'Banana Battle' Gears Up as Latins Fault EU's Methodology for Determining New Tariff

Original Publication Date: 
9 March, 2005
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'Banana Battle' Gears Up as Latins Fault EU's Methodology for Determining New Tariff
By Daniel Pruzin
A BNA Monitoring Service
International Trade Daily
Volume 22 Number 10
Thursday, March 10, 2005 Page 381
ISSN 1523-2816

GENEVA--The battle between Latin American banana producers and the European Union over the EU's proposed tariff on banana imports is beginning to heat up, with Latin countries grilling the EU over the methodology used to determine its new tariff and challenging Brussels over its decision to exclude Guatemala and Honduras from compensation talks.

The initial skirmish is expected to set the stage for a wider assault later this year by the Latin producers against the proposed 230 euros ($300) per ton tariff, which could eventually lead to another World Trade Organization dispute challenge against the proposed tariff. An earlier landmark challenge to EU's previous tariff-quota regime by Ecuador, Guatemala, Honduras, Mexico, and the United States resulted in the WTO authorization of a combined $393 million in annual retaliatory sanctions on EU imports.

More importantly, trade officials fear the banana battle could peak toward the end of 2005, when WTO members meet for an crucial biennial ministerial conference in Hong Kong.

The nightmare scenario is that those Latin producers pushing for lower EU banana tariffs--or, just as likely, those banana growers in the Caribbean region that have benefited from preferential EU market access and view the 230-euro/ton tariff as too low--may block proceedings in Hong Kong until their concerns are addressed.

WTO members are hoping to achieve enough progress in Hong Kong in key negotiating sectors such as agriculture and market access for nonagricultural goods to ensure the successful conclusion of the Doha Round in 2006.

EU-ACP Impact Feared

While bananas may seem a trivial issue, WTO veterans note that the launch of the Doha Round trade talks in November 2001 was almost thwarted by similar spats involving the EU and its system of trade preferences.

Countries in the African, Caribbean, and Pacific (ACP) group of countries, almost exclusively former European colonies, refused to agree to the launch of the round unless ministers in Doha approved a waiver from WTO nondiscrimination trade rules for tariff preferences under the 2001 ACP-EU Partnership Agreement, otherwise known and the Cotonou Agreement. The waiver had been held up by Latin American banana producers, who insisted that the EU first detail how it planned to reform its banana import regime in line with the earlier WTO ruling.

The Philippines and Thailand also held up the launch of the Doha Round in the final hours of the meeting, refusing to approve the waiver until the EU agreed to guarantee them the same market access for their exports of canned tuna enjoyed under previous ACP-EU agreements In the end, the two countries accepted an EU promise to open negotiations on the issue.

The spat with Latin producers over the Cotonou waiver was resolved through the addition of an annex to the Doha waiver decision, under which the EU promised to switch from its tariff-quota system for bananas to a tariff-only regime by Jan. 1, 2006. The EU also promised that the change "should result in at least maintaining total market access" for banana suppliers subject to regular most-favored-nation (MFN) duty rates, i.e.
those in Latin America.

The annex states that if the MFN suppliers believe market access is not being maintained through the new single tariff, they may request WTO arbitration to determine whether their claims are justified.

On Jan. 31 the EU formally notified the WTO that it would remove its multiple TRQs on bananas and replace it with the single 230-euro/ton tariff (22 ITR 179, 02/3/05) . The proposed tariff was well above the 75 euros/ton sought by the Latin suppliers but below the 275 euros/ton which ACP countries lobbied for. ACP producers however will continue to benefit from a duty-free quota that is denied to Latin producers.

The European Commission said its proposed tariff, to take effect on Jan. 1 next year, "preserves the current level of market access" for MFN suppliers.

Latin countries reject the Commission's claim. In a joint statement issued Feb. 3, the WTO ambassadors from Colombia, Costa Rica, Ecuador, Guatemala, Honduras, and Panama said the EU tariff would "seriously limit" the ability of their producers to continue exporting to Europe and "severely unbalance" their economies (22 ITR 219, 02/10/05) . They also warned their governments would "utilize all the available defense mechanisms in the WTO" to ensure their market access is maintained if a negotiated settlement is not reached.

Arbitration Deemed Likely

Officials following the talks believe a deal is unlikely and that the Latin countries will trigger the arbitration procedures under the Doha waiver annex. Senior officials from Costa Rica and Ecuador have already reportedly promised to file a request by the end of March, when the deadline for requesting arbitration expires.

The United States may also participate in the arbitration procedures, since the only criteria for doing so is that the country in question must be an MFN supplier. Although U.S. exports of bananas to Europe are tiny--some 4,000 tons per year, according to EU officials--Washington has much larger commercial interests in the banana discussions through U.S.-based firms Chiquita, Dole Foods, and Del Monte, the major purchasers and distributors of Latin American bananas. The three companies together produce and control an estimated 65-70 percent of world banana exports.

The companies, however, do not share the same objectives. Chiquita, with extensive operations in Latin America, favors a low tariff, whereas Dole and Del Monte have some production in ACP countries and would not be as affected by a high tariff.

