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January 24, 2011

EU ban on Ivory Coast trade may curb cocoa, coffee sales

by Jennifer M. Freedman

European Union sanctions designed to choke off funding to Ivory Coast’s president and pressure him to cede power may cut cocoa and coffee shipments to the EU.

While the West African nation’s two biggest exports have yet to be obstructed by the bloc’s 5-day-old sanctions intended to force out Laurent Gbagbo, the aim is to cut the regime’s financial lifeline, Maja Kocijancic, spokeswoman for EU foreign policy chief Catherine Ashton, said in an interview.

“Today’s priority is on the economic asphyxia of Gbagbo’s regime,” she said by e-mail. “An important consequence is the prohibition to make available, directly or indirectly, economic resources to or for the benefit of the persons or entities subject to sanctions. Therefore, payments and transfers to sanctioned entities become illegal.”

The measures block most trade between the EU and Ivory Coast, the world’s top cocoa producer, by barring any financial transactions between Europe and any of the people or entities on the sanctions list, which includes the country’s two main ports, cocoa and petroleum enterprises, three banks and the state broadcaster.

Ivory Coast shipped 3.57 billion euros ($4.8 billion) of mainly agricultural products to the bloc in 2009 and bought 1.47 billion euros of EU goods such as fuel, machinery and chemicals, according to the European Commission in Brussels.

The bulk of imports from Ivory Coast to the EU go to Germany, the Netherlands and France, according to the commission. About half of all EU exports to the African country come fromFrance, followed by Belgium, Germany, the Netherlands and Italy, it said.

The EU law “covers all deals between Europe and Ivory Coast,” said Luis Mateus, an analyst at Riverlake Shipping SA, a Geneva-based shipbroker. “It covers everything.”

The law says “no funds or economic resources shall be made available, directly or indirectly, to or for the benefit” of any of the people or entities on the list, including the ports in Abidjan andSan Pedro. Most of the country’s cocoa beans and coffee are shipped from the two ports, which “are helping to fund Gbagbo’s “illegitimate government,” the EU said.

The U.S. Treasury Department on Jan. 6 barred Americans from conducting financial or commercial transactions with Gbagbo, his wife and three advisers and may soon seek UN sanctions on them.

Robert MacLean, a trade lawyer at Squire Sanders Hammonds LLP in Brussels, said the EU sanctions make it a criminal offense to deal with Ivory Coast’s ports. While that makes new business “difficult,” existing long-term supply contracts for cocoa and coffee “theoretically can continue,” he said.

Cocoa rose to a six-week high yesterday and “it’s Ivory Coast that’s pushing prices up,” saidBoyd Cruel, a senior analyst at Vision Financial Markets in Chicago. Cocoa on ICE Futures U.S. in New York gained 5 percent in the three sessions through yesterday and extended gains in London today, with March futures rising 1 percent to 2,075 pounds ($3,316) a metric ton, the highest price for that contract since Dec. 7.

European exporters to Ivory Coast may initially suspend contracts with importers in the West African country and then look for ways to bypass the sanctions, said Jacques Bourgeois, a trade attorney at Wilmer Hale in Brussels who specializes in European law.

“They’ll export to neighboring countries,” he said. “There is no reason neighboring countries would assist the EU in enforcing export controls.”

For the time being, Ivory Coast will probably manage to circumvent the sanctions and export its most important products, said Eric Sivry, head of agricultural-options brokerage Marex Financial Ltd. in London. “A lot of cocoa would probably find its way out of the country anyway through smuggling,” he said. “It would come out one way or the other.”

Cocoa is one of the most vital resources in Ivory Coast and a key to financing Gbagbo’s regime. The country’s cocoa industry is worth an estimated $1 billion a year.

Mateus expects the embargo to have a “small impact” on Riverlake, which does “a lot” of business in West Africa though a limited amount in Ivory Coast.

“If the embargo goes on for just a few weeks things will go back to normal very soon, but it’s going to affect the oil industry, service providers,” he said. “From what I see, things aren’t getting sorted out over there.”


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