Original Sin: Complying with Country of Origin Laws

by Sheppard Mullin Richter & Hampton LLP
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Congress recently introduced the whimsically titled bill, the “Team U.S.A. Made in America Act,” which would require the United States Olympic Committee to ensure that ceremonial uniforms for the Olympic team are assembled in the United States with fabrics manufactured in the United States. Regardless of whether clothing is made in or imported to the United States, current U.S. Federal regulation requires that clothing bear its country of origin designation. Currently, around 98% of all clothing for sale in the U.S. is imported.

Textiles claiming to be “Made in the U.S.A.” are regulated by the Federal Trade Commission (“FTC”) and the Lanham Act, while imported articles are regulated by the U.S. Customs Service (“Customs”). The country of origin requirements become confusing when a product undergoes many different manufacturing processes in different locations, consists of parts from many different countries, or both. For the manufacture of garments, the material from which the garment is made may be cultivated and harvested in one country, drawn and spun in another, and then woven, dyed or finished in any number of other places. For this reason, retailers should be aware of applicable law before a country of origin claim is affixed to any of its garments.

Section 304 of the Tariff Act of 1930 (19 U.S.C. 1304) requires that products and packaging imported into the United States be marked “legibly, indelibly, and permanently” to indicate to the “ultimate purchaser the English name of [its] country of origin…” When an imported product involves elements or processes from more than one country, the country of origin is the last country in which a "substantial transformation" took place. A “substantial transformation” is defined as any “manufacturing process that results in a new and different product with a new name, character, and use that is different from that which existed before the change.” Meeting this test is decided by Customs on a case-by-case basis, and Customs issues letters of guidance to manufacturers on the interpretation and application of the regulations it enforces. The FTC’s jurisdiction over foreign origin claims relating to products and packaging extends beyond that of Customs, even covering marketing materials related to foreign and domestically produced goods. Promotional materials for textile and wool products, such as catalogs and Internet copy, must state whether a product is made domestically, abroad, or both.

For a product to bear a U.S. country of origin label without limitations or qualifications, the product and all of its constituent parts must entirely originate, or substantially originate, in the U.S. Any company claiming that its product originates in the U.S. must be able to provide reasonable and reliable evidence for the claim. In examining a U.S. origin claim, the FTC will look at the percentage of manufacturing costs that are attributable to U.S. materials and processes, and also the extent to which any foreign countries played a role in the product’s manufacture. Additionally, the Textile Fiber Products Identification Act and Wool Products Labeling Act require that a textile include a “Made in the U.S.A.” label if the final product is “manufactured in the U.S. of fabric that is manufactured in the U.S.” By contrast, a textile or wool product partially manufactured in the U.S. and partially manufactured in another country must be labeled to identify foreign and domestic countries of origin.

Regulations similarly focus on the location of manufacture when determining country of origin for labeling purposes. Consider the example of a T-shirt that is made from American-grown cotton, but assembled in the Dominican Republic. Pursuant to Customs Regulation § 10.22, Customs Regulations (19 CFR 10.22), assembled articles are products of the country where the assembly occurs. Therefore the T-shirt’s country of origin is the Dominican Republic, although the company could affix a label to the T-shirt claiming that the T-shirt’s materials originate in the U.S.

The consequence of improperly labeling products is considerable. Failing to label a product correctly is considered fraudulent activity by the FTC. The FTC recommends that consumers contact their respective state’s Attorney General or Better Business Bureau to report mislabeling, and courts have found that state law claims for false labeling are not preempted by Federal law. Additionally, the Lanham Act enables a company’s competitors to assert claims against the company for false designations of a product’s origin.

With this newfound focus on promoting American-made products, it is important to note that the identification of a product’s country of origin to consumers is a well-regulated area. Moreover, there has been a resurgence of public interest in domestic textile manufacturing, as evidenced by the recent crowd funding success of “Flint & Tinder”, a startup retail company that promises consumers a quality American-made line of men’s underwear. The startup aimed to raise $30,000 and has received nearly $300,000 from donors to date. The Team U.S.A. Made in America Act and the crowd funding phenomenon both demonstrate that making apparel in the U.S. resonates with consumers. Studies have repeatedly verified the relationship between consumer perception of product quality and the perceived country of origin, and many consumer activist groups in the U.S. exist specifically to promote the purchase of domestically made products.

Therefore, whether the retailer is a startup funded by online investors or a major apparel brand, the specter of overlapping liability under Federal law and general U.S. consumer perception regarding products’ origination ensures that compliance with Federal regulations concerning the labeling of clothing is a sound investment.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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