Taiwan Beer and TsingTao Beer

I. Identification

1. The Issue

The issues in this case study are relevant to a trademark dispute between Beijing and Taipei. Taiwan’s Intellectual Property Office approved trademark applications for the PRC’s TsingTao beer, but the mainland has rejected application’s for theTaiwan owned company trademark, “Taiwan Beer”. One argument that has come out of Beijing cites a Chinese law that prevents names of geographic locations from becoming registered trademarks. Taipei is crying foul and pointing out that TsingTao is the famous Chinese city where the state owned beer enterprise, TsingTao Beer is located. Numerous other Chinese owned companies also have geographically indicating names recognized by the mainland IPO (ie. Beijing Beer and Harabin Beer).

According to the Taiwan Beer company they have completed the legal requirements for recognition and believe the hold up is due to politics. Beijing consistently claims that Taiwan is a renegade province, refusing to consider the island as an independent sovereign. By granting trademark recognition to “Taiwan Beer” Beijing believes they are somewhat recognizing the idea of Taiwan independence. With the recent re-election of Chen Shui-Bian there is an added sensitivity in such circumstances.

The recent accession of both parties to the WTO and the likely effects it will have on the dispute will be the primary issue of this study. Mainland China has always fought recognition of Taiwan in international bodies, including Taiwan’s entry into the WTO. Now that both are members it is only a matter of time before the mainland’s commitments to the organization are tested by a WTO dispute with Taiwan. The case of Taiwan Beer could be the disagreement to open this battle wide.

2. Description

China is of major importance to the world beer market. Beer output in Mainland China is second only to the U.S., and the potential drinkers are over a billion. Numerous international companies have recently made large investments into the future Chinese beer market. Chinese brewers have also expanded further into the world market. Most relevant to this study is TsingTao, which is a Chinese state run company, and has recently contributed to Taiwan Beer’s loss of an estimated 8% of the Taiwan beer market. This case study will explore the history of TsingTao and Taiwan Beer, the politics of Taiwan and the Mainland, relevant economic issues, and the legal principles that would be involved in possible litigation. At first glance it appears that both sides have good legal arguments and that any litigation should be difficult to predict. China has argued that “Taiwan” includes a much larger geographic indication than many of the others cited by the producers of Taiwan Beer. On the other hand, Taiwan Beer’s trademark is well known and legally established in several countries around the world including the United States and the entire European Union.

TsingTao Beer

TsingTao Beer was founded in Qingdao China by Germans in 1903. Qingdao had been a German colony since 1898, when the Chinese government was forced to grant Germany a 99-year lease. The Chinese government had been pressured to grant German control of the city after two German missionaries were murdered in the region. Qingdao became Germany’s largest military force in the region, garrisoning 4,000 troops and hosting a navel base. The original brewery sat across the street from a park where German soldiers were quartered. In the early 20th century beer was not a popular drink in China, but the demand of the German population made opening TsingTao Beer brewery a necessary. [source 1]

In September of 1914 the Germans garrison in Qingdao was attacked by a Japanese invasion involving 23,000 men. The German garrison was able to hold back the Japanese attack for 2 months, but eventually lost control. In January of 1915 the Chinese entered an agreement with Japan that would eventually revert back control of Qingdao. The Germans were gone, but they had left a brewery that would eventually grow into a symbol of Chinese pride. [source Id.]

Following WWII and the Chinese civil war, TsingTao Brewery became a state owned enterprise under the PRC. As beer consumption became more popular among the Chinese, TsingTao with its government backed advantage, became the official beer of China. It was also made China’s official export beer when China began to rapidly open its markets to import and export. Eighty percent of beer exported out of China bears the TsingTao label. It is the best selling and most well known Asian beer in the United States. TsingTao brand is also sold in more than 40 countries around the world.

In 1993 TsingTao was converted into a stock company and was listed in both the Hong Kong and Shanghai indexes. TsingTao has gained such a solid reputation that Anheiser Bush, the largest brewery in the world has aggressively sought to purchase a large stake in the company. Anheiser has contracted for an eventual ownership of 29% of the Chinese company. In the year 2000 TsingTao city was the largest shareholder with just 44.4% of the company. When Anheiser takes its full share in 2007, Qingtao city will remain the largest shareholder, but with only 30% of the shares under its control. Anheiser Bush has clearly recognized TsingTao beer’s potential to be a dominant player in the future beer market. [source 2]

