Memorandum from the Caribbean Banana Exporters
Association
EXECUTIVE SUMMARY
(i) The Caribbean banana export trade developed under the
aegis of a protective regime applied by the UK, which ensured
both market access and a viable return for Caribbean bananas by
restricting imports of lower-priced bananas from Latin America.
(ii) Successive Lomé Conventions have guaranteed to
maintain the benefits traditionally enjoyed by the Caribbean exports
in the UK and by other ACP countries in France and Italy. The
Common market regime for bananas was intended to fulfil that pledge.
(iii) The need for special provisions to safeguard Caribbean
banana exports to Europe derives from the high degree of dependence
of the economies of individual states or regions on that crop,
and the much higher costs of production there than in Latin America,
due to problems of terrain, size and climate. That need will
not end with Lomé IV.
(iv) The long-term solution must be greater economic
diversification coupled with a more competitive banana industry.
But this can only be achieved over a substantial period of time
and on the foundation of a viable banana export trade. That trade
cannot be sustained merely by tariff preferences or aid; other
measures remain necessary to ensure both access and an economic
return, notwithstanding the problem of compatibility with WTO
rules.
(v) Small countries with fragile economies cannot be subjected
to the full rigour of WTO rules of free trade and non-discrimination
without disastrous consequences. The recent WTO panel on the
EU banana regime showed a lack of understanding of the problems
of these countries. The EU and the 71 ACP nations should concert
efforts to secure a more enlightened approach in the WTO rather
than abandon necessary measures of Agreements for fear of incompatibility.
(vi) The Banana Protocol, implemented through
the EU regime, has been a key factor in the relative prosperity
which is now enjoyed in the Caribbean. Without that Protocol,
those Caribbean states dependent on banana exports to the EU would
have suffered economic collapse, and this would in turn have
damaged the economy of the entire Caribbean Community (Caricom).
Such a collapse can only be averted in the future by ensuring
that whatever arrangements succeed Lomé IV, they include
provisions for bananas comparable to the Banana Protocol.
CBEA SUBMISSION
The CBEA Interest
1. The CBEA represents the banana growers of
Belsize, Jamaica, Surinam and the four Windward Islands—St
Lucia, Dominica, St Vincent and the Grenadines, and Grenada. On
issues affecting the future of banana exports from the Caribbean,
the CBEA acts jointly with the three companies marketing their
fruit, Fyffes, Jamaica Producers and Geest (which is now owned
jointly by Fyffes and the Windward Island producers through Wibdeco,
the Windward Islands Banana Export and Development Company). The
future of Lomé is such an issue and this memorandum represents
the view of both growers and companies.
2. Our interest is essentially with implications
of renegotiation for the Caribbean banana industry and consequently
for those Caribbean countries whose economic well being depends
largely on their banana exports to the European Union. This memorandum
therefore concentrates solely on the objectives and effect of
the trade preferences for bananas currently enshrined in Lomé
IV and in particular in the Banana Protocol (Protocol 5) and Annex
LXXIV.
Background
3. Bananas are the crop best suited to conditions
in the Caribbean. They are the only legitimate year-round
crop which can viably be cultivated there; they provide a regular
weekly income to small farmers; and the plant has the resilience
to produce again for export within a few months of destruction
of damage by hurricane, floods or other natural disasters, to
which the region is particularly prone.
4. But production is often on steep and difficult
terrain and on small family farms—in the Windward Islands
there are about 20,000 producers on farms averaging under five
acres (two hectares). Because cultivation is not on an industrial
scale, as it is in Latin America, and because of the respect for
trade union rights, Caribbean production is probably the most
socially and environmentally friendly in the world. But Caribbean
production cannot compete on price with the vast, flat plantations
and more fertile soil of Latin America, where production and
marketing is highly integrated, in many cases controlled by the
dominant North American companies, and benefits from large economies
of scale.
5. Caribbean production was, nevertheless,
able to develop and flourish under the benign, protective, regime,
operated by the UK, which gave priority access to Caribbean bananas,
through an import licensing regime, which restricted imports of
the cheaper dollar bananas in order to ensure a remunerative return
from the market for Caribbean growers.
6. Jamaica began exporting bananas to the UK
at the turn of the century, with the active encouragement of the
UK Government. After the Second World War, the UK Government encouraged
the development of a banana export industry, first in the Windward
Islands and subsequently in Belize, in each case as a means of
diversification out of sugar. This export trade would not have
been possible without the measures taken by the UK to ensure that
imports from the Caribbean were not rendered uneconomic by competition
from lower cost production from Latin America. Because banana
production is particularly suited to the circumstances and social
structure of the Windward Islands (see paragraph 3 above), it
soon became the principal source of employment and foreign earnings
in Dominica, St Lucia and St Vincent.
