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JOINT STANDING COMMITTEE ON TREATIES
16/03/2009
Treaties tabled on 3 February 2009

CHAIR —We will now take evidence on the Agreement between Australia and the European Community on Trade in Wine. I draw to the attention of the committee that we have received a submission from Dr Matthew Rimmer, who is an academic at the Australian National University College of Law. Is it the wish of the committee that the submission from Dr Rimmer and associated exhibits as listed in the supplementary meeting papers for treaties tabled on 3 February be received as evidence and authorised for publication? There being no objection, it is so ordered.

Although the committee does not require you to give evidence under oath I should advise you that this hearing is a legal proceeding of the parliament and warrants the same respect as proceedings of the House and the Senate. The giving of false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. If you nominate to take any questions on notice, could you please ensure that your written response to questions reaches the committee secretariat within seven working days of your receipt of the transcript of today’s proceedings. I invite you to make some introductory remarks before we proceed to questions.

Mr Williamson —Thank you, Chair. By way of introduction, Australia and the European Community signed the Australia-European Community agreement on trade in wine on 24 January 1994. This started the process of phasing out the use by Australian winemakers of European Union geographical indications and Australia committed to protect a number of the European Community’s so-called traditional expressions. This 1994 agreement, however, left a number of matters regarding the protection of geographical indications and traditional expressions unresolved. For the benefit of the committee, a ‘geographical indication’ is a label or sign used on goods that have a specific geographical origin and possess qualities or a reputation that are due to that place of origin. Under the agreement, the European Community and Australia will prevent the use of each other’s geographical indications to describe wine. ‘Traditional expressions’ are words or expressions used in the description and presentation of a wine to refer to the method of production, or to the quality, colour or type of the wine.

The new agreement finalises the matters left unresolved from the 1994 agreement and updates this previous agreement in a number of key areas. It is particularly important to note that the new agreement has significant advantages for Australian wine producers and exporters, because all Australian winemaking techniques will now be accepted by the European Community. In total, 16 additional winemaking practices, including the use of oak chips, spinning cone technology and reverse osmosis will be added to the 28 approved in the 1994 agreement. In addition, any new winemaking practices will automatically receive provisional approval from the date of notification. This is a major step forward for the industry, as it secures access to Australia’s largest wine export market—the European Community. In the context of this market the European Community accounted for just over half of all Australian wine exports in 2007-08. During that year Australia exported 397 million litres of wine to the European Community worth A$1.3 billion while importing 18 million litres from Europe valued at A$212 million.

It is fair to say that the Australian wine industry strongly supports the new agreement coming into force. The industry, through its peak representative organisation, the Winemakers Federation of Australia, was closely involved in the negotiations for the new agreement. The industry’s statutory, regulatory and marketing authority, the Australian Wine and Brandy Corporation—Mr Stephen Guy is here today representing the corporation—was also intrinsic in the development of the new agreement.

The negotiating team was led by the Department of Agriculture, Fisheries and Forestry with representatives from Department of Foreign Affairs and Trade and IP Australia as well as from the Australian Wine and Brandy Corporation and the Winemakers Federation of Australia. Wine industry leaders have also been directly briefed through the Australian Wine and Brandy Corporation’s Market Development Advisory Committee and its predecessor, the International Trade Advisory Committee. These committees collectively comprise representatives of large- and medium-scale winemakers, and they have been kept briefed on progress over the course of the negotiations—which, I might add, began around 2002. They have also been consulted on negotiating positions at all points in the process. The Winemakers Federation of Australia has also been provided with regular briefings to its board and members, which comprises an equal number of small-, medium- and large-scale winemakers and works on a consensus basis.

Fortified winemakers are considered to be the most affected by the new agreement. While most winemakers have shifted from using European geographical indications, style and names to describe their wines, shifting instead to grape variety and Australian region names, for fortified winemakers there were no obvious alternative names, particularly in the case of sherry and tokay. However, under the previous government a grant of $500,000 was provided towards a fortified wine rebadging project which looked at developing alternative names and using this opportunity to reposition the fortified sector. This project is nearing completion and the renaming will see ‘sherry’ being referred to as ‘apera’ within a year of the agreement coming into force and ‘tokay’ will be known as ‘topaque’ within 10 years of that date.

