California abandons “zero-tolerance” approach to foreign content in products bearing “Made in USA” claims.

• As previously covered on this blog, a product may bear a “Made in USA”-type (MIU) claim in accordance with federal guidelines where “all or virtually all” of the product is made in the U.S.A.  In contrast, California’s MIU standard has been much stricter, prohibiting such claims if any unit or part of the product has been entirely or substantially made outside of the U.S.A.  Major lawsuits have been filed based on allegations that components or ingredients of manufactured products bearing MIU claims came from foreign sources, in violation of the “zero-tolerance” policy.
• California has enacted new legislation to revise its decades-old approach to MIU claims.  Under the new standard, products bearing MIU claims generally may contain up to 5% foreign content (measured as a percentage of the final wholesale value of the manufactured product).  Products may contain up to 10% foreign content where the manufacturer can show that it can neither produce nor obtain the foreign-sourced components within the United States.
• California’s new standard is more akin to the Federal Trade Commission’s “all or virtually all” standard, although with the added benefit of quantitative thresholds for how much foreign content is permitted.  In practice, it is not clear whether the new thresholds — which are fairly stringent themselves — will provide significantly greater flexibility to most domestic manufacturers.  Nevertheless, California’s abandonment of its “zero-tolerance” standard is being received positively by the industry and is likely to resolve a number of questions, issues, and challenges that pit the prior standard against the more flexible federal scheme.