Banana Splits and Policy Changes - Term Paper Example

Banana Splits and Policy Changes Introduction This paper highlights the impact of policy changes on the banana trade from the ACP states to the EU. It discusses the historical background of the banana trade that is based on strong ties between ACP and EU nations since the 1980s. There was gradual development in the banana regime from three different ones to a single one. Paper further elaborates on the impact of the policies of GATT, WTO and EU and on the ACP Banana trade and the efforts that ACP states need to take in order to sustain their dwindling foreign exchange through trade. Historical Background Up until the 1950s, sugar of the Windward Islands was a major source of foreign revenue for the Caribbean agricultural producers and then bananas took the prominent place (Ford, Dell'Aquila , & Conforti. 191). The Banana producers of the Caribbean have enjoyed significant benefits in the form of trade preferences. These trade preferences enable the banana producers to charge premium prices and avail implicit income transfers in the European markets (Haines, Cashin and Mlachila 3). According to the Technological Modernization of the Banana Industry in the Caribbean (16), the seven banana producing countries in the Caribbean are1: 1. Belize 2. Dominica 3. Grenada 4. Jamaica 5. Saint Lucia 6. St. Vincent and Grenadines and 7. Suriname Over the years there have been many reforms in the European Union that have eroded the concept of preferential treatment and implicit income transfers in favor of a more free market economy. The Caribbean countries are now facing global competition in the European market and are finding it exceedingly difficult to stay competitive and meet the employment and food security needs of their rural population. The Treaty of Rome allowed for the allocation of quota and tariff for banana imports for non-ACP countries (Ford, Dell'Aquila , & Conforti. 192). Main reasons for the preferential treatment of EC towards the ACP Banana producers (Ford, Dell'Aquila and Conforti 192): Firstly ACP countries were colonies or ex-colonies of the European Commission and providing them with trade access was a means of boosting their economy. Secondly the product offerings of these countries were fairly limited and lacked diversity; this made them very weak in competing globally. Thirdly they were a developing nation that applied traditional methods of harvesting; producing and marketing. Their bananas had a high cost of productions and did not have the economies of scales like the ones from United States did (Clegg 28). United Kingdom managed to retain their banana trade regime with ACP following their accession to the EC but these close ties between UK and ACP were greatly affected by their dominant role in the EC (Clegg 27) Single European Act (SEA) By 1980 the EC concluded that inefficiencies that existed in the trade barriers between the EC members were costing the EC competitive edge over Japanese and US economies. The European market was highly segmented where each segment had their own approach towards international trade (Dickson, 1). According to Clegg, three main banana regimes existed (28): 1. Some members observed preferential imports, such as the existence of EC/ACP market produced bananas in UK, France, Greece, Italy, Portugal and Spain. UK specifically chose to import from ACP states such as Windward Islands, Jamaica, Belize, Ivory Coast and Cameroon (Dickson 1). 2. Germany had a duty-free market that was dominated by Latin American bananas or Dollar bananas (Dickson 1) 3. Belgium, Denmark, Irelands, Luxembourg and Netherlands had imposed a 20% tariff on all non-ACP imports. Single European Act (SEA )was established in 1992 (Clegg 28). SEA aimed to introduce common rules that oversaw the international trade between members and third countries. The introduction of such policies would shift the hold of government policies at national level to economical policies that served the benefit of all members. However establishing a single market based banana regime was a complex task (Klegg 28). Firstly, each member had obligations to their banana suppliers such as in the case of UK, their relationship with ACP states was based on historical ties. Secondly the production cost between the bananas suppliers varied such as the production cost for ACP bananas was significantly higher than the ones produced in Latin America. So the key challenge for the SEA was to reach a solution that safeguarded the position of the ACP banana producers but still encouraged competitive forces in the market (Clegg 28). CBEA (Caribbean Banana Exporters Association) CBEA was established in 1988, with the aim of indulging in political lobbying activities that would safeguard the interests of the banana regime (Clegg 29). The CBEA comprised of seven member countries, a public relations agency and marketing company that collectively led the lobbying effort. A very strong lobbying campaign was specifically targeted at United Kingdom. This lobbying campaign managed to gain sympathy in the UK in spite of opposition from some Conservative members that supported free trade (Clegg 29). The lobbying efforts paid off as the ACP/CBEA were successful in grabbing the attention of European Parliament and the ECOSOC in spite of opposition from Germany and Belgium (Dickson 2). Single Banana Regime of 1993 The term regime has been used for the EU Common Market Organization (CMO) for bananas because it was a framework implemented by the European Union to safeguard the duty-free preferential access given to the ACP( Africa-Caribbean and Pacific) states in the European markets (Canterbury 86). 2 Dickson (2) identifies the following highlights of the Banana regime that favored the ACP bananas also called: A duty-free access to EU market of 857,700 tons of bananas from ACP suppliers and an imposition of tariff quota on all other producers in access of 2 million tons. The need to obtain a license for every banana exporter to EU, these licenses imposed restrictions on exports in the form of quotas. This agreement on bananas was the last and short-lived successes story of the regime because there was tremendous international pressure on the European Union against preferential treatment (Clegg 30). Thus the institutional nature of WTO and GATT overshadowed the national or individual interests of the nations. General Agreement on Tariffs and Trade (GATT) GATT was established in 1948, as an interim body. The members of GATT were expected to make a collaborative effort towards reducing tariffs, discriminatory trade practices and remove other barriers to trade (Columbia Electronic Encyclopedia)3. Most Favored Nation Clause (MFN) According to the most favored nation clause it is a business agreement that binds the signatories to ensure that equal trading benefits are extended to any third state. Thus everyone is provided with equal commercial opportunities such as equal import duties and market access (Columbia Electronic Encyclopedia).4 GATT’s Opposition of Preferential Treatment In 1990s, some Latin American producers challenged the ACP bananas preferential trade access to the EU markets.  