If your finished good is ultimately manufactured in the United States and contains only a small amount of China-origin material, California’s new Made in U.S.A. labeling rules may make it easier for you to label your products as Made in U.S.A.
Prior to California’s new Made in U.S.A. labeling rules, the state prohibited labeling a product as Made in U.S.A. if a product or any of its subcomponent parts were produced or substantially produced outside the United States. By requiring all subcomponent parts to be of U.S. origin, California’s Made in U.S.A. requirement was stricter than the U.S. Federal Trade Commission’s (“FTC”) standard.
The FTC’s Made in U.S.A. standard requires that “all or virtually all” of a product be made in the United States; the FTC has not established a bright-line rule for what constitutes “all or virtually all” of a product. The FTC explains that this standard will typically be satisfied if all of a product’s significant parts and processing are of U.S. origin. Products with Made in U.S.A. labels must contain only negligible amounts of foreign-sourced parts or materials.
California’s new Made in U.S.A. rule, which goes into effect on January 1, 2016, allows products manufactured in the United States to be sold in California with Made in U.S.A. or similar labeling claims under two scenarios:
(1) The foreign content of the product represents no more than 5% of the product’s final wholesale value; or
(2) The manufacturer uses foreign-sourced parts and can demonstrate that it cannot make the finished good without the particular foreign-sourced parts and the value of such foreign-sourced parts or articles does not exceed 10% of the product’s wholesale value.
For manufacturers and companies selling products throughout the United States, California’s new law is a big deal. Companies’ marketing departments like to use Made in U.S.A. claims because U.S. customers generally prefer to purchase goods with such labels. They feel such purchases support U.S. commercial efforts.
Because California is such a large market, companies may have been cautious in the past about labeling their goods as Made in U.S.A. if such labels would not have complied with California law. Companies would not have used two different labels – one without a Made in U.S.A. claim to comply with California’s higher labeling standards and one with such a claim for all other states. Corporate administrative, regulatory and logistics costs would have outweighed any value gained from using two different labels, even if the Made in U.S.A. label could have resulted in greater sales outside California.
California’s new law moves the state closer to federal standards for Made in U.S.A. claims and may open up new opportunities for companies to assert such claims. Even so, companies sourcing components from China should ensure that the value of such components is not significant, especially under California’s new bright-line rules, before labeling their products as Made in U.S.A. The real test now is whether companies will be able to demonstrate that their Made in U.S.A. labels comply with California and federal legal requirements.