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Country of Origin Claims – are they misleading?

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By John Sier, Principal, MST Lawyers

With Ford recently announcing the closure of its Australian manufacturing plants by 2016, we have been given a stark reminder of how costly Australian manufacturing has become.

The bottom line conscious management of many businesses are demanding cheaper alternatives. Unfortunately for the Australian economy, “cheaper” is becoming more and more synonymous with “importing” as the high Australian dollar is making overseas products more economically viable.

While many Australian manufacturers close their doors due to the difficulties of competing with cheaper imported product, those who remain can potentially use a simple country of origin representation as a valuable and free marketing strategy to compete. Quite often a consumer’s desire to support local manufacturers is often directly correlated with its purchasing decisions. As a result companies should definitely consider utilising a country of origin representation in order for their products to resonate in consumers’ minds. However, doing so requires careful analysis of the manufacturing processes to ensure all proposed country of origin representations will comply with the Australian Consumer Law (“ACL”).

What is a country of origin representation?

 A country of origin claim is a representation that identifies where the goods have been produced or manufactured.  Examples include:

  • “Australian Made”
  • “Manufactured in China”
  • “Product of Australia”
  • “Grown in New Zealand”

Misleading origin representations

There have been many instances where the Australian Competition and Consumer Commission (ACCC) has commenced proceedings against companies for making misleading and deceptive country of origin claims.

Under the provisions of the ACL a person must not:

  • engage in conduct that is misleading or deceptive or likely to mislead or deceive (s18);
  • make a false or misleading representation that goods are of a particular standard quality, value, grade, composition, style or model or have had a particular history (s29(1)(a) and s151(1)(a));
  • make a false or misleading representation concerning the place of origin of goods (s29(1)(k) and s151(1)(k)); and
  • engage in conduct that is liable to mislead the public as to the nature, the manufacturing process, the characteristics, the suitability for their purpose or the quantity of any goods (s33 and s155)

Defences

Part 5-3 of the ACL provides possible defences to proceedings brought under the above mentioned sections, with the exception of sections 33 and 155.

Part 5-3 categorises the country of origin defences into the following:

  1. A representation as to the country of origin of goods;
  2. A representation that goods are the produce of a particular country;
  3. A representation as to the country of origin of goods by means of a logo;
  4. A representation that goods were grown in a particular country; and
  5. A representation that ingredients or components of goods were grown in a particular country

Each category above has a separate defence which entails different requirements that will need to be satisfied.

With respect to general country of origin representations (category 1 above) there is a defence under s255(1) if the person satisfies the following requirements:

  1. the goods must have been substantially transformed in that country; and
  2. 50% or more of the total cost of producing or manufacturing the goods is attributable to production or manufacturing processes that occurred in that country; and
  3. The representation is not a representation to which produce of/product of representations or prescribed logo representations apply.

The person seeking to rely on a defence bears the evidential burden in establishing that they have satisfied the defence requirements. Accordingly, those who make a country of origin representation should be in a position to substantiate the country of origin claim before it is used.

Substantially transformed in that Country

Section 255(3) of the ACL states that “goods are substantially transformed in a country if they undergo a fundamental change in that country in form, appearance or nature such that the goods existing after the change are new and different goods from those existing before the change.”

 

Determining whether a good has been substantially transformed in a country is a question of degree. Fortunately, as section 255(3) states, the ACL does not require a fundamental change to each of the elements identified in the section. It is sufficient for there to be a fundamental change to either form, appearance or the nature of the goods.

Cost of Production

Section 256 states that the cost of producing or manufacturing goods is determined by adding up the following:

  • the amount of expenditure on materials in respect of the goods;
  • the amount of expenditure on labour in respect of the goods; and
  • the amount of expenditure on overheads in respect of the goods

The ACL prescribes how the above amounts need to be calculated. Consequently, these methods may not completely coincide with comprehensive accounting calculations used to determine the cost of production for other purposes.

Conclusion

Country of origin representations can be very valuable to all manufacturers, however they must not be made carelessly. Adequate analysis of the manufacturing process is required to ensure that any proposed representation will comply with the ACL.

If you would like advice on country of origin representations and any applicable defences, please contact our Corporate Advisory team on (03) 8540 0200.