GATT not only contested some aspects of the single banana regime but also was skeptical of the legality of decision through the Lome Convention (Clegg 31). By December 1994, EU obtained a 5-year derogation in light of which the MFN rule that encouraged tariff concessions be given to all members equally did not apply to them. Thus for the time being EU was able to provide preferential access to bananas originating in the ACP states without extending the same to other GATT members. Role of WTO in Banana Trade World Trade Organization (WTO) replaced it in 1995 as a robust and independent body that had the framework to resolve trade disputes. In spite of the waiver the US and Latin America challenged the validity of this regime in the WTO (Clegg 32). And it became obvious to the Caribbean producers that this legitimate nature of WTO superseded their trade relations with EU. CARICOM Representation in WTO Caribbean Community (CARICOM) by 2005 had about thirteen member states in the WTO and of them only three have a physical presence in Geneva: Barbados, Jamaica and Trinidad and Tobago (Clegg 32). The financial constraints and low representation took a toll on the Caribbean community because they fail to express their views in front of the WTO. EU in 2002 contributed 1.45 million Euros to help establish ACP offices in Geneva. Caribbean Regional Negotiating Machinery (CRNM) In 1997 CRNM was established, that is a specialized unit for CARICOM in Geneva to represent the Caribbean community in the WTO forums ( Clegg 33). However some Caribbean member questioned the need for an additional body. Furthermore on some occasions CRNM has supported certain causes that have not been for the benefit of CARICOM members. Caribbean States Position in the WTO Firstly there is a certain level of conflict between the CARICOM States too such as the rift between the Trinidad and Tobago and the Windward Islands over the banana exports. Secondly, in spite of forming specialized body such as the CRNM to represent them at the WTO, the Caribbean states still lag behind significantly in financial and human resources in comparison to developed nations. Caribbean states in particular are at a disadvantage not only because of their low representation but also because of their low level of participation in decision-making process. According to the WTO framework, the Caribbean states have a third-party status so how a country manages their trade regimes and market access is not their decision to defend, regardless of their financial or economic relations to the dispute. Role of EU and Members The Cotonou Agreement would enable all WTO members to gain market access at a set tariff-level in EU (Haines, Cashin and Mlachila 5). It further propagated polices that would eventually bring an end to trade preferences without non-reciprocal trade. Caribbean states need to realize that the success factors of the Single European Banana Market were: the unity of the Caribbean states back then as well as the pro-ACP majority in the EU. Both of these crucial factors are absent now. EU has incorporated members from Central and Eastern Europe that are not as financially stable as their counterparts (Clegg 38). So these members are more in a position to want aid than to give it, so EU has to consider the needs of her members a first. The Caribbean government did not plan in advance r build up on diplomatic relations with the new EU members (Clegg 39). Furthermore the inclusion of new members also means that the ACP trade does not fully-serve each member’s benefits either. Future Outlook ACP/EU trade was very effective in the 1980s and 90s. The Caribbean states shared years of trade collaboration and history with EC. These relations provided Caribbean banana producers preferential access into the EC along with making implicit income transfers. But with the emergence of institutional decision-making such as GATT and WTO, the trade disputes and decisions could no longer be resolved through historical trade relations. ACP banana producers gradually lost preferential access to EU markets in favor of free-markets which were dominated by large scale dollar-banana producers. The problem was exacerbated by the weak financial and human-resource representation that the ACP states held in WTO forums. The ACP states need to realize that the age of preference is over and the need to strengthen their unity, invest in technology, consider alternative sources of foreign revenue, build-up on human capital and invest in their representation at the WTO. Works Cited "General Agreement On Tariffs And Trade." Columbia Electronic Encyclopedia, 6Th Edition (2011): 1. Academic Search Complete. Web. 30 Apr. 2012. “Most-favored-nation clause.” Columbia Electronic Encyclopedia, 6th Edition; 11/1/2011, p1-1, 1p. Print “Technological Modernization of the Banana Industry in the Caribbean.” Bib. Orton IICA / CATIE. Print Canterbury, Dennis. The EU Banana Regime. European Bloc Imperialism. BRILL, 2010. P 86. Print Canterbury, Dennis. The EU Banana Regime. European Bloc Imperialism. BRILL, 2010. Leiden. Netherlands. P 86. Print Clegg, Peter. Banana Splits and Policy Challenges: The ACP Caribbean and the Fragmentation of Interest Coalitions. American and Caribbean Studies. 79, October 2005. P 27-45. Print Ford, D. Dell'Aquila ,C. and Conforti, P. Banana Trade in the Caribbean- Chapter 8. Agricultural Trade Policy and Food Security in the Caribbean: Structural Issues, Multilateral Negotiations and Competitiveness. 2007. Rome, Italy. P 191. Print Mlachila, Montfort , Cashin, Paul. and Haines, Cleary . Caribbean Bananas: The Macroeconomic Impact of Trade Preference Erosion. 2010 International Monetary Fund. P3-11. Retrieved on 24 April 2012 from Web Read More