Frozy ban: A disguised restriction on trade?

The high demand for Frozy was undeniable. Frozy was everywhere. It, thus, came as a surprise to hear that the Malawi Bureau of Standards (MBS) under the Import Quality Monitoring Scheme (IQMS) on imported products claimed to have “objectively” established that Frozy was failing to conform to relevant Malawian standards. The outcry on social media and other platforms was immediate, palpable and somewhat comical.

However, not so comical was the potential breach of Malawi’s obligations under the World Trade Organisation (WTO). Malawi having become a member on May 31 1995 is bound by the rules of the General Agreement on Tariffs and Trade (Gatt) which is administered by the WTO.

Specifically, under Article 3(1) of the Gatt, Malawi is obligated not to apply laws or regulations affecting the internal sale, offer for sale or distribution to imported products so as to afford protection to domestic production. The interpretative note contained in Article 3(2) outlines that these provisions will have been breached only where competition was involved between, on the one hand, a foreign imported product and a directly competitive or substitutable local product.

A directly competitive or substitutable product has been defined under WTO law by looking at the commonality of end-uses, physical characteristics and the elasticity of demand (if the one product increases in price to what extent will consumers buy another product).

Applying these tests, it goes without saying that drinks such as Fanta, Coca-Cola and Sprite would be directly competitive and substitutable products of Frozy. Not only might one opt for Frozy if Fanta, Coke or Sprite suddenly became too expensive, but the physical characteristics are similar. They are all fizzy drinks.

It would, thus, appear that although MBS has relied on the MBS Act (Cap 51:02) as the basis of the ban, this is a clear breach of Article 3 of the Gatt. Notwithstanding this, Malawi could invoke the exemption provisions to the obligations of the Gatt found under Article 20.

This article lays out a number of instances in which members of the WTO may be exempted from Gatt rules.

Applying some of the justifications argued by MBS, Malawi could specifically invoke Article 20 (b) which allows members to be exempted from Gatt provisions if the measures are necessary to protect human, animal or plant life or health. MBS claims that the high levels of citric acid and sodium benzoates are hazardous to the health of Malawian citizens.

However, in order to successfully apply the Article 20 exemptions, the measure must satisfy the requirements set out in the introductory paragraph of the same article 20 (the “Chapeau”). Under the Chapeau the measure in question i.e. the ban of Frozy (although necessary to protect human health) must not constitute “a means of arbitrary or unjustifiable discrimination between countries where the same conditions apply” and it must not constitute a “disguised restriction on international trade.”

The sudden dominance of Frozy on the market caught most of us by surprise and had started to pose stiff competition to local products which are directly competitive or substitutable. The cheap price of Frozy meant that a lot of consumers opted for Frozy than locally produced Fanta, Coke or Sprite. In some markets, this led to a decrease in the price of these locally produced drinks in an effort to compete with Frozy.

The health grounds articulated by MBS are not far-reaching when we consider the other types of imported drinks which are arguably more dangerous to human health. Specifically, the cheap liquors which have flooded our markets and have adversely affected Malawi’s youth.

The other argument raised by MBS that the packaging requirements do not meet Malawian standards is not entirely convincing. There are a large number of foreign products which are labelled in languages other than English. There are some juices on the market which have been labelled in Arabic, but yet MBS seems to pay a blind eye to them.

Considering the circumstances surrounding the ban of Frozy, it is not difficult to conclude that the ban constitutes a disguised restriction on trade, so as to afford protection to domestic products. This, therefore, makes the ban inconsistent with Malawi’s obligations under the WTO. n