DKT/CASE NO.:P894219  

TITLE:MADE IN U.S.A.                

PLACE:Washington, D.C.

DATE:March 27, 1996

PAGES:367 through 629

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

PUBLIC WORKSHOP

Date:March 27, 1996

Docket No.:P894219

FEDERAL TRADE COMMISSION

WITNESS:PAGE:

None.

EXHIBITS:PAGE:

None.

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

                               (8:52 a.m.)

MS. ARNOLD:  Good morning, everybody.  Let's find our seats please.  

Good morning, everybody.  I hope you all had a good rest.  You're ready to go.  Those of you who are from out of town, thank you for bringing us the crystal-clear weather.  Let's hope it stays.

Last night before we adjourned, I did not ask if any observers had any comments on the percentage content standard.  

Are there any comments from observers?

(No response)

Okay.  Then we'll move forward with substantial transformation.

Yesterday when Sandra was making us her presentation, I, as you know, you saw these, wrote down what I heard.  And I guess my question to all of you, are there any questions about the definition that we're currently using, at least in this discussion today?  A good wholly produced, country of origin is where it was last made, where it was substantially transformed.  And we're really looking for substantial transformation to whether or not it has a new name, character and use.

Okay.  Then let's get going.  What are our interests and concerns about this?  What are the pros and cons of the FTC adopting a substantial transformation standard for "Made in USA"?

Jan is to be on the negative side of the ledger today.

Jan.

MS. ARCHIBALD:  I just thought I was quick off the mark for a change.

MS. ARNOLD:  You're out of the chute.

MS. ARCHIBALD:  Yes.  We do oppose the substantial transformation rule and for several reasons.  First of all, I believe that it would end up with respect to many products deceiving a fairly large segment of the U.S. public.  It would allow "Made in USA" labels on products with, as Sandra indicated yesterday, in some cases far less than 50 percent U.S. content.  

If you will recall the FTC copy test that we discussed yesterday, 57.4 percent of the public disagreed, strongly or somewhat, with the "Made in USA" label applied to a product that had 50 percent U.S. content, 50 percent foreign content.

The second problem with the substantial transformation test is that it would probably create very inconsistent results.  Yesterday Customs noted that it's based on a different question entirely than the question of consumer perception.  It is based on the question of whether or not a product has undergone a change in its name, use and character.

If you have, as I'm sure everybody here has, looked at the rules of origin, the notice of proposed rulemaking, that Customs put out in January of '94, there's quite a lengthy discussion by Customs about the application of the substantial transformation test.  And in that discussion they note that the application of the rule involves considerable subjective judgments, that it's non-systematic, that the judicial and administrative decisions in one case have little bearing on another case.  I don't think that this is going to give the kind of consistency and guidance to business that most of the people around this table are looking for.

Why don't I stop there and I'll reserve my time for another shot.

MS. ARNOLD:  Okay.  Jerry and Lauren.

MR. COOK:  Hi.  This is Jerry Cook from the United States Apparel Industry Council.  

I guess fundamentally on the -- and this is looking at it more from the apparel/textile side.  Two things, one, on the apparel/textile, is the "all or virtual" exists.  And the way that works today is fine.  Once you go beyond that, there's some changes to that.  It's very important to be in harmonization with U.S. Customs, both on the exporting side and for purposes of importation.  And for that reason, we would be supporting the, in this case, the substantial transformation as your second criteria.

I think overall you have to get in and realize that most products today are still not wholly manufactured when you start back at the base cotton or the base cow or where the actual rock comes from ore going forward.  And that the process that Customs has put in place today is a process, and again it goes back.  

I think one of the things that's missing in our analysis and discussion is how do consumers perceive a "Made in USA" label when it states that as compared to a "Made in Mexico" or made in another country because in the world of Customs, there is harmonization in a lot of the "Made in" the country of origin criteria that needs to be taken and a relative comparison to the "Made in USA" claim.  I think you can't discount that.

MS. ARNOLD:  Okay.  I didn't get the link between consumer perception and the Customs standard procedures.

MR. COOK:  I guess the link that we're focusing on is the linkage that when a consumer reads -- and it says ""Made in USA" and they're comparing it to a garment of same price, same quality, same equivalency, and the other garment says "Made in Italy," the question you have to deal with is is to the consumer what you're saying "Made in Italy," is that an equivalent meaning as ""Made in USA," because that criteria for "Made in Italy," is one of transformation as opposed to some content or some other criteria basis.  And you have a perception problem perhaps that we create without using substantial transformation, just because imports are based on a different basis.

MS. ARNOLD:  Okay.  Lauren?

MS. HOWARD:  Well, I guess this is going to surprise Jan, because I'm going to agree with some of her remarks this morning.

MS. ARCHIBALD:  Why should I be surprised?  You have very good judgment.

(Laughter.)

MS. HOWARD:  On everything?  Oh, okay.

MS. ARCHIBALD:  No.

MS. HOWARD:  Thank you, thank you.  And it also may surprise the Commission that a domestic industry could think that some test is too low.  Our industry is not in favor of every company that has a telephone here being able to mark their products "Made in USA."  

We do think that there needs to be some substantial domestic content before a "Made in USA" claim can be made.  And our concern with the substantial transformation test is that it does not necessarily ensure that a product has substantial domestic content since some products could be merely assembled here from all foreign components and might meet a substantial transformation test.  And Customs admitted that yesterday.

Also we are concerned that manufacturers will not be given clear guidance and will not know what their obligations are under the law.  And we are looking for more predictability and consistency out of these rules.

And yesterday Customs did admit that one of the reasons that NAFTA went to a tariff shift approach was to codify the substantial transformation and to give more certainty to the process.

So we do have concerns about the substantial transformation test.

MS. KOLISH:  Can I ask a clarifying question please?

I've heard, and I read in your comments, that people are concerned that a substantial transformation test doesn't necessarily ensure there's a lot of domestic content.  But in the way Sandra described the process yesterday, it sounds like something substantial has to go on to have a new name, character and use.  

Is this problem with a lack of substantial domestic content limited to a small class of products, identifiable class, or is it an across-the-board problem?  I mean is there a way that it might work for more than half the products or three-quarters?  And maybe an alternate test for something to fill in the gaps, the way they do with the NAFTA preference rules?

MS. HOWARD:  I'm not sure I can quantify that because I don't have Customs' broad experience, but it seems to me it could be across the board, and you could, as Customs admitted yesterday, could have merely assembly being sufficient to give the product a new name, character and use.  And we feel that there might not be enough value added here to qualify a company to make an unqualified "Made in USA" claim.

MS. KOLISH:  Sandra, do you have views on how often the substantial transformation test might not result in a lot of domestic content being added?

MS. GETHERS:  Well, when you say "merely assembly,"  are you talking about the number of parts versus the origin of the parts?  We don't really -- we don't normally allow what's called a simple assembly to confer origin in the first place.  So it's usually a complex assembly that's required or it's considered not a simple assembly because one of the major components actually is domestic.  

But if you're talking a situation where it's a complex assembly but all the parts happen to be foreign, and that's narrow, yes, you will have a change in name, character and use.  And you will have a situation where the domestic content is only represented in terms of the labor costs involved.

So I'm not sure whether that's what you would be looking for in this scenario.

MS. HOWARD:  Well, we just want to ensure that there is sufficient domestic content to qualify for use of the labels.

MS. GROSSMAN: Sandra, just a further clarifying question.

Yesterday you used the example of the PROM becoming a ROM.  Is that an outlier or is that an aberration or is that more --     to what the substantial transformation test is about?

MS. GETHERS:  That's basically an example of substantial transformation only in the context by that type of product.  In that scenario, you know, it's a question of what you're looking at when you are comparing costs.  In that scenario, if we looked at, you know, before we went to court, the costs of the time involved and fabricating the initial chip versus the time and cost involved in programming that chip.  We did not look at the initial capital investment involved in fabricating the chip or the capital investment involved in developing the machine to be able to program the chip.  The cost involved to train the engineers to be able to develop a program to program the chip.

So that's why when you're talking about the value, we're not focusing on the value.  We're looking at the effect of what's happening.  And it may or may not coincide, but it's not necessarily the result of substantial transformation. 

With the shoe, with the upper -- the fully formed upper may be the most value.  In that case, we're saying it's not a substantial transformation.  

MS. ARNOLD:  Michael.

MR. KERSHOW:  Well, one comment I wanted to make is that I'm not sure it's correct to say that the conceptual approach in substantial transformation cases is really all that different from what the Commission is about in making "Made in USA" determinations.

Yes, it's a different nominal standard, name, character and use.  But I think if you think about what that test is meant to reflect, I think it really does reflect, perhaps not entirely, but in large part what we believe consumers perceive about the article.

Of course, the way you go about establishing that is very different.  You don't do a consumer survey and actually poll consumers as to what they think.  But I mean going through that test, I think in most cases results in -- probably brings you to pretty much the same place you would be as if you went out and polled people as to whether they think when you put together the parts of a thing, you know, that that thing is different from what its constituents were.

So I'm not sure that there's all that much of a gulf between the two standards in reality.

As I said in my remarks yesterday, what we were really advocating was more of a hybrid concept, which, again, took as the base a substantial transformation concept as reflected in the NAFTA rules.  

But as Lauren just said, we have a sense, certainly in the bike industry, that the NAFTA marking rules, which, as Sandra mentioned yesterday, are designed essentially to be a codification of existing substantial transformation determinations.

We have a sense that that just does not go quite far enough in particular cases.  It may in most.  But there are clearly situations in which simple application of those bright-line substantial transformation rules just don't get us to where I think fair-minded people would say we need to be.  It doesn't seem right, for instance, that you should be able to take 100 percent foreign-made parts and simply put them together in the United States and tell the consumer that that product was "Made in USA."  

And that's, from my industry's perspective, the major thing we want to protect against.  We don't want to dilute or devalue the claim by allowing products of that kind to qualify for the same designation that a bicycle, for instance, that's made in a factory with the frame fabricated from steel, painted, et cetera, that they be on the same footing.  

I'm not sure at this point in my own mind how precisely we get at that something more that's required in perhaps the unusual case, but there is that need in my mind to do something to guard against that so-called cheating, as I would term it.

That's my remark.

MS. KOLISH:  Michael, would you feel the same way if the claim at issue were "assemble the United States," where you have 100 percent foreign parts that are then transformed into a new product in the United States?  If it's assembled versus made?  Does that make a difference in how people feel about what the standard should be?

MR. KERSHOW:  Well, I would be uncomfortable personally with just allowing a bicycle, for instance, to say "Assembled in USA" if it had 100 percent foreign parts.  I think the claim would need to be broader.  It would need to be "Assembled in USA of foreign components."  Simply because, as I think the Commission actually has implicitly recognized in its proposed rule here, "made" and "assembled" is often interpreted by the consumer the same way.  And I think we saw that in some of the consumer survey data as well.

So a simple "Assembled in" is not, to my mind, sufficient to -- as a claim for wholly foreign-origin- derived material.  

MS. KOLISH:  But I guess I was thinking about one possibility is guidance the Commission could issue with a variety of safe harbors, for example.  And, you know, one safe harbor might be you can use "Made in the United States," where there was substantial domestic content and it's substantially transformed.  Another safe harbor might be where it's viewed as being substantially transformed by Customs even though there's 100 percent foreign parts, and allowing "assembled" to be the safe harbor there.

I'm not saying we're going to do that.  I'm just asking about it, okay?

MR. KERSHOW:  Well, could I ask?  I think it would be extremely productive for myself and I suspect most people in the room who may not be as conversant with FTC policy and practice in this area, if you could explain what you mean by this sort of reasonable basis approach and safe harbor approach.

I suspect we could end this session much earlier than 4:30 today.  Truly.  Because clearly we have a debate emerging here between what seemed to be very divergent viewpoints.  But if I understand the sort of reasonable basis or, you know, safe harbor approach, it basically would create a very big tent under which people with perhaps nominally divergent viewpoints might be able to get.  

So if I'm correct in that, I think it might help everybody to know how that approach would work.

MS. KOLISH:  Okay.  Well, Beth, leap in if I don't state this entirely correctly.

But reasonable basis and safe harbor are different concepts.

MR. KERSHOW:  I understand that.

MS. KOLISH:  Okay.  Reasonable basis is a concept doctrine that the Commission uses for all advertising claims.  Do manufacturers have a reasonable basis to support their claim?  And how we look at that is not through necessarily rigid rules but do they have enough information that reasonable business people would agree that claim is truthful and substantiated.

In some instances, the Commission actually has regulations where they say, for example, the R value rule to make a home insulation claim, you must use this particular ASTM test.  Or for the energy guide that Mike Thompson puts on his products, you have to use the DOE test standard.  That's not a reasonable basis approach there because we've actually specified which tests and only that test will satisfy the requirement.  A reasonable basis is much broader, more encompassing.

When I talk about safe harbor, sometimes the Commission does policy statements where they say, "You should have a reasonable basis for your claim, but we'll tell you which ones we think are going to be almost always okay, or are unlikely to have a problem.  And that's what a safe harbor would mean.  If you have this much evidence, or support, we won't think it's a problem in most instances.  And that's usually what a safe harbor is.

MR. KERSHOW:  Right.

MS. KOLISH:  Do you want to elaborate on that, Beth?

MS. GROSSMAN:  Yeah, a little bit.

Reasonable basis is simply the terminology that we use at the Commission for saying that a claim has to be substantiated.  You have to have a reasonable basis for any claim you might make.  There is a case called Pfizer that sets out seven factors I think about what you look for in determining what's a reasonable basis.  It has to do with the nature of the product and the nature of the claim.

And generally, reasonable basis, when we're bringing cases, is looked at on a case-by-case basis.  So that -- and that over time it sort of evolves into being more clear.  And in drug cases, when you're making health claims, often times the Commission tends to require that a reasonable basis be clinical studies for a serious claim like that in that kind of product.  For, you know, a claim that two out of three consumers prefer Coke to Pepsi, we would require much less evidence.  And so it's context specific.  To give you some of the backgrounds.  

So what I think Elaine is talking about is saying that we're articulating our standard that we would require a reasonable basis for all claims and maybe then allowing -- one of the possibilities people have brought up is allowing safe harbors for particular determinations, that whatever reasonable basis means, certainly if you comply with these formulas or these criterias, you would meet reasonable basis.

Does that help?

MS. KOLISH:  Those safe harbors would not be mandatory.  They would just be if you met that, you would be okay.  You are free to meet the standard in other ways if you choose.

MR. KERSHOW:  Right.  So in theory, you might say we're aware that there are NAFTA preference rules, where there are NAFTA marking rules, and you might outline a set of regimes that you might identify as safe harbors.  And if a particular manufacturer can establish that for its product that safe harbor is met, then they would have a reasonable basis for making a claim.

MS. KOLISH:  Right.

MR. KERSHOW:  Okay.

MS. KOLISH:  That's a possibility.

MS. ARNOLD:  Does anybody want to make a comment right now on this concept of reasonable basis or safe harbor?  Because we can go off into a short discussion about it if you want.  Or else we can keep on with the substantial transformation. 

And I'm really open to the will of the group.

MR. ABBEY:  The answer is yes.  

MS. ARNOLD:  Yes, you would like to go into a discussion.  Okay.  

I still have the list of those of you who want to make comments on substantial transformation, and we may get back to you if someone decides they want to.  But now, for right now, let's --

MS. KOLISH:  I didn't mean to divert you all.  I just --

MS. ARNOLD:  Well, it may be that it makes sense to.  I don't know.  Let's see where it goes.  Let's see where it takes us.

Let's then have some comments on either the reasonable basis or safe harbor for particular determinations.

And do I read it that the cards that are up want to talk on this?

Okay.  Jim, why don't you start?  

MR. CLAWSON:  I think it's very important we discuss this now because I think business, private sector, is very comfortable with whether you call it reasonable basis or generally recognized as safe in the FDA context or good manufacturing practice in other -- the ISO-9000s.  I mean we have lots of those kinds of reasonable basis to do things.  

And I think an answer to what Elaine is saying that substantial transformation was a Customs term of reasonable basis for the claim.  I mean it's "What did you do in a context?"  And we spent a lot of time for many years in the Customs area trying to determine, you know, the subjective thing and the courts and rulings and whomever did what you are just describing as a type of safe harbor that people knew that if they reached a point where they could do certain things, that that would be accepted as substantial transformation.

MS. ARNOLD:  Let me just ask a question for clarification.

Do we necessarily tie these two together?

MR. CLAWSON:  No, no.  

MS. ARNOLD:  Okay, okay.

MR. CLAWSON:  No.  I mean from my perspective, I'm not necessarily. 

MS. ARNOLD:  Okay.

MR. CLAWSON:  I'm just commenting on both.  And I'm saying that they tend to fit in the sense that if under a reasonable basis you can create some safe harbors that are considered reasonable basis.  

MS. ARNOLD:  Okay.

MR. CLAWSON:  The other way to do -- and part of how the whole tariff shift approach came was a type of -- more than codification.  It was a type of process-based, if you will, safe harbor that says I can look at a line, so I could look at a -- what was it that you called it?  An issue guidance?  As a businessman, I don't have to come ask for a ruling.  I don't have to be concerned.  I can look at something and say, if I do this, I'm okay.  

And I think that's what business is really looking for.  A lot of times it isn't, you know, exactly what the rule is.  It's informed compliance.  Just tell me what the rule is and what I have to do to comply with it.  And that's really part of what this is about.  And don't change it every three years.

MS. ARNOLD:  Unless it makes sense to.

MR. CLAWSON:  Well, there are some companies who tell you they don't care, you know.  Just whatever it is, consistency is more important.  

So I think why it's important here is what Michael was saying earlier, is if the Commission can look hard at their existing reasonable basis and how in this area they could come to some sense of what are safe harbors, what are issue guidance, that would provide to the business community the kinds of consistency and protection that they're looking for, you may be able to resolve a lot.

Because if I can be so bold, basically what the "Made in USA" rule that right now is a preference rule, and this is another big issue between preferential and non-preferential, that we fight over all the time.  What's a preference rule and that sort of thing.  

And I think Jan is absolutely right and others who have described it as a -- this is a preference rule, meaning in the sense you are creating a preference for those people to use it.  Preference rules are generally much higher standard in terms of whatever it is, if we're creating a preference for somebody, whether it's a preferential trade agreement or a preferential content, it's a preference rule.

And whereas the Customs marking is a non-preferential rule.  And that's why we are in this great dilemma of how you mesh the two.

And so what a safe harbor can do for you is create this preference rule in a context that people can provide as -- we've talked around the room for the preference or non-preference as the case may be within a big tent.  

MS. ARNOLD:  Thank you, Jim.  

Robin?

MS. LANIER:  At last.  Something I can be for.

Although we didn't use these words in our filing with the FTC, let me say to you that this is what we meant.  Okay?  Actually we did come very close to using these words.

In our view, the best that the FTC can hope for is a guidance document like the Green Guides.  We were very involved in the initiation of the Green Advertising Guides.  We did not participate as an individual trade association in the workshops on them but through other participants.  And that was also a very difficult situation where we were talking about standards and we had wide disparity between various folks who had different ideas about what the standards should be.

And yet the FTC was able to come up with a guidance document that I think cut a nice balance between the various parties there by providing safe harbors without nailing down specifically things like the definition of pre- and post-consumer waste, which, trust me, is about as difficult as nailing down the moment of creation.  Okay?

So from our perspective, although we like substantial transformation because we're an international trading organization and we like the Customs rules, the Customs rules are likely to change.  They are going to go to tariff shift and eventually, we hope, there will be a WTO rule and over time they will change.

So what we have recommended to the FTC is that they go to something that we termed a processing rule.  That is, the consumer really cares about where a product was made.  Again, I'm going to say I don't know exactly what that means.  The consumer has some concept of what that means.  But what that means changes for different products.

I would argue that a consumer probably figures that the assembly line in Detroit makes cars.  Okay.  Maybe our current law doesn't allow Ford to label them that way, but I would guess that the average consumer would say, yeah, Detroit -- Ford makes cars.  They make cars in the United States, irrespective of where the parts come from.

Obviously some operations under substantial transformation might be viewed by the consumer as simple assembly operations and don't meet that test.  Others clearly would qualify.  I'm going to use the textile example again.  There are separate rules for textiles and I'm not recommending a change in the textile rules.  But, for example, I think few consumers would argue irrespective of the labels that if you cut and sew and trim and package and otherwise make a shirt in the United States, you made a shirt in the United States.  It's like cooking dinner.  It's like you made the dinner here and it doesn't matter where the yarn came from.  

Oh, and by the way the NAFTA rules for textiles and apparel can't say that you made the shirt in the United States if the yarn came from Australia for the fabric.  

So there are some rules there that go way beyond what I think the consumer would say was the moment of creation and yet there are other rules that don't meet that test.  

The best the Federal Trade Commission can do is to say we think you ought to -- you can label "Made in United States" if you made it here.  Okay?  And you must have a reasonable basis for making that claim.  What is the reasonable basis?  Well, it could be a number of things.  It could be to substantially transform it.  Did you change its name, character and use?  Was there enough value added?  You know, did you have a significant manufacturing presence here?  Not necessarily assembly, by the way, because there's lots of manufacturing that goes on here that isn't assembly.  And a whole list of factors on how one would go about devising a reasonable basis for saying, yeah, I made the product here.  Okay.

And then the best that the FTC can do is to provide some safe harbors.  So, for example, if you wanted to put advertising that said 100 percent U.S. made, it had better be all or virtually all U.S. made.  Okay.  And other kinds of safe harbors.  And then duke this out on a case-by-case basis.  I mean if a company, if an advertiser, decides that they want to go beyond a safe harbor that's provided by the Commission, they can.  They can have their reasonable basis, and then if the state AGs don't like it or if somebody, if a competitor doesn't like it, because there is a private right of action here, then there will be a case and we'll fight it out.

I think that the advantage of this approach is that it's very flexible and can be amended at a point where we have some harmonization in the standard.  And lead to I think less bizarre results than saying, yeah, we want substantial transformation, we want this, we want that.

Now, don't get me wrong.  I think substantial transformation probably comes closer than any other standard we've talked to to the moment of creation, which I think -- or the place where a product is made.  But there is obviously some debate around the table among my suppliers.  I mean the people who make products that we sell, okay, has to, you know, whether it's enough.

So we really wholeheartedly support this and we really do hope that the FTC will look at this to the solution to this impasse.

MS. ARNOLD:  Okay.  What Robin has done for us is flushed out a possible reasonable basis rule that she's calling the processing rule that I'll just put up here.  Then let's hear from others.

Michael Thompson.

MR. THOMPSON:  Okay.  Last night I mentioned that our industry, the appliance industry supported the NAFTA preference rules, and I wanted to just put this into context that we're talking about right now.

I indicated that for the portables division, we supported a value content or a 50 percent content rule which we would vehemently oppose changing or stick close to that point of view, but for the majors, we support very strongly the substantial transformation rules as envisioned under the NAFTA preference rules.

And for us, that involves a double tariff change.  In other words, there are two major changes that have to take place in the United States, if you will, in order to qualify for a rule of origin.  And in this case, we would suggest that that rule of origin as envisioned under NAFTA be transferred to the "Made in USA" discussion we're having today.

I'll give you an example, a couple of examples, of what's involved.  Hose washers, for example.  You have to have at least four major subassemblies put together in the United States, and then those subassemblies have to be transformed, if you will, with another tariff classification change into the finished product.  The subassemblies include things like control board/panels as one.  The tub and tub assembles.  Cabinets and cabinet cases.  The washer assembly, which is the very heart of the machine itself, including the agitator, the motor, the clutch and so forth.  One other example, the dishwashers.  It includes the door assembly, the control boards and panels, the water containment chamber, which, again, is your tub.  And the water circulation system.  

This doesn't include just minor screwdriver-type operations that you might find on a maquilladoro along the Mexican border.  This is major investments.  It's scores and scores of millions of dollars.  And the net effect is that an entire plant would have to be built in this country to qualify for that NAFTA rule of origin.

So what I'm getting to is in this particular case, reasonable basis, as far as determining the fact that this was built in this country, is pretty clearly there, with the double tariff classification change.  And so for that reason, we would support, as I said last night, the NAFTA rules of origin.

With respect to the safe harbor provisions that we're alluding to right now, in concept we would support the idea of safe harbors.  It wouldn't be as difficult for our portables division.  Again, when there's less complexity in the way the materials are assembled and put together in the finished product.  It would be more difficult for our major division, major appliance division.

So those are basically my comments and thoughts on that one.

MS. KOLISH:  I heard what you said about the double tariff shift.  I'm frankly still a little puzzled by what double substantial transformation means.  

Is there a way of conceptually -- does everybody else understand it and I'll just be --

MS. GETHERS:  You're not referring to double substantial transformation, the concept for --

MR. THOMPSON:  I'm talking about two tariff classification changes.

MS. KOLISH:  Oh --

MS. GETHERS:  And they're not necessarily the same thing.

MR. THOMPSON:  Yeah.

MS. KOLISH:  Okay.

MS. GETHERS:  Not necessarily.  That's a special rule that's in NAFTA for certain products.  That's how they provide for the preference as opposed to putting in a value-content requirement.

MS. KOLISH:  I see.

MR. THOMPSON:  Basically it's a pretty labor-intensive as well as process equipment-intensive way to put together a rule of origin for qualifying for preference rule.

MS. KOLISH:  Okay.  

MS. ARNOLD:  Dave.  I've got Dave Levine, Gail, John, Jim and Philip.  

Is this on the reasonable basis?  Okay.  We're still on the reasonable basis/safe harbor.  Okay.

So, David.

MR. LEVINE:  I sort of tie together substantial transformation and reasonable basis.  And I wanted to first point out that I think this notion of mere assembly, which connotes a screwdriver kind of snap-together plant is something that is not synonymous with substantial transformation, as I think Sandra has pointed out.

Substantial transformation is a notion that is more synonymous and I think to most people means something closer to what "Made in" or "Produced in" actually means in the ""Made in USA" term.  And it's not really a question of lowering the standard so that everybody can meet it or keeping the standard sufficiently high so that only a few industries or companies can meet it.  It's really the question of making the term "Made in" or defining the term "Made in" in a way that's reasonable.  And that's exactly where I think the FTC's reasonable basis standard comes out.

I guess I'd like to support what Robin said in that sense because maybe for some industries it's going to be slightly different.  The substantial transformation rule may equate to a less domestic content than for some other industries.  But I also think that it's not really a question of creating a preference rule.  The "Made in USA" standard literally is a term that has to mean the same thing as "Made in" wherever else, in Customs terms, or whichever agency applies the standard, it comes out.  It can't be a different definition for what are the same words.

I'll leave it at that.  

MS. ARNOLD:  Okay.

Gail.

MS. CUMINS:  I guess what Elaine has articulated is that our position has always been on behalf of the American Association of Exporters and Importers.

I think it has to be clear that when we are talking substantial transformation, we're talking of a codified set of rules which are reflected in the NAFTA marking rules, not the NAFTA duty preference rules.  We say that to eliminate the subjectivity and provide consistency for business and consumers and distributors and anyone else involved in the product.

We have never said that it had to be an absolute test, but basically if you met the NAFTA marking rule substantial transformation requirement, fundamentally a tariff shift approach, you would be creating a presumption.  Or to use your terms, a safe harbor reasonable basis, which could perhaps be rebutted but only on a prospective basis.  So that if you met these requirements, you were fine for what you did in the past, given the Commission always the flexibility to determine that perhaps for this industry this product that requirement was not sufficient.

I think it important to understand where these NAFTA marking rules -- how they work.  They very much distinguish between discrete components and parts.  And fundamentally when you are bringing in a dedicated part, which under the U.S. Customs tariff, normally is classified in the same heading or a companion heading as the finished article.

The rules do not create a tariff shift.  So you have to go beyond that part to a component thereof and create the subassembly or the part for most sophisticated manufactured goods to meet the tariff shift marking rules of origin.

So for those of you who are concerned about screwdriver plants, fundamentally, I can't say totally, but in general, that does not happen, because once you get a dedicated component, you don't have your tariff shift.  You can't bring in all these subassemblies and simply put them together and say, "Aha, I've made it in USA."

I think it's reasonable.  I think it's something the consumer can understand.  And I continue to be concerned about deception.  You only deceive someone if you tell them something different than what it is.  If there is education and publication of whatever reasonable basis you adopt, whatever standards you adopt, and a manufacturer is complying with that reasonable basis, then the consumer cannot be deceived.

I continue to go back to what I said yesterday.  One thing was clear to me.  I agree with Robin.  I don't know what the consumer means when we're talking "Made in."  I think the perceptions are in the eye of the consumer.

Well, whatever standard you agree to, you can tell the consumer what "Made in" means, and if you meet that standard, there can't be any deception.

So I think the reasonable basis, safe harbor, and perhaps you have more than one standard or want more than one basis or safe harbor, but we would certainly say, only because it's been codified.

And Sandra was too modest.  That codification took years of effort.  Hundreds of hours of industry consultation, mostly I would say with domestic, if you will, manufacturers, but also with every association, to come up with an acceptable test for transparent definition of substantial transformation.  That that certainly should be one of the Commission's, if not the paramount, reasonable basis and safe harbor for marking something "Made in USA."

MS. ARNOLD:  Okay.  What I am beginning to sense is that rather than talking about whether or not a reasonable basis approach makes sense, what we're starting to do is discuss what ought the reasonable basis approach be based on.  Which is fine.  

And so my guess is that those of you who are concerned -- you are probably wondering why is she letting them talk and I wasn't able to talk on substantial transformation.  Just put your cards up and we'll figure out where you're going.

It would be nice for the Commission to know not only why substantial transformation or another basis ought to be the basis of the reasonable approach, a reasonable basis approach, it would be nice to hear more of the kind of comment that Robin offered, which is why a reasonable basis approach and what criteria or what is needed from your perspective on how to determine what reasonable basis is.  And it was not just focused on the defense of substantial transformation.

I think it would be useful for you guys to hear about that.  If there is receptivity to this, we will base the safe harbor approach.  

What that then, are there any --

MR. REYNOLDS:  Could I make a brief point of clarification?

MS. ARNOLD:  Sure.

MR. REYNOLDS:  I think people are confusing two standards here.  One is the FTC's deception standard, which is trying to figure out what the claim is saying.  And as far as I understand that standard, it's a statement that would be likely to mislead a reasonable consumer, is how a reasonable consumer would interpret it.

And then the reasonable basis approach is used in determining how the manufacturer is going to substantiate that it's met that standard.

And I have a sense that around the table people are confusing those two standards, and using the substantial transformation as a reasonable basis approach rather the argument should be whether the substantial transformation meets the FTC's deception standard.  

And since it's just a point of clarification and I'm speaking out of turn, I'll just leave it at that.

MS. ARNOLD:  Thank you.

