Neville Peterson LLP: Customs and International Trade Law

March 1, 1998
M E M O R A N D U M
TO: Clients and Friends of the Firm
FROM: John M. Peterson
Neville Peterson LLP
RE: FTC Amendments to Textile, Wool and Fur Products Labeling Regulations -------------------------------------------------------------------
I. INTRODUCTION
        The Federal Trade Commission (FTC) has published a final rules amending its regulations under the Textile Fiber Products Identification Act , The Wool Products Labeling Act and the Fur Products Labeling Act. These regulations govern the labeling of textile and fur products imported, sold, or offered for sale in the United States, to show fiber content, country of origin, care labeling, and distributor information.

        This Memorandum briefly describes the FTC's rule changes, which become effective on March 16, 1998.

II. THE FTC RULE CHANGES
1. Use of Generic Names for Non-Functional Fibers Present in Small Quantities.

        Until now, the Textile and Wool Acts have forbidden the use of generic names to describe fibers accounting for less than 5% of a product's weight, unless the fiber had a specific, clearly identified function (e.g., "4% spandex for elasticity"). Non-functional fibers present in small quantities were required to be described on labels as "other fibers".

        The FTC's new rules will permit non-functional fibers present in quantities of less than 5% may be identified by their generic names (e.g., "4% polyester"). Furthermore, even if such fibers do have a functional significance, disclosure of the function will no longer be required.

2. Definition of "Trimmings" in Wool Act

        While "trimmings" are exempt from fiber content disclosures under the Wool Act, the regulations implementing that Act have never defined "trimmings". The FTC is now amending its Wool Act regulations [16 C.F.R. Section 300.1(k) to incorporate the definition of "trimmings" contained in the Textile Act regulations.

3. Elimination of "Reverse Side" Disclosure Requirement

        The FTC presently allows fiber content and identification (RN, WPL) numbers to be placed on the reverse side of a tag attached to a textile or a wool product, provided the front side of the label or tag bears the words "Fiber Content on Reverse Side". The FTC's new rules eliminate the need to put such language on the front side of a label, while continuing to allow fiber content and identification labeling to appear on the reverse side of a label, so long as the information is "conspicuous and accessible".

        In addition, the FTC's amended rules will allow fiber content information to appear on the reverse side of any label, not just textile labels. The FTC also clarifies that the required information may appear on care labels, thereby giving marketers additional flexibility in disclosing required information to consumers.

4. Adoption of ISO Standard on Generic Fiber Names

        The FTC currently maintains a list of generic names of fibers (e.g., "rayon") which may be used on labels pursuant to the Textile Act and Wool Act. The FTC's regulations also allow interested parties to make application for the establishment of additional generic names for manufactured fibers. See 16 C.F.R. Section 303.8.

        The FTC's final rule incorporates into the Textile Act regulations the International Standards Organization (ISO) Standard 2076: 1989, entitled Textiles -- Man-Made Fibers-Generic Names. Effective March 16, 1998, companies may label textile products using any of the generic fiber names established in the ISO standard (e.g., "viscose", instead of "rayon" or "elastane" instead of "spandex".)

        The FTC will continue to maintain its own list of registered fiber names, and will continue to allow the use of names which appear on the FTC's list, but which are not included in the ISO standard.   The FTC will also retain its petition procedure to allow acceptance of new generic fiber names not already included in the ISO standard.

5. Updating of RN Information

        Complaining that many holders of Textile Act registration numbers (Rns) have failed to update the information on file with the FTC regarding their business names, addresses, and corporate forms, the FTC has amended its rules under the Textile, Wool and Fur acts to subject Rns to cancellation if registrants do not file a new application reflecting current business information promptly after a change in any of the relevant information takes place.

        In this regard, the FTC notes that its RN database is now available for public inspection at the FTC's website, and urges firms to check their own data on file, to ensure that the data is current and to update it if necessary.

6. Country of Origin Labeling

        The FTC notes that, in recent years, there has been confusion between country of origin labeling requirements under its regulations, and the origin and marking rules administered by the United States Customs Service. In particular, the FTC's rules have frequently come into conflict with the rules of origin for imported textile products established under Section 334 of the Uruguay Round Agreements Act [19 U.S.C. Section 3592].

        Section 334 of the URAA deems many non-apparel textile products to originate in the country where their constituent fabric is formed, rather than in the country where the finished product is produced.

         Thus, for instance, where a scarf is made in the United States by cutting, hemming and decorating Chinese-origin silk, the FTC considers it appropriate to label the scarf as "Made in USA from imported fabric". However, under the Section 334 Rules, Customs would require the scarf to be marked "Made in China" or "Product of China".

        The FTC indicates that it has conferred at length with Customs, and that the agencies have now reached agreement to eliminate disparities in country of origin marking requirements. According to the FTC:

A U.S. manufacturer can comply with both requirements by identifying the country of origin of the imported fabric and the fact that the ultimate product was made in the U.S. for example, a scarf of Chinese silk that is cut, dyed, and hemmed in the U.S. could be labelled: "Scarf made in USA of fabric made in China." This label provides consumers with accurate information on the origin of the product as required by the Textile Act. It also identifies the origin of the fabric, consistent with the new URAA origin rules.

