• steve
• January 6, 2024
• 3 Comments

What the FTC’s Actions Tells Us About “Made in USA” Rules.

The Federal Trade Commission (FTC) is an agency of the Federal Government that’s in place to protect consumers from fraud. Generally, they do a decent job. Granted, I wish they would do more to regulate huge American companies with clearly abusive monopoly power like Google, Amazon, and Facebook. On the other hand, I don’t know anyone who’s died from snake oil poisoning lately, so they must be doing something right.

There is one ruling I’ve seen that’s been all over the media for the last year or two. It’s a company called “Lions Not Sheep” who was slapped with a fine of $211,335 on May, 2022. The case particularly drew my attention because of the sensationalist headline that the FTC put on their own Web site.

FTC Takes Action Against Lions Not Sheep and Owner for Slapping Bogus Made in USA Labels on Clothing Imported from China

Background on US Labeling Law

Since The Tariff Act of 1930, it’s been legally required that any product entering the United States from a foreign country be labeled with its country of origin. While the law hasn’t quite caught up with the realities of today’s globalized work (e.g., an item might have 100% of its parts manufactured in China, be assembled in Cambodia, and marked as “made in Cambodia”) it generally does a good job of helping you identify at least where a product’s final assembly happened.

Interestingly, there’s nothing in US trade law itself that requires a product that’s made in the United States AND sold in the USA to be labeled as much. If you see “made in the USA”, it’s either because the product is being exported to a country that does require country of origin labeling, or the manufacturer is using it as a way of marketing to take advantage of the high quality that made in the USA represents.

Over the years, certain industries have evolved to require more clear labeling of products in the USA, including textiles, wools, fur products, and automobiles. A number of food commodities also require mandatory country of origin labeling, although maddeningly, in 2015 Congress repealed the law for beef and pork.

Made in USA Labeling Rule

For years the FTC has issued guidance that any product bearing a “made in the USA” label must be “all or virtually all” made in the USA, but enforcement was rare.

This all changed on August 13, 2021, when the FTC launched their new “Made in USA” labeling rules. It didn’t really establish new rules, but restated and reinforced previous guidance that in order to make the claim that a product is made in the USA, it must be “all or virtually all” made in the USA.

This standard means:

• The final assembly or processing of the product must take place in the United States
• All “significant” processing are of US origin
• All or virtually all of the components are made and sourced in the USA

The FTC does permit for qualifiers, e.g. “Made in the USA of US and imported parts” or “Assembled in the USA”.

But as for “Made in the USA” they made clear that they would take violations seriously, seeking civil penalties up to $43,280 for each violation.

Is this rule realistic?

I’ll be honest. On its face, I like this rule. As someone who spends day and night tracking down country of origin of products, it irks me to no end to see companies—especially those from other counties—trying to pass off their products as made in the USA. You’ve seen them: companies that say things like “Proudly Designed in California, Made in China” or companies named “USA XYZ Company”.

But what troubles me is that the FTC seems to be spending all of its time going after small businesses. A $100,000-$200,000 fine that would be a rounding error for a big company could easily wipe out an entire small business.

Why, for example, are companies like Amazon allowed to openly misrepresent “not made in China” on their Web pages, a phenomenon that misleads thousands of more consumers in one day than these companies do in their entire lifetimes?

Lions Not Sheep Penalized by the FTC

If you’re not familiar with Lions Not Sheep, it’s a company out of Utah that sells apparel to what most would consider a far-right conservative audience. I admit, I don’t really “get” a lot of their merchandise; I’m pretty well-versed in the Bible, and the Bible says more about being as innocent as doves and wise as serpents than it does about being like lions.

Still, I “get” what they’re trying to say, and if their merchandise encourages more people to be leaders and not blind followers, more power to them.

In May 2021, less than nine months after issuing their updated rules, Lions Not Sheep got slapped with a $211,335 fine. Much louder than the fine was the media hype that surrounded the decision.

The FTC fanned the flames of outrage with sensationalist press releases, claiming that this company “Ripped ‘Made in China’ Tags Out of Apparel, Replacing Them with ‘Made in USA’ Tags”.

This started a media firestorm of left-leaning media mocking and lambasting Lions Not Sheep and in many cases calling for them—an American company putting Americans to work—to be put out of business. Sadly, this seems to be the new reality in America for treating companies the media and the current politicians in power doesn’t agree with politically.

The FTC seemed to enjoy piling on, issuing not just the press release above, but this one as well before it, as well as this one a year later boasting of how they “refunded” consumers who had been “defrauded”.

Lions Not Sheep’s Rebuttal

I did what the vast majority of people who read the sensationalist headlines didn’t do. I read Lions Not Sheep’s rebuttal.

The CEO of Lions Not Sheep explains what happened.

1. Like many companies of its kind, Lions Not Sheep buys “blanks” from wholesalers. These blank shirts come from many different countries. According to the CEO, the most common country was Nicaragua. In fact, he stated that he didn’t source blanks from China.
   
2. Like many companies of its kind, Lions Not Sheep removed the tags from the blank T-shirts and replaced them with their own.
   
3. It’s arguable that Lion’s Not Sheep did most “significant processing” of its products in the USA—this is where the designs are created, where a blank product was screened with the designs, and where the products are finished, packed, and shipped.
   
4. Until 2021, the FTC’s rules weren’t really clearly stated nor widely enforced.

In the case of Lions Not Sheep, they adhered to the first rule (“The final assembly or processing of the product must take place in the United States”) and to the second rule (“All ‘significant’ processing are of US origin), but not to the third rule (“All or virtually all of the components are made and sourced in the USA”).

