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CHOCOLATE CASE STUDY

TED Case Studies

CASE NUMBER: 521 CASE MNEMONIC: CHOCOLAT

EU's CHOCOLATE DISPUTE

IDENTIFICATION LEGAL CLUSTERS GEOGRAPHIC CLUSTERS TRADE CLUSTERS ENVIRONMENT CLUSTERS OTHER FACTORS

I. Identification
1. The Issue
A passionate debate over the meaning of chocolate has emerged ever since the creation of the European Market and the free movement of goods among EU nations in 1992. Despite their concern for standardization of goods throughout the 15 EU nations, EU policy makers have yet applied that rule to chocolate. Their effort to solve this issue has been significant, but the problem is complex: 7 of the 15 EU nations permit the use of substitutes in the making of chocolate. The other 8 claim that only chocolate made
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out of cocoa butter should be called pure chocolate. The legal framework that relates to Cocoa and Chocolate products is based on a directive that was first introduced by the EEC in 1973. Since then, the European Commission has reviewed this directive more then once and finally presented a proposal for its reform in April 1996. The main aspect of the proposal is that it allows member countries to replace cocoa butter by vegetable fats in chocolate products. The division between the EU nations is mainly caused by the desire to protect their respective industry interests. However, the proposed directive implies severe economic, social and environmental consequences for developing countries.

2. Description
Brief chocolate history
Chocolate has been enjoyed around the entire world for centuries. In fact, it is perhaps the most popular and widespread treat of modern day. Its first form appeared in Central America thousands of years ago, where the Aztec and Maya civilizations produced a chocolate beverage by roasting cocoa beans. These beans were found in pods that grew on cocoa trees in the tropical forests of Central America. Cocoa beans were first brought to Europe by Christopher Columbus in the 16th Century but chocolate only became popular in the 17th Century. Its consumption spread quickly throughout Europe. At first, this most delightful product was seen as a luxury and was only enjoyed by the upper class. However, at the end of the 19th Century, chocolate became more popular and accessible to the broader population. In addition to Central America, cocoa trees are now cultivated in Africa and Asia. Cocoa trade has considerably increased over the years and many developing countries economies rely partly on the export of cocoa beans. European chocolate manufacturers mainly import cocoa beans from West African countries such as the Ivory Coast, Ghana Nigeria and Cameroon. They then proceed to the transformation of cocoa beans into chocolate. In Europe, the leading chocolate producers are Belgium, France, Germany and the United Kingdom. For many years each country has had its own set of rules concerning the making of chocolate. Yet, the building of the European Union required a certain harmonization over chocolate production and chocolate products.

Directive 73/241/EEC
In the EU cocoa and chocolate products are regulated by Directive 73/241/EEC. The directive was introduced in 1973 and concerns the composition, manufacturing packaging and labeling of products to ensure the free movement of goods in the EEC. Under this Directive the use of vegetable oils in chocolate making other than cocoa butter was prohibited. However, an exception was made for a few European countries (Denmark, Ireland and the UK) which were using vegetable fats in their chocolate products. Also, the directive had no significant impact on national laws. Later on, the same countries were granted another exemption by allowing these countries to call their chocolate products "milk chocolate" despite the use of 20% of milk in their products compared to 14% in other European countries. In 1983, the European Commission recognized the need to harmonize the free movement of chocolate products among European members. They were in favor of allowing member countries to decide of the use of
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substitutes in chocolate production. The proposal was rejected by the European Parliament and was declared unfair to cocoa producers.However, in 1992 the birth of a single European market made it essential to review the directive since from that moment, all chocolate products were allowed to circulate freely within the member countries. In 1996, directive 73/241/EEC was revised once again allowing the addition of up to 5% of vegetable oils other than cocoa butter in the production of chocolate providing the addition is clearly mentioned on their labelling. The revision of the directive provoked various reactions among EU countries, chocolate producers, cocoa exporting countries, and other groups of interest defending developing countries, or consumer rights. It also seems to raise environmental issues: the increase of shea nut and palm oil tree production, which constitute the primary substitute used by chocolate producers to replace cocoa butter, may have a negative impact on the environment. These issues are discussed below.