Taiwan Beer

Taiwan islands first brewery was built sixteen years after TsingTao beer was founded on the mainland. Like TsingTao the brewery was founded under a government that no longer exists in that region today. Chienguo Brewery was the first large-scale brewing operation built in Taiwan. At the time of Chienguo brewery’s founding the island was under Japanese colonial rule. Before the brewery was in operation beer had to be shipped in from Japan, but after the opening of Chienguo, beer was soon being shipped from Taiwan to Japan. Over time the Taiwan brew even rivaled the famous Japanese Sapporo Beer. [source 3]

While the brewery that would become famous for Taiwan Beer was built early in the 20th century, it didn’t produce beer under that name until 1945. In that year Chinese Nationalist troops arrived and reclaimed control of the Island for China. Japan’s surrender of the Island after WWII led to the renaming of the brewery. It was then called Taipei Beer Company and started producing beer with the Taiwan Beer label. (For more discussion on the political control of Taiwan; see section VI.)

At the time of the island surrender the brewery was placed under the authority of the Taiwan Provincial Tobacco and Liquor Monopoly Board. The authority was eventually renamed Taiwan Tobacco and Wine Board (TTWB) and continued to hold a monopoly on alcoholic production and marketing until 2002 when Taiwan was admitted into the World Trade Organization. Today, the future growth of Taiwan Beer is being challenged by the political difference between Taipei and the mainland. [source Id.]

[source 1] Battles: The Siege of TsingTao, 1914, First World War.com, Saturday, August 16, 2003: Link

[source 2] Tsingtaobeer.com.cn; Qi, Zhi. Beer Market in China: Insights into Current Economic Situation in China and Implications for Domestic and Foreign Investors, Univ. of Wisconsin-Madison, 2000.

[source 3] Hsueh, Amy. Taiwan Promotion Opportunities, USDA: Foreign Agricultural Service: Gain Report #TW2036, 10/4/2002, p.6., Momphard, David. Brewing a Bit of History: The History of Chienguo Brewery is Marked by Change, With More Changes to Come, Taipei Times, Sunday April 18, 2004, Page 18: Link

3. Related Cases

Tequila – This case also has issues related to intellectual property, international organizations, and China. Before China could become a member of the WTO, Mexico was the last member that China needed to sign a bilateral agreement with. Part of the hold up was over IP issues involving geographic indications and an alcoholic beverage.

Budweis Looks at an international legal dispute between beer giant Anheiser Bush and Czech beer producer, Budejovicy Budvar. Both brewers produce beer with a similar trademark label and have fought to stop the other in jurisdictions around the world.

Scotch This case concerns geographic indications related to the labeling of internationally marketed products. Evaluates the attempts of Scotland to prevent other countries from using the “Scotch” label.

Baijiu Discusses the history and culture of a famous alcoholic beverage in China.

Sake Discusses Indications of source on Japanese Sake. Involves WTO-Trips and other legal and trade material.

4. Author and Date:

Dusty Hill, July 2004

II. Legal Clusters

5. Discourse and Status: Disagreement and In Progress

Mainland China has refused to recognize Taiwan Tobacco and Liquor Co.’s (TTL) trademark of “Taiwan Beer”. Three applications to the China trademark office have been rejected. The latest application rejection comes after both countries have acceded into the World Trade Organization. It has been suggested that this forum could eventually be used to resolve the dispute. This section will attempt to introduce the reader to the applicable Chinese law and the general principles of the WTO that the potential case could be based. [source 1]

PRC Law

In refusing TTL’s application, the mainland government has cited a provision of their trademark law that prohibits the use of some geographic indicating marks. The law prevents the use of cities and provinces as trademarks. TTL has cried foul and pointed to Tsingtao beer and other mainland trademarks that reference geographic indications. Legally this argument is not valid within the Chinese legal system. No law on the mainland requires the trademark office to be consistent or look at other cases when reviewing a new application.[source 2] In addition, the current law exempts Chinese trademarks that were established before the adoption of PRC trademark law. TsingTao Beer falls under this exemption.

The domestic case appears to be a simple win for Beijing according to a strict interpretation of domestic law. The most relevant article of law is found in the Trademark Law of the People’s Republic of China. Article 10 section 8 as of the 2001 amendment states that: “No geographical names of administrative divisions at or above the county level or foreign geographical names known to the public may be used as trademarks, except where geographical names have other meanings or constitute part of a collective trademark or certification trademark. Previously registered trademarks in which geographical names are used shall remain valid.”[source 3] (The previous version prior to the 2001 amendment, which applied to the first two applications holds the same meaning in all relevant areas).

From a reading of the law it is clear that “Taiwan Beer” would not qualify as a registerable trademark. Though the classification of the island in terms of what kind of region it is could be debated (see other factors: political), there is no chance it would ever be considered below the county level within the mainland framework. Currently, Beijing argues Taiwan in a renegade province. Therefore, the mark at the time of application was strictly not registerable under PRC law.

