EU Regime History by Anna Dickson Commissioned by Banana Link+EUROBAN

8/4/2019 EU Regime History by Anna Dickson Commissioned by Banana Link+EUROBAN

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The EU Banana Regime: History and InterestsCommissioned by Banana Link for EUROBAN

Anna K. DicksonDepartment of PoliticsUniversity of Durham

48 Old ElvetDurham DH1 3LZE-mail: [email protected]

The EU consumes 4 million tonnes of bananas per year and produces only 20% of thisamount. The remainder is imported from mainly Latin America (62-3%) and the

African Caribbean and Pacific (ACP) group of states. The EU import market is the

second largest in the world (approximately 26% of world exports in 2000) and accessto it is thus highly lucrative.

1. Historical Background

Prior to 1993 the EU banana market wascharacterised by its disconnected nature. Different

member states operated different import controls.For example some member states had preferentialimport regimes (see box 1), Germany operated a

duty-free market largely supplied by LatinAmerican bananas (other wise know as dollarbananas), while Belgium, Denmark, Ireland,

Luxembourg and the Netherlands had a 20% tariff on all non-ACP imports. The creation of a singlemarket (the SEM) meant that different national

policies had to be replaced by a common policy.The significance of this lies in the transfer of policy making powers from national to union

level, thereby decreasing the ability of governments to have independent policiesreflecting national rather than community interests.

This also meant that those seeking to influence banana policy through lobbying (for example theWindward Islands) have to contend with a more complex set of decision making apparatus.

The proposals for creating a Banana Regime in 1993 need to be set in the context of:

1. Commitments under the GATT to liberalise trade in tropical products and not to raise averagetariffs.

2. The reaffirmation made in Lomé IV (1990) of continued market access for ACP banana producers

in the European market.

3. The desire to protect existing banana production in member states (mainly France and Spain) andsupply European consumers with reasonably priced bananas.

Important players in lobbying for the preservation of ACP special preferences included Geest on behalf of the Windward Islands and the newly created (1988) Caribbean Banana Exporters Association(CBEA). The ACP/CBEA were successful in getting the European Parliament (both the External

Relations and the Development Committees) and the ECOSOC to consider their position, and present afavourable report before the Commission had tabled its proposals. By so doing the Commission was

Box 1: Pre 1993 Preferential Regimes

• Spain imported bananas from theCanary Islands

• Portugal from Madeira

• France from its overseas

departments Martinique andGuadeloupe, and from ACP states

Cameroon and Côte d’Ivoire.

• UK mainly from ACP states:Windward Islands (Dominica,

Grenada, St. Lucia, St. Vincent andthe Grenadines) Jamaica, Belize,Suriname, Ivory Coast and

Cameroon



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obliged to take into account the defence of continued preferences. A close relationship between the UK

government (supported by France and Italy) and Caribbean interests helped to preserve ACPpreferences despite opposition from some member states (Germany and Belgium). Thus the ACP wereable to secure an unchanged Banana Protocol in the Lome IV. 1

2. The 1993 Banana Regime (CEC 404/93)

The Banana Regime of 1993:

• Established a Common Market Organisation (CMO) for bananas

• Preserved duty free access for ACP bananas up to 857,700 tonnes (the C quota), divided amongstthe ACP supplying states party to the Banana Protocol of the Lomé Convention.

• Imposed a tariff quota on all other banana imports (including additional ACP non-traditional

imports) in excess of this up to 2 m. tonnes (increased in 1994 to 2.1 m. tonnes, then to 2.2 m.t. in1995). Within this quota the tariff for dollar bananas was ECU 100 per tonne but the ACP bananaswould enter duty free.

•

Any imports in excess of the 2.m. tonne quota would be subject to tariffs of:~ ECU 850 per tonne for dollar bananas~ ECU 750 per tonne for ACP bananas

• EC production was covered by internal mechanisms, including deficiency payments up to their

share of the market of 854,000 tonnes.

Alongside the creation of quotas the EU established a controversial system of licences whereby allimporters required a licence to trade. These were issued free of charge by the Commission but tied to

the specific quota quantities. The idea was to create an incentive for companies to import (higher cost)ACP fruit. Because of quota limitations a profitable trade in licences developed as operators soughtaccess to the higher priced EU market. The tariff quota was further divided so that 66.5% of the

licences were allocated to traditional suppliers of dollar bananas and 30% to those trading ACP or EUbananas. 3.5% was allocated to newcomers.

This attempt to reconcile divergent interests resulted in a regime which did safeguard EU production

and guarantee ACP access, however it also created a system in which European consumers werepaying high prices for their bananas and by so doing, access to the European market became extremelylucrative. However some interests were not satisfied with the BR and sought to challenge it.

