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Banana Wars Erupt Again

by Ulrika Lomas, for, Brussels

21 November 2006

Ecuador last week challenged the European Union's 176 euro ($225) per tonne tariff on imported bananas at the World Trade Organization (WTO). The tariff came into force last January after the WTO had forced the EU to reduce a proposed higher rate.

Ecuador says it is suffering as against the African-Caribbean-Pacific (ACP) countries, which have benefited from a quota of 775,000 tonnes annually which used to be at a lower tariff; the EU has just extended the quota tariff-free through 2007.

Ecuador's share of the European banana import market fell to 27.5% in the first eight months of the year from 29.9% in the corresponding period in 2005.

The EU said it regretted that Ecuador felt the need to complain about the import duty and that it was unhelpful.
"It's a pity that Ecuador felt it necessary to complain about our import scheme," commission spokesman for agriculture Michael Mann told journalists.

Costa Rica, which also sells bananas to the EU, says that although it does not agree with the present import regime, it will not support Ecuador's request for a WTO arbitration panel, and will rather continue negotiations to reach a reduction of the tariff. Costa Rican vice minister of foreign affairs, Amparo Pacheco fears that a Latin American request for a WTO arbitration panel in the dispute will put at risk the existing negotiations which were launched in December 2005 in Hong Kong with Norway mediating between the EU, and banana producing countries in Latin America and ACP countries to resolve the dispute.

"Our understanding was that this process was advancing fairly well and its a terrible shame that the challenge has been lodged," said Mann. "It helps no one I think."

The overall duty of 176 euros replaced a duty of 75 euros per tonne of imports within a quota and of 680 euros per tonne for imports exceeding the quota.

The European Union unilaterally imposed the new import tariff to apply from 1 January 2006 to bananas imported from countries – mainly in Latin America - enjoying Most Favoured Nation status, which includes Ecuador.

The new regime, reflecting preference for ex-colonies by a number of EU member states, including the UK, was not approved by the WTO, and certainly not by Ecuador, which continued to negotiate in hope of a better outcome.

In an effort to put an end to the long-standing dispute, the EU had agreed with Ecuador and the United States in 2001 to move from a complex import system based on a combination of tariffs and quotas for MFN bananas to a regime solely based on a tariff by 1 January 2006, and obtained two waivers from its WTO obligations for the preference granted to bananas from the ACP countries under the terms of the ACP-EC Partnership Agreement (the Cotonou Agreement).

The Commission originally proposed a single tariff of EUR230/tonne. However, following a request from a number of Latin American banana producing countries, a WTO arbitrator found in August 2005 that the proposed tariff would not result in at least maintaining total market access for suppliers under the Most Favoured Nations (MFN) clause.

On 12 September, the EU presented a revised proposal in the light of the arbitrator’s award, for an import duty of EUR187/tonne for MFN suppliers and a tariff quota of 775,000 tons at zero duty for bananas originating in ACP countries. Again, the arbitrator found that the proposal did not rectify the matter.

Throughout this process the Commission had several rounds of consultations with the Latin American countries concerned, as well as with the ACP countries concerned.

The EC observed that: "Regrettably, on none of these occasions did the Latin American countries concerned engage in a meaningful discussion or present a counter proposal that could have led to a negotiated solution. With the arbitration procedure now over, the EU had to set the rate that would apply as from 1.1.2006."

Bananas are just one aspect of the EU's trade relations with developing countries. Recently, Peter Mandelson, European Union trade commissioner, has been attempting to parlay the conflicting interests of the ACP countries, the EU member states, the WTO's 'Aid for Trade' program and the quarrelsome European Parliament into a coherent developing country strategy.

In an effort to square the circle, the EU at the beginning of the month proposed economic partnership agreements (EPAs) with the 70 plus ACP developing countries, which would combine increased development aid with extended liberalization periods. Predictably, no-one liked what they saw.

EU member states didn't exactly rush forward to find the EUR$2bn that the Commission wants to offer. And the ACP countries have been saying for years that EU aid is much promised but often delivered slowly or not at all.

Mr Mandelson told the European Parliament, which had criticized the Commission's package: "Let's be clear about the value of development aid. It is a means to an end - it's a way of translating policy reform into practice. The money is now on the table but what we really lack are specific, quantified proposals on how to use it."

Specific programmes are often hobbled by protectionist member states and/or cash-strapped producer countries. Sugar and bananas are two examples. The Commission wasn't allowed to cut the EU's sugar price by as much as the WTO demanded because of resistance from Caribbean producers, while at the same time hopelessly uneconomic EU sugar-beet producers were bribed to accept a new regime with five times as much money as was being offered in aid to the Caribbean.

British Trade Minister Ian McCartney and Development Minister Gareth Thomas wrote in a letter to the Commission: "The EU must allow ACP countries as much time as they reasonably need to open their own markets, while providing effective safeguards to prevent unfair competition from subsidized European products undermining African products on their own doorstep." Easy to say, but hard to achieve, especially against the looming 2008 WTO deadline for an end to protectionist regimes.

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