Prepared by the U.S./Labor Education in the Americas Project (usglep@igc.org)
Background Memo
March 13, 2001

Summary: The greatest threat to the standard of living for banana workers in Latin America is the new banana import plan that the European Union is slated to begin on July 1, 2001.

The plan, called "first come, first served" will accelerate a race to the bottom in the banana industry by rewarding Ecuador, and the Dole Food Company, at the expense of banana workers and their unions in Colombia and Central America.

Wages, benefits, jobs and unions in the region are already under severe pressure from the global banana industry crisis; "first come, first served" will wipe out thousands of jobs and force countries with strong banana worker unions, good wages and benefits to compete with Ecuador where workers are paid a fraction of what other workers in the region are paid, provided no benefits and effectively denied the right to form unions.

What is "first come, first served?"

First come, first served (FCFS) is the European Union's latest effort to bring its banana import system into compliance with rulings from the World Trade Organization. The so-called 'banana wars" between the EU and the U.S. began in 1993 when the U.S. filed a complaint against the EU banana import system claiming that by protecting Europe's former colonies in Africa and Caribbean, the EU system was discriminating against bananas from Latin America, to the detriment of U.S.-based multinationals (e.g. Chiquita, Dole, and Fresh Del Monte) operating in Latin America.

FCFS is intended to be in place for no more than five years, as a transitional system, until a new tariff-only system (with no quotas) is implemented in 2006.

How would it work?

With respect to Latin America, the most important fact is that FCFS eliminates country quotas for Latin America and replaces them with a general quota that covers all of Latin America. Under the current system, exporting countries in Latin America have specific country quotas that enable producers with higher labor costs and benefits to have access to the European market without having to compete directly against Ecuador's cheaper bananas. Under FCFS, Latin American countries will have to compete against each other in the lucrative EU market. (Banana companies don't make money in the U.S. market, which has no quotas and which is slowly being saturated with low-wage, low-cost Ecuadoran bananas).

Technically, there will be three EU quotas, with the first two subject to a 75 Euro tariff per metric ton and the last subject to a 300 tariff per metric ton. However, in the EU's continuing effort to provide its former colonies some protection, ACP bananas will not be subject to duties. The first two quotas total 2.553 million tons annually; the third quota is .85 million tons per year.

Details of how the FCFS will actually work have not yet been determined but generally speaking it will require banana operators to bid weekly or biweekly for a share of a weekly or biweekly quota that will be established by the EU. The bids will be made by exporters after bananas are already in transit on ships going to Europe and before the quota for the new period is announced. If the new quota is less than the total volume of bananas that is calculated to arrive, excess bananas will have to be sold at cut rates in other, non-EU "transit" markets, e.g. Eastern Europe, Russia and Switzerland.

Who benefits?

Ecuador's big national producers, and Dole will be the big winners. Ecuador officials estimate that their exports to the EU could double. Dole will benefit because it sources from Ecuador more than any other transnational, and because it is better positioned to dump extra, low-cost bananas into Eastern Europe. Dole and Ecuador back FCFS, and Dole has already been moving ahead to reduce sourcing in Colombia and Costa Rica to concentrate even further on Ecuador.

Who loses?

In terms of countries, Colombia, Costa Rica and Panama, who currently export heavily to Europe. Current quotas are 26.2% for Ecuador, 25.6% for Costa Rica, 23% for Colombia, 15.8% for Panama, and 9.4% for Honduras. A Netherlands banana fair trade organization analyzed that had the new system been in place the last week in January, 2001, Ecuador would have taken 62% of the Latin American quota, with Costa Rica dropping to 11%, Colombia 14%, Panama 8.5%, and Honduras dropping below 1%.

In terms of companies, Chiquita would be the biggest loser because it is sources the least from Ecuador. Indeed, FCFS is likely to sound the death knell for Chiquita, which is already on the verge of bankruptcy. And small and medium producers in Ecuador, fear they will be wiped out by accelerated consolidation by the big national producers. UROCAL, an organization of small and medium banana producers in Ecuador, recently released a statement opposing FCFS.