I think what Roger is trying to say is that there are sort of two issues here.  One, what does "Made in USA" mean to consumers.  And then how is it that you document that you comply with that?  If it means to consumer that it's, for instance, all or virtually all made here, what do you look for to substantiate that?  You know, how much evidence do you need to do that?  And those two inquiries are two steps in our determination about whether or not something is deceptive.

I think that sort of necessarily that they get lumped together here a little bit because in trying to decide what the standards should be, we both want to know what consumers take from this and what's reasonable for people to have to support that.

To the extent possible, I'd like to see us get away from speeches and ask questions and inquire of one another as we move through the day.  I think questions to Beth and Elaine is useful, you know, kind of cut through this morass is the challenge.

So we don't just need to hear your speeches, but the questions in trying to get at, well, what are they really trying to -- what is it, what this approach might be, and why is it in our interest?

I've got John Pellegrini, James P., Philip, Tim, Jan, Clark, Cynthia, Roger, Steve Beckman.  And just me your hand who I didn't get.  Charles, Joe Platt.  Who?  Dick.  Okay.  

So let's start with John Pellegrini.

MR. PELLEGRINI:  Thank you.  John Pellegrini, Footwear Distributors and Retailers.

First, I thought the idea of what the Commission would do with this is probably the easiest thing that we were going to discuss.  Because I don't think there's any choice that the Commission has that they have to make a policy statement, examples, something like that.  Look around the room.  Everybody has a different idea of what "Made in USA" means.  Two people have one.  We have a different one.  Not even footwear has the same one.  

I don't think the Commission, unless the Commission decides incorrectly to keep the current standards, and the only thing they can do is make a policy statement with safe harbor as an example, what have you, and then fight it out on an ad hoc basis whenever that's appropriate.

And so I think I would support that view towards what the result of this should be.

Then the idea of what the -- and let's talk about safe harbors.  We don't think, for example, the substantial transformation by itself in footwear is sufficient.  And I'll give you an example.

If I take an upper from China and a bottom from Macedonia and put it together in Korea, the country of origin is Korea.  So if import both the uppers and the outsole, the two major components of footwear in the U.S. and assemble them here, and assuming they don't come from the same country and come in the same shipment, which creates other issues, and assume the upper is not a so-called formed upper, then that assembly in the U.S. creates something which is "Made in USA."  

Importers would not be very happy with that kind of a standard because it would have what is essentially not a great deal of U.S. content competing against imports.

What would be a possibility that I've heard this morning is perhaps a double substantial transformation, which this gentleman spoke to, Michael, which works for electronics.  It might work for footwear, because what that would mean in concrete terms is that you go from material, whether it's rubber or sheets of vinyl or rolls of leather or rolls of fabric, to a component such as an upper, and then take that component and make a complete footwear.  Then you've got, under the Customs rules, two substantial transformations, materials to components, components to the finished article, and if that were a safe harbor, I think we'd be pretty happy.  We could live with that.  

And there's plenty of rulings on what constitutes substantial transformation.  And it's not quite as complicated as it used to be, because even though Sandra says Customs has two sets of rules, as a practical matter, the way I see it, they are applying the NAFTA marking rules to most certain determinations.  And I've talked to lawyers in Customs and as a practical matter, that's what they're doing.  So the rules are transparent.  They are fairly straightforward.  And maybe that's one of the ways the Commission can go.  One of the safe harbors would be a double substantial transformation.

MS. GROSSMAN: Sandra is looking at --

MS. GETHERS:  Can you give me the lawyer you talked to?

MR. PELLEGRINI:  Never.  It wasn't your branch.

MS. ARNOLD:  Okay.  Thanks, James.

John and then let's go to James.

MR. PALMQUIST:  Jim Palmquist.  3M.

Our written comments obviously put us in the pro substantial transformation camp.  And a lot of reasons for that which I'll discuss in a second, but I want to emphasize, and it's not in the written comments, that obviously a flexible standard with the ability of having some different methods as long as one of those included substantial transformation would be a position that we would strongly support.

We are comfortable and business this day has to be comfortable with the standpoint of living with a variety of different standards which would apply.  3M is a company that is forced by its own policies to create brand new products all the time.  Internal standards is that every single business unit has to have 30 percent of this year's sales with products that were invented or made for the first time in the last four years.  

Because of that, and we talked about it yesterday, the domestic content issue and to try to figure out what your label is going to be at the same time we're inventing all these new products is a very difficult thing to comprehend.  And for that reason, we would support the substantial transformation as a place that makes much more sense but recognizing that there's a lot of other industries and a lot of others that could perhaps better use the domestic content.  I have no problem with that also being the safe harbor.

I want to just very quickly say that we agree that some sort of a minor assembly process is not our definition of substantial transformation.  And it's only recently here under NAFTA that substantial transformation has gotten into a code.  Prior to that time, it was a working standard.  And it's only codified as far as NAFTA is concerned at this point.  

We have no problems with a blending here to achieve what is an appropriate definition of substantial transformation.  And, again, I repeat what I said yesterday.  Our absolute number one priority is consistency.  As soon as we start talking about double substantial transformation or anything that gets us into two different standards, you are just automatically going to add the complexity, you could add the confusion.  The consumers are not going to understand what any of this means.  And I think we're heading in the wrong direction.

Finally, I think we support the substantial transformation because I think that's the direction that the world is going.  I think we're going to see the U.S. Government taking that position to the World Trade Organization.  And I would find it somewhat troubling to have us pushing one standard internally in the United States where the U.S. Government is presenting to GATT a different standard.  

I think the world trend is going towards the substantial transformation.  I think it can be modified to reach the kind of concerns that people are talking about here, so it's not covering any kind of minor assembly.  

But it most closely defines the concept of what is "Made in the U.S."

Thanks.

MS. GROSSMAN: I have a question for you, Jim.

You and several other people have emphasized the importance of consistency here.  And the question that we're struggling with, among others, is even if we decide to try to be consistent with substantial transformation, that seems to be a moving target right now.  That we have the Customs rules.  We have the NAFTA marking rules that have been proposed to be used generally.  We have whatever the World Trade Organization may come up with and that Congress may ultimately adopt or not adopt.  And there has even been some suggestions floating out there that the U.S. abolish marking requirements entirely.

And how is it that -- how should the FTC think about this, given that we will probably try to issue a policy sometime before all of these issues are sorted out on the world scene?  How do we think about those consistency issues?

MR. PALMQUIST:  What I would suggest and I would support what Robin said earlier, that I think this has to be broad enough baskets that allows the ongoing flexibilities as these things evolve and are developed.

And in that, I guess I am re-emphasizing again this concept of safe harbors.  But that clearly there is going to be some evolving concepts coming with how the world views where something is made.  And I think we can write the kind of rule that would say one of your safe harbors is to maintain your reasonable basis under those U.S. Customs and the world definitions as they evolve.

If you are foursquare within those, then that would be a reasonable basis and it would be a safe harbor.  It's also fine to have other definitions, and if there's a definition that also says you don't have to worry about that.  You don't have to have anybody on your staff that has any understanding of the harmonized code and whether there's a tariff change or any of that complexity, if you simply know that more than -- pick a number --  50 percent of your product is domestic content.  That's also a safe harbor.  

So that's the way I would answer that.  Create those baskets so they do have the flexibility of meeting those standards.  And business is comfortable working with that.  We're only uncomfortable when we're trying to hit a target that we don't have any confidence that we can render good advice to our business people.  And we're uncomfortable when we are forced to pick between very precise walls that don't allow any flexibility.

MR. ANDERSON:  A couple of people have now talked about sort of on the one side it's important to be consistent and on the other side saying, well, we ought to use the substantial transformation standard so we're consistent with Customs.

And the gentleman over here in shoes was talking about -- pointed out the fact that -- on the one hand he said, "I want to be consistent with Customs."  

MR. PELLEGRINI:  No, I didn't say that.

MR. ANDERSON:  Oh, I'm sorry.  You didn't say that.

But pointed out that under what Customs does, it has to have a country of origin.  If he brings in an upper from Korea and a sole from Malaysia, and sews them together here, it has to be from somewhere.  Therefore it has to be from here.

MR. PELLEGRINI:  No, no.  It's only when I bring in the complete shoe that I have to have a country of origin.  If I do assemble an upper and put our sole in the U.S., I have no obligation to say any country of origin.

MR. ANDERSON:  That's right, that's right.

But if we use the Customs' principles, we would say that shoe is made here.  That's the only -- I mean if you're going to use the Customs' principle, then it has to have a country of origin.

MR. PELLEGRINI:  If it's imported.  

MR. ANDERSON:  No.  But if we were to use -- if that were to be applied to the "Made in USA," --

Am I missing something here?

MS. ARNOLD:  Robin and Steve are going to answer, but I would like to --

MR. ANDERSON:  I guess the question is, is consistency -- I mean can we achieve consistency if we're then willing -- if at the same time we're saying we don't want -- that just simple transformation, simple assembly, is not enough.  It seems to me that that in and of itself is going to lead to cases where you can't be consistent.

MR. PELLEGRINI:  I think where you end up is you ought to go industry-by-industry, product-by-product basis.  Some cases, we might all agree here, that substantial transformation as interpreted by Customs, is sufficient.  All right.  It creates -- it made be all or virtually all in  some few cases.  All right.  In other cases, it's not going to be enough.

Substantial transformation exists for entirely different purposes.  And it moves very greatly from industry to industry, product to product.  And I don't think you can wholesale, throw that rule in as one of the safe harbors.  In some case it'll be fine.  In other cases it will be far too little domestic content, even speaking from imports.

MS. ARNOLD:  Are there other specific responses to his question?  And then we'll move back to our long list.

Robin?

MS. LANIER:  I think they are asking a similar question.  And I'm going to go back to what I said earlier, and that was that in the best of all possible worlds, I'd like to see consistency too.  I represent international companies.  But I don't think that we can achieve consistency, because this is a moving target.  And because you have these fights, these internecine fights between various U.S. producers about whether it's enough or not, whether substantial transformation is enough. 

I want to come back to what the State Attorney Generals are saying.  And that is, the threshold here is what's deceptive.  And it seems to me that the basic standard is, for the FTC to come forward is, look, if you want to say "Made in America," it had better be made in America.

Okay.  I know that sounds circular, but, okay, but that's what your claiming is that it's made in America.

Now, in some cases, in probably 85 percent of the cases, probably substantial transformation would be enough to get you over that hump, okay.  But in other cases, it might not be.  You know, if what you're doing is importing two major components of a shoe, and only assembling them here, while the Customs Service may say that that is a substantial transformation, I'm not sure that the American consumer would agree with that point of view.

I don't know that in producing safe harbors that the FTC can nail down each one of these cases.  In fact, you can't.  Okay.  But you can put in some general rules, and that is, as a general matter, substantial transformation is going to do it for you.  But be careful because it might not be enough.  And if you want -- you know, if you don't think it's enough, I mean if you don't have a reasonable basis to believe it's enough, then you'd better plan on having somebody take you to court.  Okay.

And it's in that adjudication of, well, was the substantial transformation sufficient that we'll get to some of these other issues?  Clearly, I think anybody who meets any of the NAFTA preference rules, which are substantially higher threshold, ought to be allowed to say, ""Made in America."  I think that's a real easy safe harbor.  I mean for textiles and apparel, that's a triple substantial transformation.  Okay.  I mean that would be a very easy safe harbor to give everybody.  It's not my favorite safe harbor.  I would much prefer to have substantial in there.  I think that some of the NAFTA marking rules are extremely protectionist.  I mean I think that that's what they were set up to do.

Okay.  But anyway, that answer to the question, and that is that, you know, the threshold for deception is, was it made here?

MS. ARNOLD:  Okay.  Let's go back to our list because I think we're going to get some folks upset.  Keep asking the questions though, okay.

Philip and then Tim, then Jan, then Clark.  Cynthia, Roger, Steve Beckman, and then there's about six others.

So, Philip.

MR. HUTCHINSON:  I'm Phil Hutchinson, International Automakers.

MS. ARNOLD:  Phil, you need to use a mike.  

MR. HUTCHINSON:  What we were trying to say in our comment was that there should be a case-by-case reasonable basis for making a claim.  I think basically what you have to do is look at the claim, look at the reasons behind it.  It allows an industry like ours to make truthful claims and it allows comparative claims.

I brought this chart, which some of you have seen here, about what is an American car.  And it asks consumers various questions.  Did you know that these cars are made in Canada?  And we show a picture of the car, like a Camero, and a plant where it's made in Canada.  So this allows consumers to look at these pictures of automobiles and to see where they are made.

I think that there has to be different criteria for different industry, and so on this consistency point, I think that you're going to have to look at the various different industries, and I agree and support Robin's comment.  In the auto industry, you can look at plants and investments, and we're talking about million, multi-million dollar -- hundreds of million-dollar investments in plants.  You can look at U.S. content.  You can look at U.S. labor.  You can look at substantial transformation and compliance with NAFTA and compliance with the various consumer notification and marking requirements.

And so I think you could develop some rules for the auto industry and maybe for the shoe industry and others, but I think that there will be grave difficulty in trying to apply something across the board, and we suggest case-by-case reasonable basis.

MS. ARNOLD:  Okay.  Tim.  Thank you.

MR. HARR:  Well, the electronics industry would like some guidance here especially in light of the past positions.  I think without guidance we continue to be concerned and confusion in the industry.  We need to get some sense of what approach to be taken.  Maybe we don't need strict guidelines.  

Second of all, getting some sense of guidelines out of the FTC should help avoid the application of different rules state by state, having to sort of a continued concern that everybody is going to be applying a separate set of rules to you.

As to what the guidelines should encompass, I think they should focus on the process as Robin's been saying.  Do you do most of the steps to make the product here?  That should be what these guidelines focus on.  They should allow variation based on what it takes to make different products.  

And a reasonable basis to believe that you basically make the product here should be the standard.  You have to see how it fleshes out some.  

You know, I agree with Gail that there is a need to educate people as to what the standards are when you come out with those.  So nobody around this table thinks you should be deceiving consumers, and the best way to do that is to let consumers know what the new standards are and then have everybody agree.  And then everybody work to those.

Certainly some safe harbors would be nice, but they should not be too low, as has been stated.  Maybe the NAFTA preference rules would be one.  But essentially I think the problem with safe harbors may be that they need to be based on process as well, which is a hard thing to pin down because of the variable treatment in different industries.  And second, they shouldn't carry the implication that if you're outside the safe harbors, you presumptively don't make the test because, again, there's such wide differences among products.

The substantial transformation as a test under reasonable basis does have some benefits, have been mentioned.  It is consistent with the rules for other country claims.  It's a consistent approach for companies wrestling with what to do with their products.  It does focus on process.  It does focus on where the thing is coming to be.  But it does have some problems.  It may allow for minimum assembly.  And especially this problem of different major subassemblies coming in from different places.  Customs has to put some country of origin on the product.  And it may be that that requirement doesn't play into exactly the same concerns that we should have for ""Made in USA."  And second, as has been pointed out, this is going to change.  And this may -- you know, not only if the United States' position is going to change, but the United States is going to be in negotiations.  The WTO or for what worldwide standards are going to be, we may not be able to dictate completely where these things go.

Certainly there are good touchstones, and they are important to look at, but I don't think can be completely tied to them.  There are going to be the cases where they don't work.  There are going to be the cases where they change in ways that don't reflect what consumer perceptions are.

And for the same reason, tieing yourself strictly to a double substantial transformation may be a problem.  It may raise too high a bar, in some cases, because we may get a presumption, or still may be too low a bar.  But, again, it's a very good example of something where they're trying to assure that the product really comes from where it says it comes from.  So a very good thing to look at in the electronics industry and in other industries I guess, from Michael's point of view, for the appliances industry.  They really do focus on do you do the stuff necessary to make the product, take it from generic undedicated parts to a final product in a particular price.

Having said that, I think the FTC should work with Customs, should work with the people who are dealing with the WTO to establish some label that works around the world and you could put on your product that these are substantial transformation --  so if there is a Customs rule for marking your product, maybe it's not "Made in USA."  Maybe it's "Product of USA."  Maybe it's something that doesn't have the same evocative feel, but for a company that just wants to say, "Look, it's very difficult for me to label these products.  They are 20-cent items.  And they go all over the world.  And it takes a nickel to label them.  Where I'd have to etch the label in or something like that."  I want a single label."  

We should work to figure out some label that can be used whether you're going to Korea or to the United States or to Mexico that doesn't mislead customers, and maybe this is part of the education process again, so that companies who want to say, "I'm going to make a worldwide product.  I'd like to label it this way and not have to worry about where it goes," can be done.  

And so I think we should in addition to the "Made in USA," whatever it is we're trying to promote the USA, that's probably a separate issue.  But we ought to work with Customs, work with the FTC, to come up with a label that does work for people who just want to say, "All we want to do is let people know this is substantially transformed in this country, it meets the test."

MS. KOLISH:  Tim, I wanted to make two comments.  One, that any guidance the Commission were to issue is not necessarily -- probably would not preempt the states from having their own test.  We hope we'll work and play well together and we hope that we would all try to agree and be on the same page.  But guidance is not likely to have a preemptive effect.  

So I didn't want you to go away thinking that.

And second, do you all think that the WTO or the United States' position to the WTO is going to be a substantial transformation test?  I don't feel clear in my mind that the United States Government is committed to that endeavor yet.  

MS. ARNOLD:  Sandra, do you have a comment on that?

MS. GETHERS:  Yes.  Within the agreement, we've already committed to use substantial transformation.  What I said yesterday is that the agreement doesn't define substantial transformation necessarily the way we define it here in the United States.  But that is the standard.

MS. KOLISH:  Okay.  That's where I was going to go.

MR. HARR:  Can I answer Elaine's first question?

It's not just -- obviously you're correct.  You can't tell the states what to do.  But if the FTC --

MS. KOLISH:  Sometimes we can.  We don't often.

MR. HARR:  If the FTC takes the lead and takes the education and eliminates the deception, then we should all end up at the same place.  If in fact we can let the consumers know that this is what it means, or this is the standard that's being applied, then it should address the states' legitimate concerns and the Federal Trade Commissions's legitimate concerns.  Give a single set of -- a single approach.

MS. KOLISH:  That would be our hope too.

MS. ARNOLD:  Okay.  We have Jan and then Clark Rector.

MS. ARCHIBALD:  I think what I would like to do is raise a series of questions just to the whole group to try to clarify and maybe refine some of what we're discussing here.

It does seem to me that in fact this is an issue of safe harbors.  It's not an issue of the reasonable basis evidentiary issue that the FTC has to face.  And so what we are in fact talking about is what is the term "Made in USA" going to mean.  

And I think, if I remember -- I try to write down as much as I could of what you put on the board there from Robin's statement, that there have been suggestions that there be perhaps a series of tests.  Substantial transformation was one, value added was another, significant processing I think was a third.  And since then I've heard people talk about NAFTA marking rules, double tariff shift.  Somebody even said double substantial transformation, although I'm not sure that's what they meant.

Here's my set of questions on this.  Are we saying that all of these are required?  Are we saying some of these are to be required?  If it's some of them that are required, who gets to choose?  Individual companies?  Or does the FTC decide on an industry-by-industry basis which one is applicable?  If it's the FTC who is supposed to decide on an industry-by-industry basis, what criteria are they supposed to use in deciding that for bicycles it's for X, and for footwear it's Y and for hand tools it's Z?

If you decide to go with this either/or approach, will you have situations where you could have a product coming in from a country that does not meet a substantial transformation test applied by Customs and so therefore is marked "Made in foreign country," but does meet one of these safe harbors that you've just described, so it all says, "Made in USA."  And what does that say to consumers?  

And finally, my last question is, is it in fact the right way to approach this that government -- either the U.S. Government or perhaps the WTO will dictate to U.S. consumers what their perception ought to be rather than have us respond as businesses and provide truthful information based on what their perceptions are?

Thank you.  

MS. ARNOLD:  Jan, could I ask you to take a pen to paper and write those questions down for me?

MS. ARCHIBALD:  Okay.

MS. ARNOLD:  Because you went too fast for me.

MS. ARCHIBALD:  Sorry.

MS. ARNOLD:  That's okay.  Because I think they are good questions that some of you may have ideas on.

Let's continue.  Let's continue, and, Jan, when you get them, we'll put them up, okay?

Clark. 

MR. RECTOR:  Hi, my name is Clark Rector.  I'm with the American Advertising Federation.  I've, to this point, been staying a little bit out of the conversation, and I'll explain a little bit why.

Let me tell you about my membership.  That'll explain some of it.  We're a broad association.  We represent advertisers, advertising agencies, the media. Within the advertising part of our membership we have all different types of industries with a lot of different types of views on how some of these issues should play out.

So when it comes down to exactly what the test is for "Made in America," we were staying back from that a little bit.  We do have a common concern though in that we want as many of our members to be able to market based on the domestic content of their products.  We think that obviously there's a benefit to the manufacturers and to the advertisers, because it is a strong marketing tool.  There's a benefit to the economy and to workers to give those manufacturers an incentive to increase their domestic content, and there's a benefit to consumers for getting more information about the domestic content of the products.

I think one thing that has become very clear to me here is that it's going to be hard for the FTC to limit their decision or their debate to a strictly either/or type of discussion on ""Made in USA" or not ""Made in USA."  It seems to me it's obvious, listening to the various industries here, that there is going to be no resolution which everybody is going to think is fair, and is going to work for everybody.  There are wide variety in industry practices and what's reasonable for one is not going to be reasonable for another.  

I think there is a reasonable basis for a lot of different types of claims.  And I would suggest that there is a continuum of the types of "Made in USA" claims.  I wouldn't discount the ability to use comparative claims, the ability to use more qualified claims.  There are a lot of very talented advertising agencies out there who can help you come up with marketing plans to market the domestic content of those products. 

And so I would echo Phil as he talked about the case-by-case basis, and Robin, when she talked about the environmental guides.  We pointed out in our comments that that would be one possible scheme for the FTC to look at, to come up with that series of safe harbors and the types of things which they would think would be acceptable claims in this area.

MS. ARNOLD:  Thank you, Clark.  We want to hear more from you.

Cynthia.

MS. VAN RENTERGHEM:  Cynthia Van Renterghem, with NEMA.

What I wanted to say has changed about 100 times in the last half hour trying to keep up with the debate.  So I hope it won't be confused.

I just want to very briefly, not in a speech-like form, state where NEMA is.  We support substantial transformation.  We absolutely do not want that to allow basic assembly -- I mean simple assembly to occur in this country, and those parts being able to use "Made in America."

But we support substantial transformation for two reasons, which have been mentioned before, that for the electrical sector, you know, and this is not true for all sectors, and we understand that.  But for the electrical sector, it comes most closely to being able to capture the essence of the product, where the product is made, when the product comes into being, because it has a process-base orientation, and it recognizes the significance of the manufacturing process at the subassembly level and beyond.

The second reason, which has also been mentioned, just basic consistency.  We are continually frustrated with the idea that it seems to us common sense that an American product should be an American product, no matter what market it's sold within.  And right now, that's not true.  There is a different American product if you sell it to the U.S. Government, if you sell it to U.S. consumers, if you sell it to foreign consumers.  And we would like to see consistency.

That said, we definitely recognize that this pure consistency is not going to be necessarily able to occur but we feel that we can get a lot closer than where we are now.  And close some of the gaps and be able to have our consumers do true comparisons that when they look at a product of Germany, through education, they'll understand that that German product has gone under the same test that the comparative U.S. product has gone under.  So they are comparing apples to apples.

This issue, just briefly, of safe harbors.  I think it's -- I think it could really provide some answers to what manufacturers have been wrestling with.  We've seen this in our own association.  And, again, it comes down to for some products the basic components are you can count on your hand.  And they do make up the essence of the product.

For example, lighting fixtures, a product in our NEMA scope.  That doesn't incorporate a lot of high technology.  It's not a complex product.  It basically has, you know, three to four components.  Talking about a domestic content calculation is feasible and administratively feasible.  And as a reasonable basis to decide whether that product is American or not.

When we're talking about a more complex electrical product, such as an electrical motor that goes through a series of manufacturing steps, that incorporates piece parts, subcomponents, component subassemblies, trying to do a domestic content does not work.  And for them, it's substantial transformation.  

If you have safe harbors, that does allow the manufacturer to pick or choose different alternatives and take the risk and, you know, recognize that if they're going over the -- if they're stretching the limit, that they're going to end up in court and have to defend it.  But allow for some flexibility which recognizes that not all products are created the same way and they can't all be viewed the same way in terms of trying to capture the essence of the product or where it came into being.

So we really support just in terms of trying to address all industries, this idea of safe harbors that create a multiple number of calculations.  And we just would hope that one safe harbor would be substantial transformation.  And that's where the majority of our members would look towards to try to decide is this product American and can we mark it as such.

MS. KOLISH:  Cynthia, I want to ask you this question, although I sort of asked it yesterday when we were holding it for today's discussion.  It has to do with consistency.  We should be able to mark it "Made in USA," whatever market you're in.  But we know from the Uruguay Round Agreements Act is that countries will be permitted to have higher domestic content claims.  We don't know whether they're going to do this, but it seems to me that there's already this conceptual possibility that the goal you want won't be possible because countries will say, "Well, if it's made in France, you have to do X, Y and Z."  For internal purposes, even though you might label it "Made in France for export purposes," to satisfy the universal standard that's been adopted.

How do we deal with this uncertainty that's out there that the recognition in this agreement already that domestic content standards can be different, higher?

MS. VAN RENTERGHEM:  That's a good question.  I don't know if I can answer it adequately.

We would hope that if the U.S. were able to say, "We're maintaining the same standard, whether it's a domestic or a foreign standard, and that we would encourage other manufacturers or other countries to do the same thing."  That you're talking about sort of a long-term goal.  And, again, this happens to be -- this debate happens to be happening on a number of levels in the WTO and within other countries.  And it may take a long time to come to a point.

All we know is that we currently face situations where our manufacturers have to literally divide their product and say this is being sold to the U.S. and so we have to remove all our labels.  This is being sold to Europe, and so we need to put on this label, This is being sold to Mexico, and so it's something different.  And it just causes real heartburn.  

And, you know, we have the same problem actually with private standards.  This is something we're struggling with with private labels in terms of performance standards.  And we have, you know, these products that you can hold in your hand and if you're trying to sell it worldwide, you have four or five different labels that need to somehow be put on it or they don't -- so it's a serious issue that you bring up and it's definitely not solved, and I don't know if I can answer it, how to solve it.

MS. KOLISH:  I'm sympathetic to the notion that the United States, of course, might lead by setting an example.  Except that I wonder, since this is already codified in this act, whether other countries already, you know, have set an agenda where they want to have two different standards.  

MR. PALMQUIST:  Let me address that because we're looking at that situation right now and it's France that is the current one. 

As a company, we are directly addressing that.  We are raising exactly the same issues as to the wisdom of that.  What's being thrown back at us right now is the existing FTC rule.  Saying, well, wait a second, how can you be here trying to argue against it when in the U.S. you have the all or virtually all.

MS. KOLISH:  Didn't you just say we were wrong?

MR. PALMQUIST:  I don't have an answer.  But I can guarantee you that if we do in fact end up with a different and higher rule in the U.S., then we're down a slippery slope and will have absolutely no defense anyplace.  And we will see a variety of higher domestic content springing up all over the place.

So right now we don't have a very good answer and if we end up with a different situation here, we're definitely not going to have a good answer.  

MS. ARNOLD:  Okay.  

MR. CLAWSON:  On that specific point, can I just make one quick answer to her.  

That the other side of that is that it also doesn't require that it can't be lower.  We have the problem in a wine in Japan where they only have to put 5 percent Japanese content in it, and then it's labeled "Japanese wine" to the Japanese consumers.  And we're having the same battle in reverse.

And I think you've pointed out a real problem, but I think part of this exercise is to bring that consistency worldwide and you have to start in different places.

MS. ARNOLD:  Yeah, I'm willing for us to set an example or to be open to that, but if other countries had already committed to this, I didn't know whether, you know, we're fighting a losing battle, and --

MR. CLAWSON:  It's not a losing battle.  

MS. ARNOLD:  Okay.  Roger.

MR. REYNOLDS:  Okay.  I just wanted to very briefly reemphasize that Customs, in developing a substantial transformation standard, was faced with the situation where they had to choose a country of origin for every single imported object.  And they simply have to put one country on there.

And when faced with that standard, the substantial transformation test sounds like the test.  It sounds like the logical test.  That's obviously not the standard that the FTC is faced with.  And I think of all the truthful claims, if you put these out as actual representations, the standards people are saying, if you tried to market a product saying "We use American labor.  We used over 50 percent U.S. component parts," that would be a serious marking device.  

If you picture an advertisement, we substantially transform this in the United States, I don't think that would go anywhere in terms of making consumers want to buy that product more than another product.  Maybe if they explained how it's substantially transformed, that we used substantial labor, substantial components.  

But I don't see any relation of the substantial transformation test to consumer perception.  That's not why it was developed.  And it would lead to instances like the Attorney General held up that forging in the wrench yesterday morning, and I just don't think that's an acceptable situation for the consumers.

MS. ARNOLD:  Steve Beckman and then Charles.  And then I think we need a break.  Then we'll continue on.

MR. BECKMAN:  It seems to me that one of the -- in discussing the substantial transformation and setting safe harbor conditions, what a lot of people seem to be saying is that we ought to be adopting a U.S. marking requirement.  That because the Customs Service is required by law to have imports marked, that we ought to be using the same standard for marking U.S. products. 

The Congress has the authority to decide whether we have to mark U.S. products or not, not the FTC.  The FTC is concerned with the consumers' interest in the marking of products, not in legal requirements.  If people want a minimal standard that sets safe harbors for what can and can't be marked ""Made in USA," they ought to be talking to the Congress, not to the FTC.

The NAFTA rule of preference that was negotiated, and negotiated, was not adopted by the U.S. Government.  It wasn't adopted by the U.S. Government to meet objective criteria.  It was negotiated with U.S. producers that have facilities all over the world.  It was negotiated with foreign producers who are interested in selling in the NAFTA preference area.  It was negotiated with foreign governments.  

Is that the standard we want to set for American consumers?  I don't think so.  Certainly for the products in which I was involved in the discussions of the NAFTA rules of preference, I didn't find any of them to be adequate for guaranteeing that American consumers were buying products that were making a very valuable significant contribution to domestic employment and production.

The question with the safe harbors is how many boats are going to be able to dock in the harbor at the same time.  It seems to me that an awful lot of people are looking for a very big harbor.  And that's not necessarily the goal of the "Made in USA" label.  And the use of "Made in USA" in advertising.  

It's not be comparable to the substantial transformation.  It's to tell something to consumers about what they're buying.  And maybe it's inconvenient if only a few people can meet that standard.  Maybe we ought to be talking about what proportion of producers ought to be able to meet a standard that says "Made in USA."  But to look for ways to broaden the use of it, the availability of it to producers I don't think is the task that we ought to be addressing ourselves to.

MS. ARNOLD:  Charles.

MR. SALANSKI:  Thank you.

