BILL ANALYSIS                                                                                                                                                                                                    Ó



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          Date of Hearing:   July 2, 2013

              ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER  
                                     PROTECTION
                              Richard S. Gordon, Chair
                     SB 12 (Corbett) - As Amended:  June 26, 2013

           SENATE VOTE  :   30-9
           
          SUBJECT  :   Consumer affairs.

           SUMMARY  :   Creates the Made in California Program (Program)  
          within the Governor's Office of Business and Economic  
          Development (GO-Biz) to promote products manufactured in  
          California, and authorizes GO-Biz to develop and adopt standards  
          that would permit a company to represent that a product is made  
          in California.  Specifically,  this bill  :   

          1)Declares the sale or lease of goods or services which  
            represent that a product is made in California if it does not  
            comply with the standards adopted by GO-Biz to be an unfair  
            method of competition and an unfair or deceptive practice or  
            act.

          2)Establishes the Program, a public and private collaboration  
            within GO-Biz, and declares that the purposes of the Program  
            are to encourage consumer product awareness and to foster the  
            purchase of high-quality products manufactured in this state.

          3)Authorizes GO-Biz to develop and adopt standards that permit a  
            company to represent that a product is made in California.  
            Those standards may include any of the following:

             a)   The company has a California-based workforce; and, 

             b)   The product must be entirely or substantially  
               manufactured in the state.

          4)Defines "manufacture" to mean the process of taking raw  
            materials or components and adding value to those materials  
            and components in order to create a final, recognizable  
            product. "Manufacture" does not include the process of  
            completing a final assembly from subassemblies made elsewhere,  
            or the act of packaging a product.









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          5)States that the Program and the standards shall not apply to  
            those agricultural products subject to the Buy California  
            Program, as specified. 

          6)Authorizes GO-Biz to issue and make effective a marketing  
            agreement, including but not limited to, issuance of a Made in  
            California label, and be advised by those California  
            businesses willing to participate in the Program on a  
            voluntary basis via funding or in-kind contributions in a  
            manner defined under the marketing agreement.

          7)Requires each company to apply to GO-Biz for use of the Made  
            in California label. 

          8)Authorizes GO-Biz to require a fee to accompany the Program  
            application. 

          9)Requires GO-Biz to determine the application fee, and  
            restricts that amount to the reasonable costs in providing the  
            services for which it is charged. Proceeds from the fee shall  
            be used to cover the costs of implementing the Program. 

          10)Permits GO-Biz to begin accepting applications prior to fully  
            developing and implementing the Program. 

          11)Authorizes GO-Biz to accept monetary donations or other  
            donations from businesses, nonprofit organizations, or  
            individuals for the purpose of implementing the Program. 

          12)Requires GO-Biz to report to the Legislature on January 1,  
            2015, and each successive January 1, regarding its  
            expenditures, progress, and ongoing priorities with the  
            Program, as specified.

          13)Establishes the Made in California Fund as a special fund in  
            the State Treasury consisting of the revenues contributed  
            pursuant to this bill, and, upon an appropriation of those  
            funds by the Legislature, to be available for purposes of this  
            bill.

           EXISTING LAW  :

          1)Prohibits unfair methods of competition, acts or practices by  
            any person which either results in or is intended to result in  
            the sale or lease of goods or services to any consumer, and  








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            enumerates several methods of unfair competition, acts or  
            practices. (Civil Code (CIV) Section 1770)

          2)Provides that any consumer who suffers damage as a result of a  
            practice declared to be unlawful under the Consumer Legal  
            Remedies Act (CLRA) may bring an action against that person to  
            recover damages, as specified.  (CIV 1780)

          3)Allows for a class action suit to be filed on behalf of a  
            class of consumers adversely affected by an unfair method of  
            competition, act or practice. (CIV 1781)

          4)Authorizes California to enter into marketing agreements and  
            to create the "Buy California Program." (Food and Agriculture  
            Code Section 58750)

          5)States that it is unlawful for any person, firm, corporation  
            or association to sell or offer any merchandise in California  
            that uses the words "Made in U.S.A.," "Made in America,"  
            "U.S.A.," or similar words when the merchandise or any  
            article, unit, or part thereof, has been entirely or  
            substantially made, manufactured, or produced outside of the  
            United States.  (Business and Professions Code Section  
            17533.7)

          6)Establishes GO-Biz within the Governor's Office for the  
            purpose of serving as the lead state entity for economic  
            strategy and marketing of California on issues relating to  
            business development, private sector investment and economic  
            growth.  GO-Biz also serves as the administrative oversight  
            for the California Business Investment Service and the Office  
            of the Small Business Advocate.  (Government Code (GC)  
            Sections 12096 - 12098.5)

          7)Establishes processes and accountability measures for GO-Biz  
            to accept private monies to fund, establish and operate  
            international trade offices.  (GC 13997)

           FISCAL EFFECT  :   Unknown

           COMMENTS  :   

           1)Purpose of this bill  .  This bill would create a public-private  
            partnership Program within the Governor's GO-Biz office to  
            promote the marketing of products manufactured in California.  








