I. PREAMBLE

(1) EUROBAN¹, an international network of European NGOs committed to the fundamental rights and needs of banana workers, small farmers and the environment, is in favour of an effective, balanced, rule-based system for the import of bananas to the European Market. With the goal of sustainable development in mind - defined as a marriage between economic, environmental and social sound practices - we believe that the reform of the current EU banana regime should not restrict itself to achieving short term trade policy objectives such as WTO-compatibility and the protection of EU producers in accordance with the Common Agricultural Policy. In addition, we would emphasise the fact that the EU has an obligation to fulfil its own commitment to coherence between its trade, agriculture and development policies, set out out in the Amsterdam Treaty and supported by various resolutions of the European Parliament.²

II. THE EU BANANA REGIME - THE NEED FOR A MAJOR CHANGE

(2) As a result of the latest WTO rulings on the banana regime (April 1993)³, this commitment is at stake. It is abundantly clear that the WTO trade rules in general and the Panel reports in particular in no way respond to the urgent development and environmental needs of the banana producing countries such as stated in the International Banana Charter launched at the First International Banana Conference in May 1998, Brussels.⁴

(3) From a long term perspective, the banana case proves the need to bridge the gap between trade and sustainable development. Hence, EUROBAN urges the EU to undertake all the necessary efforts to draw attention to these issues during the forthcoming Third WTO Ministerial Conference in Seattle.

(4) In the short term, the banana dispute has to be resolved in accordance with the WTO rules. EUROBAN, together with its partners in civil society in the banana producing countries, appeals to the EU and its 15 member countries for a major change in the import regime in the direction of greater economic efficiency, social justice and environmental cost internalisation.

III. MOVING FORWARD - HOW TO CHANGE THE BANANA REGIME

(5) EUROBAN calls for:

a tariff-only system, with a substantial tariff preference for ACP suppliers, complemented by

aid programmes for vulnerable ACP countries and

direct support for independent and disadvantaged banana farmers in (traditional and non-traditional) ACP and third countries producing in accordance with minimum social and environmental standards established by Fair Trade initiatives.

IV: THE PROS OF THE EUROBAN PROPOSAL FOR A TARIFF-ONLY SYSTEM

(6) EUROBAN is convinced that only this kind of trade regulation can provide both WTO-compatibility and real incentives for a more sustainable banana economy, including:

substantial respect for the EU's Lomé obligations

avoidance of a new expansive round of unsustainable banana production

generation of funds to support sustainable production, fair trade and ACP-related measures

preserving the potential for further support of sustainable production methods and fair trade operations via trade-policy measures.

Note: This is related to the ongoing political efforts to improve WTO rules relating to Process and Production Methods (PPMs) and such instruments as (Eco-)Labelling schemes and social/environmental clausing.

Furthermore, a well-designed tariff-only system is the best option for finally settling a long trade dispute and the only guarantee for avoiding a new WTO banana panel.

(7) The EUROBAN proposal of a tariff-only solution consists in:

an absolute tariff of not less than 250 EUR per tonne⁵

a substantial tariff preference for ACP bananas, by setting the tariff on ACP banana imports at zero

the reflux of tariff revenues to the banana producing countries as the conditio sine qua non in order

- to support the vulnerable ACP countries by democratically controlled aid programmes

- to give direct support to independent and disadvantaged banana farmers producing in accordance with basic social and environmental minimum criteria in ACP and in third countries.

Note: EUROBAN is aware of the legal problems of a direct reflux of tariff revenues. However, we are convinced that the EU legal service would find legal mechanisms to put this crucial element of our proposal into practice provided that the political will exists. In essence, an amount equal (or close) to the revenues from the tariff should be earmarked on the expenditure side of the budget of the European Union.

In addition, we remind the EU to present the promised initiative to promote fair trade bananas on a marketing level.⁶

V. THE CONS AGAINST A TARIFF-QUOTA SYSTEM

(8) In the past, EUROBAN has supported a tariff-quota system. We did this, not as a matter of principle, but because we believed that the quota rent,⁷ if properly used and "recycled" for development purposes, could provide a basis for cost internalisation (see above) and because such a system, in theory, could give the necessary protection to vulnerable farmers in ACP countries.⁸ However, none of these targets has been achieved. On the contrary, ACP suppliers have constantly and severely lost - and continue to lose - market shares down to less than 10% of the total market volume. At the same time, the enormous quota rent of about USD 1 billion continues going mainly to middlemen, TNCs, wholesalers and retailers, and less and less to the ACP producers whom it was meant to support. From the perspective of sustainable development and political coherence, the EU has clearly failed to achieve its own targets.

