The Week in Europe 
By David Jessop

Slowly, inexorably and painfully the banana war between the EU and the US is
drawing to a close. Whether it will be over this year or sometime in 2001,
the probability is that the end is in sight. All sides are again taking
better defined positions and it seems probable that the matter will be
resolved sometime after the new US President takes office and in the context
of a number pressing transatlantic trade disputes that hinder EU/US
relations.
For the Caribbean recent developments give little cause for optimism.
In early July, the European Commission (EC) came forward with new
recommendations aimed at bringing an end to the long running dispute. It
proposed to Europe's Member States a different basis for administering a new
regime it proposed earlier this year. Instead of the complex licensing
system recommended then to manage a transitional tariff quota system, it is
now seeking to have adopted a 'first come first served' system. Under this,
existing licence holders who import bananas into the EU would loose their
right to trade fixed quantities of fruit under an EC controlled licensing
system. Instead importers would have to compete for licences on a
non-exclusive basis within a three-tier system of tariffs and quotas. The
effect of this would be to provide no guarantees to producers of ACP fruit
of a market in Europe. For small farmers in the Caribbean this uncertainty
would be disastrous.
For the region, more seriously still, the new EC proposals recommend that
from January 1, 2006 a tariff only solution be adopted. This would do away
with all quotas and licences after that date making it impossible to
discriminate in any way in favour of ACP fruit. Moreover it would almost
certainly ensure that high cost ACP producers, such as those in much of the
Caribbean would cease to be suppliers to the EU market and thus go out of
business.
The new proposals which have been brokered by the EC's Agriculture
Commissioner, Franz Fischler and Trade Commissioner, Pascal Lamy in
extensive meetings with European leaders and ministers and well as with the
US, continue to divide Europe and do not yet find resonance in Washington. 
At EU Council of Ministers meeting to consider the EC's latest proposals,
reservations were expressed about aspects of the new scheme. Prior to the
meeting, Commissioner Fischler had warned that if agreement was not reached
by October then the European Commission would have to recommend abolishing
EU quotas for banana imports and impose a World Trade Organisation (WTO)
compatible tariff-only system with immediate effect.  
This threat is indicative of the growing exasperation within the EC College
of Commissioners about the disruptive and ever-widening effects of the
banana dispute and inside the Trade and Agriculture Directorate's in
particular. But despite this, many EU member states and Washington see the
dispute as involving too many important matters of principle relating to the
future governance of world trade to give up principles or national interest
without either a fight or major trade or political concessions in return.
For these reasons, the EU and US together with Ecuador and Central American
banana producers have been locked in combat over the banana issue ever since
Europe introduced a new banana regime in 1993. At that time the EU sought to
maintain a system of preference for the seven per cent of the EU market held
by ACP banana producers in the light of its treaty commitments to the ACP.
However, this first new regime was challenged successfully at the WTO as
being discriminatory under world trade rules, as was a subsequent revised
regime that was also considered by a dispute panel as contravening WTO
rules.

Despite this the EU did not amend its regime and the US Congress then
introduced sanctions aimed at trying to coerce the EU into rapid agreement.
These, sought to impose punitive tariffs on a range of non-banana related EU
products to the value of US$190m per annum. Earlier this year these were
further toughened by Congress. They introduced what is described as a
carrousel system that changes regularly the European industries that are to
be targeted thereby increasing the pressure from those industry lobbies
within each EU state. 
The next steps remain unclear. 

Washington for its part seems uncertain, most probably in the light of
forthcoming presidential elections. But judging from its position in Geneva
on a waiver for the trade aspects of a successor to the Lomé Convention, it
still supports what is referred to as the Caribbean solution. This is a
scheme that seeks a tariff quota regime in Europe that would grant licences
for a limited period on an historic basis thereby effectively offering some
preference in all but name for the region. 

Within Europe, it appears that there is support for a tariff only option but
uncertainty about how to get there, when and the nature of the transition
involved. Previously the EC had hoped to achieve any transition to a
transparent WTO compatible regime by way of quotas, based on an historic
reference period for licensing. However, this idea seems so far to have
foundered on Washington's insistence that these date from before 1993 and
the EU's that this was impossible as no single banana regime existed at that
time.

The stakes remain high in the EU, the US and the ACP. As a result of the
banana dispute the all-important waiver for the trade aspects of the
transitional arrangements contained in the new Cotonou partnership agreement
are now stalled. In early July WTO members agreed to postpone any further
discussion on exempting the market access arrangements up to 2008. Costa
Rica, Guatemala, Panama, Honduras and Ecuador all insisted that the new
agreement must include details of the new banana regime, something the EU is
disinclined to do. As a result, the ACP's preferential arrangements for
sugar and other commodities are now in theory capable of challenge in the
absence of WTO protection.

When this will all end is unclear. However, the likelihood is that it will
require soon a politically brokered settlement between the EU and the US
involving the US President and most probably touching on the growing number
of other non-banana transatlantic trade disputes. Despite this the eventual
outcome for the region is already apparent. If the industry is not globally
competitive or engaged in niche markets such as organic production by 2006,
or after negotiation, 2008, when an agreed tariff-only solution comes into
being, the industry will have little future.

David Jessop is the Executive Director of the Caribbean Council for Europe
and can be contacted at [log in to unmask] 
July 21st, 2000 


NOTE TO EDITORS: David Jessop will be on vacation. The next Week in Europe
will be sent on August 24th, 2000.



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