Changing Rules

Let's begin with the efforts to change the FTC regulations. Recently, the New York City-based Richline Group and the International Precious Metals Institute (IPMI) collaborated on a white paper titled Manufactured in America but Not "Made in USA": How the Federal Trade Commission Banned Precious Metal Products Manufactured in the United States from Being Labeled "Made in USA." Endorsed by numerous industry associations (including MJSA), the paper is the industry's latest effort to amend the regulations, or at least apply them in a fairer way. (The last effort was made in 2014; see "Made in the USA: A Special Report," Oct. 2013 MJSA Journal.)

This white paper presents a new and more detailed plea for dropping the "all or virtually all" rule in favor of "substantial transformation." As it points out, most U.S. agencies (including U.S. Customs and Border Protection) use the transformation standard in determining a product's country of origin. In essence, if an imported good is used to help create "a new article with a different name, character, and use" (to quote Customs), the point of origin is wherever that transformation takes place. The white paper describes the FTC as "an outlier" in relying on the "virtually all" standard—although that wasn't always the case.

The white paper submitted to the FTC presents a new and more detailed plea for dropping the "all or virtually all" rule in favor of "substantial transformation."

Mark Hanna, chief marketing officer at the Richline Group and a longtime advocate for changing the FTC standards, explains that the commission had recognized the lack of flexibility in its regulations back in May 1997. Prior to that time, the FTC guidelines said products had to be "wholly domestic" to qualify for the "Made in USA" label—it could contain only a small amount of finished content. After conducting substantial consumer perception research and reviewing other consumer research submitted by commenters, the FTC proposed a significant revision to the then-standard: products claiming to be Made in the USA would have to be "substantially" made in the United States.

He points out that the commission had proposed two safe harbors to meet this standard. The first required that the last substantial transformation of the product take place in the U.S. and that at least 75 percent of manufacturing costs be of domestic origin. The second one would become available if the last substantial transformation of the product and of each of its significant parts occurred in the U.S. "The FTC believed that the results of the consumer perception studies warranted this revision," Hanna remembers.

When posted for public comment, the proposal received more than 1,000 comments against the change, on the grounds of job protection and truth-in-advertising. In the face of such resistance, the FTC opted for the current "all or virtually all" standard. "My opinion is that they had it correct with their first adjudication, including the safe harbors," Hanna says. "The U.S. Customs rules are fully based on the concept of substantial transformation, and these U.S. agencies [Customs and FTC] should be fully harmonized."

In making its argument, the new white paper also points out that U.S. laws and treaties "uniformly recognize and apply the substantial transformation standard." As an example, it cites the American Recovery and Reinvestment Act (ARRA) of 2009. ARRA, it notes, "requires Government agencies to buy steel made in the United States for government-funded construction projects. The standard of origin is for the steel to have been 'melted and poured' in the United States. The legislation requires no certification as to the origin of the scrap." In essence, if the steel was fabricated at a U.S. mill, it's of U.S. origin.

Guidance issued for ARRA's "Buy American" requirements include three criteria for determining when substantial transformation has taken place:

• There is a change in the physical and/or chemical properties or characteristics designed to alter the functionality of the good.
• The manufacturing or processing operation results in a change of a product's use.
• The manufacturing or processing operation results in the narrowing of possible uses of a product.

If the FTC used those points to determine the origin of jewelry metals, the white paper argues, the "Made in USA" labeling would become much easier. When you compare a nugget of freshly mined gold ore with a finished gold ring, there's little doubt that the ore's functionality and use has changed, and its possible uses have narrowed dramatically. ("Refined gold can be used in many applications; a gold ring has only one use," the paper states). In fact, little can be done with that mined gold before refining.

"It doesn't matter where the scrap or mine material came from; the origin in usable form is where it is refined," says Mike Riess, a past director of IPMI (where he served on the Environmental and Regulatory Affairs Committee) and the president of Materials Management Corp. in Greenwich, Connecticut. He notes that precious metals can be used only after they are transformed through thermal reduction and chemical refining: "Refiners blend, melt, and dissolve scrap with other refining materials, and scrap is nearly always of indeterminate origin."

In essence, refiners transform and add value to the raw metal they receive, and jewelry designers and manufacturers then transform that metal into wearable jewelry. "Companies in the U.S. that manufacture and add value here should be able to label their products 'Made in USA,'" Riess says. "It doesn't matter where the commodity raw material comes from."

When you compare a nugget of freshly mined gold ore with a finished gold ring, there's little doubt that the ore's functionality and use has changed, and its possible uses have narrowed dramatically.

This past March, the Richline Group submitted the white paper to the U.S. Department of Commerce, following a call for comments on how federal regulations are affecting domestic manufacturing. The paper was also sent to nearly two dozen members of Congress and, in early May, to the FTC itself. Whether the paper will fare better than the 2014 petition remains to be seen, but Hanna is optimistic.

In 2014, he says, the commission refused to grant the "Made in USA" status to metals recycled in this country on the grounds that the claim would be deceiving the consumer: It cited a consumer survey showing that a third of the respondents believed 100 percent of the materials in a "Made in USA" product should originate in the United States. That survey had been commissioned by the Richline Group, and Hanna still shakes his head at the FTC's response.

"The FTC has chosen a single fact from that study to justify their position," he says, while they ignored the flip side of the statistic: that nearly two-thirds did not think it mattered if some of the materials originated elsewhere. "Something can be called 'Made in America' if the product was actually created here," he says.

Hanna added that the survey's full executive summary stated, "At least four in five Americans agree that the same standard for 'Made in America' should apply across all government agencies (92 percent), across all countries (90 percent), and across all products (84 percent)." The recently submitted white paper re-emphasized these results.

