The recent decision of Nature’s Care Manufacture Pty Ltd v Australian Made Campaign Limited by the Federal Court of Australia has provided much needed guidance on the requirements for ‘Made in Australia’ and other country of origin claims, following a tightening of the rules in 2017 surrounding country of origin labels. Importantly, under the 2017 rules, it will be much harder for importers of certain component products to claim that they have been sufficiently transformed in Australia to fall under the ‘Made in Australia’ banner. The key issue is whether the final product is ‘fundamentally different in identity, nature or essential character’ from the imported components.
The well-known ‘Australian made and owned’ logo depicting a yellow kangaroo inside a green triangle is a registered certification trade mark owned by Australian Made Campaign Limited (AMC). AMC is responsible for regulating the use of the logo and issues 12 month renewable licences to businesses allowing them to use the logo on designated products.
Nature’s Care Manufacture Pty Ltd (Nature’s Care) had, since 2012, held a licence to use the made in Australia logo on its ‘Healthy Care Fish Oil’ and ‘Vitamin D Capsules’ on the basis that the capsules were ‘substantially transformed’ in Australia. The capsules are a soft-gel type with a gelatin casing surrounding the active ingredients, protecting and preserving them. The gelatin casing was composed of locally sourced gelatin powder and purified water and glycerol imported from Indonesia. The fish oil was imported from Chile and the vitamin D was imported from China. The manufacturing process, including the manufacture of the gelatin casing and filling the capsule with the fish oil and vitamin D occurred in Australia.
In 2018, AMC proposed to not renew this licence so that it would expire on 31 December 2018, on the basis that the capsules were not fundamentally different from the imported ingredients.
2017 Amendments and Fundamental Difference
A product consisting of imported ingredients can only be represented as having been made or manufactured in a specific country if it was ‘last substantially transformed’ in that country. Following the 2017 amendments, a product is ‘last substantially transformed’ in a specific country only if, as a result one or more processes in that country, the goods are ‘fundamentally different in identity, nature or essential character’ from all of their ingredients or components that were imported.
In March 2018, the ACCC released a ‘Country of origin labelling for complementary healthcare products’ guide for businesses. The guide outlined that, in the view of the ACCC, the process of encapsulating, that is converting active ingredients into a standardised hard or soft capsule dose, would not constitute a ‘substantial transformation’ under the new definition. The ACCC’s position was based on a number of grounds:
- The active ingredients do not undergo a ‘fundamental change’ to their ‘identity, nature or essential character’ in being made into a capsule. Rather, the aim of encapsulating is to retain the characteristics of the active ingredient while turning it into a more easily consumable form.
- The manufacture of the casing of a capsule is not relevant in assessing whether a substantial transformation has occurred. The purpose of a casing is to ensure that its contents are preserved and that the nature and essential character of the active ingredients, contained within, remain unchanged. Encasing a product in a capsule is incapable of substantially transforming a product overall.
Despite the views of the ACCC, Nature’s Care sought a declaration from the Federal Court that its ‘Healthy Care Fish Oil’ and ‘Vitamin D Capsules’ could be marketed as ‘Made in Australia’. Nature’s Care argued that that the manufacturing processes undertaken in Australia significantly changed the qualities of the final product, such that the new product could be distinguished from the imported goods. Thus, it argued that the processes undertaken in Australia fundamentally changed the ‘identity, nature or essential character’ of the final product.
The Court dismissed this argument, noting that the meaning of the words ‘identity, nature or essential character’ refer to more than ‘merely a set of qualities by which one good can be distinguished from another’. In dismissing the application, the Court found that the capsules could not be represented as having been ‘Made in Australia’. The Court found that:
- The words ‘nature, identity and essential character’ should be construed in a non-composite manner. While the words have similar meaning, they are not identical and each have their own distinct meaning.
- Each of the three terms required more than simply a change in the qualities of the imported ingredients and that, for the test to be satisfied, the final manufactured product needed to be distinguishable from the ingredients.
- To constitute a ‘substantial transformation’, only one of the three terms need be satisfied.
- The words ‘fundamentally different’ were intended and designed by Parliament to exclude minor processes, such as canning and dicing, from being sufficient changes to permit the marketing of a product as ‘Made in Australia’. More complex processes that do not affect the nature, identity or essential character of a good, such as encapsulation, are also excludable.
Crucially, the Court found that how a product was marketed was a strong indicator of whether a substantial transformation had taken place. Where the marketing of a product focuses on the imported ingredient(s), it is highly unlikely that the manufactured product will be fundamentally different from its imported ingredient. In this case, the Nature’s Care capsules were marketed as fish oil and vitamin D capsules, and both the fish oil and vitamin D were imported. As the products being marketed were fish oil and vitamin D, the Court found that there could not be a fundamental difference between the imported ingredients and the final product.
While the Court found that there had been a fundamental change from the imported glycerol to the gelatin casing it was used to manufacture, it also found that the casing was not capable of substantially transforming the final product from its ingredients. Therefore, the capsules overall could not be considered to be ‘fundamentally different’ in their ‘nature, identity or essential character’ from the imported ingredients because the active ingredients remained unchanged.
Nature’s Care Manufacture Pty Ltd v Australian Made Campaign Limited has shed light on how the tightened requirements surrounding country of origin labels will be applied by the courts. If you import component products and then attempt to transform them so as to be able to claim that they are ‘Made in Australia’, you must consider whether the imported components of that product are fundamentally different in identity, nature or essential character from the final product. Even significant changes to the appearance and form of the imported goods through processes in Australia may not meet this threshold – especially when the product is marketed by reference to the underlying components themselves.