At the same time the EU also introduced a Special System of Assistance (SSA) for ACP bananaexporting countries to compensate for losses experienced as a result of changes to the BR. Thisprovided ACP banana exporting countries with additional funding (ECU95m) to help them improve the

quality, marketing and competitiveness of their bananas. The funding was insufficient to cover thecosts of adjustment or the fall in banana prices in the UK, the ACP states’ main market, between 1992-3.

3. Challenges to the Banana Regime

1. Within the EU the German government and Benelux importers challenged the regime a number of

times (largely unsuccessfully) in the European court. The defeat of Germany at this point issignificant because it demonstrates the strength of producer interests (lobbied by Britain andFrance) over the largest single consumer of bananas in the EU.

2. In 1993 Latin American banana exporters (Costa Rica, Columbia, Guatemala, Nicaragua andVenezuela) challenged the national regimes of the Community in the GATT. The GATT found

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P. Clegg, 2002 'From Insiders to Outsiders: Caribbean banana interests in the new internationaltrading framework' in S. Dearden (ed) The European Union and the Commonwealth Caribbean,

Ashgate, Aldershot.



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that the ACP preferences violated Article I (most favoured nation) and requested that the EU

equalise tariff rates for all banana exporting GATT members (GATT panel report DS32/R)

3. In February 1994 a second challenge to the Banana Regime found that the regime violated MFNand that the distribution of licences was unfair (GATT panel report DS38/R).

Although the last two challenges were successful, the GATT rulings could not be adopted because theEU and ACP blocked their adoption. This approach to the adoption of rulings was fundamentallychanged with the creation of the WTO whereby blocking requires a highly improbable consensus.

Nevertheless in 1994, in an attempt to appease the complainants, the EU concluded a Framework Agreement (box 2) with Colombia, Costa Rica, Nicaragua and Venezuela.

The Framework Agreement was rejected byother Latin American suppliers, includingGuatemala (one of the GATT complainants)

along with Ecuador, Mexico, Honduras and theDominican Republic. It was also opposed bytwo large US TNCs, Dole and Chiquita who

persuaded the US government to take actionagainst it. Thus an attempt was made by the USin collaboration with Chiquita bananas under

Article 301 of the Omnibus Trade Act to findthe EU BR guilty of unfair trading practices.This was terminated in September 1995 when

the US registered a complaint with the WTOalong with Honduras, Guatemala, Mexico andlater (February 1996) Ecuador. The

complainants argued that EU measures wereinconsistent with a number of articles of theGATT, the Agreement on Agriculture (AoA),

the General Agreement on Trade in Services(GATS), the TRIMs agreement and the Agreement on Import Licensing Procedures (AILP). Duringthis period the US was unrelenting in its opposition to aspects of the BR. In January 1996 the US had

managed to convince Costa Rica and Colombia to challenge the Framework Agreement, of which theywere major beneficiaries, by threatening them with trade sanctions.

The WTO issued its reports in May 1997, which upheld the complaints finding fundamental elements

of the BR to be inconsistent with WTO obligations (see box 3). Importantly the WTO did not findagainst ACP preferences per se, but did rule against aspects of the operation of the licensing system, inparticular the reservation of 30% of licences for operators of ACP/EU bananas, as well as the different

treatment of bananas from the Framework Agreement countries and other Latin American producers.

The EU appealed against the rulings. In particular it challenged the ability of the US, a non-banana

producing country, to challenge its BR. The EU also argued that the WTO should consider the aimsand effects of its licensing arrangements. The appeal was largely unsuccessful and the EU was obliged

Box 2: The Framework Agreement

• Increased the tariff quota for dollarbananas was increased from 2m

tonnes to 2.2m tonnes (2.553 from1.1.1995)

• Reduced the duty on this from ECU

100 to ECU 75.• Allocated specific shares (up to 49.4%)

of the dollar quota to these countries

• Gave these states the authority to

issue export certificates which enablethem to determine which supplierscould take advantage of the EU's

import licences.In return these states agreed not to

challenge the BR until 2003.

Box 3: The 1997 WTO Report

• 1997 WTO finds BR inconsistent with obligations under GATT:

~ Article I: most favoured nation treatment (general MFN)~ Article III: national treatment~ Article X: obligation to publish laws, regulations~ Article XIII: non-discrimination in the administration of quantitative restrictions

• It found the licensing arrangements to be in breach of Articles II and XVII of the GATS

• The Panel also found the Regime to breach licensing articles of the Agreement onImport Licensing Procedures (AILP):

~ Article 1(1) that licensing agreements should prevent trade distortions

~ Article 1(3) The neutral, fair and equitable application of import licensing procedures.



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to accept the rulings and consequently to revise the BR by January 1, 1999 to make it compatible with

WTO requirements.

