Wine Export Forum Focuses on EU

UC Davis event explains how Europe's labeling changes will affect U.S. exporters

By Cathleen Evangelista Davis, Calif. June 13, 2011
Wines and Vines

Markets paint a bright future for U.S. wineries. Significant changes in population levels and increases in both new wine brands and private labels point to a shift in consumption for the world wine industry. Understanding divergent regulatory systems allows for adoption of measures to align wine laws. A spirit of cooperation to facilitate wine trade under the European Union/United States agreement is helping to bring about some consistency in labeling laws.

While the EU may finally deliver its overdue decision addressing use of “traditional terms” of winemaking, U.S. corporations must remain vigilant for violations of product labeling: Severe penalties can be still be imposed in connection with exporting.

These realities, and the impacts of recent and impending changes to wine labeling laws in the EU, inspired an international conference aimed at establishing common standards for exporting. Experts from the world’s largest wine markets—the EU and the United States—addressed the forum about international wine law at the University of California, Davis, School of Law June 2-3. Italian and German International Commercial Law LL.M. alumni and executive board members Paolo Fabris and Dieter Korten suggested the event and helped enlist international speakers including government regulators, attorneys, producers and consultants.

Why common standards matter

Establishing the economic framework for changing trends in imports and exports of wine, Dr. Daniel Sumner, director of the University of California Agricultural Issues Center, emphasized the importance of common standards for international trade between the EU and U.S. The most significant change is the rapid decline of traditional wine consumption in Europe, which has altered the character of the world wine industry.

The top four wine-producing countries now are Italy, France, Spain and the U.S. Growing New World wine production has reduced the EU’s dominance. The U.S. has become the largest wine consuming market, with the EU its most important export market. The traditional mix of wine consumption will continue to change, based on population demographics. Country-of-origin issues will remain significant factors as the wine industry evolves toward more global sourcing.

New EU labeling laws that went into effect Aug. 1, 2009, continue to impact producers who wish to export wine. According to attorney Paolo Fabris, a professor at the University of Turin, Italy, wines on the market or labeled prior to Dec. 31, 2010 that comply with previous regulations can be exported to the EU only until stocks are exhausted.

The new rules are intended to provide better representation of wine characteristics. Mandatory requirements include wine category, Protected Designation of Origin (PDO) or Protected Geographic Indication (PGI); alcohol, producer and bottler, importer, sugar and sulfites. Optional requirements include vintage year, varietal and production method.

Dr. Carlo Alberto Panont, Italian Ministry of Agriculture, explained creation of a PDO under the new laws. Consortiums—quasi-government entities including producers, growers, co-ops, wineries and bottlers—can impose rules and controls to protect a PDO and increase market value of wine. By Italian government decree, as of April 9, 2011 all DOC and DOCG wines must contain new anti-counterfeiting headbands to ensure product traceability.

Changing EU regulations make compliance a moving target. A 2006 U.S. and EU pact was a significant step, marking progress toward agreement on production, labeling and import requirements. It has helped establish predictable conditions for wine trade that have been beneficial on both sides of the Atlantic.

The notorious ‘traditional terms’

Michael Newman, an attorney for Holland and Knight, addressed one pending and highly controversial challenge in selling to the EU involves the use of 16 “traditional terms” for winemaking: Chateau, Clos, Cream, Crusted/Crusting, Classic, Fine, Vintage, Port, Noble, Ruby, Superior, Sur Lies, Tawny, Vintage Port, and Vintage Character. Initially, the EU allowed continued use of these terms for a period of three years, with successive extensions of two-year periods. However, prior to expiration of the first extension, the EU told U.S. producers to cease using these terms.

Both the Wine Institute and Wine America are working to get these “traditional terms” approved by the EU for American use. Currently in the U.S., approximately 60 wineries use the word “chateau” and 15 use the word “clos” on their labels. A decision by the EU was expected this spring, but that time has now passed. “Vintage” and “classic,” for example, are embedded in the English vocabulary.

