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The EU-Latin America Bananas Agreement – Questions and Answers
Commission Européenne - MEMO/09/557 15/12/2009
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Brussels, 15 December 2009
The EU-Latin America Bananas Agreement – Questions and Answers
What have the EU and Latin American (LA) countries agreed?
The EU will:
In return, Latin American countries will:
1. EU tariff cuts
When all parties sign the agreement, the EU will make the first cut to its banana tariff, to €148 per tonne. This will apply retroactively from the date when all parties initialled the agreement.
The tariff will then fall again at the start of each year for seven years, in annual instalments (€143, €136, €132, €127, €122, €117, €114), starting on 1 January, 2011. The EU will freeze its cuts for up to two years if WTO members do not conclude talks on agriculture in the Doha Round by the end of 2013. For more details, see below.
2. Latin American dispute settlement
Once the WTO certifies the EU's new tariff schedule, Latin American banana-supplying countries will drop:
Why is this deal so important?
The disputes on bananas have lasted for more than 20 years. They have destabilised the climate for production and trade in the countries concerned. This agreement is a stable solution in the interest of all parties. Furthermore, the agreement will help pave the way for a successful Doha Round.
What was the origin of the disputes at the heart of the deal?
The EU has traditionally provided special tariff preferences for bananas from African, Caribbean and Pacific (ACP) states. Some WTO members have repeatedly contested the compatibility of this preferential treatment with WTO rules. They have successfully appealed to the WTO's Dispute Settlement Mechanism, demanding a change to the present regime.
Can the EU put its tariffs back up in future if it wishes?
No. The EU is making a firm commitment not to raise its tariffs above a certain level. It is setting what are known as 'bound' tariffs.
Once WTO members certify the EU's new bananas tariff, the EU 'binds' its tariff. As a WTO member, it makes a binding commitment to other members not to raise its tariff on their exports (the MFN tariff) above that level.
Is the agreement still linked to progress in the Doha Round?
Yes. The agreement initialled today is the EU's final commitment on the tariffs it will apply to banana imports following the Doha Round negotiations.
The agreement is also part of an agreed package of programmed cuts on a number of products, which countries will make when they conclude the Doha Round (see below for more details).
What happens if WTO countries don't conclude the Doha Round of talks on global trade? Will the deal still hold?
If WTO members don't establish in the Doha Round so-called 'agricultural modalities' - new terms for global trade in agriculture - by the end of 2013, then the EU will act as follows:
Why is this deal good news for global trade more generally?
For two reasons. First, it means there's one less major issue which negotiators have to resolve in order to conclude the current Doha Round of talks on global trade.
Second, the EU and ACP and Latin American countries have agreed on an approach on so-called 'tropical' and 'preference erosion' products. They will jointly promote this approach in the ongoing DDA negotiations:
be conducted over a relatively longer period.
What are "Tropical" Products and "Preference Erosion" Products? Why are they part of the deal?
These are groups of products which countries will treat differently in the Doha Round from other agricultural products.
1. "Tropical Products" – faster liberalisation in the Doha Round.
For certain products, Latin American countries want WTO countries to open up global trade faster than for other agricultural products. Negotiators refer to these as "tropical products".
2. "Preference Erosion Products" – slower liberalisation in the Doha Round.
For another group of products, ACP countries want WTO members to open up global trade more slowly in the Doha Round. These are mostly products where ACP producers currently enjoy important preferential margins for their exports to the EU's market.
The EU has worked hard to help both groups reconcile their conflicting but equally legitimate concerns. And now all three parties have agreed which tariffs will apply to each of those products.
For "preference erosion" (PE) products, ACP countries consider they have substantial interests which they must defend; so:
Cuts in the tariffs on PE products won’t take place now. Instead:
Has the EU also settled its dispute with the US?
Yes. The EU has concluded an agreement with the US in parallel. In it, the US:
Will ACP countries still be able to export to the EU's bananas market?
Yes, for three reasons.
1. ACP suppliers will still be able to export to the EU duty- and quota-free; but the EU will still apply a substantial duty on LA bananas.
Bananas from ACP countries have entered the EU duty- and quota-free since 2008, thanks to Economic Partnership Agreements (EPAs) - a new generation of trade and development partnerships between groups of ACP countries and the EU. This will continue.
By contrast, the EU will continue to apply a substantial duty on bananas from Latin America. This so-called MFN duty will fall, from the current €176 per tonne to €114. But only gradually – over at least eight years. So with this deal ACP bananas will continue to enjoy a competitive advantage.
2. The deal provides predictability, which is important for investment.
It ends legal disputes at the WTO pitting the US and Latin American countries against the EU. It also allows the EU to set a tariff on bananas to which all other WTO members have agreed. So it will make the global market in bananas more predictable and stable, and thereby encourage investment and growth, and hopefully increased attention to wider production condition issues in the banana supply chains.
3. In addition to regular EU aid, the main ACP banana-exporting countries will receive up to €200m in extra support to help them adjust to the new tariff.
How will the EU help ACP countries to adjust?
In brief, the European Commission will propose mobilising €200 million from the EU budget to support the main ACP banana-exporting countries to adapt - in addition to the EU's existing support.
Since 1994, the EU has provided more than €450m to ACP banana-exporting countries to help them adapt to changes. This money has helped them to produce bananas more competitively, or to diversify their economies into other areas.
With this new deal, the EU accepts that the main ACP banana exporters may face further challenges in adjusting. So the ACP Group and the European Commission have agreed a response. The Commission has committed to proposing a new support programme - so-called "Banana Accompanying Measures" (BAM) - to the Council and Parliament, the EU's budgetary authorities.
This programme would be country-specific, build on past support, and help tackle the deal's broader consequences.
Will banana producers in the EU's outermost regions still be able to compete?
Yes. Banana producers within the EU have expressed concerns that they will become less competitive compared to Latin American exporters.
But the EU's important domestic support programme for these regions addresses their concerns (the Programme d'options spécifiques à l'éloignement et l'insularité , or POSEI).
In fact, in 2006, the EU increased annual funding for bananas within this programme to €279 million. And a Commission impact assessment found that by keeping tariff cuts within certain thresholds, and providing financial aid of this kind, the EU would limit the impact of tariff cuts on its domestic producers.
What happens next with the agreement?
The WTO General Council (GC) will review the deal at its next meeting on 17 December. Following this, EU Member States should authorise its signature. Finally the European Parliament must consent to the deal.
From the date the parties sign the agreement, they will implement it provisionally. The EU will then amend its duty on an "applied" basis. Once the European Parliament gives its consent to the deal, the EU will bind its new tariff schedule – meaning it commits not to raise tariffs above the new rates.
Annex 3 sets out in detail all the stages in approving the deal.
How big is the EU's banana market? Where do the bananas come from?
In 2008, EU consumers bought more than 5.4 million tonnes of bananas. The EU imported almost 90% of the bananas it consumed - around 4.8 million tonnes, worth €2.9 billion. Annex 1 gives more details.
Five EU countries supplied the remaining 11%:
Annex 1: The EU's bananas market in 2008
Annex 2: The EU-Latin America Bananas Deal – terms explained
Annex 3: The EU-Latin America Bananas Deal - eight key stages