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December 1997 Insights Issue #24Banana split. Can ACP beat the clock?The The Lomé Convention has assured
preferential treatment of banana exports to the European Union from
'traditional' ACP exporters. This has been delivered till now by the
EU's banana trade regime. However, the WTO has found the regime to be
inconsistent with its rules, leaving the EU with the problem of how to
comply with the ruling within a 'reasonable' period of 15 months, and
the ACP banana industries with the problem of how to survive.
The judgement raises wider issues concerning compatibility of
preferential trade arrangements and country-specific quotas with the
GATT and the Agreement on Agriculture. However, it should be noted that
the principle of tariff preferences was not contested. The banana regime
was successfully challenged in the WTO by the USA, supported by Ecuador,
Guatemala, Honduras, and Mexico. The EU appealed, but the WTO's
Appellate Body confirmed the Panel's judgement.
Country-specific quota allocations for traditional ACP exporters and
the four signatories of the 'banana framework agreement' (who agreed not
to challenge the EU regime) but not for other exporters, were found to
be discriminatory even though they were written into the Agreement on
Agriculture. The WTO also objected to 'b-licences' which forward
traditional ACP supplies (see indent).
The ACP's weak competitive position in terms of product cost and
quality means the implications of losing preferential trade deals are
serious. This is especially so for the Windward Islands, which are
dependent on banana trading and face possible economic and political
ruin. While the regime has offered market access, ACP exporters have not
fulfilled their quotas and have lost market share. Quality has improved,
but there has been little incentive to improve competitiveness. There is
concern that revisions to the regime will increase the market share of
dollar suppliers, including the banana multinationals Chiquita, Dole and
Del Monte. However, it is important to note that production is in poor
developing countries and not all is under multinational control.
The EU has two options for compliance with the WTO ruling: change
only the contested aspects of the regime or introduce a new policy,
probably based on tarification. The former is the more feasible in the
period available, although it is questionable whether a coherent policy
would result. Elimination of 'B-licences' and the cross-subsidisation
they provide would be sure to threaten ACP exporters' ability to
compete. Tarification would involve new legislation and problematic
international negotiations.
Tariffs would have to compensate for higher ACP costs and allow for
perceived differences in quality. This could mean at least 80 percent,
which may be politically unacceptable. It is not clear that quality
differences could be compensated by price differences: there is no
demand at all for ACP fruit in some EU countries. Whatever the option
chosen by the EU, preference for traditional ACP exporters is certain to
decline. The issue of competitiveness must be addressed seriously and
Lomé's trade development provisions stressed. ACP fruit might be
marketed to exploit its 'greener' or more 'organic' characteristics, in
more profitable niche markets. But potential sales volumes are limited,
and quality is still paramount. Efforts at diversification have been
disappointing, partly because banana growing yields meagre profits. In
any case, diversification can take years. Fifteen months of preferential
dealing is all the ACP banana exporters can bank on.
See Hallam, D. & the Lord Peston, The Political Economy of
Europe's Banana Trade, Department of Agricultural and Food Economics
(University of Reading) Occasional Paper #5, 1997. Forthcoming: McQueen,
M. et al,. ACP-EU Trade and Aid Cooperation Post Lomé IV, Commonwealth
Secretariat, 1998 (in press).
David Hallam, T: +44 (0)118 931 8969 |
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