I'm Charles Salanski.  And I'm president of a manufacturing company that manufactures wire rope.  We have three manufacturing facilities in Missouri.  

I also represent the domestic wire rope industry.  And the domestic wire rope industry today is made up of six manufacturers, and when I started in the business 40 years ago, there were 28.   The penetration level of imports into our market is approaching 45 percent.  So we are very interested, and I'll tell you why.

I'm here today to represent the industry and to tell you what our position is.  First, I would like to address this question of who the consumer is.  Our product, you don't drive it, you don't wear it, it's not in your home.  People that use our product drill oil wells, dig coal, build bridges and buildings, and it's a product that is definitely not one that we've talked about a lot today.

But the consumer needs to be recognized as that person who purchases and uses our product.  So I ask the FTC to keep in mind that the consumer is not always that person on the retail end of purchasing.

We believe that there is a definite preference for "Made in USA."  Our surviving members actively promote through brochures and we have labels that are put on all of our packages, our reels, that say "Made in USA" depicting a flag in the background.

We believe that because in the product that is imported into our country, we have estimated that going back to Customs and the requirement for marking the country of origin, that there are violations of 40 percent level of product that is not assembled, and when you talk about assemblies, which also need to be marked, we're talking about 90 percent violations.  And the Customs Department has been supportive in following up with their Fraud Division.  

But that says to us that by not marking, the inference is that it is made in the United States.  So we have a very aggressive program of trying to identify ourselves as having a product that is truly made in the United States.  

For us, substantial transformation works.  It meets the test.  Our product comes in.  It has a new use, a  new name, a new character, and for us, it is very clear and it works.  We feel whatever definition comes out, at least as far as our industry goes, it needs to be a clear definition, but more important, based on the violations that we have found relative to lack of marking of country of origin, we feel that it needs to be enforceable.  So to have something that is so complicated that it can't be enforced would not do us a lot of good.

I'd like to introduce the counsel who represents our industry, Herb Harris, who has some closing comments.

Herb.

MR. HARRIS:  Yeah, thank you.

Actually the industry has been in communication with the FTC and as I have listened to the comments over the last day and a half, it seems to me that our problem is a little bit of an inner-Beltway problem.  We have the notion that if we define the thing and make the decision here, it will accomplish something.  

And you have the stronger feeling out in the real world, in real application, that you really don't accomplish anything until you actually have a mechanism that's enforceable.  

And this is why the chairman of the committee makes the strong point that if you make the test complicated and requiring a great deal of investigation and what have you, we will fall right back into the pattern that we had.

Now, this is a terribly important point.  We came to the Customs with regard to evidence of an egregious violation of wire rope that had been made into what we called a choker, by putting a Canadian implement fitting on it at the end of a rope that was made in Malaysia.  That rope was advertised as "Made in America" and was put on brochures as "Made in America" and there was no marking as to country of origin.

When you report this to Customs, and to me this is the gist of our problems right now, Customs says, "Well, we find out that the guy who is doing this is not the importer, and we really only have jurisdiction over the importer.  And therefore there's not much we can do about it, but you really ought to talk to the FTC."

We talked to the FTC and the FTC says, "Well, we have a hierarchy as to the importance of something like this, but we'll put your name on a computer.  And if we get any more complaints like this, someday we might do something about it."

They also give us advice as to who in Customs we should contact with regard to this problem.  It was that person in Customs that had sent the letter over to the FTC.

And so we were invited by the FTC to present these views at your seminar here by your letter, and we appreciate that invitation.

I want to make the bottom line very strongly here.  This is an industry that believes in promoting its product as "Made in America."  It wants the test simple and it wants the test enforced.  And we have instead of going back and forth here a plea to you today that between Customs and FTC, a cooperative spirit is worked out that says, number one, with regard to labeling as the country of origin, that's Customs.  With regard to advertising, perhaps that's FTC.  There is nothing wrong with two fundamental agencies like this working together on a real problem.

Again, we speak to you as strong advocates of "Made in America" labeling and country of origin labeling.  And we just hope that that policy is actually implemented out in the real world.

The figures that we estimate are not casual.  We think that in some cases, especially on fabricated products, we probably have a 90 percent violation record out there.

And I was wondering if I could ask the FTC and Customs to respond to this situation.  Is there a dead area here or is there clear jurisdiction as we said yesterday that regardless of whether it's an importer or not, if it's a foreign product, Customs has jurisdiction?

MS. GETHERS:  We have jurisdiction so long as it's foreign to control the marking, to require that it be marked.  The problem we have is we usually can't reach the person once it's past the importer.  A lot of times we don't know.  And we normally -- we have a policy not to -- your article is not of this nature, but we have a policy not to go to grocery stores and seize things that we know are falsely marked, even though we know it's an imported good and it was imported contrary to law.  So that's where the problem lies.  

To the extent that we know of a domestic company, we would refer to the FTC, but a situation like that may even involve criminal violations.  We can refer it to the U.S. Attorney, local U.S. Attorney, and criminal action can be initiated.

But insofar as a civil claim, civil enforcement action, we do not have jurisdiction over the purchaser.  We have jurisdiction over the importer of that.

MR. HARRIS:  And do you feel that FTC supplements your activities in this regard?

MS. GETHERS:  Yes.  For the domestic -- for the company that's not the importer, insofar as civil enforcement action.  U.S. Attorneys supplement us in terms of the company that's not the importer for criminal action. 

MR. HARRIS:  That was my understanding too.  And that was why I was maybe challenging you a little bit yesterday when you said if it's the foreign product and we have jurisdiction over it.  I think you do.  But I also think there's a policy that if it's not with the importer at the time, you don't do anything about it.

MS. GETHERS:  Unless we have evidence, you know, that the person who purchased it knew about the importation and knew that it was falsely marked.

MR. HARRIS:  Under the law, of course, the importer has to notify the person that buys wire rope that if he just puts --

MS. GETHERS:  Right.  We have that established procedure in our marking regulations.  You know, that if you were selling it to someone who will be repackaging the article, not substantially transforming it, you are supposed to notify that person of the obligation to remark the article.  And that has established evidence for criminal prosecution.

MS. ARNOLD:  Okay.

MR. HARRIS:  You know that.  Well, please, I would like for FTC, if they will, to respond to our question.  

Do they agree that they have jurisdiction -- jurisdiction in this regard, but they can, in fact, help with regard to enforcement.

Again, I want to emphasize, and I realize how much discussion there has been and will be as to the different tests and what have you.  But I want to emphasize, is there a way for our government to reach the point where it is actually stopping this egregious breaches of the law, that's rampant across the country.  

Is the FTC prepared to assume that jurisdiction?

MS. KOLISH:  The FTC has broad jurisdiction and probably can reach this.  But what I've heard Sandra say is that they have criminal tools that are available that could be used to do this.  And that --

MR. HARRIS:  Against imports.

MS. KOLISH:  Yes.  But if the importer failed to notify the buyer so that they could label it properly, that that importer has committed a violation, and would your jurisdiction extend to that purchaser or the product from the importer?

MS. GETHERS:  No.  That notification actually just sets up the evidentiary knowledge that the recipient was aware that this article should be marked.  And we don't go after the recipient.  I mean that's something that we'll report.  And sometimes it can be the evidence of a criminal removal of marking under 1304, the marking statute.  But that's not us.  That's the U.S. Attorney's Office.

MR. HARRIS:  I don't want to burden here, but I do want to place the point straight in front.

Will the FTC --

MS. KOLISH:  The Commission has jurisdiction over business-to-business transactions, not just business but consumer transaction.  But there is a hierarchy here where we spend our resources.  And there are lots of things, as you all know, competing for the Commission's attention.  And not every wrong is necessarily going to be remedied by the Commission.  There are other tools that are available.  Private rights of actions people have talked about a lot today.  Going to the U.S. Attorney. 

I'm not saying we can't or wouldn't do it.  But I'm saying there are lots of things competing for our time and attention and we have to make choices.

MR. HARRIS:  May I ask what the hierarchy is?  I mean you have to be a major shoe industry in order to qualify or --

MS. ARNOLD:  With all due respect to your concerns, my sense is -- my sense of the group, based on the eye contact I'm getting, is that they would prefer that you ask these questions during the break.

So what I'd like to do is call for a break and say let's come back at --

MR. THOMPSON:  Abby, Abby -- 

MS. ARNOLD:  At 10 of please.

MR. THOMPSON:  Abby.  Can I make one point?  I'm going to have to leave for the rest of the day here and I just want to make one point before I leave.

MS. ARNOLD:  I'm not sure the group wants to hear it right now, Michael.  I'm sorry.  But I've been getting a lot of eye contact like cut, break.  So I'm afraid that the will of the group is to do a break --

VOICE:  Tell me, Michael.  I'll listen.

MS. ARNOLD:  You are welcome to write it down and I'll read it back to the record.

MR. THOMPSON:  The point I'd like to make is what we saw was a lot of consistency around the table in that it's going to be very difficult to make a consistent position with respect to safe harbors.  And our own industry is a classic example of that.  We call ourselves manufacturers and we are, of appliances, but we make everything from irons to refrigerators.  

And I guess the point I'm making is we need to have multiple approaches to safe harbors, is what I'm saying.  The NAFTA rules of preference, the comments made a little earlier, that foreign governments negotiated this with us, yes, we negotiated with two other governments, but when applied within the context of United States only, when you have a double tariff classification change within the context of the United States only, and a 50 percent content rule for the sake of portables with the U.S. only, you have a much tougher standard than you would if you apply it to the zone of three different countries.

So that's the point I'd like to make.

MS. ARNOLD:  Thank you.

(Whereupon, there was a short recess.)

MS. ARNOLD:  Back on the record.

I have been asked if a Mr. Ed O'Brien is in the house.  Could you please acknowledge yourself if you are.  Ed O'Brien, are you here?

MR. O'BRIEN:  Yes.

MS. ARNOLD:  There you go.  Richard Marsh would like to consult with you.  

Does anybody else want to find a friend?  Makes new friends?  

Okay.  Let me tell you who I have on my list of people to continue with.  I have Joel Platt, Dick Abbey, Jim Clawson, Sarah, Michael and Clark, and Kimberly.  

So with that, let's continue on with our discussion on the benefits and concerns associated with substantial transformation and what a reasonable basis approach might consider if the FTC adopted that kind of a guidance or standard.

Joel.

MR. PLATT:  Abby, could you move me down to the bottom because I wanted Elaine and Beth here -- because some of my comments are directed at the FTC.

MS. ARNOLD:  Okay.  Well, Kent.  Could you find Elaine or Beth --and/or Beth.

Well, with that comment, it may be that no one wants to make a comment without them here.  Is that right?  Or let's just all have some two-minute patience.  I don't know -- a number of you had questions for them and so they didn't get to take their break so --

Here we go.  Okay.  Why don't we start, Joel.

MR. PLATT:  I'd really rather if you move me down.  I'd appreciate it.  I think Elaine is coming.  

MS. ARNOLD:  I will go find her.  She could have gotten called off to something.  Do you see her out there?

MR. PLATT:  I saw her.  

MS. ARNOLD:  I feel like the bride is about to come into the room.  I'll promise to tell her what you've said.  

MR. PLATT:  There she is.  She's at the coffee.

MS. ARNOLD:  Could you get Elaine now.  

They don't want to talk without you here.  

Okay, Joel.

MR. PLATT:  Thank you.  I'm Joel Platt from BGE Limited.  

MS. ARNOLD:  Do you have a plate for us today, Joel?

MR. PLATT:  Yes, I do.  

MS. ARNOLD:  Oh, good.  

MR. PLATT:  I thought I'd liven it up with a visual display.  Not quite as good as the wrench, but at least something.

Just before I start, I'd like to state that we do support the substantial transformation standard, and I just wanted to illustrate -- unfortunately I didn't get the right sample here, but imagine this in the round, as a piece of dinnerware.  This is just another type of product we make.  We make them in all shapes and sizes.  But this is our canvas.  This is a piece of dinnerware that we import.  And it is transformed we think in this country into a different type of product.  And this is a sample type of product.

Now, our consumers from our survey information, our consumers definitely perceive this as a very different type of product.  It's a piece of art.  And they would never use it for dinnerware purposes.  In fact, it even says on the back, "Don't use this for dinnerware."

But this is an example.  There is a substantial amount of labor, an effort that goes in to the transforming of this piece of porcelain to a work of art in the consumer's mind.

If I recall correctly, the FTC's mission is to protect consumers from unfair and deceptive practices.  And maintaining the all or virtually all standard would be justified or any other standard would be justified only to prevent unfair and deceptive acts.  

Under current Customs rules and tacit acceptance by the FTC, products which are substantially transformed in a foreign country, for example, Japan, can be labeled "Made in Japan" without regard to the percentage of Japanese value.  This labeling can be especially important for items such as sophisticated electronics.  This computer, for example.

Yet if it is deceptive to state that a product is made in the USA, unless it meets the all or virtually all standard, then it would be equally deceptive to state that a product is made in Japan unless it met the same standard.  

We do not believe that the public is being deceived or misled because consumers do not view "Made in Japan" or "Made in USA" in such simplistic terms.  

Our research confirms this by showing that almost 90 percent of the Bradford Exchange customers conclude that collectible plates, decorated and fired in the United States, utilizing foreign blanks and foreign pigments, were made in the USA.  Those respondents had no information as to the value, the percentage of value, of foreign components.  For all they knew, the value of the foreign components could have been 95 percent.  Obviously they perceived that the U.S. processing and transformation gave the plates their U.S. character.  

In addition, we do not believe that these conclusions are contradicted as others have stated here by other survey evidence.  Even the FTC survey does not directly address this issue.  It uses the word "assembly."  But the word "assembly" is an overly simplistic term which we believe suggests unskilled and unsophisticated activity.  We firmly believe that if those same consumers were given complete information or were able to view the complex assembly or processing, which actually occurs for various products, that they would reach the same types of conclusions that the Bradford customer has reached regarding collectible plates.

We don't think that Customs and the FTC have been permitting wholesale deception of the public by allowing products which are transformed in Japan with no Japanese content.  What we think we have here is a situation where the business community and the FTC have been coasting for years with a double standard.  Neither of which is deceptive, but one of which the virtually -- or the all or virtually all standard, which is unrealistically restrictive and is not founded in law to protect the consumer.

If it's okay to label a VCR "Made in Japan," and the VCR is made from Indonesian parts, substantial transformed in Japan, or to label a suitcase "Made in Italy" when it's assembled in Italy from leather from Poland and brass from Portugal, then it should be just as acceptable to label products "Made in the USA," when those products are substantially transformed in the United States.

Some here have suggested that a substantial minority of consumers believe that all or virtually all of a product value must be U.S. to be labeled ""Made in the USA." But our research indicates otherwise.  Our research indicates that maybe 7 percent of Bradford customers may have that perception.  We do not see this as a substantial minority.  Nor do we believe that the other consumer surveys support that conclusion because those surveys do not ask consumers whether substantial processing or transformation would also qualify a product to be labeled "Made in the U.S."

In any case, should the FTC elect to change to a substantial transformation standard, we believe that business with the FTC can educate consumers to that standard.  I think that point has been mentioned by a number of people.

One other problem.  I'm involved in a little bit in international trade matters.  Go up to Canada and South America occasionally.  And we see that not changing to a substantial processing or transformation standard suggests that U.S. accepts that it's okay to export deceptively labeled products to its trading partners.  For example, if the all or virtually all standard continues to be applied to domestic products, based on the premise that to do otherwise would be unfair or deceptive, permitting products which are substantially transformed in the U.S, and therefore labeled "Made in the USA" to be exported to, for example, Canada, it suggests that it's okay to deceive Canadians but it's not okay to deceive Americans.

That's not our government's policy.  We all know that.

Finally, we believe that the adoption by the FTC of a substantial processing or transformation standard would be the ideal solution.  We think the standard could be met either by applying Customs rules or by simply applying -- and believe it or not, I wrote this last night -- by applying the reasonable basis formula, similar to that applied in other advertising claims, where the acceptable consumer survey evidence could be used to substantiate the claim.

Thank you.

MS. ARNOLD:  Thanks, Joel.  

Dick Abbey.

MR. ABBEY:  I have just a few comments.

I want to align myself with Rob and Tim and Joel.  I've sat here for the last day and a half, listening to discussions of somewhat amorphous concepts, certainly consumer deception and consumer protection and consumer perception are not the easiest concepts to grab hold of, and we heard a great deal of discussion from all sides as to what that really means and whether there is or is not in using the phrase ""Made in USA."

With respect to substantial transformation, I think it's a far firmer concept but listening to the people around the table, it's very clear that that is not going to meet everybody's needs.  As it has been administered by the Customs Service over the years, it clearly has not really met their needs, since they've gone to a tariff classification change approach, and have been pushing that approach internationally.  

And I can assure you, for those of us who were involved in that, that is a less than perfect system as well, and now, instead of arguing about whether there's been a change in name character and use, we now argue about what the classification of the particular product may be, and if we can change the classification of the product, we may be able to change the classification of the finished product.  And consequently, we may not have to mark that product, or we may change the country of origin marking of that product.

So that's not a perfect solution.  

But on the other hand, based upon my own experience, substantial transformation and the classification change approach works in 85 to 90 percent of the cases of the products that we deal with.  And so we would support that.  But we would support that as one of the methods for determining whether "Made in the USA" was reasonably assigned to a particular product.

So we're very much in favor of a reasonable basis approach with certain safe harbors, and I think there are many, many opportunities to identify the rules that would apply.  And I think all in all, that would work best assuming that there is agreement that the all or virtually all standard, which may be the simplest to administer, and may protect certain companies and certain industries, but for the majority of companies and industries around this table, it deprives them of using the "Made in the U.S." label.

MS. ARNOLD:  Okay.  

MS. KOLISH:  I've heard a couple of people mention this 85 percent figure in the context of substantial transformation, saying it works in about 85 percent of the cases, if we were to use that.

Do people agree with that cutoff?  And as a follow-up question, are there certain characteristics that the other 15 percent have?  I mean can you say, well, we're 85 percent, but in cases where the product has these characteristics, it doesn't work in those?  Or is it just sort of 15 percent randomly distributed that it doesn't work for?

MR. GAURON:  I guess it depends on what you mean by "it works."  

MS. KOLISH:  What do you mean by "it works"?

MR. GAURON:  Well, it changes the country of origin the way our clients want it to change.  That's important.  

MS. CUMINS:  I would disagree with that.  I would say that it would meet Robin's criteria of major processing.  It would meet Mike's criteria of significant value added, and it would meet everybody else's criteria of substantial transformation because the definition of the tariff shift requires so much processing that you have the major processing, you have the major value added, and you have the tariff shift.  

And although it is product specific by tariff item number, in our judgment to those who live with it, when you're talking particularly manufactured or assembly manufactured project, those number of stages that processing required would apply generally to approximately 85 percent of all of the items covered by the --

I think that's what I'm saying.

MS. KOLISH:  Okay.  That's good.  What Beth is trying to get at, and I was too, but Beth did it better than me, is if we were think that this was a good safe harbor, substantial transformation, for 85 percent of you, how would we describe how it isn't a good criteria for the 15 other --

Robin.

MS. LANIER:  I have an answer and a follow-up question to folks who are sitting around the table, and sitting here writing out note about what might be reasonable safe harbors.  Remember that we are not advocating specifically substantial transformation.  

And I wrote something down here and I want people to react to it.  Okay.

Suppose you had a safe harbor that says, "Substantial transformation."  In other words, you meet the Customs rule, whether it's tariff shift or -- you meet the Customs rule for a new article of commerce.  So long as what you've done in the United States is not, quote, "simple assembly," unquote, of foreign parts that are already dedicated to the product's purpose, I think this cuts to where the footwear people are coming.  Maybe there's another way to write that.  Okay.

MS. KOLISH:  Say that again.

MS. LANIER:  Substantial transformation -- in other words, the safe harbor that says --

MS. KOLISH:  Right.

MS. LANIER:  -- you've met the Customs rules.  You're in.  So long as you've met the Customs rules, so long as what you've done is not, quote, "simple assembly," unquote.  I've heard a lot of that talk around the table.   Of foreign parts, of all foreign parts, that are already dedicated to the product's purpose.  Now, this obviously would have to be worked on a little bit by --  and others, but it's just a concept.

MS. KOLISH:  Right.

MS. LANIER:  And the question is, does that deal with some of the problems that people are having here about this whole notion of simple assembly.  

I'm with Gail.  I think that for the most part substantial transformation or the tariff shift has taken care of simple assembly, but there does seem to be a worry that maybe the camel's nose could get under the tent at some future point.  Okay.  

And it seems to me that the FTC could put a caveat in there that says, "substantial transformation except."  Okay.

VOICE:  Let me -- can I try to answer the question -- well, go ahead.

MS. KOLISH:  I was just going to say, I hear what you're saying but I have the same sort of difficulty that, you know, Sandra's description of substantial transformation doesn't encompass simple assembly but I still hear that being a prevalent concern.  If we were to use the word "simple assembly," it would seem to be contradicting the notion of substantial transformation.  

MS. LANIER:  But couldn't you define "simple assembly" in your --

MS. KOLISH:  I think you could define "simple assembly," couldn't you?

MS. GETHERS:  How would you define "simple assembly"?

MS. LANIER:  Well, I heard one definition, and I see John shaking his head.  But he was talking about assembling part of shoes that had already been manufactured and dedicated to the purpose of shoes.  

Now, that's different than taking transistors or something that could be used in a variety of products and putting them together.

MR. HARR:  I think two instances in which might make up part of that 15 percent, if it is 15, and I don't think anybody knows that it's 15.  Somebody said it, and we all just sort of went with it.  

I think the two instances that have been mentioned already are, first of all, where you have substantial preassembled dedicated parts coming from numerous different places and Customs would be in a position of having to put some country of origin on, even though it really has about four or five different places it comes from.  

So it may well be that the parts were dedicated to going into that product when they were made in those foreign countries, but not enough of them come from any single foreign country to attribute the origin to that country and therefore where they are finally stuck together, you have to call that the country of origin because you have to say something is the country of origin.

The other set of circumstances that strikes me where this happens is where you may have a lot of small steps in the process that are each picked up by Customs classifications and therefore you could, by moving from a subcomponent to a component to a subassembly to a final product, you might find in some instances, because of the way that the harmonized tariff system was written, that those constituted individual classification changes or transformations.  And in those instances, it might be that the steps are too small, but you needed a bigger step really to say the thing is made somewhere.

So I would say those would be two instances where the substantial transformation may not protect you from simple assembly or inadequate --

MS. ARNOLD:  Okay.  What I'm trying to do is --

MS. VANDERWICKEN:  Could we stick to the rules, instead of just kind of everybody without leaping in?

MS. ARNOLD:  But what we're trying to do right now is --  I'm sorry you're feeling uncomfortable, Sarah, but I thought all we were trying to do right now is brainstorm, which means we're not making a decision.  We're just trying to suggest what a possible definition of "assembly" might be.  

MS. VANDERWICKEN:  Well, --

MS. ARNOLD:  And we're doing it based on the question that Elaine had --  I am not ignoring that we've got five people and you're the second in the five still who want to talk.  Is that okay, Sarah?  Could we just --

MS. VANDERWICKEN:  If she would rather talk first, that's okay with me.  

MS. ARNOLD:  Okay.  I'd like us to get back to this discussion though of how we might define it.

MS. VANDERWICKEN:  Okay.

MS. ARNOLD:  And I didn't get Robin's idea down up there which I'd like to do.  

Sarah, do you just want to go ahead and then we'll --

MS. VANDERWICKEN:  Well, I think that -- I understand that you want to move toward a consensus where we -- 

MS. ARNOLD:  No, no, no.  I'm just -- if we got some ideas, I just want to make sure that we're clear on what is it the idea that we're talking about.  That's all we're trying to do.  We're not trying to reach consensus here.  We're not.

MS. VANDERWICKEN:  Okay.  If we can get back to a general discussion, I don't -- you know, I don't want to stop you from getting your definitions down.  But I do feel like we're leaping ahead to an assumption here that I think is a false one.  And I don't want the discussion to just, you know, railroad over the fact that we're not in agreement here by any means.

MS. ARNOLD:  We are not in agreement here.  I have never asked if we're in agreement here.  And until I say -- during this session, I probably will never say, "Do you have consensus on this point."  Okay?  And I think I said this yesterday.  And the ground rules for me are, as for any honest mediator, is until you ask the question and get the yes, the confirmation of yes from all the parties, we do not have consensus.  But the presumption is that we will -- as the course of the morning and then early afternoon goes on, we'll move into different parts of our tree.  We've been in the trunk, and now we're trying to move to the tree.  And we may move into, you know, discussion of a particular leaf or the blossom, and then we'll come back to the main trunk and move out to another one.  

I think that's the way this discussion is going to have to go.  And the reason for that is after you see us trying to get some sense of, well, if we move in this direction, how do you define terms, what do you mean by a certain thing and then what do you think about it?  

Okay, Sarah?  So I'm glad that you expressed a concern and I want everybody in the room to understand what I'm envisioning, I guess, for the rest of the day.  And if anybody objects to that, I need to know.  

MS. KOLISH:  Yes, Sarah, one of the reasons we've hesitated to speak sometimes is we didn't want people to necessarily think that we were endorsing a particular idea.  You know, I've said this before.  You know, don't read too much into this, but when we do have an idea, I'm trying to like follow it, if it were a good idea, what are its logical consequences and how would we implement it.  But I'm not -- I haven't agreed it's a good idea yet.  Okay?   

MS. ARNOLD:  We are trying to figure it out what it is we're trying to say.  

So with that, we have Jim and -- I'll tell you who I have on my list.  Jim, Sarah, Michael Thompson, Clark, Kimberly and Jan.  So far.  But let me just see if I can capture what it is that -- this idea that we're thinking about.  

Robin, you suggested something which is --

MS. LANIER:  Well, I don't know whether simple assembly is the right fiord to go down.  But what I've heard around the table is that substantial transformation works for the vast majority.  Let's not put a number on it.  It works for most things.  Okay.  It does represent significant processing, which meets my test, okay.  It does account for significant value in most cases, which meets a lot of other people's tests.  Maybe not all or virtually all, but it's substantial.

But there are cases, and we've heard numbers of them where it doesn't.  And so if the FTC were to go down the safe harbor route, and try to come up with some safe harbor for substantial transformation, I believe it would have to be a qualified safe harbor.  And one of the qualifications could be it can't be simple assembly and then we could attempt to define what that is.  It can't be -- maybe there's other things.  It can't be, you know, less than 10 percent U.S. value.  

I'm just throwing things out.  I am not saying that I would necessarily endorse any of these things either.  I am just putting some ideas on the table.  

It couldn't be only one small little step.  It would have to be enough manufacturing steps.  I mean there are a number of ways that you could sort of slice or dice that, and maybe, you know, in your head note to your sort of standard, if you were going down this road, that you could put those factors out very clearly, as you do in many other pieces of guidance that I've seen the FTC do.

And that would be the way that you could allow many folks sitting at this table to use substantial transformation thereby really solving a lot of their problems without deceiving the consumer.  I think by cutting kind of a balance.  But it would have to be qualified, I guess in my judgment.  

MS. ARCHIBALD:  Abby, can I ask a question to clarify --

MS. ARNOLD:  Sure.

MS. ARCHIBALD:  -- what the proposal is?

Robin, what happens -- I thought I heard you once way that this would be the test, but then I also thought I heard you say that you'd apply whatever marking test Customs applies to the country from which it's coming.  So, in other words, if it's a product from a NAFTA country, would you start with the NAFTA marking rule --

MS. LANIER:  Well, no.  

MS. ARCHIBALD:  -- and then add these things?

MS. LANIER:  No, no.  What I'm talking about is, it seems to me that if you look at FTC guidance, like, for example, the Green Guides.  I really, you know, people should go look at those because those are really --

MS. ARCHIBALD:  Copies will be available after lunch.

MS. LANIER:  Yeah, that would be really great.  Because they have -- there's a description at the beginning of that that sort of gives you general rules that you would use.  Almost like a head note to a tariff, okay.  I mean really.  And it gives you sort of general rules that you use to determine how you're going to present your claim on environmental things.  And I would submit that there would be in this some kind of general description of what FTC thinks "Made in America" means.  Okay.  

I don't know that we know what that means, but I think that we probably could come at a close approximation.  It would have to be significant processing.  It would have to be a number of factors, you know, that you could determine whether you made a product in the United States by a combination of these factors or maybe one factor standing on itself by its own.  Such as -- and I think I have these, you know.  The number of manufacturing steps, U.S. investment in manufacturing plants, numbers of employees, change in character name and use.  So on and so on.  A whole list of factors that one might look at to determine whether using a reasonable basis you had made a product.

Then following that preamble, there would be safe harbors.  So, for example, if you met the NAFTA rule, which is a tough rule, okay, by definition -- all right.  We may disagree -- in my judgment, NAFTA is a tough rule.  

VOICE:  Preference rule.

MS. LANIER:  Preference rule.  Not the marking rule, the preference rule.  Okay.  Which in some cases is double substantial transformation, three or four shifts in tariff, value added.  It's a tougher bar. 

VOICE:  Tougher.

MS. LANIER:  Tougher.

VOICE:  That doesn't make it tough.

MS. LANIER:  That that could be a safe harbor.  I mean we've heard some people who say that ought to be a safe harbor.  

I'm suggesting another safe harbor.  A safe harbor that I like better would be substantial transformation with some qualifications.  

MS. ARCHIBALD:  But that was my question.  When you say the safe harbor is substantial transformation, how are you applying that in the context of a product that's coming in from Canada or Mexico?  Is it the old, if you will, name, character, use?  Or are you going to apply the tariff shift rule that is currently in place?

MS. LANIER:  Substantial transformation, however it may be defined by Customs at the time, okay -- 

MS. ARCHIBALD:  But the reason I ask is because under that system, you could have a single product coming in from Canada where your safe harbor would be to apply a tariff shift rule and the same exact product coming in from France you would apply as a substantial transformation rule and to the extent they are not the same --

MS. LANIER:  No, no.

MS. ARCHIBALD:  The same product is going to be marked differently.

MS. LANIER:  Okay.  I guess I understand what you're saying.  I mean I would say that whatever the MFN rule is that Customs is using, I mean to get sort of to slice and dice this, I mean eventually Customs is going to have hopefully one set of rules.  Okay.  Eventually.  I mean it may not be NAFTA marking rules, but hopefully.  Okay.  

So I would say that whatever the Customs MFN rule is for substantial transformation, that may change at some point.  So I'm not sure that you want to say substantial transformation.  I mean Customs may use tariff shift to get at --

MS. ARCHIBALD:  That's substantial transformation?

MS. LANIER:  Yeah, but, you know, whatever the Customs MFN rule is.  

MS. ARNOLD:  Does everybody know what the MFN rule is?

MS. LANIER:  It's substantial transformation.  Character, name and use.  It's not NAFTA.  

MS. ARNOLD:  It's not preference.  That's what that means.

