The CoOL change is here

In brief 8 min read

We provide an update on the new Country of Origin Labelling regime which came into effect on 1 July 2016 and the Federal Government’s proposed changes to the safe harbour provisions under the Australian Consumer Law.

How does it affect you?

• New country of origin labelling standards have been introduced for 'priority foods' including fruit and vegetables, meat, fish, dairy, eggs and grains.
• Businesses have a 24-month transition period in which to update their labels.
• The Federal Government has released a Bill proposing changes to the safe harbour provisions under the Australian Consumer Law (ACL) for country of origin claims.
• If the Bill is passed, businesses will no longer have to satisfy the '50 per cent production cost test' which should simplify the process of determining when 'made in' claims can be made.

Mandatory labels for priority foods

The Information Standard

In our last Food Law Bulletin, we reported on proposed changes to Country of Origin labelling laws. Since then, the Government has released the final version of the Country of Origin Food Labelling Information Standard 2016 under the ACL (the Information Standard), which took effect from 1 July 2016.

The Information Standard requires labels for food products grown, produced or made in Australia to carry:

• a country of origin label with the well-known kangaroo logo; and
• a bar graphic indicating the amount of Australian ingredients present in the product, by ingoing weight.

Products that are only packed in Australia will not carry the kangaroo logo, as the food is not of Australian origin, but will still carry the bar chart. Wholly imported products will not need to carry the kangaroo logo or the bar chart.

Some examples of the new labels are set out below:

The new labels will only apply to 'priority foods'. The Information Standard specifies a 'non-priority' list of foods that are exempt from the new labelling requirements such as confectionery, tea, coffee and alcoholic beverages. Any food not included on the non-priority list should be considered a priority food.

There is a 24-month transition period for businesses to update their labels in line with the Information Standard. From 1 July 2018, compliance with the Standard will become mandatory pursuant to section 136 of the ACL, and pecuniary penalties may apply for noncompliance. Section 31 of the Information Standard also requires businesses to keep records supporting proportion claims for 12 months after the sale of the relevant goods, so it continues to be important for businesses to ensure they have adequate material to substantiate all country of origin claims.

Proposed changes to country of origin safe harbour provisions

The Competition and Consumer Amendment (Country of Origin) Bill 2016 is designed to complement the Information Standard by introducing changes to some of the 'safe harbour' provisions businesses can rely on to justify their country of origin claims.¹ The Bill, introduced earlier this year, was not passed by both Houses before the dissolution of Parliament, and will now be a matter for consideration by the incoming Federal Government.

Businesses will not be found to have made false or misleading claims about country of origin if they meet certain criteria set out in section 255 of the ACL. The most significant changes proposed to these provisions are set out below.

Abolition of production test for 'made in' claims

Under section 255(1), a representation as to the country of origin of goods (for 'made in' claims) will not be false or misleading or deceptive where it is shown that:

1. the goods have been substantially transformed in that country; and
2. 50 per cent or more of the total cost of producing or manufacturing the goods as worked out under section 256 is attributable to production or manufacturing processes that occurred in that country.

The Bill proposes the removal of the 50 per cent production test in (b) above, which is widely considered to be impractical and burdensome for business. As such, businesses will only be required to show that the goods were substantially transformed in the relevant country to justify a 'made-in' claim

Definition of 'substantially transformed'

The Bill also proposes changing the definition of 'substantially transformed', to focus on the ingredients or components the goods are made from.

• Current definition: where the goods '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'.
• New definition: where the goods are 'fundamentally different in identity, nature or essential character from all of their ingredients or components that were imported'.

The Explanatory Memorandum gives the example of Brazilian cacao imported into Belgium, which is then converted to chocolate using Belgian butter and sugar. It is moulded into truffles before export to Australia. If this product were labelled as 'Made in Belgium' it would meet this safe harbour defence, as the chocolate is 'fundamentally different in identity' from the raw cacao ingredient imported from Brazil.

Beware of generic descriptions that could mislead

It is important to remember that the obligation not to mislead or deceive consumers about country of origin extends beyond direct claims such as 'Made in Australia'. Generic claims about location could potentially create a false impression that a product is made or grown in a particular country.

A recent New Zealand High Court decision illustrates this point. In that case, the Commerce Commission (the New Zealand equivalent of the ACCC) alleged that the company, New Zealand Nutritionals, had contravened the Fair Trading Act 1986 by labelling and marketing its goat's milk dietary supplements as:

• 'New Zealand made'; and

• '100% NZ made and proud of it'.

While the end products (tablets and powder) were manufactured in New Zealand, the majority of the ingredients, including the goat's milk powder, were imported from Spain. The High Court agreed with the Commission that the representations were misleading.

Under the Information Standard, it is likely an analogous goat's milk product in Australia (if classed as a priority food) would be labelled as 'Made in Australia from X% Australian ingredients'. If a 'made in' claim could not be substantiated under the substantial transformation test, then a 'Packed in Australia, Made in Spain' label may apply.

Conclusion

Businesses have until 1 July 2018 to transition to the new labelling Standard for priority foods, but are being encouraged to voluntarily adopt the labels now. The Australian Government has published a Style Guide and Country of Origin Labelling Tool to assist with developing compliant labels, which are available online.

While the Bill amending the safe harbour provisions has not yet been passed, it serves as a timely reminder of the importance of ensuring your business has adequate information systems in place to support its country of origin claims. The ACCC continues to have the power to issue substantiation notices, and serious penalties apply for false or misleading representations.