Bridges Weekly Trade News Digest • Volume 9 • Number 37 • 2nd November 2005

WTO Arbitrators Once Again Reject EU’s Proposed Banana Import Tariff

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WTO arbitrators have rejected the EU’s revised reform package for its banana import regime, determining that it would fail to maintain market access for Latin American producers (see BRIDGES Weekly, 5 October 2005).

The 27 October decision found that the EU’s proposed 187 euro per tonne most-favoured nation (MFN) tariff was too high to safeguard or improve the level of market access available to Latin American banana exporters under the current system. The arbitration panel determined that this would be the case whether or not that rate was coupled with a 775,000 tonne duty-free quota for banana imports from African, Caribbean, and Pacific (ACP) countries, as provided for by the EU.

After losing a WTO dispute on bananas in 2001, the EU struck a deal with the US and Ecuador to replace its current banana import rules, which place both tariffs and quotas on MFN suppliers, with a tariff-only system as of 1 January 2006. Also in 2001, on the sidelines of the Doha Ministerial Conference, WTO Members granted the EU a waiver (the so-called ‘Cotonou waiver’) allowing it to continue granting preferential market access to ACP banana exports — as long as its shift to a tariff-based system maintained or increased total market access for Latin American producers. The waiver specified that MFN banana exporters could seek arbitration if unhappy with the tariffs proposed by the EU to replace the quota system.

The recent decision came less than three months after the rejection of the EU’s initial proposal for a 230 euro per tonne MFN tariff by another WTO arbitration panel (see BRIDGES Weekly, 3 August 2005).

MFN producers including Brazil, Colombia, Costa Rica, Ecuador, Guatemala, Honduras, Nicaragua, Panama and Venezuela, which had complained that 187 euros per tonne was too high, hailed the recent ruling as vindication of their call for a tariff rate of 75 euros per tonne. Honduran WTO Ambassador Dacio Castillo expressed the hope that the arbitration ruling would set the stage for ending preferences for ACP exporters, which he said discriminated against banana producers in his own country.

Caribbean Banana Exporters Association chair Marshall Hall described the ruling as a "monumental disaster for ACP banana-suppliers." Caribbean Community governments have called on the EU to negotiate with MFN and ACP suppliers, to arrive at a mutually satisfactory solution and guarantee market stability in the interim. Groups in the Caribbean are arguing that to ensure stable markets the single tariff should be postponed pending negotiation and agreement on a fair and equitable solution. Jamaican Agriculture Minister Roger Clarke described the arbitrators’ finding as "devastating." ACP countries had originally said that a 275 euros per tonne MFN tariff would afford them enough protection to cope with the reformed EU import regime. "We were hoping that if we at least got the 187 euro tariff, we would struggle along with that," Clarke said. Some Caribbean policymakers have taken the decision as a sign that the multilateral trading system has no real place for small countries.

EU Agriculture Commissioner Mariann Fischer Boel said she was "surprised and disappointed" by the arbitration result. "We believed that the system we proposed would have maintained access to our market in a fair manner." The EU has expressed regret that the arbitrator did not "provide more clarity as to how this long-standing dispute could be resolved," and has said that it will study the implications "carefully." The EU has not given any indication of how it intends to proceed. However, two weeks before the arbitration ruling, it submitted a request to extend the waiver by two years to the WTO Council for Trade in Goods, which is set to discuss it on 10 November.

ICTSD reporting; "European Commission disappointed with WTO arbitrators’ ruling against proposed banana import tariff," EUROPEAN COMMISSION Website, 27 October 2005; " RNM News Release 2205 - WTO Rules Against Banana Tariff, Europe Must Negotiate Fair Resolution," CARIBBEAN REGIONAL NEGOTIATING MACHINERY, 28 October 2005; "EU Asks WTO for Two-Year Extension On Elimination of ACP Banana Quotas," WTO REPORTER, 18 October 2005; "WTO rules against EU on banana importation," MIAMI HERALD, 28 October 2005; "New banana ruling ‘devastating,’" JAMAICA OBSERVER, 30 October 2005; "WTO rejects EU banana tariffs," EUPOLITIX.com, 28 October 2005.