4. The Revised Banana Regime (1637/98 & 2362/98)

1. Maintains the duty free ACP quota of 857,700 tonnes, but gets rid of country quotas within this.

2. Maintains the 2.2m tonne tariff quota for dollar and non-traditional ACP imports at the tariff rateof ECU 75 per tonne.

3. Makes permanent an increase of 353,000 tonnes additional to the tariff quota to reflect increased

membership of the EU. Within this quota dollar bananas would pay duty of ECU 300 per tonne andACP bananas ECU 100 per tonne.

4. For imports above this revised tariff quota of approximately 2.5 m. tonnes the duty would be ECU

765 for dollar bananas and ECU 665 for ACP bananas.

5. The existing system of licences which had reserved 30% for importers of ACP and EU bananas isreplaced by distinctions between traditional and non-traditional suppliers. Traditional suppliers

would receive 92% of the licences and non-traditional 8%.

The US and Ecuador remained unsatisfied by these changes. Ecuador launched a new complaint in theWTO and the US, still lobbied by Chiquita, threatened to impose duties on EU exports. The EU in turn

sought to stave off the duties by requesting arbitration by the WTO.

The WTO ruled that the revised regime still breached Articles II and XIII because ACP imports weretreated in a more favourable manner than dollar imports. Furthermore the ACP quota was ruled to be

too high because it was based on an unrepresentative period. The criteria established for newcomerswas also seen to discriminate against Latin American suppliers (Article XVII).

Thus in April 1999 the DSB found against the EU and allowed the US, to impose duties on EU exports

(although to a much lesser amount than the US had threatened). In May 2000 it also permitted theimposition of duties by Ecuador.2

The Commission’s Proposal (COM (1999) 582 final)

In November 1999 after much consultation with the complainants, and other governments concerned,and with banana operators, the Commission proposed a two stage scheme in which tariff quotas wouldremain in force until 2006 when a tariff only regime would be adopted. In the period up to 2006 the

Commission proposed to maintain the existing A and B quotas of 2.2m tonnes plus 353,000 withdollar bananas paying a duty of ECU 75 per tonne and ACP bananas entering duty free. The ACP quotaof 857,700 tonnes would now be open to all suppliers, duty free for the ACP while non-ACP suppliers

would pay ECU 275 per tonne.

The question of licences remained and two options were presented.

1. a system based on historical allocation of the market

2. the introduction of the First Come First Served (FCFS) principle

If neither of these were possible the Commission proposed to move immediately to a tariff only system.The Council requested the Commission to look into the feasibility of the FCFS system. The

Commission (Fischler and Lamy) initially favoured the FCFS principle as a means of making thesystem immediately compatible with WTO requirements. The FCFS was felt to be both transparent andflexible. In addition it removed the need to distinguish between traditional and non-traditional suppliers

on which negotiations were at an impasse.

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Ecuador has never imposed these because to have to pay higher prices for EU imports of mainly basicfoods would be politically unpopular.



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The ACP viewed the potential loss of their quota to a tariff only regime as unacceptable. The FCFS

system was viewed as being essentially a ship race to Europe which disadvantaged small andindependent importers.3 The ACP argued that banana production remained important for the social,economic and political fabric of the Windwards, and that while some improvements could be made in

increasing yields per acre by changing land use patterns and technical practices, they would still beunable to compete on the basis of cost leadership. They argued that small holder banana production

cannot easily compete with large scale plantation production characteristic of Latin America.4

They managed to convey their concerns to the European Parliament which called for the retaining of quotas with a tariff preference for the ACP for a ten year period, rejecting the proposal for a tariff onlyregime outright. However traditional support from French and Spanish producers was not forthcoming

thereby dividing the historical mutual interest between ACP and EU suppliers.

Clear opposition also emerged in August 2000 from nine Latin American producers who rejected theFCFS in favour of a tariff quota scheme as proposed by a group of Caribbean exporters. 5 Ecuador and

the Dole banana company were the exceptions, favouring the FCFS principle.

In October the General Affairs Council ratified the new proposals including the FCFS principle despitethis opposition believing it would provide a final end to the dispute with the US. In this instant it

becomes clear that the US sanctions were costing the EU dearly and that ACP interests are lesspolitically significant.

The new US government was initially sympathetic to the FCFS principle but became increasingly

hostile to it not least because Chiquita bananas were claiming to have suffered huge losses due to theoperation of the BR. In March 2001 the US threatened to impose further sanctions against EU exports.The EU in turn threatened retaliation. Nevertheless the Commission and the Council were increasingly

exasperated by the ongoing dispute and European companies were claiming to have suffered significantdamages due to it. Furthermore some WTO members had indicated their intention to block the EU'srequest for a waiver for the new Cotonou Agreement in the WTO in the absence of agreement on a new

BR.

The dispute looked set to escalate until on 11 April 2001 the EU finally came to an agreement with

Ecuador and the US paving the way for a new banana regime with both a tariff and a quotacomponent.