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            SB 12 would authorize the Program to develop and adopt  
            standards for representing a product as "Made in California,"  
            and require products using that term to be approved by the  
            Program or be subject to legal action.  The Program would also  
            engage in voluntary marketing agreements to promote  
            California-made products paid for by participants or other  
            donors.   This bill is author-sponsored. 

           2)Author's statement  . According to the author's office, "This  
            much needed statewide marketing strategy can help our small  
            businesses maintain [a] competitive edge against businesses  
            that decide to manufacture out of the state or even out of  
            this country and thus bringing the jobs with them.

            "California businesses need a unifying brand targeted at  
            consumers who care about CA jobs, the environment and quality.  
            This label assures consumers that the product was manufactured  
            in CA and carries the excellence and standards that this state  
            offers.  

            "Manufacturers that embrace California's high quality, safety,  
            and environmental standards as a vital component of their  
            business strategy should have this marketing advantage. The  
            myriad of similar products on the market make it difficult for  
            consumers to differentiate between products that are made in  
            California versus elsewhere."
             
           3)The Buy California Program  .  In 2001, the "Buy California  
            Program" was created within the Department of Food and  
            Agriculture to boost consumption of California's agricultural  
            commodities and provide resources to growers of specialty  
            crops.  The Buy California Program addresses research,  
            agricultural education, nutrition, food safety and pest and  
            disease eradication to provide safe and nutritious food in a  
            fair marketplace with responsible stewardship of the  
            environment.  

          Within the Buy California Program is the Buy California  
            Marketing Agreement (BCMA), which was created in 2001 to be a  
            joint effort of agricultural industry groups representing the  
            products of California's farms, ranches, forests and  
            fisheries. Working as an advisory board to the California  
            Department of Food and Agriculture (CDFA), BCMA brings  
            together industry and government resources to increase the  
            awareness, consumption and value of California agricultural  








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            products.  

          BCMA also oversees the popular "California Grown" campaign.  The  
            "California Grown" campaign is funded through public and  
            private contributions by the U.S. Department of Agriculture,  
            CDFA, and California agricultural organizations.   

          The author of this bill asserts that other products made and  
            produced in California, many by small businesses, would  
            greatly benefit from another California labeling program.   
            However, unlike the Buy California Program, which also  
            provides research, agricultural education, nutrition, food  
            safety and pest and disease eradication, the program  
            envisioned by this bill would be exclusively a marketing  
            effort.   

          This bill would also add a new category of unlawful conduct  
            under the Consumer Legal Remedies Act and designate it an  
            unfair or deceptive trade practice for anyone to represent  
            that a product is made in California unless the product  
            complies with the standards adopted by GO-Biz.

           4)Existing 'Made in California' programs  .  There are several  
            existing for-profit and nonprofit marketing programs that  
            promote California-made products:  

            California Manufacturing Technology Consulting (CMTC) is a  
            non-profit corporation affiliated with the National Institute  
            of Standards and Technology (NIST) that operates a "Made in  
            California" program to recognize manufacturers who produce  
            products in southern California.  CMTC's "Made in California  
            Program" is marketing program that offers manufacturers who  
            make products in California visibility through the CMTC  
            website (  http://www.cmtc.com/made-in-california-program  ).  

            Manex Inc. operates a similar manufacturing promotion program  
            for products manufactured in northern California.   
            (  http://manexconsulting.com/made-in-ca/  ) 

            There are also other outlets that promote "Made in California"  
            goods, such as  www.madeincalifornia.net  ,  
             www.americansworking.com  , and  www.shopcal.com  .  

            However, there is currently no official definition for what  
            constitutes "made in California."  Consumers may seek  








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            compensation to recover damages for buying a product that is  
            not made in California through the Consumer Legal Remedies Act  
            (CLRA).  CLRA prohibits unfair methods of competition, acts,  
            or practices by any person.            

           5)Comments for the Committee  .  The Committee may wish to take  
            the following issues into consideration:

              a)   Unrestricted fee authority; restricted use of standards  .  
                This bill takes the unusual step of granting unrestricted  
               fee authority to GO-Biz, when the more common practice is  
               to approve a fee range to ensure affordability and some  
               measure of Legislative oversight.  While the bill does  
               state that the fees required by this bill may only be used  
               to pay the "reasonable costs" of implementing the program,  
               that fee amount remains completely unknown.  

