25 July 2017

NZ Geographical Indications

The Geographical Indications (Wine and Spirits) Registration Amendment Bill (NZ), which amends the Geographical Indications (Wine and Spirits) Registration Act 2006 (NZ), and the Geographical Indications (Wine and Spirits) Registration Regulations 2017 come into effect on 27 July 2017.

The GI Bill was introduced to Parliament in November 2015 and received Royal Assent on 25 November 2016 following consultation around an exposure draft of the proposed regulations and fees schedule.

The NZ Government indicates that
In New Zealand, protection for geographical indications is provided by the Fair Trading Act 1986, the common law tort of ‘passing off’ and through trade mark law. The Geographical Indications (Wine and Spirits) Registration Act 2006 establishes a registration system for wine and spirit geographical indications ...
 Section 9 of the Fair Trading Act 1986 provides that "No person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive". A product that does not originate from the geographical area indicated, or that does not possess the characteristics for which a geographical indication is known, could be found to breach the Act. ...
The law of passing off prevents one trader from passing their goods or services off as those of another. Passing off has been used in New Zealand by French wine interests to prevent non-French winemakers from labelling their sparkling wine with “Champagne” (a term protected as a geographical indication in the European Community). For a passing off action to succeed:
There must be goodwill attached to the goods or services.
There must be a misrepresentation, whether intentional or not.
There must be damage to the goodwill. ...
A geographical indication may be protected in New Zealand as a trade mark, including as a collective or certification trade mark.
The 2014 Cabinet Paper regarding the reforms states
The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) sets out minimum standards for the protection of GIs . In New Zealand, these standards ar e met through the Fair Trading Act 1986 , the common law tort of passing off, and the Trade Marks Act 2002.
In relation to wine , there is additional protection for GIs under the Wine (Specifications) Notice 2006 ( Notice ) issued by the New Zealand Food Safety Authority under truth in labelling requirements of the Wine Act 2003. The Notice requires that where a label includes information about the origin of wine at least 85% of the wine must be made from grapes grown in the stated area ( 85% rule).
In relation to spirits, additional protection for GIs is provided under standard 2.7.5 of the Australia New Zealand Food Standards Code  Standard 2.7.5 provides that a geographical indication must not be used in relation to a spirit, even where the true origin of the spirit is indicated or the geographical indication is used in translation or accompanied by expressions such as ‘kind’, ‘type’, ‘style’, ‘imitation’ or the like, unless the spirit has been produced in the country, locality or region indicated.
A single regulatory regime specifically designed for GIs (sui generis regime) has never been implemented in New Zealand. The use of GIs by New Zealand producers is largely confined to the wine industry. Foreign producers, and especially foreign wine and spirits producers, also use GIs in the marketing of their products in New Zealand.
Background to the Geographical Indications (Wine and Spirits) Registration Act 2006
In 2004 there was a substantial risk that New Zealand wine exports would be blocked from the EU market because the EU considered they were not using “officially recognised” GIs on their labels. The EU’s regulatory system for wine imports is complex and highly prescriptive, both in terms of technical standards and labelling requirements. Under the EU regime, the use of GIs on wine labels is necessary for other essential information, such as vintage and grape variety, to be able to be used in the marketing of wine.
The ban would have had a catastrophic impact on the New Zealand wine industry. At that time, the EU was the largest and most significant export market for New Zealand wine. Wine exports to the EU were returning around $140 million in export earnings (approximately 46% of the total export earnings for wine).
The Government’s response was to pass the Act. The intention behind the Act was to align our law more closely with our international obligations under the TRIPS Agreement and to protect wine exports to the EU by bringing our registration system for wines and spirits GIs into conformity with EU requirements.
The Act would impose one main restriction in respect of wine labels. A person would only be able to use a registered wine GI in trade (i.e. on a label) if at least 85% of the wine was obtained from grapes harvested within the GI’s registered boundary. This requirement duplicates the 85% rule currently required under the Wines (Specifications) Notice 2006. The Act would be administered by the Intellectual Property Office of New Zealand (IPONZ). ...
Why is implementation being proposed now?
