So what exactly does the “Made in the USA” label on products and clothing sold in California really mean?  Starting on January 1, 2016, it means that not all of the parts of the merchandise with that label were actually made in the U.S.A.

Prior to 2016, California had the most stringent law governing “Made in the USA” labels on products, which made it unlawful for any entity to sell a product in California with the “Made in the USA” label when the product or any part of the product was made entirely or substantially produced outside of the U.S.  In other words, the general rule was that 100% of the product (including all of its components) had to be made in the U.S. in order to market it with the “Made in the USA” label in California.  This law generated many class actions in California.

Under amended California Business and Professions Code section 17533.7, California now allows the “Made in the USA” label if one of the following two criteria are met:  (1) If all of the foreign-made units or parts in a product is not more than 5% of the final wholesale value of the product; or (2) If all of the foreign-made units or parts in a product – that cannot be obtained from a domestic source – is not more than 10% of the final wholesale value of the product.  California Governor Jerry Brown signed this law to stop the tide of class actions filed in California concerning “Made in the USA” claims where tiny components of the end product were foreign-made, and to bring its law closer to the rules set forth by the Federal Trade Commission (“FTC”) .

All other states follow the FTC rules that “all or virtually all” of the product had to be made in the U.S. to have the “Made in the USA” label.  It is not a bright line test with strict percentages for foreign content (like the California rule), but rather is determined on a case by case basis.  In making this determination, the FTC first ensures that the final assembly or processing takes place in the U.S. and then considers the following three factors:

1. what portion of the manufacturing costs (e.g., total cost of manufacturing materials, direct manufacturing labor and manufacturing overhead) were attributable to foreign parts and processing;
2. whether the foreign parts and processing are significant or essential to the final product (e.g., inexpensive, yet essential foreign components [clip on a diaper; base on table lamp] cannot use an unqualified “Made in the USA” label; inexpensive, yet nonessential components [knobs on a grill; plastic case of clock radio] which make minimal contribution to overall functioning of a product can use an unqualified “Made in the USA” label); and
3. how far removed in the manufacturing process is the foreign component.

The FTC does allow qualified “Made in the USA” labels if the product cannot meet the standard above.  Some examples include: “Made in the USA from U.S. and imported products,” “Made in the USA of primarily domestic components,” “Made in the USA from imported leather,” or “Made in the USA predominantly of domestic fabric.”  A qualified “Made in the USA” label gives consumers an indication that not every part of the product contains components that originated from the U.S.  The FTC also allows for the label “Assembled in the USA,” if the product’s principal assembly takes place in the U.S. and the assembly is substantial (i.e., not a screwdriver assembly).

In short, businesses need to routinely check their “Made in the USA” labeled products to ensure compliance with both California and FTC laws in order to avoid FTC enforcement actions and class action litigation in California.