Distribution of Wine in the European Union

The European Union (EU) is a political and economic union of 28 member states (at the time of writing Brexit is not effective yet), ensuring free movement of goods, services, capital and labour within the internal single market that, at the moment, constitutes approximately the 25% of global nominal GDP.

EU market is ruled by a set of uniform rules which allow producers to access the common market fairly easy and to distribute the products to all 28 member states without duties and within an uniform system.

EU uniform rules govern different sectors related to wine distribution, with the exclusion of regulations on age limits for buying or drinking alcohol, wine advertising or retailing and other aspects of national social or public health policies of each EU member.

EU is the largest producer of wine in the world, with most of this production concentrated in the southern countries (e.g.: France, Italy, and Spain). The main importers (e.g.: Germany, Netherlands, Austria, Denmark) are historically those where domestic production is not sufficient to cover demand. The Eastern European wine market is still quite small in terms of sales, but is gaining momentum while the standard of living increases.

Last but not least: a key-characteristic is maturity of the average consumer, who is becoming more and more attentive to the quality of the product and its sustainability.

In conclusion, European market stands as a reference market, due to considerable advantages in terms of uniform regulations, free movement of goods, spending power and maturity of the consumers. The market is very competitive, though, and requires a clear distribution strategy.

Despite counterfeiting not being a widespread phenomenon it is, however, advisable to register the trademark before entering the EU market, in order to enable protection against counterfeiting and any attempts to register or use similar brands.

In the EU, the same trademark can be registered at EU and/or national level, but – especially for extra-EU producers – it is advisable to register at EU-level, as one single registration grants the owner an exclusive right in all 28 countries.

The procedure is normally completed within about 10 months (5 months, under certain conditions), and the precedence on the trademark is acquired once the application is filed. Registration lasts for 10 years and may be renewed indefinitely.

Another advantage of registration at EU-level concerns fees: the filing charges for a European trademark are much lower than filing separate national applications in all member states. One should consider national registration only when operating in less than three or four member states.

On the downside, filing for an EU trademark, given the size of the EU, makes conflicts with pre-existing trademarks more likely: the best practice is to rely on a qualified professional for conducting a clearance search for names and trademarks before filing the application.

Until 2008, wines were divided into two macro-categories of quality: table wines and quality wines produced in specific regions. In 2008 the EU decided to harmonize the categorization of wines (and other alcoholic beverages) to that of other food products and, therefore, distinguished between wines with or without a protected designation of origin: the first ones (among them, PDO and PGI) are those marked by a territorial link and a production specification; the latter have neither a territorial link nor a production specification and match, in principle, those previously defined as "table wines".

There are, to date, 1306 protected denominations of origin in the EU (474 in Italy, 380 in France and 102 in Spain) and 460 protected geographical indications (of which 129 in Italy, 116 in Greece and 75 in Spain).

Even non-EU countries can request the use of these quality categories; in fact, the EU recognizes two wines with protected designation of origin (1 in Brazil, 1 in the USA) and 442 wines with protected geographical indication (of which 153 in South Africa, 78 in Australia, 37 in Switzerland and 36 in Albania).

Labelling information is divided into compulsory and optional. If not listed in any of these two categories the information may not be displayed on the bottle. The lists vary depending on the wine categories and is specified differently for some particular types of wines. Nevertheless, all labels must provide at least the following information:

• the sales designation of the product (the information will vary depending on the wine);
• the nominal volume;
• the actual alcoholic strength by volume, followed by the symbols "% vol" and optionally preceded by the words "actual alcoholic strength" or "actual alcohol" or "alc";
• the lot number;
• the presence of sulphites, if any;
• for imported wines: the country of origin, the original name, and indicate whether the product is a blend of wines and whether the grapes were harvested in another country.

All the compulsory information must be indicated in one and the same visual field on the bottle and be clearly legible. However, the reference to the ingredients, the lot number and the importer, where applicable, may appear outside this visual field. The additional information that may be indicated on the label must be clearly distinguishable from the compulsory information referred to above.