Impact of the revision of directive 73/241/EEC

As I mentioned above, the proposed directive has a huge impact on the different groups involved in this case, particularly chocolate producers, cocoa producers and consumers. Its effect on the environment is also a big concern. First, it directly affects all EU chocolate producers. For countries such as Belgium, France, Italy, Spain, Luxembourg, Germany, Greece and Italy, the directive is bad news. Indeed, for these "chocolate purists", which do not use cocoa butter substitutes in chocolate production and do not allow the import of such products in their countries, this proposal is quite unfavorable. It affects the commercial interests of these countries by allowing cheaper chocolate products (those made with substitutes) to circulate freely within the EU. They might face a sharp drop in their sales. In addition, these countries want to preserve chocolate and protect its name. They argue that chocolate containing vegetable fat should not be called chocolate. Such product is different in taste and nutrition components, which can mislead consumers if the product is called chocolate. This is purely an intellectual property issue and bares similarities with other products such as butter and margarine. On the other hand, countries such as Great-Britain, Ireland, Denmark, Portugal, Austria, Finland and Sweden which allow the use of vegetable substitutes, benefit from such rule since it enables them to sell their chocolate in all EU countries. Cocoa exporting countries, for their part, are also affected by the European parliament's ruling. Most of EU's cocoa beans (about 90%) are imported from West African countries like Cameroon, Ghana, the Ivory Coast and Nigeria. For those countries, the export of commodities represents a great source of revenue. They particularly rely on the export of cocoa beans to foster their economic and social development. The directive threatens to reduce the demand for cocoa beans and therefore limit the exports of commodity dependent countries. It is also estimated that in Africa, there are 1.2 million cocoa producers and 11 million people depending on cocoa for a living. Another consequence of the directive would be severe job loss in this sector.

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The effect of the directive on the environment should also be of concern. Cocoa substitutes include shea nut oil and palm oil. An increase in the production of these oils would be damaging to the environment. Shea nut production depends on intensive use of water and wood, which are scarce resources in Africa. Intensive production of these oils would also increase the use of pesticides and fertilizers on plantations. Asia, in particular, is known for its intensive production practices, which involve massive use of fertilizers. Both cocoa and alternative oils are produced intensively in Asian countries such as Malaysia and Indonesia in order to compete with leading exporters. But the effect is damaging for the ecosystem.

EU's Legal obligations

Theoretically, cocoa producers should have their interests protected under the Maastricht treaty, the Lome Convention and the International Cocoa Agreement (ICCA). Under the Maastricht treaty, EU members promised to promote " sustainable economic and social development of developing countries. By signing the Lome convention, the EU undertakes obligations to the African Caribbean and Pacific States (ACP countries) concerning commodities. Finally, with the International Cocoa Agreement (ICCA), EU members make the commitment of encouraging the expansion of cocoa consumption in their own countries. In all three agreements not only do EU member countries have the responsibility to avoid policies that would affect developing countries negatively, but they also have to "provide adequate information to consumers"(art. 3 of the Maastricht treaty). Therefore, according to the European Fair Trade Movement (EFTM) and I quote: "The proposed EU harmonization at 5% is certainly in breach of spirit, and perhaps even the letter, of these international agreements signed by the EU and its member states which clearly elaborate its responsibilities towards producers and consumers alike.

The EU and the WTO

In this specific case, the WTO has no jurisdiction since it falls under a European directive that regulates trade within the EU. Yet, we can associate some aspects of this case to the WTO's General Agreement on Tariffs and Trade (GATT) and the Agreement on Trade-Related aspects of Intellectual Property (TRIPS). Because of the impact of harmonization policies on developing countries and the possible expansion of the EU to include in Eastern and Central European countries, the WTO is being increasingly concerned about EU-ACP relations. The issues raised by this case could certainly serve as a basis for the WTO to reflect on its future role in EU-ACP trade relations. Perhaps the next trade round could serve as a basis for discussion.

3. Related Cases
West African Cocoa
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African Timber ban

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Cassis Trade Dispute The EU-US banana Dispute EU-US Basmati Rice Dispute

Trade Canola and Genetics Trade German Beer Purity Law Liquor Dispute between Chile and Peru Ethiopia Coffee Exports

4. Draft Author:Veronique Kouame

May 11, 1999

II. Legal Clusters

5. Discourse and Status:Disagree and In Progress
There has been a disagreement among EU members over the revision of Directive 73/241/EEC, which refers to cocoa and chocolate products. By allowing the addition of up to 5% of vegetable fats other than cocoa butter in chocolate products provided that it is clearly mentioned on the label , the proposed reform accomodated 7 EU members, which already allowed the use of substitutes in chocolate production. However, this proposal proved to be unsatisfactory to the other 8 members, who feared their products would be undercut by cheaper chocolate. They also argued that chocolate products containing substitutes should not be called chocolate.

6. Forum and Scope:EU and Region

Directive 73/241/EEC/ provides a set of rules in terms of the composition, manufacturing specifications, packaging and labelling of products in order to ensure the free movement of goods within the EC.

7. Decision Breadth:15 countries

The outcome of this issue directly affects the 15 member States of the European Union which are Belgium, France, Germany, Greece, Italy, Luxembourg, the Netherland, Spain, Austria, Denmark, Finland, Ireland, Portugal, Sweden and the UK.

