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World banana problem gets straightened out

No, this has nothing to do with the EU passing new legislation requiring all bananas to be straight rather than curved. Although you probably wouldn’t be that surprised if it were true. But, the EU has been at the heart of what has been called the “banana wars”.


This is a world trade dispute which has dragged on for the past 18 years and started before the World Trade Organisation was set up in 1995. Basically, the EU is the world’s largest market for bananas, accounting for 49% of total world demand in 2008. What happened initially is that the EU wanted to give preference to former colonies of France and the UK, as far as EU imports were concerned. The EU set up a tariff quota allocation to the ACP (African, Caribbean, Pacific) countries which was favourable to them.


This was eventually found to be against the WTO rules as long ago as 1997 on the basis that it was discriminatory and contrary to the Most Favoured Nation (MFN) rule. This latter rule basically says that any favour given to one country within the WTO must be applied to other countries as well, except in special circumstances. It was a group of Latin American countries, plus the US, which complained to the WTO.


Basically, the EU kept ‘ducking and diving’ to make various changes, which in turn were found to be against WTO rules, and the WTO eventually allowed complainant countries to impose sanctions on the EU.


However, just before Christmas an historic agreement was achieved. According to Pascal Lamy, Director General of WTO: “This has been one of the most technically complex, politically sensitive and commercially meaningful legal disputes ever brought to the WTO.” He went on to say: “This proves there is no trade issue which lies beyond the reach of WTO members when they exhibit good will and a spirit of compromise.”


In fact, the EU agreed to drop tariffs on imported bananas from 176 euros a tonne to 114 euros over a seven year period. As a result of this, the Latin American countries and the US agreed to drop all litigation against the EU. One study estimated that this would give rise to additional banana sales of 17% to those countries which had previously been discriminated against.


Perhaps this augurs well for the stalled Doha Round of tariff reduction talks to be reinstated.

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Posted in Quotas, Tariffs, World Trade Organisation

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