The TTL has two options for appeal under the PRC procedures. The first is the administrative way by reapplying. This has been tried. The other option is to take the matter before a judicial court. In court, TTL could make arguments based on reciprocal recognition of mainland geographic marks as well as fairness based on their mainland competitor’s ability to operate on their geographic indicating marks. Neither of the arguments have legal power and both would likely fail, but it would be a wise step to get the case on the record before considering an action before an international body like the WTO. [source 4]

WTO

Any dispute taken before WTO will be extremely delicate due to the relational status between Beijing and Taiwan. Beijing will have difficulty recognizing the international forum as the place for the dispute to be settled. Beijing considers Taiwan a part of the mainland and sees the dispute as an internal state matter rather than a matter for an international body to hear. A dispute before the WTO would immediately challenge the PRC’s stance on the Republic of China’s (Taiwan) sovereignty. [source 5]

After acceptance into the WTO, China is in agreement to recognize the multilateralism of the organization. This means it must recognize the principles of most-favored-nations and national treatment in dealing with other members. One month after the PRC’s accession, Taiwan was also accepted into the organization. Therefore the PRC will be forced to recognize Taiwan as a separate power in a dispute before the WTO. [source 6]

Arguments before the WTO would no doubt involve many WTO principles. In addition to the principle of national treatment, TRIPS related arguments could also be debated. [source 7] The TRIPS agreement defines geographic indications as, “indications which identify a good as originating in the territory of a member region or locality in that territory where a given quality, reputation or other characteristic of the good is essentially attributable to it geographical origin.” [source 8] Taiwan Beer clearly falls under this designation, but is accurate in designating its origin. Beijing could argue that “Taiwan Beer” is too large for the TTL to exclusively control and suggest its registration as a collective mark. This argument could be found reasonable, but is likely further than either party would want to concede. It is more likely the dispute will be taken into the realm of national treatment, or an all or nothing approach by each party.

The TTL could use areas of the PRC Trademark law that it might have had trouble arguing in a PRC court. Article 17 of the Trademark Law of the People’s Republic of China states, “Where a foreigner or foreign enterprise applies for trademark registration in China, the matter shall be handled in accordance with any agreement concluded between the country to which the applicant belongs and the People’s Republic of China, or any international treaty to which both countries are parties, or on the basis of the principle of reciprocity.” [source 9] This article of law is very interesting because it would not likely be read to include Taiwan in a Chinese court, but under a WTO dispute settlement scenario it could be found controlling. In the WTO the PRC could arguably be bound to respect Taiwan as a “foreign country” for the purposes of the dispute. This outlook could persuade the body to encourage the application of the stated law and the WTO principle of reciprocal treatment.

The determinative reciprocal facts are: Taiwan has recently recognized TsingTao’s trademark regardless of its geographic indicating nature. TsingTao has taken a substantial share of the Taiwan beer market and been allowed to construct breweries on the island without local impediment. [source 10] Beijing has done exactly the opposite with respect to Taiwan Beer. Based on these facts alone and the two party nature of a dispute at the WTO, Taiwan Beer has an attractive case under reciprocal treatment principles.

In addition, the TTL could argue Taiwan Beer is a well-established famous mark around the world. Numerous countries including the United States and the entire European Union recognize the Taiwan Beer trademark. While this argument is not yet a completely established principle it is widely discussed and thought to be a developing area of international IP treaties. In efforts to further normalize trademark recognition numerous scholars have recommended strengthening a worldwide system of trademark recognition. [source 11]

The TTL has not clearly indicated how they will proceed. Regardless of their future path, it will likely have a disturbing effect on cross-strait relations.

[source 1] Journal of Propriety Rights, May 2003, “Taiwanese Official Angry About Beer Dispute” Aspen

[source 2] citeing Chinese law and Lehman Xu article

[source 3] Trademark Law of the People’s Republic of China: Law Press China, 2002.

[source 4] Liu, Yinliang. An Introduction to Trademark Law of China, China University of Political Science and Law, Lecture June 11, 2004.

[source 5] See section on political history.

[source 6] WTO successfully concludes negotiations on China’s entry: September 17, 2001: Link

[source 7] Id.

[source 8] Article 22 (1) TRIPS.

[source 9] See fn.3.

[source 10] Tsingtao Beer to be Produced in Taiwan, People’s Daily (English version), September 4, 2004.

[source 11] Goebel, Burkhart. Geographical Indications and Trademarks – The Road From Doha, 964, The Trademark Reporter, July-August 2003; Bowers, Steven. Location, Location, Location: The Case Against Extending Geographical Indication Protection Under the TRIPS Agreement, 129, AIPLA Quarterly Journal, Spring 2003.