“Grandfather” provisions for some “traditional terms” in winemaking allow certain wines to be sold in the EU—if a trademark was registered in the EU and supported by a TTB Certificate of Label Approval (COLA) prior to 2005. The U.S. government has consistently opposed schemes to protect “traditional terms” on wine labels that require definitions to be approved by EU regulators.

Adding to the confusion, in November 2010 the TTB issued an advanced notice for proposed rulemaking Notice 109 to provide a change for “Use of Various Winemaking Terms on Wine Labels and in Advertisements.” A portion of the proposed rules refers to higher standards for “estate grown,” “estate” and “estates” to meet the higher definition ascribed to estate bottled.

Product mislabeling: Rules and controls

Mari Kirrane, trade advisor at the TTB’s International Trade Division, explained the bureau’s mandate to collect taxes and protect the public by preventing consumer deception. The TTB requires bottlers and importers to supply supporting documentation for all labels. All alcohol sold in the U.S. must have a Certification of Label Approval (COLA). At present, more than 25% of wine sold in the U.S. wine is imported.

Kirrane explained how the U.S. government resolves international wine fraud. The process includes:

  1. Contact with foreign country’s embassy in Washington D.C.
  2. Contact with agency in the foreign country
  3. Contact with foreign company to establish facts and action plans
  4. Certification from foreign government that wine is in compliance in EU country
  5. Removal of wine from market.

To foreign producers, she suggested extra diligence with U.S. documentation if the wine is not 100% vintage or varietal. TTB relies on winery records to certify varietal and vintage authentication.

Attorney Alessandro Baudino, a partner at Franco Baudino e Associati, detailed EU labeling changes and how the Italian government imposes violations for product mislabeling. A decline of sales in 1996 inspired reforms in 1999 and 2009. The 2009 reform focuses on winemaking practices, quality standards (based on geographical origins) and labeling of wine.

Civil and criminal liabilities are imposed on individuals and corporations for product mislabeling. Corporations can face heavy sanctions including criminal liability. Internal compliance programs and risk management processes can mitigate liability. Corporations may be held liable for fraud, counterfeit GIs and sale of misleading products. This liability extends to marketers, distributors, directors and auditors, as well as valuations in merger and acquisition transactions.

Dr. Timothy Josling, a professor at California’s Food Research Institute at Stanford University, addressed views of intellectual property. The EU uses Geographic Indications; the U.S. uses trademarks.

Marco Musumeci, Interregional Crime and Justice Institute, discussed growing transnational criminal counterfeiting related to organized crime and its impact on consumer safety and health, depletion of profits and government taxes. He stressed the importance of adopting multifaceted strategies to combat counterfeiting.

Seeking compatibility

Dr. Felix Bloch, international relations officer, European Commission for Agriculture, oversees implementation of the 2006 EU and U.S. agreement on trade in wine. He acknowledged regulatory divergences, but said the agreement is accomplishing its objective to facilitate trade—with some hiccups. Overall, the pact provides a framework for dealing with trade issues and relationships, and allows for cooperation.

William Earle, executive director, National Association of Beverage Importers, lent historical perspective, contrasting the EU vision—steeped in rigid norms—and the United States’ more limited involvement in quality and greater emphasis on truth to consumers.

Providing a California perspective, James Clawson, JBC International, a Washington, D.C.-based trade services consulting firm, offered a scenario of options for reaching compatible common standards in wine laws. The EU system, he said, prescribes what can be done; the U.S. allows for flexibility and adopts exceptions.

“National legal systems and priorities, market protections and competitive economic interests present challenges,” Clawson said. He proposed a system of open markets, regulatory cooperation, limited controls of markets, health and safety label regulations, innovative winemaking practices, border formalities and elimination of foreign inspections and redundant testing. “Allowing the consumer to determine quality standards is an important aspect of consideration,” he said.