BANANA IMPORTS
(20731)
13048/99
COM(99) 582
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Draft Council Regulation amending Council Regulation (EEC) No. 404/93 on the common organisation of the market in bananas.
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| Legal base: |
Proposed Regulation: Article 37 EC; consultation; qualified majority voting
Proposed mandate (see paragraphs 3.7 and 3.11 below): Article 133 EC; qualified majority voting
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| Document originated:
| 10 November 1999 |
| Forwarded to the Council:
| 18 November 1999 |
| Deposited in Parliament:
| 3 December 1999 |
| Department: |
Agriculture, Fisheries and Food
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| Basis of consideration:
| EM of 14 December 1999
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| Previous Committee Report:
| None; but see (20185) 8967/99: HC 34-xxiv (1998-99), paragraph 7 (30 June 1999)
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| To be discussed in Council:
| Following receipt of the European Parliament Opinion
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| Committee's assessment:
| Politically important |
| Committee's decision:
| Not cleared; further information requested
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Background
3.1 The Community's arrangements for bananas,
which seek to reconcile a number of differing commitments (not
least those under the Lomé Convention to traditional suppliers
in current or previous dependent territories), are complex. The
details are set out more fully in our Report of 11 February 1998[21].
In essence, however, the régime has involved a duty-free
quota of 857,700 tonnes for traditional ACP suppliers; a tariff
quota of 2.2 million tonnes for non-traditional ACP and third
country suppliers, bound under GATT at rates of zero for ACP suppliers
and 75 euro per tonne for third countries (rising respectively
to 665 euro per tonne and 765 euro per tonne beyond this quantity);
an import system which provided incentives to traders to handle
ACP and Community fruit; and income aid in the form of deficiency
payments for Community producers.
3.2 Following an adverse ruling by the World
Trade Organisation (WTO) Dispute Settlement Body in 1997 in response
to a challenge from the United States and four Latin American
suppliers, new arrangements have applied since 1 January 1999.
The 2.2 million tonne tariff quota was increased by 353,000 tonnes
to reflect the rise in Community consumption following the accession
of Austria, Finland and Sweden; and the tariff rates for quantities
above that limit were changed to 737 euro per tonne (falling to
680 euro per tonne from July 2000) for third country suppliers,
with ACP suppliers enjoying a preference of 200 euro per tonne.
In addition, tariff quota shares were given to four "substantial"
third country suppliers (Colombia, Costa Rica, Ecuador and Panama);
and the existing licensing system was abolished, and replaced
by a new system, based on traders' "historic rights"
to licences.
3.3 However, a further WTO Panel report
found against aspects of the revised arrangements. In particular,
it was ruled that the Community discriminated unfairly against
non-ACP banana producers by having separate quota treatment for
traditional ACP suppliers, and an import licence system which
in practice favoured Community and ACP suppliers. One consequence
of this has been that, in order to compensate for the damage suffered
by American companies involved in the supply and marketing of
bananas, the United States is imposing WTO-sanctioned prohibitive
100% import duties on Community products to the value of $191.4
million (£119.6 million), of which we gather about one-quarter
relates to goods from the UK. Ecuador has also commenced proceedings
within the WTO for authorisation of compensation.
3.4 As a result of these developments, the
Commission put forward in May of this year a Communication to
the Council, which had been prepared following consultation with
all parties principally interested in the dispute, to outline
possible courses of action. These options, which are set out more
fully in our Report of 30 June 1999, included:
- a tariff only option, with a high tariff for
non-ACP imports;
- a quota for non-ACP imports, but unlimited access
for ACP imports;
3.5 In that Report, we also noted that the
Government had said that it was "open-minded about the precise
structure of the régime", but that there was "no
easy solution", and that it was not clear that any of the
three options outlined by the Commission would, as they stood,
protect the position of the UK's traditional suppliers in the
Caribbean, who were considered to be in the most vulnerable position.
In our own Conclusion, we commented on the extreme difficulty
of finding a solution which meets the "powerful, but conflicting,
considerations" that need to be taken into account, and said
that we would await with interest the Commission's further thoughts,
as and when they became available.
