Event Programme

UZBEKISTAN: Facilitating the Process of Accession to the WTO
Programme financed by the European Union


WTO Rules on Non-Discrimination in Trade in Goods


Module B: WTO Rules and Exceptions on Non-Discrimination and Market Access
Simulation exercise 4: Organic coffee
Reading:
Chapter 4, sections 4.1, 4.1 and 4.4 of Essentials of WTO Law, 2^nd edition
Chapters 4 (sections 1&2) & 5 (sections 1&2) of The Law and Policy of the WTO 5 ^th edition

As previously noted, Southland is an important coffee producer. This is due to its favourable climate and geographical conditions. It also has a large and low-cost labour force skilled in coffee-picking. Most Southland coffee farms are small holdings. Due to the high prevalence of the coffee berry borer (Hypothenemus hampei) in Southland, coffee farmers use chemical pesticides to prevent this pest from damaging their coffee plants.

Recall that much of Southland's coffee is traditionally exported to Welland, a developed WTO Member that is a party to the Agreement on Government Procurement. Currently Southland exports mostly unroasted (green) coffee beans to Welland. However, the development of coffee roasting facilities in Southland has been actively stimulated by the Government in the past few years, with the view to increasing the profitability of coffee industry in general, given the larger profit margin of roasted coffee when compared to coffee beans. Southland has now started exporting roasted coffee to Welland.
While the substantial amount of coffee imports into Welland from Southland is partly due to the fact that Welland has a traditionally coffee-drinking culture, it is also due to the fact that Welland also has its own coffee industry, focusing on coffee roasting, blending and packaging leading to re-exportation of this value-added coffee. Although coffee is also grown in Welland, most of its coffee industry depends on cheaper imports of unroasted coffee beans.
Wellandian citizens are becoming increasingly concerned with the manner in which products, including coffee, are produced, although this is not often reflected in their purchasing behaviour. With regard to coffee, Wellandians are increasingly aware of the possible effects on human health of the use of certain pesticides in coffee production, both for coffee pickers and for consumers of coffee, as pesticides may leave small amounts of residues on coffee beans. Having recently lost a dispute against its ban on Southland’s coffee beans, and having had to revoke that measure, Welland’s Government has decided to become a forerunner in addressing the human rights and health impact of coffee production practices by enacting other measures to promote and stimulate the production and consumption of ‘organic' coffee and 'fair trade' coffee. Aside from recently passed legislation requiring domestic coffee farmers to produce at least 75% of their coffee in an 'organic' manner (i.e., without the use of chemical pesticides), and imposing strict labour standards on its own coffee industry, Welland has decided to adopt, among others, the following measures:

1. 
   The customs duty applied by Welland on all coffee beans produced without the use of chemical pesticides ('organic' coffee beans) has been reduced from the previous level of 10% ad valorem to 8% ad valorem. The customs duty on 'non-organic' coffee beans remains at 10% ad valorem.
   
2. 
   To set a good example, all Welland’s public bodies and institutions will be required by law to purchase only 'organic' coffee for use in their office coffee dispensers for staff.
   
3. 
   The value added tax (VAT) applied by Welland on all coffee certified by Fairtrade International as produced in a manner meeting FairTrade’s labour standard, has been reduced from 15% ad valorem – originally applicable to all coffee - to 10.5% ad valorem. The VAT on coffee produced in compliance with Welland's strict domestic labour law requirements has been further reduced to 10% ad valorem. The VAT on all other coffee remains at 15% ad valorem. As most Southland smallholders are unable to pay the costs of inspection and certification by Fairtrade International, very few of them benefit from the VAT reduction to 10.5% ad valorem. By contrast, since Welland's domestic producers must comply with its domestic labour law, all Welland's coffee benefits from the reduction of VAT to 10% ad valorem. Utopia, a country currently negotiating accession to the WTO, exports FairTrade certified coffee to Welland and thus benefits from the 10.5% ad valorem VAT.
   
4. 
   In order to strengthen the impact of the above VAT measure, and to encourage consumers to purchase products meeting minimum labour standards, Welland has passed a new marketing regulation, the FairTrade Retail Regulation. It allows only food/beverages and agricultural products that comply with Welland's labour law or carry FairTrade International's certification to be sold in special 'Fair Trade' shops, which are allowed extended opening hours, including Sundays when other shops are closed.
   

Southland’s coffee farmers and emerging roasted coffee industry are much affected by Welland’s measures. They approach the Southland Ministry of Trade to request that the matter be raised at the WTO by Southland's Trade Minister. You are a legal advisor at the Advisory Centre for WTO Law, which has been approached by Southland's Ministry of Trade for legal advice. You are asked to write a legal memo addressing each of the measures listed above in terms of the non-discrimination obligations of the GATT 1994. Please provide legal advice on whether a possible violation of these obligations can be established. You are not asked to examine any market access violations or possible justifications under the general or security exceptions for any violations established at this stage. Please note that Welland is a party to the WTO Agreement on Government Procurement, but Southland is not.

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