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Protectionism and Geographical Indicators
International Business Seminar
Stephan Farias-Bastos
April 26, 2015
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Table of Contents Introduction .................................................................................................................................................. 2
Practice of Protectionism .......................................................................................................................... 2
Impact of Protectionism in International Trade ........................................................................................ 2
History of Protectionism .............................................................................................................................. 3
Protectionism in France ............................................................................................................................ 4
Geographical Indicators ............................................................................................................................... 4
Types of Geographical Indicators .............................................................................................................. 5
Regulations of Geographical Indicators....................................................................................................... 7
Regulatory Committee ..................................................................................................................... 7
Scientific Committee ....................................................................................................................... 8
Protected Geographical Indicator & Protected Designation Origin .......................................................... 8
Exclusive Rights ................................................................................................................................ 8
Traditional Specialties Guaranteed ................................................................................................ 10
Impact of GI products ............................................................................................................................. 10
On Farmers .................................................................................................................................... 11
On Consumers ................................................................................................................................ 13
On Quantity and Quality of Products ............................................................................................. 14
Socio-Economic Impact of GI products ...................................................................................................... 15
Increase Quality of Products .......................................................................................................... 15
Increase of Market Access of Niche markets ................................................................................. 16
Rural Development ........................................................................................................................ 17
Preservation of Traditional knowledge .......................................................................................... 18
Potential negative impacts of GI products ............................................................................................... 19
Conclusion .................................................................................................................................................. 21
References .................................................................................................................................................. 22
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Nowadays protectionism is an economic practice that is controversial around the world.
Protectionism implies the restraining in trade between countries by methods such as regulations
in form of taxes, tariffs, quotas, and other governmental regulations in order to only allow a
designated amount of goods and services produced overseas. The practice of protectionism has
grown all over the world in the last years due to the high competition as a consequence of
globalization. The main idea of protectionism is to protect a country’s local business from the
global competition that has increased due to the developments in technology, making it easier for
business all over the world to compete against each other. Nowadays, the countries where
protectionism has been in practice are United Kingdom, France, India, Brazil, Australia, Russia
and even the United States.
The practice of protectionism is a controversial practice because it inhibits the
international trade in between countries. International trade itself accounts an average of 50.5%
of the world’s GDP with an amount of $37,700 Billion of goods traded annually, for France
international trade accounts for a 42.5% of the GDP and 1,200 Billion of goods traded annually
this is almost 25% of the whole European Union of traded goods annually (CIA Factbook).
However, international trade is a new concept that has only exponentially grown due to
globalization. For many countries International Trade has been vital for their growth an
expansion, one of the countries that currently has been the most benefited from international
trade is China. China has been able to extend their sales potential all over the world, maintain
their cost competitiveness and gained global market share due to their international business
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culture. In the last decade Chine has seen a sharp increase in their economy with an overall 7%
GDP growth, which compared to EU 3.3% or US 2.2% puts to shame any of the other big
economic players in the world, all of this growth mostly attributed to their international trade
growth. Furthermore, to show the value of international trade, Africa is a continent that has not
taken the fully advantage of the international trade. According to a research done by Dr. Markus
Bruckner & Dr. Daniel Lederman from the National University of Singapore, in Africa countries
with a larger trade openness ( in regards of ratio of trade over gross domestic product) have an
increase of 0.5 % of their economic growth in the short term and 0.8% in the next ten years.
History of Protectionism
Protectionism in France dates as back as the 17th
Century, when Louis XIV established a
mercantile system based on protectionism and the state control of the production of high-end
products such as luxury goods. This made France to become one of the region leaders in luxury
products (Bernitz,Ulf). Nevertheless, protectionism has recently seen a reborn when in 2014
President Szarkozy adopted a protectionist policy to boycott international investment in key
areas such as energy, water supply, transport networks, electronic communication services and
public health. France as a member of the EU has also been part of other protectionist measures,
one of the most controversial ones, their protectionism towards French Culture.
In order to understand the protectionism that happens in France, it’s vital to understand
their point of view in regards of Globalization. France is an interesting case due to their rejection
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to globalization known for years, however, since their inclusion to the EU France has opened to
globalization. Jobs opportunities, a shared currency, stabilization of prices and of course free
trades in between EU countries are an obvious consequence of their addition to the EU.
