then they out source a percentage of some of the components.

At some point in time in your reasonable care to make sure the percent that your manufacturer will say component A provides you, and say that it's 75 percent U.S. content.  You are not going to take them at face value during your due diligence.  You are going to inquire how did that come about, just like you do under NAFTA.  You are going to inquire how did you prove your origin or compliance.

So when they give you -- they are going to have to give you some type of formula, share their value with you, and particularly if you co-make the same product, you compete, they make 10 percent of your production, you make the balance.  I guess our concern is, one, you have got an antitrust issue coming up because you are now sharing competitive pricing between each other.  And I think in the past that little road leads you down a very dangerous road, and I think the FTC would view that on a hierarchy a greater issue than this particular formula in the engagement.

Certainly as a manufacturer we would be very concerned about being forcefully put into that situation and compromise ourselves.  I think that's one issue that hasn't been addressed.

The second issue really gets in on this thing is that you have the situation, and let's just pick arbitrarily you come and you say that the magic number is 90 percent.  And 90 percent is the U.S. value.  There are products today in the apparel industry, panty hose, for instance, where the chief value is the yarn that goes into it.  That you could conceivably end up where the panty hose is U.S. yarn made here, or the processing, it may go above for some of the assembly, and come back.  That assembly value still being less than 10 percent.  Some of those manufacturers may challenge, they have the right to say "Made in USA."  

Now you are in direct conflict with Customs that would rule, no, that product is, you know, made in Italy, or that product is made in Chile.  And you would be denying someone in the same ambiance of "Made in USA" who has a higher domestic regional content than perhaps another manufacturer if the line was drawn at 80 percent.

And that is a grave area of concern that we are not taking into consideration.

The third item I have, it gets into regional content.  Elaine, I think, you had asked this question earlier.  The moment you start drawing arbitrary lines as far as, you know, the line is 90 percent, 95, the U.S. has been the leader in the consumer regulations.  We see with labeling, as how fast Mexico is duplicating us, and other countries are putting barriers up.  

Regional content value becomes a real concern that we see.  You say you've got 90 percent may made in the USA.  Suddenly that 90 percent factor becomes a regional requirement.  Other countries may misunderstand that.  And we are already seeing today in the world of textiles and apparel non-duty, non-quota tariffs discriminating against U.S. products that are using a mandatory regional content value.  

And I certainly would hope that the U.S. would not set the precedent by coming in and giving the world, particularly the WTO, the belief that we are now supporting a regional content requirement.  

The next item you get into in this valuation equation is, in order to -- if somebody was aggressively trying to maximize their equation, they may want to exert pressure on keeping that pricing for a variety of reasons down.  And at what point in time is the price coming in to get the content?  You start getting into a dumping situation in order to get that price down, to get U.S. content.

I think you are setting a prefaces up where people may be arbitrarily influencing and enforcing pricing of imports coming in in a component environment, which may, in turn, in order to get a maximum content here in the USA, lead the manufacturer or the assembler or the retailer into accidently being involved in a dumping environment, which is something that there is not a manufacturer that would willingly walk into that.  

But they could easily walk into it in this scenario because blindly they are looking at this equation and looking at the foreign content versus domestic, trying to get an inquire into that domestic content.

And I guess lastly, or I have got two other comments here, the pure basis for the calculation is what?  I mean, we get into -- many manufacturers today have what I call monthly costing.  There is a term up there "periodic cost."  

In the world of Customs today, when you assemble say in the Caribbean community or in Mexico under the 9802 Program, you go back and you recalculate your cost on related operations under the cost reconciliation program which could in itself restate your cost after the fact.  

And now you have a situation where in your marketplace you have declared one thing that's in compliant where Customs and the IRS are tied together.  But for the purposes of FTC you have used what you thought were your annual expenses until you recalculate your ending, you have reprojected your costs, which is what you inform the IRS, and you inform Customs under the cost reconciliation.