8. Legal Standing:Treaty

III. Geographic Clusters

9. Geographic Locations
a. Geographic Domain: EUROPE
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b. Geographic Site: Western Europe c. Geographic Impact: the legal measure has a direct impact on EU member countries: Belgium, France, Germany, Greece, Italy, Luxembourg, the Netherland, Spain, Austria, Denmark, Finland, ireland, Portugal, Sweden and the UK. Yet, it also affects cocoa producing countries, particularly the leading producers and EU west african trade partners such as Cote d'Ivoire, Ghana, Nigeria and Cameroon.

10. Sub-National Factors:No 11. Type of Habitat:Temperate

IV. Trade Clusters

12. Type of Measure:IPROP and REGBAN 13. Direct v. Indirect Impacts: 14. Relation of Trade Measure to Environmental Impact
a. Directly Related to Product: NO
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b. Indirectly Related to Product: YES COCOA c. Not Related to Product: NO d. Related to Process: YES

15. Trade Product Identification:

CHOCOLATE

16. Economic Data

Chocolate Production in Europe
Production 1996 in metric tonnes Countries Austria Belgium Germany Denmark Spain France Finland Greece Italy Ireland Netherlands Portugal Sweden Switzerland Norway All chocolate products* 80,825 176,415 1,012,845 28,220 160,985 393,275 35,105 28,700 216,300 32,540 170,600 3,435 52,400 113,740 29,905

United Kingdom 545,095

* includes unfilled chocolate, filled tablets and bars, bonbons, pralines, sugar confectionery containing cocoa, white chocolate, spreads containing cocoa, sweetened cocoa powder and other foods containing cocoa.
Reference: Statistical Review 1996. Caobisco, November 1997 Source: International Cocoa organization, July 1998

Chocolate consumption in Europe in 1996

Country
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Chocolate products Kg/Head per annum

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Austria Belgium Germany Denmark Spain Finland France Greece Italy Ireland Netherlands Portugal Sweden Switzerland Norway Total

9.52 10.06 10.12 8.28 3.94 3.60 6.69 2.84 3.29 8.76 4.54 1.93 5.21 10.18 8.57 6.81

United Kingdom 8.59

CAOBISCO data on per capita chocolate consumption Source: International Cocoa organization, May 1998 17. Impact of Trade Restriction:HIGH

18. Industry Sector:FOOD 19. Exporters and Importers:

Top ten cocoa producing countries
ICCO forecasts of production of cocoa beans for the 1997/98 cocoa year

Country

Production forecast for 1997/98: (in thousand tonnes) 370.0 310.0 160.0 155.0 125.0 100.0
Reference:

Cte d'Ivoire 1150.0 Ghana Indonesia Brazil Nigeria Cameroon Malaysia

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Quarterly Bulletin of Cocoa Statistics, 24 (1), 1997/98 Source: International Cocoa organization, April 1998

V. Environment Clusters
20. Environmental Problem Type:Rights 21. Name, Type, and Diversity of Species: N/A 22. Resource Impact and Effect: Low and Regulatory 23. Urgency and Lifetime:Low and 3-5 years 24. Substitutes: Like products

VI. Other Factors

25. Culture: No 26. Trans-Boundary Issues:Yes
Cocoa traders worry that the US, the world's biggest chocolate consumer might follow EU's steps and lift the ban on vegetable fats.

27. Rights: Yes 28. Relevant Literature, References and Links

ARTICLES
Europe says less Chocolatey is still chocolate, 1997. Nando Times, www.nando.net EU Wages Bureaucratic War over Meaning of Chocolate, Nov. 13 1995, Mark Lawrence, Associated Press Writer. Asides: A truffling Issue, Dec 4 1997, Wall street journal Chocoholics Disunited , Oct 20 1997, US News and World report, Gregg Easterbrook. Let them eat chocolate,Feb 1999, Mark Kurlansky, Travel Holiday. The bitter Taste of European Chocolates, Sept 16 1998, Melvis Dzisah, PANOS. www.oneworld.org

DISCUSSION PAPERS
A clone is being proposed: it would be false chocolate, European Fair Trade Movement (EFTM) January 1997. The WTO and the Trade Cooperation between the ACP and the EU: Assessing the options, Thomas R.H. (ECDPM Working paper # 16). Maastricht: ECDPM.

WEBSITES
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Europa europa.eu.int Euforic www.oneworld.org/euforic The European Union in the U.S eurunion.org Cadbury Limited www.cadbury.co.uk World Trade Organization (WTO) www.wto.org International Cocoa Organization (ICCO) www.icco.org General Secretariat of the African Caribbean and Pacific (ACP) Group of States www.acpsec.org

send your comments to Thank you!

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