The Banana Saga (Part II)

The History by Edwin Laurent in Brussels

Reform of Europe’s import arrangements for bananas and the accompanying dispute, were notable features of international trading relations at the end of the last century. Events of that time constitute a major chapter in the economic history of the Windward Islands that should be studied in order to understand the current predicament facing the export industry and to inform decision-making. {{more}}

The Windward Islands banana trade falls neatly into two distinct periods; before and after the 1993 European Single-Market. In the four decades preceding 1993, banana production and export had come to dominate their agricultural sectors, supplanting production of sugar-cane and most other crops. Along with Jamaica, these islands’ banana exports accounted for most of the British market, with a minimal presence from Belize and Surinam. The much cheaper Latin American or ‘dollar’ bananas were restricted by import quotas and a duty of 20%. As a result, prices were higher than those in European countries that did not restrict ‘dollar’ fruit. The British market was secure and remunerative. These were the good old days of ‘green gold’!

The approach of the 1993 Single Market was not viewed enthusiastically by all suppliers. Those who dealt with ‘dollar’ bananas saw an opportunity for fuller and easier access to those parts of Europe where they had previously been restricted or excluded. Caribbean suppliers on the other hand were fearful that the common import regime would be more favourable to ‘dollar’ banana imports and dilute their own preferences so that they would not be able to compete. With one side pursuing a bonanza and the other its very own survival, the first high stakes battle in the banana war, which was to define the European Community’s import regime, got underway.

The negotiations were intensive with the Caribbean succeeding in obtaining the invaluable support of the British Government. It was always ‘touch and go’ but in the end the Windward Islands were well-treated. The Community sought to ensure that none “would be placed in a less favourable situation than in the past or at present”. A single Europe-wide regime to equate the diverse national import arrangements was introduced by EC Regulation 404/93. It set quotas on ‘dollar’ banana imports and for individual ACP countries and provided the latter with income support.

It was more than the commercial arrangements that were changing, there was fundamental economic and political transformation taking place. The British market, where our bananas had dominated, ceased to exist having been absorbed by one giant Europe-wide market in which we were not even substantial suppliers. Authority over trade policy was changing too; the UK Government was no longer able to independently formulate and implement trade measures. That power was vested in the European Union where the UK initially was only one out of ten and is now just one out of twenty-five Member States.

When the market changes were announced, the multinational companies and the Latin Americans ‘saw red’. Those who were GATT Members complained but the EU, by negotiating a BaNana Framework Agreement that set individual quotas giving countries valuable commercial power over their exports, was able to get four of them, Colombia, Costa Rica, Nicaragua and Venezuela, to drop their charges. Guatemala, a marginal exporter to the EU, but with close relations with Chiquita, rejected the Agreement and kept the dispute alive. It was eventually joined by other plaintiffs, Ecuador, Honduras, Mexico and Panama. The US, though not a banana producer, was able to get involved because of its marketing companies.

The Windward Islands took on a leadership role in the ACP response, putting together a legal consortium and overseeing the preparation of a defence. When the WTO Panel met in September 1996, a controversy arose over the intention of the ACP team to be accompanied by independent legal counsel accredited to the Saint Lucia delegation. The wrath of the Panel was expected and it came! The lawyers were expelled and after a formal protest, the Permanent Representative walked out with them. In the battle for ‘hearts and minds’, this public relations blunder was an ‘own goal’ by the WTO Panel that had to be capitalised on. The press and various international legal/juridical organisations were won over in what was seen as an issue of principle and the rights of a country, whose fundamental economic interests were at stake, to be supported by counsel, whether in-house or not.

Of course, defying the WTO in this manner was quite a gamble, but reflects the sort of dilemma invariably faced by public servants. Going out on a limb to advance national interests can be highly dangerous for the official if things go wrong, but when they turn out well there is little, if anything to be gained by the individual, other than private satisfaction. Hence, officials can often be risk-averse since they have all to lose personally from failure but little to gain from success.

But back to the Panel; its findings were mixed. It ruled against the licensing system, but upheld the tariff preferences for our countries and, on appeal, outlawed the country quotas which we enjoyed and ordered the EU to bring its regime within WTO rules. Negotiations for that purpose dragged on until the US retaliated in 1999 with unprecedented trade sanctions against the EU in the form of punitive tariffs on US$200 million of imports from Europe. This increased the pressure on the EU to end the dispute and Ministers instructed the Commission to find a solution. The Commission explored various approaches and finally settled for a licensing system that shared permits between those who had traditionally imported bananas and those who had not. Then in April 2001 an agreement that decided on the licence allocation between the two groups was reached between the EU and the US and then with Ecuador. Under these agreements, changes were made to the system that improved the relative position of ‘dollar’ banana suppliers and nine months later, transferred 100,000 tonnes from the ACP to the ‘dollar’ quota. These agreements, implicitly endorsed by the WTO in November 2001, finally brought the banana war to an end.