First, TRIPs and EU wine related negotiations are no longer viable; secondly exports have grown significantly, and consequently the value of NZ wine’s reputation and the risk associated with its misuse have grown as well. Finally, a 2011 industry-commissioned review by PricewaterhouseCoopers (PwC) showed that future industry growth would involve Asian markets where misuse of label information generally was recognised to be a major problem in the alcoholic beverages sector.
The PWC review formed the basis for a new export/development strategy for the wine industry, which reaffirmed the central importance of GI development, registration and enforcement. The new strategy involved the use of GIs to give added focus to marketing authentic, distinctive, yet evolving, wine stories, and to protect the geographical aspects of “Brand New Zealand” from misappropriation or obstruction by offshore parties.
The value of wine exports to the EU has grown steadily from $140 million in 2004 to around $408 million in 2014. Over the same period, total export earnings have grown from $303 million to around $1.3 billion. New Zealand produces wine in a cool climate, leading to distinctive flavours that are the foundation for higher quality wines and which also results in lower yields and higher costs. In order to be sustainable, the industry operates in the premium and super-premium segments of the global wine market. New Zealand wine’s reputation is crucial to its success in such markets and GIs enhance this reputation by making it easier for the industry to differentiate its products from those sold at the commodity end of the market.
NZWine favours implementation of the Act as a means of safeguarding market access to the EU. It also sees implementation as useful for protecting and promoting their products in export markets, [Remainder of paragraph 25 withheld under sections 9(2)(b)(ii) and 9(2)(ba) of the Official Information Act 1982.]
From a trade perspective, the Ministry of Foreign Affairs and T rade considers there would be a number of key benefits arising from the implementation of the Act which were absent from or not adequately addressed by the Covec report. Implementation would:
  • support New Zealand’s interests in launching an FTA negotiation with the EU; 
  • facilitate sui generis GI protection in overseas markets which would provide the New Zealand wine industry with an important tool to help protect and enforce its GIs in those markets and, therefore, would support its overall export growth strategy; 
  • assist in safeguarding market access for New Zealand wine in the EU market; and
  • [bullet point withheld under section 6(a) of the Official Information Act 1982]
MBIE considers that from a non-trade perspective, at this point in time there is not a compelling case for implementation to be a priority for the Government. While implementing the Act would impose new regulatory and business compliance costs on the New Zealand wine and spirits industry, there are unlikely to be any significant benefits that would be realised through its implementation. There does not appear to be any significant misuse of wine or spirits GIs in the New Zealand market that the implementation of the Act and registration of regional names as GIs would address. The small number of cases related to the misuse of GIs and regional names that have occurred have been effectively dealt with under the existing regulatory framework.
MBIE commissioned economic consulting firm Covec to analyse the costs and benefits of implementing the Act. Covec concluded that the costs and benefits of implementing the Act are finely balanced, and the costs and benefits would be likely to be small ($1-4 million each, compared to the total export earnings of the New Zealand wine and spirits industries of around $1.3 billion). While Covec could not identify any benefits in the domestic market from implementing the Act, it did identify potential future benefits in relation to export markets but these were uncertain and difficult to model. A copy of Covec’s report is attached to this paper as Appendix A.
Implementing the Act will have resource implications for the Commerce and Consumer Affairs portfolio and MBIE. The Act as currently drafted requires amendment and regulations setting out the regist ration procedures need to be developed. There are likely to be opportunity costs for the Government from prioritising implementation of the Act over other Commerce and Consumer Affairs projects that are more likely to have a net beneficial impact on the economy.
There are also a number of potential risks should the Act not be implemented. These include:
  • not responding in a timely manner to legitimate industry concerns which could undermine industry trade strategies and growth potential; 
  • [bullet point withheld under section 6(a) of the Official Information Act 1982] 
  • [bullet point withheld under sections 6(e ) (vi) and 9(2)((j) of the Official Information Act 1982]
These benefits and risks are discussed in more details in the following sections A to D.
A Implementation would support New Zealand’s interest in securing FTA negotiations with the EU.
New Zealand is currently engaged in a bilateral “reflection process” to explore the trade and economic relationship with the EU, with a view to the possible opening of FTA negotiations. New Zealand is the demandeur in this regard; we are one of only six WTO members who do not have or are negotiating some form of preferential access to the EU market, and securing an FTA is a priority for the government. [Remainder of paragraph 25 withheld under section 6(a) of the Official Information Act 1982.]