For years France has been against globalization in order to be able to protect their culture
and customs from globalization. The first time France was concerned about globalization was
back in the 80s when the right national party lead by Jean-Marie claimed that the high
unemployment in the nation was a result of the arrival of immigrants who were a direct threat to
the economic and social stability of the country. Another known moment that France has fought
against globalization was on the failure of the Multilateral Agreement on Investment in 1998
(Lukauskas, Arvid), which were concluded due to the French government negative against the
agreement. This agreement was started in order to stablish a similar treatment for foreign
investors with the national investors.
Geographical Indicators
Nevertheless, with their inclusion to the EU as mentioned before, France has had to expose them
to globalization. However, this exposure has not been completely detrimental for the French. In
order to be able to conserve the competitiveness of their products and companies the EU
stablished the Protected Designation of Origin (PDO), Protected Geographical Indication
(PGI), and Traditional Specialty Guaranty(TSG) (European Commission,Quality Policy).
Protected Geographical indication is a type of protectionist practice, which involves the produce
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of certain foods articles. All these geographical indicators established in the European Union
Law to protect the names of regional foods. This was a bilateral agreement in between the EU
countries and non-EU countries in order to protect the products from unfair competition, and to
misleading producers of similar products. This law protects a vast scope of products, these
products are; wine, cheeses, hams, olives, beer, breads, fruits, and vegetables. This law is similar
to a copyright or patent, which if violated would mean in a consequently prohibition of selling,
and production of the produce along with financial penalties.
Types of Geographical Indications
Protected Geographical indication is the name of the area or exact place where the
produce comes from. If a produce gets classified with this label it means that the produce has to
be traditionally and partially manufacture in the area specified due to the unique properties of the
area. Protected Designation of Origin is the name of the area or exact place where the produce
comes from. If a produce gets classified with this label it means that the product has to be
manufacture totally in the area specified. Traditional Specialties Guaranteed, this seal differs
from the two previously explained, this quality seal does not certify that the produce comes from
a specific area. However, shows that the product was processed the ‘traditional’ way and was
done with the legitimate raw materials. Protected geographical indication was stablished in the
EU as a way to protect not only the produce of the different countries members of the EU but
also to protect the culture and reputation of the producers. Front an international business
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standpoint, it may be seen as a negative measure since it limits the production of certain products
to only the areas where they are designated. However, since the products are monopolized by
these areas the standards demanded by the governmental entities are tremendously high
(European Commission,Quality Policy).
The origins of this type of protectionism are several but it is known that it was a measure
adopted as a way to protect the cuisine of countries from France or Italy, which relay mostly on
the quality of their products as well as their uniqueness. The first signs of protected geographical
indicators come all the way back to the beginning of the 20th
century as a consequence of the
Midi Wine Revolt of 1907 in Europe (Melkonian, Raffi.). In this period of time most of wine
producers were very concern about the recent uprising of less quality. Being Midi one of the
centers of wine production in France, and the increase in production of cheap wines had a huge
impact on the industry that lead to producers from Midi to not be able to produce at the normal
quantity because of the reduction of margins. Protest occurred in France, which were taken into
account by the local government that later passed a fraud bill that protected the production of
wine by assuring a higher quality wine as well as the legitimacy of the producers. The creation
of the actual law for geographical indication, however, was not developed until 1908 when the
French government released the Loi Cazeneuve law (London School of Economics). This law
was developed to protect the local wine producers from fraudulent production from other
producers, as well as assuring high quality products. The law was further developed 1966 when
the GI mark was given to the producers who were able to better identify their products as well as
better the efficiency of the law. Based on the French system, in 1992 the EU created a series of
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mandates under the Regulation 2081/92, in order to protect the regional producers and their
products. These regulations would provide the consumer with a guarantee of the origin, method
of manufacture and quality of the product, as well as protection for producers from 3rd
parties
who could try to imitate these products without the legal authorization. This regulation would
cover food, wine, alcohol, and any type of spirits as long as they are unique from a geographical
area in specific.
Regulations of Geographical Indications
For the EU and member countries there are two committees that are in charge of the
correct implementation of the regulation. The main committee in charge of the implementation is
the Regulatory Committee and the Scientific Committee in charge of advising.
