The Europeans are demanding that South African vintners stop using the names "sherry" and "port" for their fortified wines, saying that only Spain can produce wines called sherry and only the Portuguese city of Oporto can label its fortified wine as port.
After a direct appeal from the South African President, Nelson Mandela, fell on deaf ears at a meeting of foreign ministers on Monday, the issue will now go to the Vienna summit of EU heads of government this weekend.
The wrangle is embarrassing to the European Commission as a deal was supposed to have been reached at the Cardiff summit at the end of Britain's presidency of the EU in June.
Instead, when President Mandela arrived he was promised an agreement by autumn, a deadline now extended to Christmas. In his plea to EU heads of government, Mr Mandela argued: "South Africa's economic success is by no means guaranteed and requires an immense effort."
After four years of talks the outline of a deal to phase out duties on about 90 per cent of EU-South Africa trade, worth $19bn (pounds 11.5bn) a year, was struck last month at talks in Pretoria.
South Africa claims the terms port and sherry have been in wide use for 300 years, but has agreed to a compromise under which it would stop using them on exports to Europe and phase them out over five to 10 years in other foreign markets.
But South Africa insists it must be allowed to continue marketing fortified wines as port and sherry at home and in neighbouring nations with which it has trade agreements.
"For the ordinary population the agreement cannot be concluded by us surrendering the household names in southern Africa of our own port and sherry," Mr Mandela wrote in his appeal.
The row is particularly embarrassing because of the small scale of trade involved. Sales of South African "port" and "sherry" are worth only about 750m rand (pounds 76m), of which 13 per cent comes from exports.
An EU official said last week: "We are talking about one of the new democracies. They have agreed to phase out the terms for Europe. Are we going to resist for such a petty reason?"
But others say the Europeans have compromised enough and that the entire package is preferential for South Africa. Mr Mandela was banking on public sympathy for South Africa to extract another concession, a diplomat argued.