Find out if there was a ‘diversion of trade’ in favour of Caribbean countries. If so, what was it in terms of US dollar value?


Find out the banana trade, in terms of quantity and US dollar value, for the years 1995 to 2000, between:

(a)     Guatemala, Honduras and Ecuador and the EC.

(b)     The Caribbean countries and the EC.

(c)      Chiquita and Dole companies and (i) the EC market, and (ii) Rest of the world.


What was the effect of the EC’s measures on Guatemala, Honduras and Ecuador banana exports? What was the overall impact on the economies of Guatemala, Honduras and Ecuador?


(a) Find out the trend in banana exports from Guatemala, Honduras and Ecuador to the EC in the years subsequent to the dispute resolution.

(b) Did the banana exporters of these three countries implement any fresh marketing strategies with specific reference to the EC market?

The “Banana War” was back in the news when the Doha Ministerial Conference of 2001 passed a separate decision on a dispute that had been going on for more than eight years then. The last time the banana dispute was in the limelight was when the Original Panel found the dispute-related sanctions imposed by the United States against the European Communities (EC) to be WTO-incompatible.


The sanctions required US importers to pay 100 per cent duties on products imported from the EC. The US sanctions were in retaliation against the EC’s favourable import regime for bananas from the Caribbean when compared to those from some South American countries. The US imposed the sanctions even as the Original Panel was coming to a conclusion on the final suspension of concessions to be applied to EC products.

The dispute involved the EU’s 1993 regulatory regime for imported bananas. The EU-wise banana trade regime had a system of a tariff rate quota (TRQ) based on the country of origin. Bananas from the African Caribbean Pacific (ACP) countries had duty-free entry into the EU up to a ceiling of 8,577,000 metric tonnes.

This quota was allocated to each of the banana-producing countries on the basis of their historic exports to the EU. While ACP imports in excess of quota were levied 750 ECUs per metric tonne, non-ACP bananas were subject to a duty of ECU 100 per metric tonne on imports of up to two million metric tonnes and ECU 850 on imports above that amount.

The “banana war” had all the ingredients of a hallmark case:

·       The dispute was between two powerful members of the Quad who were confronting each other from the area of currency trade (Euro vs. US Dollar) to military understandings. Some members of the EC appear to be inclined towards the belief that countries can flourish more in a bipolar world than a unipolar one.

·       The dispute involved Article I of GATT 1994, the Most Favoured Nation (MFN) treatment, i.e., the non-discriminatory approach that all contracting parties must extend to each other on trade-related matters.

·       The DSB’s Appellate Body, hearing the dispute in 1997, indicated that the MFN philosophy transcended any preferential trade agreement or understanding that contracting parties might have outside of the WTO Agreement. The Appellate Body did not agree with the EC’s stand that preferential trade with African, Caribbean and Pacific countries, covered under the Lome Convention, was outside the purview of WTO. (Note: Under the 1979 Lome convention, the EC seeks to extend technical and financial assistance to about 70 ACP countries. The Convention also provides for a duty-free regime for ACP products entering the EC).

·       Aligned with the main complainant, the United States, were, as in the days of yore, ‘small’ countries like Ecuador, Guatemala and Honduras. The only other ‘big’ member in this camp was the NAFTA member, Mexico.

·       The duration of the dispute was perhaps the longest – the whole dispute stretching well beyond the 30 month period normally envisaged in settlement of disputes.

Time for conclusion of Panel’s hearings                                                                  15 months

Reasonable period of time given to member, to implement findings             15 months

Normal time envisaged for the successful settlement of dispute                     30 months

The level of suspensions of concessions that the DSB authorised in the case of the United States was $ 191.4 million. Ecuador, one of the original complainants, expressed dissatisfaction with the measures taken by the EC in pursuance of the panel’s findings and requested a hearing before the original panel.

The third parties to the Ecuador complaint were again mostly “small” countries belonging to the Americas, a region over which the US has a proprietary interest. This is the region whose countries the US wants to coalesce into a major trade bloc called the Free Trade Agreement of the Americas (FTAA).

The suspension of concessions awarded in favour of Ecuador was $ 201.6 million. The amount can be seen in proper perspective if we are to consider the fact that the net foreign capital inflow to Ecuador was $829 million in 1997. (Note: Suspension of concessions is essentially an indirect compensation to the winning party. In this case, Ecuador, in effect, can raise tariffs on imports from EC countries to fetch increased revenue of 200 million dollars).

In the case of Ecuador, the arbitrators gave the opportunity to the country to suspend concessions or other obligations in diverse areas such as copyright, geographical indications, and industrial designs, and also under the General Agreement on Trade in Services (GATS) with respect to “wholesale trade services”.

The aftermath of the dispute will be felt as long into the future as January 1st, 2006, when banana trade in the EC will come under the tariff-only system. It will be a decade (96-06) before the banana trade in that part of the world attains the normality that is envisaged under the WTO regime. Until such time, a tariff quota system will not only continue but will be weighted in favour of bananas from the ACP countries.

