Trade Negotiations Insights • Volume 7 • Number 8 • October 2008

EU banana dispute: a view from Costa Rica

by Jorge Sauma Aguilar (1)

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WTO members almost reached an agreement on the liberalisation of agricultural and industrial trade during a Mini-ministerial in Geneva at the end of July. At that same meeting, a deal was struck regarding the EU banana import regime known as the Geneva Agreement on Trade in Bananas. However, following the breakdown of multilateral talks, the EU refused to acknowledge the deal thus prolonging one of the longest and most complicated trade disputes in history.

The present and beyond

For those of us who have experienced the gestation, birth,growth and evolution of this dispute, the WTO Mini-ministerial provided the best opportunity yet to end the controversy and the discrimination against the Latin American fruit.

Costa Rica’s trade minister and ambassador played a leading role in the banana talks. Backed by the country’s producers and exporters, they lobbied well for the best interests of the Costa Rican banana sector. Support from other countries helped to reach agreement on reducing the current €176/ tonne tariff. As expected, ACP and EU producers went to great lengths to keep their preferences and continue to undermine Latin America’s competitiveness.

All parties shook hands on a ﬁnal Agreement on July 27. International media immediately made it public and negotiators and ambassadors expressed satisfaction for what was, at the time, the greatest achievement of the nine days of work. Two days later, however, multilateral talks collapsed and the EU announced, unjustiﬁably, that it would no longer acknowledge the Agreement.

The banana dispute has never been an easy subject. Nonetheless, a solution was almost achieved and future negotiations must build this. The EU must understand that although some may win more than others, ACP countries should not always be favoured to the disadvantage of Latin America. We are not against helping ACP countries, but we believe support should come from EU member state budgets and not from tariffs charged to Latin American countries.

Doha Round

The Geneva talks must not be seen as a failure, despite the changing political landscape in the US, the EU and India. Progress at the Mini-ministerial cannot be brushed aside or left standing for long otherwise we risk losing the gains in agriculture and on bananas. WTO Director General, Pascal Lamy, is among many who have stated the need to lock in the progress made.(2)

Now the storm has passed, talks could resume to try to persuade the EU to reconsider the Agreement and reach a minimum import tariff of €114/ tonne. No deal by the end of the Round, would mean bananas could be subject to the same tariff reduction modalities agreed to liberalise agricultural trade. According to the latest revised draft modalities text (3), the current tariff for bananas, equivalent to 30.3 per cent ad valorem, would be subject to a 57 per cent reduction, thus falling to €75.70/tonne.(4)

WTO Panel

The EU’s breach of the banana Agreement could reactivate the panels brought by Ecuador or the US. This would entail the WTO Dispute Settlement Body (DSB) adopting the Panel report thus opening the way for a new procedural stage. This option would imply delaying amendments for the remainder of the year, without any guarantee of reaching a satisfactory solution, as only the US could viably impose retaliation measures on EU trade. The key would be to turn the DSB rulings into lawful victories that add valuable pieces to the negotiation chess board.

Association agreement

Negotiations are underway to create a free trade area as part of the Association Agreement between Central America and the EU in which Costa Rica has requested the inclusion of bananas. These negotiations could play out in two possible scenarios: ﬁrst, a potential agreement could be reached either as part of the Doha Round or separately. In this case, the Costa Rican and Central American banana sector would obtain a higher tariff reduction than third countries. Second, no agreement will be reached, in which case, a substantial reduction would have to be negotiated based on current tariff levels and on the Agreement the EU has not acknowledged.

Whatever the scenario, there are legal grounds to obtain the highest reduction possible. The latest and most obvious example is the re-establishment of a 2000 tonne quota set out in the Association Agreement between Mexico and the EU. This sets an import duty of €70/ tonne - far below the current tariff of €176 and the €114 established during the Mini-ministerial.

Expectations

Costa Rica and Latin American countries wish to achieve the highest possible reduction of the current EU tariff. Our claims are based on the development of the ACP banana sector, which is increasingly more competitive. Farming techniques and per hectare yield now match or surpass those of certain Latin American countries. Add to this the tariff increases applied since 2006 and the ACP margin of preference has increased when compared to our own.

The EU knows this and is aware that ACP countries are overprotected by the current tariff. Therefore the EU will have to eventually agree to a reduction. From our point of view, such a reduction needs to be signiﬁcant, in order to prevent banana trade from deﬂ ecting to ACP countries, thereby damaging our own socio-economic development.

1. Jorge Sauma Aguilar has been the General Manager of Costa Rica’s National Banana Corporation (Corporación Bananera Nacional, S.A.) for over 15 years.

2. Speeches available at: www.wto.org/spanish/news_s/news08_s/meet08_ summary_30july_s.htm

3. See: WTO (2008), Agriculture Committee. TN/AG/W/4/Rev.3. July 10 2008.

4. See: WTO (2006), Methodology to calculate ad valorem equivalents (AVEs), along with associated provisions, set out in Annex A of TN/AG/W/3 of July 12 2006.