Consultation on Bananas
Impact of OECD country policies on developing countries
28-29 October 2004
The Commodities and Trade Division of FAO held an informal expert consultation to review studies relevant to current debates and negotiations on banana import policy reforms in OECD countries. Its aim was to contribute to generating a more informed debate on trade policy reforms in these countries, in particular on the proposed introduction of a tariff-only banana regime in the EU from January 2006, which will replace the current system based on different tariffs and import quotas. The new regime would imply a single external tariff but with preferential treatment for certain African-Caribbean and Pacific (ACP) suppliers. A particular focus of the discussion concerned the level at which the import tariff would need to be set to maintain access to the EU market of the different suppliers, and in particular ACP preferential suppliers.
Among the main conclusions of the Consultation were:
The calculation of the tariff equivalent depends on the objective, which could be to maintain imports from Latin America at their current level, or to maintain the market share of ACP countries, or to maintain banana prices in the EU, etc. It seems unlikely that there exists a tariff equivalent that would maintain the status quo.
The econometric models used to determine the tariff equivalent reviewed during the Consultation, have similar structures but differ significantly in their assumptions (value and distribution of the quota rent, supply elasticities, exchange rate, and demand trend in the EU) and results.
The Price Gap Analysis method (which bases estimates of the equivalent tariff on the gap between export prices for bananas of different origins) seems to produce a narrower range of tariff equivalents than the econometric method. However, its results depend to a large extent on the choice of the “external prices”.
Both methods assume perfect competition, while in practice banana trade is dominated by a small number of large international companies. Market structure should be taken into account in calculating the tariff equivalent and its implications on suppliers.
The group of ACP countries is not a homogenous group. There are considerable differences between them in terms of competitiveness and supply response. As a result, the reform of the EU banana regime will have very different impacts on different countries.
It is unlikely that a single policy instrument will preserve the interests of all the stakeholders.
For more details on the Consultation, please contact: Pascal.Liu@fao.org