Banana Wars Never End, Part III

Banana Wars Never End, Part III

There must be something about fighting over bananas that captures the fancy of trade watchers the world over. I have noted developments in the banana wars during recent times [1, 2]. For those of you who are not quite familiar with this row, the Guardian has a brief history. The world's largest banana exporter, Ecuador, and the world's largest banana producer, US-based Chiquita, have long been critical of the EU granting preferential access to the commodity exports of former European colonies which fall under the Africa, Carribean, and Pacific (ACP) grouping. They have already filed and won rulings at the WTO asking for reductions in the tariffs applied to Ecuadorean bananas. However, Ecuador believes that the EU hasn't yet acceded to the WTO rulings, and has asked the WTO to check for compliance. The EU appears to have yet again been found in violation of the binding WTO rulings.

On a related issue, I recently noted that African countries also in the ACP grouping together with various NGOs have been clamoring for an extension of preferential trade agreements with the EU such as that which fomented the banana wars. What this case brings out is that it's not mainly a case of the evil EU lording it over former colonies to end such tariffs as some would make of it. As with Ecuador, these preferential agreements injure other developing countries not in the ACP. From a social justice standpoint, is there much of a case for favoring one developing country over another as a source of banana exports? The EU can atone for its perceived colonial misjudgments through ways less injurious to other LDCs by, for instance, providing aid to ACP countries. Perhaps more developing countries can benefit from a level playing field of lower tariffs on agricultural products all around--what a novel idea. When that moment comes, the banana wars may finally end. From the Associated Press:

The European Union has failed to bring its import tariffs for bananas in line with international trade rules, a WTO compliance panel ruled Monday, possibly opening up the door to millions of dollars (euros) in commercial sanctions from Ecuador. The confidential decision — distributed Monday to the parties and confirmed by Ecuadorean and European officials — is an important development in the decade-old World Trade Organization dispute pitting Latin American countries and the United States against the EU.

The verdict will also be closely followed by Chiquita Brands International Inc., whose shares climbed 9.2 percent last Tuesday on early reports that the EU would lose the case. The tariff costs Chiquita US$1, or €.68 per share annually, according to Barry Sine, an Oppenheimer & Co. analyst.

"It was a total victory," said an Ecuadorean official to the WTO after reviewing the report. "We are very happy with the result." The official asked not to be cited by name because he was not authorized to speak to the media.

Michael Mann, spokesman for EU Farm Commissioner Marian Fisher Boel, confirmed the loss, but criticized the WTO panel for taking a "purely formalistic" approach that ignored data showing an increase in European imports of bananas from Latin America as a whole.

The WTO has consistently ruled against how Brussels sets tariffs for bananas, forcing it to overhaul a system that grants preferential conditions for producers from African and Caribbean countries, mainly former British and French colonies.

The EU claimed that a new banana tariff established last year — €176, or $258 per ton — brought its import rules in line with WTO rulings. But Ecuador, the world's largest banana producer, said the new tariff actually took away some of its market share in Europe, hurting more than 1 million Ecuadoreans dependent on the banana industry.

"In any event, all this is largely academic," Mann said, adding that preferences will be granted under WTO-compliant economic partnership agreements as of next year. "The EU is engaged in good-faith negotiations on the future bound tariff for bananas with all suppliers. It is through negotiations, not litigation, that we will find a solution that is satisfactory for all." The verdict is expected to be publicly released in March, at which point the EU can lodge a final appeal. The U.S. also revived a complaint against Brussels' banana rules at the WTO this year. Colombia initiated a new dispute.

Ecuador claimed in March to have already lost US$131 million because of the discriminatory tariff. It has yet to say how it would retaliate against the EU. Latin American bananas currently have around 60 percent of the EU banana market, while African and Caribbean producers have 20 percent, according to EU officials. Bananas grown in the EU — mostly on Spanish and French islands — account for another 20 percent.

The bananas case was first brought to the Geneva-based trade referee in 1996, but has since spawned a series of disputes as trade lawyers wrangled over procedural intricacies and legislation that had previously never been tested. The U.S., in 1999, and Ecuador a year later both won the right to impose trade sanctions on European goods after the WTO found the EU's rules to be illegal.