What's a Jewelry Maker to Do?

Until the FTC guidelines change, jewelry designers and manufacturers still must abide by them to avoid risk. As Stevens notes, violating the FTC regulations around "Made in USA" claims could entail painful repercussions. At minimum, a company would receive a "cease and desist" letter, but it might not end there.

"Several things could happen, including being sued by a competitor, or civil enforcement from the FTC, which will start with a request to fully review your books and records," she says. If found in violation, the company would most likely be fined and required to do corrective advertising, she adds.

For jewelers who want to minimize their risk as much as possible, the first step is to become familiar with qualifiers that refer to the fact that not all materials in their jewelry originated in the U.S. Among the options Stevens suggests are "Made in the USA from the world's finest materials," "Assembled in the USA," "Designed in the USA," and "Assembled in the USA from exotic materials from around the world." As an example, she cites Apple: Since the company makes its iPhones, iMacs, and other products in China, it uses "Designed by Apple in California" labels.

However, while it's acceptable to say that something is "designed" or "assembled" in the U.S. without further qualification, the same isn't true for "built"—as Shinola found out last year. The manufacturer of watches, bicycles, and leather goods, touted in the media as a symbol of manufacturing's revival in the United States, had often used "Built in Detroit" as a slogan—quite simply because, since its start in 2011, it had been building its products in that city. But in June 2016, the FTC informed Shinola that it cannot use that description without qualification, since the company includes Swiss, Chinese, and Thai components in its watches. Today, although the company talks about bringing manufacturing jobs to Detroit, it's changed its slogan to "Let's Roll Up Our Sleeves."

Stevens also cautions against the use of images to convey "Made in USA" without qualification. She confirms FTC attorney Julia Ensor's assertion, found on the commission's blog: "Depending on the context, U.S. symbols or geographic references (for example, U.S. flags, outlines of U.S. maps, or references to U.S. locations of headquarters or factories) may convey a Made in USA claim either by themselves or in conjunction with other phrases or images. Implying a false Made in USA claim is just as illegal as making a false claim flat-out."

To adhere to current FTC regulations, Gumuchian, which designs and manufacturers its jewelry in New York City, labels its products as "Made in Manhattan with the world's finest materials."

The key phrase here is "depending on the context," and Stevens acknowledges the difficulty of establishing a definitive guide. It is, as she characterizes it, a "live issue," one that could change with the next FTC ruling on what exactly "virtually all" means.

In the meantime, she says, all jewelry manufacturers can do is recognize the risks in the language they use.

Promoting Homegrown Roots

Of course, many companies still promote their U.S. origins—some out of pride, some because it's important to their customers. Take the example of New York City-based Gumuchian. The luxury jewelry manufacturer has long promoted its U.S. origins, albeit carefully. Jodi Goldsmith, Gumuchian PR and marketing director, says that the company uses the phrase "Handcrafted in Manhattan with the world's fi nest materials" in all of its print and digital ads.

"Our standards of quality are most important, and having the manufacturing in our Manhattan office gives us complete control of the jewelry that we create, ensuring that it meets our strict standards for perfection," she says. "We take pride in designing and manufacturing in the New York City community."

It's not surprising, then, that when the New York City Economic Development Corp. (NYCEDC) created a public initiative, "Made in NY: Fashion," Gumuchian applied. NYCEDC established the program with the goal of "celebrating and strengthening New York City's world-class fashion design and manufacturing community." Local companies that manufactured apparel, accessories, or jewelry as well as met the initiative's qualifications (which included a rule to "design, finish, embellish, or produce 75 percent or more of qualifying products in New York City"), could display a "Made in NY" logo.

Gumuchian qualified, and it does display that logo—alongside with their statement about "the world's fi nest materials." Because even though it follows the rules established by the NYCEDC, it still must consider the FTC—and, as Stevens notes, the "Made in NY" may fall into the same category as Shinola's "Built in Detroit."

Regardless of the qualification, the NYCEDC program still acted as a potent marketing technique, Goldsmith says, and the response has been tremendous. "Many of our retail partners shared the qualification on their social media platforms, showing that they too care where the product comes from that they carry in their stores," she says. "Several industry-related publications shared the news in their newsletters and online. It has always been important to us to let consumers know that our pieces are designed and manufactured in New York, making the certification an extra bonus and, in turn, resulting in consumer confidence at a time when people want to know where the products they purchase are made."

Alex Woo of Alex Woo Jewelry is proud of the fact that her company's jewelry is designed and manufactured in New York City, and she wants the FTC to loosen its "Made in USA" labeling demands.

Alex Woo, owner of Alex Woo Jewelry in New York City, also believes in promoting her company's New York City roots. She is proud of the fact that all of the jewelry was designed and manufactured in the company's workshop in the heart of Rockefeller Center. However, she wants more ease in promoting that fact, and feels the FTC needs to loosen its demands.

Woo says that she once attended a talk given by Jacques Panis, the president of Shinola. During his speech, Panis delivered an anecdote about the FTC's demands to know where the cows, whose hide was used for the company's leather handbags, were born. The connection to the commission's similar focus on precious metals and gems was obvious, and Woo found herself agreeing with the points he was making on the need for the FTC to encourage jewelers and not work against them. Woo feels that running a business is already a trying endeavor, and these regulations are creating additional challenges for small entrepreneurs.

"Penalizing and fining businesses is not an incentive," she states. "The FTC needs to work with companies to encourage them to manufacture here and not create barriers or obstacles."

A sentiment with which many in the jewelry industry would undoubtedly agree.