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A trade deal between the U.S. and European Union could change what you top on your spaghetti.

By Nicola Persico and Nicola Scocchi
June 4, 2015

As the European Parliament continues to negotiate a trade deal between the U.S. and European Union, a key issue to watch concerns a concept called geographical indications (GI) — that is, how the names of foods and products from specific regions are derived. These names are viewed as non-tariff barriers, which matter because they are the last significant friction in international trade, which the Transatlantic Investment Partnership treaty aims to lower.

The EU is fond of being sticklers for naming their foods a certain way, the US not so much. For example, in Europe parmesan cheese can only be marketed as Parmigiano Reggiano if it is produced in the Reggio Emilia area. Cheeses that are very similar in taste and texture, but are not produced in that geographical area must find themselves another name; this is why in Italy parmesan cheese is also available under the less exclusive (and cheaper) brand Grana Padano. In the US, by contrast, anyone anywhere can produce parmesan cheese and market it under that name.

The difference between these two legal regimes is significant. The EU system pinpoints a product, such as parmesan cheese, and makes it into a brand. This makes it difficult for competitors to introduce a competing product, and thus protects incumbents. Economic theory suggests that this would prop up prices. At the same time, quality can be expected to be maintained high because, with few authorized producers, nobody has an incentive to dilute quality.

The U.S. approach, by contrast, allows anyone to market their cheese as parmesan. This encourages competition and keeps a lid on prices. On the other hand, quality may well suffer especially if cheese makers end up competing in the price dimension. Which approach, the EU or the US one, is better depends on the circumstances.

Among EU countries, Italy is the one with the greater number of GI-recognized brand (beside Parmigiano Reggiano, think Prosciutto di Parma, Chianti Classico, Mozzarella di Bufala Campana, Mortadella Bologna, etc.). Italian producers are so fond of the GI protection that they have come up with a new, broad concept of counterfeiting: “italian sounding.” According to the Italian Ministry of the Economy, brand names that sound Italian cannot be utilized by foreign producers. Following this novel doctrine, one congresswoman recently raised in Parliament the concern of “italian-sounding” counterfeiting with regards to Parrano cheese.

Parrano is a cheese that tastes like Parmesan and has the consistency of Gouda. It is produced by a Dutch company, it is marketed in the US, and it is delicious. However, the name has clearly been chosen to evoke Parmigiano. Congresswoman Alessandra Terrosi took issue with that, and asked the Italian government to intervene. The government answered that they were exploring diplomatic channels. We do not know the outcome of this diplomacy.

The Parrano cheese case highlights another important consequence of the EU’s broad approach to brand name protection. If Congresswoman Terrosi were to prevail and the name Parrano was deemed illegal, then a supermarket customer would not be able to guess that this cheese tastes very similar to Parmigiano. This would presumably hurt sales. Thus, a socially useful innovation (soft parmesan cheese, finally!) would be discouraged.

EU producers view the TTIP as an opportunity to extend the GI (and maybe even “italian-sounding”) principle to the US. The US will likely resist this push. The negotiations are ongoing. While the final outcome is difficult to predict, the stakes are high for many producers – and for consumers, too. If the EU’s position prevails, US customers may find Parrano cheese and many other goods to be suddenly unavailable.

Nicola Persico is a professor at Northwestern University’s Kellogg School of Management and Nicola Scocchi is an Accredited Parliamentary Assistant in the European Parliament. This article constitutes the personal opinions of Nicola Scocchi and Nicola Persico and not the one of their employers.

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