Legal change of origin

24 October 2005




Let's take a breath after all the questions I have raised regarding development programmes and their (limited) success, although the question is not closed. On the contrary, we are just starting. If an importer of country X purchases hides from country Y and if the importer processes these hides in his country X, then the hides from country Y become automatically of X origin. That's very hot stuff indeed. This leaves a door open to misunderstandings if we want to avoid less diplomatic words. The same question applies to shoe uppers that are made in country A and soles produced in country B, all assembled in country C, making thus country C the country of production and origin of the shoe. In April, I wrote a Limeblast on the need to develop an origin branding 'Made in the EU'. It appears that the EU will not adopt this type of origin branding and that European countries will continue to apply national origin branding. Such a pity. We really lost an opportunity here, but then it seems the EU will have to do some real re-inventive thinking anyway after the French and Dutch votes against the EU constitution which, in reality, was a vote against EU bureaucracy and the unwanted entry of new member states. Several Limeblasts refer to this. Anyway, I am told that the 'Made in the EU' option was ruled out as the European Commission was only advised to investigate the possibility of an origin marking scheme applied solely to products imported to the EU. Imported products will, however, need to be marked by applying internationally agreed rules of origin. It is said that this is 'clear', and I beg to disagree by saying all remains as murky as it was. If an EU tanner would buy, let us say, hides from Kazakhstan, which have a certain quality, and process these into wet-blue, he can legally sell them as 'Made in the EU' or the country of his residence for that matter since the EU will not require the origin marking for further sales. The difference in quality of hides from any of the EU countries compared with the quality of Kazakh hides is enormous. If he sells these ex-Kazakh hides as of EU origin, the EU tanner would be morally wrong of course, but legally he would be right, and that's what counts when you talk dollars and cents. There are hide merchants who run their business on this lack of legislation. Similarly, a shoe factory that buys shoe uppers, let us say, in India and the soles in Türkiye, then assembles the shoe in the UK, can legally print on the shoe 'Made in Britain'. I believe that is not in the spirit of origin marking. Made in the EU means to me that an item is produced by EU workers in a EU factory, preferably from EU produced leathers in the case of our industry but, at least, from raw materials that were processed into finished leather in the EU. The same principle of course should be applied to products that are originating from other countries. If I am offered a product from Australia, I think it is only fair that I am not getting something that is partly produced in Taiwan, Korea and/or Vietnam, and finally assembled Down Under in Oz. Before the Mad Cow epidemic, meat was just meat and all over the EU the meat on sale could come from anywhere. Now that we have become older and wiser all meat that is sold is precisely identified for country and stable of origin. You can easily find out whether a French ox was imported alive or dead into Holland before it ended up on the shelves of your local supermarket in Germany. In order to achieve this, it took some thinking and organisation, but it has been done even within a relatively short period of time and I don't think that we needed space technology to obtain this nor that there is any real extra cost. Maybe some extra paperwork but that has been taken care of by adapted computer programs. Similarly, eggs which are produced and sold by the millions per day are date and origin marked. In my view, what can be done for meat and eggs, can be done for any other product, leather and leathergoods included. The point is not the cost of origin marking, because I don't think there is any (significant) additional cost, but the actual wish of the stakeholders to do so. So let's get back to the good old dollars and cents. In general, an EU shoe factory outsources its production either to become more competitive or to make extra profit. Rivers of ink have been written as to why it is so expensive to produce in the EU, so I won't bother you with that again. After the Iron Curtain fell, EU consumer goods producers were offered a fantastic opportunity to make their own product in a 'European' country under their own direct supervision, but without the hassle of strict pollution laws and with a labour force that was happy to earn peanuts rather than earn nothing, and without the expense of a social security system. A coal miner in Romania today makes €300 per month, hence if you offer him €400 for a job in a shoe factory you would probably have mile-long queues of people applying for a job. The same workers in the EU cost some €2,000+ gross per month. If it is true that the cost of an average pair of shoes is determined by 30% 'raw' materials and 70% labour, then a shoe that uses €10 in 'raw' materials costs €35 in the EU at production level. If you reduce the €25 labour cost (70%) from EU levels to Eastern European levels, the same shoe will cost €15, a saving of €20 in labour costs. The question is who is benefiting from this saving, the consumer or the producer? I don't know because I am not a shoe manufacturer, but my guess is that with shoes costing €100/+, the saving is not going to the consumer. From what I am told you can't see the difference between a shoe made in Italy, France or Spain and the same shoe made in Romania, Albania or Bulgaria. And I am pretty sure that these shoes are marked Made in Italy, France or Spain. Now that would be illegal, but it becomes legal again when for instance, the insoles are glued in on EU territory. Of course I am not forgetting that it takes an investment, it takes time and patience to set up and run a factory abroad, and the profit may, therefore, not be as big as I suggest but nevertheless there is a big profit and nothing is passed on to the consumer. The extra profit is not lost in the distribution system because once the shoe is made in Eastern Europe, it enters the traditional distribution chain of the EU factory that outsourced its production. In case we would get a properly surveyed origin branding, this practice might not be as profitable as it is now, so it easy to imagine why EU origin branding may not be as popular with the manufacturers as we would like. There is no transparency in this sector of our trade. Sam Setter [email protected]



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