When fashion thinks about reshoring, take a look at what “Made in USA” means
For the past few decades, companies have focused on maximizing efficiency. In order to reduce costs, accelerate production and become more efficient, manufacturers have concentrated their activities on suppliers in a few countries. “These global supply chains resulted in savings and increased profits when everything went smoothly, according to scientists Stéphane Girod and Natalia Olynec of the International Institute for Management Development. “But the disruption from the COVID-19 pandemic was immense,” as more than 90 percent of the clothing sold in the US, for example, is made internationally.
With about 40 percent of clothing purchased in the US came from China, brands and retailers in the US and other Western markets suffered significant delays in manufacturing and distribution when the first wave of COVID-19 forced factories in China to close for weeks . Such far-reaching disruptions have led companies to think about redesigning the logistics of their supply chains.
In April, a survey conducted by the accounting firm EY found that up to 83 percent of multinational executives are considering “reshoring” – or in other words, moving production back to their home countries after outsourcing. In a report evaluating the impact of COVID-19 on the manufacturing, sourcing and supplier identification platform ThomasNet found a similar focus on reshoring, which showed two in three (69 percent) manufacturing companies are moving manufacturing to North America in July (compared with 54 percent in February).
The potential for a surge in reshoring efforts in the U.S. (and beyond) would prove remarkable for companies in the fashion industry. While some well-known names are already producing in the USA, the domestic fashion industry largely relies on internationally outsourced clothing and accessories. With this in mind, relocating back to the US would lead to greater emphasis on the specifics of the “Made in USA” label, an area that is likely to be subject to increased attention and enforcement.
In short, the Federal Trade Commission (“FTC”) prohibits marketers from including unqualified “Made in USA” claims (ie, full representations without express restrictions) on labels unless: 1) the final assembly or processing of the product takes place in the USA, 2) all essential processing that goes into the product takes place in the USA, and 3) all or virtually all of the ingredients or components in the product are made and sourced in the USA
Hardly any unresolved issue: “False and misleading claims ‘Made in USA’ have been a mainstay of FTC enforcement for many years,” so Frankfurt Kurnit Klein & Selz PCs 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” from the United States should substantiate such claims. (Codifying this standard would allow the FTC to apply for increased penalties related to false claims “Made in USA”.)
Most recently, the FTC hit the headlines in December when it handed a record $ 1.2 million judgment on Alpharetta, Georgia, adhesive giant Chemence for selling adhesive products with “Made in the USA” claims and American flag images sold and third parties that their wholesale products were made wholly or almost entirely in the United States when foreign materials accounted for more than 80 percent of the cost of materials and more than half of the total cost of the products to manufacture.
In a 2016 order, the FTC requested that Chemence not claim that its products were made in the US unless they could demonstrate that all significant US processing, final assembly or processing in the US, and all or virtually all ingredients have taken place or components of the product have been manufactured and sourced in the USA or otherwise contain “clear and conspicuous identification” about the inclusion (and extent of use) of foreign parts. Despite this order, Clemence and his President James Cooke continued to sell adhesive products labeled “Made in USA” using the same ingredients from overseas with no language appropriate.
The resulting $ 1.2 million fine is evidence that the FTC knows that “many customers who want to support the domestic industry look for” American Made “claims or symbols.” pro Keller and Heckman LLPs Sheila Millar and Jean-Cyril Walker and that companies that violate labeling regulations will have “significant consequences” as the FTC continues to aggressively pursue “Made in USA” claims.
In one case that comes a little closer (for fashion brands), the FTC took action against Shinola in 2016 for marketing their watches as “built” in Detroit. While final assembly of the company’s clocks took place at its headquarters in Detroit, Michigan, the company’s clocks were made entirely of foreign parts, according to the FTC. In connection with the matter, Shinola agreed to include language to alert consumers that while his watches are “built in Detroit”, they are made “from Swiss and imported parts.” The company also agreed to abandon the “Where American is Made” tagline.
(Like Truth in Advertising, Inc. in a reflection on the matter, the Shinola case left some interesting questions unanswered. Including: implicit indications of origin resulting from a brand name. “By focusing on straightforward, explicit claims like ‘built’ in Detroit, the FTC may have overlooked less obvious, implicit claims that convey the same message.” In other words, TINA claims, “Shinola can tell consumers that its watches are made in Detroit” – or of American origin – “without saying that its watches are” built “in Detroit because there are only so many conclusions which you can pull from a watch with the words “Shinola” and “Detroit” in close proximity to each other on the dial. “)
Given the content of the “Made in USA” plan released by President-elect Joe Biden, it is expected that the emphasis on labeling will be a priority for the new administration. In the plan released in September 2020, Biden states that he intends to end “false advertising” regarding “Made in USA” claims by cracking down on “companies that label products as Made in America, even if they are come from China or elsewhere. “Given that phrase, Greenbaum says that” It seems pretty clear that enforcement of fraudulent ‘Made in USA’ claims will only increase. “
Against this background, companies, including those from the fashion industry, are encouraged to refresh the various labeling rules – the difference between the country of origin rules for customs and border control and the “Made in USA” of the FTC. Guide to California Law on U.S. Origin Claims. Millar and Walker note that “Companies wishing to promote their products as American products would be well advised to familiarize themselves with the FTCs.” US Origin Claims Enforcement Policy Statement Instructions to prevent your “Made in USA” claims from being stuck together. ”