Banana Problems

Once again it seems, the Banana Republic is in deep water over its Banana Market rigging schemes.

Latin American banana producers are calling on the World Trade Organisation (WTO) to intervene in a long-running row over banana tariffs. The producers are vehemently against plans by the European Union (EU) to replace the current quota system. The EU is to replace quotas with uniform tariffs, which Latin American producers feel will hurt their European sales.

It’s a step in the right direction, because tariffs are the least bad form of trade distortion. But trade is never that simple is it.

The new EU tariff will benefit banana exporters from former African, Caribbean and Pacific (ACP) colonies, whose comparatively smaller producers struggle to compete with much-larger Latin producers. Under the new regime, ACP producers will continue to export bananas duty free.

So the new tariff is actually a form of aid to selected banana producers. Such approaches ignore a number of key facts. These poor countries might be better off simply getting aid from Europe, if that is the purpose of this scheme (The EU is effectively being very generous with Latin American money). The CAP may well be stopping them sell something else that they are better suited to produce. Such an approach is very paternalistic, keeping them in their place with incentives and tariffs that stop the diversification of the economy. Just get rid of all agricultural tariffs and let everyone sell freely to the European market. It may not solve all of Africa’s problems, but the money saved on our food bills would go a long way toward helping.