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December 01, 2004

The Banana War Continues-- Protectionism in the EU

I'm teaching about the Banana War today-- a trade conflict between the EU on the one side and the US and Latin American countries on the other. As this 2001 article says,
On 11 April, the US Government and the European Commission reached an agreement to resolve their long-standing dispute over bananas. Under the accord, the EC will abandon its contentious first come - first served (FCFS) import system of bananas in favour of a new regime that will provide a transition to a tariff-only system by 2006. Washington argued that the FCFS favoured banana growers in former European colonies over Latin American producers and US marketing companies such as Chiquita Brands International. Until 2006, bananas will be imported into the EU market through import licenses distributed on the basis of past trade as pushed for previously by the US (see BRIDGES Weekly, 10 April 2001). In return, the US will suspend sanctions it imposed on US$191 million worth of EU exports following a WTO ruling that declared the EC banana import policy in violation with world trade rules.
The dispute began in 1994 with an obviously illegal quota system introduced by the EU to benefit former colonies and--less noticed-- European banana companies, at the expense of European consumers (especially German ones), American banana companies, and Latin American banana growers. The Latin Americans brought a GATT complaint and won; the US had a Section 301 complaint, then there was a WTO complaint... At every stage, the EU lost, but kept the quotas until 2001. Even now, it has the quotas till 2006, and I've read it has recently proposed new tariffs that would be even more protectionist than the quotas were! As Senator Grassley writes,
... I am extremely troubled by the announcement on October 27, 2004, that as of January 1, 2006, the European Union will impose a tariff of 230 euros per metric ton on banana imports that do not originate in African, Caribbean, and Pacific ("ACP") countries.... Now, you don't have to be a trade lawyer or an economist to see that increasing the MFN duty on bananas by over 200 percent will not serve to maintain total market access for MFN banana suppliers. In fact, it will have exactly the opposite effect. One study estimates that a 230 euro tariff will reduce banana exports from Latin American suppliers by over one-third, resulting in lost income of about $400 million per year and over 75,000 job losses. That is not the outcome envisioned by the United States when we agreed to the Understanding and when we consented to the WTO waiver.
As with the US steel tariffs, the lesson is that even with the WTO, if countries want to break the rules, they'll break the rules. The US broke them for steel for a couple of years; the EU has for bananas for 10 years now.

Posted by erasmuse at December 1, 2004 10:48 AM

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