A Solomon-like judgement

I today provide readers with information on the current banana marketing row in Europe.

The battle between Latin American banana producers and the European Union over the EU’s proposed tariff on banana imports has heated up in March, with Latin countries grilling the EU over the methodology used to determine its new tariff and requesting on 30/03 an arbitration at the WTO. {{more}}

On 7th of March, the EU surprised everyone by deciding to refer its 230 euros per ton tariff proposal to the WTO. …The reason for this haste, however, lies entirely somewhere else: the EU is trying to reach an agreement by September, wanting to avoid that the banana battle peaks toward the end of 2005 when WTO members meet for another crucial biennial ministerial conference in Hong Kong. An agreement in September would further leave three months for the European Commission to get member states’ backing for the new tariffs under the new regulation.

The nightmare scenario of EC officials is that those Latin producers pushing for lower EU banana tariffs – or, just as likely, those banana growers in the Caribbean regions that have benefited from preferential EU market access and view the 230-euro/tonne tariff as too low – may decide to block proceedings in Hong Kong until their concerns are addressed. In Hong Kong, WTO members are hoping to achieve enough progress in key negotiating sectors such as agriculture and market access for non agricultural goods to ensure the successful conclusion of the Doha Round in 2006.

One cannot help sympathise with the EC, when recalling what happened in 2001 for the launch of the same Doha Round. ACP countries refused to agree to the launch of the round unless ministers in Doha approved a waiver from WTO Article 1 trade rules for tariff preferences under the new Cotonou Partnership Agreement.

In the end, the EU had to promise to Philippines and Thailand to open negotiations on the issue, while the issue 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 at the time that the change “should result in at least maintaining total market access” for banana suppliers subject to regular most-favoured-nation (MFN) duty rates, i.e. those in Latin America. The annex also stated that if the MFN suppliers believe market access is not being maintained through the new single tariff, they have the right to request WTO arbitration to determine whether their claims are justified.

In February, the group of Latin American countries had 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 on 22/02 with Latin American producer countries and the United States, explaining that the 230-euro tariff figure replaces an MFN tariff of 680 euros per tonne and an in-quota tariff rate of 75 euros per tonne for non-ACP suppliers. Calculations are based on guidelines for the calculation of tariff equivalents set out in an attachment to Annex 5 of the WTO’s Agriculture Agreement. The argument failed to convince and, on 30th of March, at the very end of their 60-day consultation period, the governments of Ecuador, Colombia, Costa Rica, Panama, Honduras and Guatemala requested a WTO arbitration procedure, using the legal procedure enshrined in the annex. In a joint statement, they have (re)explained their move, saying that the EU tariff would “seriously limit” the ability of their producers to continue exporting to Europe and “severely unbalance” their economies.

The annex requires that the arbitration procedures be completed before the new tariff enters into force next year. Latin American governments have warned, however, that they are prepared to use all the available defence mechanisms in the WTO” to ensure their market access is maintained. The findings of the arbitration body are expected in August. 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.

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 “significant interest” in supplying bananas to the EU market 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 American countries also argue the EU has made a commitment to liberalise trade in bananas as part of the current Doha Round negotiations. The Latin American group 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. Paragraph 45 calls on WTO members to address the “long-standing commitment to achieve the fullest liberalisation 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 January 26.

• To be continued