In the current increasingly competitive automotive industry and in an insecure economic climate in Europe, the case of Germany stands as an example for growth in a country’s export activities. German reputation for well-made automotive component parts and the attention paid to details persisted in the last decades.
However, policy makers in Brussels, especially Italy and France, aim at building a new legal framework regarding the ‘made in Germany’ trademark. These new regulations envisage the conditions that must be accomplished by German car manufacturing companies, in order to be able to associate the ‘made in Germany’ trademark with their products. My paper analyses this current debate, presenting and developing the arguments on both sides, and their corresponding implications. Thus, policy makers in Brussels, Italy, and France prefer adopting a ‘made in EU’ replacement of the ‘made in Germany’ trademark. Germany’s resistance prevailed so far, but arguments could be brought on either side of the debate on building a new legal framework regarding this matter. My paper aims at analysing the current debate, presenting and developing the arguments on both sides, and their corresponding implications.
According to the estimates made by the Chambers of Commerce and Industry in Germany, the ‘made in Germany’ trademark is worth more than a billion Euros on world markets. However, 127 years ago, this trademark represented a stigma. As the economic and political rivalry between Germany and Britain was rising in 1887, German products were sold under the ‘made in Britain’ label to increase their access to world markets. In order to protect the economy and identify foreign imports, the British Parliament passed the Merchandise Marks Act, which required Germany to clearly distinguish its products. However, instead of alerting consumers regarding its inferiority, the ‘made in Germany’ trademark became a guarantee for reliability and durability.
According to the European Union's current legislation, a product’s country of origin is considered to be the country in which the last stage of the assembling process takes place. Therefore, big German car manufacturing companies outsourced a part of their automotive component parts industry to developing countries, where they found cheap labour force. Hence, many cars manufactured with component parts produced on the Asian markets are traded as German cars, just because they are assembled in Germany. In response, the European Union is now considering modifying the legislation and adopting stricter regulations, by imposing producers to use the ‘made in Germany’ trademark only if at least 45 % of the automotive manufacturing process takes place in Germany.
The new legal framework would provide clarification regarding each stage of the automotive manufacturing process. That is because at the moment the Germans take full responsibility for the product’s quality, whereas the suppliers are unknown entities. Therefore, the automotive parts’ lack of resistance matches their mediocrity. In this context, the European Union’s position could be a welcome initiative. The ‘made in Germany’ trademark would not appear on automotive component parts which are only assembled in Germany and not actually produced there. At the same time, the investors’ departure towards other countries would stop. Romania, for example, represents an oasis for the German automotive parts manufacturers. Bosch, the component parts leader in Europe, has more than 2,000 employees in Romania, and Continental, around 12,000 employees. With more than 2000 employees in Romania, Bosch remains the component parts leader in Europe, followed by the German company Continental, which has more than 12000 employees in Romania.
With the foreseeable changing legislation regarding the usage of the ‘made in Germany’ trademark for the automotive component parts industry, one might be legitimate to wonder whether you are not actually producing a Romanian car instead of a German one if most of the manufacturing process takes place in Romania. Let us take the example of Bosch, which produces car component parts in Romania. These are ultimately assembled in Germany on a Mercedes that bears the ‘made in Germany’ trademark. Thus, if the European legislation changes, in this case, Mercedes will no longer be able to use the ‘made in Germany’ trademark, because most of its component parts are manufactured in Romania, including the component parts made by Bosch for the engine, and the component parts for the gear box made by Daimler at their factory in Sebeş. If a new legislation is adopted, German manufacturing companies could also consider reducing their manufacturing activities, which will ultimately generate unemployment for many people working in developing countries.
The ‘made in Germany’ origin labeling proposal is still in discussion. The EU states that German companies would only benefit from this labeling if the automotive component parts were truly manufactured in Germany. This regulation would ease cars recall and would increase customer’s reliability in the durability, performance, and quality of German cars. This new legal framework would also prevent unfair businesses which use fake labels or no labels at all. At the same time it would provide protection for consumers, because they will be informed regarding the production process and the automotive component parts’ origin. Small and medium-sized German automotive companies are in favour of the proposal, given the fact that their car manufacturing process occurs within the country, without appealing to external suppliers.
On the other hand, a unitary resolution within the EU regarding the ‘made in Germany’ trademark would risk creating further confusion. There are 28 member states in the European Union and it could be difficult to reach a consensus among them and thus harmonise legislation regarding origin labeling. Moreover, big German car manufacturers like Mercedes Benz, Audi, BMW and Volkswagen consider the EU proposal unpopular. The EU proposal scraps the law in force now, which defines the country of origin as the country in which the last economically justified and substantial manufacturing act took place.
These big German car manufacturers also object to the fact that bureaucracy will be increased, because they will have to keep records for each production stage in order to establish where most of the value of the component parts was added. This legal prevision that the members of the European Commission want to enforce will ultimately generate an increase in the manufacturing costs, as well. That is why German car manufacturers suspect European companies hope for a competitive edge, considering that Germany’s trade balance of automotive component parts with the non-euro-zone countries created this disagreement with the European Union.
One thing is certain: regular consumers, as well as companies, prefer purchasing German products, renowned for their quality, even if their price is significant higher than that of similar products. Despite all the current debate and arguments over adopting a new legislation regarding the ‘made in Germany’ trademark for the automotive component parts industry, the European institutions still have to approve the new provisions. However, the law is unlikely to come into force before the European elections in May 2014. For now, we just have to wait and see whether the German car manufacturers and implicitly Germany will abide by this regulation, and whether they will be able to maintain the production costs under control and ultimately trade their cars at competitive prices.