But now you have got a FTC problem because you found out, gee, instead of 90 percent my cost was 84.  I am now out of compliance, or I have at least mislabeled something.  And I think that in itself is an undue burden that you put upon well meaning manufacturers.

And lastly, and most importantly, I think our experience has been is that valuation issues are difficult enough with the IRS, and that Customs has to battle with.  And I question just the common sense.  It seems counter-intuitive to me to spread value to a third organization within the U.S. government that in itself may not be homogenous with Customs and the IRS who have had a lot more experience in this issue, and have gone to great lengths, particularly with Customs, to try to get into harmony with the IRS issue.

And I -- you know, I challenge you to think creatively in that regard because the -- and Sandra can probably tell you better horror stories -- but making sure you have got alignment, and that you are not conflicting with the IRS and Customs who are two immediate groups that you want to have reasonable care to comply with.  

And you add this equation in there it gets very disconcerting that you are going to be out of alignment with one of the three, if not two of the three.

MS. KOLISH:  Okay. Maybe we could just contract it out to customers.

(Laughter.) 

MR. KERSHOW:  The attorneys general generally think that the percentage standard is a helpful way to provide guidance to both industries and law enforcement agencies as to what the "all or virtually all" standard in fact means.  

The exact formulation of it, I think industry might have more input than we would as to their accounting methods, and the best way for them to meet it.

Whatever you arrive at though we would urge you not to use it as an absolutely strict enforcement device because, as we all know, when you start trying to reduce reality to numbers on a regular basis you will generally end up with a bizarre result at some time or the other.

So we would urge you to frame it in terms of guidance, and we think that -- often as law enforcement officers we tend to think of these things in terms of percentages.  It seems to be a natural way to think about them.  And, again, we would just counsel you to leave a little flexibility in there, a little wiggle room for both industries and for law enforcement agencies when you reach what might be considered bizarre results.  

MS. ARNOLD:  Tim?

MR. HARR:  The electronics industry --

MS. ARNOLD:  Tim, you need to use the mike.  Sorry.

MR. HARR:  The electronics industry does oppose parts or value content testing to restrict format set up there.  I think the most important point is, as far as we can see, it's not what consumers first think of when they see a "Made in USA" claim.  They don't think of content percentages.  What they think of is where it becomes what it becomes.  

I think that Robin has it right essentially.  It's a process question.  Earlier we had a discussion of, you know, I made dinner.  I made the whole dinner.  Somebody asked you, "Well, what part of the dinner do you think that she made when she said she made the whole dinner?"

They said, "Well, she made all of it."

So maybe that's where the "all or virtually all" is coming from.  But what it really matters is where the product becomes what it becomes.  If you say, "I made a chair all by myself," it doesn't mean they look to where the wood came from, or whatever the cloth came from.  They think that you did the process of making the chair.  And I think that's the first reason that we oppose this as going to content test.  I don't think it meets the sort of dictionary definition of what "made" means.

Made in the USA literally means you create it in the United States.  In a sense, it's literally true.  And we think we should go with that until proven wrong.

Second, if it is applied, and it's applied to look at raw materials, which in the case of electronics industry are piece parts or subcomponents, it's a tremendously burdensome process for all the reasons that have been discussed here. 

You change your parts sources all the time.  The parts cost changes regularly.  They are retroactively changed to reflect markets.  

Whether or not you have a FIFO rule, or some other rule for going in and figuring out what parts went in a particular product, it's going to be a major headache.

Obviously, rates of exchange change.  On top of that you have got all the labor issues to calculate.

It's our view then that if you are going to go to some kind of a content test, at least you should only go back one step to the -- in our case, in our industry, it's generally the subassemblies that go into these products. 

First of all, companies can obviously keep track of this.  Second of all, what this says is that it says that the process of making the product, which is essentially the process of creating the subassemblies and taking the subassemblies and making them into a final product, is all encompassed, and you have accomplished it.  So if you look back one step you should get the entire process of making the product.

