Thursday, June 9, 2011

EU Labeling Changes and Their Implications: UC Davis EU Wine Law Conference

In setting the context for this discussion (UC Davis EU Wine Labeling Law Conference), Mr. Alessandro Baudino, Attorney and Partner in the firm Franco Baudino e Associati, pointed out that the EU was the world's leading exporter and importer of wine with 45% of its wine growing area, 65% of its production, 57% of its consumption, and 70% of its exports.  The current standing, however, reflects a point on a downward-tilting slope.  Europe experienced increasing production in the face of flat consumption from the 1960s to the mid-90s.  Since 1996, wine consumption has been declining and, while exports have been increasing, imports have been increasing at a faster rate.

According to Mr. Baudino, the Common Market Organization (CMO) has taken a number of steps to reduce the pressure on wine producers in member states.  In 1990 it implemented a financial aid policy for restructuring vineyards but this reform failed to meet its goals of reducing wine surpluses, aligning  demand and supply, and improving sectoral competitiveness.  The most recent initiative is the 2009 reform which targets improved wine producer competitiveness as well as perception of Community wine quality and preservation of Community wine-making traditions. Critical to the success of this initiative, according to Mr. Baudino, are rules on: oenological practices,\;  protected designation of origin (PDO) and geographical indicators (GI); and presentation and labeling of wine products.

The PDO/GI and labeling rules have garnered the most interest in the US, the former because it is fundamentally opposite to the way the wine industry is structured and regulated in the US -- as well as its potential for "big-stick" standards-setting worldwide -- and the latter because of its implications for companies selling in to that market.

The wine quality schemas in the EU member states can basically be collapsed into two categories: table wine and quality wine (with the Germans having some additional quality levels based on sweetness).  According to Article 1 of the Italian Act on PDOs, "A Protected Designation of Origin (PDO) is the name of a geographic area used to define a specific quality wine.  All the characteristics of the wine are due to natural ambient and human factors ...'terroir' " (Dr. Carlo Alberto Panont, member wine commission, Italian Ministry of Agriculture).  A PDO/GI designation is granted by the Community based on an application by a qualified organization through the Ministry of Agriculture of a member state.

The labeling laws are aimed at (Baudino): strengthening the reputation of EU quality wines; providing consumer-relevant information; coordinating the wine laws of member states; and guaranteeing fair competition in the wine market.  Implementation of the new rules began on August 1, 2009 but, according to Paolo Fabris, Attorney and Professor of Commercial Law at Turin University, wines currently on the market, or wines labeled prior to December 31, 2010, can be sold until stocks are exhausted.

The wine label has both mandatory and optional elements and can be written in any of the official EU languages.  The mandatory elements are: category designation (wine, liquer, etc.); the terms Protected Designation of Origin, or PDO, or Protected Geographic Indication, or PGI; the name of the PDO (St. Estephe, for example); country of production; bottler or producer; batch number; and allergens, if any.  The optional elements include vintage, varietals, and production method.

According to Baudino, sanctions for non-compliance are built into the code and include civil as well as criminal penalties for individuals or corporations assessed as liable.  Member states are responsible for developing compliance processess and monitoring for adherence to the laws.

Mr. Michael Newman, an attorney at the San Francisco firm Holland and Knight, addressed the implications of the wine laws for US producers selling in the EU.  Mr. Knight characterized the new EU laws as "a moving target" and "a challenge for Americans when they export."  According to Mr. Newman, the EU and US signed a wine trade agreement in 2006 which: (i) established predictable conditions for bilateral wine trade; (ii) replaced short-term EU derogations; and (iii) mandated that the US limit the use of 16 semi-generic names to wines originally in the EU.  The agreement included a "grandfather" clause that protected existing wines.  As he understands it, some of the names which could previously be used if allowed by the Tax and Trade Bureau (TTB) -- names such as Clos, as in Clos du Val, and Chateau, as in Chateau St. Michel -- would once again be prohibited on a label imported into the EU.  The protocol allowed US companies to use these names until March 2009, after which two-year extensions would be granted upon application for same.  In September 2008 the EU gave notice that they would not extend authorization beyond 2009; meaning that the ability to use those names will expire once existing stock is exhausted.  The US wine industry has applied to the EU to continue to use 10 of the names but the application has not been acted on to this date.

Dr. Felix Bloch, Administrator in the Directorate-General for Agriculture and Rural Development of the European Commission, and Desk Officer for bilateral trade relations with the US, appeared to disagree with Mr. Newman's characterization based on the length and intensity (quiet) of his comments at the conclusion of the presentation.  Unfortunately I was sitting a little ways behind him and was unable to capture those comments.

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