the banana regime of the european union, the caribbean, and latin america

The Banana Regime of the European Union, the Caribbean, and Latin AmericaAuthor(s): Paul SuttonSource: Journal of Interamerican Studies and World Affairs, Vol. 39, No. 2 (Summer, 1997),pp. 5-36Published by: Center for Latin American Studies at the University of MiamiStable URL: http://www.jstor.org/stable/166510 .

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The Banana Regime of the European Union, the Caribbean, and Latin America

Paul Sutton

The tone of European-Latin American relations in recent years has been strongly influenced by the issue of bananas. At stake has been

the future of the banana trade between the European Union (EU)1 and Latin America, which, even if small in relative size (constituting less than 5% of Latin America's exports to the EU), has loomed large in international

political calculations. This article seeks to make sense of avery complex, and still developing, situation by identifying the interests of the various

parties directly concerned. The first part examines the background, the

problem, and the solution to this issue as set out in the adoption of a new banana regime (NBR) in the EU. The second part then looks at the different reactions to this new regime in the Caribbean, Latin America, Europe, and the United States as well as at the eventual adoption of a

"FrameworkAgreement," through which the regime secured aworkable basis in the US and Latin America. The final part discusses the operation of the regime and the many challenges to it which still persist, not only in Latin America and the United States, but in the European Union as well. The main conclusion is that, although the new regime offers a solution that is far from perfect, it still is worthy of support as serving the long-run interests of the producer countries in both Latin America and the Caribbean.

BACKGROUND

irst, it is important to identify the many competing interests and actors that are involved in this issue in Europe, the Caribbean, and

in Latin America.

Paul Sutton is Senior Lecturer in Politics and Director of the Centre of Developing Area Studies at the University of Hull in England. He is the author of a number of books and articles on Caribbean international relations, including EUROPE AND THE CARIBBEAN (Macmillan, 1991) and, with Anthony Payne, MODERN CARIBBEAN POLITICS (Johns Hopkins University Press, 1993).


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BACKGROUND


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Background: Europe

The European banana market grew out of a series of national measures that sought to protect favoured companies and sources of

supply. As a result, it was immensely complex.

There were three main sources of supply: (1) EU bananas, grown and marketed within the EU itself, for whom the major producers were the Canary Islands and the islands of Martinique and Guadeloupe (the French D6partements d'Outre-Mer or DOM), with the DOM responsible for 10% of market share in 1990; (2) growers in Africa and the Caribbean (part of the Africa-Caribbean-Pacific group of countries, or

ACP), ofwhich the Caribbean accounts for 11.2%; while Africa accounts for 6.7% of the market; and (3) Latin America, with 57.9% of the market. It is important to note that the European Union market increased rapidly during the latter part of the 1980s. From 2.99 million tons in 1988, the EU market rose to 3.47 million in 1990, and then to 3.89 million tons in 1992. The main beneficiaries of growth have been the Latin American

producers, whose share of the market went from just 53.6% of the total in 1988 up to 61.8% in 1992. In 1988, the DOM supplied 12.3%, and the ACP 17.2%, of the European market, two-thirds of which came from the

producers in the Caribbean region. By 1992, the figures were 9.6% and 17.7% respectively, with the ACP Caribbean producers still furnishing around two-thirds of that amount (CEC, 1995: Annex 1).

At the same time, there were three distinct banana regimes: (1) a preferential market in France, Britain, Spain, Italy, Portugal, and Greece for producers from either the EU and/or ACP countries; (2) a duty-free market in Germany; and (3) a market that was subject to a 20% tariff: in Denmark, Ireland, Belgium, the Netherlands and Luxem-

bourg. The regimes were maintained by a complex system of licenses, which ensured that some suppliers were favored over others. In 1990, Spain imported all of its bananas from the Canary Islands; while France received 59% of its bananas from the DOM/TOM; and some 35% of the bananas entering Portugal came from Madeira. The ACP producers (overwhelmingly from the Caribbean) supplied 88% of the market in the United Kingdom, 35% of the French market (mainly from Africa), and 14% of the Italian market. Latin American producers provided virtually 100% of the bananas to the Belgian, Danish, and German markets (the latter, at 1.16 million tons, being one-third of the total for the whole

European Union), over 90% of bananas in the Irish and Dutch markets, 85% of the Italian market, and 12% of the UK market (Nurse and

Sandiford, 1995: Table 5.3).

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The above situation gave rise to distinctive groups of differential interests in each country, which were concentrated in different corpo- rate/state alliances. In the case of France, Spain, and the UK, the

companies thrived on the system of preference and sought, as much as

possible, to preserve their privileged position in the market. The United

Kingdom market offers a good example. This market was dominated by two companies, Geest and Fyffes, which had 60% and 25%, respectively, of market share in 1991. The companies had close relationships with the UK government and were active in shipping, ripening, and wholesale distribution. By way of contrast, the companies that were engaged in

selling Latin American bananas to the European market favored an open market system since this would provide them with a price advantage. Once again, the transnational corporations (TNCs) were dominant: in this case, Standard Fruit (Chiquita) and United Fruit (Dole), with 43% and 13% of the EU market, respectively (Pedler, 1995). However, given that these were US transnationals, they did not enjoy the same access to

government as did the European companies. Thus, their interests were

represented by their "clients" in the importing, ripening, wholesale, and retail trades in Europe, particularly in Belgium, Germany, and the Netherlands.

To sum up the above: the pattern of banana supply in Europe was

fragmented and owed little to economic rationality, as propounded by the new neoliberal economics. It did, however, owe a great deal to

preferences that were based on past imperial relationships and on

present vested interests. Accordingly, there was no single European interest but, rather, a number of contradictory ones, as evidenced by the fact that consumers paid more for their bananas and ate fewerper capita in some countries (Britain and France) than in others (Germany).

Background: the Caribbean

In the case of the DOM, the banana trade from the Caribbean has been governed by various national regulations in force in France; in the case of the Windward Islands (Dominica, Grenada, St. Lucia, and St. Vincent), as well as in Belize, Jamaica, and Suriname, it has been

governed largely by those in force in the UK.

Bananas are one of the principal agricultural exports from the DOM, accounting for 60% of the export revenue of Guadeloupe and 49% of that of Martinique (Nurse and Sandiford, 1995: Table 1.3). Costs of

production are high, at some 0.555 ECU/kg,2 and export sales are

















































































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sustained only because France has had a policy of reserving up to two- thirds of its market for DOM bananas and one-third for bananas from the African ACP (Pedler, 1995: Figure 8). In 1992, France obtained 37% of its bananas from Martinique and 22% from Guadeloupe. Any shortfall in

supply from preferential markets was filled through the purchase of Latin American bananas, which were subject to the 20% common external tariff (CET) introduced in 1963.

In 1992, the principal banana exporters from the ACP Caribbean to the European Union were, in descending order: St. Lucia [29% of the ACP Caribbean total], Jamaica [17%], St. Vincent [17%], Dominica

[13%], the Dominican Republic [9%], Suriname [7%], Belize [7%], and Grenada [1%] (ECommission, 1995: Annex 1). The dependence on banana exports is most acute in the Windward Islands where, in the late

1980s, bananas accounted for: 69% of the export revenue in Dominica, 32% of its gross domestic product (GDP), and 50% of employment; 59% of export revenue in St. Lucia, 37% of its GDP and 46% of employment; and 42% of export revenue in St. Vincent, 25% of the GDP and 54% of

employment (Nurse and Sandiford, 1995: Table 1.3). At the same time, the costs of production were relatively high, estimated at 0.460 ECU/kg for bananas from the Windward Islands and Jamaica (Pedler, 1995:

Figure 8). Most bananas produced in the ACP Caribbean are marketed in the UK. In 1992, the UK obtained 20% of its bananas from St. Lucia, 14% from Jamaica, 10% from St. Vincent, and 8% from Dominica

(Stevens, 1996). The UK market was controlled by a licensing system which granted duty-free entry for unrestricted quantities of ACP bananas but imposed a quota and a 20% CET on bananas from Latin America.