MR. BECKMAN:  Abby, didn't you say what we were doing now was defining something, simple assembly?

MS. ARNOLD:  But Jan asked, before you even get to that, she's asking kind of for more information, I thought, from Robin about what this idea might look like.  So we were trying to do that.  And now we need to get to if you use this idea that Robin -- if you were to proceed with thinking about this idea that Robin has put on our table, merely for discussion, how might you define simple assembly?  So that's where we are.

And the reason why I allowed Robin to elaborate is because one of your colleagues asked as question.

MR. HUTCHINSON:  Can we have a --

MS. ARNOLD:  Okay, Philip.

MR. HUTCHINSON:  I'd like to introduce Barry Cutler.

MR. CUTLER:  On Robin's point, the clarification is this.  We think that she's basically on the very right track, but for people who know their own industries better than FTC practice and procedure, there could be some confusion over the notion of a definition, which is sort of a legislative concept where everybody has to get in what will squeeze their process in, and I wanted to clarify what have you clarified, if you meant definitions or the kinds of examples in the Green Guides, where, for instance, the Commission will take 100 percent recycle and say it has to be 100 percent recycled except for incidentals.  And they'll give a couple of examples where incidental might be a cap on a glass soda bottle and another example where it's more than incidental.  

And I think that if Robin could clarify whether she means definition --

MS. LANIER:  I don't mean definitions.  I mean -- I really am -- I think perhaps in the preamble you could put some definitions of terms.  I think you would have to.  I think the Green Guide has some definitions of terms.  But what I am suggesting is that the safe harbors themselves provide a great deal of guidance and shed a great deal of light by what the Commission means by simple assembly.  

So you could give the example of the footwear, for example.  I don't mean to pick on you, John, but you were the one who put it out there, you know.  And the FTC could say, "Look, you know, substantial transformation except in cases where there's "simple assembly," quote/unquote.  You know, Company A has these pieces and parts that come, and they're already dedicated and they're all foreign and all they do is put them together.  That's not -- they can't -- that would not be an acceptable -- it would not be acceptable to label "Made in USA."  

And that would sort of shed light on kind of what simple assembly meant.  You would have to use your own brain and come up with your own sort of feeling about how that applies to your own industry, based on the examples that you would provide.

MS. KORBEL:  Since we're using an example, can I ask --

MS. ARNOLD:  Could you use a mike?

MS. KORBEL:  Since we're using this example so much, can I ask what is the country of origin on this product that you sew together in the United States?  If you reexported that product, what is the country of origin?

MR. PELLEGRINI:  The country of origin is the USA for most foreign countries.

MS. KORBEL:  It has been substantially transformed, and what we're talking about is a rule of substantial transformation that conveys substantial transformation but doesn't convey the idea of "Made in the USA"?

MR. PELLEGRINI:  For most countries, Mexico excluded, if you assemble in the U.S., footwear from imported uppers and imported outsoles, you mark it "Made in USA" and in Mexico you mark it "Made -- --

MS. GROSSMAN: I want to clarify.  When a couple of people have said things to that that sort of indicated before that the U.S. somehow regulates the labels on products for exports.  And to the best of my knowledge, that's not true.  That's entirely up to the countries you're exporting to.  We don't have any requirement of labels for products that are being exported.  That are not sold to American consumers.  

MS. KORBEL:  But it conveys an international country of origin by international country of origin definition.  Yes or no?

MS. GETHERS:  Right now there is no international country of origin definition.  I mean that's what we're working on.

MS. KORBEL:  But that's where we're going toward.

MS. GETHERS:  Yeah.  

MS. KORBEL:  That's where we're trying to get.

MS. GETHERS:  Yes.

MR. KERSHOW:  Could I make a suggestion here?

I do think to Robin's point that it would be helpful for any guidance document, if that's in fact what comes out here, to give some concrete examples, just for the guidance of industry and the public.  And maybe concrete footwear-type examples would be valuable in that respect.   Or others.   

MS. ARNOLD:  Concrete footwear?

MR. KERSHOW:  Concrete shoes.  

MS. ARNOLD:  What about aluminum --

MR. KERSHOW:  But let me just mention for the good of the group, that under the NAFTA marking rules, and in fact even under the NAFTA preference rules, the people at Customs and Treasury who spent years of their lives negotiating these things, realized that the mind of man hath not yet discovered the way to get around the rule.  And so they were very clever, and at least as set forth in the Customs regulations, at least the current regs on the NAFTA marking rules, there is a provision entitled "Non-qualifying operations."  And most of them are really not in issue here.  I mean it says, "A mere change in end use would not be enough to qualify the product.  Simple dismantling or disassembly, things of that nature."  And packing and repacking and that sort of thing.

But the last provision I think might be helpful.  Here it is.  "Any process or work in respect of which it may be demonstrated on the basis of the preponderance of evidence, that the sole object was to circumvent these rules."  

MS. GETHERS:  Excuse me.  I'm going to have to comment here.

MR. KERSHOW:  You don't like that.  It's a headache, I know.

MS. GETHERS:  Well, we've already proposed to repeat that particular -- 

MR. KERSHOW:  But I do not have the new proposal.  There's something that replaces that.

MS. GETHERS:  Yes, that was out of --   and we haven't finalized that yet.  We are going to be doing that shortly.

MR. KERSHOW:  Right.  But --

MS. GETHERS:  And the reason we were doing that is we basically -- we substituted something that says you can't collect a bunch of parts together that would be classified as the finished goods under the general rules of interpretation and under the harmonized tariff schedules.

MR. KERSHOW:  Right.

MS. GETHERS:  And we basically took the position that if the rule allows it, the tariff shift rule, and you are following it, you are processing your goods pursuant to that rule, then how was it a circumvention?  And if you aren't following the rule, you're not going to get the change in tariff in the first place.  And it's not going to be a legal origin change.  Even though you might make the claim, it wouldn't be a legal claim. 

So for that reason, logical or not, we thought it was logical at the time.  We have withdrawn that provision, propose to withdraw that provision from these regulations.  

MR. KERSHOW:  Except the --   provision remains in the NAFTA preference.

MS. GETHERS:  In the NAFTA preference, yes.  I haven't seen much uses of it, but it's there for comfort.

MR. KERSHOW:  Well, it's a fair point, and I understand the administrative difficulties it allows.  But an approach here is a reasonable basis safe harbor type approach, then what you're essentially in the end  -- you are allowing people to make claims basically at their peril.  And it seems to me a concept like this that basically says, look, you know, you have to have a reasonable basis for the claim, but realize that if you just engage in a simple screwdriver operation, or something -- or you input a single component, just to be able to say that you're not 100 percent -- I'm sorry -- you've got essentially foreign components, but you used one domestic component, just to get around -- to be able to say you've got some material content.

I mean those sorts of things I mean strike people I think as beyond the pale.  And I guess some sort of rule that basically puts producers and advertisers on notice that those types of rather obvious attempts to get around normal production and addition of value concepts just won't be acceptable.  

MS. ARNOLD:  You're going to get me in big trouble.  So I'm going to cut you off.

MR. KERSHOW:  That's fine.  I thought I would be assisting.

MS. ARNOLD:  Well, I appreciate it.

I'm going to go back to my list.  It sounds to me like we don't really want to work on a further discussion of what assembly might look like, which is fine.  I will turn off the overhead and turn back to my list. 

But what Robin is trying to do, whether or not you like the idea or not, but what Robin is trying to do is put some ideas out on the table and you can shoot holes in them.  That's part of what human nature is and that's okay.  

So if anybody else has any other ideas, we're trying to move this discussion forward to try to help the FTC see a way through this, throw the ideas out.

MS. SWARTZ:  One idea, picking up on what Mike said earlier.  With respect to --

MS. ARNOLD:  I'm going to put you on the list.  

MS. SWARTZ:  Okay.

MS. ARNOLD:  Or I'm going to get in trouble.  I think Sarah is going to shoot me.  I don't her to shoot me.

MS. SWARTZ:  I'm just furthering the assembly argument.

In the Customs bulletin.  Not bulletin.  It's one of the Customs regulations.  With respect to 807 Operations, they give a whole host of examples of processing in various industries that would qualify or disqualify a product from 807.  

I think most people know what 807 is?  Okay.  807 is 9802 now, but we in the business refer to it as 807.  This is where you take U.S. fabricated components and you send them offshore, usually Mexico, it could be China or other places.  And you assemble them into a finished product.  And when you bring that finished product back, the only duty you pay is on the value added abroad.  

So this is essentially an assembly process.  And Customs has defined, in very specific ways, and has a whole host of rulings on this of what constitutes assembly.  And so I think you might want to look at that for some guidance.

MS. ARNOLD:  I am sure Sandra would be happy to share that with --

MS. CUMINS:  But, Sandra, doesn't NAFTA define and disqualify simple assembly as -- (inaudible)

MS. GETHERS:  Not the preference but the marking rules.

MS. ARNOLD:  Use your speaker.  

MS. CUMINS:  What's the definition --

MS. GETHERS:  There is a definition under the NAFTA rules of simple assembly which constitutes a disqualify operation.  I just don't remember how many --

MS. CUMINS:  It doesn't apply all the time.  It only applies when it's in the rule.

MS. GETHERS:  That's applicable.  And it's defined as putting together, you know, by screws, bolts, soldering, whatever, five or few pieces, all of which are foreign.  And that's the key word -- the key phrase right there, all of which are foreign.  

MS. CUMINS:  Thank you.

MS. ARNOLD:  Let's move on.  Jim, Sarah, Michael, Clark, Kimberly and Jan.  And I'm going to call on all of them before we have any more interruptions, otherwise I'm not going to let you go to lunch.

And Joel.  Jim, you're on.

MR. CLAWSON:  Jim, okay.  You said Joel.  I wasn't sure which one that refers to.

MS. ARNOLD:  I'm sorry.

MR. CLAWSON:  Thank you.  In the interest of no speechifying, I associate myself and the joint industry group who normally I represent here with all of those who support the tariff shift of the substantial transformation approach.  But more specifically, to that approach as it is going to be defined internationally as the WTO.  And I think that's an important distinction from some other things that have been said because the NAFTA marking rules, the 102 rules, if you want, are not adequate for some of the reasons that you've heard around the table.

But we do believe that the tariff shift substantial transformation approach is the way to go to define this.

Now, I wanted to answer a couple of other questions and I think you, what you just asked too as part of this, and make some suggestions.

Following on some other things that have been said, the government is very good at putting out rules of interpretation.  We do it all the time and there's a lot of discussion about that.  And I think it's like guidance and that these definitions can come about.  One of the great problems here that we keep hearing, which I agree with, is the consumer confusion, misleading or not, whether or not it's even deception to that level.  If there's no marking.  The non-marking in the U.S. in my view is as big a problem as a definition of "Made in."  Because, again, the lack of information can be terribly confusion and misleading to a consumer as much as what information you would choose to put on.

And you see that now in so many changes that have come about through nutritional labeling, consumer product safety, labeling requirements, and you have an enormous number of labeling requirements in this country as most manufacturers and producers will tell you, to try and give the consumer better information about what they're doing, voluntary or required. 

And it strikes me that one of the great difficulties with the WTO flexibility that says that you can have a higher or lower standard than what's agreed to in the voluntary sense of marking.  

Is the words "Made in" -- because that's where the problem comes -- is that we still have never come to grips with what that definition means.  And "Product of" -- we've heard "fabricated in," "assembled in," "produce of," "manufactured in."  I mean there's a host of different products -- I mean different terms.  And what I'm going to suggest that could be looked at in terms of whether it's safe harbors or virtually all or whatever test you come with is an education program as to what each word means in a certain context.

So you can have, just as we do in many other things that we're talking about in our life, words with appropriate connotations that the consumer can understand.  When we talk about the daily recommended requirements for intake, you know, we have tried to define to the consumer with regard to vitamins and all those other things in nutritional labeling, and calories and fat and protein and whatever.  We've made a great attempt to try to say what we mean when we put those on there.

And I guess what I'm suggesting could be done in a combination of what's been talked about here is some better definition of what these words that we are putting on labels voluntarily or required actually mean.  

MS. ARNOLD:  Okay.  Sarah?

MS. VANDERWICKEN:  I agree with Robin that the Green Guide approach would be useful.  And that the FTC can well publicize and educate people.  I think they can do that with the virtually all standard and explain what "virtual" by example of what might be --  incidental kind of analogy or whatever. 

I'd like to get kind of clear what we're doing here.  You know, we don't really have information about consumer perception is.  But we do know that there is a substantial minority of people who make purchasing decisions based on believing that other things being equal, one product is made in America or for made in America than other products, and want to have a basis for selecting products on that basis.

And it seems the interest that's being expressed here is to how best to enable industry to use that label, to get that market tool, at the least cost.  And that is really not the point that FTC has in its mission and statute. 

You just have to remember who this is for. who the statute is for.  And the idea of on a case-by-case approach to duking it out, whether or not an industry can kind of get away with a broader definition and less cost when they know what the FTC's enforcement capabilities are, how much they have on their plate, and then tell the consumer -- I mean everybody seems to say, well, you should tell the consumer what it means and then they'll all know and that'll be okay.

Well, what this leads to is saying to the consumer, well, it means whatever industry thinks they can get away with, essentially.  You know, what they kind of define as lots of things that industry has to comply with, lots of different rules that are governing them.  And they are going to take one or more of these and buy it and, you know, what it means is what the courts eventually tell us it means.

As I said yesterday, and I won't speechify more.  I just think this --  has to be brought in periodically because I think we lose sight of it.  That the aim here is consumer information and some simple way to know whether or not a label means something.  And so far the only approach that really helps with that is the virtually all standard.

MS. ARNOLD:  Thank you, Sarah.

Michael?

JOHN JIAMBALYO:  This is John Jiambalyo, for Mike Thompson and the Association of --

MS. ARNOLD:  John, could you repeat your name again?

JOHN JIAMBALYO:  Sure.  This is John Jiambalyo for the Association of Home Appliance Manufacturers.  

MS. ARNOLD:  You're speaking for Michael?

JOHN JIAMBALYO:  Yes, I'm speaking for Michael and for the industry.

I would take exception to Sarah's remark that U.S. manufacturers are looking for the least-cost approach and the easiest out in all instances.  When you build factories around the country that are investments of hundreds of millions of dollars a piece and you employ tens of thousands of workers right here in this country, we are not necessarily looking for the easiest out.  We certainly are not.  And as Mike has mentioned before, we have a diverse industry.  Over 95 percent of the white goods in this country are made right here, but occasionally we have a major product -- a major component that we can't get here anymore.  And we simply can't make the claim under the all or virtually all.

We certainly don't feel that only relatively simple products ought to be able to make this claim since it has wide economic value, and we ought to be able to share that value among all manufacturers who make a substantial effort to have a U.S. manufacturing basis.  

We feel further that this has the potential for being a win-win-win for consumers, properly educated in what the economic realities are for us, as manufacturers.  And certainly for American workers as well.  

I have one member who makes small appliances, makes the majority of them in China, who is very interested in this process.  Interested enough to bring substantially manufacturing back if we get away from the all or none concept of the FTC to something that they can work with, because some of Robin's preeminent members favor "Made in the USA."  And then there would be an economic incentive that's overriding the strict nickels and dimes approach to cost.  

So we are wide open to not looking for the easiest way.  We certainly are against simple assembly as a way of -- as an approach.  We want more value added than that.  We want a rule that is good for jobs in this country and we want a rule that maximizes the economic value of "Made in USA" for everybody.

So we think that if we could establish some principles here in this forum, and the FTC could apply those principles industry by industry in a way that makes sense for everybody, that we'd have pushed the ball forward quite a bit.  

MS. ARNOLD:  Thank you.  Do you have any ideas of principle?

JOHN JIAMBALYO:  Well, certainly some of the -- I think Robin has begun to establish a framework -- I think Robin has taken a big step forward to establishing the beginning of a framework for doing it.  That might have multiple stages to it, but it certainly shouldn't be easy.  But it should be reasonable under current business condition.

MS. ARNOLD:  Okay.  Clark?

MR. RECTOR:  Yeah, I think that Sarah just -- let me get the microphone -- in some ways just argued, to me at least, against an all or virtually all standard.  She made what I think is an important point.  The consumers want to be able to look at two products and judge which one has more "Made in the USA" content.  Well, strictly all or virtual all is going to take a lot of that information away from the consumers in industries where can't have a bright-line standard.  

What I think it argues for is the guides approach.  And for being able to use a continuum of claims.  When we're talking about safe harbors, I think we need to recognize that we're talking about a plural, not a single safe harbor.  The Green Guides don't talk about once safe harbor for environmentally friendly.  They talk about a number of different types of claims which you can make, and I think that that's the approach that we need to take here.

MS. ARNOLD:  Great.  

Kimberly, Jan and Joel.  

MS. KORBEL:  I'm Kimberly Korbel, the Executive Director of the American Wire Producers Association.

We spent a lot of time yesterday hearing everybody's views on all or virtually all and percentage content.  And we kind of skipped by all of those pros and cons for substantial transformation and put substantial transformation into a header for safe harbor.

I think that's logical, but I think the opportunity to provide our organization's pros and cons on this issue is my turn here.

We are here to talk about consumer perception and as consumer perception relates to how industry deceives the consumer and how we label our consumers.  And I think that while we haven't asked it in a consensus question, many of us have said that the surveys have revealed to us that the consumers don't have a clear definition of what "Made in the USA" is.  And so I think that obliges us to determine and educate and publish, as many of us have said, what is "Made in the USA."  

So in effect we here to decide what "Made in the USA" will be in the end and how we convince the American public that that's what that is.

But we're in a global marketplace and I think we are all aware that the world is changing and that we operate in many markets other than just the United States.  And if we're going to make a determination about what "Made in the USA" is, if we remember that we're in a global marketplace, then we're looking to the future and taking a leadership role at the WTO in determining what a consistent "Made in" claim might be in any country in which we're doing business.  Then I think we're advancing the cause not only for the American consumer but other consumers as well.

I think Sarah's point is well made.  And as Clark reiterated that, the consumer wants to know is this one more American made than that one?  And it does argue that all or virtually all isn't a standard that we want to reach toward because of the picture of the marketplace right now.  

I saw a bumper sticker coming in this morning and while we've talked about the perception of what "made" is, whether it's a process or making dinner, this bumper sticker talked about buying "Made in America" -- American-made products to keep jobs at home.

When we do a process in the United States, we are creating American jobs.  And maybe that process doesn't have 100 percent content of 100 percent "Made in USA" products, but the process and the jobs that go into that process are in the USA.

For the Wire Producers Association, we are very much a global economy.  We have not only commercial products, but we have retail products as well.  Things like mesh and wire reinforcement go in a building.  Nobody ever sees that.  There's not a label on it.  But there's a business-to-business transaction where there's some value in buying a "Made in USA" product.

But then there are garment hangers, nails, chain link fence, poultry netting, barbed wire and things that you might find in a hardware store that a John Q. Public consumer might purchase.

If we go to an all or virtually all test, a nail manufacturer in Illinois who employs U.S. workers would make a nail from a semi-finished steel product that maybe isn't sourced from the United States.  But if you ask that person on the line in the nail manufacturing plant, "Is this a U.S.-made nail?"  He's going to tell you, "I made this nail in the United States."

The AWPA then would respectfully request that what we're looking for is a standard that conveys like the NAFTA tariff shift items do, the idea that the product is essentially a component or a product that's made in the United States.  

As I listened to some of the discussion that we heard yesterday and today, the issue of a safe harbor or a definition where the threshold is substantial transformation with some exceptions, would be a labeling definition that our industry could live with.

That'll do it.

MS. ARNOLD:  Thanks, Kimberly.

Jan, Joel, Jim Palmquist, and then let's go to lunch.

MS. ARCHIBALD:  Thank you.  I'll try to be very brief.

I simply cannot allow having people say without challenging it that the standard, the current standard, which is all or virtually all, somehow denies information to consumers.  That is simply not true.

It says that if you make a claim of "Made in USA," you must have all or virtually all.  It is up to every single company in this room who cannot meet that claim to provide the consumer with whatever truthful information they care to.  If you think it's important to them, you will.  If you think it's not important, or it's too expensive, there are other forms.  That is your choice.

But all of you are proposing who suggest diluting this standard, whether it's substantial transformation or any other test, is to allow a product that is not all or virtually all made in the U.S. to be simply labeled ""Made in USA."  Thereby denying to the consumer the ability to compare that product to one that perhaps has more U.S. content unless you now shift the burden to the company that does meet the higher standard to provide additional information to the consumer.

All of this is being suggested without any evidence that's been put together that would demonstrate that consumers believe when they see "Made in USA" that it means substantial transformation, that it means substantial transformation so long as there's not just a simple assembly, whatever that is defined to mean, or some other formulation.

And let me also say that the devil is in the details.  Everybody around this table has been through these wars.  I've been in some.  I've watched a lot of them.  And let's be very honest with each other.  We all try to draw the line in a way that benefits our own companies.

The FTC's job is to look at what the consumer thinks they are seeing when they read this label.  

Thank you.

MS. ARNOLD:  Okay.  Thanks, Jan.

Joel Joseph, Jim Palmquist.

MR. JOSEPH:  Yes.  I'm Joel Joseph.  I'm with the Made in the USA Foundation.  And we're obviously not a producer.  Our interests are the 60,000 members of our organization who want to buy American products.  And right now I think they don't have much information.  

We have suggested that there be two standards.  One for "Made in USA," that it be at least 75 percent U.S. content, to include that label.  And for Jan and other people who manufacture 100 percent of their products, 100 percent of the content in the U.S., I think they should be allowed to include right on the label, "100 percent made in the USA."  That would give the consumers the most information.

The second standard would be for "Assembled in the U.S," that that be at least 50 percent.  And the manufacturers, of course, could put more specificity on the label if they wanted to.  

We want to keep the standard as simple as possible so the consumer can understand what it means.  We get this question day in and day out.  "What does it mean to be made in the USA"?  

We oppose the substantial transformation safe harbor.  I call it a loophole.  Because something could be 10 percent made in the USA and still meet that test.  We don't want to have loopholes.  We want to have a clear standard.  

And concerning products that don't have to be labeled, we think it's an unfair and deceptive trade practice not to have a country of origin label.  We think the FTC could require that label and could define what has to be on there.

So I've heard the arguments from everybody.  And I've heard this for seven years.  And we think it's time for the FTC to require the label to be on there so consumers do have the information.

MS. ARNOLD:  Jim?

MR. PALMQUIST:  I'll be brief.

I want to keep dragging this back, if I can, to the real world.  I live in the real world.  I have to package packages in the real world.

The issue I want to focus on for a second is a question I guess to Sandra and Elaine, and then I just have a brief comment on another issue.  And that is this item of confusion.

And it seems to me that we are obviously in a tremendously confused area with the consumers not being able to understand all these different standards, rules and reasons.  And the reason that we support the substantial transformation concept is that it is inevitable that if we don't have something like that, we're going to continue down the confusion and let me just explain.

 U.S. Customs is required to act under 19 U.S.C. Section 1304.  All non-U.S. products have to be marked with a country of origin when they come into the United States.  The purpose is obvious.  So the ultimate purchaser in the United States can make a knowledgeable business decision as to where that product is coming from.

The standard that they are using is the substantial transformation.  So when the handbag that is substantially transformed in Italy under that standard comes into the United States, that's going to be marked "Made in Italy."

Now, the FTC, under 15 U.S.C., Section 45, is looking at claims, whether or not the claims are reasonable.  The reasonable basis.  All right.  If the FTC has a different standard, and pick any one that we've been talking about, 50 percent, 75 percent, all or virtually all, then in fact you are faced with this situation and the question is how are you going to handle it?  That handbag from Italy is still going to be here.  That handbag is going to be required to be marked by U.S. Customs as "Made in Italy."  That does not meet the -- and let's assume in my hypothetical that that does not meet the 50 or the 75 or the all or virtually all standard that is now being established as being the basis for a deceptive claim.

All right.  If that handbag comes in here with "Made in Italy" on it, then it's in violation of the FTC.  So unless you guys can get together we can't ever solve that problem.  

MS. KOLISH:  My simple answer to this -- it isn't really simple -- is that the United States Congress passed the Tariff Act and gave the Treasury Department and the Customs Service the responsibility of determining country of origin.  Therefore, the FTC is not going to be second-guessing Customs, which is fulfilling a statutory mandate to require this label.  

We're not going to be saying that the labels that our colleagues at Customs are requiring on products, we're not going to be saying those are deceptive.  We are not doing that, in my opinion.  

MS. GROSSMAN:  We can get Customs to change their standard to be consistent with ours.

MR. PALMQUIST:  That's fine with us.  

But my point is that it's really illogical, absolutely illogical to, in one hand, say that that somehow is not a deceptive claim if in fact you're established a standard in the United States that is different to make a representation.  It's two different things.  One is the country of origin marking requirement.  And the other is whether it is or is not a deceptive act under the FTC.

MS. KOLISH:  Well, whether it is or is not illogical is probably a complicated question.  I mean there's been a lot of discussion about consumer preference for "Made in USA" goods and what a valuable claim it is, and a lot less discussion about how consumers interpret "Made in foreign country" claims.  

MS. SWARTZ:  --  preferred.

MS. KOLISH:  There are certain ones where they may be preferred.

MS. SWARTZ:  But they don't really have to be Italian.  But you're requiring the same thing of a Coach handbag, that it has to be all U.S. components.  It's competing against that level of product from -- and it may be an unknown unbranded leather handbag producer from Boston.  There is a nice manufacturer up there making beautiful stuff.  But they can't necessarily say "Made in the U.S" because perhaps they're bringing in hardware from other countries. 

Now, what chance does that producer with no local have competing against a handbag from Italy that really may not be all Italian in content?  

So I think it is illogical.  

MS. KOLISH:  I don't view this necessarily as an all-or-nothing proposition.  You know, as Clark has talked about these advertising agencies are out there to help you with savvy marketing campaigns, that can tout their domestic content.  We know that you compete on many different points, price, quality, selection, warrantee.  There are lots of different things.

I don't think we can solve everybody's problems with all of the standards here.  We're not the legislature.  We can only fulfill the mission that we have.  Some people keep reminding us, this is your mission.  Whether we agree on how we implement that will be a different story.  

But I don't think we can solve all those problems here.   I'm sorry we can't.

MR. PALMQUIST:  No, I just wanted to raise it so we didn't lose focus of that.

The other is just a comment again, real world.  And I've touched on it, but please let's not develop something here that isn't going to be applicable in 2000.  NAFTA exists.  Multi-country labeling exists.  

Please take as final step when you're checking any proposal to see exactly how that is going to work on a label for specific products that are meeting the requirements of a Canadian, U.S. and Mexico label.  If it doesn't work when you apply it to that, try country labeling.  Then in real world, it's not going to work.  

So as a final test, once you've decided things, always put together that three-country label and see what it looks like in that.  

Thanks.   

MS. ARNOLD:  Good.  Thank you, Jim.

Before we go to lunch, let me just mention that the infamous Green Guides, copies have been made and they are out at the table where there's materials, and after lunch, what we're going to do is I will summarize what I've heard about the positives and negatives of substantial transformation.

Kimberly, I think we have gotten a lot on that. 

We also will talk about the positives and negatives for the reasonable basis.  We will see if there's any more discussion on either one of those items, including getting observer comment.  And we will talk about other options, either Robin's -- more discussion on Robin's, or others that you might want to bring to the table, including looking at the Green Guides and see what your comments are on those.

Some people have asked me whether or not we're going to go until the adjournment time that was advertised on the agenda.  I don't know.  My guess would be that we're probably going to end early.  My guess would be somewhere in the four o'clock range, but I don't know.

MS. KOLISH:  That's not my guess.

MS. ARNOLD:  That's not your guess?

VOICE:  Nor mine.

MS. ARNOLD:  Well, I just don't know.  

They still have a lot of questions which they're going to look on over lunch and bring back to you.  So forget my guess.  I'm wrong.

(Whereupon, at 12:03 p.m., the hearing was recessed, to reconvene this same day.)

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

MS. ARNOLD:  Okay.  Let's get going.  We don't have a lot of -- we don't have a number of our parties back.  I don't know if they're coming back or they're having a long lunch.  I know it's hard to get lunch around here.  It's been an hour and 15 or 20 minutes.  So thank you for those of you who did.  If you, in fact, ate lunch.  

Generally the afternoon -- I think it'll look like the following.  We will ask if there are any additional comments on this substantial transformation or reasonable basis, safe harbor approach.  

And there is at least one around the table.  And then we'll ask for observer comments, if there are any.  

And then what we'd like to do is if you remember on your agenda there were some variations of either the approaches we've talked about or others that the staff of the FTC would like to hear your ideas on, your comments on.

And then we've got -- over lunch we, the FTC staff and I, tried to come up with a few questions related to a couple of the standards we discussed, that they would like to hear your input on.

We will then again ask for public comments.  And then we'll talk about the pros and cons of doing this workshop approach, what will work for you and what would you like to see done differently if the FTC decided to do it again.  And then we'll adjourn.

And I'm not going to guess when we're going to      adjourn, but my experience is that we'll adjourn before 5:00.

Some of you had asked whether or not you could get copies of the transcript.  They are available through Gary.  Actually, Gary, you don't have to put Gary's name on it.  You don't have to put Gary's name on it.  You go through the Heritage Reporting Corporation at that address, and in fact there are forms here which I'll pass around that you can fill out and send in to Heritage to get a copy of the transcripts.  I assume for a cost.

What is the cost, do you know?  He doesn't know.  You'll have to ask them.  

And then if you want to submit comments, if you want to submit comments to the FTC, you can send it to the same address that you sent your original comments to, but I have put the address up there for your benefit.  And the deadline, again, is April 30th.

Are there any other -- Kent is going to put up the e-mail --

MR. HOWERTON:  It's the World Wide Web address.  

MS. ARNOLD:  It's the World Wide Web address for the Commission Home Page.

MR. HOWERTON:  Home Page of the World Wide Web on the Internet.  

MS. ARNOLD:  Would the transcript be on there?

MS. GROSSMAN:  Yes, the transcript will be on our Web site.  We also expect it will be in our public reference room too where they will also charge you a packing fee to copy it.

MS. ARNOLD:  Are there any other logistic questions of that nature?  

Lauren, do you want to lead us off in the afternoon -- did you launch us off yesterday after lunch too?  

MS. HOWARD:  I think this morning.  I don't know.  It tends to blur at this point.

I just have a brief comment, and really just a comment for the record.

I do appreciate Robin trying to take into account in fashioning some solution to this morass.  Our concerns about mere assembly.  But I did want to state that when we were going through our analysis of the possible choices to propose to the FTC in lieu of the all or virtually all standard, we did look at the substantial transformation test and the NAFTA preference and marking rules.  And we did have issues with them beyond the mere assembly, and that's why we proposed a 50 percent content standard along with a final assembly requirement.