             Depending on the parameters and strictness of the standards  
               adopted, GO-Biz may be required to travel to manufacturing  
               sites and inspect premises, review employee files, and  
               verify sourcing of raw materials and components - which  
               presumably would be an expensive endeavor.  Although this  
               bill allows for in-kind contributions and donations, these  
               funding sources have not been identified, so it is  
               reasonable to believe that Program participants would bear  
               the bulk of the cost or choose not to participate.  

             As a result, some small businesses may succeed in meeting the  
               future standard, and yet be barred from promoting their  
               products as California-made because of the high cost of the  
               Program.    The Committee may wish to consider the prudence  
               of asking a government agency to invest the time and  
               expense in promulgating a California-based manufacturing  
               standard and then prohibit businesses from advertising  
               their adherence to that standard unless they first pay an  
               as-yet-to-be-determined sum of money to the State to  
               participate in a voluntary marketing program.    

              b)   Standards guidance remains unclear  .  The recommended  
               standards contained in the bill include "The product is  
               entirely or substantially manufactured in the state."  The  
               term "entirely or substantially manufactured", which is  
               borrowed from an existing statute that imposes such a  
               standard on products advertised as "Made in USA".  Courts  
               have previously interpreted this standard very strictly,  








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               meaning that any merchandise containing even one part that  
               is foreign made or assembled may not be marketed as "Made  
               in USA."  (Colgan v. Leatherman Tool Group, Inc. (2006) 135  
               Cal.App.4th 663). It is functionally a 100% domestic  
               content standard, which some contend is discouragingly high  
               (see AB 890 (Jones) from 2013). 

             If GO-Biz or a subsequent court followed this same  
               interpretation, then that same 100% standard might be  
               applied. That would make California's national and state  
               standards consistent with one another, but it is also  
               unclear whether even the bill's current supporters would  
               meet that high standard if it were applied solely to  
               in-state manufacturing.  

              c)   Continued exclusion of non-physical goods  .  By tying the  
               standard to physical manufacturing, this bill would exclude  
               intangible products like software or other intellectual  
               property from qualifying as "Made in California."  Given  
               that California is a major producer and exporter of such  
               products, the Committee may wish to inquire of the author  
               as to the rationale for excluding these sectors of the  
               California economy from the Program.       

            The Committee may also wish to consider alternate approaches  
            to setting a clear standard for fairly marketing a product as  
            "Made in California."  The Committee may wish to consider  
            separating the standard and the marketing label, so that  
            compliant companies could legitimately claim to be "Made in  
            California" but without the time and expense of applying for a  
            permit. GO-Biz could also develop a marketing program that is  
            truly voluntary for those individuals who want to use a unique  
            "Made in California" label more akin to a trademarked brand,  
            while adhering to the same standards.     

           6)Technical amendment  .  The following corrects a drafting error  
            by Legislative Counsel, which was supposed to make the  
            promulgation of the standards mandatory, rather than  
            permissive:
             
               12098.10 (b)(1) should read "The office shall develop and  
            adopt standards"

           7)Reconsideration  .  This bill was previously heard in this  
            Committee and is being granted reconsideration. 








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           8)Related legislation  .  AB 890 (Jones) would align California  
            with the Federal standard regarding the use of the terms "Made  
            in U.S.A.", "Made in America", "U.S.A." or similar words when  
            a product or any portion of the product was not substantially  
            produced in the United States.  AB 890 failed passage in the  
            Senate Judiciary Committee.    

            SB 661 (Hill) would have amended the standards for use of the  
            terms "Made in U.S.A.", "Made in America", "U.S.A." or similar  
            words, so that such merchandise must have 90% of its  
            manufacturing costs be accrued in the United States, and no  
            more than 10% of its total manufacturing costs accrued outside  
            of the United States, and only then if such costs are imposed  
            because of the unavailability of raw materials or component  
            parts.  The merchandise must also be last substantially  
            transformed in the United States.  This bill was held in the  
            Senate Judiciary Committee. 

           9)Previous legislation  .  SB 823 (Corbett) 2011, would have  
            created a "Made in California" program within the Governor's  
            Office of Economic Development.  SB 823 was held in the  
            Assembly Appropriations Committee. 

           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          American Federation of State, County and Municipal Employees  
          (AFSCME), AFL-CIO
          California Small Business Association
          dB Control
          PLASTIKON
          Primus Power
          Small Business California
          Tesla Motors, Inc.
           
            Opposition 
           
          None on file.

          Analysis Prepared by  :    Sarah Huchel / B.,P. & C.P. / (916)  
          319-3301 










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