In the case of several NAFTA rules, they do look for things like subassemblies, and the subassemblies often are determinative that it's not a pure percentage rule as is suggested here.  So there is some recognition that this is a pretty good test in the electronics field.

MS. ARNOLD:  I have Gail, Jan, Lauren, Paul, Jim.

So, Gail, are you with us?

MS. CUMINS:  Yes.  

I would like to get to Elaine's question, which was if you used a reasonable basis standard and had some permissible tolerance range, would a value-based approach be more acceptable?

And the answer that the AAEI would say would be no, and I think it's important to understand why.

Apart from all the horror stories with which I completely concur as to any value-based approach methodology, it doesn't work for labeling no matter what the standard is; be it 70 percent, 50 percent, 20 percent.

Why?  Because you are going to decide how you are going to market a product, and how you are going to label that product probably even before the first production piece is created.  

So what are you doing?  You would be basing your value measurement upon budgeted or standard costs.

Now, there are too many variables in that costing which a manufacturer might not be able to control.  When President Nixon, in 1971, declared the oil embargo the Japanese yen went from 300 to 200 to the dollar overnight.  So you have got currency fluctuations which you may not be able to control or predict. 

Your sales volume, good or bad, can affect your production overhead burden.  

Now, under the Canadian Free Trade Agreement, and even under the NAFTA for duty preference rules, there is an escape clause, if you will.  If at the end of your fiscal year or budgeted period you determine that your calculations were wrong, you can atone, if you will, to the Customs Service.  You can pay duty.  

You can't do that on something that you saw nine months ago with a "Made in USA" label. 

Therefore, whatever that tolerance is, unless it's so broad to make it not meaningful, the built-in discrepancies between budgeted costs and actual after-the-fact could be the old story "act at your own peril."  And that's why I don't think for a labeling or a marketing point of view a value-based approach which is based on unknown numbers at the time you are deciding on that label will work.  

MS. ARNOLD:  Thanks, Gail.

Jan Archibald.

MS. ARCHIBALD:  Well, I am also going to join many of the others here who are opposed to this standard.  But I would like to raise a point that I haven't heard too many people here talk about on this, and that is how many consumers would be deceived if you used a percentage content standard.

And some people have said 50, some have said 75, but I think it's interesting to note that in the FTC study, which was talked about this morning, even as many as 32 percent of the public said that they would agree strongly or somewhat if the standard were set as high as 90 percent.

So if the basic purpose here is to determine whether or not there is consumer -- a likelihood of consumer deception, it seems to me you have already got a problem, even with a very high standard.

But there are other problems as well.  The fact is that again this will create an incentive to the extent that you pick any number and there are companies that exceed that number now, you are creating an incentive for them to move some production offshore so they still stay within whatever is the tolerance level to make that claim, but save on cost.  And that moves jobs offshore.

I agree with those who have said it's an administrative nightmare.  I have some personal experience with the Customs Service having to deal with these kinds of things in that infamous Honda case that was mentioned earlier, and I can tell you it is a nightmare for people who are honestly trying to comply.

And although this is not an issue that I think is particularly important, many people earlier today were talking about how important it was that we have consistency.  The particular proposal that's up there, which is to use, as I understand it, the NAFTA preference rules as opposed to the NAFTA marking rules, don't appear to be consistent with much of anything else that Customs does.

MS. ARNOLD:  Lauren?

MS. HOWARD:  Well, speaking as what seems to be the lone voice in the wilderness, I would like to speak in favor of a percentage contents standard.

The footwear industries has proposed a 50 percent test, although this might be called a hybrid standard that's with a final assembly requirement.  But we do think that a percentage content test has several important advantages.

First of all, as compared to the "all or virtually all" standard, it would allow consumers to distinguish between product with minimal and substantial U.S. processing by having an objective test.  It would give manufacturers clear guidance as to their obligations under the law.  