Pre-Doha Position

The case raised the following issues and questions till the period before the Doha Ministerial:

Though the arbitrators found that the level of nullification and impairment suffered by Ecuador amounted to US$201 million per annum, the ‘victory’ for Ecuador may be bittersweet in view of the lengthy period of the case. The victory can also be termed bittersweet because the gains can be calculated only from the date of adoption of reports in the DSB. Incidentally if the net private capital inflows for Ecuador in 1997 were $829 million, it was minus $91 million for Cote d’Ivoire in the same year.

Moreover, in the case of Ecuador, the DSB asked the country to seek recourse to others sectors of the same Agreement or other WTO Agreements for putting into effect the suspension of concessions. The policy makers should perhaps begin to think of putting in place rules that would enable direct transfer of funds equivalent to the nullification and impairment in the case of developing countries.

Article 22 of the DSP on ‘Compensation and Suspension of Concessions’ makes mention of compensation but that it “is voluntary and, if granted, shall be consistent with covered agreements”. The compensation clause can become mandatory in the case of developing and particularly ‘small’ countries. The awarding of costs to developing countries can also be considered, with the costs taking the form of training to law-makers. The legal expenses in hiring outside experts and firms can become substantial over long periods of dispute hearings.

The dispute took more than eight years in the making due, in part, to Ecuador’s request that the same Original Panel hear the subsequent dissatisfaction with the EC measures.

There is always the potential for further prolonging of the case if a third party decides to use Article 10.4 on ‘Separate Dispute by Third Parties’ which states that “if a third party considers that a measure already the subject of panel proceedings, nullifies and impairs benefits accruing to it under any covered agreement, that member may have recourse to normal dispute settlement procedures under this undertaking. Such a dispute shall be referred to the original panel wherever possible and thus leading to the possibility for interminable prolonging of a dispute”.

Lastly, though it is acknowledged that substantial monetary impact, especially on small and developing countries, is evident in such cases; perhaps the time has come to include an article on frivolous disputes and appeals in the Dispute Settlement Procedures.

Post-Doha Situation

The Doha Decisions of November 14 are on two accounts:

(a) European Communities – the ACP-EC Partnership Agreement.

(b) European Communities – Transitional Regime for the EC Autonomous Tariff Rate Quotas on Imports of Bananas.

The decisions can be broadly summed up as follows:

(a) Article I of the WTO Agreement, the MFN treatment, has been waived for the imports of bananas into the EC from countries covered under the Cotonou Agreement.

(b) There are three broad quota categories: the first two are A and “B” quotas on imports of bananas from non-ACP countries, the total being 2,653,000 tonnes.

(c) The C” quota will be 750,000 tonnes and will be reserved for bananas of ACP origin.

(d) Duties on bananas imported under A and “B” quotas will not exceed 75 Euro/tonne until the entry into force of the ECs tariff-only regime.

(e) The third category, C” quota, is on banana imports from ACP countries. No duties will be charged on bananas imported from C” quota countries.

(f) The waiver will also apply till ECs tariff-only quota is introduced from January 1, 2007.

(g) The Doha Decision also waives Article XIII of the GATT 1994 - Non-discretionary Administration of Quantitative Restrictions - in respect of EC’s banana imports. This means that the EC can have quantitative restrictions (QR) favouring imports of bananas from ACP countries over non-ACP countries. However, the EC will have to negotiate with the different banana exporting countries (those “with principal supplying interests) before it decides the final quantum of imports.

The Future

The dispute was essentially between the large” American-backed Latin American producers and the “smaller” banana producers in the Caribbean and other countries that have a colonial or historical connection with the European countries. For example, France reserved its market essentially for bananas from the Caribbean islands of Martinique and Guadeloupe and West Africa. The UK also gave priority access to Commonwealth Caribbean bananas, and restricted imports of dollar bananas. These arrangements, in general, ensured a remunerative return for Caribbean growers exporting bananas to the European markets.

The tariff-rate quota now envisaged allows for imports of 2,553,000 tonnes bananas under “A” and “B quotas (non-ACP countries). These imports will be levied a duty of 75 Euro/ tonne. The C quota of non-dutiable imports from ACP countries will be set at 850,000 tonnes. This tariff-rate quota regime will be effective from January 1, 2002.

The United States agreed to provisionally remove its 100% import duties on specified products from the EU. However, the US in its communication to the WTO, has kept the option of re-imposing high duties on imports from EU if the revised tariff-rate quota regime was not implemented from January 1, 2002. There have also been political voices in Europe that the tariff-only regime to be implemented from January 1, 2006, would be harmful to small banana producers in the ACP countries. Moreover, the Cotonou Agreement signed in June 2000 on the basis of a strong political foundation is valid for twenty years.

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