The Regulatory committee is in charge on designations of origin and geographical
indications for agricultural products and foodstuffs, which is composed of representatives of the
Member States and is chaired by a Commission representative who does not vote. The
commission has the power to amend anything in regards with the Regulation 2081/92. The
commission is also consulted for registration of any products under the regulation. Lastly, the
committee provides with the certification for agricultural products and food related items.
The Scientific Committee is in charge of advising the regulatory committee if requested.
The main task is to examine all technical problems related to the application of Regulation
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2081/92. This committee evaluates possible problems in regards of nature of name, factors taken
into account when defining the Protected Geographical Indicator and Protected Designation
Origin, application of criteria in regards of fair competition in commercial transactions as well
as the danger of misleading consumers in cases of conflict. Finally, the committee examines any
problems in regards of the assessment of the traditional nature of a produce. The committee is
formed by a group of highly qualified experts with legal and agricultural backgrounds, and
special knowledge in regards of intellectual property rights (European Commission, Quality
Policy).
The implementation of this mandate also includes penalties for the violation of the
mandate. The registration to the mandate has major legal repercussions in terms of producers’
rights and in terms of the type and extent of protection of the registered name.
Protected Geographical Indicator and Protected Designation Origin
Exclusive Rights
The registration gives the producer with an exclusive right to registered name for their
products. This is similar to an intellectual property right. This exclusive right belongs not only to
the producer of the produce but also to the person who made the application for the produce
originally, as well as the members of the original producers association, and all the producers
determined to produce the product in the geographical area defined to do so. It’s on the
producers’ power to allow the usage of the name of a produce to other producer or the
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registration of the name, this means that registration gives full power to the producer on the
product (European Commission, Quality Policy).
This exclusive right covers the usage of market or advertisement under the same name,
meaning in that only the producers with the registration are allowed to use the PGI mark or label.
This label gives the opportunity to customers and producers to be able to determine the
difference in between the original products against the competition on the market, as well as to
show the customer the different in quality level that PGI and PDO products have against the
competition.
Lastly, the enforcement of Exclusive law is done by the member states of the regulation.
Thus, the law enforcement organizations in the different states are in the fully capability of
protecting and enforcing their individual initiatives and punishments to the entities found in
violation of this regulations product (European Commission, Quality Policy).
The protection of Exclusive rights prohibits practices in the following areas, firstly, the
usage of any commercial use of the name of products covered by the registration and products
comparables, because the simple usage of the name or product related makes use of the
reputation of the original product. Further, the misuse or imitation of style, type, method, or
production origin is prohibited if there is no registration. In few words the Exclusive rights
covers all the aspects of the product in order to protect it from becoming a generic or widely
usage of the product for commercial use.
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The registration of the product is done after a proper inspection, which is stablished by
the regulatory committee in an inspection system. The regulatory committee does not carry the
inspections; however, they are conducted by member of the states. Since the inspections are
carried by the local law enforcement from the states individually, the producers are the ones in
charge of sponsoring all the costs in regards of inspections. In order to assure an impartial
inspection by these entities, members from a different state or third parties are also part of the
inspection.
In regards of names, products made in different regions may have similar names. In order
to allow producers from different areas to use the same produce name regardless of the area,
producers are needed to have their own community logo but cannot use a different community
logo, which is only permitted to producers following the mandate. The community indication is
a TSG logo, which entitles that the product is from certain region. This is done in order to
increase the reputation of a certain region, promote awareness of the product, and to promote the
competitiveness of the product in the market.
Traditional Specialties Guaranteed
The TSG or traditional specialties guaranteed has the similar system of exclusive rights
as the PGI and PDO and it is evaluated and regulated by the same committees.
Impacts of Geographical Indicators
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Since the beginning of the 20th
century, France has been a pioneer in the regulations in
regards of geographical indicators. This way of protecting the trade names and products from
certain areas has had several impacts that have not only affected the farmers or producers but
also the customers. The following is an assessment of the overall impact of the GI in regards of
the farmers as well as the impact on the quality of the products, the consumers sentiment, the
development of this producers as a consequence of GI, and the impact on the cultural heritage
that is in the end the main reason behind the regulations by the European governments in regards
of their produce.