With support of this project and the concessions from the European community concerning use by Australian winemakers of terms such as ‘cream’, ‘vintage’, ‘tawny’ and ‘ruby’, the fortified sector supports the new agreement. State and territory government officials have also endorsed the agreement, following the circulation of a national interest analysis and regulation impact statement through the Joint Standing Committee on Treaties. There are no implications from the agreement for the state and territory governments, and we are not aware of any issues they have with the proposed agreement. That concludes my opening statement. I am happy to take you through the details of the agreement, if you wish. If not, we are more than happy to take questions.

CHAIR —Was any consideration given to rebadging any of the fortified wines as rocket fuel! The national interest analysis describes the impact of the agreement on the fortified wine industry as significant. Can you tell us more about measures the fortified wine industry will need to take to be compliant with the agreement?

Mr Guy —I think if you were to take an Australian winemaker back to 1994 when the initial agreement was negotiated and told them that one day they would have to concede the use of the term ‘port’, for instance, they would have replied, ‘That’s okay because we still have access to the terms ‘ruby’, ‘tawny’ and ‘vintage’ to describe and differentiate the various classes of fortified wine. Of course, in the meantime, the rejoinder from the Europeans was that those words—‘ruby’, ‘tawny’ and ‘vintage’—along with a significant number of others, were traditional European expressions and therefore deserved to be afforded protection along the same lines as geographical indications. That was the main reason in this agreement that the industry was very keen not to concede use of those three terms and, indeed, we have clawed back the use of ‘ruby’, ‘tawny’ and ‘vintage’ for continuing use by Australian winemakers in any market, and that even includes European markets. We see that as a significant benefit from this agreement.

CHAIR —The committee received a submission which notes that previous agreements which regulate the naming of wines are under pressure to be expanded to larger geographical regions, particularly the Champagne region. Does that kind of expansion contradict the purpose of the agreement in the first place which is to contain the labelling to strict geographic regions? Do you think that has the potential to undermine the purpose of the agreement?

Mr Guy —Yes, it is true that the French have enlarged the area of their country that the wines from which are entitled to the use of the designation ‘champagne’. Australia could hardly object, however, since we have one of the largest geographical indications of all, being south-eastern Australia. Although it is possible to make an academic argument that when geographical indications are subject to change over time it might undermine the very principle of a GI, which is that there is a certain reputation, quality or character associated with wines from that defined region which are somehow specific to that defined region and when that agreement is subject to change geographically somehow the concept of a geographical indication is undermined. I think it is an academic argument and I think it is of little practical interest to Australian winemakers, who will not be able to continue the use of the word ‘champagne’ regardless of changes that are made to the boundaries of champagne within France.

CHAIR —The agreement has been negotiated over a 13-year period. Why has it taken that long?

Mr Williamson —This revised agreement in fact started in 2002. It was initialled in 2007. So it was a five-year negotiating period. It is a very detailed agreement. There are some provisions in there that were subject to some serious negotiation and concessions from both sides. With an agreement like that, you would expect time to be taken. There are some pretty sensitive issues in the agreement that were dealt with the constructively.

Senator WORTLEY —Mr Williamson, you said in your introductory statement that all Australian winemaking techniques will be approved and that is obviously of benefit to the Australian winemaking industry. Can you tell us about other benefits that will be achieved through this agreement?

Mr Williamson —I can tell you about the benefits at a high level, but I think Mr Guy would be best placed to provide you with more detailed information on that in terms of the benefits as to labelling and from the provisional agreement on winemaking practices. There is a whole range of benefits that accrue to the Australian industry from this agreement.

Mr Guy —Probably the main benefit is that this agreement will provide certainty to Australian winemakers going forward because it includes a standstill provision which prevents the European Union from imposing any more onerous requirements, such as labelling requirements or wine compositional requirements, on wine from this country in the future. So it will give Australian winemakers confidence to continue to produce wines in the manner in which we do in this country and to present them in the way that we typically do and not be denied access to European markets. I think that is probably the main benefit.

Senator BIRMINGHAM —Gentlemen, thank you for your time today. Mr Guy, it is very good to see you again. Can I touch firstly on the industry support through the $500,000 package. Is that targeted purely to the adjustment for fortifieds?

Mr Williamson —Yes.

Senator BIRMINGHAM —Over what period of time is that? What restrictions or otherwise apply to that package as to how it can be used?

Mr Martinez —The project started a while ago and, now that replacement names have been developed, I think it is essentially at the stage of relaunching the new products, if you like. So the project is nearing completion. In terms of applicability, the word Sherry will need to be phased out within a year of the agreement coming into force and for Tokay it will be within 10 years of the agreement coming into force. So, apart from Tokay, all the other names—like Port and Sherry—will have to be phased out within a year.

