The Ecuadorian government has taken the first step towards suing the EU at the WTO for continuing to unfairly discriminate against its banana exports, violating a series of prior rulings. Its decision to do so, however, has been contested even at home, with some domestic banana producers questioning the wisdom of its strategy.

On 16 November, Ecuador filed a request for consultations with the EU, charging that Brussels had failed to comply with WTO decisions. This does not mean that a dispute panel will immediately be set up to rule on the EU's banana import regime -- consultations are simply the initial stage in the WTO litigation process.

How the EU got its new banana import rules

For over a decade, several Latin American banana producers, the US, and the EU have clashed over the latter's system for granting preferential market access to bananas from its former colonies in the African, Caribbean, and Pacific (ACP) group of countries.

Countries such as Ecuador and Colombia, along with the US (which intervened on behalf of US-owned banana exporters such as Chiquita), have won a series of cases arguing that the EU's array of multiple tariffs, quotas and import licences did indeed discriminate against Latin American banana exports.

In 1997, the WTO Appellate Body ordered the EU to modify its banana import regime. Two years later, Ecuador and the US successfully obtained a ruling that found that Brussels' reforms had still not gone far enough.

Following further negotiations, the EU struck a deal with Ecuador and the US in November 2001 allowing it to maintain its preferences for ACP exports until the end of 2005 (see BRIDGES Weekly, 15 November 2001). In return, the EU promised that it would introduce a 'tariff-only regime' for banana imports by the beginning of January 2006, as opposed to its system of duties and quotas. Furthermore, they agreed that the new tariff-only regime would result in "at least maintaining total market access for Most Favored Nation (MFN) banana suppliers (which did not benefit from preferences)."

The deal allowed third parties, such as Latin American banana exporters, to request arbitration before the EU's new tariffs went into effect. In 2005, two separate WTO arbitrators found that future tariff levels proposed by the EU were too high to pass the market access test (see BRIDGES Weekly, 3 August 2005). As a result, the 'waiver' allowing the EU to continue to grant preferences to ACP bananas lapsed at the end of 2005.

At the beginning of this year, EU put in place a new banana import regime, albeit without having been able to secure the approval of either the Latin American countries or the ACP. It now places a EUR 176 per tonne tariff on bananas (the previous in-quota tariff was EUR 75 per tonne, with an over-quota rate of EUR 680). The new rules also accord a 750,000 tonne duty-free quota to bananas from ACP countries -- beyond which they face the standard tariff.

Ecuador argues that new rules fail to comply

Ecuador believes that the EU's new import regime is still not in compliance with the 1997 ruling. It disputes the WTO consistency of the duty-free quota for ACP bananas, as well as the level of the overall EUR 176 per tonne tariff. In its request for consultations (WT/DS27/65), Ecuador invoked Article 21.5 of the WTO dispute settlement rules, which provides for the adjudication of disagreements about Members' compliance with their obligations.

Under the new regime, it appears that Latin American banana exports to the EU have increased, but their share of the EU market has slightly declined (this would be explained by Europeans eating more bananas, but importing them from elsewhere). According to Eurostat, the EU's statistical agency, import volumes for MFN bananas originating from Latin America as a whole rose 8.2 percent in the past year. However, Ecuador's share of EU imports fell from 29.9 percent to 27.5 percent in the same period. In comparison, the ACP's export volumes and market share both increased over the same period.

'Good offices' process abandoned

Prior to filing for consultations, Ecuador had been exploring possibilities for a negotiated solution with the EU under the 'good offices' of Jonas Gahr Store, Norway's foreign minister. Store had offered his services as a neutral mediator after facilitating discussions on the matter during the Hong Kong Ministerial Conference in December 2005, where it was apparent that the disagreements over the EU's banana regime were far from resolved (see BRIDGES Daily Update, 19 December 2005).

Sources close to the proceedings suggest that though the process was useful for building trust between the parties, it did not produce concrete developments, prompting Ecuador to look elsewhere for a solution. EU officials expressed sadness about the suspension of the talks under the 'good offices.'

Divisions within Ecuador on how to proceed

Ecuadorian banana producers remain divided on how to move the case forward. Pompilio Espinosa, with the National Federation of Chambers of Banana Producers, wanted the government to seek a negotiated reduction of the EU's banana tariff, as allowed under GATT Article XXVIII. Espinosa also complained that producers were not kept informed about the 'good offices' discussions, in which Ecuador apparently was trying to secure a 130 Euros per ton tariff. According to FreshPlaza, a Dutch news service on fruit and vegetable trade, Julio Ullauri, president of a group of banana growers from El Oro, said that producers had simply not been told that the government had decided to initiate dispute proceedings. Sources suggest that the divisions may be attributable to polarisation over the country's run-off presidential election, scheduled for 26 November.

Another complication in the case is that the EU and the Andean Community (Bolivia, Columbia, Ecuador and Peru) are currently exploring whether to start negotiating a free trade agreement (FTA). According to El Universo newspaper, top Ecuadorian agriculture official Armando Serrano said earlier this month that the EU had suggested to the Andean Community that it would be unwilling to launch FTA negotiations with countries that have disputes pending against it.

Some Ecuadorian experts have expressed concern that Ecuador may end up standing alone with its request, since Costa Rica, another country affected by the EU regime, has indicated that it will not join the case.

Sources report that during a Dispute Settlement Body (DSB) meeting in Geneva on 21 November, Colombia expressed support for Ecuador's request -- but made no move to file a similar complaint. At the same meeting, Ecuador reiterated its commitment to resolving the matter amicably, and said that it remains open to negotiations with the EU. Ecuador also emphasised that filing for consultations was its right under WTO law, and should not affect relations between the EU and Ecuador.

The consultations are expected to begin next week.

ICTSD reporting.