Protecting producers in the name of consumers

Country of origin labeling is in fashion in the EU. The European Parliament is pushing for mandatory origin labeling on a large basket of imports, including leather goods, textiles, footwear, ceramic products, furniture and jewelry. In another initiative, the European Parliament wants to make the indication of the country of origin obligatory for fresh agricultural products, and, in the case of single-ingredient processed products, of the provenance of the agricultural raw material.

The purported aim of the legislative ambitions is to enhance consumer information. When making a purchasing decision, consumers would be able to consider not only the exporting country's reputation for quality but also its human rights record, social and environmental conditions, and product safety legislation.

However, origin labeling is ill-suited to the global production chains that dominate today's interconnected world economy. Only the country in which the product has undergone the last major processing step is made visible to consumers – and this country may not be representative of the others in which a greater part of the product value has been created. In addition, the conditions of production may differ vastly within any one country, not least among individual firms. The subsidiary of a multinational company in Hong Kong is likely to offer working conditions that are vastly superior to the drudgery in a provincial Chinese sweatshop.

On top of this, "made in the EU" does not automatically indicate superior performance with regard to product characteristics or in terms of production methods. From an animal welfare standpoint, for instance, beef from freely roaming Argentinian cattle is preferable to European beef from intensive livestock rearing. Similarly, vegetables grown in Northern Africa may have a better climate-change record when they reach EU supermarkets than European vegetables cultivated in energy-intensive greenhouses.

European consumers already have reliable sources of information. Product brands are valuable assets that companies have built up through quality management. Supermarkets equally invest in quality assurance schemes. Private and public quality labels indicate, for instance, organic or fair trade credentials. Product tests are a further source of independent and detailed assessments. But country of origin labels add little information, and consumers can be expected to pay little attention to such labelling. A real protectionist effect would therefore not come from distorted consumer choices but from the compliance costs of placing the label of origin on the product and of proving adequate origin labeling at customs. What looks like a minor nuisance can become an important cost factor for low-price items.

The European Commission advisory body, the European Consumer Consultative Group, has rightly said: "It would not be valuable or useful to consumers to allocate public resources to enforcing origin-labelling rules on imported products. Indeed, there is the danger that such rules would be applied or enforced in a protectionist way that would be against the consumer interest ... If any company or industry expects to gain a market advantage by using a 'Made in the EU' label they are free to do so."

Compulsory origin labeling comes in a tempting disguise. Who could resist such proposals that promise improved consumer information, pressure foreign countries to raise social and environmental standards and promote quality production in the EU, which sets it apart from low-cost competitors on the world market?

Nevertheless, compulsory origin labeling is another case of hidden protectionism that shields uncompetitive EU producers and appeals to the baser instincts of national discrimination. Universal outrage would likely meet the idea of compulsory labeling for "non-white labour"-produced goods. Whilst "made by non-European labor" is somewhat more palatable, it still leaves a sour aftertaste. Global quality labels - such as "made without child slave labour" - deliver the information consumers desire without discriminating on national grounds.

Valentin Zahrnt is a Research Associate at the European Centre for International Political Economy (ECIPE) and Editor of www.reformthecap.eu