14 - Bananas: a policy overripe for change

Summary

Introduction

At the close of the 1990s, the world bananas market was dominated by one large and obvious trade distortion: import restrictions imposed by the European Union (EU). The EU banana policy ostensibly delivered aid to several developing nations by raising the prices these countries received for their bananas in the EU market. However, this policy not only cost EU consumers a whopping $2 billion a year, but only a small portion – about $150 million – reached its target. Banana importers and wholesalers extracted most of the rest.

A wave of articles and editorials lambasted the EU policy on bananas, and over a dozen analytical studies highlighted its enormous costs. The German government and others pursued cases against it in the European Court of Justice (ECJ), and the Hamburg Financial Court attempted to override it. Italy, Sweden, Belgium, Austria, Finland, and Luxembourg, too, publicly opposed the policy. The United States, meanwhile, along with Guatemala, Honduras, Mexico, and Ecuador, filed complaints against the policy through the World Trade Organization (WTO). In every opportunity it had to consider the policy, the GATT or the WTO ruled that EU banana policies were illegal, and eventually awarded the right for the United States to apply punitive tariffs against other EU products in retaliation.

In April 2001, the United States and the EU agreed to phase the EU banana regime into a tariff system by 2006 in exchange for the United States suspending its WTO-authorized punitive tariffs against other EU goods.