On 22 February 2017, the Competition and Consumer Amendment (Country of Origin) Bill 2016 received Royal Assent and has now commenced operation. It contains new amendments to the Competition and Consumer Act 2010 (Cth) (the Amendments) which are intended to simplify the country of origin labelling regime and provide clarity to businesses about their responsibilities under the Australian Consumer Law (ACL).
The ACL specifically prohibits false or misleading representations concerning the place of origin of goods (sections 29(1)(a) and (k) of the ACL), alongside the general prohibitions on misleading and deceptive conduct (section 18 of the ACL).
Under the previous ‘safe harbour’ regime in section 255(1) of the ACL, a country of origin claim (e.g. a claim that goods are “Made in…”) is not misleading, if:
50% or more of the total costs of production have occurred in the claimed country of origin; and
the goods were ‘substantially transformed’ in the claimed country of origin.
Two key changes under the Amendments
The previous ‘safe harbour’ country of origin regime continues to apply to any representation that goods were made or manufactured or otherwise originate in a particular country, with two key changes.
1. Removal of the 50% production cost test
The percentage of production costs incurred in the claimed country of origin will no longer be used to assess whether a person can avail themselves of the country of origin safe harbour when making a representation that goods were made or manufactured in, or otherwise originate in, a particular country.
This change recognises that businesses use increasingly complicated global supply chains and that the 50% threshold involved a complicated calculation of the cost of producing or manufacturing goods, which in any event may not be meaningful to consumers.
2. ‘Substantial transformation’ = ‘Fundamentally different in identity’
With the removal of the first limb of the previous safe harbour regime, the only test now is whether the goods were ‘substantially transformed’ in the claimed country of origin. The Amendments clarify the definition of ‘substantial transformation’.
Under the Amendments, goods will be ‘substantially transformed’ if, as a result of one or more processes undertaken in that country, the goods are ‘fundamentally different in identity, nature or essential character from all of its ingredients or components’.
Prior to the Amendments, goods were ‘substantially transformed’ if they underwent a ‘fundamental change in form, appearance or nature such that the goods existing after the change are new and different’.
The Amendments aim to clarify that minor processes such as packaging and assembly, which simply alter form or appearance, will not be sufficient to satisfy the test. Under the Amendments, the Government has the power to pass regulations to declare that specific processes do not involve a ‘substantial transformation’.
Relationship with the Country of Origin Food Labelling reforms
The new Country of Origin Food Labelling Standards require businesses making country of origin claims in relation to food products to comply with the fairly prescriptive requirements of the standards (which amongst other things depend on the type of claim being made and the type of food which is the subject of the claim).
The standards commenced on 1 July 2016 and are subject to a two year transition period (requiring mandatory compliance by 30 June 2018).
The introduction of these standards made the 50% production cost test redundant as it applies to food products. The Amendments, which regulate consumer products more broadly, are intended to complement the changes made to the Country of Origin Food Labelling Standards.
What do the Amendments mean for businesses?
Misleading and deceptive practices can attract serious financial penalties. The ACCC has made it clear that it will continue to be an active regulator in this space.
Although the Amendments clarify the ACL country of origin regime to some extent, the ‘substantial transformation’ test may remain difficult to apply in practice. Businesses should keep an eye out for further regulations and guidance from the ACCC on country of origin issues.