6. Forum and Scope: WTO and Multilateral

7. Decision Breadth: 2

8. Legal Standing: Treaty

III. Geographic Clusters

9. Geographic Locations

a. Geographic Domain: East-Asia

b. Geographic Site: China

c. Geographic Impact: Taiwan

10. Sub-National Factors: No

11. Type of Habitat: Tropical

IV. Trade Clusters

12. Type of Measure: Intellectual Property

13. Direct v. Indirect Impacts: Direct

14. Relation of Trade Measure to Environmental Impact

a. Directly Related to Product: Yes, Beer

b. Indirectly Related to Product: No

c. Not Related to Product: No

d. Related to Process: Yes, Culture

15. Trade Product Identification: Beer

16. Economic Data

The import export data for TsingTao and Taiwan beer is one sided. Taiwan Beer has not exported to the mainland because the brand has not found approval. According to TTL chairman, Huang Ying-Shan Taiwan beer has completed the necessary legal details for the beer to be launched, and the TTL expected the mainland to finally grant approval in March 2004. However, as discussed above in the legal section there have been complications. TTL officials state they believe the trouble stems for the political tangles between the two countries and Beijing says it is only a simple legal issue. [source 1] In the other direction, mainland brewer TsingTao has been exporting to the Taiwan market since 2001. In their first year TsingTao exported and sold an estimated 21,000 kilolitres of beer on Taiwan Island. This amounted to almost 8% of the entire Taiwan beer market. Continuing to strengthen their position, TsingTao began construction of a brewery in Taiwan capable of producing 100,000 tons of beer. TsingTao’s advances in the Taiwan market since both countries entrance into the WTO appear to have gone unimpeded by government interference. [source 2]

17. Impact of Trade Restriction: High

Taiwan and China are both members of the World Trade Organization and have agreed to abide by the open trade policies. As mentioned above, Taiwan changed its policies upon entry and has allowed mainland breweries to freely import beer since 2001. On the mainland side, the country has not directly prevented Taiwan beer imports, but rather made it impossible for the Taiwan branded beer to enter the market based on a trademark issue (see legal discussion). [source 3]

18. Industry Sector: Food

19. Exporters and Importers: China and Taiwan

TsingTao Beer exports their product to over 40 countries including the United States.

Taiwan Beer has established their trademark and exported product to the United States and European Union members.

[source 1] Beer’s Bid for China Market Goes Flat, Taipei Times, June 29, 2004, page 2: Link

[source 2] Leow, Jason. Taiwan Beer Leaves Chinese Officials Frothing, The Straits Times, July 1, 2004: Link[source 3] Taiwan Protestors Call for Retaliatory Boycott of Chinese Beer, July 12, 2004, Beverage World Link

V. Environment Clusters

20. Environmental Problem Type: Pollution, Culture

21. Name, Type, and Diversity of Species NA

Name: None

Type: None

Diversity: None

22. Resource Impact and Effect: Low and Structural

Taiwan Beer’s breweries have been involved in environmental measures to reduce damage done to the ground and water in addition to putting resources in a place where they are badly needed. However, recent changes in the beer market threaten the continuation of support beer production by-products have provided for Taiwan ranchers.

Taiwan cattle ranchers and dairy farmers face stiff market competition from importers. The high cost of cattle production in Taiwan has driven much of the industry into extinction. Taiwan is generally forced to import over 90% of the beef needed to meet market demand. That which remains in Taiwan production is mostly high end and fresh products. It is that which remains and the potential for market share recovery that this section will discuss in relation to Taiwan and Tsingtao beer.

The feed costs in Taiwan amount to approximately 75% of the total production cost of diary and beef products. The ability to acquire less expensive local alternatives to imported feed has allowed some Taiwan ranchers to maintain their livelihood and attempt to take back market share.

Taiwan’s domestic crop production is barely enough to meet the needs of its human population. Most of the island is mountainous inerrable land. The community is forced to import a great deal of agricultural products to meet the demand for human and cattle consumption. Ranchers are faced with high production costs due to competition for imported feed resources. One way Taiwan ranchers have been able to reduce their cost is by using the by-products of beer production in their feed rations. By-products of agriculture and other business have been used for fifty years to offset Taiwan’s low crop yield.