Impact on Farmers from GI products
The practice of Geographical Indicators for local farmers and producers is a monopolistic
environment. This is a monopolistic model due to the conditions (explained previously) where in
order for a producer to obtain the legal permission to be able to produce certain product, it has to
acquire the permission not only from the committees and state law enforcers but also from the
farmers who are legally allowed to produce the product as well from the first group of farmers
who registered the product. This mechanism assures that farmers who are willing to make certain
product under GI have to get scrutinized by these communities, however, what is the real impact
of the GI on farmers? Are they benefited by this monopolistic model?
According to a study done by the European Commission of Agriculture and Rural
Development (ETEPS), the impact of GI to farmers differs depending on the region. This study
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shows a study on the development of Comte a French cheese produced in the state of Besancon
on the south-east of the country, and study on the Parmiggiano Reggiano in Italy.
In the case of the production of French Comte, in order to produce such cheese needs a
special type of milk that is only produced in the area. This milk is not produced necessarily by
the cheese producers, thus, this milk has a higher price than the one use for normal consumption.
However, the production of this milk has a higher cost than the production of milk in the region
of Brittany (where normal consumption milk is produced at), this happens due to the more
difficult environment for the production in French-compte vs Brittany. As a consequence of
income from a farmer in the French-compte is 18% than their colleagues in Brittany (ETEPS),
Furthermore, the case of the Parmiggiano Reggiano in Italy the milk producers have a
premium of 15% vs the producers of Granna Padano (another type of cheese). However, the
study shows the producers who sell their milk to cooperatives are the ones who see the largest
profits, whereas, the ones who sell to private entities see zero to negative profits (ETEPS).
The study also suggests that one of the main reasons why GI has benefited farmers from
these designated regions is the increase in demand for the products. The increase in demand for
the French-Compte has shown an increase also in the development of agricultural employment
where in between 1992 and 2004 saw a decrease in number of farms of 29% where as in the rest
of France saw a decrease of 40% (ETEPS).
Lastly, the study recommends that the GI is a tool that helps producers/farmers to be able
to compete against other regional farmers regardless of the tougher conditions of the different
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regions. Thus, the GI are a tool to maintain farmers from less benefited areas able to continue
producing and having a appropriate remuneration due to the higher rate that their produce have.
Impact on Consumers from GI products
As seen previously the impact of GI on producers and farmers changes depending on the
region and on the product that is produced. However, the conclusion is the GI is beneficial for
producers and farmers who are located in regions where the conditions are harder and more
expensive to produce their products, this allows the market to be able to sustain itself and have a
more stable condition for all producers. Nevertheless, the other vital part of the market is the
consumers, and a consequence of GI is higher prices. How do consumers react to higher prices
for GI products?
In order to prove the impact of GI on consumers, a lot of studies have been done on
empirical date that shows the actual impact in the market. This data has been collected in two
ways, the collection of data in regards of consumption as well as the usage of surveys.
Different data from different sources shown that; GI products find a positive value in the
market, as well as a higher value than brands that are not GI. Further, consumers image GI with
quality warranty dimension and an economic support dimension (this relates to the rural
expansion as a consequence of the production of GI). National GI brands tend to have a higher
value than GI from other countries for customers. For different products the impact of GI is
different, however, in most of the products that are GI consumers seem to be positive to pay
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higher prices as a consequence of a higher quality products and for the positive consequence
these products have on the economy (Hassan,D,and S. Monier-Dilhan).
Another positive note for consumers in regards of GI is that in today’s globalized world
there is a huge range of products available in the market. This makes consumers responsible to
gather information in regards of the price of the goods and it’s characteristics, GI products
differentiate themselves due to it’s authenticity, quality, and original products that make
customers as a key tool to be informed and almost an insurance that the product will be high-
quality.
Impact of GI on the quantity and quality of products
As part of the production of GI, there is a limitation on the quantity of production that can
be done by each producer. This cap makes producers focus on maximizing the quality of their
products in order to achieve the highest quality levels that are also part of the requirement from
the Regulatory Committee and the state law enforcement entities.