So that mere assembly phraseology will not solve all of our concerns.  And some of our concerns are footwear specific.  I mean the way the preference rules are written or the marketing rules are written or the substantial transformation test is applied to footwear.

But we would like to think about the whole issue further and we'll be making some more suggestions in our post-workshop submission.  And so we'll leave it to that.

MS. ARNOLD:  Great. 

Okay, Jim.

MR. CLAWSON:  I just was reminded that I did not comment on Deborah's comment earlier yesterday which we held today about what the IFAC had done and why we got to substantial transformation, and I'll be very brief.

The consistency issue around the world that we keep talking about a lot is one of some importance obviously, as we try and harmonize lots of things that are going on from investment issues to trade issues.  And there's two types of consistency, horizontal and vertical.  And I think one of the things that we discovered in our work in our committee is that what a tariff schedule, the harmonized system schedule does for you.  It allows for consistency to be developed on a sector-by-sector -- if you will, almost product-by-product basis.  So that when you look at a six-digit code number, that 120 countries of the world are using, everybody who uses that code number and if it has that rule, the consistency is for that product under that heading.

So it's more of a vertical as opposed to the rule applying to all products everywhere.  And it was one of the compromises in the sense of our group in trying to come to what made sense in a tariff shift approach and why you would do it is because you could acknowledge all the differences in processing, if you will, from all the different products.  And you can do it by -- on a rule basis, on a product-by-product basis.

And it was fairly agonizing along the way but -- and there may be better ways to do it.  And we're still open to those and that's why the world is looking at it in the WTO now.

MS. ARNOLD:  Okay.  Any other comments?  

Any comments from our observers?  You've been very patient.  

No?  Okay.

Then what I'm going to do is summarize what I've heard and the comments I've gotten on the summaries are generally that, number one, I've gotten a lot of thanks and I've also been asked are these going to be used in any of official sense and the answer is no.  They are meant to kind of frame what this person heard and you can use them in whatever way you want. 

For substantial transformation, on the positive side, there's harmony with U.S. Customs.  It is an existing process.  A lot of time and effort, and resources have gone into it.  It provides consumers the need -- a standard that is equivalent across origin standards; i.e., "Made in Italy" equals "Made in USA." 

I was trying to reflect your comment, but I don't think I caught it.  

Do you want to restate it?

MS. KORBEL:  I'm sorry.  In what context?  

MS. ARNOLD:  The substantial transformation standard.  I thought it was yours.  That the consumer needs a standard that is equivalent across origin of standards.  Maybe this is a negative because you're not for it.  I should put that on the negative side.  I just had it on the wrong side.  That's what didn't make sense.

MS. KORBEL:  No, no, no, no.  

MS. ARNOLD:  Oh, it is a positive?  All right.  So the consumer needs a standard that is equivalent across origin of a product.

MS. KORBEL:  Across country standards is what you're looking at.  So that it's equivalent in all countries.

MS. ARNOLD:  Thank you.

MS. KORBEL:  "Made in Italy" and ""Made in USA" means the same thing in whatever country you're in.

MS. ARNOLD:  Great.  Thanks, Kim.

And on the negatives, it deceives the public,  may allow product to have less than a particular percent of U.S. content.  It provides inconsistent results that's subjective.  It's an administrative-determined process, which is determined on a case-by-case basis.  And has little bearing -- that have little bearing on other cases. 

MS. GETHERS:  Did someone report that there was something on the news this morning about the workshop?  On the radio?

MS. ARNOLD:  There have been a number of different reports.  But let's not go into that now.  They were on the radio, TV and in the newspaper.

Okay.  The substantial transformation, that's what ST is up there for.  It focuses on the effect of the manufacturing process.  It may be useful to use along with value because -- and then let's get to the negatives.  

The problem with substantial transformation is it does not go far enough to capture sufficient domestic content.  It's elusive.  Rather the claim that is the basis of what a "Made in USA" claim ought to be.  And on the other side.  In addition, negatives are substantial transformation test is too low to have a percentage content, but it's substantial to just be assembled here.  And there is a need to look for a sufficiency -- a sufficient domestic content.  Manufacturers that may not be given clear guidance, and manufacturers need more certainty.

Lauren, I think that was you.  I may dream about these comments in my sleep tonight.

On the positive side of substantial transformation is use of country of origin.

VOICE:  Microphone.

MS. ARNOLD:  It is closer to what is "Made in the USA" should be on a reasonable basis.  It provides consistency between origin claims.  This comment was that it is not enough -- substantial transformation is not enough.  However, double substantial transformation might be enough where you take a material, make it into components, and then those components become a product.

Other positives are recognizes the challenges of product development and labeling requirements.  It is flexible.  It is more than assembly.  

On the negative side, assembly is not enough.  Again, you need to reflect more than assembly to be sufficient.

Substantial transformation is consistent.  It is where the world is going -- where world commerce is going.  It's an earnest attempt to determine when a product comes into being.  It recognizes subassembly and beyond.

Some of the negatives.  The country of origin may cause some problems because if you can't determine what the country of origin is, you have to go too far back in the process.  

Substantial transformation may change.  Substantial transformation may change with actions the WTO takes or a policy that they adopt.  There's no relation to consumer perception.  Congress's job is to set the standard regarding marking products, and not the FTC.  And the FTC role is to address concerns -- consumers' needs.

The substantial transformation does not provide information to consumers what they need --

On the positive side, it's enforceable.  It works at least 85 percent of the time for most of the organizations or clients that you all represent in the room.  It's based on processing, value added -- no, no, no.  Forget that.  That's not true.

Substantial transformation reflects jobs in the U.S.  It's a product -- what are products of the U.S.  It helps clear up the confusion of the origin of products.  And the tariff codes provide for vertical consistency among products within sectors.  

So there is an attempt for reflecting or distilling the main points that you all made in the course of your comments on substantial transformation.  

Then in terms of the reasonable basis safe harbor approach, we did jump back and forth, and what I try to do, as you saw me up there, I tried to capture what you were saying either on the substantial transformation or reasonable basis.  So let's see if this works.

There's a lot of positives that people expressed.   That business is comfortable with this kind of a concept. The tariff shift could be seen as a version of a safe harbor.  If you do X, then you're okay.  Provides informed compliance.  If you identify safe harbors and consistency, you're going to get the protection that you're looking for.  Safe harbors create performance rules within a larger tent, which a lot of you felt was -- at least a lot of the industry expressed comfort with.  

You could use a guidance document like the Green Guides to develop what your reasonable basis is and potential safe harbors within that.  The reasonable basis approach could be seen as less complex.  You could use  NAFTA marking rules, substantial transformation, tariff shift rules as a part of your reasonable basis approach.  And it's a flexible approach including substantial transformation, and it was a good idea.

Many of you said it was a condition for your interest or support of it.

On the negative side, be careful.  There's potential inconsistency if you've got all these different standards within a standard.  How do you reconcile those?   

We already said this one.  Acknowledge that substantial transformation may not be sufficient, and if you include the NAFTA preference rule as a safe harbor, then this reasonable basis approach might work.

You could look at labor assembly and cost.

Only one more sheet.

This says comfortable with this concept.  Tariff shift could be seen as a reasonable basis.  Oh, I already did that one.

This is it.  The benefits of the reasonable basis approach is that it accommodates a broad range of interests or needs of the companies.  The safe harbor could provide an answer to many manufacturers and allow them to pick or choose, take their own risk regarding whether or not they wanted to meet the standard.

The negatives on the safe harbor is that it may not be realistic because too many companies would seek the harbor, and there might not be a harbor big enough for all the companies who want to seek it.  It may be too complicated and not enforceable.  It allows companies to make claims at their own risk.  It wouldn't be adequate because it couldn't satisfy the FTC's need or their mission to provide consumer information.  And it wouldn't be clear and it would provide too many loopholes for the consumer.

And we will have these copied or at least they'll be in the public record for those that want them.  And there's been a lot of request for those which I was surprised at.

There have been some questions that have been raised by staff.  Or basically the staff had a powwow over lunch and had some questions that they wanted to ask you.

So if you don't mind, we'll move into that.  And the first one had to do with on the third page of our agenda, 1:15 session, which is about where we are, there were some other variation of approaches that the staff had identified in their review of the comments that some of you had initially submitted to the FTC.  

And those other variations and approaches were use of qualified claims, which we have talked about.  But there may be additional comments on them.

Multiple defined claims.  And these are staff and my reading of what you're proposing.  So these may not be the exact words that some of you use in your comments.

Hybrids.  A combination of any of the above.  Essential component.  We've been talking about a hybrid when we talk about the reasonable basis approach.  And there may be others.

Different standards for advertising and labeling, which is a question that has come up.  There should be a different standard for advertising in labeling or marking. 

The use of safe harbors.  We've begun discussion of that.  And for lack of a better word, Robin's approach.  That's the other approach that was suggested.  We'll call it the R approach.  Take away the Robin.

VOICE:  Call it the process approach.

MS. ARNOLD:  Process approach.  

What we'd like to hear about, what we'd like to hear now, is if you have any comments on those other kinds of approaches or if you have some suggestions for the FTC staff.  Remember, if you were to put on for a moment the hat of these folks, and you had the task of coming up with a recommendation to the chairman and the rest of the FTC, based on all the different concerns that you all have.  That's kind of where we will get by the end of this afternoon.

So let's first talk about your comments on these variation approaches.  We'll look at specific questions that FTC staff has for you guys and then let's see if there's any other suggestions that you have.  We'll call them the TUV approaches.

John.

MR. PELLEGRINI:  Well, let's start with qualified claims.

MS. ARNOLD:  Okay.

MR. PELLEGRINI:  One of the discussions we've had -- --  "Made in USA" without making a qualified claim.  And we have not had much discussion on what is a qualified claim and what would the FTC accept or suggest in that area or anybody else thought about it.  

And what we've suggested is that the qualified claim would identify the fact that they used imported components.  Remember our suggestion is if you use only imported materials, you can make an unqualified "Made in USA" claim.  But if you're using imported component or a subassembly like the electronics industry, then you've got to identify that fact, but only the fact that you used an imported component you not be required to identify the component itself or the country of origin.  And that's principally because you don't want to necessarily have five different labels because you may be buying components from various sources.  You won't always know when you're making the label up where it's from.

In some cases, the components of a product are not identifiable very easily in common language.  And you could totally confuse consumers by saying "I have an imported widget."  They don't know what that is.  

Yes.

MS. SWARTZ:  Can I ask a question on variation?

MR. PELLEGRINI:  Yes.

MS. SWARTZ:  What if you made an imported component with U.S. materials, which is not uncommon?"  

MR. PELLEGRINI:  In our position, an imported material, you transform that into the component, that's your first substantial transformation.  You take the component and make the finished product.  That's the second substantial transformation, "Made in USA" -- not qualified.  You've got a product where you can say "Made in USA."  

So if you have a handbag and all you're imported is the hardware -- well, I don't know about the hardware.  Let's take the leather, which you cut into various parts, straps, whatever, to make a handbag.  You assemble those with U.S. components, say, the hardware, for example.  You could say "Made in USA."  You would not disclose the fact that you imported some of the materials.

MS. SWARTZ:  But I say I was having the straps made in the Caribbean.

MR. PELLEGRINI:  Uh-huh.

MS. SWARTZ:  Our of U.S. leather.  Would I have to say that that was an imported component?  Maybe that's not the best description.

MR. PELLEGRINI:  Yeah, our theory -- our model, if you will, you would have to say "With imported components." 

MS. ARNOLD:  Jim?

MR. CLAWSON:  Yes, thank you.  I just have two quick comments about, one, the essential component, again, from our experience in the Customs area and many years of trying to argue about how we identify what it is, I would not recommend that the FTC embark on trying to determine the essential component of any good.  Look back at the history of the motherboard question in computers.  And the same issue with regard to the laptops and the computer screens and how it shifts, and what is the essential component.  And it changes all the time.  And I think that that's a road that -- and if you start down, from our experience, is not going to lead you to where you want to be.

MS. ADKINS:  I'd also argue that it would discourage the use of U.S. materials.

MR. CLAWSON:  Yes, yes.

MS. ARNOLD:  Why?

MS. ADKINS:  Because if you can get some credit toward content by using U.S. materials, you should.  I mean that produces U.S. jobs.  It's U.S. materials.  And somehow that should be credited.  And if you're going to have to, you know, show that the further processing resulted in imported component, what's the point of using U.S. materials in it?  

MR. CLAWSON:  That's right.  If the only requirement is the essential component, and you make it U.S., everything else can be foreign.  And, again, you don't want to do that.  You don't want to discourage the rest.  So it had to be more than the essential component.

MR. ANDERSON:  But this isn't John's proposal.  John's proposal is --

MR. CLAWSON:  No, no, no, no, no.  I'm sorry.

MS. ARNOLD:  --  foreign components.  He moved to -- on page 7 --

MR. CLAWSON:  I'm looking at the list.  Yes.

MS. ARNOLD:  Thank you.  On page 7 of your agenda --

MR. CLAWSON:  Sorry.

MS. ARNOLD:  -- are more detailed questions about each one of the list.

MR. CLAWSON:  Yes.

MS. ARNOLD:  And, I'm sorry.  It's okay to jump around.  

MR. CLAWSON:  It was the pros and cons of respective options.  And I apologize to the group because I thought that's what we were commenting on.

MS. ARNOLD:  Yeah.

MR. CLAWSON:  And I was saying the essential component --

MS. ARNOLD:  You're doing great.

MR. CLAWSON:  Thank you.  And then the other one was the different standards for advertising and labeling.  Again, I would go the other way.  I think if you establish a standard, whether it's all or virtually all, it needs to be the same for both.  It strikes me and it strikes our group as we examined all of this, that to have one or of them, either a higher or lower threshold, is not going to help your role in helping the consumer.  

MS. ARNOLD:  Why?

MR. CLAWSON:  And why is that?

MS. ARNOLD:  Why?

MR. CLAWSON:  Because if you say that if you market the good at a lower threshold, that you're going to hold them to a higher threshold at advertising.  What you are really saying is that it's okay to deceive the consumer who doesn't pay attention to the advertising.  He just buys the good.  I mean it's a lower standard.

Or vice versa.  You can do it either way.  I mean it depends on which direction you go.  

MS. ARNOLD:  Is it an either or question?  Or is it if you -- I mean the question --

MR. CLAWSON:  Well, the question is if you have different standards.  

MS. ARNOLD:  I'm just wondering is your question regarding advertising and labeling, let's say you have no mark on the label, could you advertise "Made in USA"?

MS. KOLISH:  No.  This proposal would go towards some of the consistency issues that you would raise with Customs and exporting.

MR. CLAWSON:  That's what I understand.

MS. KOLISH:  And it was also reactive to the consumer perception data which showed that people were a little less attentive to claims made on packaging rather than advertising.  

And a theory that maybe if this is just often treated as a piece of government required information that they're not going to really take it, you know, process.  Versus, you know, big advertising campaigns.  

Was this one way of striking a balance among competing concerns?  It's not perfect.  I know that.

MR. CLAWSON:  Yes, I understand.  And I don't change my response.  It strikes me if it's a voluntary, it is now, if I'm going to go out and do an advertising campaign, I must be held to the same standard with regard to the consumer and what I'm going to tell him of truthfulness that I would as if I marked it on the goods.  I don't see a difference in it.  And to do otherwise, well, you'll get the anomalous situation where one or the other, whichever way you go, the consumer is not given truthful information, if they have different standards.  

For the same reasons we talked about imported versus domestic.  The consistency issue.

MS. ARNOLD:  Jan?

MS. ARCHIBALD:  On the questions relating to qualified claims.  I mean we certainly have said yesterday and again today that we think qualified claims do provide an answer for some of the companies who've spoken about their concerns here today.  

Personally, my view would be I would prefer not to have a government mandate the exact terms that I have to use in a qualified claim.  I think most companies would probably prefer to use their own ingenuity to come up with something provided that it's truthful.  And I think that they should be allowed to do that.

I want to agree with Jim.  I think that with respect to advertising versus labeling.  When we are talking about a "Made in USA" claim, you can't have the product marked one way and the advertisement saying something else.  But I want to be clear that I am not suggesting that there has to be consistency between the Customs country of origin marking and the labeling for FTC purposes.

MS. ARNOLD:  Okay.  Mitchell.

MR. COOPER:  On qualified claims, as far as rubber footwear is concerned, you can forget any "Made in USA" label.  That is something that we do not want to lose.  Any qualified claim, any claim which says "Made in America," for example, with imported components, has necessarily a negative connotation to it, which nobody is going to want to add to his labeling, particularly if what you really mean is "Made in USA" with imported components, but we want to assure you that the components are of the same quality as the American product.  And we also want to assure you that we are using imported components only because these components are not available in the United States.

If we could put that on as a label on a shoe, maybe it would be meaningful, but it would be more meaningful to have no label at all, I would suspect, in terms of whether or not the consumer is being deceived.

You have the kind of qualifying label that has been --  here over the course of the past two days would not enlighten the consumer.  It would create a perception which would deceive the consumer into thinking that there is some kind of distinction between what is "Made in America" and what is made -- and the components that go into that product which is not the impression that is intended to convey.

MS. KOLISH:  Mitchell, can you help me out here?

In the textile industry, a claim of "Made in America of imported fabric" is not uncommon.  And I haven't heard any --

MR. COOPER:  It's required.

MS. KOLISH:  -- I haven't heard any complaints.  In fact we keep hearing they like these rules.  So why would it work one way for textiles and a different way for footwear?  Or are you just saying the textile people are wrong?

MR. COOPER:  Go ahead.

MR. GAURON:  I don't know if I'm the next one up, but I think I can sort of answer that.  

Part of the reason I think you have to look at what does it mean today if there is no label which distinguishes us from the textile.  My understanding that the FTC's position is that no label means that the product was made in the United States because you look back at the history of why you said you don't have to label.  Will people know that Customs requires and has always required labels on imported products, and therefore any unlabeled product is made in the USA.

Now, if you go to the next step, which at least your standard now has been "Made in the USA" means all or virtually all, the product came from the U.S, and I'm not sure my logic breaks down, but you can go through this analysis.  Therefore, if I see no label as a consumer, according to the FTC, I assume it's virtually all domestic.

So by our putting a qualified label, it suggests that we're having less than all or virtually all by your analysis, and we would be far better off with no label on. And if you think about where that leaves the consumer, at the least I think they're confused.

MS. KOLISH:  You are referring to this rebuttable presumption the Commission has had for many years of unlabeled goods were presumed to be made in America.  Is that right?

MR. GAURON:  That's correct.

MS. LANIER:  Textiles labeled --

MS. KOLISH:  Yes, I understand that.

MS. LANIER:  That makes all the difference in the world because everybody's on the same plank.

MR. GAURON:  That's right.

MS. LANIER:  But voluntary.

MS. KOLISH:  Right, I understand that.

MS. LANIER:  So that's why it works in textile.  I don't think anybody here is asking for a mandate.

MS. KOLISH:  No, I understand that.  I didn't mean to suggest it be a mandate.  I just meant that it seems odd to me that consumer reaction to it might be differently.  I mean I didn't hear when those rules were being proposed by textile folks.  I didn't hear from those guys, because I worked on those rules way back 10 years ago.  More than 10 years ago now.  That they didn't feel like, oh, my God, consumers are going to think this is terrible to say it's made in America of imported fabric.  I mean I didn't hear any reaction that they felt that their products were going to be denigrated by saying that.

MS. GROSSMAN: Let me ask a follow-up question to Elaine's, which is putting aside the FTC's rebuttable -- previous rebuttable presumption about unlabeled goods.

Realistically in today's world, do you think that consumers seeing an unlabeled product still take a claim that those products are made in the USA, and is that what's affecting your -- 

MR. GAURON:  Well, they certainly know that it wasn't made in a foreign country, at least for Customs.  I mean I think that was your presumption initially, and I think most people have some sense that that continues to be true.  And this is not a representative population obviously, but that seems to still be true. 

So then I don't know what the consumer then assumes that the unlabeled product means even today.  I think, you know, using your analysis, you can come to a conclusion easier than I can.  But it means -- it's that dilemma.  We don't know what that means to the consumer.  And yet we do know that by putting a qualified label on it, it means it's something less than I would think, and it's that tension there that I think everybody struggles with.

And I'm not recommending everybody have labels on it either, but if there was mandatory labels on everything, as there is in the textile industry, maybe that dilemma wouldn't be as bad.  I mean, again, I wouldn't solve one problem by creating a worse problem.  

MS. KOLISH:  I was going to say.  We could take implied claims from the silence that it was made in America but it's not meeting the virtually all standard so you'd be compelled to do a disclosure.

MR. GAURON:  Right.

MS. KORBEL:  Don't put down that rule.

MS. ARNOLD:  She's not suggesting it.  

MS. KOLISH:  I was just seeing if I understood what Paul was saying.  

MR. COOPER:  Don't lose sight of the fact that while we're all talking about competition in the sense between American companies and foreign, within the industry, of Converse and New Balance competing against each other, for example.  And in the textile industry and in the apparel industry, everybody's got to put this kind of designation on the label.  Here you've got American companies, one of which may choose to do so, but not if it's competitive is it going to do so, and therefore you're going to wind up without any advantage at all, which we think accrues to being able to say, "Made in America."

MS. ARNOLD:  Clark.

MR. RECTOR:  I want to just respond to a couple of comments on the use of the qualified claim.  One was to Deborah's questions about the use of the leather and whether it's American leather and goes out of the country to become a strap and comes back.  In terms of the qualified claims, it's not the FTC that's going to be telling you what the claim is.  You can make any qualified claim you want, however, it's your burden to show that that claim is truthful and you can substantiate it.  So you can approach it in any manner, depending on how the goods are made up.   And secondly, to talk to the folks in the shoe industry.  I would just, again in support of my members, I'd say that advertising is a great educational medium, not just for your particular product but for the entire industry.  And I wouldn't -- I would counsel you not to be afraid of qualified claims, that in the long run they can do individual companies a lot of good.

MS. ARNOLD:  Phil.

MR. HUTCHINSON:  Yes, Phil Hutchison again with International Automobile Manufacturers.

We are required by law in labeling our products, there's a law called the American Automobile Labeling Act.  This act is seriously flawed in that you cannot determine the American content of an automobile if you follow this particular act.  And therefore, we feel very strongly in our industry that there has to be a distinction between the truthful advertising claims that we would like to make and the confusing and misleading claims that we are required to make under the American Automobile Labeling Act.

I mentioned yesterday.  If we have something that is 69 percent pure U.S. content counts as zero under this act.  We have 71 percent pure Canadian content, it counts as 100 percent domestic under this act.  We are required to exclude assembly labor.  And there are just so many flaws in this that we simply have to urge the Federal Trade Commission not to tie advertising and labeling claims for the auto industry together.

MS. KOLISH:  So you do want us to treat labeling claims different from advertising claims?

MR. HUTCHINSON:  Exactly, because we want to be able to put forward truthful claims about content where products are made, and under this American Automobile Labeling act, we are required by law to mislead consumers.  And former Federal Trade Commissioners have indicated that if we did what this act requires on our own, we would be hoisted up before the Federal Trade Commission for deceitful advertising.

MS. KOLISH:  Well, so what you're asking us to do is to contradict Congress and say, "Notwithstanding what you're mandated on labels, the FTC is going to allow contradictory claims, claims that contradict the information that Congress mandated."  

MR. HUTCHINSON:  We have to --

MS. KOLISH:  We're going to be hauled up before the Hill, right? 

MR. HUTCHINSON:  We have to provide truthful information in our ads that we can substantiate.  And this particular law, we are required to utilize these weird formulas that have been concocted.  Really it's -- take a look at it yourself --

MS. KOLISH:  No.  We've seen it.

MR. HUTCHINSON:  Yeah.  Well, I think anybody -- any reasonable person who looks at this particular act, would certainly not want it applied to their industry.  Unfortunately, we have it applied to ours and we have to abide by that.  Fortunately -- 

MS. KOLISH:  But you have legislative solutions available to you for that, right?

MR. HUTCHINSON:  Well, of course.  We can petition our Congress and we can -- but the fact of the matter is, we have what we consider to be a bad law on the books that we have to abide by.  And, therefore, we are going to urge you not to require us to have identical advertising claims and labeling claims.

MR. BECKMAN:  Can I just comment on that?

The truthful claims that Phil is talking about and the labeling are not identical claims and they are not mutually inconsistent.  The label does not say "U.S. content."  The label says "U.S.-Canadian content."  It doesn't say "Domestic content."  It says "U.S. and Canadian content."  It actually says "Parts value."  For parts.

The reason assembly is not included is because, my God, assembling the car isn't part of the parts.  I don't think that's a misrepresentation of the facts.  Nor does it conflict with whatever claim the members of Phil's organization want to make about the assembly labor that's involved in the vehicles that they're selling.

So, again, you are talking about --

MS. KOLISH:  So you don't see a conflict between the labeling and the advertising claims you're talking about, is that right?

MR. BECKMAN:  Well, I have my own problems with both, but I don't see them as inherently in conflict.

MS. KOLISH:  Okay.

MR. HUTCHINSON:  I just have to make one further comment.

To our industry, the most important thing that goes into an automobile or a truck that's made here is the American labor that is put into it.  And this act, it says, American automobile Labeling Act.  We can't count American labor.  It doesn't say anything -- I don't see on our flag a maple leaf.  I mean -- and under this law, we're required to count Canadian product just like U.S.  

So I mean any reasonable person who looks at this act is going to say this is providing misleading information to consumers.  And I urge you again not to tie the two together for the automobile industry when we're making advertising claims.

We don't have an active voice at the table right now which are the Domestic Automobile Manufacturers Association, and my guess is that we don't have a full complement on this issue.  So my suggestion is rather than debate it further here, that the FTC acknowledge that they need to look into this more.  

MS. GROSSMAN: And the other thing I'd like to say is that we obviously can't do anything about the American Automobile Labeling Act, that being a Congressional statute and you'll look at the solutions for that.

MR. HUTCHINSON:  I understand that, but the --

MS. GROSSMAN: I understand about the issues about not tieing it to advertising.  I understand what you're saying.

MS. ARNOLD:  Roger.

MR. REYNOLDS:  Okay.  I'd like to make two comments.  One about the dialogue going on about qualified claims.  And then one about what's being called the reasonable basis approach.

The first on the qualified claims, I think sometimes we, as attorneys and advocates, get so deeply enmeshed into these standards that we tend to lose sight of common sense.  And I think as a very basic that if disclosure of the actual foreign content is as harmful as people are claiming it is, then an unqualified "Made in USA" claim that doesn't disclose that information is deceiving consumers.  

If consumers initially want to buy a product based on its U.S. content because of a "Made in the USA" claim, and then when they find out the actual U.S. content, no longer want to do that, it's very simple.  They're being deceived by the initial claim.  The fact the qualification is so harmful, if it is harmful, as people are representing, is the exact reason why we need strict disclosure when you make possibly deceptive claims.

Second, when people are discussing what's being termed the "reasonable basis approach," and I think there's a little mixing of terms the FTC uses on a regular basis there, but as I understand the reasonable basis approach, it simply requires the manufacturer to have a justifiable basis for making this claim, which is close to having no standard and letting the courts decide it.  As we all know, the word "reasonable" is not as precise as a lot of people think it is.

And as far as at least State Attorneys General are concerned, the whole reason we're here is to avoid the need for litigation by spending these two days with everyone here.  Hopefully we can arrive at a clear comprehensive and understandable standard that industry can comply with, that law enforcement agents can understand and enforce, and when we ask a company to comply with the standard, they'll know how to comply and there won't be a question that we'd have to take before the court.

And I think that's in the best interests of everybody at this table and also in the best interest of the consumers who are not at the table.

MS. ARNOLD:  Mitchell.

MR. COOPER:  Well the last thing in the world I want to do is to tangle with the State Attorney General, but the simple fact of the matter is that we are not suggesting that the absence of a qualified claim is deceiving the consumer because we don't want to put in harmful information.  There is nothing, so far as I can recall, and I think I read all of the consumer surveys that have been submitted in this proceeding, there is nothing that deals with the question of whether or not consumers' perceptions would suggest that they think that a qualified claim is or is not inherently a negative suggestion.

Our concern is that it is a negative suggestion to consumers simply because you are drawing a distinction between "Made in America" and "Imported" which would seem to suggest, it seems to me, to the reasonable mind that there is a quality difference between the two.  Our major concern, frankly, is our belief that people want to buy "Made in USA" in order to protect American jobs.  

And in this industry, in the footwear industry, where well in excess of 80 percent of the products are coming in from low-labor-cost countries, and where the profitable producers in the industry are the importers.  

You take a look at the annual profits of the Nikes and the Reeboks of this world, you'll see what I mean.  And where the temptation is already very great, so what is left of the domestic industry to go abroad, it becomes essential that they use every legitimate competitive tool that they have.  And one is to persuade the American consumer that he is buying a product made by American labor.  You cannot buy such a product if we cannot use any imported --   because it then becomes legally impossible to make the shoes because the component isn't available, or because a given component is so scarcely available in this country as to make it competitively impossible to use that component and still survive against the Nikes and Reeboks and LA Gears.

So we think we've struck a happy balance.  Of course the consumer should not be --  and at the same time, you cannot cut off your nose to spite your face.  You cannot get into the business of giving away every legitimate competitive tool where the consumer is not being deceived.  If we are making an illegal or improper claim, by all means I invite you, Mr. Attorney General, to come after us.  We are very content with legitimacy of what we are doing.  I speak for my clients.  You're going after them.  You are not going after me.  

MR. REYNOLDS:  Well, if I could just respond briefly.

Like I mentioned before, we hope the purpose of this workshop is so no one goes after anybody and we can all agree on a standard.  Well, at least FTC maybe can agree on a standard for us.  And so nobody will in turn have to go after anybody.

But, again, we're not asking that any shoe company or any company refrain from selling to consumers based on American content.  We are simply asking if you make a claim, please explain to the consumer exactly what that claim means.

MS. ARNOLD:  Okay.

MR. ANDERSON:  Can I follow up with Mitchell or other people that have been making this point about qualified claims? 

MR. COOPER:  Yeah.

MR. ANDERSON:  Does this suggest that an alternative that might allow for more differentiation -- and, again, don't read much into this because I'm just an economist talking.  So you read less into this than what you read into what Elaine says.

But one possible implication here is that the standard could be set somewhat lower and allow qualified claims upward, so that someone could say 100 percent made in the United States if he wanted to differentiate himself from your product that has some level.  

Does that get around this --

MR. COOPER:  Well, let him do it today.  There's no -- I mean we say "Made in America" and every single company that I know of in both rubber and non-rubber footwear industry, can make that claim knowing that at the very least a substantial part, the term used by Congress, in which we have said is too vague and make it at least 50 percent.  You want to go a little bit higher, I'm sure, but at least as far as the people sitting around this table are concerned, we could live with that.

