Latin America and EU End Banana War as Rum Dispute Looms

By Rachel Glickhouse

A November 8 agreement brought an end to a two-decade long trade war involving former European colonies in the Caribbean, but rum tariffs could spur a new trade battle with the United States.

On November 8, the European Union and 11 Latin American countries met in Geneva, Switzerland to sign an agreement bringing an end to a banana trade war lasting over two decades. Officials from the EU as well as Brazil, Colombia, Costa Rica, Ecuador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Peru, and Venezuela met at the World Trade Organization (WTO) headquarters to ink the deal. Originally negotiated in December 2009, the accord was subsequently ratified by each signatory country and the EU passed legislation to implement it. “After so many twists and turns, these complicated and politically contentious disputes can finally be put to bed,” said WTO Director-General Pascal Lamy. But as the Caribbean sees preferential banana tariffs with Europe ending, countries in the region warn of a new trade battle involving rum exports to the United States.

The so-called banana war began in 1991, when Costa Rica filed a complaint with the WTO protesting the EU’s preferential trade terms for former colonies in the Caribbean. Banana producers in the rest of Latin America faced higher costs to export bananas to Europe as Caribbean producers “enjoyed favorable terms through a fiendishly complex regime of quotas,” writes the BBC. With last week’s agreement signed, the EU will reduce banana tariffs from $224 per metric ton to $145 per metric ton over the next eight years. “It's about time,” said Council of the Americas Vice President Eric Farnsworth, who worked on related trade issues at the U.S. State Department in the early 1990s. “Removal of this irritant will hopefully provide an impetus for more open trade among Latin America, the Caribbean, and Europe, even as these regions begin to consider new approaches to the idea of an emerging Atlantic community of nations,” he told AS/COA Online.

Some in the Caribbean—where the agreement initially met opposition—expressed disappointment. Caribbean officials have kept mum following the agreement’s signing, and have yet to comment on the potential impact of tariff changes in the region. However, after negotiating the accord in 2009, the EU pledged $241 million in aid to affected African and Caribbean countries over the course of 2010 to 2013. In the Americas, the package targets Belize, Dominica, Dominican Republic, Jamaica, Saint Lucia, Saint Vincent and the Grenadines, and Suriname, intended to help diversify crops and competitiveness of the banana sector.

Meanwhile, the Caribbean could see a new trade war beginning—this time with the United States. Members of the Forum of the Caribbean Group of African, Caribbean, and Pacific States (CARIFORUM) seem likely to file a complaint with the WTO against U.S. preferential rum tariffs for Puerto Rico and the U.S. Virgin Islands, numerous Caribbean press outlets reported last week. Rum-producing countries affected by the tariffs include Barbados, the Bahamas, the Dominican Republic, Guyana, Jamaica, and Trinidad and Tobago, all of which will face higher export costs than U.S. territories. “We find it extremely difficult to compete, and it is a challenge at this point in time. We are appealing…with a view to resolving what we feel is an iniquitous and pernicious use of subsidies,” said Frank Ward, chairman of the Barbados Rum Industry.

In other regional trade news:

  • Eight ministers from Chile, Colombia, Mexico, and Peru met in Cartagena on November 9 to work on consolidating trade among the Pacific Alliance, a regional bloc comprised of the four countries and launched earlier this year. In 2011, Pacific Alliance countries were responsible for over half of Latin American trade—around $534 billion in exports.
  • Costa Rican President Laura Chinchilla visited Mexico this week to talk trade and promote investment in the Central American country. Costa Rica signed a free trade agreement with Mexico in 1994, and Chinchilla said bilateral trade multiplied by 19 since the accord went into effect. In the last five years alone, Mexican exports to Costa Rica increased at an annual average of 40 percent.
  • European Commissioner for Trade Karel De Gucht travels to Mexico and Peru from November 12 to 16 to discuss increasing trade ties with the European Union. In Mexico, De Gucht will meet with President-elect Enrique Peña Nieto and Economy Minister Bruno Ferrari. In Peru, De Gucht will discuss the implementation process for a free trade agreement signed between the EU and Colombia and Peru this past June. The European Parliament must approve the accord before it goes into effect, which De Gucht said could happen before the end of the year.