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memo/97/28

Brussels, 18 March 1997

EC fact sheet on Caribbean bananas and the WTO

Since December '96 the United States, through the United States Trade Representative (USTR), have been defending their motives for seeking a panel against the EU's banana regime, in a manner which misrepresents the objectives and impact of the regime on both latin American and ACP producers. This fact sheet serves to put the record straight and to show that the arguments put forward by the USTR are at a minimum groundless and indeed aim at distorting the reality as regards the banana regime or of the impact of its abolition on ACP economies.

As a consequence of the creation of the European "European" in this context, and throughout this document, refers to the 15 Member States of the EU. Single Market, in which goods can be moved without restriction across internal borders between Member States, EU legislation replaced the previous separate national regimes governing the import of bananas on 1st July 1993.

Following the conclusion of the Uruguay Round, the EU's commitment is a tariff quota of 2.2 million tonnes for imports of bananas from Latin America, and in addition to this there are separate allocations totalling 857,700 tonnes for bananas from certain ACP countries, principally in the Caribbean, who had traditionally supplied bananas to certain Member States under preferential arrangements.

In 1995, a total of 2,653,441 tonnes were imported under the tariff quota, almost exclusively from Latin America, i.e. 453,441 tonnes more than the EU's bound commitment, and 678,311 tonnes were imported under the traditional ACP arrangements, 179,389 tonnes less than the potential volume available to these countries. Nevertheless, the US, which does not itself export bananas, has found this situation so unsatisfactory that it is pursuing a complaint against the EU at the World Trade Organisation, in a bid to dismantle the trade preferences which exist to help Caribbean exporters.

The thrust of the US view as presented is that the Caribbean States and the EU are deliberately misrepresenting the US's position on this issue, whilst in reality the US is fully supportive of the Caribbean and has no wish or intention of harming Caribbean economies, inhibiting development or restricting trade opportunities for Caribbean produce, including bananas.

These laudable sentiments, are not however, borne out by the facts. In reality, the reverse is true, and since October 1994 the US authorities have pursued a strategy which if successful would lead directly to the destruction of the Caribbean banana industry and would consequently provoke severe economic hardship and political instability in a region already struggling against considerable difficulty and deprivation.

This case has been set in motion by powerful American multi-national companies petitioning under Section 301 of the US Trade Act. This has unleashed the full force of the US's legal and administrative resources, against the struggling democracies of 7 small Caribbean countries whose combined wealth is less than 0.4% of that of the US.

The USTR claimed it was necessary to speak out because of the risk of the EU leaking incomplete or misleading details about the Panel's final report, another fallacy, since this press briefing was held several months before the expected issue date of the report, and was therefore obviously unconnected. The EU has no intention of leaking information, or discussing confidential matters. However, it now feels compelled to respond to the arguments advanced by the USTR during their press conferences and in the "Fact Sheet" which was released last December. We also show that the inevitable outcome of the US action, if successful, would be devastating for the Caribbean states concerned.

"(The WTO case) is calculated to destroy the Eastern Caribbean (banana industry)." Ambassador Simon Richards, UN Envoy for Dominica

The USTR press release stated that its "case is not against the Caribbean banana industry, the Caribbean governments, or the Lomé Convention.", and that on the contrary they "have often expressed their support for the Caribbean and have endorsed a waiver in the WTO allowing special treatment for Caribbean bananas". However, the Caribbean countries are able to export their bananas to Europe only because of the trade preferences which are the direct target of the attack by the US. They are also now disputing the validity of the waiver that they previously endorsed. The USTR's disingenuous claim is comparable to saying that a lumberjack who fells a tree is not intending to damage its leaves because he doesn't actually touch them, but only the trunk and branches. This is demonstrated by the fact that all exports of Caribbean bananas are to Europe, even though the US is much closer, and ostensibly a more obvious export destination. Without preferential trade access, Caribbean bananas are not able to compete with cheaper Latin American bananas. Therefore, if the trade preferences were to be demolished, the export trade would be destroyed, with devastating consequences not only for the banana industry, but also for the economic, social and political stability of the Caribbean countries.

"It is extraordinary that the US....should be prepared to jeopardize the economies of the entire Caribbean by (taking part in this action)." Caribbean Banana Exporters' Association

In its press release, the USTR mentioned its own support for the Caribbean, including the provision of "unilateral duty-free access for almost all Caribbean products". Thus the US recognises the need of Caribbean countries for such support, even though this concession has no specific value for the Caribbean in the case of bananas since all bananas enter the US duty-free, regardless of origin. However, in spite of their close geographical proximity, the Caribbean states are still unable to export bananas to the US profitably. This demonstrates that in order to provide an economically viable outlet for Caribbean bananas, additional measures, such as those which operate successfully within Europe, are required. The EU is providing practical help which enables the industry to trade, and to provide the export revenues which Caribbean banana producers need in order to survive.

