Banana dispute settled?

FACTBOX-Bananas dispute at the World Trade Organisation - Reuters

Dec 4 (Reuters) - The European Union and two groups of developing countries say they have settled a row about the European Union's import regime for bananas.

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The row is the longest-running world trade dispute, and could derail the Doha round talks at the World Trade Organisation (WTO) on a new global trade pact.

Bananas are vital to the economies of several Latin American countries, such as Ecuador, the world's biggest exporter, and to other former European colonies in Africa, the Pacific, and the Caribbean (ACP) -- especially in the West Indies. In 2006 bananas made up 10 percent of Ecuador's and Costa Rica's export revenues, 21 percent for Dominica and 29 percent for St Vincent.

The Caribbean and African exports rely on preferential treatment in the EU -- the world's biggest importer -- because their growers are less efficient. The Latin Americans are increasing market share even under present arrangements, but say they are being held back from selling more of a crucial product.

The EU -- itself one of the world's top 20 banana producers -- covers one sixth of consumption from domestic consumption, one sixth from ACP countries and two thirds from Latin America. Other big markets are the United States, Japan and Russia.

Some ACP countries accept they must pull out of the banana trade -- with traumatic effects on small island communities.

But whether they quit or attempt to become more competitive, they want time and protection in that transition.

The United States does not grow or export bananas on a large scale, but several U.S. companies are major distributors of Latin American produce -- Chiquita Brands International (CQB.N), Del Monte Foods (DLM.N) and Dole Food (DOLE.N).

Within the EU, Ireland's Fyffes (FFY.I) is an important distributor of bananas.

THE DISPUTES

Latin American producers (including the Philippines) and U.S. distributors have mounted nearly a dozen successful challenges to EU import rules for bananas that favour imports from former European colonies in the ACP countries.

In the face of those challenges, the EU cut its tariff for bananas to 176 euros ($265.3) a tonne, while retaining a duty-free quota for the ACP countries of 775,000 tonnes. Previously Latin American exporters paid 75 euros a tonne within a quota of 2.2 mln tonnes but 680 euros a tonne in excess of the quotas.

Latin Americans say the new regime is still discriminatory.

The EU has negotiated new preferential arrangements, known as economic partnership agreements (EPAs) with ACP countries that are WTO-compliant, after a previous WTO waiver on special treatment for ACP states expired at the end of 2007.

But in November 2008 the WTO's top court ruled that the EU banana import regime remained in breach of trade rules as the EU was still obliged to offer Latin American exporters the higher quota and lower tariff under the previous system.

THE DEAL

During a meeting of trade ministers in July 2008 seeking a breakthrough in the Doha round, Brussels and the Latin Americans negotiated a deal that would cut the tariff to $114 a tonne by 2016, with an initial cut to $148.

Brussels walked away from that agreement when the overall Doha talks collapsed.

Diplomats said the new deal -- which has not yet been published -- would involve the same figures, but the final level would not be reached until later than 2016.

The ACP countries agreed to this because of an aid package from the EU of about 200 million euros (although there will be lively discussions within the group about how to divide that up) and concessions in broader talks about the treatment of other tropical products, such as sugar, rum, tobacco, arrowroot, cut flowers and fruit, exported by both groups.

The EU will also have to square its own growers in Spain's Canary Islands and France's Caribbean territories, as well as Portugal, Greece and Cyprus.

The EU gets a "peace clause" promising no further WTO litigation -- though whether this takes effect from when the deal is signed or when the EU formally registers its new tariffs at the WTO has been contentious.

The deal will be embedded in any future Doha agreement, and there will be arrangements for dealing with the possibility that Doha never comes off.

THE DOHA IMPACT

Bananas can block an overall Doha deal because the agriculture negotiating text includes two conflicting proposals -- one for countries enjoying preferential access to rich markets, like the ACP states, chaired by Mauritius, and one for the exporters of tropical products, coordinated by Costa Rica.

Tropical products would enjoy faster and steeper cuts in tariffs than the round would otherwise generate. But tariffs on products with preferences would be cut more slowly to alleviate the erosion of the developing countries' relative advantage.

Honduras estimates that under the WTO's current Doha round negotiations, the regular agriculture proposals would see the tariff on bananas fall to 76 euros a tonne over 5 years -- or to only 26 euros over four years if treated as a tropical product.

The ACP and tropical products countries are negotiating with each other to remove the overlaps from their lists.

But if the banana dispute is not resolved, both would be likely to add the fruit to their lists, making an agreement on that aspect of the talks impossible.

In the WTO's consensus-driven system, agreement is only possible if every member signs up to it. And under the Doha round's single undertaking, nothing is agreed unless everything is agreed. So a dispute about bananas could prevent agreement about liberalising trade in grain, cars and financial services.