In sum, bananas are an important export from the Caribbean to the EU. However, the relative importance varies from country to country, with the most extreme dependence manifest in the case of the Wind- ward Islands. The collapse of banana prices and, hence, exports from these islands would, in the words of a recent report, be "disastrous," with "severe economic consequences" contributing to a "socially unmanageable fallout" and "an explosive political situation," particularly since there is no real alternative to banana production in those islands (Gill and Gonzales, 1995).
















































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Background: Latin America

Latin America dominates the world trade in bananas; in 1990, it accounted for 75% of the world's exports. The major market for bananas was the United States, followed by the European Union. The major players in the banana trade are United Brands (Chiquita), with 35% of the world market, Standard Fruit (Dole), with 20%, and Del Monte with 15% (Nurse and Sandiford, 1995: 85).

The "big 5" exporters to the EU were (1) Ecuador, responsible for 28% of the bananas imported by the EU in 1992, followed by (2) Colombia with 22%, (3) Panama with 20%, (4) Costa Rica with 19%, and (5) Honduras with 8% (ECommission, 1995: Annex 1). Bananas account for 36% of all export revenue in Honduras, 29% in Panama, 20% in Costa Rica, 14% in Ecuador, and 5% in Colombia (Nurse and Sandiford, 1995: Table 1.3). Because the costs of production are relatively low (at 0.200 ECU/kg) in Latin America, the bananas produced there are the most competitive in world trade (Pedler, 1995: Figure 8). This has worked to the benefit of Germany, which, under the Treaty of Rome that established the European Economic Community (EEC), enjoyed a

special right to import bananas, duty-free, from any source. In 1992, Germany imported 27% of its bananas from Ecuador, 17% from Panama, 17% from Colombia, 16% from Costa Rica, and 6% from Honduras

(Stevens, 1996). Italy and the BENELUX countries (Belgium, the Neth- erlands and Luxembourg) are Europe's other major importers of Latin American bananas. The BENELUX countries are particularly important because they are major importers that carry on an onward trade within the EU. In 1992, 28% of their bananas came from Panama, 25% from

Colombia, 15% from Costa Rica, 11% from Ecuador, and 7% from Honduras (Stevens, 1996). All of these imports were subject to the 20% common external tariff (CET).

The three US transnational corporations (TNCs) engaged in the banana business were active in the EU market. Holding 66% of the EU

market, they divided it among themselves with 43% going to Chiquita, 13% to Dole, and 10% to Del Monte (Nurse and Sandiford, 1995:85). The

exploitative practices of the TNCs have drawn criticism in both Latin America and the USA. Within the EU itself, non-governmental organiza- tions (NGOs) concerned with development have highlighted the poor working conditions on banana plantations in Latin America, and the

European Commission has taken action against United Brands for

manipulating the market. Following a complaint that was filed under
























































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Article 86 of the Treaty of Rome, the European Commission found that United Brands had abused its dominant position (at that time 40% of the market) in a number of ways, such as (a) forbidding customers to resell

green bananas; (b) charging different prices to customers for Chiquita bananas; (c) charging unfair prices to customers; and (d) refusing supplies to an important customer. United Brands was fined one million

European currency units (ECUs) and required to end its abuses (Nurse and Sandiford, 1995: 88).

That banana exports are important to some Latin American countries is not in doubt. The dominance they enjoy in world trade and in

competitive production finds its echo in the EU market. Much of this can be attributed, in turn, to the dominance in the trade of the US transnationals. The EU market is an important market for them, not least because it has been an expanding market in recent years.

THE PROBLEM

his situation, as outlined, was probably sufficiently acceptable to most of the parties concerned to have continued on into the future

without major revision. The problem arose because it was not compatible with the aims of the Single European Market (SEM), which sought to establish a European Community "without internal frontiers" by the end of December 1992, by which time there was to be free movement of

goods, persons, services, and capital within the EC. The various banana

regimes adhered to by the different EC members or groups of members would have to be replaced by a single regime that would be applicable to all. This, in turn, would have major external effects on the banana

producers, the various banana interests (both inside and outside the

EU), as well as on the broader international trading obligations to which all were a party, particularly those within the General Agreement on Tariffs and Trade (GATT), where the EU had committed itself to a policy of trade liberalization. The difficulty the European Commission faced, as the organization charged with implementing the Single European Market (SEM), was how to reconcile five competing sets of interests.

Problem: Article 115 and the German Protocol

Under Article 115, the Treaty of Rome allowed member states to maintain national barriers to the free circulation of goods, providing the main legal base for the preferential regimes maintained by the UK,






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France, Italy, and Greece (Portugal and Spain were permitted to retain their regimes until the end of 1995 under the treaties of accession). Article 115 was recognized as incompatible with the Single European Market (SEM). Equally incompatible with the SEM was the Treaty of Rome Protocol which allowed Germany its tariff-free quota, unless this was to be the new basis of the common trade regime. A "common"

regime was in operation only in Ireland, Denmark, and the BENELUX countries, where a 20% external tariff was levied on all banana imports. In short, the SEM required that a new regime for bananas be established that would be common to all, one in which the free circulation of bananas throughout the EU could take place.

Problem: The Banana Protocol

Article 1 of the Banana Protocol attached to the Fourth Lome Convention states

In respect of its banana exports to the Community markets, no ACP state shall be placed, as regards access to its traditional markets and its advantages on those markets, in a less favourable situation than in the past or present. Since the Lome Convention is legally binding up to the year 2000,

the EU members were under an obligation to maintain access for ACP bananas at current levels. The problem was that ACP bananas were not

competitive with "dollar" bananas and were only found in the European markets by virtue of the various schemes of preferential licensing. The same was even more true for the EU-produced bananas, which were even more uncompetitive and did not benefit from inclusion in the Common Agricultural Policy (CAP). A common market for bananas (which is not the same as a free market for bananas) would, therefore, clearly have to maintain differential treatment of some sort for ACP-

produced and EU-produced bananas as against those from Latin America.

Problem: the GATT

At the beginning of the Uruguay Round of the General Agreement for Tariffs and Trade (GATT), the EU committed itself to "the fullest

possible liberalization of trade in tropical products." Although bananas were not included on the agenda of the Tropical Products Negotiating Group, the European Union members were well aware of the interests of the United States on this issue. The EU was also acutely aware that, since the partial common market for bananas which existed in the EU









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was based on the GATT's most-favored-nation principle, any attempt to increase the tariff, or impose quotas, would be resisted both within and outside of the EU, as well as in the GATT. This situation was further

heightened by the controversy with the US during the Uruguay Round, over agricultural protection within the EU as a whole, which led to an

impasse at the end of 1990. At the end of 1991, the Gatt's Secretary- General Dunkel suggested, as a "solution," that all existing border restrictions on agricultural imports (quotas) be converted into tariff

equivalents (tariffication). Although this "solution" was not upheld by the EU, it did influence the thinking within the European Commission on how to best to maintain its commitments to the ACP, eventually resulting in the acceptance of a partial tariffication.

Problem: the Consumer

The differential regimes within the EU gave rise to differing prices and levels of consumption. In 1992, the highest consumption was in

Germany, at 14.9 kgper capita, as against 8.2 kg in the UK and 8.5 kg in France; the overall average for the EU was 9.3 kg (Nurse and

Sandiford, 1995: 84). At the same time, Germany also had the lowest

prices: in August 1991 bananas cost US$ 1.3 a kilo in Germany compared to US$ 2.07 in the UK. The free market clearly benefited the consumer. The problem was that, if a free market was introduced, then the prices would be too low for the EU and ACP producers. Consequently, the market would have to be "managed," given the existing international

obligations as well as consumer interests.

