22. Memorandum submitted by the Caribbean
Banana Exporters Association (CBEA)
THE WTO DISPUTE
ON BANANAS
1. The CBEA has, since 1993, been involved
in the dispute in the WTO over the EU's banana import regime and
Caribbean banana growers, whose interests the CBEA represents,
have been seriously affected by the successive changes to that
regime which the dispute entailed. The WTO rulings have significant
implications for developing countries and particularly for those
which are small states with vulnerable economies.
2. The historical background to this dispute
is set out in an Annex to this Memorandum. The central issue was
the preferential terms of access granted to the ACP states. These
fulfilled the Community's Treaty commitment under Lome and were
essential to the survival of the ACP banana industries.
3. The new banana regime introduced in 1993
was challenged first in the GATT and then in the WTO, which succeeded
it. In a series of cases the WTO ruled that all provisions entailing
any degree of discrimination between contracting parties, whether
by way of tariff preference or any other condition of access,
infringed WTO rules. Any form of preference was therefore possible
only if the WTO members grant a specific waiver, which is rare
and difficult to obtain, requiring a two-thirds majority.
4. Following the WTO rulings, a settlement
was finally agreed between the EU and the USA in 2001 after two
more years of negotiations. This laid down terms for retaining
a regulated market until the end of 2005, together with the existing
preferential tariff for the ACP (subject to securing the necessary
waivers). The terms included a larger market share for US companies
and greater imports of dollar bananas. Above all, it required
the removal of all protection for the ACP after 2005, except for
a tariff preference yet to be negotiated.
EFFECT OF
BANANA RULING
5. The WTO ruling adversely affected all
ACP countries benefiting from the banana regime, because it brought
a significant increase in the supply of dollar bananas, which
has inevitably led to lower prices. More threatening was the commitment
to remove all restraints on the volume of imports after 2005 (apart
from the tariff still to be negotiated). This will inevitably
lead to even higher volumes and still lower prices and threaten
the survival of the ACP industries and particularly the Caribbean
trade, which (for reasons explained later) is the least competitive.
PROBLEMS RAISED
BY THE
BANANA CASE
(i) Increasing Poverty
6. The banana case upheld and reinforced
two key principles that drive the WTO. One is to promote liberalisation
of trade; the other, of over-riding priority, is absolute equality
of terms of access for all members to all markets and within those
markets. Discrimination between members is the one cardinal sin.
7. The problem is that the playing field
is far from level at the other end of the pitch: the circumstances
in which production takes place, including the remuneration and
treatment of workers and respect for the environment. The conditions
of competition differ greatly depending on what rules govern these
and other factors in producing countries. That is why some argue
that the WTO should lay down common rules to ensure both fair
competition and proper treatment of workers and environment. However,
there are clearly major political and practical obstacles to such
a course.
8. The consequence of untrammelled free
trade in a commodity like bananas, which is in permanent surplus,
is that the lowest cost supplier will ultimately drive out others
that are less competitive. There is thus risk of a double down-side
from the WTO rulings on bananas. All but the most competitive
producing countries risk being driven out of the market, including
those like the Windward Islands that are heavily dependent on
banana exports; while banana workers in other supplying countries,
who are already poorly paid, risk receiving still lower wages
as banana companies compete to increase market share. Consumers
may gain in the form of lower prices—at least in the short
term. But they will have less choice—Caribbean bananas,
for example differ from Latin American, in size and taste—and
even the low price advantage may diminish once trading competitors
have been driven from the market.
9. The pressure for lower prices is driven
by supermarkets, which in the UK account for over 80% of the fruit
and vegetable market, and the intense competition between them
for market share. The fact that there are always surplus bananas
available increases the pressure on suppliers to lower prices.
This threat was increased by the decision of ASDA, now owned by
the US Company Walmart, to switch to a single supplier for bananas.
This fiercely contested prize went to a US Company, Del Monte,
at a heavily discounted price. It set an ominous precedent which
others may feel tempted or obliged to follow.
10. The EU regime had provided a relatively
remunerative return for exporters from all origins, by limiting
volumes on the market. Since the 2001 settlement, with increased
imports, and the fiercer supermarket pricing that this facilitated,
the situation has deteriorated. Prices are no longer remunerative
even for many Latin American suppliers, let alone the ACP. The
unit value of banana exports from the Windward Islands in terms
of local currency is now nearly 40% lower than in 1991. For Jamaica
the comparable figure is over 50%[31]
The outlook is inevitably much worse for 2006 if the tariff quota
is ended then, as currently proposed.
11. But even before then the problem could
get worse. Next year, in 2004, the EU is enlarged by the addition
of 10 states from Eastern Europe and the Mediterranean. Additional
quota provision will need to be made to cater for these new member
states. But Eastern Europe has traditionally been the market of
last resort, offering the lowest prices of all. Adoption of the
common external tariff and the quota regime will inevitably raise
prices to consumers there and consequently reduce consumption.
A quota increase based purely on past patterns of consumption
would, therefore, result in increasing the oversupply in the Community
as a whole and finally push prices below the level at which traditional
suppliers can have any chance of surviving.
12. These are not problems that can be resolved
in the Doha Round negotiations, but it is important to recognise
that a problem does exist. Removal of barriers to trade should
go hand in hand with consideration of the impact on producers
in developing countries; and in particular the implications for
the smallest and most vulnerable states.
(ii) Special & Differential Treatment
13. The Windward Island banana exporting
states, Dominica, St Lucia and St Vincent and Grenada, are undeniably
small, with populations averaging only around 100,000 people on
each island. They manifestly have vulnerable economies because
of their heavy dependence on that one threatened product and their
lack of natural resources and limited scope for diversification.
