FTC Cracking Down on ‘Rampant’ Made in USA Fraud

Trade Update • JULY 07, 2021

The Federal Trade Commission earlier this week finalized a new rule that is intended to crack down on companies who make false, unqualified claims in marketing their products as “Made in the USA.” Under the new rule, companies making such claims on labels should be able to prove that their products are “all or virtually all” made in the United States.

“By formally codifying this rule, the Commission has activated a broader range of remedies, including the ability to seek redress, damages, penalties, and other relief from those who lie about a Made in USA label,” Commissioner Rohit Chopra said in a statement. “The rule will especially benefit small businesses that rely on the Made in USA label, but lack the resources to defend themselves from imitators,” he emphasized.

Background

In announcing the crackdown, Chopra decried the bipartisan Commission’s “highly permissive policy” towards Made in USA fraud “where violators faced essentially no consequences whatsoever.”

“Even in cases of blatant abuse of the Made in USA label, Commissioners routinely voted to allow wrongdoers to settle for no restitution, no forfeiture of ill-gotten gains, no admission or findings of liability, and no notice to victims,” according to Chopra.

The Commissioner said that FTC’s decades-old policy in this regard had been “misguided” and that changes codified by the new rule were “long overdue.”

Scope of Coverage

Consistent with the FTC’s existing enforcement policy guidance, the new rule prohibits companies from including unqualified Made in USA claims on labels unless: 1) final assembly or processing of the product occurs in the United States; 2) all significant processing that goes into the product occurs in the United States; and 3) all or virtually all ingredients or components of the product are made and sourced in the United States.

The rule applies only to labeling claims, however, in a departure from past practice, the rule now also covers labels making unqualified Made in USA claims appearing in mail order catalogs or mail order advertising. Additionally, the FTC states that in some circumstances, labels appearing online may also be subject to the rule.

The FTC notes that will continue to bring enforcement action against marketers that make deceptive U.S.-origin claims falling outside the rule under Section 5 of the Federal Trade Commission Act.

Penalties

The FTC stresses that the new rule “does not impose any new requirements on businesses” but merely codifies a broader range of enforcement tools. In particular, it will enable the Commission for the first time to seek civil penalties of up to $43,280 per violation of the rule.

Note: The new rule does not supersede, alter, or affect any other federal or state statute or regulation relating to country-of-origin labels.

Need More Information?

Should you have any questions or concerns about this new FTC enforcement policy, don’t hesitate to contact one of our knowledgeable trade experts.