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The EPA and bananas

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Next week St. Vincent and the Grenadines will host the first Inter-Sessional meeting of CARICOM Heads of Government for the troubling year of 2007. The Heads will gather here in a business caucus, Retreat-style, to examine a range of issues critical to Caribbean survival including deepening the regional integration process (the elusive single Economy, the missing E from CSM) and regional air transport. Our own Prime Minister Gonsalves will be in Chair as CARICOM Chairman for the first half of 2007.{{more}}

Dr. Gonsalves will himself have only just returned from an equally important series of regional meetings having participated in the Prime Ministerial sub-committee on Trade deliberations which concluded in Jamaica on Wednesday of this week. That meeting was preceded by meetings of the Council on Trade and Development (COTED) attended by trade officials from CARICOM countries and representatives of CARICOM’s trade negotiating arm, the Regional Negotiating Machinery (RNM). Particular focus of these meetings would have been the ongoing negotiations between CARIFORUM (CARICOM plus the Dominican Republic) and the European Union for an Economic Partnership Agreement (EPA). These negotiations are due to be completed before the end of 2007 to allow the EPA to come into effect on January 1st 2008.

However those negotiations are not all smooth sailing. Whilst generally there has been some progress in the earlier rounds of talks, many fundamental problems are still unresolved, hence the focus of the Jamaica meetings. For us in St. Vincent and the Grenadines and the Windward islands as a whole, the most critical element is the treatment of bananas in the EPA. It is our major export to the European Union and while it is undeniable that its “glory days” are over, bananas remain the most important economic influence on rural life in the islands. Up until January 1st 2006 the preferential system of tariffs quotas had managed to limit the total volume of bananas on the European market thereby helping to maintain prices at a manageable, if not very profitable level where farmers are concerned. But from the beginning of last year the European Union (EU) introduced a new system whereby Latin American bananas were permitted unlimited access to the market, though with a tariff level of 176 euros per tonne. Previously those bananas were permitted entry to the market at a tariff level of 75 euros per tonne, up to a quota limit of 3.1 million tonnes, imports in excess of that having to face the punitive level of 680 euros per tonne. Caribbean and other ACP bananas were pre-2006 allowed duty-free entry up to 750,000 tonnes with an excess tariff of 380 euros per tonne. From January 1st last year, the quota was increased to 775,000 tonnes in keeping with expanded production in Africa but with the same 176 euros per tonne beyond that limit.

Further, the system of the administration of the tariff itself was changed. In came a dreaded first-come, first-served system (FCFS), a virtual open-Sesame under which shipments that arrive after the quota for the relevant period (quarters) has been exhausted now attract the same 176 euros per tonne tariff. The problem is that while Caribbean exports have steadily declined over the years, production in Africa has been doing the opposite.

Therein lies the dilemma for African exports come under the same ACP banner like us. But Africa, with vast acreages and an abundant supply of cheap labour, has conditions similar too, and in fact are even more favourable than our low-cost Latin American competitors. So the same multinationals which have long fought to squeeze us out of the market claiming “discrimination” against Latin American export, are themselves now shifting production to Africa in what is a win-win situation for them, low-cost production and preferential access.

An article in the February 1st issue of the Wall St. Journal claimed that Chiquita (that name again!) may be about to “shift a slice of its banana production from Latin American to Africa”, re-vamping its plantations in war-torn Ivory Coast. According to the article Chiquita is considering a five time’s expansion and may even be targetting Angola and Ghana. A similar development is happening with exports from Cameroon where Dole is active. The EU import figures tell the story. Whereas in December 2005, Ivory Coast exported 14,755 tonnes and Cameroon 19,976 tonnes to the EU, one year later, under the new regime the comparable figures (November 2006) were 30,428 from Ivory Coast and 39,167 from Cameroon, representing increases of 52% and 70% respectively.

Because production costs are low in those parts, even if their exports exceed the quota under the FCFS system, they can afford the tariff and still be competitive. Our high-price, top-quality bananas, with near-bankrupt companies to maintain, will find it hard pressed to do so. There are only two options:

(1) To press ever more strongly for favourable terms within a negotiated EPA.

(2) To radically reconstitute the entire structure of the industry in the islands, eschewing all needless, outdated and non-contributory mechanisms.

• Part 2 – Next Week.

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