GMF - The German Marshall Fund of the United States - Strengthening Transatlantic Cooperation

The European Union has a political need to deliver on the GI issue during World Trade Organisation (WTO) talks to prove that there is a future for European farmers in high-quality, niche agriculture.

The United States and other “New World” countries, however, are balking at a plan that would in a sense export the cost of Europe’s rural development programme to other countries. Developing countries are caught in the middle.

Now is the time to test the economic assertions surrounding GIs and to find a solution that addresses the EU’s political needs without imposing significant economic burdens on the rest of the world.

What is a GI and why does it matter?

The Uruguay Round of trade negotiations marked the first time that GIs received protection under WTO rules. The compromise reached at the end of that round requires all countries to protect “geographical indications,” i.e., “indications which identify a good as originating in the territory of a Member, or a region or locality in that territory, where a given quality, reputation or other characteristic of the good is essentially attributable to its geographical origin” from false or misleading uses.

Essentially the deal protects food names that are associated with a place, like Parma ham, Darjeeling tea, and Tennessee whiskey, from use by producers outside the region if those producers try to mislead consumers into believing that the products are the genuine article.

Producers outside the geographical region are free to continue using the terms as long as they are truthful. Thus, products labelled, for example, “American-style feta” or “imitation Camembert” are allowed.

Then, as now, the EU sought protection of GI products as a trade-off for concessions on agricultural subsidies. The Uruguay Round deal, while giving the EU the political movement it needed on GIs, did not impose much in the way of costs on the rest of the world. There was little or no change to the status quo.

But what the EU is seeking in the current Doha Round of WTO negotiations is a very different story.

Globalising the EU system

Within the EU, internal regulations prohibit the use of GI terms by producers outside the region even if there is language indicating the true origin of the products. Thus, for example, Roquefort cheese can only come from a particular region in France.

The EU is seeking to multilateralise this system to require countries around the world to protect GI terms from any use by producers outside the GI region. For the EU, protection for GIs forms a cornerstone of its strategy to emphasise quality products over quantity following reform to the Common Agricultural Policy (CAP).

In this post-reform era, it is politically impossible for the EU to bring a deal back from the WTO that does not offer some win for its farmers. While it is theoretically possible for EU gains from negotiations in services and non-agricultural market access to outweigh any concessions made in other areas of the agriculture negotiations, it is not politically viable to bring back a deal that appears as if European farmers are paying for these advances in other areas.

The difficulty is that, unlike the Uruguay Round deal, which did not have a significant impact on existing producers outside GI regions, imposing restrictions of this sort in WTO rules would require producers around the world to re-market and re-brand products they are currently selling under existing GI names. The stakes are much higher.

Cost-benefit analysis of this proposal to restrict the use of names, often referred to as the “extension” issue at the WTO, has been obscured by discussion of the deep emotional and cultural issues that are bound up with GIs.

’Old World’ vs ’New World’

Unlike many WTO issues, where the two sides are divided by economics into developed vs. developing countries, the issue of extension divides the world into “Old World”, i.e., the EU, India, Thailand, and certain countries in Africa, against the “New World”, i.e., the US, Australia, New Zealand, Argentina, and nearly all of the countries of the Western Hemisphere.

The Old World proponents of extension express outrage at the misuse and misappropriation of their terms by producers who seek to “free-ride” on the reputation that the Old World producers have built over the years.

But New World opponents argue that their immigrants brought these terms with them and have as much right to their use as those producers who remained in the region.

The two sides also have conflicting visions of the goals of consumer protection. Old World countries argue that using a phrase like “American-style feta” deceives consumers into believing that the quality is the same as the original. New World countries argue that the quality is comparable, and the use of these terms provides true information to consumers, allowing them to make the comparison and choose for themselves.

The deep divide on these issues has however distracted from the need for a thorough cost-benefit analysis of the economic impact of extension.

Cost-benefit analysis

Proponents of providing this enhanced protection for GIs through WTO rules argue that extension will be valuable to GI producers in developing niche markets. They also contend that protection will be of particular value to developing countries and to small-scale producers by providing a way to promote products without making substantial investments.

By contrast, opponents argue that any benefits will be outweighed by the costs imposed on existing producers outside the GI region who will be forced to re-label and re-market existing products with new names.

But very little has been done to test any of these assertions.

GI protection creates a monopoly on the use of a term. Of course, other tools exist that create a monopoly on the use of certain terms, such as the trademark law that protects words like Coca-Cola and Pepsi. The difference is that the value of trademarked terms must be created through marketing. GI protection takes a term that already has market recognition and value and limits its use to a small subsection of existing producers, appropriating a value that is currently spread among producers worldwide.

Those producers can then use their monopoly of the recognised term to increase their market share. Producers within GI regions will benefit; producers outside GI regions will lose.

Can there be "new" GIs?

Contrary to claims by proponents that developing countries can benefit by creating “new” previously unknown GI terms, the need for marketing and branding of these terms to familiarise consumers with the product makes it difficult to see why designating such a product as a GI would provide any additional benefit over existing intellectual property tools such as trademarks.

As a result, countries that would benefit economically from enhanced GI protection are those with a significant number of well-known GI terms to protect. While theoretically countries with a small number of valuable GI terms could benefit, it is important to note that the WTO provides an exception for terms that are so commonly known that they are considered generic terms for the product.

Many developing countries, such as India, with only a few well-known names to protect, such as Darjeeling tea and Basmati rice, face the risk that their names will be considered generic. By contrast, as of 2001, of the 766 appellations of origin (similar to GIs) enforced by the World Intellectual Property Organisation, 88% belonged to members of the European Union - the primary economic beneficiary of enhanced GI protection.

The EU’s only ’win’ issue

The likely economic cost of enhanced GI protection to the overwhelming majority of countries worldwide does not change the fundamental political issue faced by EU negotiators. Enhanced GI protection is the only offensive interest that the EU has in the agriculture negotiations. In all other areas, the EU is expected to make deep and potentially difficult concessions.

As a result, WTO member countries should begin the process now of setting aside arguments about fairness and consumer protection to work with the EU to develop a face-saving compromise on GIs that serves the EU’s political needs without imposing significant burdens on the rest of the world.

During the Uruguay Round, GI protection was a last minute issue addressed and resolved at a time when too much had already been decided to risk losing a comprehensive deal over an issue of relatively small magnitude.