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Proposal P292 – Country of Origin Labelling of Food – Draft Assessment Report

4 May 2005

Dear Sir/Madam

Thank you for the opportunity to comment on this proposal. The New Zealand Food Safety Authority (NZFSA) has the following comments to make. This submission also represents the views of the New Zealand Ministry of Foreign Affairs and Trade (MFAT), the Ministry of Consumer Affairs, and the Ministry of Economic Development.

As was documented in the submission at Initial Assessment, the New Zealand government has consistently opposed the imposition of mandatory Country of Origin labelling (CoOL), for reasons including its likely trade-restrictive effects and its irrelevance to food safety requirements. We appreciate that the Draft Assessment Report (DAR) proposes support for mandatory CoOL, and a continuation (with some changes) of CoOL for Australia might be the result of Proposal P292. We acknowledge the changes that have been introduced at Draft Assessment, particularly that CoOL is now proposed to apply to the final food and not individual ingredients and the changed requirements for unpackaged foods.

New Zealand continues to oppose the introduction of mandatory CoOL, and the reasons for this as provided at Initial Assessment remain unchanged.

Specific comments on the Draft Assessment Report

Ministerial Council Policy Guidelines - High Order Principles.

We note that the progress and direction of P292 has been guided, amongst other things, by the policy guidelines developed by the Ministerial Council. New Zealand is concerned however that two of the High Order Principles, in particular, have not been met.

The High Order Principle “Be consistent with, and complement, Australia’s and New Zealand’s national policies and legislation including those relating to fair trading and industry competitiveness” has not been met for New Zealand. New Zealand has a policy of supporting voluntary but not mandatory CoOL for food. FSANZ has not addressed this inconsistency in the Draft Assessment Report.

In short, some consumers may wish to support their local markets, and CoOL may help them do so. However those companies that believe they have an edge in claiming to be New Zealand (or Australian) made are free to do so, and the veracity of those claims is governed adequately by the Fair Trading Act. Where such marking is voluntary this encourages competitive behaviour. However, by making this labelling mandatory, the “loyalty” purchasing is institutionalised and raises barriers that may in fact be anti-competitive. It can help create negative connotations about products from certain areas that may have no relation to the actual merits of the good and thereby give an undue advantage to the local producer.

The High Order Principle “Be cost-effective overall, and comply with Australia and New Zealand obligations under international trade agreements while not being more trade restrictive than necessary”, has not, in New Zealand’s view, been met for Australia and New Zealand. New Zealand continues to believe that mandatory CoOL is more trade restrictive than necessary. Mandatory CoOL would also impose significant costs for New Zealand industry, and is therefore not cost-effective in the New Zealand context. The following covers general concerns then specific WTO and Trans Tasman Mutual Recognition Arrangement (TTMRA) concerns.

In general, international concerns operate on two levels: first, the proposal to mandate country of origin labelling of food runs counter to New Zealand and Australia’s position on mandatory CoOL in international fora; and second the requirement to place CoOL on products from certain localities may turn consumers away from products on the basis of preconceived notions about their place of origin. As well as potentially acting as a barrier to trade, this could negatively impact on market choice for consumers in the long run if it dissuades producers from certain regions from entering the market place.

New Zealand further considers that the FSANZ recommendation is at odds with the two remaining high order principles, namely access to accurate information and prevention of misleading or deceptive conduct. CoOL labelling provides information about the general origin of a given product but not certain qualities. In this regard CoOL information may even be unhelpful information. Consumers may confuse country of origin information with indicators of quality. For example, consumers may assume that Italian pasta is better quality than that made in Australia. Simply stating a product comes from a certain country does not inform consumers about the region it was made or the standards required of it in the country of its origin (nor by how much a given producer may surpass those standards in some cases) and so forth. It may imply such, and the implication may be quite erroneous. Country of origin information therefore has little to do with the provision of accurate meaningful information.

The “prevention of misleading or deceptive conduct” is adequately addressed by existing fair trading laws. This issue was addressed in the New Zealand submission at Initial Assessment.

WTO issues

New Zealand continues to believe that a strong case could be made that mandatory CoOL requirements are not consistent with WTO obligations (specifically the WTO Agreement on Technical Barriers to Trade (TBT)). While the revised standard has addressed the potential inconsistency related to the national treatment obligations under Article 2.1 of the TBT Agreement, it has not addressed the more fundamental issue – that mandatory CoOL could be deemed more trade restrictive than necessary to fulfil a legitimate objective.

There are two issues. Firstly, is the Standard fulfilling a legitimate objective? As outlined in our submission at Initial Assessment the non-exhaustive list of legitimate objectives outlined in the TBT Agreement does not explicitly provide grounds for mandatory regulations which are justified on the basis of, for example, protecting a consumer’s “right to know”. While TBT Article 2.2 does include “the prevention of deceptive practices” as a legitimate objective for mandatory standards, this does not necessarily require mandatory CoOL. The objective of preventing deceptive practices can be achieved through other more effective, and least trade restricting, mechanisms, e.g. the New Zealand Fair Trading Act 1986 and the Australian Trade Practices Act 1974.

Secondly, is the standard more trade restrictive than necessary to fulfil this objective? Article 2.2 of the TBT Agreement specifically states, “Members shall ensure that technical regulations (i.e. mandatory standards) are not prepared, adopted, or applied with a view to or with the effect of creating unnecessary obstacles to international trade”. Mandatory CoOL would not, in New Zealand’s view, help mitigate the risk of deceptive practices and could therefore be challenged as being unnecessary and overly restrictive in light of the potential costs to the food industry. In other words, mandatory CoOL could constitute an unnecessary barrier to trade by increasing the costs to industry, thereby limiting market access.