But the fact of the matter is, of course anybody wants to say 10 percent.  How can we quarrel with that if it's true?  But incidentally, you know, in terms of what Roger was saying, if you have an all or virtually all standard and you're going to tell us that 90 percent will qualify, why taking Roger's remarks as seriously as he would like to take them, why shouldn't we be required to say if it's 98 percent made in USA but with a U.S. component.

I mean where is the -- are we talking about a de minimis here?  Are we talking about substantial?  What are we talking about?  

And the answer to you is that of course, if somebody feels that he is being competitively disadvantaged because he in fact has 100 percent, and I'm not worried about that in the footwear industry.  But if he wants to make that claim, he may be challenged, but let him make the claim.  Nobody is going to stop him from doing that as long as it's truthful.  

MS. ARCHIBALD:  Abby --

MR. REYNOLDS:  Can I just jump in on that?

MS. ARCHIBALD:  I want to answer that too.

MS. ARNOLD:  Let's let Jan go first and then we'll --

MR. REYNOLDS:  Sure.

MS. ARCHIBALD:  Can I just offer a different fact pattern for you to think about in considering that?

Suppose you decide to allow the unqualified "Made in USA" to be used -- pick a number.  Say you decide it's going to be used at 60 percent.  And as I understand it, what you're saying is with somebody who's got a higher percentage can simply say their part has got a higher percentage.

Well, suppose the higher percentage is 80 percent?   So now the consumer is faced with a choice.  Here's a product that simply says, ""Made in USA."  Here's one that says "80 percent made in USA."  They might very well think that the one that says "Made in USA" only has 50 percent, has more American content.

MR. COOPER:  Nobody is trying to say -- nobody is trying to say 80 percent made in USA because that has a negative aspect to it.  The only way they're going to do that is if the FTC has a rule --

MS. ARCHIBALD:  That's my point.  That's precisely my point and so by bringing it down to a lower common denominator, you are denying consumers the kind of --

MR. COOPER:  The FTC is hopefully going to put out a guideline saying what the common denominator should be.  Or at least in some fashion, the consumers are going to be educated to know that if they want to buy American footwear, unless there is some kind of industrial revolution going on that I don't know about --

MS. ARNOLD:  Okay.  Let's go to Roger.  

Roger.

MR. REYNOLDS:  With respect to letting the people who are using 100 percent qualify it, I think most consumers would interpret "100 percent made in USA" as redundant.  I don't think if I went into a store and saw two products "Made in the USA," and one said "100 percent made in the USA," I wouldn't distinguish between those two products. 

MS. ARNOLD:  Okay.  Let's move on. 

What I'd like you to do is offer us new ideas or viewpoints that haven't currently been expressed.

MR. HARR:  Abby, I wanted to respond to Keith though because we go to another point --

MS. ARNOLD:  Okay.

MR. HARR:  The way you're looking at it presumes that we're sort of going through a content approach.  I think if we go to the process approach, the answer becomes let's go back to the "I made dinner."  When you say "I made dinner," it means that you went through the process of making the product.  You went through basically the whole process, virtually all of the process, of making the dinner, as that's understood.  You created the dinner.

You can add to that, "I made the dinner" or "I baked the bread from wheat I grew myself."  Okay.  If you said, "I made the bread," people understand that you, you know, you got the dough out, you kneaded it, you did all the things to make bread.  If you want to add something like a contents test, you can add that on, but if you take the meaning of "made," the normal meaning of "made," you are already at a process test, not at a content test.

So another way to look at it is you take the -- if you want to say you made it of 100 U.S. parts, you say, "Made in USA of 100 percent U.S. parts."  Then you've added something on, but the "made" is there.  You did make it here.

So I think another way of looking at this, rather than finding a range and saying where do you go on the range, is to say "literally made" means this was built here by any normal meaning.  And then you can add something more to it.

MR. ANDERSON:  But my question was are you more likely to get the differentiation, assuming that there's some people who make from 100 percent U.S. parts and some who don't, if the qualification goes upwards, so that somebody would say, "Made with 100 percent U.S. parts" rather than forcing the person to say "Made with imported parts."

MR. HARR:  I think virtually in all instances, in almost all industries, the answer is yes.  

MS. ARNOLD:  Okay.  James, Roger, Charles, Robin and Dick.

James, Jim?  No?  

Okay.  Roger.  We already got you.

MR. REYNOLDS:  Yeah, I don't think I have anything.

MS. ARNOLD:  Okay.  Charles.

You'll have to introduce yourselves, since we're not going to recognize your voice.

MR. MERCER:  You probably won't recognize my voice.

Before I make some comments, I must tell you I'm going to ramble a little bit.  I hope you will allow me to do that because yesterday I was pretty quiet, sitting here learning.  In fact, it was quite a learning experience, this old country boy that started stacking groceries and that's about all he knows.  So I may wander here a little bit and hope you'll go with me.  But I find I know what the regional value content means for the first time now, and safe harbor, know a little bit more about that.  Preferred rule and so forth and so on.  It is quite new to me. 

I'm with the Union Label and Services Trades Department of the AFL-CIO.  And I'm going to do just a little bit of education with you, not much, but a little bit, but little bit about our department.

Our department dates back to 1909.  And why is that important?  Because our department was established for the purpose of promoting union-made products.  And I must tell you, up until the last 15 years, that was mainly what our department is, promote union-made products.

But for the last 10 -- particularly the last five years, we've taken on another duty or obligation that we thought was necessary.  Besides promoting union-made products, we emphasize almost as much as buying American-made products because we feel that is extremely important.

As far as some other comments I'd like to make before I go on and that is, well, I want to just jump ahead for just a moment.  And you have areas of consensus, but I must tell you, I think there's one area that you have accomplished, without a question, and that is that the value of the meaning of "Made in USA."  Without a question, there is a degree of importance in advertising on the "Made in USA."

I brought a Wal-Mart mailer.  I'm not going to go through it.  I thought I might have to when I first -- when we started this, but in this Wal-Mart mailer, there is right at 100 items that underneath it that has "Made in USA."  And that just demonstrates the importance of the "Made in USA."  But also I think it demonstrates how important it is to the consumer.  

As far as the polls that were taken by the FTC, maybe there should have been some other questions asked.  And that question I think are what the consumer thinks the terms of "Made in USA" mean or should mean, and what steps the FTC should take in this regards in enforcement of that meaning.

You asked if there are any other ways that anyone could recommend to resolve this problem.  Well, I have a very simple way and it might not be too popular with the majority around this room, I know that.  But it's simple.  And I say, I'm a plain old country boy, working in a grocery store.  But I just happen to have a catalog, a 1995 J.C. Penney catalog.  And to me, I think all the answers you need is in this catalog.  I'm going to run through about 10 items very quickly to demonstrate what I'm saying.

On page 24, we have a dress.  It says "Imported  domestic products" -- or "fabrics" -- I'm sorry.  On 25, it has for earrings, it says, "Made in USA."  I think it's simple.  On page 78 -- I'm sorry -- 79, you have a snow vest.  I think the consumer can tell you what it says.  It says "Imported."  Period.  It doesn't say where, but it says "Imported."  We certainly know it's not in the USA.  

Page 136, "Parts imported from Japan."  "Assembled in China or Japan."  I think they asked you some questions down there.  It tells you where it's made, where it's assembled, the parts.  

This is a garment "Made in USA from imported fabrics."  I think that that certainly tells the consumer, "Made in USA of materials imported from Brazil."  There's a question down there about mills or something or wire down at the other end.  Would that not take care of that situation?  "Made in the USA of imported materials" -- whatever country it was from.  

How can the consumer misread this or misinterpret it?  And would that not certainly help the FTC in explaining?  It's simple to me.  I know I'm making light of it and I understand that.  But to me, I think that's what the FTC -- is to make it easy, understandable, for the consumer and something that's enforceable.  And I can go on and on.  Everything that came up here I think is in that J.C. Penney's book, is identified by label.

I also think it would take care of the situation of the handbag at the other end.  "Assembled in Italy with U.S. leather."  Would that not take care of your problem, sister?   Huh?  

Evidently not. 

(Laughter)

Then I have a question, if I might, for Clark.

You're in advertising, as I understand it, right?

MR. RECTOR:  Right.  Advertisers Association.

MR. MERCER:  Association.  Okay.  Got a qualifier in there.

No, in that area, to the consumer, is there a difference in advertising as the way something is stated like "Assembled in the USA" versus "Made in the USA"?  Does one have a higher value than the other?  

MR. RECTOR:  I think that's one of the questions we've been wrestling with the last day and a half.

MR. MERCER:  But as in advertising.  

MR. RECTOR:  In the advertising?  I think it depends a lot on the contents, quite frankly, and what the product is and how it's presented. 

MR. MERCER:  Well, in my job I also do a lot of traveling and make a lot of presentations around the country to mainly union groups.  And also our department receives a lot of phone calls on what does it mean "Made in the USA" and et cetera.  And I think I can talk with a little bit of authority just from practice and being out in the field in that area.  And I think that "Made in USA" has a heck of a lot more value to the consumer as well as the advertiser.

And I think if that is true and it has that value, I would hate for the FTC to do anything that would weaken the prestige, and I think it is prestige, of "Made in USA," not only for the American consumer, but for the consumer abroad.

If I look over there and I look over here, and I see the American flag.  To me that's prestige.  That's something that's really great.  Now, while I'm really stretched maybe in some of your minds a little far, but to me "Made in America" or "Made in USA" has the same prestige, the same feeling, the same good warm feeling, of a product that I buy "Made in USA."  

To my friend over here on New Balance.  I heard you say yesterday and I heard you say today that you cannot get a better understanding, there's a good possibility that you may take -- the company may take some of its plants overseas.  

Well, I happen to have looked like heck, and I wear New Balance and I promote New Balance, I must tell you.  Three years ago, I was able to get my wife a New Balance shoe.  I challenge you, or please tell me where, I can get a woman's New Balance shoe that says, "Made in USA" anyplace in the United States.  I checked and I checked and I checked. I just purchased another -- myself a New Balance shoe, but I must tell you, I went to five stores before I found one.  

Now, my question is, is it not a fact even now that you're moving things offshore?  I believe so.  And I think you'll probably be moving them more offshore.  

My whole point is I do appreciate New Balances.  I mean that sincerely.  Because you're one of the very few and we do promote you 100 percent.  Right on my tongue, it says "Made in USA."  

Just a couple of other comments that I --

MR. PLATT:  Charlie, I have to interrupt you. 

Can I respond to that issue?

MS. ARNOLD:  Joel, Joel, let's let Paul respond on the New Balance shoe and then Joel.  And then we'll let you go ahead.

MR. MERCER:  I've just got a couple more things and then I'll be quiet.  

MS. ARNOLD:  You realize that when you identify certain individuals that they're going to want to respond back.

MR. MERCER:  That's fine, that's fine.  

MS. ARNOLD:  Let's just hold on a minute.

Paul, go ahead.

MR. GAURON:  Number one, New Balance is not moving the stuff offshore.  They're in fact increasing their domestic production and right now we're trying to add production to their factories.  One of the problems they have is there are no shoe workers trained in the United States, so they have to train the workers every time they add production.  

Give me your telephone number and your address.  I'll make sure you get a pair of woman's "Made in USA" shoes.  

VOICE:  Can we all do this?

MR. GAURON:  But the final point though, and it really is -- the New Balance workers, the people in the factory, when they were told they don't make their product in the United States, were very upset, the same as I think your workers are and Steve's workers are.  

As you said, it's the people who are on the assembly line.  If you ask them, "Of course I make the product in the United States.  Of course this product was made in the United States."  

And, you know, we're talking about where the ore came for the steel and stuff.  I mean common sense says, and I think your workers would say, you know, use Robin's processing concept.  We make our product in the United States.  

MS. ARNOLD:  Okay.  Go ahead.  Why don't you finish up and then we'll let others respond.

MR. MERCER:  Okay.  I'll do better than that.  You give me the address for him and I will help you advertise, because I get calls all the time for shoes made in the U.S., your brand of shoes.

But going back just to the current standards of "Made in USA" and all or virtually all.  I think that's pretty much understood, and I hate to see it diluted because I think it also dilutes, again, the meaning of "Made in America."  But I think that -- I'll tell you, Robin.  Her name is getting around a lot today, and I'm going to use her name.

(Laughter)

MR. GAURON:  Just don't call her "sister."  

MR. MERCER:  I'll try.  If Robin keeps talking, I don't know, I may go and -- --   but I'll tell you, she came across with some good ideas here.

Seriously, back to the all or virtually all.  I think maybe there could be some guidelines or something that is worked up that is set forth -- what is it, a Green Guide, they call it here?  I guess.  Something that sort of addresses some of the situations in particular cases, but maybe if material wasn't available or something that there could be an exception in those areas, but I really hate to see anyone --  or anyone diluting the "Made in USA" because I think that is sacred, I think it's prestigious, and with that, I thank you for allowing me to ramble on and I thank you around the table.

MS. ARNOLD:  Thank you.  

Okay, Joel.

MR. PLATT:  I just want to comment that Mr. Mercer and myself buy New Balance shoes, and they're marked "Made in USA" but it doesn't meet the substantially or virtually all American.  And we want to buy New Balance.  And we think the consumer has the right to know that the New Balance is the most American shoe you can find out there.  Though it's important that that fact be brought home to the consumer, otherwise we won't be able to tell between a Nike, which is 100 percent imported, and a New Balance, which is 70 percent American.  

Is that right, Paul?

MS. ARNOLD:  SO what claim would you allow them to make?

MR. PLATT:  I would allow them to say --

MS. ARNOLD:  You would have them make an unqualified claim?

MR. PLATT:  Well --

MR. GAURON:  Make a claim that it's the most American shoe you can buy.  

MR. PLATT:  Yeah, they could claim that.  

MR. COOPER:  Prove that.  

MR. PLATT:  I think they should -- 

VOICE:  I've got other clients who will sue them.

(Laughter)

MR. PLATT:  I think they should be able to say 71 percent American, or I think we should draw the line at 70 percent or 75 percent.  Your survey results seem to indicate that two-thirds of the American people think that 70 percent content is enough to be labeled "Made in USA."

MS. ARNOLD:  And what if they were 65 percent?

MR. PLATT:  Well, I think they should --

MS. ARNOLD:  I don't want to use --  a particular example, but it's very convenient if they're at 70 percent and you've drawn the line at 70.  

MR. PLATT:  Well, we also have a second line that says "Assembled in the U.S" if it's more than 50, so they could say "Assembled in the U.S. with 65 percent U.S. content."

And I think that would be -- I don't know if that's acceptable to New Balance if they drop below that, but I think if you drew the line at 70 percent or 75 percent, New Balance and a lot of other companies, if they were just below it, would increase the U.S. content one way or another just to meet that line.

MS. CUMINS:  May I ask a question of those who are supporting the all or virtually all, and supporting the "Made in USA," which I agree, we don't want to dilute its prestige?

But what is your definition?  In other words, how far back do you go in your own mind in the manufacturing cycle to count as U.S. content?  If you're using lumber, must the tree be grown in the U.S.?  If you're making furniture, must the lumber be sawed in the U.S.?

I'm trying to get an understanding in your own mind as to how far back was the all or virtually all apply?

MR. MERCER:  Quite honestly, I never even thought of it until I came in this room.  Just off the top of my head, I would say one step back is about as far -- most of the products I would think.  I'm not an expert in that field, but that's what I think.  You can't go all the way back.  I would agree to that.  But one step back should take care of it in most cases I would think.

MS. ARNOLD:  Steve.

MR. BECKMAN:  In the NAFTA Rule of Origin for motor vehicles, the suppliers are required to tell the assembliers what the U.S. value of their products is.  In order to do that, and in order to go one step back, they have to find out from their suppliers what the content of the products they're supplying to them is because otherwise they won't know what the U.S. value of what they're making is.

So that's virtually a two-step process.  That was negotiated, again, with a variety of manufacturers, a variety of governments, and it doesn't necessarily reflect the best possible information, but it's at least one standard for being a judicious as at least has been tried thus far and getting a good sense of what the actual U.S. value of the product is.

Now, it depends -- how far back you go depends on what kind of operation the producer of the product is actually engaged in.  If the producer of the product is not doing a heck of a lot, you're going to have to go -- you would have to go back a lot farther to find out what the real value of something is than if that producer is accounting for a tremendous share of the value.

If the producer themselves, in the case of a car, is doing stampings and producing all of the various pieces, and putting in components that are purchased from suppliers, and those suppliers are getting their materials from a variety of places, that makes it relatively easy, because the assembler himself is taking in all of the various components and has an idea of where those all come from.

If you're talking about furniture, presumably the furniture manufacturer knows where the lumber comes from.  Knows where the wood comes from that they're buying.  I mean they know the supplier for that product.  And the supplier for that product knows where that wood is coming from.  But if you had, you know, 15 different stages of processing of the wood, you take the wood, and then you treat it with a chemical in order to preserve it, and then you treat it with something else, and varnish it, and then you send it to someplace else, and cut it into lengths and then it goes to the furniture manufacturer, then it's obviously much more difficult to ascertain where the original product comes from.

So, again, everybody has talked about the need for some kind of flexibility based on different industry conditions, and that's an obvious requirement in any functional rule that the FTC is going to be able to enforce, and maybe where the reasonable basis comes in.  You know, you have to have -- going back 15 steps is not reasonable.  By going back to your suppliers and saying, you know, "Where do you get your stuff and tell me how much of this is domestic?"  That's not unreasonable.  

So I think there are ways of accommodating that issue.  I sort of think of the raw material issue as somewhat of a red herring.  By the time you get to the value of the car, the iron ore is not exactly a major cost item.  I mean it's an incidental cost.  

MS. CUMINS:  But the steel could be.

MR. BECKMAN:  Right.  The steel could be, but the steel comes from a direct supplier.  You deal with the steel producer.  The auto company deals with the steel producer.  It doesn't deal with the mining company.  So you know where the steel is coming from.  

MS. CUMINS:  It could be buying a stamp part.

MR. BECKMAN:  Right.  But the stamper, if it's an independent stamper.  Again, if the independent stamper is selling it to the auto company under the NAFTA Rule of Origin, they have to tell the auto company what the U.S. value of that product is.  Or the NAFTA value of that product.

MS. CUMINS:  Without trying to be argumentative, although I probably am, we --

MS. ARNOLD:  You're very good at what you do though.  

MS. CUMINS:  I thought you were against using NAFTA Rules of Origin, either preferential or marking.  And that you want an all or virtually all standard.  

For that to be understandable to industry, to consumers, et cetera, how can you have a different criteria for all or virtually all by industry or by product or by manufacturing process?  Really what I was trying to understand is when you define all or virtually all, how far back do you go?

MR. REYNOLDS:  Could I take a stab at that?  Were you done with your answer, Steve?

MR. BECKMAN:  Well, I wanted to respond but --

MS. ARNOLD:  I know Jan also wanted to respond to the question.  

MS. ARCHIBALD:  I went first last time.  He can go first.

MS. ARNOLD:  And then we'll come back to you.  And I still have a list of people who want to talk.  

Go ahead, Roger.

MR. REYNOLDS:  Okay.   

MS. ARNOLD:  Are you answering the question that was posed?

MR. REYNOLDS:  The original question that was posed.  How far back do you go?

MS. ARNOLD:  Yes.

MR. REYNOLDS:  The Attorneys General would support a reasonable basis approach for the substantial.  And we would also exclude raw materials.  So the manufacturer would have to come up with a reasonable basis to under the percentage standard we're proposing to demonstrate the 90 percent of the product was U.S. content.

And that would give them 10 percent room just to not know where that part of the product came from and not verify it.

And we believe that you guys know your accounting practices and where you get your materials better than government agencies do.  So I think that's one area where it might be appropriate to allow you to come up with ways to convince a regulator that your product is actually made in the USA, and, again, I'd like to emphasize we would exclude raw materials.  There's been a lot of talk "What about the cow?  What about the tree?"  

In our formulation, you don't have to -- unless you're selling lumber.  Maybe then.

MS. KORBEL:  So raw material is a natural resource, not raw material as production facility would call a raw material?

MR. REYNOLDS:  That's right.  We would define raw material as something substantially transformed from its natural state.  And substantial transformation has no relations to the Customs, not significantly transformed from its natural state.

MS. SWARTZ:  What about the --   the leather --

MR. REYNOLDS:  That would be a material, a raw material.

MS. SWARTZ:  A raw material?

MR. REYNOLDS:  We acknowledged in our comments that there is going to be a lot of difficulty in defining what a raw material is, and that's one of the reasons we urged the FTC to be somewhat flexible in its standard in determining both how far back to go and what a raw material is.  And it might even -- it might get too complex to even allow an exclusion for raw materials.  It might actually get to that point.  I acknowledged that what a raw material is is not my area of expertise.

MS. ARNOLD:  Okay.  Jan, go ahead.

MS. ARCHIBALD:  Will, I'm not going to add too much to what's already been said, but to take hand tools, where you're talking about a fairly simple product in many cases, and one which doesn't always have components even.  You're just talking about finishing operations.  I mean in that case to suggest that, you know, an imported forging -- Roger showed one to people yesterday, but that could come in and you could still label that "Made in USA."  To us it's just not acceptable.  In this kind of product, all or virtually all should mean exactly what it says with only a de minimis allowance for foreign content.

Now, I would argue de minimis should not be specified.  I would not attempt to create a bright-line numerical rule that would be applied across the board.  I think you've got to give some flexibility to the regulatory agency to determine, you know, what makes sense in the specific context that they've got before them.  But certainly the term "de minimis" constitutes something extremely small in comparison to the rest of the product.

MR. PLATT:  Going back to hand tools, your product is not 100 percent American.  I just want to focus on that a bit.  Just say chromium becomes very expensive, which it could.  It's in short supply.  And instead of becoming 1 percent of the cost of the tool, it becomes 20 percent of the cost of the tool.

Is it still de minimis?

(Laughter)

MS. ARCHIBALD:  Dueling microphone.  

Our view is that we are prepared to live by the all or virtually all de minimis standard.  Right now -- no, I understand.  And that's fine.  But I'm telling you.  It's de minimis.  And de minimis is de minimis, and de minimis isn't going to change because the price of chrome changes.  So if the price of chrome were to change so much that we no longer met a de minimis test, then we wouldn't be able to label the product "Made in USA."

MS. ARNOLD:  I think all Joel is trying to understand is how are you using the word "de minimis"?

MS. ARCHIBALD:  I mean I don't know what else to say.  I've just said you can't -- I don't believe that the FTC should put -- I'm saying I don't think the FTC should put a single number on it that applies across the board to everyone.

MS. ARNOLD:  Right, right.

MS. ARCHIBALD:  So I can't tell him whether it's 1 percent or 2 percent or 4 percent.  But what he seems to be suggesting is if we meet it now and because there are changes in the costs of our materials, could that mean that at some point we might not meet it?  And what I'm saying is theoretically, yes, that's possible.  We're not saying that the -- I guess what I'm saying is the rule should not be changed so that no matter what the content of my product is, I get to label it "Made in USA."  I have to develop a product that meets that rule.

MS. ARNOLD:  She is willing to take that risk.

MR. PLATT:  On behalf of the manufacturers.  

MS. ARCHIBALD:  Yes.  

MS. ARNOLD:  Steve, you wanted to respond to -- what are you responding to now?

MR. BECKMAN:  To what Gail said about --

MS. ARNOLD:  What the definition of virtually all ought to be?

MR. BECKMAN:  Actually I wanted to respond because she I think somewhat misrepresented my position.  Because while she said that you people over there who are the supporters of all or virtually all, and while I've supported using the all or virtually all, I also said in the discussion of value content that among the various -- you said -- rejected all the NAFTA rules -- said that among the various value content rules, the NAFTA rule is the most applicable in terms of defining production cost and most useful in ascertaining that.

And in making that assertion, I was saying that I've considered that.  I mean I've considered what that means.  And in the context of the discussion, particularly this morning about where people seem to be -- where people who want to use a different rule seem to be heading, it seems so far from the current standard of all or virtually all, that to talk about percentage of content or other standards demonstrates that the issue is not maintaining or increasing U.S. value in the products that are allowed to use or permitted to use the "Made in USA" claim.  But in fact that the most likely result would be a very significant diminution of the U.S. content and the contribution to the domestic economy of the use of the products that use that label.

And I certainly don't think that all or virtually all is the only standard or, you know, we were talking about 98, 99 percent.  There are products -- obviously I'm sympathetic with the footwear case where the highest -- and New Balance in particular -- where the highest U.S. value product is well below 95 or 100 percent, and yet the workers obviously believe that they're gaining a decent job from the companies that remain in the United States.  

I don't want to undermine their ability to produce in the United States at all.  And I sympathize with their interest in using "Made in USA" claims.  But if letting them use it is going to allow companies that are currently at 95 percent to go down to 30 percent, which is what a lot of people seem to be interested in, that's not going to create jobs in the United States.  That's not going to add value to the U.S. economy.  It's going to reduce it.  

And that is not in the interest of our members.  It's not in the interest of American workers.  And it's not in the interest of consumers who are trying to figure out how their purchasing can improve economic circumstances for themselves, their friends, their neighbors and their family.

MS. CUMINS:  May I ask you one other question.

NAFTA and automobiles is a little bit unique in that you have a tracing parts list for determining content.  Under most -- with the exception of automobiles, you can transform imported materials into a locally produced self-produced intermediate material and count it toward your qualifying content in net cost. 

Example.  I import plastic resin.  I mold a housing.  I take that housing and put it on a vacuum cleaner.  That housing becomes an originating material.  

Would you agree with that concept on an all or virtually all or on a NAFTA cost basis?

MR. BECKMAN:  When this was being discussed in NAFTA, I asked the people who were negotiating provisions to provide information on how they would translate it.  What is the value of -- the proportion of the total value of the housing that's U.S. value?

 And I've never gotten a consistent answer out of any of the people in the government or people in industry that I've asked that question to.

MS. CUMINS:  It's 100 percent.  The whole thing.  The materials, the labor --

MR. BECKMAN:  But the resin is imported.

MS. CUMINS:  But it now becomes --

MR. BECKMAN:  No, no.  But what proportion of the ex factory price or the production value of the housing is accounted for by the imported value of the resin?  Assuming that's the only imported part -- imported component or imported value?

MS. CUMINS:  If you're taking that housing and putting it on a vacuum cleaner --

MR. BECKMAN:  I'm not concerned about that.  I want to know what you are converting into 100 percent U.S. value.  Is it 30 percent U.S. value?  Or is it 70 percent  U.S. value?  Or is it 90 percent U.S. value?

Now, you're importing the resin.  You are making something out of the resin, which adds value to it.  What proportion of the production value of that housing is accounted for by the imported resin?

MR. PELLEGRINI:  It would vary from product to product.

MR. BECKMAN:  Well, we're talking about a housing for a vacuum cleaner.

MS. CUMINS:  The consumption, the pounds of resin consumed times its purchase price.

MR. BECKMAN:  I don't get an answer to that one.  When I ask that question, I don't get an answer.  

VOICE:  If you want to produce it, you can't tell --

MR. BECKMAN:  Well, it's relevant to me.

MS. ARNOLD:  Okay.  Why is it relevant to you?

MR. BECKMAN:  Because the purpose of -- the reason that people buy "Made in USA" products is because it's contributing to the U.S. economy.

MS. ARNOLD:  Okay.

MR. BECKMAN:  And how do we know how much something is contributing to the U.S. economy?  You know, maybe we all have different ideas for how much it is, but in this case, we can't compare how much labor time is involved in the production of this housing compared to labor time involved in doing half of the process in China and then shipping it to the U.S. and finishing it in the U.S.  People don't keep track of that stuff.  People keep track of dollars.  That's what they keep track of.  That's all --

MS. ARNOLD:  But you're interested in the time.

MR. BECKMAN:  I'd love to have the time, but we're not going to get that.

MS. ARNOLD:  You're not getting that.  

MR. BECKMAN:  We're not going to get that.

MS. ARNOLD:  So he's asking for the translation.

My suggestion right now is for you to talk during the break and see if you can understand one another.  I think that you're doing a little bit of this, which is okay.  But thank you for asking the questions, Gail.

I have a long list of people who want to talk.  We will all be able to talk.  I need a break.  So I assume some of you do. 

Why don't we come back at 10 after and we will continue through to wherever you want to go on this discussion.  

MR. BECKMAN:  Who's on your list, Abby?

MS. ARNOLD:  What?

MR. BECKMAN:  Who's on your list?

MS. ARNOLD:  Robin, Dick, Jeffrey, Jan, John Pellegrini, Jim P., Tim, David Levine.  Joel, James --

MS. KORBEL:  Abby, didn't you get me?

MS. ARNOLD:  I have you here.  Didn't I say Kim?  You're here.  

Off the record.

(Whereupon, there was a short recess.)

MS. ARNOLD:  Back on the record.

Hello, hello, out there.  Ladies and gentlemen, we're going to get going so that we can adjourn before 5:00.  Right?  Some of you who want to take flights home, who want to see your families tonight.  

Okay.  We don't have Elaine or Beth, so they're not going to want to start.  I thought Elaine was right here.  I mean I thought Beth was right here.  

We have a long list of people who want to make a comment, however, before we get back into a discussion of some of the questions, the underlying reasons why some of you have a particular -- particular support the virtually all standard -- I'm not doing very well.  Let me get back to my break.

What I'd like to do is ask Jeff just to make a comment.

Phil, when you raised the concerns about the Automobile Labeling Act, Jeff was not sitting at the table and during the break just asked if he could just make a comment in particular for the record on their perspective on the Automobile Labeling Act.

So Jeff, from the American Automobile Manufacturers Association, would like to make a comment while the rest of you are coming -- filing in to sit down.

MR. BOBECK:  Sure.  And I won't take too long because a lot of the auto industry issues in this regard are pretty much inside baseball, and we won't take all afternoon with them.

The Automobile Labeling Act -- the comment I would like to make is that many of our people would have some of the same comments about it that the transplants would.  It is very difficult to comply with.  It is difficult to trace back to the mine.  Every single one of the 10,000 or so parts that go on an automobile.  It's tough to comply with.

But the American auto companies supported its passage originally because of the confusion that we found with consumers over country of origin in autos.  

And while the domestic content of transplant manufactured products has risen in the past few years, and it continues to rise, and we acknowledge that, there is no question that especially when this was passed, some of the advertising was totally confusing to consumers.  They would seek vehicles advertised as "Made in America" that in fact were approximately 30 to 50 percent U.S.-Canadian parts.

And that is not, to our mind, made in America.  So we have also found -- one other point I'd like to make is in terms of this consumer perception.  We found that a lot of Americans understand that the auto industry is very global.  They do not expect an automobile to be 99.9 percent Americans who call it "Made in America."  

But it's like what Potter Stewart said about pornography.  They know it when they see it.  And, in fact, you know, we found that since the labeling act was passed, they are amazed to find that the cars from GM, Ford and Chrysler are much higher in U.S.-Canadian content than they had ever guessed.  They assumed that we're at about 50 percent.  We've heard comments in focus groups saying, well, we know they put them together here, but we understand that all the guts, the good stuff, comes from Japan.

