Memorandum submitted by the Caribbean
Banana Exporters Association (CBEA)
THE CBEA
The CBEA represents the interests of the banana
trade in the Commonwealth Caribbean, namely in Jamaica, Belize,
and the four Windward Islands of St Lucia, Dominica, St Vincent
& the Grenadines, and Grenada. In doing so, it works closely
with the exporting and importing companies.
THE CARIBBEAN
INDUSTRY
Banana production in the Caribbean is very different
in scale and nature from production on the large plantations of
Latin America, which dominates the US and European trade. In the
Windward Islands in particular, production is based on small family
farms, often on difficult terrain. These and other geographical
factors make it impossible for them to compete on price with industrial
scale Latin American production. But the Commonwealth Caribbean
trade was founded on preferential market access provided by the
UK. Indeed, the successful development of a banana export trade
to Europe in the nineteen fifties helped to lift the Windward
Islands out of the dire poverty that had previously prevailed
(and had been deplored by a Royal Commission on the West Indies,
whose Report was presented to Parliament in 1945 (cmd 6607))
Following UK entry into the EU, the trade has
been sustained, in varying degrees, under successive import regimes
adopted by the European Community. Production in Jamaica and the
Windward Islands has declined substantially in recent years as
a result of changes to these regimes necessitated by successive
WTO rulings, but their banana exports remain socially and economically
important, particularly in the Windward Islands.
THE ROLE
OF FAIRTRADE
Virtually all farmers growing bananas for export
in the Windward Islands belong to the Fair-trade scheme and meet
the required Fairtrade production standards. Concentration on
the Fairtrade market has been vital to ensuring growers a viable
return and enabling the Windward Islands' industry to survive
in an increasingly difficult and competitive market. But the Fairtrade
scheme can only continue to meet the needs of growers there so
long as the EU regime provides a viable market for them. Unfortunately,
prospective changes to the current EU import regime threaten to
render this impossible and undermine the Fairtrade programme in
these islands.
THREATS TO
THE VIABILITY
OF FAIR-TRADE
IN THE
CARIBBEAN
The viable return guaranteed to Caribbean producers
under the Fairtrade scheme depends on two key factors: that Caribbean
bananas continue, as in the past, to enter the EU free of duty;
and that the market is able to return a price sufficient to maintain
the Fairtrade guarantee of returning a price that at least meets
the cost of production. However, both of these essential conditions
are at risk.
TARIFF REDUCTION
AND PREFERENCE
EROSION
Until 2006, prices in the EU market had been
maintained at reasonable levels by means of a system of tariff
quotas, which effectively limited the total volume of bananas
on the market. There had been a tariff on MFN (Latin American)
imports of 75 euros per tonne up to a quota of 3.1 million tonnes
and of 680 euros for imports above that volume. For bananas from
ACP countries, there was a duty-free quota of 750,000 tonnes and
a duty of 380 euros above that level. In January 2006, this system
was replaced by unrestricted entry for all at a tariff of 176
euros per tonne, but with a duty-free quota of 775,000 tonnes
for ACP imports. The EU indicated that this was intended to be
broadly equivalent in its effect on the market to the previous
tariff quota regime. However, the removal of effective restrictions
on volume has inevitably resulted in greater import volumes, from
both Latin American and ACP countries, and consequently to lower
prices.
Current initiatives could well result in further
substantial price falls. Firstly, a number of Latin American countries,
led by Ecuador, have initiated proceedings in the WTO challenging
the new tariff level and seeking to secure its reduction. Secondly,
the EU has opened negotiations for Association Agreements with
Central American and Andean pact countries. If these are successfully
concluded they are likely to provide preferential terms of entry
for Latin American bananas. Each of these factors would lead to
still larger import volumes and lower prices; and would also erode
the vital tariff preference on which the small Caribbean growers
depend.
DUTY-FREE
ACCESS
Prior to the changes introduced in January 2006,
Caribbean bananas had been assured entry under the ACP duty-free
quota by allocations to operators based on past performance. The
duty-free quota for ACP countries was then switched largely on
to a first come, first served (FCFS) system. This is a free-for-all
under which shipments that arrive after the quota for the relevant
period has been exhausted have to pay the full MFN duty. Since
total ACP export production substantially exceeds the quota, exports
to the EU also far exceed the available quota. Consequently, some
ACP imports inevitably incur duty. This is a cost that the largest
and most competitive ACP producers, notably in West Africa, may
be able to afford but which is completely beyond the means of
the Caribbean growers. It means that the larger more competitive
ACP suppliers could take a greater share of the quota at the expense
of their smaller less competitive ACP counterparts in the Caribbean.
These problems should, in principle, be resolved
by the conclusion of the Economic Partnership Agreements (EPAs)
that are currently being negotiated between the EU and the different
ACP regions during for application in 2008. The EPAs are intended
to be free trade agreements that would ensure duty-free entry
for all ACP imports, eventually on a reciprocal basis. But these
agreements may not be concluded on schedule; and if the EU move
in 2008, as they have intimated, to administering the ACP import
quota on the basis of 100% FCFS, this will exacerbate the difficulties
for the banana industries of the CBEA countries and put at risk
their very survival. Fairtrade has helped and will continue to
help but it is not a panacea and by itself could not save the
Caribbean banana trade. Indeed, the rapid expansion of Fairtrade
and the adoption of the scheme by the large producing entities
is increasing competition within the Fairtrade segment of the
market, commoditising the Fairtrade product and putting increasing
pressure on prices.
CONCLUSION
These threatened developments could well render
it impossible for the Fairtrade prices currently guaranteed to
growers to be sustained in the future. There is a grave danger
that the resolute march to free trade will have as a by-product
the destruction of a trade that has hitherto played a crucial
role in the economic and social structure of the Windward Islands
and of parts of Jamaica.
Each of these countries has done what it can
in recent years to adapt to changing circumstances and to this
end has deployed funds granted by the EU under its programme of
Special Financial Assistance (SFA). But neither the topography
nor the sizes of the islands make it possible for them to compete
in the race to the bottom that will be initiated in a free market
for a commodity in structural surplus. Fairtrade bananas will
continue to be imported from the more competitive countries, which
already provide most of the Fair-trade imports into the EU. But
without adequate market safeguards, the Fair-trade scheme will
be of little or no value to the Windward Islands. Some transitional
arrangement is needed to mitigate the consequences of this policy
for the smallest and most vulnerable countries.
This would be fully consistent with the policy
adopted by the EU towards its own banana growers, The EU has recently
reformed the system of support for these producers, replacing
the previous deficiency payments system by aid unrelated to production
volumes. But in introducing these reforms the EU has recognised
the need to take account of the special circumstances of these
outlying regions, where "Production of bananas is disadvantaged
in particular by the remoteness, insularity, small size and difficult
topography of these regions. Local banana production is an essential
element of the environmental, social and economic balance of the
rural areas in those regions" (Council Regulation (EC) 2013/2006).
These arguments apply word for word to the Windward Islands, which
are the immediate neighbours of the French islands of Martinique
and Guadeloupe to which the EU domestic aid system applies. It
would surely be unreasonable and grossly inequitable for the EU
nevertheless to press ahead with further measures of liberalisation,
without taking steps to prevent the otherwise inevitable social
and economic damage these would cause in the Eastern Caribbean.
It cannot be right for the EU to abandon its
obligations to the Caribbean countries concerned on the grounds
that Fair Trade will take care of them. It would be cynical indeed
to do so while creating market conditions that render this impossible.
February 2007
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