Trade Compliance Flash: Federal Trade Commission Announces Largest Ever Penalty for Made in USA Violations
On January 25, 2024, the Federal Trade Commission (FTC) announced a $2 million civil penalty against an agricultural machinery company for violating the FTC's Made in USA (MUSA) Rule, the largest penalty for MUSA violations to date. Here is what you need to know:
FTC's Made in USA Rule
- The FTC regulates U.S.-origin claims in advertising and labeling pursuant to Section 5 of the FTC Act, which prohibits "unfair or deceptive acts or practices." U.S.-origin claims can be express (e.g., "Made in the USA" or "American-made") or implied, meaning context-specific and generally involving the use of U.S. symbols, such as flags, or references to U.S. locations.
- The MUSA Rule prohibits unqualified claims that a product, service, or a component is Made in the USA unless: (1) final assembly or processing occurs in the U.S.; (2) all significant processing that goes into the product occurs in the U.S.; and (3) all or virtually all ingredients or components are made and sourced in the U.S. Both express claims that products are "made," "manufactured," or "built," in the U.S. and implied representations fall within the scope of the Rule.
- The FTC began issuing larger civil penalties in 2020, signaling that MUSA Rule violations would face more robust enforcement. Although the FTC's enforcement of MUSA violations remains slow (there were only four cases initiated by the FTC in 2023 that resulted in monetary penalties), this is the second penalty against a publicly traded company since 2020.
- According to the FTC's complaint, the agriculture machinery company labeled thousands of the separately sold replacement parts for its products as "Made in USA," even though they were made entirely outside of the U.S. Since at least 2021, the company allegedly packaged foreign-manufactured products in boxes with "Made in USA" printed on them.
- The company is a repeat violator of the MUSA Rule. In 1999, the company entered into an Order with the FTC for MUSA violations, which expired in 2019. This previous enforcement indicates that the manufacturer had knowledge of the MUSA Rule but failed to comply.
- Under the latest Order, the company owes a $2 million civil penalty. The Order also requires the company to cease its deceptive labelling practices and creates recordkeeping and compliance reporting and monitoring obligations for the company.
- Consider "qualified" MUSA claims. Given the very high standard applicable to unqualified U.S.-origin claims and the increasingly real risk of financial penalties for non-compliance, the use of qualified U.S.-origin claims is sometimes more appropriate and worth considering. Examples of permissible qualified claims include: (1) claims noting the existence of foreign content ("Made in USA of U.S. and Turkish parts"); (2) claims specifying the amount of U.S. content ("50% U.S. content"); and (3) claims indicating the presence of imported parts ("Made in USA from imported cotton").
- We expect that the real threat of penalties will encourage others to denounce false or misleading U.S.-origin claims. If companies are concerned that their competitors are engaging in deceptive labelling practices, they can submit allegations to the FTC. The FTC prioritizes enforcement against intentional, repeat, or egregious offenders.
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