"(Caribbean producers) account for only 3% of world banana exports and represent only 7% of the EU market, their only outlet." Caribbean Banana Exporters' Association

Of more than 12 million tonnes of bananas traded globally in 1994 (source FAO), only 300,000 tonnes, or 2.5%, were exported by the Caribbean ACP producers (Belize, Surinam, Jamaica and the Windward Isles). All of these bananas were imported into Europe, representing just under 8% of total EU banana supply in that year. Even though Europe absorbs the entire volume of Caribbean banana exports, the overwhelming bulk of European bananas (almost two thirds) are imported from Latin America.

"The US, which does not export a single banana, is bringing the complaint at the behest of Chiquita." Gordon Myers, Caribbean Banana Exporters' Association

Only around 5,000 tonnes of bananas are produced annually in the US, which is less than 0.15% of US consumption of bananas. All the home-grown bananas are produced and consumed in the Pacific islands of Hawaii.

The US's interest in European banana policy stems from a complaint to the USTR made jointly by Chiquita Brands International Inc. and the Hawaii Banana Industry Association in September 1994.

Ralph Nader's Public Citizens "Trade Watch" has pointed to the significant political campaign contributions paid by US banana trading firms as the real reason for the US challenge  quote taken from the Daily Observer, 4.12.96 . Trade Watch has also claimed that the four banana producing countries who are also complaining about the EC policy (Ecuador, Guatemala, Honduras and Mexico) were threatened with trade sanctions if they did not support Washington's position.

The US, not being an exporter itself, has no intrinsic reason for interest in other countries' exports or imports of bananas, or the trade preferences granted to producing countries.

The perceived importance of the banana issue to the US is due to two multi-national companies with a major presence in the banana industry, Chiquita and Dole. It is true that Chiquita has not performed well in recent years, but other multi-nationals trading in bananas, including Dole, have prospered. If Chiquita's ills were really a direct result of European policies, as they claim, it is remarkable that Dole, a similar company, trading in the same product, should not also have suffered in the same way.

"(The) dismantling of the (elements of the EU regime) would destroy (the Caribbean) banana industries because they would be unable to compete with cheaper Latin American fruit." Financial Times, July 26th 1996

The USTR claimed that "the EU can adopt a wide range of measures to fulfil this (Lomé) commitment" which would "not mean the destruction of the Caribbean banana sector". They have, however, been unable to suggest any alternatives which would ensure the continued existence of the Caribbean banana industry. All the "acceptable" possibilities mentioned in their position statement are already included in current European support for the Caribbean,, but would not be sufficient without the additional trade preferences the US is attempting to dismantle. This failure to come up with alternatives confirms the European view, that the current policy is the only option which can provide the support necessary for the Caribbean banana trade to survive. This is also the opinion of the Caribbeans themselves.

Later in the same press release, the USTR referred to the possibility of "focusing assistance on those Caribbean countries that really need it". This statement is, in itself, a tacit acknowledgement that without the current trade preferences, the banana trade would not be able to survive, and all that would lie between the producing countries and disastrous economic hardship and political unrest would be large-scale injections of financial aid. Substituting direct income aid for trade opportunities, as advocated by the USTR, would be directly contrary to the accepted wisdom, espoused not only by the World Bank, but also by the US, that taking positive measures to encourage the growth of trade flows is a more effective means of supporting developing countries in the long-term than providing cash hand-outs.

A recent in-depth study of banana production in the ACP countries, conducted by the international centre for co-operation in agricultural research (CIRAD), found that production costs in the Windward Isles were two to three times higher than the price that Ecuadorian producers receive for their bananas. It is clear that there is no way that the Caribbeans can compete profitably with Latin America without additional measures to support their trade.

"(There is a) very real possibility of social upheaval and political disaster in the region if this challenge to the European Union were to succeed." Ambassador Simon Richards, UN Envoy for Dominica

As explained above, if the US's action were to succeed in its objective of dismantling European banana policy and the trade preferences granted to the Caribbean, the banana industry in these countries would be destroyed. Banana export earnings are a very important part of total export income, and a critical component of the entire economy for many ACP producers. For example, bananas represented 41% of total exports of the Windward Isles in 1993, and half of all exports for Dominica. The banana industry is also a very important source of regular employment, being even more labour intensive than the cultivation of sugar cane. Any problems in the banana sector would therefore have serious social implications. An additional vital component of the economy which is provided as a result of banana exports is the maintenance of a regular shipping service which facilitates the flow of goods required by other sectors of the economy.