(9) In the light of the latest WTO ruling, the only remaining legal and politically realistic tariff-quota option seems to be a global tariff-quota for all imported bananas, without country-specific quota shares. In addition, there might be a tariff preference for ACP bananas, if the existing Lomé waiver is prolonged (waiving Art. I, GATT).

(10) But such a tariff-quota solution would mean that Community producers - not ACP producers - would be favoured by the quantity-constraints of the global import quota. The only advantage left for the ACP-producers would be a tariff preference - and that would almost certainly be better achieved by the tariff-only solution proposed by EUROBAN.

(11) On the other hand, a global import quota would once again give a huge quota rent to established importers and create the need for the allocation of import licences with an ongoing discrimination against (genuine, including fair trade) newcomers. The market would continue to be a "closed shop", distorted by allocating huge and unjustified benefits to the big companies and rent-seekers, blocking innovation and hindering new suppliers from entering the market independently.

(12) Hence, EUROBAN believes that an unbalanced form of quantity-managed trade regulation would be the worst case scenario. Thus, we strongly oppose a tariff-quota solution under the currently prevailing circumstances. Instead, and from the starting point of sustainable development, we support a tariff-only system as outlined in (5) and (7) above.

VI. NEXT STEPS TO BE UNDERTAKEN

(13) EUROBAN urges the European Commission, DG VI and DG I, as well as the EU Agriculture Council, the European Parliament and all 15 EU member states seriously to consider this proposal, which is endorsed by numerous international NGOs, small farmers associations, trade unions and other actors in civil society.

(14) EUROBAN offers its support for any political initiative in favour of a better banana import regime which leads to an economically, socially and environmentally sustainable banana economy. As a first step, EUROBAN requests meetings with policy-makers at national and European level to present and discuss this proposal in detail.

(15) At the same time, EUROBAN and partners will take appropriate measures to achieve broad public support for this trade policy proposal within and outside the EU.

May 1999

Footnotes:

(1) Impact on the ACP countries

We believe that this level of tariff protection will ensure that the bulk of the current ACP trade flow will be able to continue to compete with even the most competitive bananas from third countries and will also leave room for expansion of the current ACP trade. Calculated per box of 18.14 kg., the ACP advantage will be some USD 4.50.

(2) Impact on the four substantial suppliers (Costa Rica, Panama, Colombia, Ecuador)

The replacement of the current prohibitive tariff of 680 EUR/t by the year 2000 with a 250 E/t tariff will permit trade to flow freely. Due to good and reliable quality, the current logistics of the industry, and current plantation property rights, these countries will always continue to deliver

their fruits to the important EU market:

Ecuador will not have to face competition with the other three substantial suppliers who have country specific quotas.

Colombia will be able to build up its own export companies, as they will no longer be dependent on third party operators' licences.

Panama will continue to be Chiquita-dominated.

Costa Rica: will be able to build up its own export companies, as they will no longer be dependent on third party operators' licences.

(3) Impact on other third countries (Nicaragua, Honduras, Guatemala, Mexico, etc.)

These will be able to compete on an equal footing with the countries which currently have a specific quota. Honduras in particular has been a victim of the past 8 years of EU quota politics.

(4) Finally, a liberalised market will give opportunities to farmers in countries like Brazil and India, which have expressed interest in participating in the market.

B. COMMUNITY PRODUCERS

(5) In the short-run, producer prices within the European Union should be stable; staying within the limit on FEOGA spending agreed for 2000 should not lead to a deterioration in farmers` income.

(6) In the longer run there will probably be a decline in producer prices, as imports from third countries increase. However, as the tariff of 250 EUR/t is close to the tariff-rate equivalent of the present TRQ regime, the decline in prices and the necessary rise in deficiency payments should be moderate. In broad terms, we support the forecast of the Commission (Communication, 26 May 1999, Annex I, Scenario III):

a tariff of 275 EUR/t: The cost of the domestic support regime would broadly be similar to the present.

