Regulation "Made in USA"

June 10, 2006 12:50 PM by S.M. Oliva | Other posts by S.M. Oliva | Comments (5)

The Stanley Works was fined $205,000 this week by the Federal Trade Commission for advertising a line of wrenches as “Made in USA,� when, according to FTC officials, the tools contained parts “of foreign origin.� Since 1997, the FTC has maintained strict rules on how companies can employ a “Made in USA� label. According to an FTC “Consumer Alert� on the subject, “[s]ince the terrorist attacks of September 11, news reports suggest that consumers are more sensitive to ‘Made in USA’ claims and more interested in buying American-made goods.�

The FTC’s complaint against Stanley said, “[c]onsumers throughout the United States have suffered substantial monetary loss as a result of [Stanley’s] unlawful acts and practices. In addition, [Stanley] has been unjustly enriched as a result of its unlawful practices.� Despite the rhetoric, the complaint doesn’t cite a single example of actual consumer injury. The FTC’s rules require Stanley to prove its advertising is not false or misleading, not for the Commission to prove someone’s rights were violated by fraud or force.

And despite the FTC’s concern for injured consumers, the $205,000 fine will not be used to compensate anyone who inadvertently purchased un-American wrenches with “foreign� parts. The fine simply goes to the U.S. Treasury.

Cases like this demonstrate the absurdity of trying to regulate advertising through force rather than markets. The First Amendment protects all speech, even advertising that may contain misleading representations. After all, if the standard applied to Stanley applied to political speeches, then every politician and activist could be fined for statements that may mislead even a single person. (Nor is this a valid example of Congress regulating commerce under Article I, because the FTC’s rule does not apply to the actual exchange of goods, but subjective speech that might lead to a future exchange.) It’s impractical for the state to punish “misleading� speech in the absence of actual injury. A decentralized market—which incorporates both goods and speech—is far more effective in dealing with advertising exaggerations and even outright lies.

It’s particularly problematic for the state to impose central standards for secondary advertising claims, such as a “Made in USA� label. While there may be some buyers who value such labels, it’s impossible for the government to know how many people genuinely purchase a product based on the country of origin. The history of markets suggest buyers look at price and product quality over country of origin.