Element Electronics boasts of being the only American-owned and American-assembled television company. Flashy red-white-and-blue packaging helps it do business with Walmart as part of the retailer’s quarter-trillion-dollar “Made in USA” initiative. But according to a Federal Trade Commission (FTC) complaint filed Tuesday, the company isn’t making anything in America after all.
Instead, the complaint alleges, the Chinese-made TVs arrive to Element’s South Carolina assembly line in boxes adorned with a waving American flag and the slogan “America Matters” on the front and the phrase “assembled in the USA” on top. Element’s employees unscrew a plastic panel, install a Chinese-made motherboard, close the panel, and return the TVs to their patriotic packaging so that they can be shipped out to Walmart, Target, Meijer, Sam’s Club, and QVC. That depiction of Element’s assembly process comes from a July article in the Wall Street Journal.
The Journal article is the key evidence in the FTC complaint, which was filed by a non-partisan non-profit group called the Alliance for American Manufacturing (AAM). AAM’s blog had previously touted Element Electronics as an example of manufacturing jobs returning to the U.S., but in Tuesday’s complaint it asks the FTC for an injunction barring Element from saying that their televisions are assembled stateside.
A product cannot be advertised as assembled in America, according to FTC rules, unless it undergoes a “substantial transformation” on U.S. soil. Furthermore, the AAM complaint notes, the FTC rules offer a specific example of an assembly process that would not qualify — and that example “is strikingly similar to the facts as they relate to Element’s ‘assembly’ process.” The example describes a computer built from foreign-made parts that “then are put together in a simple ‘screwdriver’ operation in the U.S.,” reminiscent of what the Journal found upon visiting Element’s South Carolina facility.
An Element spokeswoman did not return multiple calls seeking comment on Wednesday. Element President Michael O’Shaughnessy told the Journal in July that the company has plans to establish a more extensive and complex operation in South Carolina over the next few years as more parts start to be manufactured in America. He also told the newspaper that the conveyor belts and other hardware that make up the physical assembly line in South Carolina were themselves manufactured in China and installed by Chinese engineers.
Element describes itself as an American-owned company whose televisions are made by a Chinese conglomerate called Tsinghau TongFang (THTF) Global. But the question of corporate ownership is murkier on THTF Global’s website, one page of which refers to Element varyingly as an “owned brand,” a “self-owned brand,” and an “affiliated brand.” A separate page about Element on the Chinese company’s website uses the collective pronoun “we” to describe what customers can expect from “us at Element.”
When Element first came to the state in 2013, South Carolina Secretary of Commerce Bobby Hitt said the arrival was another sign that “South Carolina has transitioned into an advanced manufacturing state.” The same press release noted that Element was getting a $1.3 million infrastructure grant from the state in addition to unspecified tax credits for hiring workers. That grant program helps finance building improvements companies need to operate in the state. “In this particular case the company was going into a building that had been vacant for 5 years,” Commerce Department spokeswoman Allison Skipper told ThinkProgress, “and it needed some up-fit prior to moving in.”
The state predicted Element’s facility would create 500 jobs in the state. The Nerve, a news website in the state, reported at the time that 250 of those jobs were supposed to be created in the first year, and that state officials “were being tight-lipped about the details of the taxpayer-backed incentives for the project.” The Journal reported that Element employs just 185 in the state so far. The company tells South Carolina that it has 325 workers, according to Commerce Department spokeswoman Skipper, who recently attended a Walmart supplier summit where Element appeared. Element will not be able to cash in its per-employee tax credits until it reaches the 500-job goal it pledged the state in 2013, she said, but the state does not attempt to predict how much the credits will ultimately cost.
While Element’s ownership and job creation deals are murky, the company is indisputably the key link in the serpentine process by which Chinese-made televisions are landing on Walmart shelves in boxes draped with the stars and bars. AAM calls Element “a poster child of Walmart’s recent Made in America push” whereby “consumers are led to believe that Element’s televisions contribute to bringing jobs back to the United States.” Walmart’s public relations push around American manufacturing has played out alongside stiff criticism of the company’s habit of paying wages so low that its employees rely on taxpayer-funded public assistance programs to survive.
Prior to heading up Element, company president Michael O’Shaughnessy was involved in another complicated, potentially scandalous business enterprise. O’Shaughnessy managed to get caught up in a Ponzi scheme as head of Polaroid and two other companies owned by Thomas Petters. Petters is currently in jail for running a $3.7 billion Ponzi scheme over 14 years. O’Shaughnessy was never charged, but according to the Minneapolis/St. Paul Business Journal he has been sued twice by victims of Petters’ crimes who say that the $9 million in bonuses and fees the Element president received from Petters’ companies while the Ponzi scheme was running are ill-gotten funds that should be returned to victims. One lawsuit claims that Petters’ fraud succeeded in part because he “paid exorbitant sums of money to surround himself with executives, partners, and friends who helped create the essential air of success” he needed to bilk people and identifies O’Shaughnessy as one example of those human elements in Petters’ disguise. Calls to attorneys on both sides of the lawsuits against O’Shaughnessy were not immediately returned.
This post has been updated with comment from the South Carolina Commerce Department. Element Electronics has told the state it employs 325 people, not the 185 reported by the Wall Street Journal in July.