April 5 (Bloomberg) -- Germany will defy a European Union law designed to protect regional trademarks by allowing local companies to continue to make Parmesan cheese, a government official said.

``We're confident that Parmesan isn't a protected name,'' said Wolfgang Trunk, the deputy head of the consumer protection, food and agriculture section at the German mission to the EU in Brussels.

The Brussels-based European Commission, the EU's executive arm, voted Tuesday to warn Germany it risks a lawsuit at Europe's highest court and fines unless its cheese makers stop labeling their hard, crumbly cheese as Parmesan, Trunk said. Parmesan, like France's Champagne, is a protected name under EU rules. Exports are worth about 120 million euros ($145 million) a year.

Germany, Europe's leading producer after Italy, says Parmesan is a generic word and deserves no special protection. Cheese makers in Bavaria have used the name for centuries.

To be called Parmesan -- Parmigiano Reggiano in Italian -- the cheese must be made in a defined region in Northern Italy, said Leo Bertozzi, director of the trade group Consorzio del Formaggio Parmigiano-Reggiano. German companies erode the Italians' market share and harm their image by using the term, he said.

The commission, the EU's executive arm, will tell Germany in a letter that it has two months to respect EU rules, Trunk said. If it doesn't force cheese producers to give up using the protected name, the commission could file a lawsuit at the European Court of Justice in Luxembourg. A negative ruling may lead to a fine.

Disputes with member states rarely result in fines. In almost all cases, governments change their laws before a fine is imposed. The most recent fine was in November 2003 when Spain was fined 624,150 euros a year for each 1 percent of recreational swimming waters that failed to comply with EU bathing water protection rules.

The German Dairy Association said it wants the European court to end the debate. It hopes judges will clarify whether Parmesan is a generic name.

In June 2002, the court said that ``parmesan'' is the translation of Parmigiano Reggiano. Judges avoided ruling whether Parmesan is a generic term. Germany is now using that ambiguity as its defense in the fight with the commission, said a commission official who declined to be identified.

To contact the reporter on this story: Matthew Newman in Brussels mnewman6@bloomberg.net

Last Updated: April 5, 2004 10:28 EDT