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Banana Saga VI – The current threat

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This week’s article addresses the current threat to our banana trade posed by the impending changes to the EU’s import system. I have already explained that the system is highly complex and made no easier by the intricate decision-making procedures and structure of the EU itself. As a result, analysis is anything but straightforward. But that is the reality we face and must deal with. {{more}}

Maybe we should begin with the ‘conductor of the orchestra’. Last month, EU Trade Commissioner Peter Mandelson reminded Caribbean Ministers that the EU decided since April 2001 to replace the import quota system with a single tariff, but interests within and without the EU want either a high or low rate. How can the Commission devise a solution that will not alienate either or indeed both groups? This seems mathematically impossible; it is like attempting to “square the circle!” If there is to be a solution, then it is not obvious, but rather one that might come from ‘thinking outside of the box’… SOS, King Solomon?

Using the so-called ‘price-gap’ method that compares the current internal price of bananas in the EU with the external price, the Commission arrived at a figure of €230 per tonne as the tariff equivalent to the existing quota system.

The ACP does not pay duty, so the tariff in fact provides protection. The Group opposed €230 as inadequate and fears that it will permit a substantial increase in imports that will cause a collapse in prices, thus making it impossible for their more vulnerable suppliers to compete. Studies have been undertaken by various independent bodies such as the FAO and others, indicating that the Windward Islands need a tariff closer to €300.

Even if their circumstances and conditions of production are not identical, the ACP agree that the tariff should be no less than €275 and oppose any limit on their exports under a single tariff. The more vulnerable and higher cost producers like the Windward Islands and Jamaica, where the banana industry plays a vital role in their economic and social development, are keen to ensure market stability and fear that further decreases in price could make their trade uneconomic. This concern though is not as paramount for those that are more competitive.

Last November, the Commission began negotiations in the WTO with the ‘principal suppliers’, Colombia, Costa Rica, Ecuador and Panama. They, along with the major marketing companies, are opposed to the Commission’s proposal; their declared objective is for a low tariff at a maximum level of €75. They perceive as being only a mixed blessing, the lifting of the quotas permitting their unlimited export of bananas. Expanded exports and the resultant oversupply will have the perverse effect of forcing down prices in Europe. They also argue that the cost of the increased tariff would be borne principally by the producers who will suffer a ‘double whammy’ from the higher tariff and the reduced prices.

Not surprisingly the WTO talks got nowhere, the Latins insisted on €75 and the Commission on €230 so the former are set to seek WTO arbitration in the next three weeks. If the Arbitrator upholds their objection, but the EU does not comply, there can be a second round of arbitration and if the EU nonetheless imposes a rejected tariff, the WTO waiver for ACP bananas will end as of 1 January 2006 and our bananas could be required to pay the duty.

Most experts and officials would suggest that in such a situation the Commission should avert confrontation and seek a compromise somewhere between the conflicting demands. But they would be wrong since the rate would most probably be rejected by the Latins who do not see why they should pay more duty than they currently do. Also the rate might still cause market prices to fall drastically, severely damaging the relatively higher cost ACP and Latin American suppliers.

Whilst a “solution” that leaves all parties dissatisfied might cynically be portrayed as a compromise, would it really be sensible in this case? ‘Squaring the circle’ just ain’t easy!

This is a real headache facing the Commission, what can it possibly do? To set the tariff at the level requested by the ACP would launch Banana wars II, but to accommodate the Latins would in effect “liberalise” the EU market with the result that prices will decline to un-remunerative world market levels. For us that would be the end, which supermarket contracts might possibly delay but ultimately cannot avert.

The only realistic chance of avoiding a new dispute and providing an outcome that would be satisfactory to most parties (including the Windwards) is the ‘Costa Rica plan’. It would postpone the introduction of the single tariff and maintain the current regime until a satisfactory and fair system can be worked out and agreed upon. This approach has been advocated by the Latin American Coordination of Banana Workers’ Unions (COLSIBA) and many others in Latin America. Their reason is simple; the single tariff will result in lower wages and less security for workers who will bear the cost of declining market prices and of the fight among the multinationals for market share in what the NGO platform EUROBAN dubbed “the race to the bottom”. But if the ‘Costa Rica plan’ is to get anywhere, the main suppliers must advocate it.

For over a decade and against all odds, we have successfully campaigned for import quotas to preserve market stability and remunerative returns. Now that the system has been working well, many of its earlier critics realise that it is not so bad after all! Hence the sensible thing for the EU to do would be to seize this opportunity to retain the system if the Latins request it to do so.

In recent months, the Windward Islands have been among the most active in seeking to influence the course of events. Since Prime Minister Gonsalves was designated lead-CARICOM Head on bananas, he has been trying to make a constructive contribution to the search for a solution. He has corresponded with EU Commission President Manuel Barrosso and his predecessor, Romano Prodi. In addition he has been seeking to forge a common Caribbean/Latin American front, and is working with Governments, not only in the Caribbean but also Latin America. To further possible collaboration a meeting of Ministers of Caribbean and Latin American banana supplying States will be held on 22nd February. At least if we are ‘sold down the river’ by Europe it will not be due to lack of effort at our end.



Edwin Laurent

www.bananasontheline.com

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