Mr Guy —I would add that the Australian Wine and Brandy Corporation has already lodged an application for registration of the terms, Apera and Topaqe, as trademarks with IP Australia as certification marks. So these words will be available to all Australian winemakers provided they meet the conditions, yet to be determined, which will be associated with those two words. But I can also comment that, although there is a 10-year phase-out associated with the Hungarian geographical indication Tokay, Australian winemakers are wasting no time. In fact, I am aware of at least one that has already redesigned the label of a Rutherglen product with the brand Topaqe. That could well be on shelves within Australia within weeks.

Senator BIRMINGHAM —Just as consumers adjusted fairly quickly—and they were led by industry—to the transition from Champagne to a range of brand names based around the terminology of sparkling and otherwise, they should now expect to be seeing vintage, Tawny, Topaqe and the like replacing these items. Going back to the funding package, how much has been expended so far of that $500,000?

Mr Martinez —The area I work in is not directly responsible for it; another section is. I cannot answer your question but I am happy to take it on notice.

Senator BIRMINGHAM —Yes, if you could; thank you. That funding has obviously assisted in establishing the names and the alternative names and how they might be used. Does it also extend to assisting in the promotion of those names?

Mr Martinez —That is correct. The funding was provided essentially to do extensive research and surveying as to customers’ preferences and how readily acceptable the names would be. It was also about rebadging and relaunching. Essentially, now that the names have been registered and agreed it is entering the final stage of relaunching.

Senator BIRMINGHAM —In relation to tokay becoming topaque, is the relaunching and rebadging of that with government support also taking place in the short term, given that we have many first leaders in the industry seeking to change that?

Mr Williamson —Could you repeat that question?

Senator BIRMINGHAM —With the 10-year time frame for the change from tokay to topaque, is the government support front-ended over that 10 years to support those industry first leaders who are changing names and repackaging now or is it not until the 10-year critical date hits by which time many presumably would have already changed?

Mr Guy —As far as I am aware, most of that $500,000 has already been expended on the market research, which led to the development and selection of the new names. Only a relatively small proportion remains to support the marketing of those products.

Senator BIRMINGHAM —Perhaps the department could provide us with the details of what support there is for those producers to market their new product names. Is legislative change required as a result of the agreement?

Mr Martinez —That is correct. There will be legislative changes required to the Australian Wine and Brandy Corporations Act 1980, obviously, as a result of the registration of new GIs, and there will also be consequential amendments required to the Trade Marks Act 1995 to ensure that provisions in the Australian Wine and Brandy Corporations Act are correctly mirrored in the Trade Marks Act.

Senator BIRMINGHAM —What is the time line for that change to meet the terms of the agreement?

Mr Martinez —Essentially, the department is working towards tabling an amendment bill during the winter session of parliament this year and aiming to have the agreement come into force sometime in the second half of this calendar year.

Mr Williamson —I would like to be clear that the agreement says nothing of the timing of the legislation. That is a matter for the Australian parliament. In fact, the agreement only comes into force when the enacting legislation has been enacted by the Australian parliament. But the agreement itself says nothing about the operations of the parliament.

Senator BIRMINGHAM —Are there other FTAs or other changes that you will be bundling up in that legislative package?

Mr Martinez —Yes, there are changes to the Label Integrity Program. I have not been closely involved with that side of things, but I believe the opportunity will be taken to ensure that all the requirements that need to be met to allow the agreement to come into force will be covered.

Senator BIRMINGHAM —Okay. We will see that legislation in due course. I assume comparable legislation is required in the EC?

Mr Guy —No. In Europe the treaty itself is a statutory instrument. It has the force of law, so it is not congruent with here.

Mr Martinez —The EC side of the equation has been settled, as Stephen indicated. I believe that at the end of last year the agreement was published in what is called the official journal, which is equivalent of the Australian gazette. So, essentially, the agreement is ready to come into force.

Senator BIRMINGHAM —Lastly, in terms of GIs and traditional expressions and so on, does this agreement place an increased responsibility on AWBC to assess any of those European GIs or are they purely a matter for the Europeans to assess and that, in a sense, we provide recognition for all those listed automatically upon the Europeans saying, ‘We have assessed it and settled that it is a GI’?

Mr Guy —Not in terms of assessment; in terms of determination of the geographical indications. But enforcement of the provisions is incumbent upon AWBC. We are the competent body established for the purposes of enforcing the treaty. But in principle there is no difference between the obligations that we are required to fulfil now and what we were required to fulfil under the earlier agreement. It is just the extent in terms of the number of geographical indications that we now have to deal with. Of course, since the signing of the initial agreement back in 1994, a number of countries have acceded to the European Union. There are now 27 member states not 15. So there is a much larger and broader range of geographical indications but the principle that AWBC is there to enforce—the provisions of the agreement—remains the same.