If you were to follow the Tariff Act of 1930, you could say these were “made in the USA”. But if you were to follow the FTC’s guidelines, issued in 1997, you’d know that you couldn’t. Same too with the Textile Fiber Rule of 1959.

Of course, Lions Not Sheep found out the hard way that they goofed.

Who’s Watching the Watchdog?

While I applaud this rule and the work of the FTC in general, there was something off-putting about this case.

Hanlon’s Razor states that you should never attribute to malice that which is adequately explained by stupidity. In this case, the lawyers for Lions Not Sheep should have known that even if a textile was “substantially transformed” in the United States, you can’t put a “Made in USA” label on them.

Was it “fair” that the FTC went after them? Probably not—look at the political makeup of the FTC, and it’s not surprising that this company was specifically targeted to be made an example of. Worse, from the FTC press releases, you can see there’s a bit of immature swagger going on from government officials who you’d hope would act more like a servant of the people vs. petty tyrants.

In my research, I’ve seen hundreds of examples of textile products that say “Made in the USA” which I don’t believe could possibly be given their price point. Most likely, they make the same assumptions as Lions Not Sheep did—they get their “raw materials” from overseas and do the screening in the US. I don’t see the FTC going after them.

Similarly, I see multi-million dollar manufacturers of vitamins, supplements, and processed food that don’t disclose their sourcing for raw ingredients, and yet are allowed to print “Made in the USA” on their labels. I don’t see the FTC pushing for greater transparency there.

That doesn’t seem “fair”, and it certainly doesn’t help bring more transparency to consumers.

But of course as a conservative company Lions Not Sheep should have known they’d be targets, and they should have been all the more buttoned up.

What’s tragic about this situation is that what could have been a learning experience clarifying years of confusion around country of origin labeling ended up being yet another bash-fest as hundreds of media outlets picked up the FTC’s press release.

What should the FTC be doing?

It would be nice if instead of just slapping a fine on these companies, the FTC would work with them more to educate them and others, not just about how to be compliant with the rule, but also how to do business in a country that has all but killed its own manufacturing ability.

Today’s reality is that most manufacturing has been shipped overseas. I’m sad when I drive by small towns in upstate New York that used to be thriving centers of manufacturing but are now ghost towns, with old factory buildings that have been shut down and are overgrown with weeds. History will look back and show how foolish it was for America to have squandered so much of its manufacturing.

So if you’re a company attempting to sell T-shirts, or make air fryers, or make baby clothes, it’d be nice if the FTC could be a little more constructive in helping companies figure out how to grow, rather than just slapping fines.

In fact, they do have a Web site with guidance for companies who want to promote their products as “made in the USA”, but as is typical with government Web sites not many people spend their time reading them. So instead of slapping fines on companies that don’t adhere to the law, why not instead partner with them? As a “settlement”, ask them to write content for your Web site that tells the story—in their own words—of how they made the mistakes they did, and how they intend to correct them. That would help a ton more small business owners.

Questions the Media SHOULD be Asking

I’m not here to defend Lions Not Sheep nor to bash them. I just want to figure out what we can learn from this situation.

I don’t think this company set out to commit fraud, as the FTC’s press release states over and over using charged words like “phony”, “bogus”, “deceptive”. More likely, this company just got confused because it mistakenly believed that because “substantial transformation” of the product was done in the US, it could legally label its products as made in the US. That was mostly true as a de-facto rule until the August 2021 announcement.

But again this company, especially in this political environment, should have known better. Ironically, while the FTC cites their violation of the Made in USA Labeling rule, their practice actually is more of a violation of the the Textile Fiber Rule of 1959.

Like I said, the worst part of all this is that there wasn’t ONE person in the media who posed the real and important questions.

• If I’m a small business wanting to produce something “Made in the USA”, how do I go about it, other than doing what I think is best and waiting for the FTC to slap a fine on me?
  
• For T-Shirt makers in particular, am I allowed to cut off the label from the manufacturer of the blank product and put my own label on?
  
• Will the very concept of “Made in America” even mean anything when virtually all components of all products are made in other countries?
  
• What can a company do when the origin of its components cannot be identified?
  
• What is the Federal Government doing to help American manufacturers and brands better connect with American suppliers, and to make sourcing within America more affordable? Heaven knows China is doing an unbelievably good job at this. Why can’t the US?
  
• How does a small business in America who wants to provide SOME jobs and bring back SOME manufacturing to America survive in a world where big corporations allow China to monopolize all production?
  
• There were maybe a few dozen people who were misled by Lions Not Sheep. There are HUNDREDS of government employees being misled by GSA Advantage, and MILLIONS of consumers being misled by Amazon and Google. Punishing small businesses that hold a different political viewpoint may be satisfying, but wouldn’t the consumer be better protected if the FTC held these organizations to account?

These are all questions our media and our politicians should be asking.

As far as T-Shirts go, the problem is that there’s no single source to go in order to find what’s legal and what’s not with respect to relabeling. The best I could find was this online forum where other T-shirt makers debate and discuss their interpretations of law, specifically the Textile Fiber Rule. Someone at Lions Not Sheep probably would have done well to read these guidelines carefully, as should anyone else who wants to start a T-shirt business.

Here’s the FTC’s official site on compliance with Made in USA Standards.

Here’s where you can see letters that the FTC sends to companies that make what they believe are false made in USA claims.

What I find unfortunate about most of these letter is that they come off like “cease and desist” letters, when in many cases I’ve seen, the error was simply one of misunderstanding the Federal Government’s own rules. This will likely have a chilling effect in the future; companies that employ American workers in American factories will probably no longer disclose any information about country of origin at all so they don’t run the risk of breaking a regulation that the Federal Government put in place. As someone who spends most of his day researching country of origin, that would be an unfortunate outcome.