Yesterday, California’s Governor Brown signed SB 633 into law.  The new law exempts certain merchandise from the prohibition that merchandise being sold in California cannot be labeled with “Made in the USA” or similar words when the merchandise or any component has been entirely or substantially made outside of the United States.

Made in the USA?

The new California law will allow merchandise to be labeled “Made in the USA” if:

  • the foreign components or parts do not constitute more than 5% of the final wholesale value of the product, or
  • the foreign components or parts do 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 components or parts cannot be made, manufactured, produced or obtained within the U.S. may not be based on the cost of the components or parts.  The new law also clarifies that goods sold or offered for sale outside of California are not mislabeled as long as the labels conform to the law where they are sold or offered for sale.

The new California law will go into effect on January 1, 2016.

Impact on FTC standard

As we have previously discussed, California’s prior “Made in the USA” law was stricter than the standard set by the Federal Trade Commission.  While the new law offers some relief, it does not directly align with the FTC standard.  Manufacturers and retailers selling products in California and throughout the rest of the country will still have to deal with both standards.

Because the FTC has refused to apply a bright line test to its “all of virtually all” approach, it is possible that a product whose foreign components comprise more than the 5% or 10% limits could qualify for a “Made in the USA” label under the FTC standard.

This new law will also likely require companies seeking to label products that contain foreign parts or components as “Made in the USA” to work closely with their vendors to determine whether the foreign content exceeds the 5% and 10% thresholds, and, when the foreign content is up to 10% of the final wholesale value, to determine whether the components can be obtained or produced domestically.