European Scrutiny Committee Contents

44 The EU and banana producers




+ ADDs 1-2

COM(10) 97




+ ADDs 1-2

COM(10) 98

Draft Council Decision on the signature and provisional application of a Geneva Agreement on Trade in Bananas between the European Union and Brazil, Colombia, Costa Rica, Ecuador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Peru and Venezuela and of an Agreement on Trade in Bananas between the European Union and the United States

Draft Council Decision on the conclusion of a Geneva Agreement on Trade in Bananas between the European Union and Brazil, Colombia, Costa Rica, Ecuador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Peru and Venezuela and of an Agreement on Trade in Bananas between the European Union and the United States

Legal baseArticle 209(1) TFEU; QMV
Document originated17 March 2010
Deposited in Parliament24 March 2010
DepartmentInternational Development
Basis of considerationEM of 31 March 2010
Previous Committee ReportNone
To be discussed in CouncilTo be determined
Committee's assessmentPolitically important
Committee's decisionCleared


44.1 Since 1993, the Common Market Organisation (CMO) for bananas in the European Union (EU) has provided a preferential trade regime in favour of African, Caribbean and Pacific (ACP) banana-exporting countries. For several ACP states, banana production for export to the EU forms an important economic activity.

44.2 Since 1995 the EU's CMO has been challenged at the World Trade Organisation (WTO) by the US and countries from Latin America over the preferential market access given to ACP countries by the EU. The WTO has repeatedly ruled against the EU. As a result the EU has negotiated the "Geneva Agreement on Trade in Bananas" with Latin American countries[175] and the "Agreement on Trade in Bananas" with the US. These agreements settle all disputes with the US and Latin American countries over bananas.

44.3 In his Explanatory Memorandum of 31 March 2010, the then Minister of State at the Department for International Development (Mr Gareth Thomas) explains that this means that tariffs on bananas imported from 11 Latin American countries will be reduced from €176 (£157) per tonne to €114 (£102) per tonne over seven to nine years[176] and there will be no quota restrictions. This, the then Minister says, "solves one of the longest-running trade disputes and is a key blockage removed within the Doha Development Agreement negotiations." He continues as follows:

"ACP banana producers will continue to have duty-free quota-free access to the EU market if they have signed an Economic Partnership Agreement with the EU or are a Least Developed Country and are subsequently eligible for Everything But Arms (EBA) trade preferences.[177] However the reduction in the EU's Most Favoured Nation (MFN) tariff to Latin American producers will decrease the preference margin received by ACP banana producers. ACP producers accounted for 17% of the EU market in 2008.

"This reduction matters for ACP banana suppliers as it is has come sooner than expected and because their production costs are generally higher than Latin America. The EC has analysed the likely impact of the changes in the banana tariff schedules on ACP banana-supplying countries. They assess that it is unlikely the changes will have major macroeconomic impacts, but there could be significant loss of export revenues for some countries. In addition there could be important impacts on local producers with social implications if cost-saving measures are not introduced. Additional assistance will help ACP producers adjust to the increased competition or diversify into other areas where they can be competitive.

"To facilitate this adjustment, the EU has proposed a package of transitional financial assistance — the Banana Accompanying Measures (BAMs) worth €190 million (£170 million) over four years. The Commission will also try and source an additional €10 million (£8.9 million), if there are unused funds available from other budgets. These BAMs are in conformity with the EU's WTO obligations and have a clear restructuring and hence temporary nature, with a maximum duration of four years. (2010-2013).

"The BAMs will be provided to the ten main ACP banana exporters, who have on average exported in excess of 10,000 tonnes to the EU over 1999-2008. The allocations will be based on the level of banana exports, the economic importance of the banana sector and the level of development, as measured by the UN's Human Development Index. The BAMs will seek to build on the restructuring activities already undertaken by ACP banana producers under the Special System of Assistance (SSA, 1994-1999) and the Special Framework of Assistance (SFA, 1999-2008. Total funds granted under the SFA are Euro 376 million and as of end 2008, 73% of allocated funds had been committed to contracts). It will also seek to incorporate lessons learnt from these programmes."

