CHANGING THE RULES: AN INCENTIVE FOR DIFFERENTIATION?

Abstract

Geographical Indications originate from the French system of Appellation of Origin. Since 1992, with the implementation of EC Regulation 2081/92 and2082/92, the EU has adopted a similar system to that of the French. It is proposed that the Branch Agriculture: Western Cape, adopt a similar legislated system, to firstly provide the institutional framework for local producers to differentiate their products according to geographic area, and secondly, for future trade possibilities with the EU, our main export market. New Institutional Economics is used as a base from which it is hypothesised that by Legislating the concept of Geographical Indications, the incentive structure of the institutional framework will change, reducing the transaction costs associated with the organisation of this system, and thus making it feasible for ‘qualified' producers’, to differentiate their products in this way. The paper first looks at the theory of New Institutional economics and then uses the theory to compare the effectiveness of using Collective Trademarks and Geographical Indications in differentiating a product based on geographic area. GI legislation can be viewed in terms of defining-better the property rights associated with a geographical name and thus reducing the transaction costs surrounding the organisation of this marketing structure.