US Designed Made in China
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« Country of origin » labeling to take center stage in international trade

America didn’t wait for the last presidential election to start worrying about where its goods came from. In the most recent NAFTA talks, the United States battled with its neighbors on regulations over the “country of origin“ labeling. At stake: consumer security, transparency, and governmental sovereignty. Outside the American continent, the subject is just as hot.

The first and foremost sector which calls for regulations is the food and agricultural world. Numerous scandals have erupted all over the Western world, regarding food quality and safety, mostly due to lack of transparency. Regulation attempts have been launched, but have met with resistance either from private sector interests, or by international law regulating competition. In both cases, customers were back to square one regarding their food : blind. As we found out earlier, in a previous investigation (1), “in 2015, the U.S Congress repealed the country-of-origin labeling rule (COOL) for beef and pork. Meaning that for many Americans, their pork chops or tenderloin could either come from down the street or from Mexico or Argentina, and they would never know. The pressure came from the World Trade Organization (WTO) which imposed $1 billion in retaliatory import tariffs against the U.S. if the rule was not overturned. The “COOL idea” mandated labels on packaging to reveal the country (or countries) where the farmyard animal was born, raised and slaughtered.” The tightening of regulations stems from a political will to regain control of fabrication processes. With an increasing industrial trend which labels as country of origin only the country where the final assembly took place, governments realize they have no way to ensure health and safety regulations are being observed.

The European Union isn’t spared these tensions, as the recent Greek milk crisis (2) showed. The attempts to make sure consumers were not misled met with resistance from producers who feared for their already-fragile economy. “If the EU community starts to allow individual countries to take protectionist measures, then it’s the end. The fragmentation that is going to be created by this is absolutely undermining the single market and the EU should stay firm in this,” Marco Settembri, Nestlé’s CEO for Europe, said in interview. Several base products, such as food and milk, are already in a precarious situation, on the American continent and in Europe, and may not be able to survive further restrictions on their markets.

The food market is concerned with these regulations, because consumer protection affects the greater numbers. However, State interests are also at stake, as there are more confidential, technical and sensitive markets which are sensitive to the question of “country of origin”. Without transparency and firm command of the origin of goods, national sovereignty can be jeopardized.

One of the supplies which could jeopardize sovereignty and security is banknote printing. Few independent banknote printing companies operate on the market, and they are often engaged in partnerships or acquisition of new production units in emerging markets, so as to obtain lower operating costs, or sometimes simply to address new markets. As we looked into it (3) in our previous investigation: “De La Rue [banknote printer], is opening plants in Sri Lanka and Kenya. De La Rue is taking the same path as its German competitor Giesecke & Devrient which already opened facilities in Malaysia.” This being said, rich governments are able to negotiate total transparency and visibility powers on the supply and production chain (4), but smaller governments are unlikely to be treated the same way, which raises questions as to the quality and security of their supplies. We notably reported last year that “what is true for strong Central Banks may be uncertain for smaller countries, since they have little or even no access to information from their banknote printers on the actual printing location and security measures.” For instance, Tunisia recently handed to Crane Currency the contract for printing new batches of dinars. The secure printer chose, in all likelihood for logistic reasons, to launch production in its Moroccan unit. A request for information regarding the quality and security guaranties included in the contract was sent to Mr Abdelaziz Ben Said, executive director at the Tunisian Central Bank, and Mr Mohamed Rekik, vice-governor, but they surprisingly declined to comment.

At the beginning of the decade, the US government was shocked to discover that many components which found their way into cornerstone military equipment such as state-of-the-art jet fighters were in fact originating from China, despite the Pentagon never having ordered anything from the Chinese. What the press called “counterfeit parts” were in fact simply the products of multi-layer subcontracting, and highlighted how little command the end client, be it the US Air Force, had over their supply chain. “It was a pretty big deal and an unusual situation because there’s a prohibition on doing defense work in China, even if it’s inadvertent,’’ said Frank Kenlon (5), a recently-retired senior Pentagon procurement official. “I’d never seen this happen before.’’ In such a situation, China could cripple US defense programs by simply pulling the plug, and evades national government quality control.

Europe has also had its woes deciding where its equipment should be produced, namely with the heated debate from 2010 regarding the possible acquisition of Microsoft software by European Defense departments. A security report (6) indicated that “the NSA, the American agency in charge of signals intelligence, systematically introduced backdoors into software”, raising European concern over communications integrity. Purchased quickly and off-the-shelf, European defense departments only then realized the risk of depending entirely on a foreign supplier, be it a long-standing ally, was risky. Identified risks ranged from financial exposure to communications disruptions and eavesdropping.

The struggle has only just begun, between international trade companies which will fight any form of additional regulation, and governments which will push for more control and monitoring powers. Not only will States push for regulation, on behalf of their citizens who wish to be better protected and to restore their faith in the products they purchase, but States will also protect their own interest, namely in the protection of their industrial secrets and their national sovereignty.

  1. https://bdaily.co.uk/articles/2016/10/06/do-you-still-trust-country-of-origin-labels
  2. https://www.euractiv.com/section/agriculture-food/news/greece-to-impose-country-of-origin-labelling-on-milk-in-2018/
  3. http://www.cafebabel.co.uk/article/made-in-britain-to-save-the-queen.html
  4. https://bdaily.co.uk/articles/2016/10/06/do-you-still-trust-country-of-origin-labels
  5. https://www.cnbc.com/2014/01/03/us-put-china-made-parts-in-f-35-fighter-program.html
  6. http://mashable.france24.com/tech-business/20161019-microsoft-ministere-defense-contrat

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