7. France likewise reserved the French market
essentially for bananas from their Overseas Departments in the
Caribbean and for the former French territories of Ivory Coast,
Cameroon and Madagascar. Two-thirds of the market was reserved
for the Overseas Departments and the balance for the former French
territories. Imports of dollar bananas were permitted only when
there was a shortfall in the French market. Italy similarly gave
priority to imports from Somalia.
Role of Banana Protocol
8. Each Lome Convention, from Lome I in 1975,
has guaranteed the continuation of these benefits to all traditional
ACP banana exporting countries. The guarantee, enshrined in Protocol
5 of Lome IV, states:
"In respect of its banana exports to
the Community markets, no ACP State shall be placed, as regards
access to its traditional markets and its advantages on those
markets, in a less favourable position than in the past or at
present."
Annex to Lomé IV made clear that this
undertaking would still obtain if the Community adopted a single
market regime for bananas in place of the different national regimes
that were then operating.
Current EU Regime
9. The Singe European Act of 1986 committed
the European Community to implementing a single market for all
products by 1993. Bananas posed the most difficult problem of
all, because of the Lomé IV commitment and because of the
great disparity between the national regimes which existed at
the time. Of the 12 states which were then members, half restricted
access for dollar bananas in the interests of ACP or domestic
growers; the remainder operated a free market, apart from the
20 per cent tariff (CET). (Under a special Protocol to the Treaty
of Rome, even the 20 per cent CET was not applied in Germany).
The EU had, nevertheless, to create a single regime applying to
all 12 member states, which would also provide traditional ACP
exporting states with benefits equivalent to those that they had
been enjoying under the previous national regimes. This effectively
meant providing for those states a guaranteed market at a price
which was remunerative to their growers.
10. The common market regime for bananas, introduced
in July 1993 under Council regulation 404/93, sought to achieve
this. It limited the total supply on the market by means of fixed
quotas for traditional ACP suppliers and a tariff quota for other
third country supplies; and it provided special incentives for
the import of the higher cost EU and ACP bananas, through the
system of licence allocation for the tariff quota. (see fuller
description in Annex 1).
11. This regime was designed to meet the EU's
obligations to the ACP and the GATT and to provide a workable
compromise between conflicting interests. But it proved controversial.
It was adopted with difficulty, having been opposed from the outset
by a number of member states of the EU, led by Germany, which
wished to preserve the free market that they had hitherto enjoyed.
It was immediately challenged in the GATT and subsequently in
the WTO.
The WTO Challenge
12. In 1993, a GATT Panel ruled certain aspects
of the regime incompatible with the GATT; but it recognised the
economic and social objectives which the regime was designed to
meet and recommended that a waiver should be sought under Article
25 of the GATT to resolve any conflict between the obligations
of the EU under the Lomé Convention and those under the
GATT. In 1994 the EU sought and obtained a waiver.
13. Notwithstanding this waiver, which the USA
had supported, the USA, jointly with Ecuador, Guatemala, Honduras
and Mexico, challenged the regime in the WTO. The case centred
largely on the interpretation of the scope of the waiver and of
the Lomé Convention. The Appellate Body of the WTO ruled
that the terms of the waiver did not cover many aspects of the
EU banana regime, including aspects critical for maintaining
the economic viability of Caribbean and other ACP banana exports
to the EU, and that these were incompatible with the GATT
and with the new agreement on services (GATS), which did not exist
at the time the waiver was granted.
14. The procedures of the panel give grounds
for concern at the apparent lack of sensibility at the WTO to
the special needs of small developing states, particularly when
these needs are in conflict with the commercial interests of major
powers like the USA.
15. Although the case was brought by the USA
and its co-Complainants against the EU, the Caribbean and other
ACP banana exporting states had more at stake than any other party.
The entire economies of countries like Dominica were threatened
by the case. For this reason the Caribbean sought full rights
of participation in the hearings. This was refused, primarily
because the USA opposed it. In contrast to proceedings under the
GATT, the Caribbean and other ACP were limited to the restricted
rights of attendance and intervention of a third country with
no direct interest.
16. Worse still, at the insistence of the Complainants,
the Caribbean legal advisers were expelled from the hearings on
the grounds that they were not permanent Government officials,
even though they were fully accredited members of the delegation
of St. Lucia. This greatly handicapped the presentation of the
Caribbean case, since the legal advisers could not follow the
proceedings.
17. It is also disturbing that the panel made
a definitive interpretation of the obligations of the EU and the
ACP states under the Lomé Convention which was fundamentally
in conflict with the understanding of the Agreement by the parties
to it, namely the EU and the ACP states, and without fully hearing
the arguments of the ACP states thereon.
18. The full implications of the Appellate Body
ruling have yet to be analysed. But the WTO cannot abrogate
the obligations of the EU to the Caribbean and other ACP countries
under the Lomé Convention.