Irrespective of how New Zealand proceeds in relation to this standard, we believe there is a strong case for notifying the revised measure to the WTO TBT Committee. New Zealand does not agree with the Draft Assessment Report’s conclusion that the new standard is unlikely to have a significant effect on trade. Given the very real costs to industry involved in a mandatory labelling scheme, for New Zealand at least, New Zealand believes that there is the potential for mandatory CoOL to have a significant effect on trade. Failure to comply with WTO obligations could result in other WTO members challenging the measure in WTO dispute settlement proceedings.

New Zealand continues to support, however, WTO compliant voluntary CoOL for food. In New Zealand’s view, it is preferable to leave the choice of country of origin labelling to be implemented on a voluntary basis by industry and not impose it by prescriptive regulation. New Zealand considers that if consumers do distinguish between goods depending on country of origin, strong incentives exist for industries to act without government intervention i.e. on a voluntary basis.

TTMRA issues

If New Zealand was not to support a mandatory CoOL standard, there may be ramifications for trans-Tasman trade. New Zealand products that did not specify CoOL would still be able to be sold in Australia. Under the TTMRA, a good which may be legally sold in New Zealand may also be legally sold in Australia, irrespective of any other standards or regulations relating to sale in Australia, such as labelling requirements. The only exception to this rule is that Australia could take out a temporary twelve month exemption against a New Zealand product if it was “substantially for the purpose of protecting the health and safety of persons or preventing, minimising or regulating environmental pollution”. CoOL does not meet either of these criteria. Temporary exemptions can only be made permanent with the agreement of all jurisdictions. Article 7 (as amended) of the Agreement on Food Standards specifically states that the TTMRA will apply to foods, subject to the exemptions in the TTMRA.

Having said this, we would like some indication as to how Australia proposes to implement the mandatory requirement in the future. If Australia imposes the mandatory standard at point of sale, New Zealand products will still be able to enter the Australian market under the TTMRA without compliant Country of Origin Labelling. However, if Australia was to implement this requirement at the border (using the Australian Commerce (Imports) Regulations 1940 for example) thereby requiring all imported food products to comply with CoOL, New Zealand products, without CoOL, would not have access to the market. This raises significant trade concerns and goes against the objectives of the seamless trans-Tasman market for goods.

Drafting Issues

Regardless of whether New Zealand is part of this standard or not, the Draft Standard and the User Guide need to be explicit on how trade between New Zealand and Australia is classified for the purposes of this standard. If an Australian-made food uses solely or predominantly New Zealand sourced ingredients, does this trigger labelling about “imported” ingredients, or do the provisions concerning imported ingredients and imported foods only apply to third country imports. Under the Treaty, imports usually refer to third country imports but this might not be the case with CoOL.

Comments on NZIER Report

The NZIER report Benefit cost analysis of Country of Origin Labelling Proposal P292 is patchy in analysis. It is unclear as to the ‘current transitional standard’. Several references are made to the difficulties presented by the ‘current standard’ when this only currently applies in Australia except in relation to wine labelling (e.g. p102 and p103).

In relation to trade impacts, the report seems to prevaricate between discounting trade impacts such as “the potential damage to trade negotiations caused by what may be seen as a non-tariff barrier to trade” (p94) on the basis that ‘their quantification is difficult’, ignoring trade impacts (in the International insights, p99-100) then considering such impacts, touching on WTO implications (p.100) and simply being descriptive about them (p102). Trade implications have been the core of New Zealand’s and Australia’s concerns about other countries imposing CoOL requirements and greater account might have been taken of this position.

On the benefits side, the high value placed on ‘right to know’ where “the limited information content on the labels and lack of evidence of a general consumer value in this type of origin information” appears also difficult to quantify, yet appears to have been factored into the assessment (p95). Health and safety attributes and society ‘well being’ are not clearly dealt with. At times they are promoted, at other times discounted (e.g. under ‘fundamental system value’ product recalls are mentioned but discounted on the basis that there are ‘other systems in place which provide such value’ p94). Of most concern, health and safety elements emerge as benefits later in the paper as “improving the traceability of food products from particular origins in the event of product recall because of food related disease” (p109) but discounted again on p110 “no appreciable safety benefit from CoOL”.

In relation to the cost estimates, no account is taken of ongoing costs of mandatory requirements in New Zealand but rather focuses singularly on the one off costs to meet a mandatory standard on introduction. There are further internal inconsistencies that are of concern e.g. the statement that a “casual observation of foods in supermarkets suggests a high proportion do [provide CoOL information voluntarily]” (p93) and the statement that “the fact that CoOL is being considered at all indicates that voluntary CoOL is not frequent and certainly not universal” (p104). The extent of voluntary CoOL in New Zealand can be attributed to many factors and would seem to indicate a highly developed commercial imperative rather than justification for government intervention.

Issues relating to COOL requirements for wine

When the NZFSA prepared its submission at Initial Assessment, we commented that the New Zealand position on the wine provisions could not be commented on, as New Zealand was undertaking a review of many aspects of wine production and sale, including CoOL requirements for wine and wine products as part of the implementation of the Wine Act 2003. The NZFSA released a public discussion document for proposed regulations under the Wine Act in August 2004, where mandatory disclosure on a label of the countries or country from which grapes, grape juice or wine are sourced was discussed. NZFSA is considering the policy options around COOL for wine, and is not in a position to comment on this at the present time.

Yours sincerely