What Qualifies as 'Made in USA'? New Balance Fights for Its Sole

THERE you are, gliding down the black top in a Ford Taurus digging on Hootie and the Blowfish. Beneath you, a set of Goodyear steel-belted radials hugs the road. You're wearing a spanking-white T-shirt and baggy blue jeans purchased at the Gap.

Feeling good. Supporting the home "Made in America" team.

Slow down, James Dean. Check the label.

The hubcabs say Ford, but some of those parts under the hood bear "Made in Japan." The tires, made in Ohio, include a healthy dose of Asian rubber. The clothes tags read: "Assembled in Honduras from USA Components."

What's domestic, what's foreign? And who cares? In a global economy, where a domestic whole may be the sum of international parts, some United States manufacturers are having a hard time making a valid claim that buying their goods means buying American.

That's because the federal government has long said that for a product to carry the "Made in USA" label, all or virtually all the labor and components must be of US origin.

Proponents of that standard say it protects consumers from deceiving labels. Critics say the standard is out of step with global manufacturing and undermines the ability of US companies to make goods competitively at home.

But that may be about to change. For the first time in 50 years, the Federal Trade Commission, the agency responsible for policing manufacturing claims, has decided to review what "Made in USA" should mean in a global economy.

What triggered the FTC review? New Balance athletic shoes.

"About 70 percent of the components in our shoes is domestic," says Jim Davis, owner of the Boston-based company. "If the FTC says virtually all of a product must be domestic, nothing qualifies as 'Made in the USA.' How does that make the guy on our factory floor feel?"

Mr. Davis's problem is rubber. Unlike some competitors, which thrive on cheaper labor overseas, New Balance has four factories in New England that employ about 750 workers. The company makes roughly 3 million pairs of athletic shoes each year in the US and relies heavily on domestic components.

But rubber isn't grown in North America, so Davis has to go to Asia to buy his soles and midsoles. And that got New Balance into trouble with the FTC. Last fall, the federal agency sued New Balance over several advertisements claiming that the shoes where American-made. A similar suit was pending against a competing brand, Saucony (manufactured by Hyde Athletic Industries Inc. in Peabody, Mass.), over similar marketing claims.

The New Balance case was scheduled to go before an FTC administrative law judge today, but last week the agency postponed the suit while it and industry groups explore whether the FTC should redefine the "Made in USA" distinction.

"A number of comments came in suggesting that the FTC take a fresh look," says Jodie Bernstein, director of the Bureau of Consumer Protection at the FTC. "The way goods are manufactured and sold is far different than 50 years ago." The New Balance and Saucony cases were the first such suits in more than a decade.

Part of what is driving the new look is confusion over just where the line is now drawn. While the FTC requires that "virtually all" of a product be made in America, US Customs agencies require that only 50 percent be made here. The North American Free Trade Agreement requires that 55 percent of labor and components be continental.

A number of US laws relating to specific industries further confuse the issue. Automobile and textile manufactures, for example, are required to use labels that indicate whether labor or parts are of foreign origin. But a broad swath of US industry is governed by a number of federal agencies on a case-by-case basis.

"Jurisdiction varies," says Clyde Prestowitz, president of the Economic Strategy Institute, a Washington think tank. "The Food and Drug Administration, Commerce Department, Justice Department, and FTC all have enforcement jurisdiction. The varying labels enable consumers to determine whether the products they buy are made in the US."

Is that an important consideration for consumers, and should it be? Lester Thurow, an economist at the Massachusetts Institute of Technology, says the answer depends on the industry.

"Certainly, if an American firm makes a product abroad, it contributes less to the standard of living in the US," he says. "But it depends on what kinds of jobs we want to make available here. Some products are better to made abroad. If a product leads to new technology, better to have it here." That would include any high-tech product. But in the case of lower-wage industries, such as running shoes, he says, "what the consumer saves [from lower production costs] is more important" to the standard of living.

Davis, however, argues otherwise. "We pay a very good wage. If you look at the location of our factories, there are no silicon chip factories around," he says. "And what happens if no more shoes are made in this country, and we go to war? Are we going to ask the Chinese to make boots for our soldiers?"

As for whether consumers are drawn to American products, little empirical evidence exists. But Jon Harmon at Ford Motor Company puts it this way: "We think that all things being equal, people want to buy American."