Senator BIRMINGHAM —If a Spanish winery were to send a shipment of wine to Australia that was called ‘champagne’, for example, would that be an enforcement matter for the AWBC to enforce?

Mr Guy —That is exactly right. Perhaps I should distinguish between the level of protection that is afforded to geographical indications and that afforded to traditional expressions. Were a Californian burgundy—a third country product—using a European geographical indication presented on the Australian market, AWBC would be required to prevent the sale of such a wine. But were a Californian spatlese—that is a traditional European expression meaning late harvest—presented on the Australian market, that would be perfectly legitimate because even though, under the agreement, Australian winemakers have agreed not to use those traditional expressions, we do not need to prevent third countries from using them. We are not recognising intellectual property in traditional expressions in the same way that we are with geographical indications.

Senator BIRMINGHAM —In relation to those geographical indications for third countries, do the other major wine producing countries recognise those GIs of the EC?

Mr Guy —Every country of course that is a member of the WTO has obligations under the TRIPs agreement, which does afford an extended level of protection to the geographical indications of wines and spirits. But, over and above that, a number of wine-producing countries have individually signed their own bilateral agreements with the European Union—Canada, the United States and South Africa come to mind, and Chile, though broader, was part of a free trade agreement

Senator BIRMINGHAM —Whilst there may be some exceptions in general, we are not enforcing terms on the United States, South African or other winemakers from outside the EC or Australia that they do not already recognise?

Mr Guy —That is exactly right. There should not be any objections to this from any third country in terms of any breach of WTO obligations that Australia has.

Ms PARKE —I am interested to know what the catalyst was for most of the Australian wine industry moving away from the geographical indications. Was it the 1994 agreement that anticipated an agreement on phase-out dates? As most of the wine industry has moved that way, why didn’t the fortified wine industry move that way along with the rest of the industry?

Mr Guy —The catalyst was the request from the European Union for us not to use these words anymore. But, having said that, I think it would be wrong to characterise this as simply Australia being forced to stop using these words and in return receiving some benefits in terms of wine labelling and winemaking practices in that market. I think the result of this requirement to stop using those words has in fact benefited Australian wine producers because it has allowed us to be innovative, you could say forced us to be innovative, in terms of differentiating our product in different ways. So, even though the word ‘champagne’ technically is still available to Australian producers until this agreement comes into force, it would not be possible to find an Australian product described using that word anymore because we have moved on. We have not merely moved on prosaically just replacing the word ‘champagne’ with Australian sparkling wine but we have differentiated our products using recognisable brand names such as Yarra Glen, Croser, Arras, Midnight Cuvee—these sorts of words are household names in Australia now. So I think it would be wrong to say that the Australian industry has suffered in any way through having been forced to stop using these words.

Coming back to your question about fortified producers, yes, they were probably the segment that was most directly impacted and that is probably why the terms ‘port’ and ‘sherry’ were in that final tranche of geographical indications for which there was no phase-out date determined in the original agreement. But, as I said earlier, in relation to port there are viable alternatives in ruby, tawny and vintage in order to continue presenting those products. With sherry, it is more difficult but we are hoping and expect the word Apera, being short for aperitif, to be a reasonable replacement which over time will develop some consumer cachet.

Ms PARKE —What about words like ‘methode champenoise’? I know that some Australian sparklings still put that at the bottom. Presumably that would be prohibited under the new agreement under article 3.

Mr Guy —Methode champenoise is not protected under article 3 of the agreement but rather under a joint declaration concerning article 13(3)(c) of the agreement.

Ms PARKE —Those sorts of things will be phased out.

Mr Guy —Yes.

Mr MURPHY —I have a few questions for Mr Guy and I want to pick up on the introductory remarks made by Mr Williamson in terms of this agreement improving our export performance. I have to declare an interest here. I have been talking to a lot of wine producers and exporters particularly over the last 12 months, so what I am about to ask Mr Guy is without prejudice. There has been quite a bit of criticism of the AWBC from the smaller wine producers and the smaller exporters because they would argue that the AWBC is very much driven by volumes of wine exported. I am interested in what this agreement might do for the smaller producers, the smaller exporters, who would argue that their product is a superior product—and against a background that dollar for dollar I do not think there would be anyone in this room who would not think that Australian wine is superior to French wine.

