No more whining about geographical indications: assessing the 2005 agreement between the United States and the European community on the trade in wine.

• Author: Rose, Brian

1. INTRODUCTION A. The Winds of War B. The Decline of European Dominance C. Increased U.S. Presence in Europe D. The American Wine Market 1. The Development of the Industry 2. Current Trends in American Consumption 3. The American Wine Producers E. The Stakes in the Global Wine Trade II. DEVELOPMENT OF LEGAL PROTECTIONS FOR WINE A. European Protection of Geographical Indications B. American Protection of Place of Origin 1. BATF Regulations 2. 26 U.S.C. [section] 5388: Codification of Semi-Generics C. International Cooperation for the Protection of Geographical Indications 1. Early International Agreements 2. Trade-Related Aspects of Intellectual Property Rights D. United States and European Community Bilateral Wine Accords 1. The Wine Accord of 1983 2. Temporary Extensions and an Escalating "Wine War" E. The Wine Agreement of March 2006 III. ASSESSING THE IMPACT OF THE WINE AGREEMENT A. The Future of TRIPS B. The Future of the United States-European Community Trade in Wine IV. CONCLUSION I. INTRODUCTION

   1. The Winds of War

      On March 10, 2006, the United States and the European Community entered into the Agreement between the United States of America and the European Community on Trade in Wine (the Wine Agreement). (1) With this agreement, the European Community and the United States averted an intercontinental "Wine War" concerning the treatment of wine imports (2) that had been looming for 22 years. (3) Specifically, the Wine Agreement attempts to settle differences concerning winemaking practices and the labeling of a wine's place of origin, yet the parties remain far apart on these issues. (4)

      At the center of the ongoing conflict between the United States and the European Community is a fundamental disagreement about how a wine's origin should be described to the consumer and legally protected. (5) While the United States has relied on trademark law to regulate the description of a wine's origin, the European Community has established and advocated a system of "geographical indications," separate and apart from trademark designations, to identify the historically recognizable sources of wine. (6) Geographical indications, which are not limited to wine, are protected geographical references which evoke a certain quality and character of the products arising from a given region. (7) For example, the European Community would assert that Tott's California Champagne should be barred from the market because it misleads the customer: according to the European view, "champagne" describes not just any sparkling white wine, but sparkling white wine made from chardonnay grapes grown in the Champagne region of France. (8)

      The European Community's emphasis on geographical indications derives from the belief that wine is more than an ordinary agricultural product made from grapes. European wine producers and connoisseurs employ the term terroir to reflect the concept that a wine's taste evokes the artistic talents of the winemaker as well as the "[c]limate, soils, drainage, elevation, slope, [and] sun exposure" of the land on which the grapes are grown: (9)

      This taste is found in the minerality of a lean, lemony Chablis made from Chardonnay grapes grown in limestone soils in northern Burgundy. It's in the smoky, meaty notes of a Syrah from the Cote Rotie ("roasted slopes") in France's Rhone Valley. It's in the pungently herbal character of a Sauvignon Blanc made in New Zealand's cool, marine-influenced Marlborough region. It's in the dark berry, pepper and spice in an old-vine Dry Creek Zinfandel made in sun-baked Sonoma County. (10) More practically speaking, however, the European Community's advocacy for the protection of geographical indications should be understood as a desire to protect Europe's historical dominance of the global wine market at a time of increasing threats from America and other "New World" producers in places such as Australia, New Zealand, South Africa, and Chile. (11) In this way, European advocacy of the use of geographical indications can be interpreted as an agricultural subsidy to one of its most important sources of economic output. (12)

   2. The Decline of European Dominance

      Despite Europe's historical control over the world's wine trade, several factors have coalesced to place the European market position in peril. First, Europe's wine producers face declining domestic consumption. (13) For example, in France, where wine had traditionally been served with every meal, concerns about the health effects of alcohol and increased dissatisfaction with the taste of wine have relegated it to a beverage reserved for special occasions. (14) By contrast, wine consumption in the United States has steadily increased since 1996. (15) Americans are embracing the "lifestyle associated with fine wine and food" and have begun to seek out better quality wines while moving away from cheaper jug-quality products sold in supermarkets. (16)