One by-product of Taiwan Beer production is spent brewers’ grain. This by-product contains about 77% water and 25% crude protein. The continual dumping of this by-product can result in soil and groundwater pollution. Scientists and ranchers have learned that instead of polluting, the grain can be used in cattle feed. Brewers’ grain has been successfully used in dairy cow and beef cattle feeds in Taiwan, Japan, and many other countries for years. The use of brewers’ grain by Taiwan ranchers not only prevents pollution, but also reduces the overall cost of ranching and decreases the need for costly imported cattle feeds.

The focus of this section is the danger Taiwan’s opening of its beer market will continue to have on the source of cheap cattle feed and the damage it could have on the Taiwan rancher. Taiwan ranchers have been able to purchase spent brewers’ grain at (US$28-40/mt) a lower price than traditional feeds and incorporate it into their feed ration in proportions as high as 40%.

Taiwan’s opening of their market to outside beer makers in recent years has resulted in increased beer imports and a diminished local market share. TsingTao is one of Taiwan Beer’s new competitors. TsingTao has already managed to grab an estimated 8% of the market from Taiwan Beer while Taiwan Beer has yet to enter the mainland market. Increased beer imports have already dramatically affected the aid ranchers had come to depend on. In 1990, 187,000 mt was available from spent brewers’ grain, but by 1994 that amount had decreased to 146,000 mt due to increased beer imports. Taiwan Beer’s monopoly has continued to shrink in the face of increased imports, resulting in even less spent brewers grain availability.

If Taiwan beer cannot resolve their trademark dispute with the mainland it will continue to suffer from its recognition of mainland company trademarks without reciprocal market opportunities. As this section has discussed this will have negative effects beyond the beer industry in Taiwan. Taiwan ranchers could also find themselves out of business.

On the other side of the strait, this author was unable to locate data on TsingTao ‘s possible use of beer production by-products. However, sources were located that report the company also supports the diets of ranch cattle. It has been reported that TsingTao beer that has gone past its expiration date is used in cattle feed. Apparently the structure of cows stomachs does not allow the consumption to result in the same enlightening effects beer has on humans.

[source 1] “International Financial Crises and Agriculture” US Dept. of Agriculture (WRS-99-3) March 2000. Link

[source 2] An-Kuo Su Heng-Chun Station, “Utilization of Agricultural By-Products in Taiwan”, Taiwan Livestock Research Institute, 1996.

23. Urgency and Lifetime: Low and 100s of years

24. Substitutes: Other beers

VI. Other Factors

25. Culture Politics: Yes

The Republic of China took control of Taiwan from the Japanese after World War II ended. The Japanese had colonized Taiwan after the military defeat of China in 1895. When Mao led the communist to power on China mainland in 1949, 2 million Nationalists followed Chang Kai Shek to the island and established a separate government. The Taiwan government set itself on a path to eventual democratization, which culminated in 2000 with the first transfer of power from the Nationalist party to the Democratic Progressive Party of Chen Shui Bian. The issue of reunification between the island and the mainland has often led to a strained relationship between the two governments. [source 1]

Regardless of the mainland’s claims over Taiwan Island it cannot be disputed that the Taiwan government does exist separately and has maintained complete control over the affairs on the island. However, even fifty years later, the mainland government continues to attempt to undermine Taiwan’s political identity in international affairs. It was China who put up the greatest opposition to Taiwan’s entry into the WTO. China Mainland has also continued to build up its military and conduct missile exercises directed at Taiwan. [source 2] There is a continuing threat of attack from the mainland.

Despite the constant political wrangling the two have increasingly become economically intertwined. According the People’s Daily, Taiwan business people have invested 37.8 billion US dollars into the mainland. [source 3] The increase in economic ties leads many to believe that military confrontation is no longer a possibility, but the PRC has continued to hold a strict stance of reunification.

[source 1] Tsai, Ing-wen. A New Era in Cross-Strait Relations? Taiwan and China in the WTO, Heritage Lecture # 726 January 14, 2002: Link

[source 2] CIA World Fact Book: Taiwan – Link

[source 3] No change on policies encouraging Taiwan investment in Chinese mainland. People’s Daily: Link

26. Trans-Boundary Issues: No

27. Rights: No

28. Relevant Literature

(1) John Eastwood and Sylvia Shiue. IP Profiles: Intellectual Property in Taiwan, 2003.

(2) Josephine Lin. The Birthplace of Taiwan Beer, 2002.

(3) Laura W. Young and Francis Wang. Taiwan’s Efforts to Comply with TRIPs.

(4) Staff Writer. Trademark Dispute Over Taiwan Beer Triggers Call for Chinese-beer Boycott. Taipei Times, Thursday, Feb. 20, 2003, p. 1.

(5) Zhi Qi. Beer Market in China (2000): Insights into Current Economic Situation in China and Implication for Domestic and Foreign Investors,

08/04/2004

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