In theory, the creation of a monopolistic market could negatively impact the quality
control of a product that would consequently decrease the quality of a product due to the
consumer surplus. However, for GI products are intensively scrutinized by not only the local
farmers but also the Regulatory committees as well as the scientific committee. The restraint
in quantity imposed by the GI actually has a negative impact on the consumer due to a possible
shortage of products; however this is balanced out with the higher quality of products being this
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one of the key policies that gives GI advantage over non-GI products (Giraud-Heraud, E.,
J.Mathurin).
Socio-Economic Impact of GI
Apart from the impact that the production of GI have on farmers and consumers, GI
products also impacts the socio-economic environment of the areas in which these products are
made as well as the production of the products itself.
Increase Quality of Product
GI products are a measure that was done back in the 20th
century in France in order to
protect not only producers from an increase in a misleading competition but also to help
customers to identify quality products in the market. GI is a way in which customers can
recognize the higher quality products, which creates competitiveness creates in between regions
in order to have the highest standards of production. According to the Journal of Political
Economy by Nelson P, products can be categorized in three ways depending on the way
consumer can access to information in regards of these products, these categories are; search
goods, which are goods that consumers can identified it’s quality before the purchase of these
products, Experience goods, which are goods that consumers can identify it’s quality through
experience; and Credence Goods ; which are goods that cannot be assessed by either inspection
or experience.
Based on these 3 characteristics, it can be assumed that there could be an issue with
asymmetrical information since products could not be identified as good or bad quality, this
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could consequently result in producers to have bad quality products. Here is where GI provides
the market with the issue of asymmetric information, GI provides producers with a mark/brand
that gives customers with an indicative to prove the high-quality of these products. Thus, in the
case producer decides to reduce the quality of the product the GI regulations would not permit
these quality standards to be reduced, further, by this measure the customer has to pay a premium
of the reputation and high-standards. The creation of reputation goes along with consumer
loyalty and the willingness of the customer to invest in a higher cost product.
GI provides the producers with a institutionalized reputation that reduces the risk of
asymmetric information in the market by differentiating the product and supporting it’s
reputation with their branding. A win-win situation where both consumer and producer get
benefited from the product and it’s reputation backed up by state institutions.
Increase of Market Access of niche markets
As the world becomes closer and closer as a consequence of globalization, markets have
become more globalized as well. The increased competition of markets has also impacted
negatively markets that do not have the capacity of competing against the world’s largest
producers. Commodities is a market that has been affected by globalization, and it’s volatility
also affects farmers and producers from Europe and the world (Barjolle D and Chappuis JM).
The importance of GI is that it brings the capability to differentiate to this products based on the
quality and culture that is entitle to these products. Furthermore, GI products have the
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uniqueness of creation of niche markets that make the GI products be able to differentiate and
compete against the large markets created by globalization. Most of GI products are artisanal and
very connected to the culture of the regions where they are made, thus, this differentiation
provides GI products with higher chances to succeed in larger markets regardless of a smaller
supply (Barjolle D and Chappuis JM).
Rural Development
The contribution of GI products is not limited to the consumers or producers of these
products, GI products are also beneficial for the development of the areas where these products
are produced that are normally rural areas. For the last years, GI products have been the main
player in the development of the European Union agricultural force in rural areas. This happens
as a consequence of the natural connection in between these GI products and their area of origin.
(Barjolle D and Chappuis JM). Since, most of the regions in EU have their very own products
that are unique of each area and are connected with cultural heritage of these regions. GI
products are the best expression of cultural heritage and it positively impacts the growth of these
rural areas. The main ways GI products aid the development of these areas are by the payment
that the local farmers and producers from these areas received from the production of GI
products. Going back to the reputation of GI products, these rural areas also have specific
environmental conditions, fauna, and characteristics that make them unique for the development
of certain products. This makes the GI products to be unique depending on the area as well as to
develop a differentiation in the market. These territorial unique factors bring a capability to these
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areas to have a more equitable distribution of value for their producers and communities and
compete against other areas that could be more benefited in terms of territorial characteristics,
fauna or conditions (Zografos, 2008)
Another important factor that is impacted by the GI products is that it creates a cultural
value for these areas. The direct selling of these local products, create a cultural value for these
areas that create a relationship in between customers and sellers that goes further than pure
consumer loyalty. One of the aspects benefited is the creation of income from tourism. The
impact of direct marketing of these products in ways such as e-commerce, international trades
and even retailers bring the attention to these areas that get benefited from agro-tourism or
simply tourism as part of the reputation grown from these products. A clear example is the area
of Dijon, Dijon is a city located in the south of France that is known all over the world due to one
of the main GI products which is Dijon Mustard. This world reputation makes tourist from all
over the world to visit Dijon for their fame and also to contribute to their economy and also their
development.