      Next, although greater demand in the United States would seem to present an opportunity for European wine producers, American consumption patterns and market forces have created a barrier to the entry of European wines. When compared to European competitors, American winemakers are able to meet the American wine consumer's quality-driven needs at a much more reasonable price point due to an increased grape supply and the concomitant decreased price of winegrapes. (17) In addition, European wine producers are hamstrung by a weak dollar-to-euro exchange rate which increases the cost of European wines in the United States. (18)

      European wine producers are facing stiff competition in the United States not only from higher quality American wines but also from wines produced in other New World countries. (19) For example, while France has been losing market share in the United States over the past few years, (20) "the main culprit" for this decline was not American producers, but New World wines from Australia and Chile that "together managed to roughly double their value share of US imports" in the 1990s. (21) Australia has been particularly successful in the U.S. market: the importation of Australian wines to the United States has increased by roughly 20% in 2004. (22)

      Part of the success of these New World wines is due to the "integrated operations" of the winemakers that combine both grape growing and wine making within a single corporate entity. (23) By integrating grape growing and wine production, as well as embracing technology, New World winemakers have produced wines that are more consistent in quality than those of their European competitors. (24) Further, New World wine producers have been better able to capitalize on the American consumer's strong affinity for brand. "Australian brands like Yellow Tail and the Little Penguin, created and packaged for American tastes, have been tremendous successes [in the United States]. Where the grapes are grown is not important, just what's in the bottle--easy-going, fruity, inexpensive wines that have a consistency of quality." (25) The American identification of brand as a marker of quality facilitates the impulsive nature of the typical American wine purchase experience: the American consumer purchases wine, on average, only three hours before consumption. (26)

   3. Increased U.S. Presence in Europe

      Although the United States remains a major market for European wines, America has become a serious competitor for the European wine consumer. (27) In total, the United States exported $794 million in wine and wine products worldwide in 2004, a 28% increase over the previous year. (28) European imports of American wine in 2004 accounted for roughly 61% of U.S. exports in value (more than $484 million). (29) And while American wines have traditionally had trouble penetrating the markets of Europe's largest wine producers, an increased amount of American wine was imported to Italy, France, and Spain in 2004. (30) American wines were particularly successful in Italy; in 2004, exports of U.S. wine to Italy increased "over [one thousand] percent in value to $12.5 million and of over [two thousand] percent in quantity to 20.8 thousand hectoliters [hl]." (31) Imports of American wine by France and Spain have also increased steadily over the past several years. (32)

      There are two reasons for increased American success in the European market. First, American winemakers have dramatically increased the quality of their product so that they can finally compete "cork to cork" with European producers. (33) Second, given the similar quality of American and European wine, significant price differences make American wine a much better value; "[i]n 2000-2002, the average U.S. wine export unit value was less than [two dollars] per litre, compared with around [four dollars]" for European imports into the United States. (34) As noted above, American winemakers have been able to produce wine more cheaply than their European counterparts as a result of increased grape supply. (35) In addition, the current value of the dollar as compared to the euro amplifies price differences in the product. (36)

   4. The American Wine Market

      1. The Development of the Industry

         The U.S. wine industry arose with European colonization. (37) After early efforts to establish wineries in the East failed, the spread of Spanish missionaries to California, the 1849 Gold Rush, and the ascendance of California to statehood resulted in an increase in American wine production from 9,462 hl in 1850 to 1.55 million hl in the early 1900s. (38) Roughly 85% of U.S. wine production between 1904 and 1908 came from California. (39) The prohibition movement between 1920 and 1933 severely stunted the U.S. wine industry; nearly all of California's seven hundred commercial wineries were forced to close their doors while the 18th Amendment to the U.S. Constitution, which implemented the prohibition of alcohol, was in effect. (40) Today, California is responsible for more than 90% of total U.S...