It would also, we think, contrary to what Jan said, give companies an incentive to source materials and components domestically to get over that hump, and therefore be able to use a "Made in USA" label.

MS. ARNOLD:  Could you go back to your second one, please?

MS. HOWARD:  Sure.  

MS. ARNOLD:  Go back to your second point that you talked about before that one.

MS. HOWARD:  Oh, it's objective and it gives manufacturers clear guidance as to what their obligations are.

MS. ARNOLD:  Thank you.

MS. HOWARD:  And it would also give manufacturers sufficient flexibility to maintain their labeling even if their sourcing changed somewhat during the production process.  

It also has been the basis for other governmental standards.  A 50 percent test is used in the Buy America  Act, and it's also in the Department of Commerce's Market Development Cooperator Program.  

So for those reasons we do support a percentage content standard, but again with a final assembly requirement.  

MS. KOLISH:  Lauren, do you think it makes a difference that for the footwear maybe there aren't as many components as Jim, for example, has mentioned with 3M products, that you have to keep track of, what did you say, 600,000 separate component pieces, and that -- is that making a difference in how people are coming out in this,  and that if one has fewer pieces, and many other products have more pieces and more complexity?

MS. HOWARD:  We have a substantial number of components in shoe production, so I am not sure that would be a distinguishing factor.

MS. KOLISH:  But not 600,000.  

MS. HOWARD:  No, clearly not.  

MS. ARNOLD:  Paul, you are next.  I guess you are talking anyway.

(Laughter.)

MR. GAURON:  This is going to be a little bit like Jan and Steve on the other side of the table from last time.

I guess I just want to make a couple comments.

Firstly, John said that Customs has gone away from the value test.  But in fact in connection with NAFTA and the preference rules they did in fact adopt a value test which is actually a piece of that test we're talking about here.  So while they may have gone away from it on the chief value issues, which was, from what I understand, was a disaster, what we are talking about is something quite different.

The second thing is I guess I want to share the thought process that we went through in sort of coming up with this standard.

Just as Customs does, we sort of started from the point of view that you need to have this manufacturing, this change in the product, which is subsumed within the substantial transformation test.  And that's sort of where we start from, what we could describe as final assembly.

And the purpose of the value test was almost a control, a safety valve, to make sure that you avoid bringing within that some product which maybe has been described as a screw driver type of assembly operation; that it created another sort of safety valve threshold to make sure that the product that you -- that came from this country had substantial U.S. value.

The reason we chose 50 percent, or more than 50 percent is actually what we are saying, because it seemed to be the only logical place if you go off of 100 percent.  I mean, many of our members felt that we should have a higher percentage, and in most cases it's like I checked my calculation, and then I rachet it down by about two percent points and then I shut the door so nobody else can get in.

And we felt that the 50 percent was a majority, substantial, as the U.S. Congress had used in the Buy  American Act, and that seemed like a logical place.  As Mitch says, that is not necessarily cast in stone, but it just seemed logical.

MS. ARNOLD:  Okay.  I have just been notified that some of you have your cars in lots that close at 7:00.

Is anybody at our table in that situation?  Okay, if you are, they will be locked up. 

Jim, Steve, and Steph.  I am getting to know you guys.  My radar is starting to work here.

MR. PALMQUIST:  Advantages of going at this point of the day, I guess, because a number of things have been said, and I am going to just try to cover those real quickly.

I want to stress that for us there is a priority, and really the highest priority is consistency.  The consistent rules, consistent amplifications, consistent enforcement is a critical element because of the comments that I made before, and I won't repeat those.  But the issues of the burdensome, the cost, the differences, and the fact that all that is going to add to confusion, it's going to add to cost, and ultimately the consumers have to pay for that.  