Need for Special Provision for Bananas
19. Because of the problems of geography and
size explained in paragraph 3 above, production costs are much
higher in the Caribbean than in Latin America. The Caribbean tradition
of free trade unions and decent wages likewise increases comparative
costs. In the Windward Islands, from 1993 to 1996 inclusive, the
annual, average production costs (per 18 kilo box, fob), ranged
between $9.35 and $9.70. This is nearly double the fob price of
around $5 per box paid for dollar bananas.
20. The cost differential was confirmed in a
recent Study by Dr David Hallam and Professor the Lord Peston,[1]
which examined comparative costs of ACP and Latin American countries.
The study recognises the difficulty of finding accurate and comparable
data, but suggests a differential ranging from 100 per cent to
over 200 per cent between Latin America and ACP. Within the ACP,
"Most of the available evidence indicates that costs are
highest for the Caribbean exporters, with the West Africans enjoying
a small cost advantage". But the difference between the Caribbean
and West Africa is dwarfed by that between the ACP as a whole
and Latin America.
21. To this difference in production costs must
be added, in the case of the Caribbean, the higher cost of shipping
compared to exports from Latin America, because of the need for
more port calls, the smaller volumes involved and, consequently,
the absence of the economies of scale that dollar shippers enjoy.
22. Moreover, some Caribbean states are dependent
on bananas to a unique degree:
— bananas account for 36 per cent of
all employment in Dominica and about 30 per cent in St Lucia and
St Vincent;
— they account for 50 to 60 per cent
of all export earnings in Dominica, St Lucia and St Vincent;
— they contribute 16 per cent to GDP
in St Lucia and 17 per cent in Dominica and St Vincent.
This is by far the highest degree of dependency
on bananas in the world; and compares with 9.6 per cent of
GDP for Honduras, the next highest and only 5 per cent for Ecuador,
the world's largest exporter (see table in Annex 2). The loss
of this export trade would have a devastating effect, economically,
socially and politically.
23. Although the other traditional Caribbean
exporters have more diversified economies, bananas are nevertheless
crucial to specific regions or counties, such as Big Creek in
Belize and St Thomas and St Mary's in Jamaica. These would equally
be devastated by the loss of a remunerative market.
24. Moreover, the consequences of the widespread
loss of earnings and employment would be felt by other Caribbean
countries which do not export bananas, through the adverse effect
that this would have both on the value of the East Caribbean dollar
and on the trade of the Caribbean Community (Caricom) as a whole,
since those Caribbean states which do not produce bananas can
only sell their manufactured goods to their banana-producing neighbours
if the latter remain economically viable.
Non-Viable Alternatives
(i) Tariff Preferences
25. Proposals to replace existing protective
provisions simply by (temporarily) enhanced tariff preferences
ignore both the degree of disparity between production costs in
the ACP and Latin America (see paragraphs 19 to 21 above) and
the realities of the world banana market. The latter is dominated
by an oligopoly of three large companies, which between them control
65 per cent of world trade. This compares to the 3 per cent represented
by traditional Caribbean exports.
The largest of these companies, Chiquita, which
instigated the US action in the WTO, has an unenviable record
of charges in both the USA and Europe for abuse of its dominant
position (see summary at Annex 3).
26. Total ACP earnings from banana exports amount
to only 4 per cent of the turnover of these three companies. The
Caribbean industry simply does not have the resources to engage
in battles for market share, such as that waged by these companies
in 1992, before the regime was adopted. Chiquita announced losses
for that year of $284 million. The Caribbean were protected from
the full impact of the consequent collapse of prices by the protective
arrangements then applying in the UK. But the strategy then adopted
by the dominant companies demonstrates how inadequate a simple
tariff preference would be to safeguard the Caribbean growers
against a determined attempt to dislodge them from their traditional
market in the UK.
(ii) Aid
27. Aid has frequently been coupled with tariff
preference by opponents of the EU regime as a proposed alternative
system for maintaining the Caribbean industry. But this seems
intended primarily as a means of easing growers out of banana
production. That will not help to maintain a viable banana industry.
On the contrary, it can lead to a cycle of collapse, as volumes
fall and shipment costs consequently rise, thus reducing returns
to those remaining in the industry. This has already become a
problem in St Lucia, as a result of substantial falls in prices
on the EU market since 1995, following increases in the tariff
quota. Moreover, the dole is no substitute for trade.
28. Even if aid were genuinely intended as a
measure for sustaining the industry, it could not be as effective
as market management acting on market returns because:
— it could not provide adequate protection
against determined attempts to drive the Caribbean out of their
markets (see paragraph 26 above);
— it would remove the incentive to
improve quality and productivity;
— it would be vulnerable to increasing
pressures on donor Governments to reduce aid expenditure and would
therefore not provide an adequate basis on which to invest in
the industry;
— income from conventional development
aid does not filter down to farm level as effectively as income
earned by growers themselves from the weekly sales of their bananas.
