COMMODITIES: Brazil-EU Dispute over Instant Coffee Goes to WTO

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Feb 16 1998 (IPS) - Brazil has decided to turn to the World Trade Organisation (WTO) in its dispute with the European Union (EU) over what it considers a discriminatory tariff on instant coffee.

Brazil’s instant coffee is subject to a 10 percent tariff in the EU, which exempts other countries in order to support their efforts against drug trafficking.

Brazil’s sales of instant coffee to the EU have crashed from 12,000 tonnes in 1992 to 5,800 tonnes last year, and the tariff rose from nine to 10.1 percent since January 1997, said Roberto Ferreira, acting president of the Brazilian Instant Coffee Association (ABICS).

Thanks largely to high international prices, exports of coffee beans brought in a record 2.75 billion dollars last year, while revenues from instant coffee fell from 400 million dollars in 1996 to 370 million in 1997, Ferreira pointed out.

The coffee industry’s problems were heightened not only by the high European tariff, but also by higher prices of coffee beans in Brazil. A 60-kg sack of coffee beans, which competitors obtain for 100 dollars, currently runs from 140 to 150 dollars here, the businessman added.

Hard-hitting frosts reduced Brazil’s coffee production in 1994. The scarcity worsened last year, and is expected to last until the new harvest enters the market starting in July or August.

The discriminatory tariff is part of the EU’s “protectionism,” said Ferreira, who maintained that the bloc was attempting to defend its own industry against Brazil, which enjoys “the greatest installed capacity” for the production of instant coffee, and can thus meet demand “with speed and quality.”

He added that the high tariff against Brazil’s instant coffee also gave a boost to Colombia’s coffee industry, which has doubled its production since 1990 and has even begun to produce freeze- dried coffee, that has a higher added value. Other competitors, like Ecuador, were also able to expand their share of the European market.

The ABICS hopes the Brazilian government will ask the WTO to establish a special panel, a mechanism used to resolve disputes within the world trade body. But that step must be preceded by a request for a formal consultation, in which the EU would present its case and there would be an attempt at negotiation, a process that could last two months.

Informal talks – “one last attempt” to reach an accord – ran aground last month in Brussels, said Jose Botafogo Gonzalves, the head of the Economic Department of the Brazilian Foreign Ministry.

The fate of Brazil’s complaint in the WTO depends on the world body verifying that the drop in exports of instant coffee was indeed caused by discriminatory treatment by the EU.

If the EU really wants to help Andean and Central American countries uproot cocaine production, there are many better alternatives that do not hurt an industry in Brazil, a country which also suffers from the problem of drug trafficking, argued Ferreira.

The high duty for instant coffee has been applied since 1991, and is calculated over the CIF (cost, insurance and freight price), which pushes up the tariff, he added.

One characteristic of the international coffee market is that the product is mainly produced for export, Oswaldo Aranha, the president of the Brazilian Federation of Coffee Exporters, commented Feb. 10 in a Rio de Janeiro seminar.

“In global terms, 80 percent of the coffee produced is destined for consumption in non-producer countries,” which leads to a high level of dependence on the international market, Aranha pointed out.

In that one-way trade, tariffs and other barriers set up “a wall of isolation against industrialised products.”

Thus, in “a global market of 50 billion dollars, coffee- producing countries must dispute a 10 billion dollar share, the total sum of coffee bean exports,” he underlined.

Domestic consumption is relatively high in Brazil, which as well as the world’s leading coffee producer and exporter is the second biggest consumer, absorbing from 30 to 50 percent of its annual harvest, currently close to 13 million sacks a year.

But the situation differs in the case of instant coffee. Since Brazilians do not habitually drink instant coffee, 95 percent of the total production of which is exported, external barriers have a devastating impact on the industry, Ferreira stressed.