Beyond Cost: Why the “Functionality of Components” Is Critical for "Made in USA" Claims
Phyllis Marcus, Vice President, National Advertising Division, BBB National Programs
The allure of the “Made in USA” label is undeniable for both consumers and businesses. It signifies quality, supports American jobs, and can even offer a competitive advantage, especially with economic shifts like potential tariffs on imported goods.
However, achieving this coveted claim is far from simple, demanding adherence to the Federal Trade Commission’s (FTC) strict “all or virtually all” standard. While many understand this to mean that most of a product's cost and processing must be domestic, there's a crucial, often overlooked, dimension: the functionality or role of foreign-sourced components.
The idea is that if a product cannot function without that foreign component, it's not truly "all or virtually all" made in the U.S., regardless of the foreign component’s minimal price.
A classic example illustrates this perfectly: a watch. A watch might be largely assembled in the U.S. with American components, but if it relies on an inexpensive but critical Swiss movement to tell time, it cannot legitimately be labeled as "Made in USA." Even though the Swiss movement's cost might be a tiny fraction of the overall watch's value, the watch's primary function—telling time—is entirely dependent on that foreign-sourced part.
These cases underscore that companies must be highly familiar with their supply chains and the precise role of every foreign ingredient or part.
Accuracy and transparency are paramount. If a product doesn't meet the "all or virtually all" standard because of critical, foreign-sourced functional components, businesses might consider making a qualified claim – phrases like "Made in USA with US and globally sourced ingredients" or "Assembled in USA with foreign parts" allow companies to truthfully represent their product's origin while acknowledging the global supply chain.
This approach ensures that consumers are not misled and fosters a fair marketplace where genuinely American-made products can be recognized and supported.
The allure of the “Made in USA” label is undeniable for both consumers and businesses. It signifies quality, supports American jobs, and can even offer a competitive advantage, especially with economic shifts like potential tariffs on imported goods.
However, achieving this coveted claim is far from simple, demanding adherence to the Federal Trade Commission’s (FTC) strict “all or virtually all” standard. While many understand this to mean that most of a product's cost and processing must be domestic, there's a crucial, often overlooked, dimension: the functionality or role of foreign-sourced components.
The "Criticality Over Cost" Principle
When evaluating a "Made in USA" claim, the FTC and self-regulatory bodies like BBB National Programs' National Advertising Division (NAD) don't look just at how much a foreign component costs. They also consider its criticality to the product's core purpose or function. This means that even an inexpensive foreign-sourced part can prevent a company from truthfully making an unqualified "Made in USA" claim if that part is essential for the product to work as intended.The idea is that if a product cannot function without that foreign component, it's not truly "all or virtually all" made in the U.S., regardless of the foreign component’s minimal price.
A classic example illustrates this perfectly: a watch. A watch might be largely assembled in the U.S. with American components, but if it relies on an inexpensive but critical Swiss movement to tell time, it cannot legitimately be labeled as "Made in USA." Even though the Swiss movement's cost might be a tiny fraction of the overall watch's value, the watch's primary function—telling time—is entirely dependent on that foreign-sourced part.
Real-World Implications: Learning from Regulatory Enforcement
The principle of "criticality over cost" is frequently examined in various advertising challenges, highlighting the complexities companies face and the vigilance of regulatory bodies and courts:- Mouth Care Products: In an NAD case, a mouth care product line claimed, "Made in USA." However, a key component, Dead Sea salt, was globally sourced, specifically not from the United States. Because this ingredient was considered central to the product's purpose and function, NAD recommended that the company modify the claim to "Made in USA with US and globally sourced ingredients" to ensure transparency and avoid deception.
- Scented Candles: In another NAD case, a company selling candles claimed they were “Made in USA,” and later claimed the candles were “poured in USA with the highest ingredients from around the world.” NAD viewed “poured” as a qualified “Made in USA” claim because term clarifies the process that occurs in the USA. However, Goose Creek did not provide details on, and thus NAD was unable to analyze, from which countries the ingredients were sourced and what percentage of the candles were made with ingredients from around the world. Accordingly, NAD recommended that Goose Creek limit the claims to the processes or candle ingredients that are made in the USA.
- Tea Products: A significant class-action lawsuit against a tea company in federal court further underscores this principle. Despite the tea bags and strings having been U.S.-made, the tea itself, grown abroad, was deemed a critical part of the final tea product. Consistent with the FTC standard, the advertiser lost the multi-million-dollar case because the foreign-sourced tea was the defining, functional component.
These cases underscore that companies must be highly familiar with their supply chains and the precise role of every foreign ingredient or part.
Why This Distinction Matters for Trust and Transparency
The increasing scrutiny of "Made in USA" claims comes from multiple avenues, including the FTC, BBB National Programs' NAD, competitors, and even class-action lawsuits. For businesses, making a "Made in USA" claim for products that include critical foreign components can lead to loss of consumer trust, reputational damage, and significant legal penalties.Accuracy and transparency are paramount. If a product doesn't meet the "all or virtually all" standard because of critical, foreign-sourced functional components, businesses might consider making a qualified claim – phrases like "Made in USA with US and globally sourced ingredients" or "Assembled in USA with foreign parts" allow companies to truthfully represent their product's origin while acknowledging the global supply chain.
This approach ensures that consumers are not misled and fosters a fair marketplace where genuinely American-made products can be recognized and supported.