That's just not so.  So we do find some benefit to the labeling act.  We do not endorse setting a blanket percentage standard as I believe AIM does not.  As I believe most of the organizations in the room do not.

MS. ARNOLD:  Okay.  Great.  Thanks, Jeff.

MR. BOBECK:  Sure.

MS. ARNOLD:  Let' continue on.  We have Robin, Dick, Jeffrey, Jan, John, Jim, Kim, Tim, David, Joel and James.

Oh, no.  I apologize, Tim.  Tim has to leave for a flight.  He asked me before the break if he could go first.  And he's just going to take a moment.  

Is that okay, Robin?  You've had to wait so long anyway.

MS. LANIER:  I just have a comment for Roger.

MS. ARNOLD:  Well, since Roger is not here, he's coming back, you should wait.  

MR. BOBECK:  He knew you had a comment.

(Laughter)

MS. ARNOLD:  All right.  

MR. BOBECK:  Here he comes.  

MR. HARR:  I wanted to address the points that Steve and Jan were making.  The chromium example that came up, but also Steve's comment that the reason that the consumers are looking for a "Made in USA" label is to support U.S. labor, U.S. industry, and it's for that reason that to say you make a car in the United States, you should also have to use U.S. steel under a virtually all test.  

Even assuming that you're right about the reason why people look for the U.S. label, that's really not the issue that's before the FTC.  The FTC is addressing the question of whether the claim that's being made is accurate.

And the claim is only that you're making the car here.  It's not that you're making the steel in the United States.  When you say this car is made in the United States, that's what you're saying.  You made the car here. 

The workers who are standing in the United States each day, taking steel and forming it into pieces of a car and then taking those pieces of a car and putting them into a car, they think they're making a car in the United States.  And if you said to them, "Congratulations, you made a U.S. car yesterday.  We're sorry you're not making one today," the guy would say, "Well, why?"  And they'd say, "Well, the steel you made the car out of yesterday came from -- I don't know, Minnesota, but actually the steel we got in today comes from England, and therefore you're not building a car in the United States today."  That guy is doing exactly the same thing today as he was doing the day before.  He is making a car.  He thinks he's making a car.

If GM says this car is made by GM, it's saying GM manufactured the car.  It's not saying GM manufactured the steel.  No one would really understand it to mean that.  

I think you should be able to say this car is made in the USA with by God steel that's made in the USA and you should be able to add that to your claim.

But the basic claim about "made," whether you're making something, is a claim about where that product is created.  And I don't think we should get that dragged into a content test.  Making is not content.  Making is what you do.  And I think that that should be the standard.  

I think we have three standards listed in the sort of outline of the standards we're going to talk about.  I think by now Robin's standard, the process standard, should rise to a level to the fourth alternative here.  Because it does reflect what to the normal person says, whether they made dinner, made a car, made an electronics product, they think it means you take the materials that go to make that and you create the product.

MS. ARNOLD:  Okay.  Beth and I are whispering here, because we have a number of questions that we wanted to ask you on substantial transformation and all or virtually all.  And then also we're not hearing a whole lot at this point about these other variations and approaches.  We're kind of going back to where I think, with due respect, some of the questions that we've gone through over the two days.

So if you could at least focus your time on addressing on how you like or the concerns you have with these other variations and approaches, it would be very much appreciated.

With that, Robin, I know you wanted to make a comment on Roger's -- --  

Give her a mike.  I don't know if you need a mike actually.  

MS. LANIER:  You mean I'm such a loud mouth.

MS. ARNOLD:  You have a nice strong voice.  

MS. LANIER:  Well, I want to come back to something Roger was talking about almost an hour ago.  So bear with me.

Roger made a comment earlier about the reasonable basis standard.  I kind of agree with him that some people are kind of mixing metaphors.  I guess since I'm the one who's talking about use of safe harbors and a reasonable basis, it's come to be associated with my name.

And anyway, Roger, that standard, whatever we're talking about, that is, the use of the safe harbor.  Some general description of a processing standard, as Tim was talking about.  It's not substantial transformation.  It's something else.  You made it here, with safe harbors that help to get at definitions of what that is.

And Roger said, "Gee, I don't really like that because that's like having no standard at all, and that it will wind up in this flood of litigation."

And I really wanted to take issue with that, because it seems to me that on the Green Guides anyway, that is sort of what we had.  We didn't define every little nuance.  We didn't define post and pre-consumer.  We set up a series of safe harbors, a continuum of claims.  We going to have a big fight of what they are.  But we had a continuum of claims.  And people went out and lived by those guidelines.  And to my knowledge, while I think there were a couple of suits, most states adopted the Green Guides or in some form, okay.

It didn't lead to a flood of litigation.  And provided a great deal of extremely helpful guidance in an area that was just fraught with all sorts of pitfalls.

And I mean I'd like you to comment on that again, because I don't want to be associated with some loosey-goosey thing, because I'm not talking substantial transformation.  I am not talking all or virtually all.  I am not talking of value content.  I don't like value.  I am talking about this process concept with some guidance there that will help us figure out what that means, maybe for specific products that have problems.  

I mean I'm very concerned about this New Balance issue, where a qualified claim is no claim at all.  I mean if you're New Balance, and you're only adding 70 percent in the United States, and the choice is saying 70 percent U.S. made or nothing, I understand why they say nothing.  Okay.  And I think we can do better than that.  I think we can come up with something that really gives the consumers a lot more information and isn't loosey-goosey and isn't going to lead to a bunch of suits.  Maybe in hand tools it will, but I don't -- I think we can do it.  

MR. REYNOLDS:  Okay.  I guess I'm still not completely clear on what the process concept is.  And I think the Green Guides are a good model to use too.  I would do something similar except I would have the standard higher than -- I mean I don't want to -- I just don't understand quite what the processing standard is.  

Does it just -- if you could elaborate a little more on what you --

MS. LANIER:  Let me answer your question with a question that I posed to the group, okay, and it comes to something Steve was saying earlier in this sort of back and forth.

It seems to me that the issue here for American consumers is not some notion of value.  Maybe value is the way we get at it in some cases.  Okay.  But in many cases, I don't think that's what's going on here.  I think what they value, okay, is American jobs.  And it seems to me that anybody who can come in and say, "I made something here."  The plant in Flint, Michigan, that's making a car, you know, those guys on the assembly line are making a car.  And I think any American would agree that they're making a car. 

Okay.  We were talking about the silk tie example during the break.  Okay.  The value is in the silk, guys.  Okay.  Like it or not.  And I recognize that this has a special rule, but this is another example.  The value is in the silk.  But the people in Maine that work for Philip Van Heusen, who cut and sew and trim and make that tie, "I'm making a tie."  

Now, if we use your notion of a value added for the tie, recognizing I understand that we have an all or virtually all requirement for textiles, but if we use that for another example like the tie, then you're basically saying to the people who make that product that they can't use the term "Made in America" when the people that they employ believe that they are making the tie, or making that product.

So it seems to me that there's a way to define that.  

MS. ARNOLD:  --  the definition is --

MS. LANIER:  Well, I don't know.  I think it's got to be a range of factors.  I don't think you can define anything.  I think the best the FTC can do is to say that there is a general standard that says that if you make it here, you can label it "Made" -- or advertise it "Made in America."

MR. REYNOLDS:  Well, that's my concern.

MS. LANIER:  The factors that go into that.  Let me just finish, okay.  It's sort of like, for those of you who do trade, maybe kind of like how we determine serious injury in a 201 case.  There's a whole range of -- I know.

MR. REYNOLDS:  That doesn't lead to a lot of --

MS. LANIER:  But you can provide safe harbors, which will provide a great deal of clarity.  It seems to me that the general test is here's what you look at.  You look at how much labor do you employ.  How much capital in the United States?  This is the reasonable basis.  Okay.  How much processing you do here?  Are your parts imported, all imported, or are some of them made in the United States?  And a range of those kind of factors.  

I could write them down.  I have lists and lists here.  Okay.  I mean we could all get together and come up with a list of what those factors would be.

And then you have the safe harbors, which go a long way to defining what that general rule means.  So therefore, you know, in the case of the hand tool, you know, the chrome is imported, but everything else is American made.  Yeah.  Clearly American made.  

In the case of the car, okay, where the parts and subassemblies and so forth may come from a variety of places, including the United States, but there are literally 10,000 pieces and you're putting them together in a very complicated process, and you have huge investments in capital in order to do it, that's made in America.  Okay.

MS. ARNOLD:  Okay, okay.  Do you still have questions about the --

MR. REYNOLDS:  Yeah, I still don't think that all of us would walk out of the room with the same notion of what your standard is, and I think that I might have a very different notion than you do of -- you might use the term "substantial labor" or something.  

And my basic point --

MS. ARNOLD:  Is your objection to the vagueness or is your objection --

MR. REYNOLDS:  Yeah, my original --

MS. ARNOLD:  -- to work on a concept that moves in that direction.  I mean that's really the question.

MR. REYNOLDS:  Well, I definitely would.  I think the guides are appropriate.  We propose a 90 percent standard as a guide.  I mean I think there are two things going on here.  First is the whole guide concept, we agree with and we supported that in our comments.  Having the guide to be some undefined notion of processing we think is -- as someone who litigates a lot of consumer issues that sort of strikes a red alert in my mind.

MS. ARNOLD:  It's not enforceable.

MR. REYNOLDS:  Not that it's not enforceable.  It is enforceable.  But there is a lot of litigation and there will be a lot of experts coming in to define the standard.

MS. ARNOLD:  Okay.  

MS. LANIER:  I guess my feeling is that if you structured the safe harbors, if we got into a room and hammered out some safe harbors, as we have in other cases in advertising, that you could really minimize the litigation.  I think you could.

MS. ARNOLD:  Okay.  Did you have another question or was that --

MS. LANIER:  That was it.

MS. ARNOLD:  Okay, great.  

MS. LANIER:  That was it.

MS. ARNOLD:  Thank you.

Dick.

MR. ABBEY:  Thank you. 

First I want to thank Gail for trying to draw some lines here.  I think --

MS. ARNOLD:  Bridges, bridges.

MR. ABBEY:  Bridges.  No, she was trying to draw some lines rather -- and create bridges.  Right?

MS. ARNOLD:  Squiggles.

MR. ABBEY:  And then I have a question for Roger and then a comment.

I gather from just what you said that anything, any real variation, any moving away from that all or virtually all standard is -- I mean that's the way -- the position you seem to have taken all along -- just would not be enforceable, would create a lot of litigation for you.  It's more -- it's going to be a hassle.  

Is that right?  I mean there's nothing -- there's nothing that would satisfy you.

MS. ARNOLD:  Wait, wait, wait, wait.

What you're hearing, what you are hearing, sitting on that side of the table, is that anything except for the virtually all is not going to satisfy it.  Try to put it in the context of what you're hearing other than you.  You guys -- I know you're all attorneys and you are all litigators, but let's try not to point that finger, okay?

Dick, I am just using you as an example.  But what you're hearing here is --

MR. ABBEY:  I hear you correctly, Roger.

MS. ARNOLD:  Very good.  Give me six weeks with you guys.

(Laughter)

MR. ABBEY:  It would take longer than that.

MS. ARNOLD:  And we won't need therapists any longer.  

MR. ABBEY:  Thank you very much.  

MR. REYNOLDS:  Well, I think litigation would be a hassle for me, but I think it would also be a hassle to a lot of other people.  I think the less resources that all of us can spend in litigation, the better off society is as a whole.  And I thought that I was making a point that a lot of people in this room would be receptive to.  The people I litigate against don't generally want to be litigating either.  It's a bad -- usually a bad situation where there's a vague statute that we have to go to a judge for.

With respect to the not being satisfied with anything but the all or virtually all, we put a specific proposal on the table.  We would clarify that the all or virtually all means 90 percent to give some guidance to the community and to everybody to avoid litigation.  And I do stand by the point that avoidance of litigation is good for everybody involved.

MR. ABBEY:  Now my one comment.  And I make this comment now only because I have been quiet up to this point about the Stanley and the hand tools.

Wherever the Attorney General got that forging from, we'd like to know a little bit more and actually learn more about the forging process because I have never seen a raw forging in the shape that you had it.  I mean with that hole already created for the box end of the wrench.  When I've seen raw forging, it is just that.  It is a forging that has the rough shape of the article, but there is a far more to with it.  

And I'm sort of representing in a sense Joel and his situation, Stanley and its situation, and many, many companies that bring in forgings and castings.  And the reason those processes are used is that the article, rough though it may be, is going to look somewhat like the finished article.

But then that is the first step in the process.  And then there are numerous other processes which have been just sort of shunted off as finishing processes, but that give the quality, the durability, the things that the consumer want in that hand tool, and based upon the study that was done.  Apparently Stanley has been very successful, because their processing operation rates them very high among consumers for all of these qualities, even though the forging is made abroad.

So it seems to me that a lot of people don't have any problem when you talk -- certainly Steve didn't have a problem when we were talking about how far back do you go, and he says, "Well, you go back one step."  So I gather in the automobile industry, assuming -- forgetting about the labeling, forgetting about the labeling, and all, that, you know, you go back -- the parts component, the parts supplier, the chrome supplier, they produce their subassembly part, and they provide it to the assembler.  

We don't have an awful lot of problem with that if there's been some change in it, treating it as an American product, and putting it into another product and then calling that an American product. 

But for many products, where it starts out with one, one component, and that is made abroad, it doesn't make any difference how much processing, how much value added is done in the United States under the rule that I would propose, that would be excluded from being represented as being made in the U.S.  And we believe that's unfair to all of those U.S. workers who are involved in that process.

MR. REYNOLDS:  Okay.  I just want to respond about the forging.  I really have to respond to this. 

MS. ARNOLD:  We really don't want to bring this into this discussion.  It's not useful.  It's really not.  It's not helping the FTC with what they need to do, so I would respectfully request that you not even entertain it.  It's just -- we don't need to.  You really don't.

MR. REYNOLDS:  All I want to do is clarify that we didn't mean to imply or impute any actions to Stanley.

MS. ARNOLD:  Okay.  That's all you need to say.

MR. REYNOLDS:  That's all I wanted to say.  Thank you.

(Laughter)

MS. ARNOLD:  Please, if you could at this point, direct your comments to your thoughts about these other approaches.  And if we don't have any more thoughts about different approaches, then what I'll do is put up some questions that the FTC staff have raised about substantial transformation and the virtually all standard.  

So we next have Jeffrey.  

MR. GRIMSON:  My name is Jeff Grimson.  I am an attorney with Grunfeld, Desiderio, and I've taken Jerry Berman's place at the table as an alternate on behalf of Dynacraft.

Actually when I raised my card, it was earlier when you were soliciting new ideas.

MS. ARNOLD:  Great.

MR. GRIMSON:  So my new idea is this.  Do nothing.  That's my idea.

MS. ARNOLD:  Why?

MR. GRIMSON:  And I can explain my reason for it, and maybe my reason is a new idea.  I mean the consequence of my idea is the all or virtually all standard, but my reason is this.  We started out yesterday talking about good government, and I think the seminar is a great means for exchanging ideas.  But I think that we're here because of an assumption that consumers' perceptions have changed over the last 50 years.  And I'm just not sure that there's data that supports that.  

The FTC did a study in 1991 of consumer perceptions, and then again in 1996 -- or '95, published in '96.  If we wanted to measure whether consumers' perceptions have changed over the last 50 years, why couldn't we use some of the same copy ads to actually measure that, to see is there a need for a new standard before we go and chuck away the standard that has been good enough for 50 years.  I think we need some evidence that consumers' minds have changed over the last 50 years.

I know there's a lot of talk about increased international trade.  One could view that as strengthening or making it even more important that the "Made in USA" means just what it says.  

Now, my second point is related to the first one.  If the perception data is unclear, if everyone around the table agrees that, well, no one says 70 percent is good enough or 80 percent or 90 percent.  Well, I think that the Commission shouldn't go and act on the basis of guesswork.  You shouldn't go and reject the all or virtually all standard, if there isn't a clear choice, a clear alternative.  Maybe this isn't the right time to go and move away from that standard if there's no reason to, and if there's no clear alternative that consumers believe in.

I know that we need to facilitate business across international boundaries, but what the Commission should be looking at is whether there's a need from a consumer's point of view for a new standard.

MS. ARNOLD:  Okay.  Thank you.

MR. PLATT:  I have a question.  What line of business are you in?

MR. GRIMSON:  Dynacraft makes bicycles in China.  Dynacraft competes -- do you want me to go into this or -- I don't think it's helpful.

MR. PLATT:  You've answered the question.  

MS. ARNOLD:  Thank you.

Jan.

MS. ARCHIBALD:  I would just say -- I gave you a list of questions before that were related to Robin's proposal.  I think those still stand because I, for one, am still very confused.  I mean I know that she's talking about factor and I know she's talking about getting in a room.  But the bottom line of what the standard is has still not been articulated.

She has since now given us more factors, so I probably don't have them all up there.  But I tried to write down what you said the last time.

MS. LANIER:  Have you had a chance to look at this briefly?  Okay.  Because I think that -- and let me just say that when I did this, and when I was involved in this exercise, the Green Guide, I came to the table really hung up on B-4, quote, "a standard."  And a bunch of standard definitions for a whole bunch of terms.  Okay.  

And I came away from that exercise believing that there was a way --  -- for the series of descriptions of various kinds of claims that got at the definitions without defining them, okay, without nailing them down in concrete so that there was no room for any future interpretation, no room for new claims to be devised, no room for flexibility.

And I guess my hope would be that we could do a similar kind of exercise.  It took months to develop these guides.  Okay.  It's not something we can do this afternoon.  Okay.

We started with a list of basic factors that we wanted -- and kinds of claims that we wanted to look at and we moved through a series of safe harbors and the industry itself got together in a room and made a petition to the FTC which included a model guide.  I have to say my organization didn't support that model guide.  We were in the room when it was developed, but we felt it was not good enough.  I mean quite honestly we didn't think it protected the consumer enough.  We filed separate comments saying yes, the FTC should come out with a guide and then we took pot shots at what industry had developed and we were in the room when it was developed.

And I would submit, and I know maybe this is jumping ahead in the agenda, that all of these questions are really good questions.  And I think we can all sit down in a room and talk about these questions and talk about safe harbors and talk about different kinds of claims.  American made with all American parts and labor.  I don't know.  I mean there's lot of different -- there's a whole continuum of different kinds of claims and we could create some guidance here that would be enormously helpful to all of us and would, I think, meet Steve's requirement that we try to maximize the amount of U.S. labor.

I think that's the most important thing, that we protect the maximum number of U.S. jobs.

I don't think we can answer these questions today.  But I think that we ought to try because I think this is the only way that we're going to help the FTC make any sense of this.  

I mean we could do nothing, but I think all that does is help the importers, quite honestly.  I don't think it helps people like New Balance.  And, you know, look, my companies import a lot, and we sell a lot of imported stuff, and normally we're not on this side of the table, so you guys are very suspicious of us.  But, you know, I have companies who really want to advertise "Made in America."  And they don't want it to be a cheap claim.  

MS. ARNOLD:  Okay.  Jan, do you have any -- 

MS. ARCHIBALD:  No, actually -- this is -- I have a clear understanding.  She isn't actually proposing a standard at all.  She's proposing that the FTC engage in some further process yet to be decided to get at --

MS. LANIER:  That's right.

MS. ARCHIBALD:  -- the questions that we were addressing over the last few days.

MS. LANIER:  I mean I just threw it on the table to start a discussion.  I mean I don't have all the answers.  So I mean I would be willing to participate in such an activity.  

MS. CUMINS:  But, Robin, aren't there certain minimum requirements assumed in your standard such as that the product has to be created here?

MS. LANIER:  I think yes.  I think that that is the threshold over which we have to get, but that creates huge definitional questions for Roger.  Okay.  That may be clear to you and me because we're familiar with substantial transformation and the NAFTA marking rules and the NAFTA preference rules and half a dozen -- and the 9802 rules and, you know, listen, we've been around.  Okay?

So, no, we've been fighting rules of origin -- I mean I've been this for 20 years, so I've been -- you know, and so for us, maybe that is more obvious, okay.  Maybe it's for obvious for the products that we know and love.

MS. ARNOLD:  Okay.  We have a lot of other people who want to make comments and we have a question.

MS. KOLISH:  We appreciate your suggestion about having further process, and Abby tells me that she did plant you in the audience.  

I don't want to interrupt this flow of conversation, but what I would like are your suggestions about what you think that an additional process should look like is would you like to get together among yourselves, small groups of you, and then bigger groups of you, and come back to us and we would talk some more?  Do you want us to reconvene another day a month from now, two months from now?  Do you want to have more comment about things?  

There are lots of ways of doing this and --

MS. LANIER:  What I was thinking about doing -- I'll tell you what I was thinking about doing.  I'm not sure that this -- I mean maybe other people have other views.  But what I was thinking about doing was maybe getting on the phone after, you know, tomorrow, calling up participants in this, and maybe others who didn't participate, and convening some kind of meeting, you know, like we did on Green Guides at the National Food Processors Association, and having a discussion and maybe trying to come up with some model, something that we would submit to the FTC, and then if I recall correctly, you had a couple of additional workshops on that model and a hearing and then wrote your own version of it as we moved ahead.

But I think it was all initiated by 13 or 14 trade associations petitioning you for guidance and submitting a document that was our best guess.  And as I said, we were one of the groups that petitioned the FTC but didn't agree with the document that was submitted.

So, you know, there's a process for you.  It worked.

MS. ARNOLD:  Okay.  As you walk through the discussion, if anybody has any comments on Elaine's question, please offer them.

I have John, Jim, Kim, David, Joel, James and Jeff.

MR. PELLEGRINI:  I pass.

MS. ARNOLD:  Okay.  Jim.

MR. CLAWSON:  I support what was just said.  

MS. ARNOLD:  You pass?

Kim?

MR. PALMQUIST:  Let me comment for a second on that.  Because here's the reason.  And it's kind of the procedure we're into now.  Yeah, I have just a ton of notes here on things that again were said an hour ago.  That I think are huge clouds over what we're talking about, and I was going to get into -- and I think we need to get into -- if in fact I was going to explore the domestic content and then try and understand and try and work up something, I thoroughly am confused at this point on one step, two steps and what's involved in it and everything.  There's a whole series of questions I was going to ask. 

And until those would become clarified, there's no way I can say whether any of that is any good.  Because for 3M Company, this represents a horrendous potential disaster.  And that is that -- and I talked about looking upstream.  I have these 600,000 components.  Looking downstream, I have 60,000 products.  And if all of a sudden -- and probably 90 percent of those products are not consumer products.  They are resold to industry and places like that.

If all of a sudden I'm looking at filling out some sort of NAFTA country of origin certificate on every one of those, I have just employed maybe 200 people, and everyone in this room and all your suppliers are looking at the same thing.

So, yeah, there's a whole series of things --

MS. KOLISH:  More American jobs.  Sounds great, right?  

MR. PALMQUIST:  Well, and the American consumers are obviously going to pay for it.  And I have a huge list of things that, you know, I just kind of wanted to get the feeling, but when I say I support this concept, obviously we can't resolve it in this kind of framework.  I'd be very happy --

MS. ARNOLD:  Wait a minute --

MR. PALMQUIST:  -- to participate in those ongoings, and to work out something that is really meaningful.

MS. ARNOLD:  What's interesting to me is throughout the past two days, you all have been answering the question do I support one thing or another, and I think at this point the conversation is starting to shift to rather than do you support a particular standard or not, to is there a way for us to try to come up with something that makes sense of this.  Not do you support this particular proposal or not. 

So I think it's fine that you decided to pass on it and I'm glad that you recognize -- I think the question is changing.  I really do.  I think that the question for you all is changing, and I would respectfully submit that it may be that you don't have the answer about whether or not you would be interested or not.  

You've got to think about it because it is kind of a different question.

We should bear in mind that with Green Guides -- and Beth worked on this, right, a long time ago now?  There we were probably starting with a relatively clean slate.  There hadn't been pre-existing guidance out there.  There probably had only been a few cases.

Here we have a precedent that we're re-examining but it's not quite the same situation, so I don't want anyone feeling it would work exactly the same way.  I just want you to keep that in mind as a caveat.  I don't want to discourage you from thinking about this but I want to note that difference.  

MS. GROSSMAN: And we love the Green Guides.  

MS. LANIER:  Yeah, but we had a number of serious definitional issues there about -- --   consumer which, you know, almost split industry right down the middle and were incredibly --   problem.

MS. ARNOLD:  David.  Let me go down the list.  I know people are surprised that I'm calling on them.  It's like it's been forever.  

David, Joel, James, Jeff and Steph.  Oh, Kim, over here, you're just small.  

MS. KORBEL:  I'm next.

MS. ARNOLD:  Here, here.

MS. KORBEL:  Thank you.

I think one thing that I'm hearing really strongly from industry and even from those that are supporting an all or virtually all standard on behalf of consumers is that we need to be able to know what we're talking about.  The Green Guides do that.  The rules of substantial transformation do that.  The tariff shift changes under the NAFTA venue in Customs rules of origin did that.  

So I'd like to reiterate that whatever form those guidelines take, that it's important to have those guidelines.  

Under the tariff shift issues, the wire producers actually gave up rules of substantial transformation that were beneficial in calling a product a U.S.-made product in exchange for clarity for transparency for commercial reality that you could count on.  

So I think that's key.  And whatever we do here, the involvement in defining those products I think is important to all of us.

MS. ARNOLD:  Thank you.

David?  Maybe a moment.

MR. LEVINE:  Okay.  I'm not going to take much time.  I was initially going to comment on the differences between what I think is a value approach versus what is a process approach.  And I'm not sure that there's going to be anything really to add to what we've all said here.

Which leads me to comment on, Abby, what you just said about where we are in this stage.  I'm not sure that there's anybody in the room who's changed their view from yesterday morning when we all walked in here.  

So to say we're at a new stage now, I'm not sure is quite fair.  There are --

MS. ARNOLD:  Oh, you may not have changed the position that you represented when you came in the room.  I hope you've learned something.  

VOICE:  --

MS. ARNOLD:  What's that?

VOICE:  I've changed.

MS. ARNOLD:  Well, she has, okay.  So some people have.  I would hope that you are open --

MR. LEVINE:  Well, virtually all.

MS. ARNOLD:  My advice to anybody is to remain open in life.

MR. LEVINE:  Well, I'm not suggesting that nobody is open.

MS. ARNOLD:  I think what's changed is not -- the only thing that's changed in the past few minutes is rather than say we support or don't support a certain standard, the question is, an invitation almost, are you interested in coming up with something that may be different or not.  I mean that's the question.  That, David, is what I was referring to.  

MR. LEVINE:  And I understand that.  And I'm --

MS. ARNOLD:  And you say, no, I'm not interested in the invitation.

MR. LEVINE:  I'm very interested in the invitation.  I'm not sure that anybody though, given what we've been talking about for the last hour, has any different or new idea to add to the debate of yesterday and today.  

MS. ARNOLD:  Okay.

MR. LEVINE:  I'm not hearing any anyway.

MS. ARNOLD:  Joel.  No?  He's gone?  Oh, okay.

James?  I've got names here that are an hour old.

Steph.

MR. ZIELEZIENSKI:  I want to just echo Robin's comments in a slightly different way.

MS. ARNOLD:  Okay.

MR. ZIELEZIENSKI:  I think one word of caution warning here.  If you're looking where standards are not really clear, under any of the ones we've urged over the last two days, the Robin is advocating groups getting together to work on coming up with something similar to the Green Guides which would work.  

I think it's -- it would be to take the easy way out to say let's stick with the present standard.  That's all I want to note.  That we shouldn't just accept the standard we have now just because we weren't able to come up with a clear solution today.  Because I don't think that's what this workshop is about.

MS. ARNOLD:  Okay.  

Joel, we passed over you because you left the room.  Do you want to say anything or --

MR. PLATT:  First of all, I think just by focusing on the definition of "Made in the USA" that the FTC is somewhat missing the point.  Made in the USA Foundation would like to make the point that there's a lot of misleading labeling going on.  I'll just show one quick example.  

Here's what is in the marketplace at Nordstrom and around the country.  Huge letters, American classic, red, white and blue, 6 point type, "Made in China."  We think this is unfair and deceptive trade practice and this is rampant.  Whether it's Perry Ellis, with huge letters saying "America series," made in Malaysia or wherever.  And we think the FTC should broaden the whole thing concerning "Made in the USA" to include advertising.

Now, going back to your other approaches.  As you may know by now, the Buy American Act, as interpreted by the Comptroller General, has a 50 percent standard.  And because of that, besides consumers wanting to buy American, federal agency officials, purchasing agents and so forth, are required to buy American so that the labels should have a percentage so that when you go out to buy CD-ROMS, as you did, you will know what percentage is American.  

And that's why we filed a complaint against the Commission for buying an imported CD-ROM, so the Commission realizes that the purpose is not just to inform the consumer, the general consumer, but the federal agency consumer.  

And one point in Robin's standards, or lack thereof, I think it's a license for attorneys to print money when you have such vague-like guidelines that have five different standards, and you're going to have litigation for decades on it.  I'd rather have a clear-cut percentage.

Thank you.

MS. ARNOLD:  Okay.  Philip, Clark, and Sarah.

MR. HUTCHINSON:  The International Automobile Manufacturers finds the process concept of interest and we would like to pursue that and consider that.  That seems to fit closest to this case-by-case recommendation that we made, and so we're willing to work on the process.

MS. ARNOLD:  Thank you, Philip.

Clark?

MR. RECTOR:  I just had a couple of points I wanted to make.  First on the guides and I'm happy to take some of the responsibility or whatever from Robin, because we actually mention them in our written comments also.

I think there might be some confusion on the parts of some people, but the guides, the environmental guides, did not refer to one environmentally friendly claim.  They referred to a series of different types of claims.  And that's what, in my mind at least, these guides for Made in USA, if you should proceed with them, ought to do.  Different types of claims for different types of products and situations.

Secondly, I think we also need to remember this.  That a lot of our discussion here has really been one of a policy nature of what "Made in USA" means.  And getting to that side.  

But when the FTC is going to be looking at these things, they're coming at it from a little bit different mandate, and that's their Section 5 consumer deception mandate.  And I think there are two different questions here and we need to keep that in mind.  But what is the policy is not necessarily what is protecting the consumer from deception.

MS. ARNOLD:  Sarah?

MS. VANDERWICKEN:  I passed a note to Steve earlier about it, this proposal I'm going to make, and I don't know how it would work out in detail and I don't know what all the problems would be. 

But I do think that there is something to the process idea in terms of the immediate simplicity of the idea of making -- you know, of the word "making."  And what I wanted to throw out is the possibility of using the all or virtually all with process.  All or virtually all of that processing as opposed to the cost value of an item.

And I don't know how you would do that going back or how -- or what that would involve.  But I think that might have some possibility.  