Problem: the Transnationals

The dominant position of the US transnationals in the EU market reflected an "unstated," but very real, concern. One of the major aims of the Single European Market was to improve efficiency through greater competitiveness. In a free market, the US transnationals would dominate and prosper while established European companies, in protected markets, would not only face difficulties but might even be forced out of business. If that were to happen, there was a fear that the US banana companies might well take advantage of their market dominance to raise the price of bananas to the consumer. Thus, the

problem became how to find appropriate mechanisms for keeping the




































































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more efficient EU companies in business, as a way to further competition in general, while safeguarding specific European interests in particular.

Obviously, the problems just outlined were not open to easy solution. Even though the European Commission first began to consider the problem as a whole in 1988, it did not come to any conclusion until April 1992, when it determined the general approach to be taken in drafting the regulation. The period in between was one of intense lobbying, particularly on the part of the ACP producer countries in the Caribbean, together with banana companies in Britain and the West India Committee. Prime Ministers from ACP Caribbean countries were regular visitors to Brussels, where they argued forcefully for the continu- ation of a "managed market" and received, within the Commission itself, a sympathetic hearing from those officials who were responsible for agriculture (DG-6) and development (DG-8). The case for free trade, on the other hand, was supported by those EU officials concerned with external affairs (DG-1) but was not the focus of such extensive (or intensive) lobbying on the part of either the Latin American producers or the US transnational corporations. The latter appear to have relied more upon the efforts of the United States within the GATT, and of Germany and the nexus of dollar-banana importers within the EU, to carry their case. In any event, their efforts were not as well coordinated as were those of the "managed market" lobby. Unsurprisingly, therefore, the recommendations of the European Commission, when these were finally made public in August 1992, leaned in favor of the ACP and EU producers: they proposed a common regime on bananas which would (1) give free entry to ACP and EU bananas and (2) place limits on the entry of Latin American bananas via quota and tariff. They also proposed an aid package designed to help the EU and ACP producers adjust to the new situation. Finally, it was specified that the regulation be subject to approval by qualified majority vote in the Agricultural Council of the Commission (CEC, 1992).3











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SOLUTION

The New Banana Regime

he essential features of the new banana regime (NBR) were adopted at the Agricultural Council meeting in Brussels in mid-December

1992, as follows: (1) set a basic, tariff-free quota for ACP bananas at levels not less than amounts traditionally supplied; (2) levied a tariff on bananas imported from Latin America up to a fixed quota of 2 million

tons, at a duty of ECU 100 per ton, and imposed a tariff of ECU 850 per ton on imports above that level; (3) established a "partnership arrangement" whereby traditional importers of ACP and DOM bananas were to receive licenses to import up to one-third of Latin American bananas, to enable them to cross-subsidize their operations; (4) included a "safeguard clause" to limit the entry of Latin American bananas into the EU market if traditional supplies from ACP and DOM producers were

disrupted; and (5) agreed to establish the new regime as of 1 July 1993, with interim measures to be enforced up to this time. The regime was

opposed by Germany, Denmark, and Portugal, who voted against it

(Pedler, 1995: 77-86), but was welcomed as consistent with "the interests of ACP and of EC banana producers" by John Gummer, the British Minister of Agriculture, who added

Small, vulnerable democratic nations like Jamaica and St. Lucia will have access to their traditional EC market whilst having a real opportunity to grow and compete (Europe/Caribbean Confiden- tial, 1995a). The hostile reaction to the proposed regime - in Germany,

Denmark, Belgium, and the Netherlands, as well as in Latin America - led to the introduction of several changes when the Agricultural Council met to approve the new regulations in February 1993. Among these

changes were: (1) allowing the 2 million ton quota to be adjusted, on a

monthly basis, in line with demand; (2) establishing that, under licens-

ing arrangements, traditional importers of Latin American bananas should not be disadvantaged; and (3) agreeing to regard any significant rise in price as indication of a shortage, which would require a review of the import regime (OfficialJournal of EC, 1993). Nevertheless, these concessions were still not enough for Germany, who voted against it, nor for Belgium and the Netherlands, who broke with precedent and reversed their previous position (in December) of support. The regulations only passed by receiving the support of Denmark, which now

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occupied the rotating presidency of the EU and was obliged to defend the integrity of EU procedures by supporting measures that had already been agreed upon in substance (Pedler, 1995: 84-85).

REACTIONS

he immediate reactions to the new banana regime (NBR) took a number of forms from unqualified welcome to implacable

opposition. The result was a regime that was under siege from its

inception and subject to intense pressures to improve, or maintain, it on the one hand, or to weaken or destroy it on the other. The regime was finally to win a measure of acceptance from some of those most

opposed upon conclusion of a Framework Agreement, at the end of 1994.

The European Dimension

German opposition to the new regime of a "Europe-wide, man-

aged market" for bananas was predictable, for Germany stood to lose the most: its consumers would face higher prices and its banana importers would, therefore, face declining markets. Thus, in order to protect their interests, the German consumers, importers, and government took the initial step of seeking, in the European Court of Justice (ECJ), to lodge an injunction against introduction of the regime. The German government did so on a number of grounds, that included: breach of proce- dure, breach of substantive rules of Community law, infringement of the Lome Convention (including the banana protocol), as well as of the rules of the GATT. German importers and consumers did so on the

grounds that their interests were being directly, and adversely, affected.

On 30 June 1993, the European Court of Justice handed down its

ruling on the application of the German government, disallowing the

injunction and, thereby, permitting the new banana regime to go into effect on 1 July 1993. However, the ECJ did indicate that compensation might be due to marketing companies and others adversely affected by the regime; and it did agree that the case for the German government should be heard. On 8 June 1994, in an "Opinion of the ECJ," the Court

rejected the German case by declaring that, in making the original decision to establish the regime, the Council of Ministers had not

overstepped their powers. The final ruling, issued 5 October 1994, only


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confirmed this judgment (ECJ, 1994). Thus, whatever possibility there had ever been of overturning the NBR in the courts was effectively closed.

Equally predictable was the support for the new regime from Britain and France, though qualified by a direct understanding of the national interests involved. In the French case, this rested, above all, on

support for banana producers in the Departements d'Outre-Mer (DOM). Following hard on the agreement of December 1992, the French

government had announced the passage of interim measures to safe-

guard the internal market in France against imports of cheaper dollar bananas from elsewhere in the European Union. Then, on 19 April 1993, the French Foreign Ministry summoned the ambassadors of the Domini- can Republic, Jamaica, and the Eastern Caribbean, among others, to warn them of the imminent imposition of safeguard measures following the collapse of prices in France (from FF 5.64 per kilo to FF 3.60 per kilo

during the first three months of 1993), which the French government attributed to additional imports from the ACP Caribbean (Europe/ Caribbean Confidential, 1993c).

The British interest focused on the Windward Islands. It was on the

advice, and with the encouragement, of the British government that the Windward Islands entered into commercial banana production in the 1960s. Also directly involved were the interests of Geest, a major British

agro-industrial company which provided shipping and support services for Windward bananas in Britain. Thus it was in the wider interests of Britain to secure a regime that would provide support to the banana

industry in these islands. At the same time, it is important to recognize (a) that Britain was not as directly engaged as France and, (b) that it saw the question primarily in commercial terms, i.e., maintaining, in the short-to-medium term, a British market for Caribbean ACP bananas as an aid to British companies. The question of the consequences for the islands themselves was not as dominant, or as immediate, as was true in the French case. Consequently, the British government initially ob-

jected to supporting measures, in the form of additional economic assistance, which the Caribbean ACP deemed essential to maintaining their levels of income, arguing that compensation in such a case was

already provided through the STABEX fund of the Lome Convention.