EU laws also define the use of most common appellations (e.g.: "wine", "table wine”), terms referring to certain production methods, sweetness (from dry to sweet), grape variety and vintage, certain bottle shapes and types of closures, restricting them to products conforming to strictly defined requirements.

Compulsory information shall appear in a easily understandable language to the consumers of the member state where a food is marketed and each member state may stipulate that the information shall be given in one or more languages.

Third-countries exporters need to produce a certificate and an analysis report (both drawn up by a country of origin’s competent body) proving compliance of exported wines with oenological practices allowed by the UE: the so-called VI1 document, which certifies that the product is compliant with EU regulations (in some cases a simplified version of VI1 document is available, where the producer self-certifies – under certain conditions – the compliance of its products).

The certificate and the analysis report are not required for products in labelled containers of less than 5 litres fitted with a non-reusable closure and forming part of a total consignment not exceeding 100 litres.

The EU is a Customs Union, meaning that there are no customs duty barriers between member states and they all have a common customs tariff for imported goods. Moreover, once customs duties have been duly paid and compliance with import conditions has been ascertained, imported goods are free to circulate within the rest of the EU without any further customs controls.

All products are classified according to a tariff code, which carries information on:

• duty rates and other levies on imports and exports;
• any applicable protective measures (e.g. anti-dumping);
• external trade statistics;
• import and export formalities and other non-tariff requirements.

The following documents must be presented for customs clearance:

• commercial invoice, containing all the basic info, such as: names and addresses of the exporter and the importer, description of the goods (name, quality, etc.), quantities, unit value, total item value, total invoice value and currency of payment, terms of payment, delivery and means of transport;
• customs value declaration, which must be presented when the value of the imported goods exceeds € 20.000,00;
• freight documents (Transport Documentation);
• the packing list, a commercial document providing information on the imported items and the packaging details of each shipment (weight, dimensions, handling issues, etc.); and
• customs import declaration: all goods imported into the EU must be declared to the customs authorities of the respective member state using this document, which must be drawn up in one of the official languages of the EU. The custom import declaration form common for all the member states is the Single Administrative Document (SAD), which contains: data of the parties involved in the operation (importer, exporter, representative, etc.); customs approved treatment; identifying data of the goods (Taric code, weight, units), location and packaging; information referred to the means of transport; data about country of origin, country of export and destination; commercial and financial information (Incoterms, invoice value, invoice currency, exchange rate, insurance etc.); list of documents associated to the SAD (Import licenses, inspection certificates, document of origin, transport document, commercial invoice etc.); declaration and method of payment of import taxes (tariff duties, VAT, Excises, etc.).

Taxation - except for custom duties – is established by each member state, with the only limitation – regarding internal market (i.e.: exports within the customs union) – not to impose, directly or indirectly, on products of other member states internal taxation of any kind in excess of that imposed directly or indirectly on similar domestic products.

Customs Duty Tariff: it is calculated on the basis of the Customs Value Declaration and it depends on the type of wine and its bottling. Some third-countries (e.g.: Chile) may have a tariff preference, details can be found here.

Excise: Wine becomes subject to excise duty as soon as it is produced, or imported into the EU. But this duty can be suspended and does not have to be paid until the product is "released for consumption". This means the moment when products are no longer under duty suspension arrangements. Note that to be able to produce store and move excise goods without paying excise (under excise duty suspension) requires a special authorisation from the country in question. Excise duty is paid by:

• the person or business who is the "authorised warehouse-keeper" of the place where wine is produced, dispatched or received;
• any other person who caused the goods to leave the duty-suspension arrangement;
• the person declaring the import, if the goods are imported and not immediately put under the duty-suspension arrangement.
  

To enable you — as a seller — to transport goods, but maintain the suspension of excise duty (the duty will be paid by the buyer in the country of destination according to that country's rates) the seller must: (i) guarantee the products against the transport risks; (ii) send an electronic administrative document (e-AD) to the responsible excise authority using the Excise movement & control system (EMCS); meanwhile the buyer must (iii) confirm receipt of the goods in the EMCS system within 5 working days.