The United States joined in the original WTO complaint against the EU's banana import regime and secured the right to impose $191.4 million in annual sanctions on EU imports after Brussels failed to comply with the ruling. The sanctions were lifted in July 2001 after Brussels and Washington secured a deal giving U.S. distributors increased market access to Europe pending the introduction of the tariff-only regime in 2006 (18 ITR 1033, 07/5/01) .

If the WTO arbitrator rules that the EU has failed to maintain market access for MFN suppliers through the proposed tariff, the EU will be asked to rectify the situation. If the EU fails to do so, the Doha waiver will be annulled for trade in bananas, and the MFN suppliers will have the right to challenge the discriminatory preferences for ACP banana exporters through WTO dispute proceedings.

The annex requires that the arbitration procedures be completed before the new tariff enters into force next year.

EU Has No Plans to Change Tariff

In preparation for possible arbitration, the Latin countries have asked the
EU to provide further details as to how it concluded that the 230-euro
tariff would maintain market access for their producers. The EU held talks
on the issue at its Geneva trade mission Feb. 22 with the Latin producers
and the United States; one Latin participant said the EU was bombarded with questions and complaints about the methodology it used for determining the tariff.

The EU says the 230-euro tariff is based on guidelines for the calculation
of tariff equivalents set out in an attachment to Annex 5 of the WTO's
Agriculture Agreement, and that while it is willing to continue discussion
on the issue, it has no plans to revise the tariff, according to officials
involved in the talks. Latin countries charge the guidelines are
inappropriate for determining equivalent market access and that Brussels
has provided no details on how the calculation was actually made.

Officials from both sides said there are no plans at the moment to hold
further discussions on the proposed tariff.

Latin Nations Seek Enlargement Compensation

Complicating the situation is the fact that the banana battle is taking
place on several legal fronts. In addition to challenging the 230-euro/ton
tariff, Latin producers are also demanding compensation from Brussels for
EU enlargement last May, which resulted in Poland, the Czech Republic,
Hungary, and the seven other new member states taking on the EU's more
restrictive banana import regime. Under the General Agreement on Tariffs
and Trade, the Latin countries have the right to request compensation for
the trade losses incurred from enlargement; if adequate compensation is not agreed, the Latin countries may retaliate in the form of higher tariffs on EU goods.

The deadline for reaching a compensation agreement is April 30. The EU,
however, has refused requests from Guatemala and Honduras to enter into compensation talks on the grounds that these countries do not have a
"principle supplying interest" in the EU market for bananas as required
under GATT rules. The two countries have contested the EU's decision before the WTO's ruling General Council.

Beyond the EU's obligation to maintain market access, Latin countries also
argue the EU has made a commitment to liberalize trade in bananas as part of the current Doha Round negotiations. The Latin countries point to the so-called "July framework package" agreed last year for advancing the Doha Round, in particular paragraph 45 of the annex on a framework for
agriculture modalities (21 ITR 1304, 08/5/04) . Paragraph 45 calls on WTO members to address the "long-standing commitment to achieve the fullest liberalization of trade in tropical agricultural products" as part of a
market access deal on agriculture, a commitment which, in the eyes of Latin producers, includes trade in bananas.

Latin officials have warned that this commitment must be addressed if
members hope to conclude a final Doha Round deal. "We urge the European Union to respect the commitments of the Doha Round and the "July Package" and to contribute in this manner to a successful conclusion of the said Round," the presidents of Colombia, Costa Rica, Ecuador, Honduras, and Panama said in a joint statement Jan. 26.

ACP Cites 'July Package' Commitments

ACP countries on the other hand point to the next paragraph of the
framework annex, which acknowledges the "importance of long-standing
[trade] preferences and commits WTO members to addressing the erosion of trade preferences in the Doha negotiations. For ACP banana growers, the EU move to a single 230-euro/ton tariff constitutes an example of the erosion of tariff preferences.

The conflicting obligations have already sparked a heated debate in the
WTO's negotiating group on agriculture, where ACP countries have squared
off against Latin American countries. The Caricom group of Caribbean
countries argues that some tariff preferences should be maintained in order to give them time to adjust, whereas Latin countries (including the major banana exporters) argue that tariff preferences violate the WTO's core principle of nondiscrimination and that tariff preferences in any case
provide little economic benefit to recipient countries. Costa Rica pointed
out at a Feb. 7-8 negotiating group meeting that several ACP banana
growers--notably Cameroon and Côte d'Ivoire--have increased their banana exports despite the erosion of preferences.

Stuck in the middle and frustrated in trying to balance the competing
interests, some European Commission officials have privately expressed hope that the WTO will resolve the banana issue for them. The 230-euro tariff was only adopted after an internal row which saw Sweden, Germany and most of the 10 new EU member states express unhappiness with the Commission proposal. On the other hand, France, which produces bananas in its Caribbean territories of Guadeloupe and Martinique and has close ties with other ACP countries, and Spain, which has domestic production in the Canary Islands, favored a high tariff.