The current proposal
3.6 Following the further extensive consultations
it says it has had with interested parties in order to find a
generally acceptable solution, the Commission has now put forward
a proposal which aims to meet the Community's obligations under
the WTO, as well as its key concerns regarding Community and ACP
banana producers, and the need to respect the strict limitations
on the Community budget.
3.7 It says that, in general, Latin American
exporters prefer a tariff quota system, as do most trade operators,
whereas other interested parties "insist" on a flat
tariff approach, possibly after a transitional period in which
a tariff rate quota (TRQ) would apply. It adds that the majority
of ACP countries believe that their social and economic interests
would best be served by the maintenance of a TRQ system, but that
some can accept the concept of a transitional régime towards
a flat tariff. It also stresses that there is a wide divergence
of view as regards the distribution of any licences that would
be necessary under any form of quota arrangement. It has therefore
concluded that, although it recognises the widespread preference
for a TRQ system, this would only be possible on a transitional
basis, leading eventually to a flat tariff system.
3.8 Since the Commission also considers
that a transitional arrangement would have the benefit of enabling
ACP suppliers and Community producers to adapt, it has proposed
a two-stage process. Under this, a tariff-only régime —
whose level would need to be negotiated under Article XXVIII of
GATT — would apply from 1 January 2006. Up until then, there
would be a transitional system, with three tariff rate quotas,
virtually identical to those in place at present, namely:
- a quota of 2.2 million tonnes ("quota A");
- an additional quota of 353,000 tonnes ("quota
B");
- an autonomous quota of 850,000 tonnes ("quota
C").
3.9 These quotas would be open to products
originating in all Third Countries. However, imports under quotas
A and B would continue to be bound at their present level of 75
euro (£47) per tonne, with those from the ACP countries entering
duty free. Imports under quota C would initially be subject to
duty at a rate of 708 euro (£446) per tonne, reducing to
680 euro (£428) per tonne from 1 July 2000. However, the
actual rate would be set by an auction procedure, under which
ACP imports would receive a preference of 275 euro (£173)
per tonne. The Commission points out that the proposed system
for quota C would "resolve both the level of the tariff and
distribution of licences to operators as it would produce automatically
a balance between the number of licences requested and the available
quantities". However, since the in-quota tariff for quotas
A and B would be relatively low, the Commission envisages that
more licences would be requested than can be allocated. In view
of this, and as the allocation of licences has proved to be the
main bone of contention in the past, it has sought at some length
to explain the approach it now envisages (though it is also at
pains to point out that detailed rules of this kind would ultimately
be dealt with in a Commission implementing regulation).
3.10 It suggests that the main methods of
distribution are traditional/newcomer based on historical reference
periods; first come/first served; simultaneous examination; and
auctioning. As regards auctioning, it says that, although
this is an "economically rational" means of licence
distribution, it is controversial because it has been argued that
the licence fee constitutes an additional tariff, which would
infringe the 75 euro per tonne tariff binding. It describes simultaneous
examination as a widely used system, but suggests that, in
the case of this "attractive" quota, there would be
heavy over-subscription, leading to large reductions in the entitlements
actually granted. It goes on to say that these reductions could
be limited by requiring bananas to be physically present in a
Community port before an import licence can be requested (first
come, first served), but that this would lead to a "ship
race", which (though perhaps acceptable to the United States)
would be opposed by a number of banana-supplying countries, and
could present a number of technical and administrative difficulties.
It therefore considers that this approach might not ensure the
ending of the dispute. This leaves the traditional/newcomer
system, which the Commission says is the one which all the
interested parties would prefer. However, it does require an uncontested
reference period, which has proved difficult to secure, given
the differing views on this among suppliers.
3.11 The Commission says that, whilst the
Council and the European Parliament are examining its proposal,
it will continue its discussions with the other parties to see
whether a historical system of distribution can be agreed, failing
which the best alternative would be an appropriate form of first
come/first served system, provided the administrative problems
can be overcome so as to make the scheme both practical and non-discriminatory.