Most importantly, workers in Colombia, Panama and Costa Rica who have won through long, hard struggles benefits and wages that are denied to workers in Ecuador. Banana workers in Colombia and Costa Rica make $10 a day or more, Panamanian workers $15 or more, plus benefits including housing, health care and schools for their children. Ecuadoran workers make $4 a day or less, with no benefits, and most are treated as temporary workers.

FCFS will also drag down wages and benefits for workers in the other banana exporting countries in the region (Honduras, Guatemala, and Nicaragua) because FCFS is expected to cause banana prices to drop 17%, which banana producers will use to put more downward pressure on wages and working conditions throughout the industry. In short, FCFS promotes a race to the bottom in the banana industry.

FCFS will greatly weaken the banana unions in Latin America. Since banana unions are generally the strongest private sector unions in the region, the trade union movement will suffer overall. And if Chiquita folds, the banana unions could be virtually wiped out overnight since Chiquita, with 20,000 unionized workers, accounts for approximately 80% of all unionized banana workers in Latin America. The International Union of Foodworkers released on February 28, 2001 a statement opposing FCFS because of its devastating impact on unions and workers (see www.iuf.org).

What about the ACP (the former African and Caribbean colonies) countries?

They are also opposed to FCFS, believing that it does not go far enough in protecting their industry, which has even higher costs than in Latin America. Thus, even those who the EU has said it has been trying to protect are opposed, saying it will wipe out their industry.

What about Colombia in particular?

Estimates are that Colombia will lose 25% of its overall export market. A quarter of Colombia's banana workers and their families could lose their livelihoods while those who retain their jobs will be pressured to give up benefits and wages in order to compete with Ecuador.

The impact in Colombia will extend beyond the direct impact on the thousands of banana workers and their families. The most important banana growing region in Colombia is Uraba, an important conflict zone. Bananas account for 90% of the local economy, according to the Financial Times, and local banana workers and civic leaders have expressed grave concern about the instability that mass layoffs caused by FCFS would bring to the region

The strongest private sector union in Colombia is Sitrainagro, representing 12,000 workers. Having lost hundreds of banana union members to the armed conflict, Sitrainagro is now facing the prospect of losing a third or more of its workforce, weakening civil society in the conflict zone of Uraba as well as in Colombia more broadly. [See the January 3, 2001 Financial Times, "Colombia Fears EU Banana Ruling Will Bring Fresh Violence." (www.ft.com)].

Can FCFS Be Stopped?

When FCFS was first proposed, many believed that it was put forth as a negotiating tactic, to force key parties together to work out a resolution of the WTO banana dispute. That may still be true, but FCFS has gathered momentum and unless a last-minute, break-through agreement is reached among the principal parties, it will go into effect on July 1, 2001. However, on March 9 it was reported that the EU had agreed to delay implementation pending consultation with new U.S. Trade Representative Robert Zoellick. How long the EU is prepared to delay was not reported.

The EU argues that they have few alternatives in finding a system that is WTO-compliant. The U.S., most Latin American countries and Chiquita, however, argue that FCFS is not WTO-compliant. Should it go forward, the U.S. and others will no doubt file a compliant with the WTO. But until the WTO rules, FCFS will be operational, wrecking havoc on banana workers in the region. And some analysts believe that the WTO might rule FCFS compatible.

What's the Alternative?

The EU says that the only alternative to FCFS is a compromise negotiated between the principal parties. Meanwhile, an alternative backed by Chiquita, ACP countries and Latin American governments (with the exception of Ecuador), the so-called Caribbean Plan, would also eliminate country quotas but is more likely to maintain existing sourcing patters from the region, at least in the near term. (Country quotas are not illegal under the WTO as long as all principal exporters agree to them.)

Banana workers unions in Latin America and the International Union of Foodworkers have called for a moratorium on implementing the plan until an alternative is developed that provides some protections for workers in Latin America. US/LEAP supports the moratorium and is calling on all the principal parties to negotiate a compromise.