In recent decades, businesses have focused on maximizing efficiency. To cut costs, speed up production, and be more streamlined, manufacturers have concentrated their operations on suppliers in a few countries. “These global supply chains created savings and boosted profits when all was running smoothly, according to International Institute for Management Development academics Stéphane Girod and Natalia Olynec. “But the disruption from the COVID-19 pandemic has been immense” given that more than 90 percent of the apparel sold in the U.S., for instance, is made internationally.
With some 40 percent of clothing purchased in the U.S. coming from China, brands and retailers in the U.S. and other Western markets suffered from significant delays in manufacturing and distribution when the first wave of COVID-19 forced factories in China to close for weeks. Such sweeping disruptions have prompted companies to consider refashioning the logistics of their supply chains.
In April, a survey conducted by accounting firm EY found that as many as 83 percent of multinational executives were contemplating “reshoring” – or in other words, bringing manufacturing back to their home turf after outsourcing it to other countries. In a report assessing the impact of COVID-19 on manufacturing, sourcing and supplier discovery platform ThomasNet encountered a similar emphasis on reshoring, revealing in July than two in three (69 percent) manufacturing companies are looking into bringing production to North America (compared to 54 percent in February).
The potential for a surge in reshoring efforts in the U.S. (and beyond) would prove striking for fashion industry entities. While a number of well-known names already manufacture their wares in the U.S., the domestic fashion industry largely relies on internationally outsourced garments and accessories. With that in mind, a shift back to the U.S would bring an increased emphasis on the ins-and-outs of “Made in USA” labeling, an area that is expected to be subject to increased attention and enforcement.
In a nutshell, the Federal Trade Commission (“FTC”) prohibits marketers from including unqualified “Made in USA” claims (i.e., broad representations without explicit limitations) on labels unless: 1) final assembly or processing of the product occurs in the U.S., 2) all significant processing that goes into the product occurs in the U.S., and 3) all or virtually all ingredients or components of the product are made and sourced in the U.S.
Hardly an unaddressed issue, “False and misleading ‘Made in USA’ claims have been a mainstay of FTC enforcement for many years,” according to Frankfurt Kurnit Klein & Selz PC’s Jeff Greenbaum, who notes that the government agency’s announcement in June 2020 that it is considering codifying its rule that companies market a product as “all or virtually all” made in the U.S. must be able to substantiate such claims. (Codifying that standard would enable the FTC to seek enhanced penalties in connection with false “Made in USA” claims.)
More recently, the FTC made headlines in December when it handed down a record a $1.2 million judgment against Alpharetta, Georgia-based adhesive giant Chemence for selling glue products with “Made in the USA” claims and imagery of the American flag, and representing to third parties that its wholesale products were all or virtually all made in the USA when foreign materials accounted for upwards of 80 percent of the materials costs and more than half of the overall manufacturing costs for the products.
In a 2016 order, the FTC required that Chemence refrain from representing that its products were made in the U.S. unless it could show that all significant processing took place in the U.S., final assembly or processing occurred in the U.S, and all or virtually all ingredients or components of the product were made and sourced in the U.S., or otherwise including a “clear and conspicuous qualification” about the inclusion (and extent of the use) of foreign parts. Despite that order, Clemence and its president James Cooke continued to sell glue products with “Made in USA” labels using the same foreign-sourced ingredients with no qualifying language.
The resulting $1.2 million fine is a demonstration of the fact that the FTC knows that “many customers who want to support domestic industries look for ‘American Made’ claims or symbols,” per Keller and Heckman LLP’s Sheila Millar and Jean-Cyril Walker, and that companies that run afoul of labeling rules will face “significant consequences,” as the FTC continues to pursue “Made in USA” claims aggressively.
In a case that hits a bit closer to home (for fashion brands), the FTC took action against Shinola in 2016 for marketing its watches as “built” in Detroit. While final assembly of the company’s watches was deemed to have taken place in its Detroit, Michigan-headquarters, the company’s watches consisted entirely of foreign parts, according to the FTC. In connection with the matter, Shinola agreed to include language alerting consumers that while its watches may be “Built in Detroit,” they are built “with Swiss and imported parts.” The company also agreed to abandon is “Where American is Made” slogan.
(As Truth in Advertising, Inc. noted in a reflection on the matter, the Shinola case has left open some interesting issues. Among them: implied indicators of source that result from a brand name. “By focusing on direct, express claims like ‘built’ in Detroit, the FTC may have overlooked less obvious, implied claims that communicate the same message.” In other words, TINA asserts, “Shinola can communicate to consumers that its watches are built in Detroit” – or are of American origin – “without saying its watches are ‘built’ in Detroit, as there are only so many conclusions one can draw from a watch that has the words ‘Shinola’ and ‘Detroit’ in close proximity to each other on its watch face.”)
Given the contents of the “Made in USA” plan that was released by President elect Joe Biden, an emphasis on labeling is expected to be a priority for the new administration. In the September 2020-released plan, Biden states that he intends to “end false advertising” relating to “Made in USA” claims by cracking down on “companies that label products as Made in America even if they are coming from China or elsewhere.” With such language in mind, Greenbaum says that “it seems pretty clear that enforcement related to deceptive ‘Made in USA’ claims is only going to increase.”
Against this background, companies, including those in the fashion industry, are encouraged to brush up on the various labeling rules at play – from the difference between country-of-origin rules imposed by Customs and Border Control and the FTC’s “Made in USA” guidance to California’s law on U.S. origin claims. Millar and Walker note that “businesses wishing to advertise their products as American made would be well advised to familiarize themselves with the FTC’s Enforcement Policy Statement on U.S. Origin Claims guidance to avoid their ‘Made in USA’ claims from coming unglued.”