The Way Forward
29. For the longer term, the solution for the
Caribbean must be greater economic diversification built on the
foundations provided by a more competitive banana industry.
30. As a previous Select Committee recognised,[2]
"It is not in our view realistic to expect the ACP to compete
on equal terms with dollar producers by 2000 or maybe ever; but
it is important from everybody's point of view that the maximum
efforts should be made and seen to be made, to narrow the gap."
A great deal has been done in the last few years to achieve this
end and these efforts are continuing. But these have been partially
frustrated by the uncertainties and instabilities created by the
continuous threats to the EU regime, both from within the EU and
from the USA and other third countries. These have inhibited necessary
investment and undermined morale. This problem has been increased,
since the beginning of 1995, by a significant fall in prices,
as a result of an oversupply of dollar bananas due to increases
in the tariff quota. The over-riding need now is for a period
of stability, to enable progress to be made.
31. Those Caribbean countries most dependent
on bananas recognise the need for diversification and a great
deal of work has been done on this, particularly in the Windward
Islands, with help from the UK Government. However, as Hallam
and Peston point out in the study already cited: "It is easier
to argue the theoretical case for diversification than to demonstrate
how effectively and quickly it can be done in practice" (page
64):
— any alternative crop would face the
same handicaps of difficult terrain, climatic hazards, and the
small size of farms and local markets which preclude economies
of scale;
— alternative crops need markets, and
for most alternatives such as mangoes, pineapple, citrus or horticultural
products they face already entrenched competition in highly competitive
markets or else highly restrictive non-tariff barriers, e.g.,
for winter vegetables in the USA.
— equally, manufacturing is dependent
on protection, because of the lack of economies of scale and the
high fixed costs of capital investment and of inputs and technology,
which reduces its ability to compete.
32. Moreover, only bananas can produce the volume
to justify economically the regular shipping service vital for
all exports and essential imports and can provide the necessary
physical and economic infrastructure.
Diversification is only practicable, therefore,
over time and alongside a substantial banana export trade.
The Lomé Convention and the WTO
33. The Lomé Convention represents a
population of almost 1 billion persons and stands besides the
WTO as one of the cornerstones of international trade and development.
The ACP and EU states together constitute a majority of WTO members.
It is important that the WTO, newly created in 1995 as the successor
to GATT, should appreciate and respect Lomé's value and
objectives.
34. The attitude of the WTO is likely to influence
the negotiation of successor arrangements to Lomé IV, not
least because those concerned will wish to avoid future conflicts.
The Commission's Green Paper, for example, refers to the vulnerability
of waivers because of the need for regular renewals. But it
is vital that the WTO rules should take greater account of the
problems of fragile economies, which are highly dependent on one
product, and which could not survive if the doctrine of free trade
and non-discrimination were rigorously applied. It is these
fragile economies in particular which are most dependent on the
support given by Protocol 5 of Lomé IV.
35. If it is to earn the respect and confidence
of the developing world, WTO must show flexibility. The EU should
not abandon provisions or Agreements that are essential for the
economic stability of Caribbean or other ACP states, but should
seek with the 71 signatories of Lomé collectively to secure
a more enlightened attitude in the WTO.
Conclusion
36. The Commission's Green Paper assesses the
effects of the Lomé Conventions by the extent to which
ACP trade has increased and their economies developed and diversified;
and on this score it raises doubts about the value of the commodity
Protocols. But there can be no doubt that without the protection
guaranteed by the Banana Protocol, Caribbean bananas would have
been driven from their traditional market. This would have led
to the collapse of whole states or regions from economic stability
into economic ruin. Economic desperation would inevitably
result in drug production and/or transhipment.
37. These are states with a strong tradition
of parliamentary democracy, high literacy rates and respect for
trade union and other human rights. But it is the Banana Protocol
that has provided the foundation on which both the democracies
and the economies survive. Those values and achievements should
not be placed in jeopardy.
38. The Caribbean banana industry cannot survive
unless there is continued provision to ensure both access and
a viable price for their exports to the EU. This requires special
measures over and above the tariff preference. Whatever institutional
arrangements are adopted to succeed Lomé IV, a Banana Protocol
is essential to provide that support, if economic and social disaster
in the caribbean is to be averted.
List of Annexes
1. Outline of EU Banana Import Regime.
2. Comparison of ACP and Dollar Banana dependence.
3. Abuses of dominant market position.
1 The Political Economy of Europe's Banana Trade, University
of Reading, 1997. Back
2
Agriculture Committee, Session 1992-3, Second Report "Arrangements
For the Importation of Bananas Into the United Kingdom",
paragraph 30. Back
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