16th Dec, Bridges Weekly Trade News

The European Union and a group of Latin American countries have reached an agreement to end tensions over the EU’s tariffs on banana imports, bringing to a close the longest international trade dispute in memory.

At issue is the EU’s current banana import regime, which allows 775,000 tonnes of the fruit from African, Caribbean and Pacific (ACP) countries - many of which are former European colonies - to enter the bloc duty-free each year. Meanwhile, Brussels places a €176 per tonne tariff on bananas from all other exporters.

Many Latin American countries, which include some of the world’s biggest banana exporters, have long insisted that this import regime illegally discriminates in favour of bananas from ACP countries and violates WTO rules on quantitative restrictions. The WTO’s Dispute Settlement Body has supported such claims, and Brussels has been under pressure to revise its policies.

The United States also has an interest in the agreement, as several major banana companies - namely Chiquita, Del Monte and Dole - operate in Latin America but are headquartered in the US. Washington has joined the Latin American countries in challenging the European banana tariff regime at the WTO.

But the deal initialled on Tuesday brings all of those tensions to a close, nearly 19 years after Costa Rica first raised concerns about the EU import duties under the framework of the General Agreement on Tariffs and Trade, the WTO’s predecessor.

WTO Director-General Pascal Lamy warmly welcomed the end of “one of the most technically complex, politically sensitive and commercially meaningful legal disputes ever brought to the WTO.”

“I hope that the same pragmatism, creativity and diplomacy will help move forward the Doha Round negotiations,” he added.

Outline of the pact

The deal, which was initialled at the WTO’s Geneva headquarters on Tuesday, will gradually cut the EU’s tariffs on Latin American banana exports from the current level of €176 per tonne to €114 per tonne by 2017, beginning with a ‘down payment’ cut of €28 per tonne that took effect on 15 December. From here on, the tariff will drop by between €3 and €7 per tonne each year from 2011 to 2017, when it will reach its final level of €114.

If a Doha Round deal has not been finalised by the end of 2013, further tariff cuts after that date “will be delayed until Doha modalities are established,” according to the text of the deal initialled on Tuesday. But delegates added the caveat that “under no circumstances” will that delay extend beyond 31 December 2015.

The two sides have reportedly agreed to a truce on any ongoing or future WTO disputes on the matter. In a parallel agreement signed by the EU and the US, Washington also agreed to drop its WTO suit against European banana tariffs.

The pact is accompanied by a guarantee of “up to €200 million” in compensation for African, Caribbean and Pacific (ACP) countries, who claim that the new deal to open up the European market to Latin American bananas will undermine their less-competitive domestic producers.
“This is the best possible deal we could achieve,” said Karel De Gucht, who will soon take over as EU Trade Commissioner. “I know ACP producers will face challenges in adjusting to the new situation. But the EU will do its best to help.”

According to a study by Giovanni Anania of the University of Calabria, ACP exports to the EU will drop by 14 percent under the new deal, while exports from other banana producing countries - largely in Latin America - will jump by 17 percent. Overall, EU banana imports will increase by 6 percent. (The study was commissioned by the International Centre for Trade and Sustainable Development, the publisher of Bridges Weekly.)

At a political level, the EU has been linking the banana debate to progress on some issues in the WTO’s Doha Round trade talks, particularly the agriculture negotiations on ‘preference erosion’ and tariff reductions for ‘tropical products’ - two topics of particular interest to ACP countries.

The European Trade Commission said in a statement released on Tuesday that the EU, ACP countries, and Latin American countries had reached agreement on how they will approach the two sensitive areas of the Doha talks.

“‘Tropical products’ will be subject to deeper tariff cuts, while tariff cuts for ‘preference erosion’ products of interest to ACP countries will be conducted over a relatively longer period,” the statement said.

Negotiating mandates to liberalise trade in tropical products while addressing the effects of preference erosion have long pitted Latin American liberalisation proponents against countries in the ACP group, which benefit from preferential access to major markets, for bananas as well as other products such as sugar and rum. If non-ACP developing countries gain easier access to the European and other major markets, the group of former colonies’ trade preferences will be ‘eroded’, and they fear that their producers may struggle to compete.

This issue has been central to the banana dispute, and has linked it intrinsically with the Doha Round farm talks. But now those tensions appear to have been resolved.

For real this time?

European and Latin American officials came close to striking a deal on bananas during the WTO’s ‘mini-ministerial’ conference in July 2008. But those talks broke down over other issues and a banana agreement was never finalised.

But this month’s deal appears to be on more solid footing. The deal was initialled on Tuesday by representatives from the EU, Brazil, Colombia, Costa Rica, Ecuador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Peru and Venezuela.

The pact will be presented to the WTO membership for review at a meeting of the organisation’s General Council on Thursday. Members will then have 90 days to raise any objections to the EU’s proposed new tariff structure.

ICTSD reporting.

2 responses to “EU, Latin Americans Call Truce in Long-Running Banana War”:

1. Anders Rodenberg 16th December 2009 at 22:41
      At last!!!! I would have loved to be in Geneva when the deal was signed, but at least I will get cheaper bananas now.

2. Denis Loeillet 18th December 2009 at 07:45
      I don’t think so. The producers in latin-america and africa will get lower prices and revenues… The retail banana price in Europe is the lowest retail price in the fruit and veg. sector and the more interesting ration price/energy.

Source: Bridges Weekly Trade News Digest, Vol. 13, No. 43

The Wall Street Journal has also reported on this important deal.  Read the article here .