Following intense lobbying by the prime ministers of Dominica and

Jamaica, among others, the British government finally agreed to drop its

objections (22 March 1994), provided that the additional financing would be directed toward modernizing, and diversification of, the














































































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banana industry in the Caribbean - in other words, that it would not be used as a subsidy for inefficient production (Europe/Caribbean Confidential, 1994c).

The Caribbean Dimension

The ACP Caribbean welcomed the new banana regime (NBR). Charles Savarin, Ambassador for Dominica to the EU and the Caribbean

diplomat most directly involved in the negotiation of the regime, wrote to the Danish Presidency of the EU Council shortly after its conclusion in February, thanking the EU for its "herculean efforts ... which allows the EC to honor its many obligations under the fourth Lome Conven- tion." Savarin also noted that the regime was a hard fought compromise and that it was "possibly the only one in the circumstances" (Europe/ Caribbean Confidential, 1993d).

The regulation fixed annual quotas and provided for financial assistance. Quotas for the ACP Caribbean were set at 40,000 tons for

Belize; 71,000 for Dominica; 14,000 for Grenada; 105,000 forJamaica; 127,000 for St. Lucia; 82,000 for St. Vincent; and 38,000 for Suriname. These amounts were calculated based upon the average amount of bananas exported during the 5 years prior to 1991 (excluding the best and worst years), which were then deemed to be "traditional quantities." No provision was made to revise these figures. Quotas for the French islands of Guadeloupe and Martinique, where financial assistance was available, were established at 150,000 tons and 219,000 tons, respectively. These quotas were based on imports for the best year, from each source, prior to 1991 and were subject to adjustment. There was also a provision by which a quota was to be set for the Dominican

Republic, under arrangements applicable to the import of non- traditional ACP bananas (Official Journal of EC, 1993).

Assistance was also promised. In the case of the French DOM, this was quite generous and took the form of compensation for any loss of income occurring from the differential between costs of production and market prices. During the first year, this was set at 245 ECUs per ton. In the case of the ACP, there were difficulties. Though the European Commission submitted its original proposal on 11 November 1992, it became stalled in the Council - by, variously, Britain, Belgium, Ger-

many, and the Netherlands - and was not subsequently approved until October 1994 (Official Journal of EC, 1994). This proposal, as finally














































17 17 17 17 17 17



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agreed, provided 180 MECUs for three years, retroactive to July 1993. Nevertheless, the amounts ultimately made available have fallen well short of this total.

The Latin American Dimension

Latin America's reaction to the new banana regime (NBR) was hostile and took the expected forms of (a) consultation among themselves and (b) an appeal to the GATT. Immediately following adoption of the British proposal (December 1992), there were demonstrations in

Ecuador, and Ecuador acted as host to a meeting of Latin American

presidents (from Colombia, Costa Rica, Guatemala, Nicaragua, and Panama - with Mexico and Venezuela in attendance), who met during the final negotiation for the NBR, then taking place in Brussels in

February 1993. At the end of the meeting, the presidents issued a joint declaration in which they charged that the EU proposals were "protec-

tionist, discriminatory and restrictive" and should, for that reason, be reconsidered. Shortly afterwards, Ecuador submitted a motion to the Council of the Organization of American States (OAS) condemning the EU proposals (both this motion, as well as a counter-motion by the Caribbean Community (CARICOM), were later set aside). The matter was subsequently raised again at the annual meeting of European Union and Central American foreign ministers, which was held in San Salvador on 22/23 February, though without any resolution of differences. At the end ofthe meeting, the CentralAmerican countries issued a communique which deplored the NBR on the grounds that it ignored the advances in

liberalizing trade then being expressed by the Uruguay Round, whose

negotiations were still in process. In reply, the EU foreign ministers issued a statement that

the EC's intention in adopting the regime was to achieve a fair and workable balance between the interests of Community producers and consumers and of ACP and Latin American suppliers as well as international obligations (Europe/Caribbean Confidential, 1993d).

Following the meeting, Costa Rica and Ecuador called for another

meeting of Latin American producers, which was scheduled to take

place in April. In the meantime, a number of the producer countries -

Colombia, Costa Rica, Guatemala, Nicaragua, and Venezuela - had

gone ahead and referred the matter to the GATT, which then convened one of the two panels requested.















































































The GATT

The GATT was called into action immediately following adoption of the new banana regime (NBR). Those Latin American countries who constituted the complainants sought two panels: the first was to examine the regime prior to 1 July 1993 (when it took effect), and the second was to examine the regime following that date. The first panel was approved and began work straight away, with both the complainants (Colombia, Nicaragua, Costa Rica, Guatemala and Venezuela) and the defendants (the EC) presenting written and oral evidence. Because members of the ACP, however, were unable to agree upon a joint position, a separate presentation was made by the African contingent. The Jamaican ambassador subsequently made a presentation on behalf of the Caribbean members, supported by interested parties both within and without the region. When the panel reported at the end of May, it issued two rulings. The first found that the quantitative restrictions maintained by France, Italy, Portugal, Spain and the UK in the market

(i.e., the transitional arrangements in effect up to 1 July) were inconsistent with both the articles of the GATT and with existing legislation under which EU member states had become contracting parties to the GATT. The panel recommended, therefore, that the existing regime be

brought into conformity with the GATT. The second ruling found that the preferential tariff which the EU accorded to bananas that originated in the ACP countries was inconsistent with Article 1 of the GATT; hence it ruled that legal justification for granting such a preference could not arise from the Lome Convention, but only from action of the GATT

contracting parties. For this reason, the EU members were obliged to seek approval from the GATT for any preferential arrangement entered into under Lome.

The first ruling was largely for the record, in the sense that the

regime to which it referred was to end within weeks. It did, however, add force to complaints of the Latin Americans who were seeking to establish a second GATT panel. Though the EU had earlier managed to

resist, successfully, establishment of a second panel in March, it now found itself under intense pressure, particularly in the light of the second ruling which had implications well beyond bananas. The EU and the ACP, therefore, joined forces to oppose adoption of the report by the first panel at the GATT Council on 16June. This effort met with only mixed success. On the one hand, the Council agreed to delay decision on the report until late in July. On the other hand, a second panel was convened, though it was not given fast-track approval. This provided a

The GATT








The GATT








The GATT








The GATT








The GATT








19 19 19 19 19 19




breathing space for the EU and the ACP and allowed for consultation with other interests. The ACP also succeeded in winning the agreement of GATT to provide them with technical assistance in producing the evidence they needed to submit to the second panel. In the meantime, CARICOM called upon all the countries of the Commonwealth Carib- bean that were not full members of the GATT (Belize, Guyana, and St.

Vincent) to join the GATT Council, and upon others who were not members at all (like the Bahamas, St. Kitts-Nevis, and Grenada), to become so.

When the second panel reported in February 1994, it upheld the

complaint that the new banana regime, which had taken effect 1 July 1993, was in contravention of the GATT. It also found against the idea of preference, as enshrined in the Lome Convention. Once again, therefore, the EU and the ACP found themselves vigorously contesting this ruling since, if adopted, it would oblige the EU to seek a waiver from the GATT, on an annual basis, in order to abide by the Lome Convention. This likely requirement was now more of an irritation than were the actual arrangements surrounding bananas, given that the outlines of a "Framework Agreement" regarding bananas had been worked out with the United States and was then under consideration by the Latin American banana producers.

