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Bananas

My Lords, I begin by thanking the noble Viscount, Lord Montgomery of Alamein, for initiating and introducing this debate on the new European regime for the import of third country bananas. I also thank other noble Lords who have contributed so knowledgeably to the debate and, if I may say so, spoken with so much passion on this topic. I thank particularly the noble Lord, Lord Newby, who stood in at such short notice and spoke with such skill, which is not something easily done without a moment’s preparation. But we are lucky that he is such an expert in this field. He opened a debate on this topic last January. As one could feel tonight, in this debate, in WTO terms the banana trade has had a troubled history. As has rightly been acknowledged, one cannot meaningfully assess the new regime for imports and its significance to suppliers, traders and consumers, without looking back, particularly at the legal framework. The EU regime for bananas did not come into being until 1993, individual member states having often had very different trading histories. Even after 1993 there followed years of well publicised and damaging international trade disputes, as first one import regime and then another was challenged and found wanting in WTO. It was not until 2001 that an understanding was reached at the Doha ministerial conference. That understanding provided for a phased transition away from the quota system, which had attracted so much criticism from exporters in countries with, in this case rather inappropriately named, most favoured nation status, to a tariff-only regime, which the EU was obliged to introduce by 1 January 2006. Under the interim arrangements which applied from 2001 to last year, bananas from the ACP producing countries could be imported free of duty up to a quota limit of 750,000 tonnes each year. Bananas from elsewhere were subject to a tariff rate of €75 per tonne against a quota limit of 2.65 million tonnes; over-quota bananas were subject to higher tariffs—€680—which were generally prohibitive. Last year saw important developments as the EU sought to honour its obligations arising from the 2001 understanding—in other words, to end the MFN quota and move to a tariff-only system. The EU secured a broad negotiating mandate from the Council, such that its aim was to maintain existing levels of protection and preferences for ACP countries, while respecting the Community’s obligations and commitments to other trading partners, EU producers and EU consumers. Acting on that negotiating mandate, the EU Commission notified the WTO in January 2005 that it intended to replace its concessionary tariff quotas on MFN bananas with a bound duty of €230 per tonne. After limited negotiations, the MFNs invoked arbitration. In August, the arbitrator ruled that the Commission’s proposals would not maintain MFN market access. Further attempts at negotiation were fruitless and, in the absence of agreement, the Commission itself invoked a second round of arbitration in late September on a revised proposal for a tariff level of €187 per tonne, together with a duty free quota for imports from ACP producer countries. Late October, the arbitrator ruled again that the EU had failed to rectify the matter, thus exhausting the procedures agreed in 2001. So we were in uncharted WTO waters, and it then fell to the Community to decide how to meet its tariff-only commitment. Please remember that it had to have a new arrangement in place by 1 January 2006. On 29 November last year, under our presidency, the EU agreed—by a narrow qualified majority—a new import tariff of €176 per tonne to apply to imports of bananas from most favoured nation countries. It was also agreed that the new import regime would include a duty free annual import quota of 775,000 tonnes for ACP bananas, also to apply from 1 January. Of course, I am well aware that ACP suppliers would have favoured a higher tariff than €176 or even an extension of existing arrangements. However, most favoured nations have equivalent weight on the other end of the rope calling for a lower tariff. Given the EU’s obligations in WTO and after two arbitration decisions found against the EU, we believe that this was the best achievable result. Frankly, a result was needed—1 January 2006 loomed. Hitherto the ACP quota had been managed through the complex allocation of licences to traditional and non-traditional operators. As we have always imported the largest quantity of ACP bananas into the EU, its operators held the biggest share of the licences. However, as part of last November’s agreement to move to a tariff-only regime, the Council of Ministers decided that the licence system for the ACP quota should be changed to provide access on a ““first come first served”” basis for at least 50 per cent of ACP imports. That change followed lobbying from production and trading interests based in West African and Caribbean countries with a less established history of exporting to the EU, from accession countries and from some longer established member states which favour freer trade mechanisms. In February this year, the bananas management committee adopted new rules for quota management. Sixty per cent of the quota will be made available on a ““first come first served”” basis. The remaining 40 per cent of the quota is still reserved for operators who previously held a licence. Importantly, those operators, mostly in this country, that hold such licences will also be able to take advantage of the ““first come first served”” share of the quota. Moreover, they should be able to manage their licences in such a way that they can use them at the end of each two month tranche of ““first come first served”” to offset the duty which would otherwise be payable. This is an option which is not available to non-traditional operators. I