5. The New Banana Regime 216/2001 & 896/2001

1. Abolishes the country quotas for Latin American (dollar) bananas within the 2.553m tonne A and

B quota. Within this quota the tariff for dollar bananas was ECU 75 per tonne and for ACP bananasit was duty free.

2. Removes 100,000 tonnes from the ACP quota - and adds this quantity to the dollar quota - leaving

the ACP with a duty free quota of 750,000 tonnes with effect from 1.1.2002.

3. Drops the FCFS principle in favour of the historical trading patterns for the distribution of licences. (83% of the A and B quota to historical shippers of Latin American bananas, mainly

benefiting Chiquita because of the new reference period chosen, 1994-6, and 17% to newcomers)

4. Commits the EU to move to a tariff only regime from 1.1.2006 at the latest without quotas orlicences.

The US in turn agreed to support the EU request for a WTO waiver for the BR from the Article XIII.1requirement that like products from all third parties be treated equally and Article XIII.2, that the

3 WINFA Press Release, 6 October 2000.4

The comparative costs of production are Dominica can produce bananas at US$515 per tonne whileEcuador’s cost of production is US$162 per tonne.5 S. Dearden 2002, The EU Banana Protocol , in S. Dearden ibid.



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distribution of trade which results should resemble the distribution of trade in the absence of

restrictions. The US also agreed to lift existing trade sanctions.

Thus from 2006 the regime is due to be replaced with a tariff only scheme the details of which are still

to be finalised. The objectives of the new regime include the maintenance of appropriate protection forACP and EU suppliers, to avoid change in the present level of imports, and to minimise the effects of the regime on prices and costs. Importantly the new regime was not, and still is not, the only possible

solution. It was the only solution at the time for which majority support, including the US, could begained.6

The European Court of Auditors has recommended that the Commission take this opportunity to carry

out a fundamental review of the CMO for bananas and in particular the consequences of the planned

move to a tariff only regime in 2006 and on the future of banana production in the EU. 7 In particular theCourt of Auditors found that the restriction of supply via the quota had resulted in prices being

maintained at a higher level in the EU than on the world market. This review therefore constitutes anideal time to lobby the Commission for desired changes. 2004 will also see the expansion of the EUmembership.

Importantly in November 2001 the WTO meeting in Doha approved the ACP waiver for obligationsunder Article I and Article XIII allowing the maintenance of a tariff preference for ACP bananas until2008. The WTO waiver was granted in recognition of the need to protect ACP banana supplying

countries during a transitional period. The waiver is subject to the conditon that should access for dollarbananas be adversely affected discussions would commence immediately with a view to rectifying thematter.8

6 Stevens, C. (2002) 'Banana Skins and Turf Wars', in Wallace, W. and Wallace, H. (eds) Policy

Making in the European Community . Oxford: OUP.7 Information note of the European Court of Auditors concerning Special Report No 7/2002 on the

sound financial management of the Common Market Organisation for bananas. EN 08.10.2002.8 WTO 2001 European Communities- Transitional Regime for the EU Autonomous Tariff Rate Quotas

on imports of bananas. WT/MIN(01)/16 14 November.



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Chronology of Events 1993–2002

1993 New Banana Regime (BR). Establishment of the CMO forbananas

1994 Special System of Assistance to ACP banana producers

1994 GATT ruling against the regime but not adopted due toopposition from EU and ACP

1994/5 Framework Agreement raises quota to 2.2m tonnes and lowersduty to ECU 75 per tonne.

1995 US, Mexico, Ecuador bring matter to DSB of WTO

1997 WTO finds against BR system of licences, and Framework

Agreement, but not against ACP preferences per se.

1998 EU revises BR: changes system of licences, replaces withdistinction between traditional suppliers and new entrants. US

still opposes and threatens trade sanctions. Ecuador opposes.

1999 (April) Second WTO ruling on EU Banana Regime

1999 (April) US imposes sanctions on EU

1999 (November) EU proposes two stage scheme with tariff only regime from2006. Also proposes the FCFS principle allocating the quotas.

2001 US opposes FCFS principle in favour of historical distribution.Threatens trade sanctions

2001 (April) EU and US and EU and Ecuador reach agreement on new BR.ACP lose 100,000 tonnes of C quota when it takes effect.

2001 (November) WTO Doha approves waiver for EU preferential tariff for ACPunder Banana Protocol to 2008

2002 (January) New BR takes effect; 100,000 tonnes of ACP quota transferredto dollar quota

2004 New members join EU; tariff quota to be increased accordingly

2004 Proposed date for review of COM in Bananas

2006 (1 January) EU Banana Regime to become tariff only

2008 Expiry of WTO Cotonou waiver

EU Regime History by Anna Dickson Commissioned by Banana Link+EUROBAN

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