The United States Dimension

Because the new banana regime (NBR) was finalized during the transition from the Bush to the Clinton presidency, there was some

question as to whether the United States would accept, or oppose, it. It was known, however, that senior officials in both the Office of the Trade

Representative (USTR) and the State Department believed it ran counter to established US policy on free trade. The first signs that the Clinton administration would take this approach surfaced in April 1993 when a letter from the US Ambassador in London to the High Commissioner for St. Lucia took the view that the ACP had gained considerably from the NBR at the expense of US companies engaged in selling dollar bananas to the EC. However, it was not until discussions were underway during the first GATT panel that the opposition of the United States was

given formal recognition. In the GATT Council, the United States (along with Cuba) pushed for immediate endorsement of the first panel and then pressed for the immediate establishment, under fast-track proce-
















































SUTrON: THE NEW BANANA REGIME SUTrON: THE NEW BANANA REGIME SUTrON: THE NEW BANANA REGIME SUTrON: THE NEW BANANA REGIME SUTrON: THE NEW BANANA REGIME SUTrON: THE NEW BANANA REGIME

dure, of a second panel. A week later the Deputy Assistant Secretary of State for Latin America and the Caribbean, Donna Hrinak, issued a public statement explaining the US position:

The European Community is proposing an unrealistic policy of preference for Caribbean bananas which is not in the best long- term interests of the Caribbean. ... The EC banana regime, as proposed, is inconsistent with the obligation GATT members have and inconsistent with what we hope would be the outcome of the Uruguay Round which, when terminated, will be of benefit to all trading partners. ... There is no region of the world that needs to look more seriously at its role in the 21st century than the Carib- bean. We have moved beyond the age where trade preferences are the rule, and any country that wants to benefit from free trade will have to look very seriously at what changes it needs to make in its economic structure to accommodate some of the needs of its trading partners (Europe/Caribbean Confidential, 1993b).

The hard-line taken by the United States was tempered by a

recognition that a "transition period" was needed, and that funds from the US Agency for International Development (US-AID) might be mobilized to promote "diversification" (Europe/Caribbean Confiden-

tial, 1993b). Nevertheless, it was clear that the US interest in this matter was tied to interests of the US banana companies, and that this meant, inevitably, its qualified support for the Latin American banana producers. The arena in which this could be most forcefully expressed was the

GATT, where the US was active "behind the scenes" in support of the Latin American complainants. At the same time, they were engaged in a wider discussion with the EU on concluding the Uruguay Round.

Consequently, the US position was one which had to acknowledge broader, and more important, interests.

The Framework Agreement

Although the European Union was able to contain the initial

challenge to the new banana regime via the GATT, the strength of the assault led to some modification of the regime in favor of the Latin American producers. This emerged in the draft "Framework Agree- ment" (FA) on bananas put forward by the EU in the final stages of the GATT negotiations with the United States. The agreement increased the

global quota of the EU by 100,000 tons in each year of 1994 and 1995, dividing that quota, by country, as follows: 23.4% to Costa Rica; 20.2% to Colombia; 19.7% to Panama; 6.6% to Honduras; 1.8% to Nicaragua; 1.8% to Guatemala; and 4.8% or 80,000 tonnes, whichever was lower,
























































21 21 21 21 21 21




to Venezuela and others, including ACP countries that exported non- traditional quantities - most notably, the Dominican Republic (Eu- rope/Caribbean Confidential, 1993a). The draft agreement also included a mechanism by which the Commission was allowed to reallo- cate unused parts of the quota and provided for up to 75% of the quota to be supplied against export certificates from supplying countries, thus

enhancing the position of countries, as against companies, in the

organization of trade. In return for accepting the new agreement, Latin American countries were to drop their complaint in GATT.

Whether by accident or design, the new proposal had the effect of

beginning to sow differences between the, hitherto united, Latin American banana producers. Though several were thought to be inclined to accept the new offer, some (Guatemala, Ecuador, Honduras and Panama) were most forceful in opposing any new deal in advance of the second GATT panel, which was expected to report within a few weeks. Guatemala, in particular, was vociferous in its objections, arguing that the overall quota for dollar bananas should be increased to 2.5 million tons. Indeed, the EU subsequently withdrew its offer (11 February 1994), citing, as its reasons for doing so, the intransigence of Guatemala as well as the failure of the Commission to make any progress on this issue in its meeting with the Latin American producers. At the same time, the EU rejected the report of the second GATT panel, which found in favor of the Latin American countries. However, the

impasse was more contrived than real, and, in a clarification issued a few

days later by Rene Steichen, the European Commissioner for Agricul- ture, the Latin American producers were informed (1) that the offer was still on the table and (2) that there could be an imminent increase in

imports of Latin American bananas to offset recent shortages on the

European market. The latter promise was given credence in late March when the Commission agreed to a ceiling on imports of 590,120 tons for

April-June 1994 (an increase of more than 70,000 tons over the first

quarter of 1994).

As a result, four countries - Colombia, Costa Rica, Nicaragua and Venezuela - withdrew their complaint from the GATT (29 March) and settled with the EU. The revised regime increased the tariff quota to 2.1 million tons in 1994, and to 2.2 million tons in 1995; while the in-

quota tariff was reduced to 75 ECUsper ton. Quota levels were fixed at 23.4% for Costa Rica, 21% for Colombia, 3% for Nicaragua, and 2% for Venezuela. Governments were given the right to issue 70% of export licenses. An additional quota of 90,000 tons of "non-traditional" imports











quarter of 1994).













quarter of 1994).













quarter of 1994).













quarter of 1994).













quarter of 1994).






was also agreed upon, a measure of direct benefit to the Dominican

Republic. The new arrangements were to come into force in October 1994, though this was delayed, not to be finally implemented until 1 January 1995. In return for these concessions, the governments of Costa Rica, Colombia, Nicaragua and Venezuela agreed not to initiate

proceedings in the GATT during the life of the new banana regime, which was slated to run until the end of December 2002 (Europe/ Caribbean Confidential, 1994b).

The important point to note about the Framework Agreement is that it was negotiated, and agreed upon, between the EU and US at the end of December 1993, as part of the Uruguay Round. As such, it was tied to broader concerns and included US interests in respect both of its banana companies operating in Latin America as well as of its relations with Latin American countries. It also represented a compromise of sorts on the part of the European Union via the improved offer it made to the Latin American countries in exchange for their promise not to

pursue the matter further in the GATT. Finally, in consideration of the divergent interests that existed within the European Union, Germany agreed to the Framework Agreement only on the understanding (1) that it would not prevent them from continuing to seek redress in the European Court of Justice (ECJ), and (2) that the Commission's

proposal on legislation to implement the Agreement would take Ger- man interests fully into account. Insofar as the Framework Agreement was the critical document in finally winning acceptance of the new banana regime, it can be regarded as bearing the essential elements of a compromise, i.e., acceptable in some degree to most of the interested

parties, but not to all.

THE NEW BANANA REGIME IN PRACICE

Although the banana regime is established, it remains under a challenge from a number of powerful interests and thus is far

from secure.

The Transnationals

The international banana market is dominated by large transnational

companies. The new banana regime can only be made to work if the

companies involved in its operation accept it (even though they may not necessarily approve of it). This has been a major problem since the










from secure.

The Transnationals













from secure.

The Transnationals













from secure.

The Transnationals













from secure.

The Transnationals













from secure.

The Transnationals




23 23 23 23 23 23



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regime discriminates in favour of some and reduces the competitiveness of others, thereby making it a threat or an opportunity, depending on individual circumstances.