14. Banana production on these islands is
totally different to that in the more competitive Latin American
states. In the Windward Islands in particular it is based on very
small family farms, averaging just a few acres, often on difficult
terrain. Largely for this reason production is ecologically friendly
because it is more labour intensive and relies less on chemical
inputs than more industrialised systems. It is also socially just
because much of the labour is self-employed and labour laws ensure
fair wages for workers that are hired. But Caribbean producers
cannot begin to compete on price with Latin American production,
based on vast plantations of thousands of hectares of flat land
near to ports. Much of that production is controlled by the large
multinational trading companies, which benefit from a highly integrated
operation and major economies of scale.
15. Much has been done in the Caribbean,
with help from the EU, to improve their position. Efficiency of
production has been improved, and quality and consistency raised.
The Windward Islands are also developing niche markets in Fair
Trade and Organic bananas. But under the 2001 settlement, with
even the current diluted regime due to end by 2006, the Windward
Island industry is unlikely to survive, except to the very limited
extent that these small niche markets may be preserved.
16. The free market philosophy that drives
the WTO maintains that these islands would in any event be better
off concentrating on other economic activities in which they have
a comparative advantage. But there are no other areas of comparative
advantage, existing or potential, except for tourism, which
is already well developed—and which cannot be increased
beyond a certain point without destroying the very features that
make this destination so attractive. Tourism is, however, suffering
in the Caribbean, as elsewhere, from the consequences of the terrorist
threat after 9/11.
17. There are no other agricultural products
that would not be subject to the same handicaps that affect the
competitiveness of bananas. There is no other agricultural product
that provides a year round crops like bananas. Nor could any alternative
yield the same revenues as bananas have done in the past or maintain
the same level of employment. Moreover, the tiny population of
each island state (or even all collectively) means that there
is no effective domestic market to back up any new industrial
or commercial enterprise.
18. This trade, which brought such substantial
economic benefits to these islands, represents only a very small
proportion of the global market. In 2000, the last year of the
previous regime, the Windward Islands accounted for 3.5% of the
EU market and only 1% of global banana exports. It would seem
reasonable to find some way to exempt such small amounts from
WTO rules, when it would make such a huge difference to the economy
of these small countries—the difference between well-being
on the one hand or economic distress, unemployment, emigration
and possibly drug trafficking on the other.
19. In such cases, where a small state is
highly dependent on a single product in which it is nevertheless
not competitive, importing countries might be permitted to discriminate
in its favour, within prescribed de minimis limits. This
discrimination might take the form of a special tariff preference,
including possibly a negative tariff—a concept once mooted
for bananas by the USA but rejected by the EU—or other preferential
conditions of access. Similarly, where such small states are forced
to diversify out of their primary export product, they should
be permitted tariff and non-tariff barriers to enable new enterprises
to get off the ground, just as many developed countries protected
their own nascent industries before embracing the doctrine of
free trade.
20. Unfortunately special and differential
treatment has proved a difficult and contentious area in the WTO,
with countries excluded by any formula fearing that their interests
would be undermined[32]
It should nevertheless continue to be pursued, perhaps concentrating
initially on the most evident and extreme cases in terms of size
of GDP and of population, remoteness from markets and degree of
dependence on a particular product.
CBEA
May 2003
Annex
BACKGROUND NOTE
1. The EU regime which was challenged in
the WTO provided preferential terms of access for African and
Caribbean countries. These arose from traditional links between
individual EU and ACP states; in the case of the UK, the links
were with Jamaica, Belize and the four Windward Island states
of Dominica, St Lucia, St Vincent and the Grenadines and Grenada.
2. After the Second World War, the banana
export trade in these Commonwealth Caribbean states flourished
only because the UK operated a restrictive import regime designed
to ensure them a remunerative return. Competing imports from the
dollar suppliers were limited by quota. Initially, this was necessary
for currency reasons, but the restrictions were maintained after
that need had gone, in order to safeguard the trade from Jamaica
and the Windward Islands and subsequently Belize and Surinam.
3. Without this protection this trade could
not have survived, because the Caribbean industry could not compete
on price with production from the industrial scale operations
on the vast plantations of Latin America. But the trade had become
crucial to the economies of specific regions in Jamaica and Belize
and, above all, to the entire economies of the Windward Islands.
It accounted on average for over half all export income and over
a third of employment in the three main exporting states, Dominica,
St Lucia and St Vincent. There was hardly a family on these islands
that did not depend to some extent, directly or indirectly, on
the banana trade. That trade had been developed after the War
to replace the depressed sugar industry. It transformed the economies
of these formerly impoverished islands[33]but
it depended entirely on a protected market in the UK.
4. Following UK accession to the EEC, the
continuation of this degree of protection was guaranteed to these
countries by the Lome Convention between the EU and a number of
African, Caribbean and Pacific (ACP) states. This Convention covered
a wide range of trade and aid issues, but on bananas the EU guaranteed
to preserve both the market access and existing benefits of traditional
ACP suppliers. In 1993, the individual national market regimes
that ensured this had to be replaced by a single market regime
applying to imports into all member states. It was this regime
that was the subject of continuing disputes in the GATT and its
successor the WTO.
31 Banana Imports from the Caribbean, a study by National
Economic Research Associates, April 2003. Back
32
To by-pass the "conceptually difficult and politically fraught"
task of defining small vulnerable states, a study for the Commonwealth
Secretariat suggested a more generalised approach based on minimal
shares of global trade: "A Study of Alternative Special and
Differential Arrangements for Small Economies" by Michael
Davenport. Back
33
See, for example, the description of the state of the islands
in the Report of the War India Royal Commission 1938-39, which
was laid before Parliament in June 1945 (Cmnd 6607). Back
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