It says that, by the time the Parliament has expressed its opinion,
and the Council is thus able to take a decision, it will report
on the outcome of its discussions on the TRQ system. If, however,
no feasible administrative system can be found to resolve the
dispute, a transitional régime will not be possible. It
is therefore seeking a mandate from the Council to initiate GATT
Article XXVIII negotiations immediately with a view to replacing
the current régime with a flat tariff.
3.12 Finally, the Commission draws attention
to two other issues which arise in this context. First, it points
out that the changes proposed to the banana import régime
would have implications for a successor to the present Lomé
Convention, which expires on 29 February 2000. It says that the
result of these negotiations so far indicate a consensus on the
need to proceed to new, WTO-compatible arrangements after an appropriate
preparatory period of five or ten years, during which the existing
Lomé preferences would be maintained. It adds that this
would require a new waiver covering the whole of the envisaged
period, whereas the alternative now proposed would require only
a general provision for preferences to be granted. It says that
the Council will need in due course to examine what conclusions
it should draw, and may also need to examine what, if any, further
measures may be appropriate, particularly for the most vulnerable
countries, most heavily dependent on bananas. Secondly, it suggests
that appropriate use of the Structural Funds could play an important
part in enabling Community banana producers to adjust to a freer
market.
The Government's view
3.13 In her Explanatory Memorandum of 14
December 1999, the Minister of State (Commons) at the Ministry
of Agriculture, Fisheries and Food (The Rt. Hon. Joyce Quin) says
that the Government's position to date has been that any solution
must not risk further WTO disputes, and must address the needs
of the most vulnerable banana producers, particularly in the Caribbean.
She says it can "support and work with" the Commission's
basic model of a transitional quota régime leading to a
tariff-only arrangement, provided this is adjusted to reflect
the needs of vulnerable Caribbean suppliers. She considers that
the main adjustments needed are a licensing system for quota C
which assures the Caribbean of operationally effective access
during transition, and rapid agreement on satisfactory post-transition
arrangements, so that effective planning and restructuring can
be made.
3.14 In the meantime, she suggests that
the eventual move to a tariff only régime would reduce
administrative and regulatory burdens, but that, insofar as the
Commission has suggested there would be an increase in banana
imports, this would be likely to reduce the Community market price,
and hence benefit consumers; increase import tariff receipts by
some 30 million euro (£19 million) a year; but raise expenditure
in the form of increased deficiency payments to Community producers
by around 77 million euro (£38 million) a year. The financial
implications of a tariff-only arrangement in 2006 would, however,
depend on the level of tariff negotiated for the post-transition
régime. Likewise, it is not yet clear whether, or in what
form, there would be a need at that stage for additional measures
for the most vulnerable ACP banana suppliers.
Conclusion
3.15 A durable arrangement which protects
the Community banana producers and traditional suppliers whilst
remaining free from challenge in the WTO has proved to be elusive,
and the present Commission proposal represents yet another attempt
to find a way out of the current impasse. Although the Government
has said it can work with the basic model proposed, we note its
proviso that adjustments are needed to reflect the needs of vulnerable
Caribbean suppliers, and it remains to be seen whether such adjustments
can be secured in practice. In particular, the Government says
it wants to see a licensing system for quota C which "assures"
the Caribbean of operationally effective access during transition.
However, the underlying rationale put forward by the Commission
for this part of the tariff quota appears to involve an auction,
rather than a licensing, system, and, by its very nature, there
must be doubts as to whether this will provide the necessary degree
of assurance.
3.16 Consequently, when the Minister
lets us have the Regulatory Impact Assessment which she says is
being prepared, we would like her:
- to explain whether, and how, the outcome she
is seeking on quota C is attainable in practice, and in particular
whether the ACP suppliers will be able to compete successfully
under an auction system;
- to indicate also whether, and how, she considers
post-transition arrangements based on a tariff only approach would
provide adequate protection for Caribbean suppliers;
- to indicate in particular how the traditional
UK suppliers in the Windward Islands and Jamaica view these proposals,
both in the transitional period envisaged, and thereafter.
21 (18808) 5357/98; see HC 155-xvi (1997-98), paragraph
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