The effects of the NBR on European companies has been mixed. For example, there have been problems with enforcement. The national commitment of both the United Kingdom and France to observe strict enforcement of the regime has been undermined by lax supervi- sion in other countries, as well as by commercial opportunities. This

disparity in enforcement has been blamed for the dramatic drop in

prices in both countries, undermining the profitability of such established companies as Geest, which sold out its banana interests at the end of 1995. Germany has also complained about enforcement, except that, in its case, it was occasioned by rising prices and cutbacks in consumption on the order of 30-40%. This has led, in turn, to cuts in imports and the downsizing of operators, of which the most notable instance to date has been the closing of 11 (out of 44) plants by Atlanta, the largest operator in the EU, with the corresponding loss of 700 jobs (Europe/ Caribbean Confidential, 1995b).

At the same time, companies in the EU have benefited from the rules governing licenses. The December 1992 proposals distributed licenses on what was called a "partnership basis." This favoured traditional importers of ACP and EU bananas, inasmuch as they were

eligible for licenses to import up to a third of Latin American bananas under the rationale that this would act as a cross-subsidy to improve the

viability of their operations with respect to ACP/EU bananas. The "dollar banana" companies mounted such a vigorous challenge to this discrimination that changes were subsequently introduced in the February NBR that were more favorable to traditional importers of Latin American bananas. The latter, along with non-traditional ACP operators, were to be given a 66.5% quota allocation on the basis of imports for the

previous three years, while traditional ACP/EU operators were given a 30% allocation for the same period; 3.5% of quota was reserved for newcomers. Eligibility for licenses was to be non-transferable, and it was eventually decided that the share of the traditional quota for Latin American bananas was to be based on a 70/30 split, with Latin American

governments issuing licenses for 70% of the agreed quota, and the remainder allocated to the companies.

The effects of the new banana regime on the US transnational

corporations is still not clear. They are, to some extent, disadvantaged. Hence their appeal to the US government for support. At the same time,



























































it is difficult to believe that they have been crippled by the NBR, or that

they will not continue to dominate the EU market in the years ahead.

Support for that conclusion comes from a report by Arthur D. Little International, an international consulting firm, which found that, though the share of the three US transnationals had fallen from 43.5% of the EU market (in 1991) to 41.5% (in 1994), two of these firms - Dole and Del Monte - had actually increased their market share; only Chiquita Brands had lost out significantly, with their share of the EU market

dropping from 25% down to 18.5%. The Little report attributed this drop primarily to the company's previous policy of oversupply, which had been designed to improve Chiquita's relative position in the European market during the time the NBR was being negotiated; this had proved to be a mistaken strategy, one that backfired by giving rise to substantial losses for which the company alone was responsible (European Report, 1995a).

The United States

In early September 1994, Chiquita Brands International, along with the Hawaii Banana Association, filed an application with the US

government, under Section 301 of the US Trade Act, alleging that the EU banana regime seriously damaged their interests. This was the first

application of its kind since the Clinton administration took office and followed a petition that 12 US Senators had sent to US Trade Represen- tative Mickey Kantor the previous month, which called for a formal

inquiry into the "new regime." This also represented the culmination of a long lobbying campaign by Carl Lindner, head of Financial Corpora- tion (of which Chiquita is a part), against the EU's banana regime. During the course of this campaign, together with other interests, Lindner is said to have paid US$ 430,000 to the Republican Party and US$ 525,000 to the Democratic Party betweenJanuary 1993 and December 1994, not to mention another US$ 5 5,000 paid into Speaker of the House Newt Gingrich's GOPAC (Caribbean Insight, 1995b). Lindner also recruited Senator Bob Dole to his cause, persuading him to add a rider to the US Budget Bill (with the consent of Gingrich) seeking to impose sanctions against Colombia and Costa Rica for their support of the new banana regime.

On 17 October 1994, Kantor announced that the United States would be taking up the complaint, noting that "American banana

marketing companies should be able to compete on a fair basis in a





The United States











The United States











The United States











The United States











The United States







25 25 25 25 25 25




European market, just as European firms can here." At the same time, he indicated that the Framework Agreement might be a subject for inves-

tigation as well, since it was "discriminatory against US companies" (Europe/Caribbean Confidential, 1994a). A month later, this action was endorsed by such prominent US politicians as Senator Dole and Speaker Gingrich, who, in a letter to President Clinton, urged him to

move with dispatch to issue an 'unfairness' determination and commence retaliation against EU trade interests proportionate to the enormous US harm already caused by the EU Banana Policy (Caribbean Council for Europe, Banana File).

On 9 January 1995, Kantor issued a statement indicating that a

preliminary examination of this issue had concluded that the new banana regime was "adversely affecting US economic interests" (Carib- bean Insight, 1995c); on 27 September, he further confirmed this view

by stating that the United States would file a complaint against the

European Union at the World Trade Organization (WTO) alleging discrimination against US companies in regard to the system of licensing and the assignment of quotas. Then, on 10 January 1996, Kantor issued another finding that announced the results of an investigation into the banana regimes in Colombia and Costa Rica. Although this finding determined that the policies of both countries were unfair, Kantor lifted the threat of trade sanctions in favour of dialogue as set within Memo- randa of Understanding, signed with both countries. These Memoranda committed Colombia and Costa Rica to join with the United States in

pressing for reform of the new banana regime, as well as in altering their

quotas in a way favourable to US interests, i.e., by allocating a larger share to US transnationals.

Latin America

In 1992, the year when the supply of bananas to the EU peaked, the four Latin signatories to the Framework Agreement (Colombia, Costa

Rica, Nicaragua and Venezuela) supplied 41.8% of banana exports from Latin America. In 1993 and 1994, the figures were 42.3% and 54.4%, respectively, while the corresponding figures for the three major suppliers outside the Framework Agreement (Ecuador, Honduras and

Panama) were 56.2% in 1992, 56.4% in 1993 and 44.6% in 1994 (CEC, 1995: Annex 1). The countries that were part of the Framework

Agreement have clearly gained at the expense of those that were not. As a result, the Framework Agreement continues to be a live issue, and a divisive one, among the Latin American producers.










Latin America














Latin America














Latin America














Latin America














Latin America







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One organization in which this has been felt particularly is the Union of Banana Exporting Countries (UPEB), the major producer organization in Latin America. The Director of this organization re-

signed, stating that he could not approve of the decision, by some members, to accept the Framework Agreement. Guatemala also continued to assert its opposition, making clear that its signature to the

Uruguay Round Agreement did not mean it accepted the Framework Agreement. The possibility of a third GATT panel was even raised. At any event, the Latin Americans found it difficult to make any collective

headway. In September 1994, the UPEB held a meeting which called

upon all parties to the NBR to engage in a constructive dialogue on the one hand, and for the organization to restructure itself to permit Mexico and Ecuador to become members. However, when, a year later, another

meeting was held (which Venezuela, Colombia and the Dominican

Republic failed to attend) and no progress had been made on either

point, the future of the organization appeared open to serious question.

The net result is that the Latin American countries who were

opposed to the NBR have, instead, sought common ground with the United States. The US petition to the WTO, in September 1995, was

supported by Guatemala, Honduras and Mexico; a second petition (filed 7 February 1996) that superseded the first added Ecuador as well. The new rules governing disputes specify that if the issue cannot be resolved

by consultation within 60 days, a panel, whose ruling is binding, will be established. On 9 April 1996, the parties to the dispute (the US, the Caribbean ACP and the Latin American producers) met in Miami to determine whether a solution could be found, but failed to make

headway. Immediately afterwards, three of the participants (Ecuador, Honduras and Guatemala) released a letter to US newspapers which

emphasized the damage that the NBR had done to their interests and

congratulated "the commitment of the United States to dismantling the

dangerous precedent-setting policies of the EU banana regime" (Eu- rope/Caribbean Confidential, 1996a). On 8 May 1996, the WTO Dispute Settlement Body agreed to convene a panel; hearings were held in

September and October of that year, with the final report due out some time in 1997. This report obviously constitutes a major threat to the Framework Agreement and to the new banana regime, as it is presently constituted, especially since the majority view among experts on trade is that the World Trade Organization is likely to rule against the

European Union. Meanwhile, the United States remains adamant, insist-

ing, in the words of President Clinton, that "alternatives to the present EU regime" be sought (European Report, 1996).
































































































27 27 27 27 27 27



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The Caribbean

The Caribbean ACP has found itself engaged in defending its interests on all fronts: in the European Union, within the region itself, and in the United States. The combined effect has been significant, particularly in the Windward Islands, where ensuring the future viability of the banana industry remains the leading political issue in Dominica, St. Lucia and St. Vincent.