[First sentence of paragraph 33 withheld under section 6(a) of the Official Information Act 1982.]. Since the Act was passed, the EU has remained highly interested in when it will be implemented. The issue of the Act’s implementation is a regular item on the agendas of the annual Agricultural Trade and wider Trade Talks with the EU.
New Zealand has previously explained to the EU that the reason the Act has not yet been brought into force is because it is not in New Zealand’s interests to impose additional regulatory and business compliance costs on the New Zealand economy through implementation, when there is no domestic demand or support for its implementation. [Remainder of paragraph 34 withheld under sections 6(a), 6(e)(vi) and 9(2)(j) of the Official Information Act 1982.]
[Paragraph 35 withheld under sections 6(a),6(e)(vi) and 9(2)(j)) of the Official Information Act 1982.] 
[Paragraph 36 withheld under sections 6(a), 6(e)(vi) and 9(2)(j)) of the Official Information Act 1982.]
[Paragraph 36 withheld under sections 6(a),6(e)(vi) and 9(2)(j)) of the Official Information Act 1982.]
Implementation could facilitate sui generis protection in overseas markets
As discussed above, protecting its GIs in export markets is an important element in NZWine’s overall strategy to grow export returns.
Many of New Zealand’s key export markets for wine provide for some form of sui generis system, such as a registration regime, for granting protection to wine GIs. Being able to demonstrate that a New Zealand GI is officially recognised in New Zealand can assist the applicant to gain sui generis protection for its GI in other countries. Both China and the EU’s sui generis systems for granting protection to GIs have this requirement as one of the necessary prerequisites to obtaining registration. Implementation of the Act and registration of New Zealand GIs would therefore facilitate the process of applying for sui generis protection in those markets. Sui generis protection in overseas markets is not the only tool at the industry’s disposal, but without it the wine industry does not have the same range of enforcement tools as are open to its major competitors.
China is the world’s 5th largest wine consumer and the biggest growth market with 67% growth. Post China FTA implementation, annual wine exports to China have grown significantly ($17 million in 2011, around 2% of total export earnings). New Zealand’s share of the imported wine market in China is nearly 1.6%, which makes New Zealand the 8th largest exporter of wine to China. China is one of the projected growth markets for New Zealand wines with a projected increase in wine exports of an additional NZ$184 million per annum. China imports wine at the high or premium end of the spectrum which is where the New Zealand wine i ndustry is pitching its wines. New Zealand wines are seen as premium products fetching high prices similar to wines from France. This makes NZ wines more susceptible to counterfeiting and passing off, and strengthens the case for tools to protect IP rights.
Once New Zealand has domestic GI legislation in place, there would be various options on how to proceed in order to gain increased protection for New Zealand GIs in the Chinese market. One option would be to register products with the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ)  on a product-by-product basis; another is to sign a Memorandum of Understanding with China; and a third is to negotiate a “package framework” such as the China-EU Agreement. AQSIQ has recently confirmed that the absence of domestic GI legislation in New Zealand currently precludes New Zealand from taking any of the above options for GI protection in China. The OMAR list approach is not considered a satisfactory substitute to having relevant domestic legislation in place.   AQSIQ is a ministerial administrative organ directly under the State Council of the People's Republic of China in charge of national quality, metrology, entry-exit commodity inspection, entry-exit health quarantine, entry-exit animal and plant quarantine, import-export food safety, certification and accreditation, standardization, as well as administrative law-enforcement.
Sui generis protection of GIs in export markets should provide for more cost effective protection for New Zealand GIs than relying on consumer protection or unfair competition laws. The fact of GI registration can deter unauthorised traders from using a GI without permission, and can encourage them to cease use with out further enforcement action. Recourse to general consumer and unfair competition laws to protect and enforce an unregistered GI in an overseas jurisdiction is complex, difficult, and comes with a degree of uncertainty. Further, in some markets, like China, government agencies may take actions to enf orce GIs on behalf of GI owners.
