EU loses to Latin America in bitter battle of the bananas

The World Trade Organisation (WTO), cast in the role of referee, ruled out European moves to increase import tariffs on Latin American producers - a move primarily intended by the EU to protect growers in former colonies in Africa and the Caribbean. It also calls into question Brussels' efforts to protect the same banana exporters by giving them preferential access to supermarkets in the EU.

The banana wars have pitted two blocs of developing nations against each other and re-opened a bitter transatlantic trade rift that blighted relations for much of the 1990s.

The deal rejected by the WTO yesterday would have seen the EU triple import tariffs in return for scrapping limits on Latin American exports. The end of export quotas for Latin American producers would have allowed them to increase their sales, but it would also have forced them to pay a tariff of €230 (£159) a ton, instead of the current €75.

Former European colonies, the Canary Islands and French islands in the Caribbean, argue that they need extra protection since they cannot compete with the vast, mechanised plantations of Central America. Because of climate, terrain, or lack of economies of scale, producers in such countries pressed for higher tariffs to Central American imports.

The EU has 10 days to open a fresh round of talks with the Latin American producers on a new, lower tariff. Last night the European trade commissioner, Peter Mandelson, promised to "start consultations with interested parties without delay", adding: "I hope everyone will co-operate in finding a mutually acceptable solution within the strict deadline set by the WTO."

But so acrimonious is the row that the Latin Americans are threatening to block crucial talks on world trade this year at a meeting in Hong Kong if there is no satisfactory resolution.

After years of squabbling, leaders of seven Central American nations united in opposition to the EU tariff plan at a gathering last month billed as the start of a "banana Opec". However, the countries have different interests because of their geographical locations, different standards of worker protection and varying production costs.

Costa Rica, the second largest exporter of bananas to the EU, feels vulnerable since its plantation workers earn about twice as much as those in some neighbouring countries, and producers pay hefty social security contributions.

The country abolished its army in 1948 to help provide health care and schools for all. With relative political stability, high rates of literacy and a life expectancy of 76 years, Costa Rica won the nickname of the "Switzerland of Central America", before corruption scandals landed two former presidents in jail.

Costa Rica's Minister for Foreign Trade, Manuel Gonzalez, told The Independent that, in banana-producing areas of his country, 93 per cent of the population depend on the industry. He said he is "very concerned that threats to the banana industry could have a serious impact on the social structure".

Asked if the Latin American nations would block crucial world trade talks in Hong Kong later this year, Mr Gonzalez replied: "It is that serious", adding the group will use "all the means available to us to be heard".

But Mr Gonzalez has not called for a complete free market in banana imports, arguing, instead, that the Latin American and ACP (African, Caribbean and Pacific) nations should compete "on the same level".

In fact, a global free-for-all would mean a drop in prices and benefit those with the cheapest labour costs: Brazil, emerging African nations, and maybe even China. Already undercut by Ecuador, Costa Rica is nervous about new competitors and worried that the likes of Chiquita, Dole and Del Monte will grow or buy cheaper fruit elsewhere.

With African nations increasing production, a banana glut has caused prices paid to slump from US$6 (£3.40) per 18kg box, to $5.25-$5.50, yielding a profit of about 50 cents a box.

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