In the European Union, the major issues have been price and quota. The Caribbean ACP maintain that prices in the European Union have dropped, which is true for ACP bananas as a whole, though the effect has not been quite as dramatic as has been portrayed. Neverthe- less, major fluctuations in price have taken place, and returns to Caribbean growers have declined. In 1993, the average annual price to growers in the Windward Islands was EC$ 0.32 compared to EC$ 0.41 in 1992 (UK-ODA, 1995: 15). When the lower prices are compounded by the losses associated with hurricanes, viz. Hurricanes Debbie (1994), Iris, Luis and Marilyn (in 1995), the overall effect has been to depress the earnings from exports considerably. In 1994, the export earnings for the four Windward Islands stood at EC$ 216 million, their lowest level in 10 years.

It is in this context that the argument for maintaining quota levels becomes important. The total import quota for traditional ACP bananas from the Caribbean is 477,000 tons but, in both 1993 and 1994, the quantities marketed fell below this quota. The Caribbean ACP has requested that when this happens due to someforce majeure, such as in the case of hurricanes, that replacements be sought from alternate sources, including from Latin America. It has also requested that any part of an ACP quota that goes unused should be transferrable to another ACP state. The Commission has proposed the adoption of both sugges- tions and, in the allocation of licenses, has provided that "additional quantities" be granted to ACP countries as recognition of damage done by hurricane. At the same time, the Commission has proposed an additional quota for Latin American bananas following on the enlargement of the EU; however, the ACP opposes this proposal as posing a threat to both price and quota maintenance.

The regional dimension has focused on institutional reorganiza- tion as well. Within the Windward Islands, the new banana regime has served as a stimulus to a fundamental restructuring of the production and marketing of bananas. In March 1994, a new banana holding

The Caribbean





The Caribbean





The Caribbean





The Caribbean





The Caribbean







SUITON: THE NEW BAANAN REGIME SUITON: THE NEW BAANAN REGIME SUITON: THE NEW BAANAN REGIME SUITON: THE NEW BAANAN REGIME SUITON: THE NEW BAANAN REGIME SUITON: THE NEW BAANAN REGIME

company, WIBDECO, was established to replace WINBAN, and it

immediately entered into negotiations with Geest to ensure a better return to the growers. In December 1994, a new contract was drawn up that enhanced the position of WIBDECO in marketing bananas, and in mid-1995, a further restructuring of the industry was approved which was designed to improve both management and competitiveness. Finally, WIBDECO announced (22 December 1995) that it was entering into a joint venture with Fyffes to buy Geest's banana interests for ?147.5 million. This action was taken, in part, to preclude the sale of Geest to Noboa, an Ecuadoran company whose interest in acquiring Geest was seen as entirely hostile. The take-over has also set in motion a further restructuring, this time of Geest by Fyffes.

Lastly, Caribbean ACP growers have mounted a robust defense of the new banana regime in protest against the US. According to Kantor, speaking at the Miami Summit of the Americas (December 1994), the

problem for the US lies with "the discriminatory practices of the

EurOpean Union, not with the benefits Caribbean countries have." On the one hand, Kantor repeated his commitment to pursue the investigation of the NBR under Section 301 of the US Trade Act; on the other hand, he also agreed, during a meeting with Caribbean leaders, to hold technical discussions in an effort to find "mutually acceptable solutions"

(Europe/Caribbean Confidential, 1996b). These discussions began in

Washington in March 1995. At the meeting, however, he also reiterated that the United States was not challenging the trade preferences granted to the Caribbean under the Lome Conventions; at the same time, the US did not accept as valid those elements of the NBR which were trade-

distorting, discriminatory, and lacking in transparency (Nurse and Sandiford, 1995:125). These elements were subsequently spelled out as

(1) involving a larger EU quota for Latin American bananas, and (2) abolishing the "B quota," which allows 30% of the import licenses

granted to third country traders to go to those who handle ACP and EU bananas. Neither proposal has been acceptable to the Caribbean, and

subsequent attempts by the US Ambassador to the Eastern Caribbean to

explain the US position in the regional press have only inflamed the situation, prompting protest meetings throughout the Windward Is- lands and a public rebuttal by the European Commission (Caribbean Week, 1995a and 1995b). A final attempt to resolve the situation was made at a meeting held in Miami in April 1996, which ended with the Caribbean members charging that the US was clearly unprepared to

negotiate, that it had already made up its mind to refer the dispute to the


































































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WTO. Whether true or not, what is clear is that the US has been

unyielding in its position, and that the Caribbean group has had to fight every inch of the way to get its concerns heard. This impasse extended into the WTO hearings themselves, where the United States at first

sought to prevent the Caribbean ACP from even presenting their case.

They were eventually permitted to do so, as interested third parties, but

only after vigorous protest.

The European States

The position that individual member states of the European Union have taken on the new banana regime remains polarized between those

who, at one end of the spectrum, defend the NBR and those, at the other, who seek its revision. The leading defender in this situation is France, which has defended the interests of the DOM in both the Commission and with Germany. It has opposed Commission plans to provide additional quotas for Latin American bananas, argued that additional

support has been needed to enable DOM producers to recover from hurricane damage, and claimed that urgent action is necessary to

compensate for falling prices. France has also raised the issue of the NBR at the periodic Franco-German summit meetings, where Germany has been taken to task for its refusal to end its campaign against the regime.

The leading state opposed to the NBR remains Germany. It has continued to contest the legality of the NBR in the European Court of Justice; it has asked the ECJ to rule on (1) the Framework Agreement's compatibility with the rules of the World Trade Organization, and

(2) the regulation that gives additional licenses to producers in the DOM and Windward Islands to compensate for losses due to hurricanes. Others in Germany have followed suit. In April 1995, Atlanta filed a

complaint before the German constitutional court claiming that the NBR contravenes the Maastricht Treaty (Caribbean Insight, 1995a); several months later, German importers in Hamburg won a victory in the courts (soon overturned) when they were authorized to buy in bananas at a tariff of 75 ECUper ton as against ECU 850. All this has added

weight to German pressure within the EU Council, where it has sought to revise the provisions concerning both quotas and licensing in favor of Latin American producers.






The European States














The European States














The European States














The European States














The European States












The European Commission

On 11 October 1995, the Commissioner for Agriculture, Franz Fischler, presented a report on the banana regime based on its first two

years in operation. In announcing the report, he noted that no other

regime in the history of the Common Agricultural Policy (CAP) had been as controversial, nor its objectives and impact been so misrepresented. He also added that, while adjustments were necessary, he was under no illusion that they would be easy to achieve or assuage criticism since

"experience has shown that the word 'compromise' is not a word one associates with discussions on the banana regime" (ECommission, 1995).4

The Commission clearly has a difficult task. Any recommendation or action (or inaction) on their part is to the benefit of one party and

disadvantage to another, which makes the NBR as classic an example of a zero-sum game as one can get. It is evident, however, from the Report and from proposals tabled in April 1995 and in March 1996, that the Commission is seeking changes in the NBR which will, if approved by Council, alter the NBR in favour of the Latin American producers and that will have serious repercussions for both the DOM and the Caribbean ACP.

