HONG KONG WTO MINISTERIAL 2005: BRIEFING NOTES

BANANAS
Discussions continue on a long-standing issue

In February 1996, Ecuador, Guatemala, Honduras, Mexico and the United States filed a legal complaint against the European Union’s banana import regime, which had been in force since July 1993, claiming that it unfairly restricted the entry of their bananas to the EU.

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> Director-General’s letter to journalists
> The Doha Development Agenda
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> Statistics, Textiles and Clothing
> Statistics, Facts and Figures
> Jargon buster, Country groupings
> Jargon buster, An informal guide to ‘WTOspeak’

 In September 1997, the WTO ruled that the EU’s banana import regime was inconsistent with WTO rules for the following reasons:

• the EU’s tariff quota allocation, particularly to the ACP (African, Caribbean, Pacific) countries, was contrary to the non-discrimination rule (Article 13 of the GATT — General Agreement on Tariffs & Trade);
    
• the EU’s licensing procedures, which involve the purchase of EU and/or ACP bananas in order to obtain rights to import some Latin American (or other third countries’) bananas, were contrary to the MFN (most-favoured-nation) rule and the national treatment rule (Articles 1 & 3 respectively of the GATT); and
    
• through the impact of this licensing system on the service suppliers of the complaining countries, the licensing procedures were also contrary to the MFN rule and the national treatment rule (Articles 2 & 17) of the GATS – General Agreement on Trade in Services.

In January 1999, the EU introduced a new banana import regime but the WTO ruled in April 1999 that this new regime was also incompatible with the EU’s WTO obligations. On 19 April 1999, the WTO granted US authorization to impose sanctions up to an amount of US$ 191.4 million per year on EU products entering the US market. In May 2000, the WTO granted Ecuador authorization to impose sanctions up to an amount of US$201.6 million per year on EU exports to Ecuador.

In April 2001, the three governments reached an agreement whereby Ecuador and the US would suspend their sanctions so long as the EU changed its banana import regime from the existing tariff-rate quota system to a tariff-only system by 1 January 2006. Under this new tariff-only system, banana imports would not be subject to quotas; there would be a single tariff for all banana imports, except for ACP bananas which would continue to benefit from a preferential tariff arrangement.

In order to change from a tariff-rate quota system to a tariff-only system, the EU has to modify all its existing WTO market-access commitments relating to bananas. Hence, under WTO rules (Article 28 of GATT), the EU has to re-negotiate with all countries which supply bananas on a non-preferential basis to the EU and reach agreement on the details of the new tariff-only system. At the end of these negotiations, the share of the EU market for these suppliers should be no less than before.

In November 2001, at the WTO Ministerial Conference in Doha, Qatar, all member governments of the WTO adopted a Ministerial Decision which formalized the above elements of the agreement between Ecuador, the US and the EU. The Ministerial Decision also spelt out the procedures and timetable for possible arbitration in the event the EU is unable to reach an agreement with the banana-supplying countries on the new tariff-only system. A related Ministerial Decision adopted at Doha allows ACP bananas to be imported into the EU tariff-free until 31 December 2007.

On 31 January 2005, after several months of consultations with non-preferential banana-supplying countries, the EU informed the WTO of its new banana tariff: € 230 per tonne.

In March/April 2005, a group of Latin American countries requested arbitration under the Doha Ministerial Decision. In August 2005, the arbitration panel ruled that the EU’s proposed tariff would not maintain the existing market-access for non-preferential banana suppliers from Latin America.

On 12 September 2005, the EU proposed a revised tariff of € 187 per tonne. The parties held further consultations, but they were unable to reach a mutually-satisfactory solution. On 26 September 2005, the EU requested a second arbitration. The EU stated that, with the exception of a proposal for a zero tariff, the EU had not been presented with an alternative figure to its proposed tariff, and that there was no basis for seeking a mutually-satisfactory solution in the absence of a counter proposal from the other parties. Hence, the EU requested an arbitration to determine, within 30 days, whether the new EU proposal “has rectified the matter”.

On 27 October 2005, the second arbitration report was issued. It determined that the EU's proposed rectification, consisting of a new MFN tariff of € 187 per tonne and a 775,000 ton tariff quota on imports of bananas of ACP origin, would not result in “at least maintaining total market access for MFN banana suppliers”. The arbitrator, therefore, concluded that the EU had failed to rectify the matter.

Other material:
> Dispute Settlement
> Negotiations on the DSU
> Doha declaration
> Doha declaration explained

More on disputes:
> Find disputes cases on bananas
> Find disputes cases
> Disputes chronologically
> Disputes by country
> GATT disputes (pre-WTO)