Second, I want to support that concept that when we are talking about "made," it just seems as if the substantial transformation that we prefer over the percentage content standard comes closer to a real true meaning of what is perceived to be "made."  

Abby, I know you are keeping a poll here so let me give you one plus.  As an attorney, I would actually favor the percentage content standard because I think it would be full employment for me for the rest of my career.  

As a company, that's the reason why we come down on the other side of it, because of the complexity. 

Again, it's been mentioned so I will just say in passing it strikes us as inappropriate to be reexamining something that was tried with the U.S.-Canadian Free Trade Zone on a value measurement of the country of origin marking.

It was tried, it was rejected.  It doesn't seem to be appropriate unless there is some rationale that we haven't heard yet, to go back and redo that.  

One quick comment on this, and that is there is proposals here that things like packaging would be exempted if we did go this route.  And I would say that for a lot of our products that wouldn't make sense.  There is significant cost in a lot of the packaging, it's U.S. cost.  The packaging is purchased in the U.S.  All of it is done in the U.S., and to exclude that would seem to be appropriate.

As a final comment, I guess I want to kind of throw back to the Commission the real problem that I see developing here, and that is that the percentage content standard I don't think really solves the issue as we are now developing.  And that is, if in fact we recognize that this is going to be separate from Customs, and if we accept that in fact the enforcement element under the unfair and deceptive trade concept is distinct and different from a country of origin as applied by Customs, then it's totally illogical to apply that only half way.  You would have to apply that also against all the imported products that are in the country. 

And, yes, Customs could dictate as to what the country of origin would be for marking purposes as far as entering the country, but it would be just as unfair trade and just as deceptive if you don't apply exactly the same standard to "Made in Japan" in terms of not having a qualifying statement. 

So in that case I would submit that if we go that route you would expect to get and should get cases in which we will investigate and we will find that product is not entirely Japanese, and we are going to bring unfair deceptive trade against that because there is no real basis anymore that you could have one and not the other.

MS. KOLISH:  What about the notion that people have raised that the foreign origin claims, with the exception of maybe a few certain categories, aren't that important or material to consumers?  That they react more strongly to American-made claims?

MR. PALMQUIST:  Well, I think we --

MS. KOLISH:  Would it be useful -- should we be spending our enforcement dollars on something that isn't important to consumers?

MR. PALMQUIST:  If in fact you are enforcing things that are deceptive, then the issue is not picking just the things that are important to the consumers as being deceptive.  The issue is whether it's deceptive or not deceptive.  And if we separate from Customs, I think, yes, it is a factor. 

Beyond that, I think if we went out and took a survey, that we would find that there really is not any clear cut definitional standard that the average consumer understands that the "Made in Japan" is in fact a different standard than "Made in USA."  

MS. ARNOLD:  Okay.  Steve?

MR. BECKMAN:  Again, I think we're often talking about this subject as if it's a mandatory standard, and I just want to restate that it's not.  If you don't want to do it, you don't have to do it.  You don't have to incur any cost at all.   

I think we are underestimating the capability of the corporate auditors who are already employed.  I have found them to be quite creative when called upon to solve a variety of problems.  

The NAFTA standards are being criticized for being too tough.  I was personally involved in a lot of the discussions of the NAFTA rule of origin, not just for the auto industry, but for other products, and I know that a lot of them got off very easy.  So I am not terribly sympathetic to that either.

There has also been a lot of carping about all the difficulty corporations are going to have taking account of currency changes and different mixes of products and costs.  Well, if their accountants are doing their job, they know what their costs are, and they hedge the exchange rate risks.  They do a variety of things to try to spread out or recognize what costs are going to be.  These are not insurmountable problems.

What I do hear though consistently is don't make us do anything.  We want to use the substantial transformation because it's really easy to do.  It's clear and it doesn't require much of us.  And that's not what the FTC's role is here, and that's not what we are talking about.  We are talking about whether -- what consumers want, which is when they buy a product that says "Made in USA" know that it's making a significant contribution to the U.S. economy, whether they are being misled or not by what the FTC is requiring.  