The regular employment and export earnings provided by the banana industry are absolutely vital to the economic, social and political stability of these countries. This stability is essential in attracting and making possible other investments to support their economies. The long term survival of the banana industry is inextricably linked with overall economic stability. Thus if the banana industry is destroyed, the consequences will affect the entire economy, and the resultant unemployment and poverty would present a very real risk of social upheaval and political disaster for these small democracies.

"If the action succeeded... the Caribbean industry would be destroyed... (creating) a rise in the illegal drug trade and a ripple effect across the entire Caribbean." Caribbean Banana Exporters' Association

As has already been discussed, the Caribbean industry will be unable to survive if the US gets its way. If the 25,000 thousand banana producers in the Windward Islands can no longer sell bananas profitably, they will look for alternative sources of income. Unfortunately, the most obvious replacement for bananas is drugs.

The US has granted specific trade preferences to Bolivia, Colombia, Ecuador and Peru in order to "reduce the production and trafficking of illicit drugs by offering opportunities to expand trade in legitimate products", thus recognising the important role that trade preferences can play in combating the drugs trade. How strange then, that they should seek to follow a diametrically opposite course and destroy trade preferences in the Caribbean, where the drugs problem is equally well acknowledged. Senior congresswoman and chairman of the congressional black caucus Maxine Waters recently warned Washington that the threat of economic destabilisation could see Caribbean farmers switching from bananas to less desirable crops like Marijuana. She also cautioned that cocaine producers would be able to exploit the region's poverty and instability to increase shipments of drugs through the Caribbean islands into the US - "the world's largest cocaine-consuming country" quote taken from the Daily Observer, 4.12.96.

"The objective of the (regime) is to ensure the future viability of (ACP) banana export production beyond the year 2002 when the EU's commercial preferences for ACP traditional producers are to be reviewed." European Commission

The need to restructure ACP banana industries so that they are more competitive has long been recognised. The technical assistance and development measures which are a fundamental part of European banana policy are all designed to do precisely this, the many projects that have already been implemented have resulted in improvements in management, productivity and quality of output, and further projects are currently being prepared to continue the adaptation process.

Bananas "tend to be a family crop in our area, unlike in Latin America, where it is grown by large corporations with very high technology." Hon. Joseph Edmunds, Ambassador of St Lucia to the US

"(The European Parliament) recognized that the EU's common market organization for bananas.... had brought traditional ACP suppliers, often small farmers, up against fierce competition from "dollar bananas" produced in Central and South America by US-based multinationals with huge advantages in scale of production and marketing." Reuters, June 21st 1996

The costs of production of bananas in the Caribbean are considerably higher than those in Latin America, where the bulk of bananas exported are produced on large plantations, permitting significant economies of scale.

25,000 farmers are involved in producing bananas in the Windward Isles, with an average farm size of about 1.5 acres (0.6 hectares). Compare this with, for example Ecuador, where 5000 producers are responsible for an area of more than 300,000 acres (125,604 ha), only 4% of the area is occupied by farms of less than 12 acres (5 hectares), and half of all production comes from plantations ranging upwards in size from 125 acres to several thousand.

Although there are undeniably many small farmers in Latin America, they have little access to the profits to be made from exporting bananas to Europe, since terms and conditions are dictated to them by the big trading companies, who own or control large areas of banana plantations. Chiquita, for example, owns some 132,000 acres and leases a further 46,000 principally in Panama, Costa Rica, Honduras and Colombia.

The European policy so strongly criticised by the US enables the Caribbean producers to get around $9/40 lb box for bananas shipped to Europe, which only just covers their costs. This is a rather better deal than the average price of $4.56/40lb box (11.4 cents/lb) paid for bananas coming from Ecuador These figures copare prices on a FOB basis for the period 1992-94 (source FAO). . This income of 11.4 cents/lb for the Ecuadorian producer, represents only 25% of the 1993 US retail price of around 45 cents/lb, whereas the Caribbean producers' income of 22.5 cents/lb represents 33% of the 1993 UK retail price  The UK retail price is used here since almost all Caribbean bananas are sold in the UK market. , in spite of the higher transport costs involved in shipping across the Atlantic to Europe.

Here are some quotes taken directly from the USTR press release, each matched with an explanation of the actual situation. This demonstrates the inaccuracy of the US comments.

"The current regime is not addressing (the Windward Islands') special needs or preparing them for a competitive banana market." "EU protection has had the result of discouraging efficiency and diversification into other sectors" "If the EU wanted to help the long-term viability of ACP banana production, it would be providing incentives to improve the competitiveness of producers that need it" "The regime has done little to stimulate the types of investment needed to make the Windward Islands competitive."

