According to FTC, the new rule codifies for the first time potential fines for each violation. FTC may now seek civil penalties of as much as $43,280 for each violation of the rule.
The Commission stated that the rule is expected to be of special benefit to smaller companies legitimately making Made in the USA claims but which do not have the resources to defend themselves against imitators fraudulently making similar claims.
“The final rule provides substantial benefits to the public by protecting businesses from losing sales to dishonest competitors and protecting purchasers seeking to purchase American-made goods,” said FTC Commissioner Rohit Chopra. “More broadly, this long-overdue rule is an important reminder that the Commission must do more to use the authorities explicitly authorized by Congress to protect market participants from fraud and abuse.”
Policing of claims ramped up after NAFTA
The process of crafting a final rule on such claims began after the signing of the North American Free Trade Agreement (NAFTA) in 1994 that created a free trade zone between Canada, Mexico and the United States. Until now the enforcement of such claims has been done without the assessment of penalties.
According to the final rule, it is a deceptive act to “[L]abel any product as Made in the United States unless the final assembly or processing of the product occurs in the United States, all significant processing that goes into the product occurs in the United States, and all or virtually all ingredients or components of the product are made and sourced in the United States.”
Goldmine for class action lawsuits
While companies accused of violating this rule have not had to face civil penalties up to now, according to the website truthinadvertising.org allegedly fraudulent Made in the USA claims have been a goldmine for class action lawsuit filers.
“You could stock a small store with the products that have been accused of being deceptively marketed as made in the USA in recent years,” according to the website. The vast majority of the cases filed in the 2012-2021 timeframe analyzed by the organization were filed in California with a smattering of cases filed in six others states. After 2015 the pace of these lawsuits subsided as California changed its law governing such claims.
The final rule includes specific guidance for manufacturers of beef and shrimp products in response to requests from stakeholders in those industries.
How rule applies to supplements
Dietary supplements are not named specifically in the document, but the final rule is of prime importance for such manufacturers. Only a small subset of dietary supplements sold in the US are made wholly with domestically sourced raw materials.
Loren Israelsen, president of the United Natural Prdoucts Alliance, said his organization had done a study almost 10 years ago on how much overseas material was in dietary supplements sold in the US. The study found that 80% of constituents were of foreign origin.
“I think that might be a bit high now; I’d say it’s closer to 72% to 75%,” Israelsen told NutraIngredients-USA.
“Made in the USA claims continue to be a priority at the Commission and companies need to make very clear that their statements in this realm are 100% accurate and true and not misleading,” said Marc Ullman, an attorney of counsel with the firm Rivkin Radler.
According to the final rule, a domestic manufacturing claim without any qualifiers would be fraudulent even in cases where some of the raw materials can only be obtained from other countries. The final rule, which the Commission said codifies FTC enforcement practice dating back to the 1940s, allows only a trivial amount of foreign content to qualify for the claim.
Ullman said manufactures of supplements that want to emphasize their domestic connections need to make carefully crafted qualifying statements about inputs into the product. ‘Made in the USA with domestic and imported ingredients’ is one such example.