Harper's bizarre columnist

HARPERS COLUMNS

Three columns written for Harpers Wine and Spirit Weekly have somehow managed to retain some of their currency and could be used as brief introductions to the main issues in international wine trade:

Geographical name calling (on disputes over intellectual property rights).

Maturing, stronger bodies (on surplus, subsidies, oenological practices and labelling).

There’s no point in whining (on patterns in global exchanges).

Geographical name calling

Cognac will be free from pestering homonymous local brands by 2005. The ruling of a Brazilian court last January clearly went in favour of the Bureau National Interprofessionel du Cognac, in a case pressed by the French trade association after Brazil’s adoption of a new law on intellectual property (IP) rights. Brazil, and all other developing members of the World Trade Organization (WTO), had to tighten up domestic protection of IP rights in the case of geographical indications (GIs) related to wine and spirits, in order to comply with the Agreement on Trade-Related Property Rights (TRIPs). Simultaneously, the EU has been engaging in a global exercise seeking to recapture GIs that have fallen into common usage outside its borders – as have Champagne, Chablis and Cognac – and, more controversially, traditional terms such as grappa and ouzo.

What the plaintiff did not get, though, was an outright ban of the use of the generic term conhaque. Article 24 of the TRIPS Agreement, the French were reminded in court, allowed for the presence, on the domestic market, of homonymous generic names so long they do not mislead consumers about the true origin of the drink (usually achieved by inserting it alongside that of the GI it mimics, as in ‘Californian Chablis’, thereby giving birth to ‘semi-generics’) and for as long as negotiations aiming at phasing out this practice are still going on. The TRIPS Council, which is holding these talks, is convening during the first week of April. Accordingly, if the agreed principle stated at article 23 of the TRIPS Agreement is that semi-generics should be scrapped eventually, then the exception is currently the rule.

It was on US insistence that the exception was included in the agreement back in 1994, but the belligerent attitude of the EU at that time shares responsibility for it: precedence of GIs over brand names – the capacity of a GI to drive out even an established brand – had been enshrined in EU legislation, despite the Torres family winning their case before the European Court of Justice. Could the European marketing efforts of the Gallos and Mondavis be scuppered by the mere presence of Italian villages bearing their names? In June 1999, the USA initiated proceedings at WTO’s Dispute Settlement Body, because EU legislation ‘does not provide sufficient protection to pre-existing trademarks that are similar or identical to a GI’.

As if to warrant US fears, the EU and particularly France have been showing their teeth again recently: witness the difficulties in wrapping up the agreement between the EU and South-Africa due to strong disagreement over the enmeshment of ‘Port’ and ‘Sherry’ in various trademarks, and the stripping of the rights of the wine growers from the small Swiss village by the name of Champagne, to feature their GI on their bottles of still white wines after 2002. It seems odd that the reputedly inalienable rights of a community, which has been growing vines at least since the 9th Century, should be so easily dismissed in the name of freeing up trade. Comforted by an apparently wide popular support in what they term a David and Goliath struggle, Champagne’s vintners are determined to seek redress in a Strasbourg court. The fact that brandy producers of the French Champagne village situated in the Cognac region are allowed to affix the term ‘Fine Champagne’ on their labels on the flimsy grounds that ‘this does not lend to consumer confusion’ should help the Swiss in their plight. 

No wonder, then, if progress at establishing a worldwide registration procedure for GIs seems desperately slow. The TRIPS Council is still pondering whether it should go for the compulsory and legally binding system put forward by the EU, or for the US-Japanese proposal which amounts to little more than compiling a list of the world’s GIs. The stakes are high, as huge value can be added to wines produced in renowned GIs, which can be considered ‘collective brands’ in this context. 

The increasing importance of GIs as a strategic tool for differentiating and positioning wines in the saturated markets of the developed world has been recognised for other goods too. Emboldened by recent events, last November Switzerland and some 11 developing countries asked the TRIPS Council to widen the scope of higher protection awarded to wines and spirits to other, mostly agricultural, goods ranging from Czech Pilzen beer and Darjeeling tea, to Bulgarian yoghurt and Swiss cheeses. The EU agrees that something should be done for the poorer nations. Only Cairns Group members are opposed to discussing extension on the grounds that this is not required by the Uruguay Round Agreement, but would need to be negotiated before inclusion in the agenda. One may thus entertain the reasonable hope that coverage will be extended to other agricultural goods before long. Then, the more successful the EU in pursuing its recapturing policy for Cognac and other GIs, the better the chances of bringing less powerful states to recover their embezzled rights and bring the production of Savoy’s Emmental and the like to a fair and peaceful end. But will there be Champagne for everyone at toasting time? Sounds a bit like the Greeks’ hope that the British Museum part company with the caryatid poached from the Acropolis. 

