WTO ARBITRATOR RULES AGAINST NEW EU TARIFF RATES FOR BANANAS

On 1 August, a WTO arbitrator ruled against the EU's proposed most-favoured nation (MFN) tariff rates for banana imports, the latest episode in a longstanding trade dispute on bananas between the EU and five Latin American countries (see BRIDGES Weekly, 6 April 2005).

The arbitrator found that the EU's proposed tariff of 230 euros per tonne "would not preserve, at a minimum," the current market access opportunities afforded to MFN suppliers -- mostly in Latin America -- by the EU's existing banana tariff quota regime. The arbitrator also found that the proposed tariff level would actually expand the margin of preferential market access enjoyed by exports from the African, Caribbean and Pacific (ACP) countries at the expense of MFN banana suppliers.

However, the arbitrator did not indicate what would constitute a reasonable tariff rate for MFN suppliers.

In arriving at its ruling, the arbitrator found fault with the methodology and price data used by the EU to arrive at the new tariff rates. In particular, the arbitrator agreed with the Latin American countries that the EU should have taken into account the advantage that the new tariffs would give ACP suppliers over their MFN country counterparts.

Background to the arbitration

On 31 January, the EU notified the WTO of its proposed new tariff of 230 euros for MFN banana imports that is supposed to replace the current tariff quota system while maintaining a preference for ACP countries, and is to come into effect on 1 January 2006. Latin American banana exporting countries immediately rejected this tariff rate. ACP countries, on the other hand, pushed for the EU to raise banana tariffs even higher -- from the current base level of 75 euros to 275 euros per tonne -- to protect their preferential access to the EU market. Negotiations between the Latin American countries and the EU to resolve this difference failed to yield a compromise, leading to the Latin American countries' request for WTO arbitration.

The arbitration option is a result of waiver granted to the EU by WTO Members on the sidelines of the WTO's Doha Ministerial Conference in November 2001. The waiver allowed the EU to give preferential market access to banana exports from ACP countries -- with the proviso that third parties, such as Latin and Central American banana exporting countries, would have the right to request arbitration before future EU banana tariffs replacing the quota system went into effect (see BRIDGES Weekly, 2 February 2005).

Latin American countries welcome decision, ACP express disappointment

Latin American banana exporters have expressed their satisfaction with the arbitrator's award. Ecuadorean Trade Minister Oswaldo Molestina noted that the Latin Americans were hoping for a tariff as low as 33 euros per tonne. He said "Ecuador and the other Latin American exporters hold that [the tariff] cannot exceed 75 euros and according to our sums with the correct methodology it should not be more than 33 euros." The ACP banana exporting countries, on the other hand, have voiced their disappointment with this ruling. Marshall Hall, chairman of the Jamaican Banana Exporters simply stated that the ruling "is not at all in our favour and we are not happy." Hall also noted that banana farmers would be "virtually devastated."

Prior to the release of this award, Cameroonian and Ivory Coast banana exporters also issued a declaration on 26 July highlighting the importance of their banana industries to poverty reduction and the sustainable development of their economies. According to the statement, a tariff rate of 75 euros or less as advocated by the Latin American exporters would "wipe out ACP exports to the EU."

The Next Steps

As per the terms of the waiver, the EU has to rectify the proposed tariff regime in accordance with the arbitration award. It must now enter into new consultations with the Latin American countries. If they cannot reach a mutually satisfactory agreement, the same arbitrator will have to determine "whether the EU has rectified the matter." The second arbitration award will be notified to the WTO General Council, and should the EU once again fail to comply with it, the waiver will "cease to apply to bananas upon entry into the new EU tariff regime."

The EU noted in a 1 August press release that it would "study carefully the arbitrator's report and examine available options for taking this process forward." The EU also reiterated its intention to have a tariff-only system in place on 1 January 2006, as agreed at the Doha Ministerial Conference. The EU's executive European Commission said that it would shortly initiate consultations with the countries concerned and "expects their constructive engagement."

The five Latin American countries which requested the arbitration are Colombia, Costa Rica, Ecuador, Guatemala, Honduras and Panama.

The Arbitrator's award, WT/L/616, is available at http://docsonline.wto.org

The EU's press release is available here: http://www.europa.eu.int/rapid/pressReleasesAction.do?reference=IP/05/1030&format=HTML&aged=0&language=en&guiLanguage=en

ICTSD reporting; "Banana blues - Revised EU tariff ruled illegal - Hall predicts devastation for Jamaica," JAMAICA GLEANER, 2 August 2, 2005; "WTO rejects EU tariff plan on bananas," FINANCIAL TIMES, 1 August 2005; "WTO backs Latin America in EU banana trade row," REUTERS, 1 August 2005.