EU ponders banana trade war proposal

Latin American banana producers want better access to European markets

The European Commission has set out new proposals to end the damaging trade war with the United States over banana imports.

The US has imposed punitive tariffs worth $191m (£130m) on a wide range of products manufactured in the European Union, and threatens to rotate the sanctions list to include industries like cashmere.

The EU's original set of trade rules favoured less competitive banana producers, especially in the Caribbean

More than a year ago, the World Trade Organisation (WTO) had ruled the EU import regime for bananas as illegal, saying it favoured Britain's and France's former colonies over Latin American producers.

The Commission says its new system is "non-discriminatory". EU finance ministers are now debating the scheme, before it can be put to the WTO.

Front of critics is crumbling

The US government has already indicated that it does not like the new proposal, but the united front presented by US and Latin American banana producers and distributors is crumbling.

Ecuador, the world's largest exporter of bananas, has accused the US of dragging out the conflict, while leading US fruit distributor Dole Food welcomed the EU proposal as well.

Both backed the original complaint against the European trade rules.

However, US Trade Representative Charlene Barshefsky still enjoys strong support from six other Latin American countries, Panama, Colombia, Costa Rica, Guatemala, Honduras and Nicaragua.

Fresh fruit seller Chiquita Brands is also critical of the EU draft proposal, and the company is an important contributor to the campaign coffers of both main political parties in the US.

First come, first served

The European Commission has proposed a transitional tariff quota system, that operates on a 'first come, first served' basis.

The EU's Agriculture Commissioner Franz Fischler proposes a "first come, first served" deal until 2006

Import licences would be granted to operators who can bring their bananas into the European market first.

This scheme would be phased out by 2006, to be replaced by a tariff-only system.

Most Latin American producers prefer a quota system that allocates them import licences based on their market share in the past, before the EU introduced rules that favoured its members' former colonies.

The carousel threat

The US government has now set a four-week deadline. If an agreement can not be reached by then, trade sanctions will be imposed on a new set of EU products.

This so-called "carousel" of punitive tariffs was proposed by the US Congress, in an attempt to hurt as many EU industries as possible and force a resolution of the trade war.

One of the industries under threat is Scotland's cashmere industry. So far the industry has been spared, thanks to intense lobbying by the UK government, which has promised to argue the US case in the EU.

War over beef, export subsidies

Ending the banana war would be an important step towards resolving the increasingly bitter transatlantic row over trade.

The US government has imposed a second sanctions list worth $117m on EU goods, to punish it for blocking imports of hormone-treated beef.

The EU says such beef products could cause cancer, an objection that has been ruled baseless by the WTO's panel of scientists.

The EU, in turn, is currently pondering whether to impose its own sanctions on the US after the WTO ruled that certain tax breaks granted to large US companies violate world trade rules.

US firms that set up export subsidiaries in offshore tax havens, usually the Caribbean, saved an estimated $4.1bn a year.

A recent compromise proposal by the US administration was rejected by the European Commission.