And I think we just have to make sure that that's what we are talking about rather than whether it's easier or hard for businesses to do something that's entirely voluntary. 

MS. ARNOLD:  Okay, let's hear from Steph and Tim and then I think we are going to wrap up for the night.  

MR. ZIELEZIENSKI:  Thank you.  Steph Zielezienski for the Association of Appliance Manufacturers.  Mike Thompson had to leave so I am filling in.

As Mike mentioned earlier, we support the NAFTA rules which differentiate between major appliances and portable appliances.  I would just like to make a brief comment.

I think one of the participants said that having a percentage standard would provide an incentive to move jobs offshore.  I would just like to say for an industry like the portables where the standard, it's very hard, if not impossible, to meet the standard that's currently in place.  Having a percentage standard might just provide an incentive for having more jobs in the United States, or at least keeping the jobs that are existing there now.

MS. ARNOLD:  Tim?

MR. HARR:  Lauren, in defending her content test has mentioned Buy American Act, and I would just point out that that act would solve some of the burdens of keeping track of a content test in the sense that it brings forward or takes a one-step back test calculation of the content.  And that may solve the problem.  But it's not too surprising that the Buy American test, in a sense, seems to be an appropriate one because it was, after all, developed to favor American products, and it's supposed to include some assurance that those products are truly American or have enough American content that they deserve some benefit.

So it would make a difference if you could use that just one step back that the Buy American does have.

MS. ARNOLD:  Okay, let me see if most of your points, and then let's talk about our schedule for the morning.

There is some suggestion to start early.  If we start early, and get through our business tomorrow, it means that we can end early.  

I don't know if you are tireder or if you are willing to let -- a couple of you made comments --

MR. BECKMAN:  Microphone.  

MS. ARNOLD:  I'm sorry.  I would think I would be used to it.  Thanks.

What I am hearing is that on the positive side if we go with, if the FTC decides to go with a percentage content standard, that there is an interest in the net cost concept because you are taking out the non-originating costs, and it's important to consider the net costs.  That was on the positive side. 

And there is lots of negatives.  Basically, it's an administrative nightmare for companies and for government for a whole series of reasons, and I will list what I heard.

Because it's difficult to track, because of currency fluctuations, the cost of administering, the rules may vary between different kinds of products.  I tried to write down what I heard, and I think that some of you were redundant.  

And part of the challenge would be that you have to reconcile the FTC, the IRS and Customs, and that would be a real challenge to do. 

Other negatives were that the 50 percent is actually too low; that it's not at all hard to meet, and that if you are going to go with a value added, the percentage should be higher.

It's a subjective value test, and many of you said that that it would be arbitrary, which isn't a rational way to make a policy.  

Then, again, on the positive side there are products -- for products where it is administratively easy to trace component parts, it may in fact be a good idea, and that came from your colleague, Michael.

On the negative side, again, the value added is arbitrary, so it may work for some, but not others.  The value added may not be defined if made in the U.S.; value added is irrelevant.  There needs to be consistency with the existing laws, and this may not be.  When making a product, you need to combine, but this was getting to your points, and I don't know if I caught them all, Jerry.

There needs to be -- when making a product, when you are combining the components A, B and C, in order for different companies -- in order for a company to know what that combination is, you may get involved in antitrust concerns.  That's what I took from that.

I didn't catch your second point.  

And then from a regional context, value setting, what you may be doing is starting to set precedent that other countries may start picking up.  There was an example that was offered.  

VOICE:  The second point was dumping.

MS. ARNOLD:  The second point was dumping?  

Okay, I got dumping.  That there was a concern that it may cause dumping by providing incentives for companies to drop prices so they end up meeting the criteria.

On the positive side, it could be a guide regarding the "virtually all" standard.  Maybe using the percentage content standard could be a guide for us if we moved back to the percentage content standard -- the "virtually all" standard question.