In this regard, the FTC states that "the labeling requirements under the Tariff Act, 19 U.S.C. 1304, apply only to imported articles of foreign origin; in this case, only the fabric (not the scarf itself) is imported and remains of foreign origin under the new URAA textile rules."

        While the FTC's formulation is sensible, the Customs Service has not always interpreted the marking requirements this way. In some cases, Customs has required textile products made in the U.S. from imported fabric to be labelled as a product of a foreign country, while in other cases, Customs has ruled that only the identity of the imported textile component need be disclosed (e.g.: comforter shell made in China: cut and sewn in U.S."). We recommend that importers and domestic manufacturers using imported materials obtain Customs rulings confirming the origin marking requirements applicable to non-apparel textile articles manufactured in the United States with imported fabrics.

7. Placement of Labels

        The FTC has historically required that, for garments featuring a neckline, a label containing required Textile or Wool Act information appear on a label sewn to the inside of the neck area, at a point approximately midway between the shoulder seems. The agency's rules also permit a label containing country of origin, fiber content and RN information to appear in another conspicuous location on the inside or outside of the garment, if the country of origin is also disclosed on a label affixed in the neckline. [In these cases, the country of origin appears twice on the garment].

        The FTC has determined that, where the origin appears on a label in the neckline, labels containing fiber content and RN information, and affixed at other parts of the garments, need not restate the country of origin. In addition, the FTC will allow fiber content and RN information to appear on the reverse side of the label, allowing greater flexibility in disclosures.

        The FTC's rules currently require that labels containing information be fastened to the garment in such a way that they reach the consumer. The FTC rejected a proposal that its rules be amended to require permanent labeling, for example to discourage textile transshipment.

8. Internet and Electronic Catalogs

        The FTC's rules require that where a textile or wool product is sold or advertised by means of a mail order catalog or mail order promotional materials, the country of origin must appear in such materials.

        The FTC has now amended its regulations to extend this country of origin disclosure requirement to catalogs appearing on the Internet, and on advertisements disseminated through the Internet and similar electronic media.

        In addition, the term "invoice", as used under the Textile and Wool Rules, has been modified to include invoices generated or transmitted electronically.

III. PROPOSED CHANGES NOT ADOPTED
1. New Specialty Wool Fibers

        The FTC determined that it was not necessary to amend the Wool Act regulation to permit products to be labeled with the names of new wool products produced by the cross-breeding of animal species, such as "cashgora", a fiber produced by breading female cashmere goats with angora males. The FTC responded that its current Wool Act Rules provide for the use of these names, and has incorporated in its regulations an illustrative list of such names.

         The FTC also rejected a proposal to allow the use of abbreviations of common fiber names in labels pursuant to the Textile and Wool Acts. The FTC has indicated that it will re-evaluate this issue if, in the future, the United States' NAFTA trading partners, Canada and Mexico, allow the use of such abbreviations.

2. Use of RNs in All NAFTA Countries

        The FTC sought public comment concerning whether companies should be able to use Textile Act registration numbers (RNs) or Wool Act Identification Numbers (WPLs) in all NAFTA signatory countries.   Because agreement among NAFTA countries would be required to allow such cross-border usage, and because statutory amendments would be needed, the FTC has taken no action with respect to this issue at this time.

3. Use of Abbreviations in Labels

        The FTC shelved a proposal to allow the use of abbreviations to identify countries of origin on labels (e.g., "CAN" for Canada or "MEX" for Mexico, on the ground that Customs regulations do not currently permit the use of such abbreviations. The FTC promised to revisit this issue when and if Customs amends its own regulations.

         The FTC also noted that it does not require the use of the words "Made in" or "Product of" in connection with a country of origin statement on the label. The FTC indicated that the use of such words is probably necessary only when more than one country's name appears on the label. In other cases, the fact that a product is made in a particular country can be indicated by a symbol, such as flag, followed by the name of the country.

IV. RECOMMENDATIONS AND CONCLUSIONS
        As noted above, the amendments made by the FTC's regulatory changes are effective March 16, 1998. For the most part, the rules will not affect labeling requirements for products already in commerce.

         However, we recommend that companies take the following actions to ensure that they are in compliance with the amended regulations:

Check the current status of their RN data, and file applications containing new data, if material elements have changed;

Review all internet or electronic catalogs and advertisements, to ensure that required country of origin information is posted thereon no later than March 16;

Review electronic invoicing programs to ensure that invoices reflect information mandated by the Textile and Wool Acts;

Seek Customs rulings, where appropriate, to confirm proper country of origin marking requirements for textile and wool products, and to ensure that these requirements conform with those of the FTC.

Copies of the entire FTC final rule are available from our offices. Please do not hesitate to call if you have any questions, or if we can furnish any additional information or assistance regarding the new rules.

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