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I. Abstract
Protectionism is not a new phenomenon. During the 1930s, the
United States was very protective of its markets. Industries such
as steel and coal were heavily protected by the US government, and
led to the growth of monopolies(Carnegie and the Rockefellers).
Now, trade wars and protectionism has taken the form of non-trade
barriers such as those used by Japan to keep US cars and apples out
of the Japanese market. Moreover, a new tactic used by countries
to protect certain markets is the environment and recycling. One
of the industries using this as a protectionist measure is the
alcoholic beverage industry. Recent cases in Denmark, the United
States, Canada and Peru demonstrate this new move towards using the
environment as a market protecting measure.
III. TED Cases
Rum
Alcoholic beverage trade has been around since the beginning of
time. From the meadhalls of Europe to the vineyards of Peru, there
has always been a demand for alcoholic beverages. Rum is made from
molasses, a by-product of sugar production. Rum, however, has
since surpassed tafia in consumption and profitability. Similar to
its root, sugar, the demand for rum has increased over the last
twenty years. Rum did not become very profitable until the mid
1960s. In the early 1960s, rum production moved from a period of
stability to one of appreciable growth. Competition among the
distilleries was strong and the more efficient ones increased their
production markedly. By the end of the 1960s, the industry had
become dominated by a small number of comparatively large
distilleries. The demand for rum continued to grow in the 1970s,
along with a steady increase in rum's share in the US liquor
market. In 1979, the EPA did a study on distillery wastes and
their effect on the environment in Puerto Rico and the Virgin
Islands, two of the leading suppliers of rum to the US market
Furthermore, former European colonies in the Caribbean have
benefited from special privileges (duty free imports), quotas in
the EU market due to the Lome Convention and more recently the ED
that imposed rum quotas from ACP (Africa,Caribbean and Pacific)
countries. Currently, Puerto Rico and the US Virgin Islands are
battling the US Congress to keep their preferential status
guaranteed to them in the Caribbean Basin Initiative on rum imports
and preventing other countries such as Mexico (through NAFTA) AND
Colombia (via crackdowns on drug smuggling) access to the Us
market. While on the other side of the Atlantic, former French and
British colonies are protesting against import quotas in the EU.
Market protection is a common practice in most market driven
economics. While Puerto Rico and the Virgin Islands use the
Caribbean Basin Initiative, former British and French colonies use
privileges given to them by the Lome Convention to their markets.
The Danish, Canadians, and the United States have used recycling
and environmental reform laws as a way of protecting their markets.
Peru, on the other hand is using a historical legacy as a way to
protect its market for Pisco.
Danish Beer
In the Danish beer case, the Danish government implemented new
requirements for the recycling of beverage containers, a move
designed to protect domestic producers. In essence, they used a
recycling as a way to protect their domestic market. Denmark
implemented a new recycling system requirement in 1981 that limited
the types of containers that could be used to bottle beverages.
The requirement was necessary in order to improve the efficiency
and success rate of the new recycling system. While manufacturers
in Denmark supported the legislation because they had already begun
to adapt their products to the new requirements, manufacturers
outside of Denmark, particularly Germany, complained that the new
requirements would unfairly force them out of the Danish market.
After a period of negotiations, the case was brought before the
European Court of Justice. The Court found that the Danish law did
not unjustly discriminate between foreign and domestic
manufacturers and was thus affirmed as a legal requirement.
Denmark's voluntary recycling system for beer and soft drink
containers had been in operation for decades and was initially very
successful. The containers possessed a refund value and were
returned to the manufacturer to be recycled. To ensure that the
system was not destroyed, the government implemented Order 297 on
June 8, 1978. This policy limited the types of material used for
beer and soft drink containers and prohibited the use of metals and
plastics. A limited number of container types was crucial for the
success of the reutilization system. The government estimated that
only thirty different containers could enter the market. These
could only be made of glass because technology did not make the
reuse of plastic or metal economically efficient. Furthermore, to
ensure that the containers met these standards, Article 2(2)
ordered that the returnable containers must meet formal approval of
the National Agency for the Protection of the Environment. The EC
countries were still not satisfied, claiming Denmark had
implemented this legislation to protect the soft drink and beer
industries. They stated that this legislation would be valid only
if it applied to all containers, including milk, wine, vinegar
table oil and spirit containers.
The Danish Government decided that the success and the benefits of
this environmental standards exceeded the costs incurred by the
foreign beer and soft drink companies. With EC nations
implementing their own environmental protection policies, trade in
the EC has become more restrictive.