And the other thing is that the common -- if you're looking for any kind of common denominator agreements, it seems that consistency, although defined differently and beneath the guidelines of a need for predictability and for people to all be getting the same message seems to be a common theme. 

And whether or not -- whatever you pick, obviously everybody wants you to do that, the FTC to do that, one of the concerns is that if you're going to go to some other standard, the all or virtually all standard, it seems that the upcoming -- is it the WTO standards or guidelines or whatever they're going to be, rules -- have got to wait until that comes out because if there's concern about NAFTA and concern about Customs, and then there's something else, you might as well, you know, hold off, in the meantime, formulating some guidelines.  

We already do have the all or virtually all.  Putting out some guidelines of what those would be now in the interim.  Because I think that would be useful for people because they don't know when the other rules are going to come out.  

So that's my proposal.

MS. ARNOLD:  Excuse me.  Joel and then Tim.

MR. PLATT:  Joel Platt, from BGE.

At the risk of maybe agreeing with Sarah, if you mean that all or virtually all of the process used in the substantial transformation is United States, I think -- that's what I've been talking about, and I think that may be what a lot of other people are talking about.

And I don't personally have a problem with that concept.  But that then does interject substantial transformation.  And otherwise the process -- what do you mean by "process" if it's not in the substantial transformation of the article?

MS. VANDERWICKEN:  It could mean anything beyond extraction.  You know, the processing of whatever the final product is, if the process is -- --   then that would count.

MR. PLATT:  Is his plate then American or not?  

MS. VANDERWICKEN:  I don't remember how much of the process was done --

MR. SALANSKI:  Well, let's just take our product, for an example, so I can understand where you are coming from.  

The porcelain blank is imported from Japan.  The pigments, the design.  Even though the art work, the original art work, is done here, the pigments are imported from France.   They are imported here and then they are fired together to create what we consider a new product.

MS. VANDERWICKEN:  Oh, there were pigments in the process --

MR. SALANSKI:  Oh, of course.  And so does -- the blank, of course, has to go through a process.  It doesn't come out of the drum that way.  

So we're not talking about the same thing.  Am I correct?

MS. VANDERWICKEN:  No, I would -- no, I mean as I said, I didn't define in my mind how far back you could go, and maybe taking it one step, that kind of approach, might be the thing to do, but it seems like processing would be anything where there is labor -- you know, interacting with material, that ends up something.  Either that something goes into something else, or it's something -- 

MR. SALANSKI:  Okay.  Well, I guess I didn't take much of a risk in agreeing.

MR. MERCER:  Just one point.  On the back of the plate, will not say "Made in China" anyway?  Because it's being included?

MR. SALANSKI:  Currently -- under the current Customs decisions, the product would be marked with the source of origin of the porcelain, the source of origin of the pigment separately.  So it's a porcelain from Japan, pigments from France, assembled -- or fired in the United States.  That kind of thing.  

But that's not -- we believe, and we're going to take this up with Customs separately.  We believe that the evidence, especially now, supports that the article has been substantially transformed and if it's substantially transformed in the eyes of Customs, then it not have to have any foreign labeling.  

So under the current law with the all or virtually all standard, and the Customs substantial transformation standard, it wouldn't be marked from any country.

MR. MERCER:  Thank you.  

MS. ARNOLD:  Okay, Kim.

MS. KORBEL:  I like your suggestion, Sarah, but I would caution that if you wait for any kind of inter-governmental agency, anything to happen, we're not talking about any kind of success in the near term at all.  

I think we have an opportunity here to get set in our own minds in the United States what we want to do with domestic labeling.  And if we can become world leaders in the world -- in the WTO arena with regard to domestic labeling, then we're going to have international  consistency.  But if we wait until after WTO comes out with their rules and react to them, then we don't have any choices left.  We're in a reactive mode instead of a proactive mode.

But if we make some decisions about what we want to do with domestic labeling, and we take them to the WTO in this arena, then we have an opportunity to make it a premium standard or whatever we want it to mean and to make sure that then globally it means the same thing when you're looking at label that says, "Made in Italy" or "Made in the U.S." or "Made in the European Union."

MS. ARNOLD:  Okay.   In my mind, it's time to stop and close down.

What do you think?

MR. GAURON:  You've got a good mind.  

MS. ARNOLD:  Not as good as yours.

And to do that, I just want to share with you questions that came up during the lunch hour that the FTC staff had, and you may want to make some comments on these.  And I will read them so they're in the record.

We've got all or virtually all, just as you have been talking about.  The question is, can you really determine what one step back is on a regular basis?  Okay.  Can you really determine what one step back is on a regular basis?  Or how do you determine the one step back for most products?  How would you approach that?  

For the percentage shift, there were not any questions.  Percentage change.  Excuse me.  There weren't questions.

However, for substantial transformation, there were quite a few and I'll read these.

What should be done about the fact that Customs may change their substantial transformation rules, and the fact that they already operate under two standard?

Second, how would FTC enforce substantial transformation if they adopted that kind of a policy?  

Third, marking requirements may change.  If this is true, what's the rationale for -- I can't read that -- for using requirements.  Thanks.  I can read my own scribble, but -- 

How do you ensure that the consistency with other countries when they aren't consistent?  In other words, when France and Spain aren't consistent, how do you ensure consistency with other countries?

Are you asking FTC to commit to a standard prior to its adoption; i.e., the tariff shifts?  

And what kind of qualifiers to substantial transformation are you suggesting?  There's been a lot of different qualifiers to substantial transformation.  

And there was a request to talk about that more, but we really don't have time today.

And this was a real sincere interest.  This goes back to the difference between different marking rules that different countries have.

Please give us information regarding marking requirements of different countries and standards for the domestic country claims.

So those were questions that these guys who have been sitting here for the past two days have, and would sincerely appreciate any insight or input you might have to those.

What I'd like to ask is if we could walk around the table and Jerry Cook isn't here, but if we could walk around the table and just if you have an comment about the workshop, share them with those of us who helped organize the workshop and try to be gentle.

MR. SALANSKI:  Can we get a copy?  

I missed the question.

MS. ARNOLD:  The answer is sure.  We thought we'd use them during the afternoon, so we -- --

Before you take it away, some of them are still writing, so just hold on a minute.  I just hate to take things away from people when they're writing.

Okay.  So, Michael, do you want to start out?  Pros and cons on the workshop.  If you don't want to say anything, you can pass.  

MR. KERSHOW:  No, I do have a comment I guess.

I guess I would have been happier had there been some consensus conclusion reached at the end of this, but I guess I came into it not expecting to do that in even a two-day session.

I would say that to my ear there were a lot of very valid concerns expressed really on both sides of this debate.  I want to say that I acknowledge the dilemma that some who currently qualify for the all or virtually all standard have, and their concerns about how they would be competitively disadvantaged if they were robbed of the value of that statement as it currently exists. 

But I hope there's at least recognition on the other side as well that leaving that standard meant the privilege of, if it's safe to say, all too few domestic industries really robs a lot of somewhat differently situated industries, of a competitive advantage that is absolutely critical to them given the stage that they find themselves in the rapid de-industrialization of America.  And I hope there's at least recognition on the other side, but unless some way is found of giving companies in that position some meaningful basis of being able to assert those claims, then I'm not sure what is accomplished much in the two-day session.

MS. ARNOLD:  Okay.  I am not asking for closing comments.  

MR. KERSHOW:  I'm sorry.

MS. ARNOLD:  That's okay.  I'm going to be real clear about what I'm asking.

I'm not asking for closing comments.  I think we've heard -- and you all have been very -- you are excellent articulators of your concerns.  We've heard them. 

The question is if the FTC were to design another workshop -- or should the FTC design a workshop of this nature, either on this issue or on other issues, and if they were to do so, what would you recommend they do the same next time and what would you recommend they do differently next time?

Let me give you a moment to think about that.

Let's go around that table.  And we can end with you if you have any ideas.  Okay.

Go ahead.

MS. SWARTZ:  I guess my biggest disappointment.  I think the workshop is very, very useful and I came in with certain ideas and I've moved.  And it was useful to hear other industries' views because I was coming from our own.  And I think you have a basis for going on.

But what I'm very disappointed in is that there wasn't more government participation.  There are a myriad of programs out there that require some type of Buy America provision.  Department of Commerce people should have been here.  The Export Program DOD people should have been here.  Treasury people should have been here.

I was happy that Customs people were here.  I think they were clearly the most important but this is a process that the entire government would benefit from because there are so many various standards out there, and I would really encourage you.  I had made this comment when I spoke to you folks initially.  You needed to get everybody in the room. 

I think we've educated the FTC staff on a lot of thing that you didn't know before that those of us that have worked with you in the past were a little frustrated about.  The fact that we have to operate under a lot of different standards, and I think it would be equally beneficial to have the rest of the government hearing what we're going through so that when standards are promulgated or changed, that everybody is sort of on the same page.

MS. ARNOLD:  Okay.  So you think that it was generally a good idea to have the workshop and you learned something.  However, your concern was that other government agencies' participation wasn't included. 

Okay.  Next.

MR. PALMQUIST:  A real quick comment and a question.

I think the workshop caused me to think a lot.  So it was good.  The question is simply this.  Obviously we want to go someplace, but we don't want to count wheels and we don't want to do a wasted effort.

Elaine, you had commented, and, again, the danger is reading too much into anything, and I appreciate that.  But we're coming from a different standpoint.

The thing that has to somehow come to light is to put some kind of parameters about what the flexibility is to go someplace and deliver something to the Commission and what the Commission would be interested in.

I'd hate to see us spend lots and lots of efforts to only come back and say, "Well, that's really outside the box that we're going to even take a look at."

So with that challenge of -- if there is a box, we need to know about it.  If not, then I think we need to do some things and come back but in a different format.  Less formal, more working, more presentation of actual drafts that have been written.  Perhaps subcommittees will be reporting on things.  You know, the type of thing that we're all used to.

MS. KORBEL:  I too found the process to be very helpful.  I came here with a mission from the Association on a bottom-line position, not to go beyond.  And to consider some of the other alternatives that were being put on the table, and I did learn some things about not only the role of the FTC and where other industries are, but the concerns when you're talking about consistency and talking about industries that are steel or footwear or textiles and the differences that they all bring to the table in trying to make a consistent policy position.

I would caution that if we begin to break down into working groups to provide something to the FTC in terms of suggestions, that those working groups are broad based and that there isn't just one set of ideas at one table and another set of ideas at another table so that we're bringing three different possibilities to the FTC and then we haven't gotten any further than all or virtually all percentage content or substantial transformation where we started.

MS. ARNOLD:  Okay.  Joel.

MR. PLATT:  I also found it extremely useful and helped me understand the position of other people and helped me better understand our company and our company's position on this.

A couple of suggestions.  I think they're very minor, but if the FTC were to do this kind of workshop in the future, and consumer perception were an issue, I would recommend that before the FTC is surveyed, just to save some resources, because a bunch of us did surveys and it costs a fair amount of money.  

If we could have been asked what questions we would have wanted to have been included in the FTC survey, I think it might have been helpful and cost efficient.

And I think also it would have been helpful to get an idea -- and I should preface this with I appreciate Elaine's and Beth's open-mindedness and willingness to listen to the various positions articulated at the table.  But we all came to this, including the government, with a position that we were starting from.  And I think it would have been helpful for us to know what the FTC's thinking was, where they thought this was going beforehand, just so that we could better address those concerns.

MR. JOSEPH:  I can echo most of the comments so far, but I think you hit on something.  That the FTC may have wanted to have several proposed rules that we could have discussed here.  I think the government participated far too little.  I echo the comments that you made.  I think the GAO and some other government agencies should have been here.  They interpret similar legislation.  

But I do thank the FTC for this opportunity.  I think it's a good one, and that this issue needs to be decided.  I just wanted it to be broader to cover advertising and promotion of American and so forth.

MS. ARNOLD:  Steve?

MR. BECKMAN:  I don't have anything.

MS. ARNOLD:  Jan?

MS. ARCHIBALD:  If would have -- the FTC to decide for themselves, but it would seem to me that in the almost first day and a half, we spent a lot of time, you know, airing our own views, which was good.  And I think it was helpful to hear all the various sides.

But at the time same, it seems to me that what's most helpful to the FTC is to have a little time to think about that and then to come back with perhaps more focused questions for the group.  And we started to do that to some degree and we frankly ran out of time, but I think if there had either been a gap and then had come back, or there had just been another day, then you might have gotten this discussion down to even finer details where maybe you'd either find where the areas of agreement are, if there are any, and, if not, then what are the fine points at which they break apart.

MS. VANDERWICKEN:  I basically echo that.  I think this was very well done.  I think you tried to organize it so that you were narrowed in.  I think the way you organized it could have been, or maybe at another time, would be around particular questions or around proposals or whatever.  Maybe a different way of organizing it.  I think we tend to repeat ourselves a little too much.  And have some way to kind of cut that out.  

But I really applaud the effort.

MR. MERCER:  Well, I appreciate being invited here.  One thing of comfort, a large room would certainly help though.  

MS. KOLISH:  This is the largest room we have.  

MS. ARNOLD:  Okay.  Jim.

MR. CLAWSON:  Yeah, I echo the views that this is a very useful process in which to have these kind of discussions, these kinds of airings. 

I have a couple of fairly to me important mechanical things.  I think most of us had read and were given in advance the materials about the surveys.  And I think rather than all of the time we took presenting all of those, it would have been better -- the people that have questions, and respond.  I mean because we spent an enormous amount of time sort of going through a lot of materials that most of us had already read, and I don't know if other people felt the same way.  I think it was sort of a waste of time.  Can we get on with this?  You know, when are we going to get to it?  And relate it to that.

And in the second part, and I felt very sorry for Steve and Mike, making presentations about what the government, you know, their views of what the government thought.  And so I echo those when I'm saying the government should be here, as Sandra Gethers was for Customs, that there should have been more government folks say, "Here's what we believe the rules to be."  Et cetera, et cetera.

And then lastly, probably as participants, and I say this very much to Abby, as good as you and Janet and everybody are, whatever, it would have helped for us to know in advance what are the ground rules.  It took you a day to train us.  I mean basically.  And I say that kindly.  But, you know, we tended to some of us hold back because we thought we were playing by the rules and other people are repeating themselves.  It took a long time for us to figure out what the ground rules were.  And maybe -- I don't know how you do that at the beginning in terms of training so we know what we're supposed to. 

So that's why I say you have to accept that for what it's worth.

Thank you very much.

MR. ABBEY:  I'm not terribly sure that this process is that much better than hearings considering the amount of time that was involved in it.  I hope you think it's better.  But one very good thing that came out of it is that there is some consensus among a fairly large group of people with regard to something like the Green Guides and Robin's proposal that a group get together or that a group be formulated to try to work up something to assist you in this process, I think will ultimately be helpful.  I don't know whether that could have come out of hearings.

But otherwise, I echo the views that others have expressed, and I definitely echo Jim's views in that I thought Sandra, of course, did I felt the best job in explaining substantial transformation, but she had done an excellent job in her paper in explaining substantial transformation.  So I thought perhaps we could have cut through a lot of the constant on explaining the basic standards and then just go to questions about it, to further clarify it for people.

MS. ARNOLD:  Okay.  

MS. LANIER:  I want to echo what Jim said.  And just add.  I guess my frustration, and I guess it showed, is that we spent an awful lot of time speechifying about where we were coming from, and I just felt like maybe -- I mean even though I don't think we could have come up with definitions here today, I think we could have had more time for that if we had some way to move beyond where everybody's position was.  I don't know how you do that.  I mean maybe you give everybody, you know, three minutes to give you a summary of where they're coming from right at the outset, you know, and then we get down to, you know, like where do we go from here.

Because to me that was -- I guess we came in with kind of an unusual position, which wasn't on the agenda, and I felt like, well, when do we get to our point, you know, that we want to make.  And that's why I was such a loud mouth.

MR. ZIELEZIENSKI:  I think this two-day shop was useful for airing the views and for everybody to learn more about each other's views.  To the extent that it helps you get to where you're going, I think it really is only a first step.  I think the next workshop needs to be let's identify where those views then are set.  

Which, you know, Robin's proposal gets us some of the way there.  And it may almost be useful to break out, you know, into different groups and then come together to answer focused questions, so that you don't -- you know, you're not constantly debating your differences but you're discussing separately where you intersect with the other groups, where you don't and then the focused question with the group as a whole to decide how we get to the next level.  Because clearly we need to get there.

MR. HUTCHINSON:  As with others, I learned a lot.  I think it was a good discussion.  I would have appreciated hearing more from the Federal Trade Commission as to what they thought these consumer perception studies mean.  

I also want to know what happens next?  I mean I go away and I tell my people and my companies.  I've been here for a couple of days and I've been on my soap box and what happens next?  

MR. GRIMSON:  I don't have any comments.  I just appreciate the Commission's efforts.  That's it.

MS. ANGELL:  I would like to hear what is going to happen next, if you have any comments on that now, or if we'll be notified somehow soon.  

We do have one comment that we thought you had a very useful resource in your Home Page on the World Wide Web.  That is how we went and got comments from the other representatives here and it was a very useful resource and we encourage you to keep using that.  

MR. RECTOR:  Well, I'd like to echo also that it was a very positive process.  I would love to see something similar happen if and when the FTC actually comes out with whatever it is you may come out with.  I think it would be interesting to come back and have something a little bit more concrete to debate.

The only process point I would have was I would hope next time Abby might, at the risk of sounding masochistic, crack the whip a little bit earlier on us and make sure that we stayed on one particular subject.  Early in the session, we tended, as we were following the cards, to jump from one subject to another and then back to the comment.

That may have helped focus the discussion.  But on the whole, it was a very good policy --

MR. LEVINE:  I agree with that.  I think it was an excellent airing of views, and I'm also in agreement with where do we go next question, and I think part of that might relate to Abby's role as a mediator, and I'm not sure that this is the case for mediation, but it became pretty clear quickly that there were two camps basically.  And there wasn't a whole lot of attempt to draw out the two camps toward one another.  

I'm not sure I have a good way to do that, but maybe next time, if there is a next time.

MS. ARNOLD:  I will give you a reflection of the mediator.  Go ahead.

MR. COOPER:  Well, I was going to say that I think that the principal contribution of the workshop which could not have occurred absent the workshop was the recognition that one size does not fit all.  And if in fact that's the one thing we all have come away with.  --   to some extent the views expressed that we ought to get together -- 

Thank you.

VOICE:  Speak again --

MR. COOPER:  I'm sorry.  As much as I appreciate the very real contribution that Robin has made throughout this workshop, I am not sure that I agree with her suggestion that we as industry spokesmen or labor spokesmen should pursue this absent the FTC at this point.  Indeed, my own view is that the FTC now knows the thoughts of everybody around this table and the ball is in the FTC's court.  And I think that it might be useful if the FTC saw fit to do so to meet with individual industries to explore individual industries' concerns.  I don't see where the value would be in our getting together again merely to express the differences of opinion.  We are not going to arrive at a homogenized view.  

MR. GAURON:  I guess I found maybe the most useful part of what we got into later today almost with the dialogue with the FTC.  Because we are sort of shooting in the dark asking questions to each other.  And it's really we're trying to address what we think are questions the Commission may have.  So more of that would have been helpful.  

Secondly, I really want to compliment Abby, because I saw your resume before.  And I was very concerned that here is somebody who spent most of her time doing environmental matters and I said, "What does she know about Made in the USA," and obviously you spent a lot of time educating yourself and it was very, very helpful.  And maybe the next time around the FTC will hire you to do that I can get a plug for that.

MS. HOWARD:  I guess I'd like to say that I also learned a great deal at the workshop about other people's views and concerns.

I guess my main concern is that this process be very helpful to the FTC and I guess I'm sort of echoing what Paul said.  That we don't know what questions the FTC had about our submissions and what concerns that maybe we could have addressed today.  And maybe if there were -- I'm not suggesting that the FTC or Abby grill us based on those questions, but it might have been helpful to at the outset or at some periodic points to know what your concerns were having read our submissions.  And then we could address them.  Because as Paul says, we were responding to each other's concerns which may or may not be the FTC's concerns.

So my hope would be that this -- another session like this for another industry, another issue, or even this issue, might be structured to ensure that the FTC got the most out of it.

MR. PELLEGRINI:  I don't have a lot more to add, but there's one thing I guess all the people will agree with is that we need to hear from the FTC now I think.  I don't think you're going to get much more out of us talking at each other.  I think we need to know -- I think the FTC has to draw Jim's box before we take the next step.  

And finally, this was fairly messy I thought, but I don't know any way you could have done it better.  I think that's -- it's just a difficult topic.  And that you got anything done at all in two days I think is remarkable.

MS. CUMINS:  By and large, I think you did a terrific job.  I want to compliment you in particular the way you organized it from the very outset.  The distribution of the materials.  The way they were furnished.  Your consultations with each one of the participants in advance of the workshop.  

I hope you view this only as a first step, and what I really would like to see as the next step is a list of questions from the Commission, positions perhaps of the Commission, which would -- I would be willing to participate in another workshop to discuss those questions -- to address those issues.

 As I said, I have changed my mind as a result of these two days.  And even though I know that we have different views, I'm not sure at the end of the day, once you get down to what's behind what you really mean, that we may be that far apart.  

One thing I think though that it's important to know is is there a willingness, fundamental willingness, after what you've heard today from the Commission, to explore perhaps a modification of the standard.

And finally, I would suggest for any other workshop, rather than going around and having each one of us state our position, perhaps -- and, Abby, you began to do that at the end of the day, and partially yesterday, and maybe we didn't hear, encourage more debate rather than have people raise their hand, acknowledge.  If somebody says something that somebody has a reaction or a question with respect to that, sometimes you forget that question when you have to wait until 20 other people say their comments.

So more debate and discussion in reaction to what other people say.

MR. GALE:  I pass.

MR. COOK:  It's been said, but it's important to have the government here.  And I think we have seen how difficult it is to come up with a single standard for industries that make their products so differently and with different consumer perceptions from each industry to each industry.  

MS. ARNOLD:  You are a stimulating committed interesting group.  And you've really worked hard.  I think that your expectations of yourself are more than my experience shows that one can do in a two-day session.

If I think about, and if I go back to my notes on my conversations with each one of you, which were based on your comments to the FTC, which were written two months ago, and I think about the tone of the comments at 4:30 on March 20, whatever we are, some of you have gone a long ways.  And what you're starting to see is that rather than it have to be a public hearing session, where you come and basically give your comment and walk out the door, what I hear you starting to say is we are interested in taking responsibility for trying to work out some of these differences and not just have government do it to us.

And as a mediator, I do this with a lot of different groups for different agencies, that are regulatory agencies, at the state level, at the federal level, and we are also doing this at the international level.  

And my experience is that if you look at any of the conflicts around the world, you'll find that at first -- and particular attorneys start in polar opposites and it takes some time for them to hear what the ground rules are.  We're not asking you to tell Joe or Robin why she's wrong.  We're asking you to try to hear what Robin is saying and understand, taking what we think and trying to figure out if we can come up with something that will satisfy Robin and also satisfy our interests.  Our own interests. 

And you guys are starting to do that.  I don't know if when we leave the room because of circumstances, like Mitchell's talking about, you'll be able to move beyond that.  I don't know in this issue.  And it may be that the FTC ends up taking on the role.

When I leave this room, I'm going to go on.  I'm going to go working on other cases.  This is the end of my role with this particular project.

But what I think is that there's potential in this room -- you guys are smart enough that there's potential in this room, if you include some of the other agencies we're talking about, to reach maybe not total agreement, but at least get closer than the comments that are currently the public record, the written comments that currently the public records show.

And that's all I'll say.  So really good work.  And thank you for putting up with me.  And I frankly think that I pushed you as hard as I felt comfortable, and I'm a pretty pushy mediator.  

MR. GAURON:  Well, on behalf of all us, we thank you very much.

(Applause)

MS. KOLISH:  Well, Paul, when we saw Abby's resume and it was all environmental, we thought, Umm.  But the moment we met her, she impressed us to death with her ability to grasp issues and to be pushy, which we thought would be a valuable commodity.

I appreciate the views everyone's expressed and I'm glad many of you found it helpful.  We found it enormously helpful to hear your views, your questions, your questions of each other and the possibility that there might be places where people were willing to change their views, at least moderately.

I'm sorry people were disappointed that other government agencies weren't here.  There have been representatives of the ITC and maybe other agencies sitting in the audience from time to time.  Having people who are administering the Buy American Act and the Automobile Labeling Act here to participate would sort of be a difficult proposition.  They're fulfilling statutory mandates they have that they may not have a lot of flexibility to change.  We were talking about voluntary labeling and advertising claims.

So I appreciate people's desire to have consistency and harmonization.  I think it would have made our effort a lot more complex and I don't think we would have been able to accomplish a lot more here.

So, you know, our transcripts will be available to them.  We have invited them.  We share all of our information with them. 

I've heard Robin's offer to want to get together with people.  Some of you sound like you'd like to do that.  Others don't want to do that.  

The comment period remains open until April 30th.   Do you think that's enough time for those of you who want to get together and maybe work together on some joint comments, feedback, proposals, to us?

MS. LANIER:  Probably not.

MS. KOLISH:  Probably not.

How much time do you think you would need?

MS. LANIER:  A month would be my guess.  May 30th?

MS. KOLISH:  We can always ask the Commission to extend the comment period for another month. 

Do you think that would be okay, Jodie?

MS. BERNSTEIN:  Another month?

MS. KOLISH:  Uh-huh.

MS. BERNSTEIN:  Yeah.  I think so.

MS. KOLISH:  Well, we're obviously not the deciding folks here, but we can recommend that.  We'd be happy to do that.  

As we've been -- I know people would have liked more focused proposals.  But first we were starting with the standard that the Commission has had for many years and we opened it up to see what kind of problems people had with it and what the other options were.  And that's what you've all identified here.

I've been reading comments.  We've been talking among ourselves for weeks now thinking, we may need more public participation after this because I think we haven't given you focused proposals either.  We didn't have that information when we began this process.

I feel we know more and might be in a position to develop recommendations for the Commission that it might then choose to put back on the public record for additional comment and maybe a follow up, you know, one-day conference, maybe two days is too exhausting.

So I think we'll be willing to recommend that type of process if we hear in the post-record, post-workshop comments there's a continued interest in public participation the way I've heard today.

And I know we still may not reach consensus, but maybe we'll be able to chart a course that satisfies many of you, that protects the public interest, you know, that's transparent, easy to comply with, easy to enforce.  It doesn't have to be too easy to enforce.  We're willing to take on difficulties and hassles.  We'd like it to be easier for you than easier for us.

 And that's our goal here, is to try to give the Commission our best recommendation about what policy is most in the public interest and would welcome any help you could give us.  If you think it would be useful, we could try to put together a list of follow-up questions and immediately fax them out to everybody.  And those are things you could address in your post-record workshop comments, we'll work on collectively in your groups.

MS. CUMINS:  Extending the comment period to May 30th, would it also be appropriate for those who haven't filed, for you to add these questions in your notice so that you might get a broader-based response on the record from the public?  As long as you have a Federal Register Notice to do anyway.  

If you get these lists of questions, it might be -- I think it would be very useful to get additional input.

MS. KOLISH:  Sure.  I think that's a very good idea and we'll be willing -- we can't speak for the Commission obviously, but we can recommend that and hope that they follow our advice there.

But we've enjoyed it tremendously and learned a great deal and I appreciate your willingness to sit in this smallish room.  It is our biggest room.  We don't normally have this many people at the table.  Abby was unusually willing to accommodate a large group.  Mostly our workshops have had like 24 people at the table.  And I think we've had up to 40 people sitting at this table at any one time.  And probably 120 people in the room.  So it's been tight.  But no one wanted to sit in the overflow room.  And we understand that.

Do you want to say anything else, Jodie?

MS. BERNSTEIN:   Yes.  Just a couple of things.  

I do want to express my appreciation to all of you for being willing to participate in which I know is a hard slogging couple of days to get through on a very important issue.  It has been, and I think will continue to be, in our judgment the most useful kind of thing that we can do to inform ourselves, to truly listen, and to listen to each other.

I was going to, and I really have to do this, I do have to take some exception to whoever remarked about Abby's background as an environmental background.  Because that's why I was so impressed by her, coming from an environmental myself.  

(Laughter)

MR. GAURON:  I didn't mean it.  

MS. BERNSTEIN:  There is always somebody who falls into a trap.  And so I have to tell you this little vignette about why I think this process works. 

What I learned in the past about.  I was once in the position with another group of advising the then vice president, Fritz Mondale, on what position ought to be taken on acid rain.  Now, you think this one is hard.  Acid rain had to do with all sorts of very, very political and technical issues and we had worked very hard and came up with a pretty complex and very sound position about the movement of coal in the United States and so forth.

And we went to this meeting with the vice president and I was all geared up.  We had heard from industry, we had sat through, I don't know, three or four days of very formal hearings, the kind of thing you all said you didn't want to really listen to, speechifying and so forth.  People went in and out of the room and so forth.  And we were going to present our findings and what the position ought to be to the vice president.

And he listened carefully, as we had a scientist, we had an economist, we had a legislative person.  And I was the advocate for our position.

He listened carefully through this very complex set of recommendation, for legislation basically.  And here's what he said.  "Jodie, couldn't we just blame it on the utilities?  That's what we usually do."

(Laughter)

I had to say to him, "It'll work."  

So you see that there are other ways to go about doing this, but I learned then and there that if you listen a lot, as we've tried to do here, that you're in a much better position.

I did want to say a couple of more serious things in response to some of the things I heard.  

The first is that I hope there was not a sense here that the FTC did not participate, we, the staff of the FTC and Abby, as fully as we could.  It truly was a first phase.  We had no hidden agenda.  There were no hidden balls.  We were trying to act on behalf of the Commission at this very early stage to assist them in finding out -- in trying to determine along the lines that we had begun to develop in the hearings that the chairman held in the fall of what was happening in the global economy focused on this particular issue that could be helpful to us.  We have to go back to the Commission and, (a) we will tell them a good deal about what we learned here and what all of you had told us about what the problems are, about marketing in global economy.  That's what we're going to have to do as a first phase.  

We did not have a position in terms of what we thought to be the answer.  We truly did not.  And from that point of view, it's a little bit frustrating because it's easier if there's a government position and you can express your criticisms and so forth in an attempt to move us.  We just didn't have that.

So in every sense it was, and remains, a first phase.  We will appreciate your hanging in here with us.  I'm not at all suggesting that we are planning another of this exact type of session, but we will be working with you and hopefully you will have enough patience to continue to work with us so that we, in the end, when we do make recommendations to the Commission, we will at least have a sense that everybody knows what that's going to be and that there is at least some understanding, if not full support, for our doing our job.

Again, thank you very much.

(Whereupon, at 4:48 p.m., the hearing was concluded.)

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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 27, 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 27, 1996

SIGNATURE OF REPORTER

  Gary Sabel                  

(NAME OF REPORTER - TYPED)