The most interesting trade dispute you’ve never heard of

It’s the most interesting trade dispute you’re never heard of.

The European Union (EU), the world’s single largest consumer of cocoa, is causing havoc in global markets, worrying several of the poorest countries in Africa and Latin America. The EU contends that it is trying to limit child labor, deforestation and exposure to cadmium. Peru and others allege disguised protectionism. It’s the chocolate wars, and it’s a wake-up call for U.S. agricultural exporters.  

Last April, the European Cocoa Association and others hosted a webinar on food safety. Attendees were treated to presentations on Europe’s Green Deal and its Farm to Fork Strategy, but the discussion of cadmium must surely have been the main event. That’s because Peru was one of the webinar’s co-sponsors, and the fate of its cocoa industry is being threatened by new EU legislation that aims to limit exposure to cadmium, a heavy metal that can cause damage to a person’s kidney or lungs, for example, especially in children.

Peru, supported by Colombia, Ecuador, Indonesia and Malaysia, complained about this legislation at the World Trade Organization (WTO) back in 2020. Peru hasn’t filed for litigation (yet), instead choosing to raise the issue before the committee on health and safety standards.

It’s an interesting complaint, because it centers on whether Europe has any science to back up its standard (which is more stringent than most global ones), and whether the same science is being applied to other food containing cadmium, such as vegetables and cereals.

Europe has also opened up another front in the chocolate wars, this one backed up by non-governmental organizations like Fairtrade, and companies like Nestle. Talking about Cote d’Ivoire and Ghana, in particular, the group says there is a “cocoa poverty trap” that needs to be solved by getting Europe to incentivize “sustainable” production.” As the EU’s ambassador to Cote d’Ivoire explains, “[t]he European consumer wants to eat chocolate without having to think about child labor, deforestation or the poverty of those who grow cocoa.” 

Cote d’Ivoire has asked for EU financial support to deliver stricter cocoa laws. With or without help, this will be tremendously costly for farmers. But Cote d’Ivoire is the key to it all, given that the country is Europe’s main supplier of cocoa, accounting for 41 percent of EU imports in 2020.

In 2017, Cote d’Ivoire joined in the complaint about EU cadmium limits. So did Ghana. In fact, so did the U.S. Cote d’Ivoire, like Peru, wanted the EU to delay its legislation, and it did. But Ghana went further, asking Europe to wait out a global standard under Codex Alimentarius. The U.S. went further still, calling the regulation an unnecessary barrier to trade, and insisting that its negative trade effects be minimized.

This makes EU concerns for child labor and deforestation even more interesting. My bet is that the EU innovates a label to inform consumers about these concerns at point of sale. This won’t be easy: Credible metrics are likely to be elusive, leading to legal challenges. Yet, for Cote d’Ivoire, the cost of complying with EU regulations will seem well worth it if cadmium limits are able to keep other countries out of the market.

Back to Peru. Cadmium is in a lot of things, and in the case of cocoa, it’s in the soil that younger plants in certain regions more fully absorb. Europe’s limits concern final products, but producers will be reluctant to source cocoa that has more cadmium, even if it can be diluted in the finished product. This leaves Peru and others in a serious bind.

The optics of challenging a label, or the standards it builds on, will be fraught. Peru and others should focus first on the cadmium limits, since these are the key to getting Cote d’Ivoire to buy into the sustainability standards. A legal challenge at the WTO should target at least two things: stricter cadmium limits on cocoa versus cereals, for example; and any exceptions for EU member states to deviate from these limits on a per-food basis.

Why should U.S. agricultural exporters care? Simple. Replace cocoa and cadmium with your product and a mineral, metal or pesticide that’s more common in the U.S. than in the EU, add in Europe’s Green Deal and Farm to Fork Strategy, and voila, you’re in a chocolate war.

Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service at Georgetown University. Follow him on Twitter @marclbusch.