A recent decision of the Federal court provides greater guidance about when it is appropriate for businesses to advertise goods made from imported ingredients as being ‘Made in Australia’. The decision can help businesses better understand when they can make such claims in the packaging and advertising of these goods.
What the case was about
The Australian Made Campaign Limited (AMCL) is the organisation responsible for licensing use of the well-known ‘Australian made and owned’ kangaroo logo.
Vitamin manufacturer Natures Care Manufacture Pty Limited (Nature’s Care) previously obtained a licence to use the logo on its ‘Healthy Care Fish Oil 1000 + Vitamin D3’ soft gel capsules. Recently the AMCL indicated that the licence would not be renewed when it expired at the end of the year on the basis that the use did not accord with the ACCC’s industry guide on complementary healthcare products and country of origin labelling.
The Australian Consumer Law (ACL) contains a number of rules about country of origin representations. The central question in the case was whether the capsules were ‘last substantially transformed
’ in Australia. The capsules would only be ‘substantially transformed’ if it could be said that, ‘as a result of one or more processes undertaken in Australia, the goods are fundamentally different in identity, nature or essential character from all their ingredients or components that were imported into Australia
’. It was common ground that this phrase would not apply to ‘minor processes’ that only change the form or appearance of imported goods, such as canning or dicing.
What Nature’s Care said
The capsules contain fish oil imported into Australia from Chile and vitamin D imported into Australia from China. These ingredients are encased in soft-gel capsules which are made from gelatine powder, purified water and glycerol. The glycerol is imported from Indonesia, the water and gelatine powder were sourced in Australia.
In Australia, Nature’s Care manufactures the soft-gel capsules and inserts into them the correct dosages of imported fish oil and Vitamin D. Nature’s Care argued that this process amounted to substantial transformation of the imported ingredients because:
- Practically it would be impossible for consumers to extract the vitamin D3 once it had been mixed with the fish oil;
- The dosage of vitamin D3 was so small it would not be feasible for consumers to dispense themselves; and
- The glycerol was transformed from a liquid when creating the soft-gel coating of the capsules.
Nature’s Care also argued that the soft-gel coating had the effect of making the unpleasant fish oil palatable and favourless.
The decision - something fishy about that argument!
These arguments were not enough to persuade the court that the capsules could be said to be made in Australia.
Instead, the court found that the processing in Australia by Nature’s Care was only the mixing of the imported ingredients and their encapsulation in the soft-gel coating. This alone did not amount to a fundamental change in the essential characteristics of the imported ingredients when compared to the manufactured goods. In fact, the processing actually did not lead to any change at all - the fish oil and vitamin D3 contained in the capsules were completely identical to the imported fish oil and vitamin D3 ingredients imported from overseas. In the scheme of things, the role of the glycerol in creating the soft-gel coating was not considered to be significant.
The court summed up all of this neatly: “What was imported from Chile and China was fish oil and vitamin D3. What is being sold is as is what is being marketed, that is capsules containing ‘Fish Oil and Vitamin D’
”. So the end result is that Nature’s Care can no longer continue to market the capsules as being ‘Made in Australia’.
The ACCC has publicly recognised that country of origin representations can be a powerful marketing tool for businesses, and has said it will take action to maintain confidence in labels claiming that products are made or manufactured in Australian.
The ACL includes a number of prohibitions on engaging in misleading and deceptive conduct. To avoid breaching these prohibitions, businesses which advertise goods as made or manufactured in Australia must ensure that the production process in Australia for goods made from imported ingredients results in a fundamental change in the essential characteristics of those ingredients. This applies in respect of all product advertising, not only marketing which includes use of the logo licensed by the AMCL.
This case makes clear that such a change requires the manufactured goods to be fundamentally different in nature, identity or essential character when compared to the imported ingredients. Without more, encapsulation or packaging in Australia of essential imported ingredients is unlikely to satisfy this test.
The test for ‘substantial transformation’ under the law will vary from product to product and may in some cases be complicated and technical in nature. Businesses should seek legal advice if in any doubt about whether it is appropriate to advertise goods comprised of imported ingredients as being made or manufactured in Australia.
If this article has raised questions for your business, contact Karina McDougall
, Senior Associate at Australian Business Lawyers & Advisors on 1300 565 846.