When one goes overseas there is the ubiquitous presence of Penfolds Rawson’s Retreat, for example, Orlando’s Jacob’s Creek, Baseline Shiraz, Hardys Nottage Hill, an abundance of Yellow Tail. People who know anything about wine would say, ‘Whilst it is very good that the volumes of our exports are improving our trade performance, what is this doing to improve the image of the products that we make here in Australia?’ I am not being critical of you personally, but I am interested to know how the so-called better quality wines can be exported all over the world and enhance our overall reputation.

When I have been abroad and Rawson’s Retreat is trotted out, Nottage Hill is trotted out, Jacob’s Creek is trotted out and Yellow Tail is trotted out, they do not actually get well reviewed. Nevertheless, it has made a very significant contribution to our performance as evidenced by the latest statistic that the worldwide exports to June 2007 of 800 million litres will result in $3 billion, which is not insignificant. I am interested in what AWBC is doing to improve the image of our wine overseas, apart from just concentrating on volumes which is obviously a benefit to trade.

Mr Guy —I do not think it is fair to say that AWBC is only interested in volumes. In fact, our general manager for market development recently said that we would willingly sacrifice a couple of percentage points of market share in exchange for enhanced profitability. So it is very much the objective of the Australian Wine and Brandy Corporation to increase the average price per litre of Australian wine exported. To that end, we have developed in recent years a marketing strategy designed to do precisely that: to promote Australia’s fine wine offering both at the regional level and at the iconic end. That I think segues quite well into a discussion of the treaty because whereas we have been talking about geographical indications from a European context of course this protection of graphical indications is reciprocal and the Europeans must also protect Australia’s GIs, of which there are something like 107 that have now been determined. So a promotion of regionality, regional differences and the unique characteristics of wines associated with those regions, I think would probably disproportionately benefit small wine producers above the larger companies that have, as you say, been very successful in accessing supermarket shelves in the UK with high-volume, commercial wine product.

Mr MURPHY —There is Penfolds Rawson’s Retreat, for example, but what if you wanted to market something superior overseas, say, Penfolds Bin 28 Kalimna shiraz from South Australia, one of our premium wine-growing districts, I think Australians would like to see more done even if it means assisting the bigger players to deliver superior quality. I have been working on free trade agreements over the last 12 months and I accept that some of the tariffs are horrendous, particularly in South-East Asia, but there is a perception in South-East Asia that they ought to be serving us French wine, which galls me when I know the quality and price of our wine, as you do. This might be getting away from this agreement, but I would hope that this would go some way to improving our export performance with something a little better because clearly some of the product being sold in South-East Asia and presented as quality French wine would not measure up against some of the wines that we buy off the shelf in Australia for $20. That is a fact.

Mr Guy —I could not agree more. At all price points, the Australian wine offering is unequalled. In relation to Asia, you are right. There are very high tariff barriers in some countries, India perhaps being the most significant. But we have been working to erode those barriers and in that context it is interesting to see how Hong Kong, for instance, has reduced the tariff to zero. There are negotiations underway, as you know, with China aimed at lowering the barriers facing Australian wines accessing that market. In fact, China is now in the top 10 international destinations for Australian wine. Albeit off a low base, it is showing encouraging signs, at a time when our traditional markets are maturing and the growth that we have experienced over the last 10 to 15 years is showing signs not necessarily of decline but certainly of levelling out.

Mr MURPHY —Finally, I hope that we can exploit, for example, Hong Kong’s zero-tariff entry point to China, which is showing much more interest in our wine these days, to promote the better quality wines. I am heartened that the UK is buying more wine from us than the French. I think there is great capacity for us to become the No. 1 wine producer in the world, dollar for dollar. I do not think we can be beaten, and we can do a lot better than the No. 1 wine that is being sold in the UK, Jacob’s Creek. I am not being a snob, but we have better quality wines and we should be telling the world.

Mr Braddock —I would like to add a point of clarification, for the benefit of the committee, to an earlier comment made by Mr Guy with regard to the protection for traditional expressions. I think Mr Guy said that we are not required to prevent wines from third countries from using these traditional expressions. That is the case under the wine agreement, provided they comply with three conditions. The three conditions are that consumers are not misled, that the true origin of the wine is stated and that the use would not constitute unfair competition.

CHAIR —Thank you very much for attending to give evidence today.

Resolved (on motion by Senator Wortley):

That this committee authorises publication of the transcript of the evidence given before it at public hearing this day.

Committee adjourned at 11.02 am