A preference for preferences

The banana war

Why did the banana dispute last for so long? In part because it was a series of disputes. At least six identifiably separate issues were submitted to the GATT or the WTO for examination or arbitration, often by countries or groups of countries different from the original complainants.

The framework within which the banana regime operated – the Lomé Convention – was challenged in 1994, and while the challenge did not directly change the legal status quo, it did prompt the European Community (EC) to seek additional legal support, through a waiver (see main text). The problems that led in 1995-96 to the launch of the WTO dispute between the EU and producers and trading companies in South America arose from the complex provisions that defined the operators (trading companies), activities eligible for shares of these tariff quotas, and how the shares of those quotas were calculated. This, indeed, was the main concern of the three multinational trading companies on whose behalf the US had launched the case.

Tariff preferences were not therefore a major issue; but a WTO panel upheld the EC's position that it was “required under the Lomé Convention” to grant duty-free access to traditional ACP suppliers of bananas, as well as preferential access, within limits, to non-traditional suppliers. The Appellate Body, later in 1997, also found that these duty-free and preferential tariff arrangements for ACP states were covered by the waiver.

A subsequent panel in 1999 issued rulings on whether the modifications to the regime that the EC had introduced were sufficient to ensure compliance with WTO rules (they were not) and the EC made further changes to the rules for quota administration, leading to bilateral agreements with the US and Ecuador in 2001. These agreements envisaged that a new ‘tariff-only' arrangement would be introduced (that is to say, that tariff quotas would be eliminated), with a target date of 2006. Late in 2001, at the Doha conference, the EC again obtained a waiver to cover the preferential tariff arrangements until such time as it could conclude new arrangements consistent with WTO rules, the arrangements that now take the form of European Partnership Agreements (EPAs).

After that, a secondary dispute emerged, about the level at which the new tariff should be set if the overall volume of supplies from most-favoured nations was to be maintained. In the discussions to re-negotiate this duty rate, the EC was unable to reach agreement with all suppliers. Arbitrators concluded that successive EC proposals were unlikely to achieve this goal of maintaining supplies. This had the effect of ending the Doha waiver of 2001 a year early, in 2006 rather than at the end of 2007. At the time, the EU had yet to conclude EPAs with ACP states.

The EC eliminated quotas in January 2006 and introduced a single tariff rate (at €176/tonne). This led to further challenges by Ecuador (in 2006) and the US (in 2007) that the EC had not made its regime fully compliant with WTO rules. The panel then found that the EC ‘tariff-only' arrangements were out of line with Article I of the GATT, the most-favoured nation (MFN) rule that “like products should be treated equally”. This, though, was largely a finding for the record since it was clear to all parties that the EC was committed to moving to a new MFN regime and was renegotiating the basis for its continuing tariff preferences.

For the short period through 2006 and 2007, the EU's continuing preferences for ACP banana producers was not protected under WTO rules, while it continued negotiations with the ACP. Without December's deal, the banana regime might have remained without legal cover for some time: so far, the EU has signed one EPA and several interim EPAs.