The current winegrowers that have GIs registered as trade marks (Gimblett Gravels and Waiheke Island) have stated a preference for registration under the Act and confirmed they had only used trade mark registration procedures in the absence of the GI Act.
The process of obtaining sui generis protection in export markets can, however, be costly, time consuming and uncertain due to a lack of international harmonisation.
C Implementation would assist in safeguarding market access for New Zealand wine in the EU market
In the EU, wines need to bear a “legitimate” GI on the label if they are to receive preferential treatment such as being able to use certain geographical names on the label. [Remainder of paragraph 45 withheld under sections 6(a), 9(2)(d) and 9(2)(g)(i) of the Official Information Act 1982.]
This issue is currently dealt with through the use of an OMAR, which includes a list of GIs prepared by the wine industry, but this was put in place as an interim measure until the Act could be implemented. [Remainder of paragraph 46 withheld under section s 6(a), 9(2)(d) and 9(2)(g)(i) of the Official Information Act 1982.]
In the EU, a number of compositional parameters and labelling terms are conditional upon a wine bearing a GI registered under the EU system. An example is the case of minimum alcohol levels which affects sweet and lower alcohol wine categories. New Zealand wines with less than 8.5% actual alcohol by volume are currently not permitted for export into the EU market. NZWine is currently engaged in a Primary Growth Partnership programme aimed at developing unique low alcohol or “lifestyle” wine to satisfy a growing demand in premium markets such as the EU. It is estimated that by 2023 this programme will see NZ$263 million of increased export earnings. Without the ability to seek GI registration in the EU, New Zealand lifestyle wines would be locked out of a lucrative market.
In 2007-8, draft EU wine regulations specified that the only geographical information that could appear on a label was a GI registered in the EU. This represented a very real threat to the New Zealand industry’s interests [Withheld under sections 6(a), 9(2)(d) and 9(2)(g) (i) of the Official Information Act 1982.]. The EU reforms its wine regulation system approximately every 10 years and a major review is currently under way, including the rules for GIs. All New Zealand’s major non-EU competitors have established pathways for GIs in the EU market via either bilateral agreements or registration and would not be affected by such a rule change; New Zealand lies outside either of those pathways.
If the New Zealand wine industry could not use geographical information on its wines in the EU, this would result in major damage to New Zealand’s wine exports. Even if the Act were implemented under urgency, it could take up to 3 years for the register to be set up and for producers’ GI registration applications to be prepared and approved in New Zealand and the EU. NZWine indicates that being unable to use geographical information on New Zealand wine in the EU for that length of time would cause major and potentially irreversible damage in that export market. A New Zealand registration regime could reduce or eliminate the above market access risks. No other form of GI protection (such as trade mark registration) would do so.
D [Heading withheld under section 6(a) of the Official Information Act 1982.]
[Paragraph 50 withheld under section 6(a) of the Official Information Act 1982.]
The Act requires amendment before implementation
MBIE has identified a number of deficiencies with the drafting of the current Act that will require attention before the Act can be implemented. The need to amend the Act before implication has been discussed with NZWine and DSANZ.
The Act is no longer consistent with New Zealand’s international obligations, and in particular does not meet our commitments under the Agreement between New Zealand and the Separate Customs Territory of Taiwan, Penghu, Kinmen, and Matsu on Economic Cooperation. Amendment is required to provide for the cancellation of registered GIs that are confusingly similar to prior existing trade mark rights.
The Act does not provide any sustainable source of funding for IPONZ to operate and maintain the register of GIs. At present, the Act only provides for a single application fee to be paid at the time the initial application is made. Once registered, a GI would remain on the register in perpetuity or until action is taken by the Registrar in response to a third party application to cancel the registration (for example, because the GI has fallen into disuse).
The funding issue is made more acute because of the small number of potential applications to register GIs. NZWine has identified a list of 29 regional names for which registration is likely to be sought and these applications will be made within the first two years of operation of the register. Officials estimate that a small number of applications (up to 10) from foreign parties will also be made with in the period. In outlying years few, if any, further applications are anticipated from either New Zealand or foreign parties.
MBIE has also identified a range of desirable amendments that could be made to the Act to improve its overall workability. NZWine has been active in providing input to officials on potential changes aimed at improving the Act’s workability