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Federal Register / Vol. 86, No. 132 / Wednesday, July 14, 2021 / Rules and Regulations testing put the cart before the horse. 36
NAM also encouraged the FTC to undertake a comprehensive review similar to the Commissions process in the 1990s before promulgating any rule.37
2. Alternative Standards In addition to requesting the FTC
conduct new perception testing, numerous commenters proposed alternatives to the all or virtually all standard. These proposals, which were based on policy arguments and were not accompanied by supporting consumer perception evidence, fell into two groups. On one hand, more than twenty commenters, mostly individual consumers, suggested unqualified MUSA claims should be limited to products 100% made in the United States. On the other hand, other commenters, mostly manufacturers, argued all or virtually all is too strict, and by incorporating it into a rule, the FTC could chill unqualified claims, discourage innovation, and harm industries where parts or ingredients are not available in the United States.38 To address these concerns, this second group of commenters suggested alternatives: 1 Introducing a percentage-of-costs standard; 2
adopting a standard that makes allowances for imported parts or materials not available in the United States; 3 aligning with U.S. Customs and Border Protections CBP
substantial transformation standard; or 4 adding a safe harbor for good faith efforts to comply.
i. Percentage-Based Standards Several commenters argued the Commission should provide marketers greater certainty by promulgating a bright line rule outlining a specific percentage of manufacturing costs that must be attributable to U.S. costs to substantiate an unqualified claim.39 For example, NFI suggested the FTC could align the rule with California state law,40 which permits manufacturers to make unqualified MUSA claims for
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36 CTA

579.
37 NAM 623.
38 See, e.g., CTA 579 arguing the all or virtually all guidance deters innovation because many electronic product components are only made internationally; Personal Care Products Council 587 guidance deters manufacturers from using maximum levels of U.S. parts and materials; AAEI
605 guidance negatively impacts U.S. companies that will not risk making the claim.
39 National Fisheries Institute NFI 628; RILA
570; TRAVIS HEDSTROM 600; Acuity Brands 609; NAM 623; American Coatings Association ACA 666 stating marketers need guidance on percentage values or other guidance on how to deal with trace components of foreign/unknown origin.
40 NFI 628.

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products with up to 5% of the final wholesale value of the product attributable to articles, units, or parts of the merchandise obtained from outside the USA.41
RILA agreed a rule providing a brightline percentage would help marketers comply, and suggested the FTC consider analogous federal regulations that incentivize U.S. manufacturing, and incorporate a 70% threshold for unqualified claims.42 Alternatively, one commenter suggested a rule that would permit an unqualified claim for a product assembled in the United States where more than 50% of its value is based on components of U.S.-origin.43
Two representatives of the dietary supplement industry, the Global Organization for EPA and DHA Omega3s GOED and Pharmavite LLC, made an alternative percentage-based proposal with different standards for active and inactive ingredients.
Specifically, they argued consumers likely interpret an unqualified MUSA
claim to mean 100% of a dietary supplements active ingredients are made and sourced in the United States.
They claimed, however, consumers care less about the origin of inactive ingredients. Accordingly, they contended the rule should incorporate a 10% tolerance for foreign-made or sourced inactive ingredients.44
ii. Unavailability Exemption Other commenters argued the rule should allow marketers to make unqualified MUSA claims for products that include imported content only if the imported components are not available in the United States.45 Some argued there should be a blanket exemption for such content. For example, Bradford White Corporation BWC suggested the rule broadly allow marketers to exclude foreign parts from the analysis if those parts cannot be reasonably sourced from a domestic manufacturer.46 Others agreed the rule should permit unqualified claims for products that contain foreign 41 See Cal. Bus. & Prof. Code 17533.7 as revised in 2015.
42 RILA 570.
43 TRAVIS HEDSTROM 660.
44 GOED 604; Pharmavite LLC 695.
45 The California law makes such an allowance, although it is not unlimited. Specifically, California permits up to 10% instead of 5% of costs to be attributable to imported content if that content cannot be made or obtained in the USA for reasons other than cost. Cal. Bus. & Prof. Code 17533.7.
46 BWC 622. Indeed, BWC argued, given consumer expectations and current supply chains, rather than analyzing the percentage of costs attributable to U.S. versus foreign costs, it might be more appropriate to analyze the proportion of an entitys overall manufacturing workforce in the U.S.
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content that cannot be sourced in the United States, but argued this exemption should be capped at a certain percentage of manufacturing costs. In NAMs view, a rule permitting marketers to incorporate an appropriate percentage of imported components or labor, not otherwise unavailable domestically, would give manufacturers clear and predictable rules and play a significant role in helping to encourage manufacturers to increase domestic investments in order to meet an attainable standard. 47
iii. Substantial Transformation Analysis Several commenters suggested the FTC adopt a substantial transformation standard for unqualified claims.48 Three commenters from U.S. trade associations 49
explained harmonizing the FTCs rule with the CBP standard for determining foreign country of origin pursuant to the Tariff Act, 19 U.S.C. 1304, would provide clarity and alleviate the burden on U.S. companies that must navigate a number of different country of origin requirements. 50 AAFA explained adopting the substantial transformation standard would result in a clear, simple, and easy-tounderstand rule. 51 The Peoples Republic of China China also argued, to avoid uncertainties and bias, the FTC should incorporate CBPs change in Tariff Classification analysis, as suggested in Article 9 of the World Trade Organizations WTO
Agreement on Rules of Origin.52
iv. Good Faith Efforts To Comply PCPC and RILA recommended the Commission provide safe harbors for two types of good-faith efforts to comply. PCPC, a trade association 47 NAM 623. See also Glenda Smith 612
requesting more detail on how to handle raw materials not capable of being sourced in the USA.
48 CBP defines substantial transformation as a manufacturing process that results in a new and different product with a new name, character, and use different from that which existed before. This standard does not take into account the origin of materials or parts. See 19 CFR part 134; Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308
Ct. Intl Tr. 2016 holding a substantial transformation occurs when a product emerges from a manufacturing process with a new name, character, and use, and the simple assembly of a limited number of components does not constitute a substantial transformation.
49 International Precious Metals Institute, Inc.
IPMI 520; AAEI 605; American Apparel and Footwear Association AAFA 675.
50 AAEI 605. See also BWC 622 raising concerns about increased regulatory burden.
51 AAFA 675 also suggesting the FTC
eliminate qualified claims for any products that do not meet the substantial transformation threshold.
52 China 699.

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