Bananas in the Doha Round

4 September 2008

In an attempt finally to settle the long series of disputes on bananas between the EU and a number of Latin American countries, the WTO Director General had accepted an invitation from Colombia to use his "good offices" under article 5 of the Dispute Settlement Understanding. Following discussions with the EU and those Latin American countries concerned, Pascal Lamy made proposals in July that would allow the rebinding of the EU tariff and its subsequent reduction over 7 years to a final level around 34% lower than the current rate.  The proposals reflected the expectation of a Doha settlement involving commitments by all WTO members to prescribed tariff reductions over a specified period.

An unpalatable choice

The EU accepted this proposal, the Latin Americans rejected it. So did the ACP, who had been excluded from the main negotiations. They realised the disastrous impact of the massive tariff cuts proposed and the short period for their implementation on the viability of their export trade. But the ACP were put under great pressure to give way. It was suggested that without such a deal, bananas, as a tropical product, could be exposed to much steeper cuts in the Doha Round negotiations, notwithstanding the strong ACP case for special provision for bananas on grounds of serious preference erosion. The ACP governments were faced with an unpalatable choice between an unacceptable deal on bananas or being accused of blocking a Doha deal, with all the odium and penalties that could entail.

Intricate negotiations

It was against this background that negotiations were held for the first time directly between the ACP and the relevant Latin American countries concerned. The ACP offered an initial tariff cut of €26 provided there could then be a standstill of five years before the further agreed tariff cuts in order to allow necessary time to adapt. But these talks broke down.  Then, on July 27, the EU reached a formal agreement with the Latin American countries to cut the tariff by €28 on January 1 2009, with annual reductions thereafter to a final tariff of €114.

ACP appeals to EU Trade Commissioner Peter Mandelson proved of no avail.  It became clear that the only option remaining was for the painful tariff cuts, to which the EU had agreed, to be soothed by the balm of additional aid to enable the ACP to adjust to the adverse consequences.
Under great pressure, the ACP made a final offer of a lower initial tariff cut of €26, followed by a one year standstill in return for a lower final level of €109 in 2017 - the whole package linked to a firm commitment on specific and focused development aid.

Doha failure scuppers deal

The failure of the WTO ministerial negotiations brought these discussions to an end, and in the view of the EU, rendered null and void their Agreement of July 27 with Latin American countries. The latter dispute this, notwithstanding that many had not signed the Agreement. The question is how to move forward from here?

The EU has still to rebind its tariff following the switch in 2006 to a single tariff regime. The tariff of €176 has manifestly enabled Latin American banana exports to increase their dominance of the EU market. Tariff concessions under the Free Trade Area Agreements currently being negotiated between the EU and Central American and Andean Pact countries would increase this dominance still further.  Therefore, there is no reason why this rebinding should entail unilateral tariff reductions in anticipation of a future Doha settlement that is neither certain nor immediate.

The Caribbean looks to the EU to honour its political and moral obligations under the EPA with CARIFORUM countries. The EPA serves no useful purpose for the ACP banana trade unless it provides the preferential access necessary to permit this trade to continue. The EPA created the expectation that for this reason the existing tariff would be maintained for as long as possible and that any  "unavoidable reduction" would be phased in over as long a period as possible.

Trade rather than aid

The ACP wants trade rather than aid. But if WTO requirements now render the EPA commitment untenable, then additional development aid to cater for the consequences of any reduction from €176 might offer a solution, provided that payments are timely and effective. It must provide both the necessary investment to enable the more competitive to realise their full potential and address the problem of those forced out of business by the tariff cuts.  There must also be a sufficient period of grace to allow the necessary adjustments to take effect.



1 Gordon Myers is the Secretary of the Caribbean Banana Exporters Association

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