The Government's view

44.4 The then Minister (Mr Gareth Thomas) goes on to describe the banana agreements as "significant", in that they "bring an end to a protracted dispute and the uncertainty and tension which have accompanied it since 1993" which in turn "will unblock one potential barrier to concluding the Doha Development Agreement (DDA) negotiations." Noting that the DDA discussions are "currently stalled", he says that "the UK continues to push globally for action to conclude the deal which we consider as the best way of achieving a fair and comprehensive deal on trade for developing countries."

44.5 He then says that:

  • "it is right to open up the EU market to other developing countries at an appropriate pace; to ensure non-discrimination between other countries of similar levels of development;
  • it is "important to comply with WTO Appellate Body rulings;
  • "the EU commitment to provide the BAMs to the ACP has been essential to the conclusion of the banana dispute by reassuring ACP countries they will have support to adjust or diversify;
  • "the reduced tariff reduction on Latin American banana exporters will require further and more rapid adjustment; and
  • "ACP countries, with appropriate support from the EU, will have to assess long-term competitiveness in a more open market. They will need to increase productivity further, develop further niche markets or diversify as their preferences gradually erode."

44.6 The then Minister outlines UK support to the Caribbean region as follows:

"The UK is providing additional support to the Caribbean region by supporting opportunities for increased trade, improved competitiveness and regional integration. Its flagship programme COMPETE Caribbean — a US $ 42m[178] Challenge Fund Programme — will help tackle the lack of export diversification and innovation, and weak entrepreneurship across the region. The UK has also funded a number of initiatives to help ACP countries adjust to preference erosion and to make best use of the funds available through the EC, for example funding studies, workshops and support for ACP countries to draw up national adaptation plans so they can access EC funds faster. The UK also works with the EC in supporting diversification activities for the private sector."

44.7 Turning to the Financial Implications, the then Minister says that:

"There will be a small revenue loss to the Commission because of reduced tariff levels on banana imports. This cost will be shared according to each member state's GNI-share contribution to the budget.

"The EU also has a small number of EU banana producers that are located in the outer regions of the European community[179] and banana production is a major source of employment, finance and social cohesion. They already receive very generous payments because of their locations. They may well apply to the European Commission for additional compensation if the tariff changes have a negative effect. However they already receive annual support of €279 million (£249 million) which translates to approximately €463 (£413) per tonne of bananas produced and further concessions are unlikely."

44.8 Finally, the then Minister says that these Council Decisions will go to a Council between May and July 2010.


44.9 These Council Decisions are related to three other documents — a Council Regulation amending the relevant financial regulation in order to finance the BAMs and two Commission Communications: one on the BAMs and the other on the previous European Commission assistance to the Caribbean banana producers — which we consider elsewhere in this Report, and which raise questions about the Commission's effectiveness in implementing the BAMs, given its lack of success so far with the previous support scheme.

44.10 Thus, although the Council Decisions raise no questions, we consider that they warranted a substantive Report to the House.

175   The Latin American countries are Colombia, Panama, Ecuador, Costa Rica, Honduras, Guatemala, Peru, Brazil, Mexico, Nicaragua and Venezuela. Back

176   The then Minister adds that "the pace will depend if the Doha Development Agreement is reached at the WTO." Back

177   The least developed countries (LDCs) receive more favourable treatment than other developing countries. In February 2001, the Council adopted Regulation (EC) 416/2001, the so-called "EBA Regulation" ("Everything But Arms"), granting duty-free access to imports of all products from LDCs, except arms and ammunitions, without any quantitative restrictions (with the exception of bananas, sugar and rice for a limited period). EBA was later incorporated into the GSP Council Regulation (EC) No 2501/2001, The Regulation foresees that the special arrangements for LDCs should be maintained for an unlimited period of time and not be subject to the periodic renewal of the Community's scheme of generalised preferences. Beneficiaries of the special arrangements for least developed countries require formal recognition by the United Nations. At present, 49 developing countries belong to the category of LDCs. For further information see Back

178   COMPETE will be implemented in partnership with the Inter-American Development Bank (IDB), and the Canadian International Development Agency (CIDA) DFID will contribute $16m (approx £10m), CIDA $16m (approx. £10m) and the IDB, $9m (£6m). Back

179   EU banana producers are Canary Islands, Martinique, Guadeloupe, Madeira and Azores. Back

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