believe that it was a significant concession to the UK on the part of the Commission, as all other member states generally favoured a larger share for ““first come first served””, or, indeed, wanted to do away with historical licences altogether. It is also worth noting that the original proposal would have required UK operators to pay huge securities as deposits for quantities of licences which they stood no chance of obtaining. I do not hide from the fact that we anticipate further pressure for the licences allocated to traders on a historical basis to be further reduced in 2007. But there is still a reasonable prospect that some preference can be maintained for those traders until the ACP waiver expires at the end of 2007 and the new economic partnership agreements are expected to come into effect. Similarly, I do not hide from the fact that high-cost Caribbean producers face threats of competition both from MFN supplies and from cheaper West African bananas. It will be important that they can maintain a critical mass of production of sufficiently high quality to keep supply chains open. We will continue to defend the Caribbean interest as best we can within a World Trade Organisation compatible framework and as part of the EU. Assistance through the EU has been mentioned, in particular by the noble Baroness, Lady Byford. As regards the recommendations of the conference that she mentioned, we believe that several very sensible suggestions were made. We had no direct input into that but we hope that the Commission will consider those remarks carefully when looking at what can be done. Through the EU we have provided funding to the special framework of assistance—SFA—the European aid instrument to Caribbean banana exporting countries to help improve their competitiveness, and when that it is not possible, to assist with diversification into other economic activities. The implementation performance and release of SFA funds has been disappointing. DfID has been engaging with the Commission in Brussels and in the Caribbean itself to try to improve its performance. Through the UK’s bilateral aid programme and contributions to multilateral organisations working in the Caribbean region, we are helping to create the conditions necessary to enable job opportunities. In regard to that, my noble friend Lord Foulkes and the noble Baroness, Lady Byford, mentioned the double whammy. It is indeed a double whammy for Jamaica and Belize, but the EU is committed to paying traditional aid for sugar, learning the lessons from the arrangements earlier agreed for bananas. The new tariff-only arrangement came into effect in January and the new arrangements for access to the ACP quota only fully from March. Frankly, it is too early to judge the impact on trade volumes and prices in what is a dynamic market, although the Commission is closely monitoring the situation, having accepted the offer that we heard about from the WTO from the good offices of the Norwegian Foreign Minister. This is important and helpful as the governments of several Latin American countries continue actively to oppose the adoption of the new tariff of $176 per tonne on most favoured nations’ supplies. One cannot rule out further challenges or changes to the new import agreements, but it is key that the European Community can point to the fact that it has met its earlier commitment to introduce a tariff-only system by 2006. Turning to the consumer interest, our market will continue to enjoy bananas from a wide range of supplying countries. The discerning shopper can purchase according to label, country of origin, price, size and other factors, such as fair trade and organic, to suit individual tastes and ethical choice. As I am aware from reading the debate in the House in January last, several noble Lords—and we have heard it today—have a strong preference for the smaller, sweeter fruit from the Caribbean. I share their view that the slightly higher price that they command in retail outlets is one well worth paying. As consumers we can all have a big say in the marketplace through exercising choice. I shall conclude on the external arrangements. Against the backdrop of earlier disputes, and the Doha understanding reached in 2001, the new arrangements for imports of bananas to the EU was, and is, in the best interests of the UK. Failure to have met our WTO obligation would, first, put the EU in breach of international trade law, and on the back foot of any future negotiations. Secondly, it would place bananas back on the international agenda. Thirdly, it would risk damaging retaliation from trading partners. Lastly, it would risk loss of the very WTO waivers that continue to allow a duty-free preference for ACP exports to the UK and other member states. Finally, I shall deal with three points that were raised. First, the noble Baroness, Lady Hooper, in an intervention, asked about research for alternative use of banana by-products. We are sure that producers will look at all alternatives. That would be a legitimate use of transitional assistance, but the EU Commission would have to agree it with the countries concerned. The noble Lord, Lord Newby, made a point about arrangements discriminating in favour of French overseas territories. As he well knows, the difference is that those French territories are part of the EU. I should point out that the ACP benefits from a substantial degree of preference still at this time. Thirdly, I commend my noble friend Lord Foulkes—to whom we wish a safe journey tomorrow, while wishing that we could all go with him—on his balanced analysis. I agree that the Commission has worked hard to square the circle. We believe that the outcome which was achieved under our presidency at the end of 2005 was the best which could be obtained in what the whole House will understand were, and still remain, difficult circumstances.