Incentives and assistance to improve the productivity and efficiency of ACP banana production are a fundamental component of European policy on bananas, established in the earliest legislation defining the scope and operation of the regimes. An overall amount of 77 million ECU (more than $90 million) has been allocated from European funds in the past three years for projects in the banana sector such as training to improve plantation husbandry and management, installation of modern facilities such as cableways and irrigation, packing stations, and measures to improve the quality of bananas produced. In addition to this aid specifically for the banana industry, the EU provides general development assistance to the Caribbean ACP, including significant sums for the identification and development of alternative crops. In the two years 1994 and 1995, EU development aid to the Caribbean banana producing ACP countries totalled around $175 million.

All these activities are designed with the sole purpose of helping the banana producing ACP states to strengthen and develop their banana industries so that they will become more competitive, and will be able to survive in future with less specific targeted support. Europe takes its responsibilities towards its Lomé partners seriously and puts its money where its mouth is.

The planned improvements in productivity and competitivity resulting from ongoing investment will not occur overnight, and the Caribbean banana industry requires significant support during the implementation period of these development projects. European banana policy is structured to provide firstly short-term support, through the disputed trade preferences, and secondly investment to bring about long-term improvements. This will ensure that the industry can survive whilst it is in the process of adapting to the more competitive conditions of the single market. Devoting millions of dollars to an industry which was not going to survive long enough to take advantage of the improvements brought about by the investments would be neither a morally defensible stance, nor an efficient use of resources. That however, is precisely the short-sighted course of action which the US is advocating.

"Since 1993, the EU's regulations have cut (Ecuador's, Honduras's, Guatemala's and Mexico's) access by 27 per cent, which has had a substantial impact on their banana growing region."

The tariff quota volume of bananas available to these countries for import into Europe (the 12 original Member States, plus the three recent additions of Austria, Finland and Sweden), currently stands at 1,201,818 tonnes. The four countries' maximum combined exports to the Europe were 1,034,989 tonnes in 1992, which has been acknowledged, even by the banana trading companies, as an abnormal year when heavy trading losses were made in order to increase volumes. In normal years their exports to Europe were around 600,000 tonnes. It is difficult to see how this translates into a reduction in their access to the European market.

"The current EU banana program benefits EU companies, .....at the expense of US and Latin American exports and companies. Through its discriminatory measures, the EU regime has deprived Latin American countries of share and export growth in the EU market and has taken business away from US and Latin American service providers."

There is no discrimination in any of the EU banana policy measures between companies according to their ownership. The EU and national authorities are not even aware of the ownership of the majority of the companies trading in the banana sector. Import licences for bananas are distributed on the basis of established, transparent and objective criteria which are related to past trade and have nothing to do with the nationality of a company's owners.

Tangible evidence of this is that two of the three major multi-nationals have actually increased their market share in the EU since the introduction of the regime. According to a study by Arthur D Little, Del Monte's share of the European market rose from 7.5% in 1991 to 8% in 1994, and over the same period Dole gained 4% percentage points to achieve a market share of 15%.

The claim that Latin American countries have been deprived of share and export growth in the European market is also spurious and unfounded, as shown by examination of import statistics. Latin American supply to the 15 Member States of the EU is now more than 8% higher than in 1989-91, the period immediately prior to the preparation of the introduction of the banana policy.

"EU protection has had the result of discouraging efficiency and diversification into other sectors, and reducing the competitiveness of Caribbean banana producers."

The history of banana production and marketing in Jamaica is a useful example which shows how inaccurate the above statement is.

Chiquita and its antecedent United Fruit had a long-standing involvement with banana production in Jamaica (United Fruit Company owned 5,749 acres of Jamaican banana plantations in 1900) until they decided to pull out and replace Jamaican bananas with fruit from Central and Latin America where wages were lower and yields were higher. By the end of the second World War, North America's demand for bananas was being almost wholly supplied from Central and Latin America, and banana production in Jamaica had declined dramatically. It was as a result of United Fruit's withdrawal, and Jamaica's inability to break into the US market independently, that exports of Jamaican bananas to the UK and Continental Europe were stepped up.

This refutes the claim that the Caribbean has had no incentive to try to market its produce other than in those countries where their produce has enjoyed a protected market, and demonstrates instead that the truth of the matter is that the protected market in the UK was created precisely because United Fruit decided that Jamaican production was not competitive, and transferred its sources of supply elsewhere.

The creation of the protected market was thus a direct result of the Caribbean's inability to compete, and not vice versa as the US and Chiquita would have us believe.


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