© pierre spahni – first published in Harpers Wine and Spirit Weekly on March 30th, 2001.

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Maturing, stronger bodies

The latest estimates released by the Office International de la Vigne et du Vin (OIV) suggest that, after shedding a fifth of its volume in just a decade and then stabilising in the mid-1990s, world demand for wine may well have edged up by a fraction of a percentage point in the course of last year, to reach an estimated 22.2 billion litres. As for production, it was down some two billion litres on an admittedly generous 1999, to an estimated 27.3 billion litres last year. The only worry is that world supply, which had reduced sluggishly, but in line with tumbling demand until 1995, is on an upward trend again. This was caused by a boost in EU yields coupled with a virtual halt to uprooting programmes within the Union, and by sustained growth in the New World. The five billion litre gap between world supply and demand is absorbed by an ailing brandy industry for the greatest part, the rest distilled into ethanol, for industrial use; that gap is widening fast and inventories are currently high, but government officials gathered in Paris for OIV’s yearly working sessions are keeping a watchful eye on it. 

Statistics produced by OIV each spring are literally irreplaceable, since there are no other sources for gauging the levels of world supply and demand. This year, the Paris-based institution was given a new gloss through the adoption of a novel treaty on 3 April. ‘Consensus’ is now the basis for key decision-taking and ‘communication’ the new byword for this old body, which will boast five official languages henceforth – a real change for an organisation which resisted English invasion for longer than any other. The intergovernmental body for wine has been ‘preserved, reinforced and modernised’, according to the French agricultural minister, who hopes that the strengthened organisation will play a more active role on the international scene. 

Shortly afterwards representatives from the New World Wine Group met down under to seal a Mutual Acceptation Agreement, on 9 April, that removes one of the biggest hurdles in wine trade. The USA, Canada, Australia and New Zealand have agreed to it already, while Argentina, Chile and South-Africa have up until March 2002 to decide whether they want to join the ‘fab four’. Alliance at state level is merely reflecting recent powerful marriages concluded on the ground. The Aussies are gleeful. To them, North America is a strategically growing market: the USA was second largest behind Britain, and Canada overtook New Zealand to reach third place in value last year; Australia is also the USA’s third-largest supplier, behind Italy and France. The deal is far less interesting for US exporters who send only a few drops the other way round, but American officials are quietly negotiating a new Accord with their European counterparts, that will cover shipments to their largest client well beyond 2003. This is the date of expiry of current provisions, which exempt US wines from meeting all the conditions imposed by the EU on wines entering its fief. EU-USA talks may be dragging on in the eyes of many but, like top wines, top-level negotiations take a long time to reach maturity. 

Similar state applies to the two remaining important batches of rules detailing the reformed wine policy of the EU with respect to international trade and to the designation and labelling of wines. Trade rules have been approved by the Wine Management Committee, but they were still not out at the time of writing. Regulations on designation and labelling have also run into difficulties recently and led the Council of Ministers to push back the deadline for their publication by another two months, until the end of May. This is not to suggest that EU officials may have been idle in some way, quite the opposite: amongst other pressing issues they had to find ways in which to dispose of the no-longer subsidised alcohol generated by market intervention: 25 million litres of such alcohol were cleared by the Management Committee, for use in the production of fuel sold in the USA, and another ten million for auction to industrial users. The matter is becoming ever-more urgent as Italy and France have both been pushing for renewed ‘crisis’ distillations, of 250 and 200 million litres of wine respectively. These come in addition to the 260 million of litres agreed already by the Management Committee for Spain, and would have caused some budgetary problems only a year ago. 

