Who are the winners and losers in the European Common Market 10 years after applying import tariffs?
Since 1 January, 2006, the European Union has applied a new “Tariff Only” import regime, with a tariff of 176 euros per ton for bananas imported from third party countries enjoying Most Favored Nation (MFN) status—mainly in Latin America.
The EU is the largest consumer and importer of bananas in the world, followed by the US. In 2014, 5.7 million tons of bananas were consumed in the EU (+23% compared to 2005), of which 5.0 million tons (+26% compared to 2005) were imported from third party countries and 0.65 million tons (+2% compared to 2005) were produced internally.
It is worth noting that in that period the population increased by 8%, mainly with the accession of Romania and Bulgaria. In 2014, the share of MFN bananas consumed in the EU rose to 69.5%, while ACP bananas accounted for 19.0% and the EU’s own production the remaining 11.5%.
The main MFN suppliers of bananas to the EU are still Ecuador, Colombia and Costa Rica, which exported 1.47, 1.09 and 0.94 million tons respectively. During the same year, the main ACP suppliers were the Dominican Republic, Ivory Coast and Cameroon, which exported 0.34, 0.26 and 0.25 million tons respectively.
EU’s own production stable
The compensatory aid scheme for banana growers in force since 1993 was abolished at the end of 2006 and, as of 2007, an additional package of €278.8 million for banana aid was added to the funds for the so-called POSEI scheme, which supports agricultural production in the outermost regions of the EU.
An additional amount of €4.5 million overall was transferred to Cyprus and Greece. Bananas grown within the EU accounted for about 11.5% of total EU consumption in 2014. They are mostly produced in the outermost regions (the Canary Islands, the French overseas departments of Guadeloupe and Martinique, Madeira and, marginally, the Azores) located in tropical or sub-tropical areas, as well as certain quantities (approximately 1% of total EU production) produced in Cyprus, Greece and continental Portugal.
These aid mechanisms appeared to be sufficient to keep production running at the same level. A shift is noticed between Martinique and Guadeloupe, with the latter increasing exports to 74.000, tons, up 53%.
ACP (Africa, Caribbean and Pacific) countries
Since 1st January, 2008, the African, Caribbean and Pacific (ACP) banana suppliers who have signed an EPA (Economic Partnership Agreement) have benefited from duty and quotafree access to the European Union market. ACP countries that have concluded negotiations on either a full or interim EPA, including all ACP banana suppliers, are: Belize, Cameroon, Ivory Coast, Dominica, Dominican Republic, Ghana, Grenada, Jamaica, St. Lucia, St. Vincent and the Grenadines, and Suriname.
The remaining ACP countries that have not concluded EPA negotiations may benefit from preferences in the Generalized System of Preferences scheme, under which Least Developed Countries benefit from the preferences of the Everything But Arms initiative.
The EU continues its longstanding financial support with €191 million for a 5-year period to the banana sector in ACP countries. The Banana Accompanying Measures (BAM) are designed to help those countries adjust to new trade realities. With this tariff and aid, ACP banana-exporting countries could increase exports to 1.08 million ton, up 42% compared to 2005.
The organic/fair trade banana from DomRep is the winner, doubling its exports to 342,000 tons. West-African countries Cameroon, Ivory Coast and Ghana secured their market share in France and the UK at around 550,000 tons. Belize and Suriname also used the aid properly, exporting 101,000 and 73,000 tons respectively and filling the coffers of Fyffes and Univeg.
What was feared came true for all the small Caribbean islands, where the banana export industry is coming to an end. The ethnic population in the UK were not willing the premium to let survive their growers. Haiti is now knocking at the door to open up the market with new organic volumes using a World Bank investment of $27 million.
Most Favoured Nations (MFN) of Central and South America
On 15 December, 2009, the European Commission signed an agreement for bananas with Latin American suppliers. This deal brought the longstanding banana dispute to an end, which soured EU external trade relations for many years.
The United States also agreed to settle their open dispute on bananas with the EU by signing a separate agreement with the EU. According to this agreement, the EU will cut the MFN import tariff on bananas in eight steps, from the rate of 176 EUR/ton to 114 EUR/ton in 2017 at the earliest or 2019 at the latest.
With effect as of 15 December 2009, the EU firstly reduced its import tariff down to € 148/ton. Starting on 1 January 2011, the tariff fell again at the start of each year for seven years in annual changes (€143, €136, €132, €127, €122, €117 and €114).
The EU will freeze its cuts for up to two years if the Doha Modalities are not established by the end of 2013. Then, from 2016 at the latest, the EU will continue cutting its tariff each year, as agreed, whatever happens in the Doha Round, until it reaches €114/ ton on 1 January 2019 at the latest.
In return, Latin American countries and the U.S. agreed to settle the legal disputes still pending against the EU at the WTO and not demand further cuts for bananas in the context of the Doha Round talks on global trade, once they resume. Following the implementation of the agreements, the disputes have been settled as of 27 October 2012.
Reduced duties induced higher imports
Reduced duties apply in the case of some bilateral agreements with important bananas suppliers to the EU, such as Central America, Colombia and Peru. The agreements with Peru and Colombia have been in force since 1 March and 1 August 2013 respectively.
The agreement with Central American countries entered into force on 1 August in the case of Honduras, Nicaragua and Panama. These agreements provide for a gradual reduction of the import duty for bananas from these countries down to €75/ton as of 1 January, 2020. Almost all countries that entered into a preferential agreement appear to have gained in higher exports. The champion is Peru, up 700% to 90,000 tons, whose organic banana is very much appreciated by European consumers.
Colombian exports rose in 2014 to 1.09 million tons, up 21%, and Costa Rica shipped 0.94 million, up 48%. Honduras looked to its traditional market in the US, but reappeared in 2015. The same goes for Guatemala and Nicaragua, which are back with 65,000 and 5,000 tons respectively up to October 2015. Panama closed part of its production on the west coast and decreased shipments to 220,000 tons, 21% less.
Every year, Ecuador is finding it more and more difficult to hold its export leadership. The delay in signing the FTA will hurt it further in 2015 and 2016. Venezuela has been out of business since 2007 and Brazil will soon follow.
Mexico benefits from an import quota of 2,000 tons with an intra-quota duty of €70/ton. It helped to open up the market and exports topped 70,000 tons. Meanwhile, exporters await the arrival of ‘El Niño 2015-16’, which could jeopardize the market very much.
This article appeared on page 44-46 of issue 142 (March/April 2016) of Eurofresh Distribution magazine. Read that edition online here.