Toward the end of 2019, long before the “made in America” phrase was making headlines throughout the drone space, I recall talking with an industry expert who had questions about a company that had just begun touting that very “made in America” message. This person mentioned that from what they could see, the company in question really should have been saying that their product was assembled in America since most of their components were still very much made in China.
That was an intriguing distinction but I didn’t think it was one that too many people would care about. How wrong I was.
Flash forward just a few months and this very distinction was at the heart of the DOI’s announcement that it would “take a pause” with their drone fleet. The importance of that distinction was further highlighted and defined when the US Department of Defenses Defense Innovation Unit announced that five drone companies had been tested, approved, and would be formally available for government use. Tellingly, none of those five companies are headquartered in China. Just as tellingly, DJI was never in the running to be in the program.
All of this underscores how and why “made in America” is a term that is about much more than marketing and perception, as there are legal and bottom-line ramifications to it. However, there are also nuances that matter for anyone operating a commercial drone program or considering what it would mean to create one. Those details could very well define the future of how the technology is adopted in numerous industries.
What Does “Made in America” Mean from a Marketing and Legal Perspective?
Before we more fully explore how “made in America” is making an impact across the drone space, it’s important to understand what this term means from a strictly legal perspective, and how it has come to shape other industries. DJI’s market dominance, as well as the current political relations between the United Sates and China, have further impacted what this term means in the drone space, but there’s a baseline with for it that goes beyond a single industry and the current political landscape.
The Federal Trade Commission (FTC) states that marketers and manufacturers that promote their products as made in America must meet the “all or virtually all” standard. Their 40-page document defines what makes an item "Made in USA" from a legal perspective. That distinction is tied to the Trade Agreements Act (TAA), meaning all products listed on the GSA (General Services Administration) Schedule Contract must be manufactured or “substantially transformed” in the United States or a TAA “designated country”. The TAA was created to foster fair international trade with certain designated countries. The full list of countries that are not TAA Compliant is readily available, and China’s inclusion on that list is notable. There’s a link to the article with all of this information laid out above, but I’m going to copy and paste their definition of what it means when a product is “substantially transformed”, because it’s a relevant distinction for drones…
“Substantially transformed” means transforming a product into a new and different article of commerce, with a name, character, or use distinct from the original product. You might face the situation that a product has to be assembled in several different countries, but the rule of substantially transformed applies to the last country that the product is in before it comes to the United States. As long as 50% of the production is done in a TAA compliant country, you’re in the clear.
Back in 2018, Harley-Davidson was dealing with these distinctions when the company announced it would move some of its production overseas. Doing so brought criticisms about whether or not the company could still claim their bikes were “made in America”, but as a matter of the law, they still could. While the components of the actual motorcycles are created in many places outside of the United States, that’s the case for every auto manufacturer and this move didn’t prevent them from being able to make that “made in America” claim. Their bikes would still be assembled in the United States and are for the most part still as American as they were before this change.
That transformation of a product is directly applicable to the drone industry.
The Impact and Importance of “Made in America” on the Drone Market
“Made in America” claims are ultimately the jurisdiction of the FTC, and as you can read from the FTC itself, there’s no law that requires most products sold in the U.S. to be marked or labeled Made in USA or have any other disclosure about their amount of U.S. content. However, manufacturers and marketers who choose to make claims about the amount of U.S. content in their products must comply with the FTC’s Made in USA policy. For a product to be called Made in USA, the product must be “all or virtually all” made in the United States.
That’s where the “substantial transformation” bit comes into play. While a product’s final assembly or processing must take place in the United States, the FTC considers other factors, including how much of the product’s total manufacturing costs can be assigned to U.S. parts and processing, and how far removed any foreign content is from the finished product.
Manufacturers in the drone space know and are aware of these distinctions, and they factor into how companies like Autel have come to define the “made in America” term. In some instances, only a small portion of the total manufacturing costs are attributable to foreign processing, but that processing represents a significant amount of the product’s overall processing. That could indicate why certain companies were included on the list of approved drones by the government, versus those that were not.
A qualified “made in America” claim describes the extent, amount or type of a product’s domestic content or processing as it indicates that the product isn’t entirely of domestic origin. A product that includes foreign components may be called “assembled in America” without qualification when its principal assembly takes place in the United States.
There’s a reason that “assembled in America” hasn’t dominated headlines in the drone space, some of which you can see in the nuance around Autel’s approach. As the article on DroneLife states, “while Autel Drones’s airframe manufacturing has been done in Shenzhen, China, arguably the global center of drone manufacturing; a significant amount of the work – and company management – has been based in the U.S. offices.” Their product has been substantially transformed in a good faith endeavor that isn’t being reciprocated across the space.
Concerns about security and privacy have driven many of the conversations about the importance of this “made in America” designation in the drone space, and that’s with good reason. Challenges with the public perception of drone technology have long been a barrier for adoption, so security and privacy concerns are not unwarranted. Of course, how to best address such concerns is the crux of the issue. No matter how “made in America” is defined, does that distinction really provide a user or organization with the security and privacy that they want and, in many cases, require?
What Does “Made in America” Mean for Your Drone Program?
That question isn’t a philosophical one, because the answer has a far-reaching impact on budgets and how organizations can approach the adoption of drone technology. The perception and reality of “made in America” are two distinct entities, and it really matters whether or not that definition is one you’ve defined from a legal perspective or you’re simply taking someone’s word for it.
Just about any company that needs to sort through these distinctions should be working with an attorney because there are pitfalls around all of this that I’ve barely hinted at. Such nuances have caused many to realize that a properly incentivized lawyer could cause a grand jury to indict a ham sandwich if they wanted, which is all the more important to realize when it comes to operating a drone safely in all different types of airspace.
The so-called “Blue sUAS” that come from 5 different manufacturers are great products and can enable real value, but their ability to provide the security and protection that a given operator or organization needs is about so much more. As we’ve talked through in great detail, security isn’t a checkbox but is instead an ongoing process. A drone that has the “made in America” designation can fall short of the security and privacy expectations that the DoD specifically vetted, while drones that are not on this list can be configured to provide the legal and actual protection that an organization needs.
While the “made in America” designation might define drones that are a fit for government use in the short term, how that designation impacts the future of the technology and market will ultimately be a matter of choice, perspective and preparation.
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