Luckily though, this year’s budget provides for additional money worth almost half a billion euros. Of the €1’153 million available for spending on wine during 2001, €267 million has been earmarked for distillation already, up 12% on last year (the rest of the increase goes mostly towards restructuring vineyards). No need to worry here either, as EU officials have much experience in juggling with these numbers. Meeting WTO commitments, not to support wine production beyond agreed limits, may prove a slightly more difficult task but, surely, there must be an easy way out of this quagmire too. So there is hardly any need for concern in the soft-spoken, well-meaning world of wine. No need for sobering details, naked truths or long ranging views either. All it takes to solve wine’s economic woes is a bit more time and a few more talks, in five languages if need be. This is the age of communication after all (www.span-e.com). 

© pierre spahni – first published in Harpers Wine and Spirit Weekly on April 27th, 2001.

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There’s no point in whining 

Last year had been expected to be a difficult one because of the ‘millennium hangover’, yet the latest estimates of world exports released by the Office international de la vigne et du vin (OIV) suggest that volumes have edged up by half a percent on 1999, to just over 6.5 billion litres. Italy and France may have shed more than 100 million litres each, not to mention a few tears, but all New World wine countries increased exports – except for Argentina, which is exporting more quality wines than ordinary ones (losing 4% in volume but gained more than 6% in value). Making a dent in Italy and France’s combined share of 50% of international wine exchanges (including the EU’s internal trade) can only enliven the international wine trade. And this is exactly what has happened in the past five years: volumes increased by over 20% between the first and the second half of the 1990s, while consumption edged back slightly and production is on the rise again.

Can a similar increase in trade be repeated in the next five years? Nearly one in three bottles drunk around the world is now imported. Increasing international trade may be the logical outcome of the fall in demand in traditional producing countries and the rise in consumption elsewhere. But this was already true a decade ago and cannot account for the 3.9% annual volume growth between 1996 and 2000. A major liberalisation has swept through world trade since the mid-1990s, which did not spare agriculture or wine. Should similar good economic conditions prevail worldwide, another successful trade round will still be needed to maintain such vigorous growth. 

Given the current climate, will France and the other leading wine producers let the Union bind them with even more commitments at the WTO, which seem to mainly benefit New World exporters? These have more or less doubled their share of traded volumes between 1991-1995 and 1996-2000, from 8 to 15%, mainly at the cost of EU players (Italy, France, Spain, Germany and Portugal together lost 5 percentage points, from 75 to 70% according to OIV). Moldova is struggling, as are Central and East-European states – in spite of preferential agreements with the EU. A dim light flickers from North-Africa, which is also geared towards the EU. On the other side of the Atlantic, George W. Bush is poised to annex the rest of the American continent in a free trade association. And the Aussies are gently preparing to swap allegiance from the UK to the USA , while still courting Asia. It would be surprising if the EU were to allow a further deterioration of its net wine trade surplus (down a third on the previous marketing year, to 444 million in 2000/01) and did nothing to boost its dwindling share of global trade in such an aggressive market.

Yet, surely, the current spate of international mergers and acquisitions will ease trade tensions, especially in the case of EU-based global players acquiring major New World exporters. Perhaps, but the world wine industry remains highly fragmented, and wine trade is a politically-charged issue. Some City analysts have forecast that the production of Australia, the USA, Chile and South Africa will increase at rates ranging from a fifth to a third by 2005. Most of these new wines are unlikely to be consumed domestically, or exported to new markets, but will be shipped to existing ones – for the moment at least. This is likely to increase trade further over the next five years, but the international market will by then have become a even more hostile place. 

It does not necessarily take a downturn in world demand for a market to become unfriendly – aggressive expansion by one or two players is usually enough to build overcapacity and send prices tumbling. Attempting to halt this by trying to lure the New World into capping output, as some would like to do, not only runs against existing commitments to more than 100 nations at the WTO, but also blatantly ignores the free-enterprise spirit of the New World. Such a policy would probably be just as ineffective and wasteful as previous attempts. But French demonstrators have twice successfully waged ‘wine wars’ against Italy and forced the EU to stem the tide; they have been flexing their muscles again recently, as if every step towards more free trade has to be negotiated on French streets first. When it comes to wine, rest assured that France will hold centre stage for some while yet. 

© pierre spahni – first published in Harpers Wine and Spirit Weekly on May 25th, 2001.

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