California’s “Made in the USA” law imposes strict standards on when products may be labeled “Made in the USA.” This strict standard has resulted in recent litigation against companies whose products allegedly contain some (albeit relatively minor) foreign components. But, the Legislature is seeking to amend the law to loosen this standard with two pending bills—AB 312, which has the Assembly has already approved, and SB 633, which the Senate has already approved.
In May, the Assembly approved, AB 312, which would align the California law with the Federal Trade Commission standard, and would allow “Made in the USA” labels on products that are “all or virtually all” made in the U.S. Under AB 312, “all or virtually all” would have the same meaning as the phrase in the FTC Enforcement Policy Statement.
In May, the Senate approved SB 633, which would allow for “Made in the USA” labels even if a product has some foreign components. Under SB 633, “Made in the USA” is permitted if
- any foreign component or part does not constitute more than 5% of the final wholesale value of the product, or
- any foreign component or part does not constitute more than 10% of the final wholesale value of the product AND the manufacturer can show that those components cannot be obtained or produced domestically.
For this second prong, the determination that the component or part cannot be made, manufactured, produced or obtained within the U.S. may not be based on the cost of the component or part. The bill also clarifies that goods sold or offered for sale outside of California shall not be deemed to be mislabeled so long as the labels conform to the law of the forum state or county where they are sold or offered for sale.
The original language of SB 633 actually mirrored AB 312, but the Senate amended it into its current form.
Impact on Retailers and Manufacturers
The Legislative analyses for both bills note that under current law, California essentially requires a product to be entirely made in the United States in order to be labeled as such. This makes California unique among states. While both bills would amend the current law to loosen the standard, the degree to which the law will be relaxed depends on which succeeds, assuming one does.
If AB 312 passes in its current form, companies would no longer need to worry about complying with two separate “Made in the USA” standards. Product labels complying with the FTC standard would comply with California law.
But, if SB 633 passes in its current form, California’s standard will still be unique. The FTC has refused to apply a bright line test for its “all or virtually all” approach, and it is possible that a product whose foreign components comprise more than the 5% or 10% limits could otherwise qualify for a “Made in the USA” label under the FTC standard. Worse yet, this likely requires a case-by-case analysis.
Further, companies seeking to label products that contain foreign parts or components as “Made in the USA” would likely need to work with their vendors to undertake an analysis that the foreign content does not exceed 5% or 10% of the final wholesale value and keep detailed records to support the 5% or 10% qualification. And despite doing this, an enterprising plaintiff’s firm could still challenge this analysis in court.
AB 312 is currently pending in the Senate Judiciary Committee. SB 633 was read for a second time in the Assembly on July 14, 2105 and ordered to a third reading, after which the Assembly will vote. If the bill passes in the Assembly, it will go back to the Senate for a concurrence vote. Given that SB 633 is further along, and that the Senate amendments to the bill imply a rejection of the “all of virtually all” standard, we expect that if one of the bills prevails, it will be SB 633. Assuming SB 633 (or AB 312) passes and is signed by the Governor, it would go into effect on January 1, 2016.