If we went back just one step, it is possible for companies to track their costs since many of them are doing it already.

On the negative side, this is a -- this concern about conflicts between FTC, Customs, IRS and reconciling all three, and a number of you said that the percentage content standard does not meet criteria regarding what "made" really means.  

A specific standard is not flexible enough to accommodate potential variables.  Consumer could or would be deceived.  Companies who are trying to save costs and trying to stay within the percentage might end up moving offshore.

On the positive side, it allows companies the ability to distinguish between a high and low percentage content and allows companies and consumers, I should say, it allows companies to out source.  The objective is offering clear guidance regarding what obligations particular companies would be.  It can be flexible even though there is a change in the production process, or there are variables.  So we are hearing conflicting concerns there.

It is the same as a Buy American Act, and the Cooperative Development Program, did I get that right, Lauren?

MS. HOWARD:  Yes.  

MS. ARNOLD:  Yes, is that right?  Okay.

NAFTA is actually using a value test.  It accounts for changes in the product and the value test is a safety net of threshold.  There was a thought that greater than 50 percent was a logical place to start off if you are coming down from 100 percent.  

It catches most of the companies that might be in production.  There was a thought on the positive side that it might keep companies in the U.S., manufacturing the U.S., contrary to what others said.

And in the negative again, it's not consistent with other laws, and it may be inconsistent with country of origin standards set by other countries, for instance, Canada.

So those are what I was hearing on the positive and negative side.  What we really want to do is go back and see what people were really saying when they were -- when there appears to be contradictory comments coming from you.  I think if we asked you questions, we would be able to clarify why there are some contradictions.  Maybe we are talking about apples and oranges versus apples and apples.

My guess is that we will be coming back to this tomorrow after we talk about substantial transformation because my guess is that somewhere in the midst of all these different proposals are going to be some common themes or ideas.  But looking at the faces around the table now, I am not sure that we have ideas right now, the magical wand.  That's what I am looking for.

What we are going to do tonight is go off on our own, and then tomorrow morning I would suggest that we started at 8:15 rather than nine.  

Who could not -- 8:30?  Who could -- 

VOICE:  People have left.  Who is going to tell the people who have left?  

MS. ARNOLD:  Our parties have left?  

VOICE:  Yes.  

VOICE:  They had to get their car.  

MS. ARNOLD:  Who is not here?  

MR. BECKMAN:  Phil left.  

MS. ARNOLD:  Can we call him at home?  Do we have a phone number?  

(Miscellaneous comments.)  

MS. ARNOLD:  I mean we are talking about just trying to get going earlier.  

MR. BECKMAN:  Phil will be here. 

MS. ARNOLD:  Who?

MR. BECKMAN:  Phil Hutchinson.  

MS. ARNOLD:  I suggest that we start at 8:30.  Those of you who are from out of town will get to go home earlier if we start at 8:30.  How is that as an incentive?  

MS. KOLISH:  Some of you were here at ten of seven this morning, so we know people are tending to show up early.  

MS. ARNOLD:  So we will reconvene tomorrow morning at 8:30, and we will focus on the substantial transformation.

Thank you very much for all your work.

(Whereupon, at 6:58 p.m., the meeting was recessed, to reconvene at 8:30 a.m., Wednesday, March 26, 1996.)

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C E R T I F I C A T E

DOCKET/FILE NUMBER:P894219  

CASE TITLE:MADE IN U.S.A.                

HEARING DATE:March 26, 1996

I HEREBY CERTIFY that the transcript contained herein is a full and accurate transcript of the notes taken by me at the hearing on the above cause before the FEDERAL TRADE COMMISSION to the best of my knowledge and belief.

DATED:  March 26, 1996

SIGNATURE OF REPORTER

  Gary Sabel                  

(NAME OF REPORTER - TYPED)