By the Caribbean Banana Exporters Association

On November 10, 1999 the EU Commission issued proposals for bringing the banana regime into line with the recent WTO ruling. These proposals have been since amended by the EU, most recently on 5th July, 2000. These proposals pose a serious threat to the Caribbean. They would deprive Caribbean banana growers of the assured and duty-free access to the EU market that has been guaranteed to them under successive Lomé Agreements. Without it the industry could not survive.

The Commission proposes, after a transitional period, to adopt a tariff-only system, which would remove all protection from Caribbean and other ACP bananas except a tariff preference. The Caribbean industry could not survive under such a system. It would be totally wrong to adopt it without a long enough transitional period to enable the industry to adapt and to permit those Caribbean countries that are heavily dependent on these exports to diversify their economies. This will take far longer than the 6 years proposed.

The Commission proposes a transitional regime that retains tariff quotas, but the Caribbean may be required to compete for any market share on the basis of first come first served. This would place Caribbean growers in an impossible position. This system would give great advantages to dominant trading companies, which have markets outside the EU. No one has yet been able to explain how small Caribbean growers would be able to retain access to the EU market under such a system.

To enable the Caribbean industry to survive there must be reasonable security of access, free of duty. The only effective means of achieving this would be by a system of quota allocation based on historic performance. Most parties to the dispute would prefer such a system, including the USA and Ecuador. The Commission should continue to seek agreement on this.

The Commission has warned that the tariff-only regime would have to be adopted now, if there was no agreement on a transitional regime. This would bring about the immediate destruction of the Caribbean industry, unless effective safeguard measures were introduced to prevent this. A tariff preference would not suffice to bridge the current cost gap between Caribbean and Latin America or to avert the risk of predatory marketing by large traders prepared to take short-term losses in order to drive the Caribbean and other ACP bananas out of the market. There would need to be specific measures to ensure a viable return for Caribbean growers.

There is a moral and political commitment on the EU to ensure that the industry has the time to adapt and the countries concerned time for the extremely difficult and long term task of economic diversification.

WTO Disputes Panel Hearings

The first WTO panel hearing into the EU banana regime began in Geneva on 10 September 1996 and the panel report, which ruled against aspects of the EU regime, was published in May 1997. The EU appealed but the Appellate Body essentially confirmed the panel's findings. However, the Appellate Body overturned a key decision of the panel that had been favourable to the EU and the ACP; the panel had ruled that the waiver for the Lomé Convention must be presumed to extend to Article XIII covering quotas, as well as to Article I covering tariffs. In reversing this decision, the Appellate Body made it much more difficult for the EU to meet its Lomé commitment in a WTO consistent manner. The Appellate Body did not criticise either the existence or the level of the tariff rate quota. The EU was granted till 1 January 1999 to bring its regime into conformity with the ruling.

The Amended EU Banana Regime (1.1.1999)

The EU adopted an amended regime on 1 January 1999, designed to conform with the WTO ruling, while still meeting an EU commitment to the Caribbean and other ACP states, to maintain their traditional benefits on the EU market. This regime was less advantageous for the Caribbean, because it no longer provided:

• the security of access for the Caribbean through individual country quotas;

• the incentives given to operators, through the import licensing system, to buy Caribbean bananas inspite of their higher production cost.

Nevertheless, the amended regime continued to provide assured access and a viable return to ACP suppliers through a tariff quota system, which had not been criticised by the WTO, and duty-free entry for a limited volume of bananas from traditional ACP supplying countries.

The WTO Panel Report, 12.4.1999

But the US and Ecuador claimed that the amended regime still failed to conform with the WTO ruling of September 1997. A WTO Panel was set up at the request of Ecuador to determine whether this was the case.

The US, without waiting for the Panel's verdict, announced its intention to impose trade sanctions of $520 million on EU exports. The EU referred the level of damages the US was seeking in compensation to the WTO for arbitration. An Arbitration Panel was set up and ruled in April 1999 that the US claim for compensation was excessive, but that the US was entitled to impose $191 million of retaliatory sanctions on EU exports. The same panel ruled separately on the compatibility of the EU's amended regime.

The WTO Panel report published on 12 April 1999 concluded that the revised regime was still inconsistent with WTO rules in a number of respects. But it acknowledged the EU's commitment to the Caribbean under Lomé and listed some possible ways forward to enable that commitment to be met. Any of these would however reduce further the benefits achieved by the Caribbean under the regime. Moreover, each of these appears to assume the willingness of WTO members to grant a waiver providing a limited exemption from WTO rules, even though this would require the support of at least 75% of WTO members. Since the publication of this WTO funding, there have been extensive discussions between the EU, the ACP, the US and the other interested parties to find acceptable way forward.

In December 1999, the Caribbean and the US reached a framework proposal for resolving the dispute. The key features were:

• A two tier tariff quota system

• The first tier to be at a uniform tariff for imports from all sources

• The second tier with duty free entry for ACP bananas and a tariff of 115 per tonne for Latin America bananas.

• The quotas would be allocated on the basis of historic reference periods.

• Eventual movement to a tariff only regime with the Caribbean, suggesting a ten year transition period.

The EU Commission has also made a number of proposals, the most recent on 5th July, 2000. The most significant differences between these proposals and those contained: the Caribbean/US proposals are:

• Licences should be allocated on a first-come-first-serve, rather than a historic basis.

• Failure to reach agreement on such a tariff quota system would had to the immediate movement to a flat tariff system with no quotas.

Both these options would be disastrous for the Caribbean industry and lead to economic and social disrupt in the region.

Consequences for the Caribbean

The EU banana regime is designed to enable Caribbean banana producers to export their produce at viable prices. Without it, the Caribbean trade in bananas would not survive. The banana industry is the backbone of the economies of many ACP countries. In some of the Windward Islands, this one crop accounts for up to 90 percent of primary exports, 70 percent of foreign exchange earnings, 60 percent of agricultural employment and 16-17 percent of GDP. It is equally vital in specific regions of the ACP countries with more developed economies such as Jamaica and Belize.

The crop is also important to the social and political fabric of the exporting Caribbean countries. Bananas are the one year round crop which could be viably cultivated there to produce a regular weekly income to small farmers. It is the only crop which can produce again within months of damage or destruction by storm, floods or hurricanes which are perennial Caribbean hazards. The banana crop is often the sole source of income in rural communities. Production is often on steep and difficult terrain and on small family farms -- in the Windward Islands there are about 27,000 producers on farms averaging under 5 acres (2 hectares).

It has been argued, by the US and other opponents, that some form of direct aid to the Caribbean could replace the EU regime. Such a change would lead to Caribbean producers being driven out of the market.

Great efforts are being made to develop alternative sources of income, but this is only possible gradually -- and only alongside bananas, because they alone can produce the volumes necessary to justify the weekly shipping service necessary for a viable export trade in any other Caribbean product.

The broader regional consequences of a collapse in the banana industry would be:

• major job losses, leading to serious social and political unrest;

• adverse repercussions for the tourist industry;

• loss of foreign exchange earnings and a growing inability to service external debts;

• increased illegal immigration to the US;

• a growing drugs trade;

• a ripple effect across the whole Caribbean, due to the negative impact on local currency and because of the degree of interdependence of the whole Caribbean Common Market.