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Tuesday, 19 October 2010

Bananas in the recent trade agreements of the EU

Earlier this year, the EU concluded trade negotiations with Colombia and Peru and, later, with six Central American countries (Costa Rica, El Salvador, Honduras, Guatemala, Nicaragua and Panama). Within the resulting agreements - which still await ratification from legislatures on both sides of the Atlantic - the provisions on bananas are critical from the perspective of the American countries. EU concessions on bananas are the same for all eight countries: the EU has agreed to progressively reduce its import tariff on bananas originating in these countries to 75 €/t by 1 January 2020. In the absence of any agreement, the import tariff to be applied to their exports in 2020 would have been 114 €/t, whereas now the preferential margin will increase progressively from 3 €/t in 2010 to 39 €/t from 2020 on. However, between the entry into force of the agreement and 2020 a “safeguard” clause will prevent larger than anticipated increases in EU banana imports. If imports from a specific country in a given calendar year exceed that country-specific “trigger import volume” (TIV) for that year, then the EU may suspend for up to three months or until the end of the calendar year (whichever comes first) the preferential import regime and revert to the pre-agreement tariff (the so-called Most Favoured Nation, or MFN, tariff). While the TIVs are obviously linked to each country’s recent exports to the EU, their actual values suggest that the same rule has not been equally applied to all countries. For instance, relative to its recent export volumes, the TIVs for Colombia are much less generous than those for the other major exporters, while Peru enjoys a relatively liberal export allowance to the EU. The 39 €/t preferential margin eventually granted by the agreements will significantly improve the competitiveness of the eight Andean and Central American countries on the EU market vis a vis other exporters. From 2020 onwards, the benefits for those countries already exporting bananas to the EU will be conspicuous, as both their exports and the price they are paid for their bananas will increase. This should be the case for countries such as Colombia, Costa Rica and Peru. Countries that currently do not export bananas to the EU, or that are only marginal exporters, will benefit from the agreements only if the increase in their competitiveness on this market, as a result of the preferential margin granted, is sufficient to overcome the negative factors that currently make their exports unprofitable. The assessment of the effects of the agreements in the short run (between 2010 and 2020) is more complicated, because of the safeguard provision. In principle, however, four cases are possible. Only one scenario would on the short term not generate benefits for the Andean and Central American countries for sure; moreover, it seems unlikely to materialise for the majority of the countries concerned. The effects of the agreements will be felt beyond the boundaries of the signatory countries. Other MFN exporters to the EU, as well as ACP and LDC countries, are all expected to see their relative competitiveness on this market fall with respect to the signatories; ceteris paribus, they will export less to the EU and receive a lower price for their exports. In markets different from the EU, imports will decline and prices increase, as a result of the trade diversion of some of the exports of the Andean and Central American countries; other countries are expected to expand their exports to these markets, but this will only partially compensate for the decline of their exports to the EU. Since the beginning of this decade, banana exports by ACP countries, as a whole, to the EU have been growing significantly; moreover, recent developments show that they have been able to take advantage, probably more than many had anticipated, of the quota- and duty-free access to the EU market thanks to the implementation of the Economic Partnership Agreements.

Source: International Centre for Trade and Development