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EU reaction to the arbitration over banana import tariff

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Tuesday, 02 August 2005

EU reaction to the arbitration over banana import tariff

World Trade Organisation arbitrators while acknowledging the EU’s use of the price gap methodology to arrive at a tariff level have criticised some aspects of its application in this case. Arbitrators were therefore not in a position to endorse the tariff level of 230 EUR/tonne proposed by the Commission. The Commission will study carefully the arbitrators’ report and examine available options for taking this process forward. The intention remains to have a tariff only system in place on 1 January 2006, as agreed at the WTO Doha Ministerial held in 2001. The Commission will shortly initiate consultations with the countries concerned and expects their constructive engagement in these consultations.
Mariann Fischer Boel, EU Commissioner for Agriculture and Rural Development, said “The EU has calculated the MFN import duty for bananas in a neutral and transparent manner and has engaged in consultations with the Latin American countries concerned and in this arbitration in a constructive spirit. It has always been our intention that the form of the EU banana import regime would change but that the level of protection would not increase. We are currently evaluating the options available for putting into place the new import regime for bananas as from 1 January 2006”.
Peter Mandelson, the EU’s Trade Commissioner, said “The tariff proposed by the EU was designed to be a neutral and fair conversion that would maintain current market access for all banana suppliers to the EC. We remain committed to follow the procedures established in the Cotonou Waiver agreed in Doha in 2001 as the best means to facilitate a solution to the longstanding “banana saga”. We will start consultations with interested parties without delay. I hope that everyone will cooperate in finding a mutually acceptable solution within the strict deadline set by the WTO”.
In order to put an end to the long-standing bananas dispute, the EU agreed with Ecuador and the United States in 2001 to move from a complex import system based on a combination of tariffs and quotas for MFN bananas to a regime solely based on a tariff by 1 January 2006.
In accordance with these understandings the EU proposed in January 2005 an import duty of 230 €/tonne to replace the existing commitments in the EC Schedule in the form of a bound duty of 680 €/tonne with a quota of 2,200,000 tonnes subject to an in-quota rate of 75 €/tonne. The EU calculated its proposed tariff of 230 €/tonne in order to maintain total market access for suppliers under the Most Favoured Nations (MFN) clause. It also intends to maintain an equivalent level of preference for ACP bananas.
The current arbitration was established after a request of Brazil, Colombia, Costa Rica, Ecuador and Guatemala, Honduras, Nicaragua and Panama and Venezuela.
The arbitration award issued today finds that the proposed tariff would not result in at least maintaining total market access for MFN banana suppliers.
More specifically, the arbitrators read their mandate to include looking at all aspects of the import regime, including the ACP preference, but acknowledged that the rebinding cannot give any guarantees on a particular level of future trade.

As regards the price gap methodology used by the EU, the arbitrators found it appropriate in principle, but found that, as applied in this case, it did not take into account the ACP preference. They also shared the concerns expressed by the EU during the arbitration on the technical uncertainties associated with the use of econometric models.
As regards the reference period and the price data used for the calculation, the arbitrators pointed out that it is important to use the most recent representative reference period, and criticized the data used by the EU for internal prices, namely FAO data. The arbitrators acknowledged the difficulties of finding fully reliable data, but offered no further guidance in this respect.
Commission will now initiate consultations with the Interested Parties within the next 10 days. Should those consultations fail to lead to an agreement, a second arbitration could be requested. This arbitration should be completed within thirty days from the date the second arbitration was requested.
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