C. FARMERS' GROUPS

(7) Independent farmer groups (especially vulnerable small farmers, with emphasis on so-called fair trade farmers) should benefit from this system, as it enhances market access opportunities for them. Apart from that, small farmers in Ecuador and the Caribbean (the only large group of small farmers) will benefit directly from the change to a tariff-only system.

(8) Impact on Non-EU operators

These companies were affected in the following ways by the introduction of the EU regime in mid-93:

Reduction in the overall import volume because of the existence of a quota meant foregoing profits on the one hand and receiving of quota rent on the other hand

Preferential allocation of licences to EC/ACP operators meant further foregoing of profits and reduction in the quota rent received. In fact, Non-EC operators bought licences from EC/ACP operators.

The introduction of a tariff-only regime at a rate of 250 EUR/tonne reverses this in two ways:

As the tariff-level of 250 EUR/tonne is lower (though not much lower) than the tariff-rate which is equivalent to the present TRQ regime, the abolition of the quantity restriction will allow a modest expansion of business and an increase in revenues and profits on the one hand, while contributing to the erosion of the quota rent on the other hand.

As there will no longer be a need for allocation of licences, a level playing field for competition between the operators will be restored. They will no longer have to base part of their market share on licences bought from EC/ACP operators. In addition, competition between them will increase.

(9) Impact on EU/ACP operators

Traditional EU/ACP operators will lose some revenue from the sale of licences and will come under pressure from the big Non-EU operators. On the other hand, the competitive position of innovative newcomers will improve.

(10) Impact on all operators

All operators will have to pay the new, higher tariff (other than on ACP tariff-waived imports). However, they will pass this on to consumers, who in turn should benefit from the erosion of the quota rent. Two factors will contribute to the erosion of the quota rent: first, the (moderately) increased imports; and second, the increased competition after the scrapping of the licensing system, not least by newcomer operators. Overall, the tariff burden should increasingly replace the quota rent.

It is unlikely that the non-EU operators will succeed in substantially lowering FOB prices, while having to increase third country exports in their fight for increased market share. The volume and value of third countries exports should increase.

Operational costs associated with the administration of the complicated licensing system will decrease substantially in a tariff-only system, and the possibility of planning for all concerned will increase.

E. EUROPEAN CONSUMERS

(11) In the short-run, i.e. during the first months after the abolition of the TRQ, consumer prices are likely to rise moderately as the companies pass the tariff burden on to consumers and retain the quota rent which they previously enjoyed. However, in the longer-run the new flat tariff of 250 EUR/t will allow a moderate increase in imports. This, together with the increased competition after the scrapping of the licensing system, should lead to the erosion of the quota rent and to a fall in consumer prices.

(12) The net result will be a decline in consumer prices. However, as the tariff-level of 250 EUR/t is not far from the tariff-rate which is equivalent to the present TRQ regime, this decline should be moderate. This is confirmed by the Commission (Communication, 26 May 1999, Annex I, Scenario III).

F. POLITICAL FEASIBILITY

(13) A tariff-only regime with a preference for the ACP (on the basis of the Lome-waiver) was one of the possible ways suggested by the WTO-panel to bring the regime into conformity with the WTO. We share the view of the Commission (Communication, 26 May 1999, p.3) that it would be difficult for the US to contest the WTO compatibility of a tariff-only solution. This is

true in particular for a tariff at the level of 250 EUR/t, which would allow a (moderate) increase in imports from third countries.

(14) We also believe that the switch from a regime of bound duty of 680 EUR/tonne and TRQ with reduced bound duty of 75 EUR/tonne to a tariff-only regime with a new bound level of 250 EUR/tonne will not create the need for huge compensation. This view is also shared by the Commission (Communication, 26 May 1999, Annex II).

(15) The imposition of the tariff is justified by the need to protect EU producers in accordance with general CAP principles and by the need to protect ACP producers in accordance with the Lome Agreement. Increased expenditure on EU producers and vulnerable ACP producers (based on additional tariff revenue) is justified not least due to the fact that the competitive position of both EU producers and vulnerable ACP producers will somewhat deteriorate as a result of (moderately) higher imports from third countries and the weakened position of EC/ACP operators (loss of cross-subsidisation).

(16) If we take a broader view of the budgetary consequences, it is clear that the tariff of 250 EUR/tonne will lead to additional revenue. Politically, albeit not formally, this can be seen as a source of funding not only for the moderate rise in deficiency payments to Community producers, but also for targeted support for vulnerable ACP producers and sustainably producing