If you sell wine directly to private customers and the place of sale is your country, you'll have to charge excise duties according to the rates valid in your country; on the contrary, if you sell wine to your private customers on the internet, you must pay the excise duty and rates of the country where the customers live.

EU legislation does not impose minimum rates of excise on wine (unlike, for example, beer). This means that EU countries are free to apply excise duty rates or not, according to their own national needs. The detailed quantification of excise in each EU state can be found here.

Value Added Tax (VAT): rates vary from one EU country to another; therefore it is necessary to check case by case. As of today VAT rates range from a minimum of 17% (Luxemburg) to a maximum of 27% (Hungary).

The contracts for the distribution of products in EU, with the only exception of Belgium, are atypical agreements, meaning that they are not encoded in state laws. This fosters the need to negotiate and execute a complete and well balanced contract, which will be the main source of the parties’ rights and obligations.

Another important point to consider is that in some jurisdictions (Portugal, Spain, Germany) the distributor may be entitled to a goodwill indemnity upon termination of the contract, if certain criteria are met: this, in case of long term agreements and high sales turnover in the region, may lead to claims of very high value (for more on this point, see this article on Legalmondo).

When considering a distribution system in different EU members states, it is also worth considering the applicable EU competition legislation, which prohibits agreements between two or more independent market operators having the effect of restricting competition (with particular reference to vertical agreements between firms operating at different levels, like the case of an agreement between a wine producer and its distributor(s) in the European market).

In a nutshell, the following covenants are prohibited under EU competition law:

• fixing the resale price charged by the distributor;
• restricting sales of the products to customers in other countries, which are not exclusively reserved to another distributor or to the producer himself, in case such customers have not been directly targeted by the distributor (“passive sales”);
• prohibiting the distributor to sell the products via e-commerce and/or on third party market places (more on this in this post on Legalmondo).

You may find our main advices for negotiating a distribution contract in Europe listed below:

• clearly define the business model. Commercial agency, one-off sales, distribution, license to open single-brand stores or sell online through a virtual store: it is essential to have clearly defined how the distributor or business partner will operate in the market, before starting to negotiate any contract, especially when there may be various players operating in different areas or through different channels.
• conferring exclusivity rights under certain conditions only. Exclusivity in favour of the distributor should be considered carefully and, if needed, may be limited to certain geographic areas or distribution channels (e.g. an online marketplace), in which the distributor guarantees to achieve a certain minimum turnover. It is also essential to draft a seamless online and offline strategy, in order to avoid conflict of interests among different players in the distribution network.
• applicable law and jurisdiction. This choice should be made expressly in the contract, keeping in mind actual case law on goodwill indemnity for the distributor existing in some countries. Arbitration can be a valid alternative, as all member states are part of the New York Convention of 1958 and enforcement of an arbitral awards is in most cases easier and faster than the recognition of a foreign court decision. For more on this topic, please refer to this article on Legalmondo.
  

The relations between commercial agents and their principals are subject of the EC Directive 86/653, which designed a harmonized system that has been implemented into national laws by the member states.

The commercial agent is defined as a self-employed intermediary who has the power to negotiate the sale or the purchase of goods on behalf of another person.

While the parties to an agency contract remain free to choose the applicable law, it is worth noting that, if a commercial agent performs his activities within the EU, certain rights granted to him/her by the Directive (in particular, the right to a goodwill indemnity and to a minimum termination notice) cannot be waived, even if the principal is established outside the EU (while in case the agent operates outside the EU, this is possible. More on this in this post on Legalmondo).   

Further, it is important to be aware of the fact that the member states have implemented the Directive in different ways when it comes to the criteria in calculating the goodwill indemnity or deployment of a different length of the minimum termination notice period: such provisions are generally mandatory and cannot be contracted out. When drafting the contract, it is advisable, hence, to double check the applicable provisions of the law and the jurisprudence of the member state where the agent carries out his duties.