Made in America?

Jose manufactures bicycles that he sells through distributors nationwide. Except for the wheels, which are manufactured in Mexico, all the other components of the bike are manufactured in the U.S.  Jose’s manufacturing facility assembles the components, paints the bikes, and readies them for shipment to distributors, who sell them to bike stores.  These bikes are sold wholesale to distributors for $250 per unit.  The manufacturing cost per bike is about $150.00, of which the cost of the tires from Mexico is $30.00, or 20% of the total manufacturing cost per bike.

Recently, Jose was approached by several distributors who expressed interest in advertising Jose’s bikes as being “Made in the USA.”  According to them, bike shops were increasingly being questioned by customers about where their bikes were being manufactured, expressing concern that foreign-manufactured bikes were taking jobs away from Americans.

Jose knew that many products he bought were marked “Made in America.” He was also aware of various “Buy American” programs but did not know much about them. Understanding that nothing is ever as simple as it sounded, Jose consulted with his attorney—a wise thing to do.

To begin with, there can be a lot of confusion over the terms “Made in the USA,” “Buy America,” and “Buy American.”

The Buy American Act was enacted into law in 1933 and mandated that products purchased by the U.S. federal government, beyond a certain cost threshold, needed to be manufactured in the U.S. The Act required that the cost of U.S. manufactured components needed to exceed 50% of the cost of all components of a given product.  Notwithstanding these and other requirements, the government was able to grant waivers in certain circumstances. According to critics, over time, the system for granting waivers became laxer and more vulnerable to corruption. In a recent Executive Order issued by the Biden Administration (reported in the New York Times on January 25, 2021) a promise was made to shore up The Buy American Act by reducing the number of waivers and making more rigorous the process for obtaining them.

A different, but related act, with almost the same name—the Buy America Act—was enacted in 1982 pursuant to the passage of the Surface Transportation Assistance Act of 1982. The Buy America Act applies to transit-related procurements by the Federal Government valued at over $100,000. Under the Buy America Act, any product containing, among other things, iron, or steel, needs to have 100% of those materials sourced and manufactured in the U.S. A related enactment—the Airports and Airways Facilities Improvement Act, similarly, mandates content requirements for products used in the manufacture of airplanes and airways.

In contrast to the Buy American and Buy America Acts, which impose content requirements on goods procured by the U.S. Government for public purposes, the rubric “Made in America” is a commercial representation that is subject to rules and regulations issued by the Federal Trade Commission (FTC), which is concerned, among other things, with preventing false advertising.  Under FTC guidelines, the manufacture of certain products, like automobiles, textiles, wool, and fur apparel, must disclose the amount of U.S. content used in their manufacture.  With respect to most other categories, it is not necessary to disclose the amount of U.S, content, except if a representation is made that a product is made in a certain place and contains a certain amount of materials. Where a representation is made that a product is “Made in the USA” (or makes a representation that explicitly or implicitly suggests that a product has been made in the U.S.) the FTC provides the following guidance:

  • For a product to be made in the USA, the product must be “all or virtually all” made in the U.S. (50 states, District of Columbia, or U.S. Territories)
  • The clause “all or virtually all” means that all significant parts and processing that go into the manufacture of a product must be of U.S. origin. That is, a product contains no or negligible foreign content.
  • In determining if a product is “all or virtually all” made in the USA, the FTC considers several factors: (i) Final assembly must take place in the U.S.; (ii) if (i) is met then the FTC considers how much of the product’s total manufacturing cost can be attributed to U.S. parts and processing; and (iii) in addition to considering (ii) the FTC also considers how far removed the foreign content is from the manufactured product. Even if a small percentage of the total manufacturing cost is attributable to foreign content, if integrating the foreign content is a significant part of the product’s final processing, it could still be determined that the product is not made in the USA. According to the FTC, concerning point (iii), foreign content “incorporated early in the manufacturing process often will be less significant to consumers than content that is a direct part of the finished product or the parts or components produced by the immediate supplier.”

To illustrate the application of these factors, the FTC provides an example: A company produces propane barbecue grills. The major components are made in the U.S. except that the knobs and tubing are made in Mexico. A “Made in USA” claim is unlikely to be deceptive because the knobs and tubing make up a negligible portion of the product’s total manufacturing costs and are an insignificant part of the final product.

Now, if we analyze Jose’s bicycles, employing the FTC ‘s content standard, the answer to the question whether Jose can employ a “Made in USA” label on his products is more in doubt. Though the Mexican tires comprise a small percentage of the overall manufacturing cost of his bikes—at 20%–it is clearly not a negligible percentage. Also, insofar as the final manufacturing/assembly process involves attaching wheels, which are important components of the final product, it is hard to argue that the foreign content would be insignificant to the consumer. Thus, it is possible that labeling the bikes “Made in America” could risk a regulatory challenge. But Jose may not be entirely out of luck since the FTC recognizes, as being valid, qualified “Made in the USA” claims. So, even if the bikes cannot be labeled strictly as being “Made in the USA,” they could be labeled “Made in the USA Except for the Tires” or “Assembled in the USA,” or “Made from 80% U.S. Content,” etc., which would more accurately convey to the ultimate consumer the content character of the product in question.

The takeaway:

  • Buy American, Buy America, and Made in America represent three different legal contexts. Unless a party is supplying goods to the U.S, Government, the issue is likely to be whether a product can be represented as being made in the U.S.
  • The Federal Trade Commission, which is the federal agency concerned with combatting commercial misrepresentation and fraud, has provided guidelines as to when it is appropriate to label a product “Made in America.”
  • Before a manufacturer/distributor labels a product “Made in America,” or other similar designation, she should consult with legal counsel whether FTC content guidelines have been met and, if the determination is that they have, to secure all the documentation used in making the determination so that if there is ever a challenge to the label designation, she has evidence proving the reasonableness of the claim.
Related content:
Small Business Startups – Making It Legal
Negotiating and Surviving the Business Deal of a Lifetime:  A Legal and Practical Approach…
Legalities of Mergers and Acquisitions




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