The two most important proposals concern quotas and licenses and represent a substantive modification of the basic regulations establishing the regime. The quota issue arises from the enlargement of the

European Union. In April 1995, the Commission adopted proposals for an increased quota for Latin American bananas of 353,000 tons (determined by the average of imports for the three countries over 1991-93) to take into account the entry of Austria, Sweden, and Finland into the EU. It has not found favor. When it was first discussed in the Agricultural Council in July 1995, Germany, Denmark and the BENELUX countries

opposed it on the grounds that the increase in the quota was inadequate; Britain, France, and Spain opposed it on the grounds that it would

damage the ACP and EU producers. The Commission went ahead and authorized it anyway, claiming that it was doing so in order to meet

expected consumer demand in the EU. The matter was next aired when the Agricultural Council discussed the Report on the NBR at the end of 1995. On that occasion, Germany, Denmark and the BENELUX countries were more supportive, but France and Spain continued to object, as did Ireland (home base of Fyffes) as well. The result was a decision to refer the Report (with its recommendation for a quota increase) to a





























































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special committee, which would examine it in detail and report back at the end of March 1996. No agreement was reached, however, then or

subsequently, so the matter remains stalled. In the meantime, the

European Commission has once again acted under its own market

management powers to approve the increased quota for 1996.

The licensing arrangements have also come under attack. The German government has long sought an increase in Category A licenses

(to import Latin American and non-traditional ACP bananas, set at 66.5% of the total) and a reduction in Category B licenses (reserved for ACP and EU bananas, set at 30%), arguing that it discriminates against importers of Latin American bananas. Once again, enlargement of the EU member-

ship has brought the issue to a head. The existing distribution, it is

claimed, takes no account of the fact that all the bananas imported into

Austria, Finland, and Sweden originate in Latin America. To take this into account, the existing allocation should be changed in favor of

Category A licenses. That the Commission has taken heed of some of these arguments was apparent in the proposals put forward in March 1996: they increase the proportion of Category A licenses to 70.5% and reduce those for Category B to 26%. While these new figures clearly represent a concession to the Latin American producers, the Commis- sion nevertheless claims that ACP interests will not be injured since the actual amount of bananas imported under Category B licenses will remain the same. This is not a view shared by the ACP, the importers of ACP and EU bananas, nor by Britain, France, and Spain - all of whom have mounted stiff opposition to the proposals. The issue, therefore, remains yet another one that awaits future resolution.

One final point to be made is that these diverging views have

spilled over into policymaking in a broader framework. There is a clear

correspondence between the German, Dutch, Belgian, Latin American and US interests on the one hand, and those of the French, British, Spanish, DOM and ACP interests on the other. They are opposed to one

another, and it is tempting to see the Commission as holding the ring. This is not the case. Within the Commission, there are splits between its various divisions and doubts among the commissioners. The Commission's External Relations division (DG1) would be happy to see an adjustment of quota and licenses to resolve the dispute with the United States; the Development division (DG8) would not. Commis- sioner Fischler, who is responsible for the operation of the NBR, is on record as saying that personally he had "never particularly liked the banana regime," but that he recognized it as the only possible outcome










































































that could be adopted, and that "as a key element of our market

organization, we cannot change it, but we may well be able to make

adjustment" (European Report, 1995b). It is this type of remark that the Caribbean ACP find so worrisome, and which causes them to believe

support for the NBR within the Commission is less than assured.

CONCLUSIONS

\W hen the NBR was first adopted, the Latin American countries perceived it as representing a total victory for the ACP and EU

producers and as a total disaster for themselves. This is not the case. There have been winners and losers in all camps, and it is better to

recognize the initial regime as an outcome of bargaining and compromise in which the ACP and EU producers have won some breathing space in which they can work to restructure their respective banana industries to face competition once the NBR ends. The Latin American producers, as a whole, have managed to conserve their market share and enhance their bargaining position relative to the major companies. The "banana war" is thus at a moment in which the advantage lies, temporarily, with the ACP and the EU in Europe. This is not to say, however, that it will

always be so. The regime is being whittled away from within and without. In this situation, marketing interests in the EU and the US are the driving force, not producer interests in either Latin America or the Caribbean. This should give pause for thought to those Latin American countries opposed to the NBR. Time is on their side, not on the side of the Caribbean ACP. The Banana Protocol of the Lome Convention, which has served as an anchor for the NBR, will come to an end in the

year 2000, when the current Lome Convention expires. The NBR is due to end in December 2002. It is far from certain that either will be renewed, in their present form or even in a substantially revised form.

In the meantime, the members of CARICOM are seeking to find their own place in the Americas through initiatives like the Association of Caribbean States (ACS), in which all the major Latin American banana

producer states are involved, other than Ecuador. In this new situation, it does not serve the political interests of the Latin American countries as a whole, or even individually, to jeopardize closer relations with the Caribbean in the interest ofhigher profits for foreign-based transnationals. The recent action by the Caribbean Association for Industry and





CONCLUSIONS












CONCLUSIONS












CONCLUSIONS












CONCLUSIONS












CONCLUSIONS








33 33 33 33 33 33




Commerce in seeking an understanding on bananas with the Federaci6n de Empresas Privadas de Centram6ricay Panamd (FEDEPRICAP), its Central American counterpart, is thus to be welcomed as a move in the

right direction, particularly since it talks of

the need to close ranks as members of the Association of Caribbean States (ACS) and as members of this broader Caribbean region against the efforts to divide us and pit our agricultural producers against each other for small gains (Caribbean Insight, 1996).

The new banana regime (NBR) is not perfect. Nor are banana markets under a free trade regime. There are important political issues at stake, as well as wider economic issues that affect the future of trade

regimes in the Americas. But, above all, it is essential that the interests of the Caribbean ACP, and the Windward Island producers in particular, be safeguarded, as no one in the region will benefit from their collapse in the long run.

NOTES

1. The European Economic Community (EEC) was established in 1957 and became commonly referred to as the European Community (EC) in the 1970s. In 1993 the EC was transformed into the European Union (EU). The term EU is generally used throughout for ease of comprehension.

2. The ECU is the acronym for the European Currency Unit which is the unit of account used in the EU to measure EU trade and aid. Its amount fluctuates against major currencies. In May 1995 one ECU was equivalent to US$ 1.32.

3. The proposal to introduce the measure by qualified majority vote complicated the issue. Those countries with existing protective regimes (Spain, France, Portugal, Greece, Italy and the UK) thought to be in favor of the Commission proposal held 48 votes, 6 short of the 54 vote majority required to approve the proposal. Conversely, those with liberal regimes resolutely opposed to the Commission proposals (Germany, Belgium, Luxembourg and Denmark) held 20 votes, 3 short of the 23 vote blocking minority. The question thus became: which way would Ireland and the Netherlands vote?.

4. Six months later, Fischler used similar words in introducing proposals to modify the regime:

Mr. Fischler said that no other common market organization had been the subject of such controversy as the banana regime. There is - he said - almost a total unwillingness on the part of the different interests involved in the sector to recognize that the regime is a compromise which seeks to protect and respect many different and often conflict- ing interests and objectives (ECommission, 1996).






NOTES











NOTES











NOTES











NOTES











NOTES









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(1992) Proposal for a Council Regulation on the common organization of the market in bananas [COM (92) 359 final; 7 August]. Brussels, Belgium: Commission of European Communities.

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the banana regime of the european union, the caribbean, and latin america

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