Ontario Beer
In a similar case involving recycling and beverage packaging, the
US and Canada engaged in a bitter trade war over beer bottle
packaging. In April 1992, after several years of negotiations and
two GATT panel decisions against Canada, the United States and
Canada finally reached agreement over how to change Canadian
policies that were determined to be discriminatory against imported
beer. It is suspected that breweries in Ontario are now trans-
shipping their beer through other provinces, such as Quebec, for
export to the United States, thereby avoiding the import penalties.
Canadians cite the 97.3 percent return rate on glass beer bottles
as evidence that they are serious about this environmental
initiative Ontario implemented a 10% tax per aluminum can.
The United States continued to object to Ontario's environmental
tax, arguing that it was simply a new form of unfair
discrimination, especially since all other provinces had finally
complied with the GATT finding. In response to U.S. allegations,
the Ontario government offered to let GATT settle the dispute. The
United States argued that Ontario was simply stalling and not
complying with the GATT decision as they had promised. On July 24,
1992, after two more months of negotiation, the United States
imposed a $3 per case tax on beer imported from Ontario. Ontario
responded with an equal tax on Stroh and Heileman beers (the two
largest U.S. exporters into Ontario). Although negotiations have
been under way since late 1992, there has been no settlement up to
now. U.S. beer exports to Ontario totaled $30 million, while its
imports from there equaled $170 million. The leading U.S.
exporters are Stroh Breweries and Heileman Breweries and the
leading Canadian exporters are Molson Breweries and Labatt's
Breweries. Canada has alleged several problems that were addressed
by the tax. First and foremost, was the preference for glass
bottles in Canada because they were more easily recyclable there.
An additional reason was to protect the environment of Jamaica
which supplies the raw bauxite to make aluminum cans.
Pisco Case
Finally, the Pisco case between Peru and Chile involves the use of
the environment and maintaining market share. Here we see that
other factors such as political and economic ones play a role in
determining market share. "The pisco sour is a cocktail made with
a shot of pisco, a sprinkle of sugar, a bit of egg white and a
splash of lime juice, then either blended or served over crushed
ice, with a dash of bitters." However, pisco's future has been
marred by agrarian reform, economic and political turmoil, new and
more profitable crops, water pollution, and a trade dispute with
Chile over its namesake. "Through trial and error they found a
grape called the Quebranta produced a pure, highly potent, aromatic
brandy which eventually became known by the port from which it was
exported to grateful drinkers abroad: Pisco."
Today, water thirsty crops such as rice and sugar-cane are taking
slowly taking the place of grapes in the Ica region. Water
pollution is an enormous problem in all parts of Peru. A new
national environmental agency is being created as a result of a $2
million donation by the Inter-American Development Agency.
Peru's abysmal water conditions in the Ica region are a result of
domestic and industrial waste, including mining pollution. While
a trade war is not likely to break out, there is a growing trade
dispute between Peru and Chile over who had the right to use the
name pisco. "Peruvians hold a deep-seated national pride in pisco,
which they make from the cream of the grape harvest and have been
drinking at parties and rowdy peasant festivals for more than 400
years." Chilean pisco has already found small export markets in
the United States and Europe. Peruvian exporters are hampered by
hyper-inflation and an unfavorable exchange rate. "Peru is planning
action under international patent agreements --the same ones that
guard copyrights over everything from computers to pharmaceuticals
- to keep the pisco name exclusively for Peru."
While both countries claim a historical legacy to pisco, the
underlying cause of the dispute is over exports and control over
the market. Chile has already cultivated a small export market for
its pisco, mainly to the U.S. and Europe. Peru, however, has been
constrained by economic and political turmoil and unable to capture
an export market for its pisco. The water pollution from nearby
mines threatens the ability to produce the grapes to make pisco.
"Water resources are severely overburdened with residues" from
mines in the region, fishmeal plants, "as well as from the dumping
by numerous 'informal', unregulated industries and households."
Air pollution is also a severe problem. Harmful emissions from
fishmeal processing plants have caused bronchial illnesses and have
seriously damaged the atmosphere. Moreover, sulfur dioxide
emissions from copper plants have adversely affected the air.
Demand for Peruvian grapes and grape products is strong.
The United Kingdom imports grapes and Taiwan imports Tacma wine
produced in the Ica region. Water pollution from the mines
threatens grape harvests. The water intended for irrigating and
cultivating the vineyards is loaded with mining residue and
chemicals. Water purification is necessary for the survival of the
vineyards. Eliminating river pollution as a result of mining is
imperative. Because of the dry arid climate, chemicals are
absorbed into the local atmosphere and remain in the area. Pisco
has been part of Peruvian culture for over 400 years. To allow the
elimination of suitable grapes or permit a lesser version of it
would abolish part of a culture and society. Pisco is also part of
the traditional Peruvian meal.
IV. Comparison and Contrast