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Companies falsely labeled products ‘Made in USA.’ Their financial penalty? $0

[WASHINGTON] Patriot Puck, a New York-based company, wrapped its hockey pucks in American flags, declaring them "The Only American Made Hockey Puck!"

The mattress firm Nectar Sleep, founded by Silicon Valley entrepreneurs, promoted its mattresses as "designed and assembled in the USA."

Two California-based manufacturers of deployment bags, tactical gear and other merchandise marketed to active and retired US military personnel sold the products online as #MadeInUSA, and inserted "American Made" tags into its products.

In reality, most of the products were manufactured entirely in China, according to the Federal Trade Commission.

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Last fall, the FTC determined that all four companies had violated federal law by engaging in "unfair or deceptive acts" and falsely marketing their goods as American-made.

But while US President Donald Trump has accused China of destroying American jobs and prioritized strengthening US manufacturing, his appointees at the FTC did little to punish the firms. The companies faced no fines and were not required to admit any wrongdoing or to notify customers of their false marketing. The trade commission entered into proposed consent agreements with each firm barring them from falsely marketing their products with the threat of fines if they violated the agreement. A final decision on the penalties is expected in the coming weeks after a public comment period ends.

The trade commission's treatment of the companies has angered Democratic lawmakers, who are urging the Trump administration to pursue tougher punishments for companies that profit by producing products in China and falsely labeling them as American-made.

"We call on the commission to do more to protect American manufacturers and consumers," a group of senators wrote to the FTC last month. Senators Chris Murphy of Connecticut, Sherrod Brown of Ohio and Tammy Baldwin of Wisconsin asked the agency to "provide specific insights about the commission's decision to seek no consequences in these brazen instances of fraudulently labeling goods as ‘Made in the USA.'"

From the campaign trail to the White House, Mr Trump has directed much of his focus to rebuilding American jobs and industries. In April 2017, Mr Trump signed a "Buy American and Hire American" executive order, with the goal of promoting the use of "American-made goods and to ensure that American labor is hired to do the job."

Mr Trump has put a particular focus on revitalizing American manufacturing, which he says has been decimated by cheap Chinese labor and materials.

That has Democrats questioning why the agency is not being more aggressive in going after US firms that manufacture their goods in China.

"Many companies that manufacture at home are already treading water," Rohit Chopra, a Democratic FTC commissioner who disagreed with the decision, said in an interview. "American companies shouldn't lose out to corporate cheaters who lie on their labels."

Mr Brown, who is considering running for president, said the agency's penalty did not match the severity of the companies' behavior.

"If companies that break our laws do not face financial penalties, then our American manufacturers are severely undermined," Mr Brown said. "We need stronger enforcement by the FTC and greater transparency when it comes to the commission's actions to crack down on these violators."

Some agency officials, including one of its two Democratic commissioners, defended the settlement, saying the threat of future penalties was a strong deterrent. The companies face a US$40,000 penalty per violation if they are caught making false claims again. And officials said the agency did not seek monetary relief, in part, because there was no "price premium," meaning the goods were not more expensive than similar products sold by competitors, who also imported their products but did not falsely label them as American-made.

"In our view, a thoughtful review and forward-looking plan is a more effective and efficient use of commission resources than reopening and relitigating the cases before us today," Joseph J. Simons, the FTC chairman, and Rebecca Kelly Slaughter, a Democratic commissioner, wrote in a statement in September.

But at least one company has complained to the commission, alleging in a letter that the backpack manufacturer's misleading claim cost it lucrative contracts. "Sandpiper caused confusion to at least one organizational buyer at the Army and Air Force Exchange Service looking for ‘Made in the USA' products," Alan Watts, a lawyer representing a competing company, Advantus, wrote to the commission in October. "This caused a very real unfair competitive disadvantage to Advantus whose compliance with the law caused it to lose sales."

The FTC has a long history of weak enforcement in "Made in America" cases that preceded Mr Trump's tenure. The commission lists on its website 26 "Made in America" cases it has reviewed since 1999. In some of those cases, companies have agreed to a monetary settlement. In 2016, for instance, Chemence, a specialty chemical company, agreed to pay US$220,000 to resolve an agency lawsuit. But in many other cases, the settlements required only record-keeping and reporting requirements to make sure companies did not violate the law again.

The commission first found out about the false "Made in America" claims made by the four companies in question through a dedicated complaint line, according to James Kohm, associate director of the enforcement division for the Bureau of Consumer Protection.

Mr Kohm, in an interview, noted that Patriot Pucks went out of business shortly after the FTC's first ruling in September, and Sandpiper, one of the tactical gear manufacturers, was sold to a new owner last fall while the company was involved in litigation with the commission.

"We've reached a preliminary agreement, whereby the company has not been required to admit any liability," said a lawyer representing Piper Gear, the second tactical gear-maker. He said he could not comment further because the settlement was not final.

After a public comment period, which included the questions from lawmakers on Capitol Hill, the commission is expected to issue a final notice on the cases in the coming weeks. The senators, along with Mr Chopra, are pressing to change the settlement to further penalize the wrongdoers.

"The commission should consider remedies tailored to the individual circumstances of the fraud, including redress and notice for consumers, disgorgement of ill-gotten gains, opt-in return programs, or admissions of wrongdoing," Mr Chopra wrote in a dissenting statement.