Preservation of Traditional Knowledge
One of the key objectives of the GI products is that it not only protects the producers
from globalization and global markets, but also it contributes to the preservation of traditional
knowledge of the culture. The way GI products protect the culture is not by the appropriation of
knowledge of production, but rather by the creation of the reputation that makes the GI products
differentiate from others. The structure of GI products makes the culture of these products to
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stay relevant throughout time as well. In order for producers of an area to be able to produce a
product, they have to meet with the state law representatives as well as with the local producers
in order to obtain the permission for the elaboration of these products, this creates a sense of
community and maintains the sense of territorialism where members of these communities work
for the development of their traditional products. Further, since the production of these products
involves the utilization of traditional elaboration methods as well as products and raw materials,
this encourages the traditional customs in the areas where GI products are produced and
maintains these practices throughout time (Babcock B and Clemens R). All this factors create a
value for the culture and traditions from the different areas, which helps to preserve the
traditional and unique knowledge from every area where GI products are part of.
Potential Pitfalls of GI products
Even though GI products have a number of positive impacts on not only the development
of small areas where there GI products are from, but also in the economy overall of a country
there are potential negative effects from GI protection.
One of the important factors of GI products is that they create a niche market, the
creation of this niche market help producers to differentiate themselves from the market and to
be able to sell their products at a premium. However, it’s arguable that the creation of this niche
markets towards the conservation of cultural relevant products has a negative impact to products
that are not represented as cultural or traditionally relevant. This could have a negative impact on
the production of these products as well as the demand of such products, since they are not
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backed up by the GI brand. This could marginalize those products and consequently affect the
overall supply/demand of the products as well as the economy where farmers of these non-
relevant products are part of (Blakeney, Michael).
Further, GI products by definition create a monopolistic industry in these regions, which
becomes in a concentration of power. This concentration of power and reputation associated to
certain areas could not benefit in the long tern the regions equally as it could benefit the
importers out of the region where is produced (Blakeney, Michael). For instance, a corporation
that has the permission of distribution of Compte cheese in the US could be benefited by this
concentration of power more than the actual producers from French-Compte due to their
monopolistic position.
Lastly, as a consequence of GI products tend to be high-end products. Thus, products that
are also cultural relevant but lower end may be marginalized. The exclusion of these products
could affect lower income areas and producers and contradict one of the purposes of GI products,
which is to preserve culturally relevant products.
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Conclusion
International trade is a vital tool for countries in order to not only obtain profit but also to
feed their internal economy with a diverse group of products and services. However, certain
countries choose to limit their international trade by the practice of protectionist practices. These
practices are executed for several reasons such as, protecting the internal market of the country;
protect the culture of the country, or to stimulate the internal production and consumption. Even
though, Europe is an active participant of international trade, it has a group of protectionist
measures in order to keep their culture and internal production safe from globalization and
international trade. One of the measures use by the EU is geographical indicators. Geographical
indicators are a group of indicators that protect culturally relevant products such as cheese, wine
and other products to not be produced anywhere else but in the areas where they were originally
produced. EU took this idea from France, one of the most protectionist counties in the European
nations, and arguably in the world. The practice of Geographical Indicators has impacts that are
positive not only for the farmers and customers but also for the whole socio-economic
environment of EU and France. As it can be assessed from the research done, Geographical
Indicators are very beneficial for the sectors involved in it, however, one of its pitfalls is that
certain products are not as benefited as the cultural relevant ones. Nevertheless, the positive
impact of the Geographical Indicators overshadow the possible pitfalls, mainly due to the impact
it has on conserving the traditional culture of these areas and in balance the overall income
regardless of the sector where the Geographical Indicators are being used. In few words,
Geographical indicators are an effective way to protect the small size producers as well as
keeping cultural traditions regardless of globalization and international free trade.
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