LATIN AMERICA BANANA PRODUCERS HIT EU TARIFF

UNCLAS PANAMA 001673 SIPDIS SIPDIS FOR STATE WHA/CEN - TELLO FOR USTR - MOWREY E.O. 12958: N/A TAGS: ECON ETRD PM SUBJECT: LATIN AMERICA BANANA PRODUCERS HIT EU TARIFF PROPOSAL ¶1. (U) SUMMARY. On October 4, 2007, representatives of Colombia, Ecuador, Guatemala, Honduras, Nicaragua, Panama, Brazil and the United States met in Panama City to discuss a collective response to the July 2007 European Union (EU) proposed changes to the EU's current banana tariff regime. The representatives of the banana supplying countries signed a joint declaration (Declaration) stating that the EU proposal fails to comply with stated EU commitments or WTO decisions. The Declaration called for a speedier reduction in EU banana tariff, a reduction in the tariffs significantly greater than the EU proposal, a tariff regime consistent with WTO rulings and an action on the preferential treatment afforded African, Caribbean and Pacific (ACP) suppliers. Separately, Chiquita Brands International executives briefed Post on the diminishing EU market share for Panamanian bananas and the poor financial state of its Panamanian operations. END SUMMARY. -------------- -------------- Latin American Banana Producers Issue Joint Declaration -------------- -------------- ¶2. (U) On October 4, 2007, representatives of Colombia, Ecuador, Guatemala, Honduras, Nicaragua, Panama, Brazil and the United States met in Panama City to discuss a collective response to the July 2007 EU proposed changes to the EU's current banana tariff regime. The purpose of the meeting was to evaluate the EU proposal and each country's position on the initial and final bound rate, the initial and final applied rate, the reduction period, its starting and ending date, the preferential treatment afforded ACP suppliers, waiver of any future rights and main concerns regarding the Doha negotiations. The parties also discussed the importance of maintaining a common position. ¶3. (U) The representatives quickly agreed to issue a Declaration, which was signed by Colombia, Ecuador, Guatemala, Honduras, Nicaragua and Panama. (An English version of the Declaration is set forth in paragraph 7 below.) The USG did not sign since it is not a banana supplier. The GOB representative said he did not have signing authority. The Declaration states that the EU's proposal fails to comply with stated EU commitments or WTO decisions. The Declaration, among other things, states that (i) tariff reduction should begin no later than January 1, 2008, (ii) the first reduction must be more that the 170 euro per ton EU proposal, (iii) the final reduction be lower than the 123 Euro per ton EU proposal, (iv) the tariff reductions be consistent with the 2005 arbitration findings (including the finding that any tariff over 75 euros per ton would be detrimental to Latin American suppliers, (v) the preferential treatment between ACP and Latin American suppliers be resolved, and (vi) any settlement be enforceable before the WTO. -------------- Meeting Attendees -------------- ¶4. (U) The USG was represented by Mark J. Mowry, Deputy Assistant U.S. Trade Representative, Europe and the Middle East; the GOP by Leroy Sheffer, Ministry of Commerce and Industry, Chief Trade Negotiator, Minister of Agriculture Guillermo Salazar and WTO Representative Norman Harris; the GOC by Commerce Ministry Vice Minister Eduardo Munoz; the GOG by Ingrid Barillas, WTO Representative, and Lionel Maza, Guatemalan Embassy in Panama; the GOH by Jorge Rosas, Ministry of Industry and Commerce; the GON by Veronica Rojas and Ramiro Bordesa, Vice Ministers, Ministry of Finance and Commerce; the GOE by Mentor Villagomez, Ministry of Commerce and Elsa Roca, Ecuadorian Embassy in Panama, and the GOB by Fernando Muggiatti, Brazilian Embassy in Panama. Costa Rica and Peru were invited, but were unable to attend. -------------- Chiquita's EU Market Share Slips -------------- ¶5. (SBU) On October 4, 2007, Chiquita Brands International executives, Manuel Rodriquez and Manuel Aizpurua, told DCM and EconOff that Panama banana suppliers have suffered a greater market share loss than other Latin American countries. According to a white paper delivered by Chiquita Brands to Post, between January and May 2006 Panama's European market share dropped 11% from the comparable period in the prior year, as compared to 3% for traditional Latin American producers. The exceutives noted that Latin American banana suppliers have won all eleven WTO cases brought against the EU. In addition to the EU tariff, the executives said Panama is hurt by the comparatively high wages paid to banana workers. The executives said these comparatively high wages are a product of decades old labor agreements making Panama the highest cost banana supplier in Latin America. The executives said that its competitors, such as Dole Foods, have already opened facilities in ACP countries (principally Africa). Chiquita is considering doing the same. They said that given the current cost structure, no company would ever consider opening a banana facility in Panama. According to the white paper, even without the EU tariffs, Panamanian bananas would still be sold at a loss under current EU prices. -------------- Chiquita Background -------------- ¶6. (U) Chiquita Brands has been operating in Panama for over a century. During the 1960's, banana production was a high margin business and Chiquita was a worldwide price giver. Downward pressure on prices began as banana demand in the U.S. leveled off, and European nations began to impose tariffs on Latin American suppliers and otherwise favor banana production from former European colonies. The tariffs imposed by EU's Regime 404 in 1993 resulted in Chiquita losing 60% of its business. Currently, Chiquita employs approximately 4,000 banana workers in Panama (65% of them indigenous). The company operates a facility in the Bocas del Toro region in northwestern Panama and has a contract with a cooperative in the Puerto Armuelles region of southwestern Panama. The cooperative facility was sold to the workers by Chiquita in 2003. Chiquita has a purchase contract with the cooperative terminating in 2013. To date, the cooperative has been a money losing venture with the GOP and Chiquita continuing to subsidize operations. Panama's principal banana export market is Europe, and increasingly, Russia. -------------- Text of Declaration -------------- ¶7. (U). Below is an English translation of the Declaration provided by the GOP. Begin text: Declaration The Governments of Colombia, Ecuador, Guatemala, Honduras, Nicaragua and Panama Considering that In the banana-producing countries of Latin America, banana exports to the European Union (EU) are central to the fight against poverty; to the basic subsistence of large rural populations that depend on bananas for wages, revenues and income; and to the overall economic, political, and social welfare of these developing countries; The EU's current banana regime, including a MFN tariff of 176 Euros/mt and a duty-free tariff quota reserved exclusively for ACP suppliers, is affecting the development needs of Latin America, and does not comply with EU's expressed commitment to assisting developing countries; The 2005 Awards of the Arbitrators determined that the 2006 EU tariff regime does not maintain the total market access to MFN banana suppliers; Maintaining the EU banana import regime has raised multiple claims before the WTO which has motivated the European Commission to present to various MFN suppliers an outline of proposals to negotiate a solution to this long lasting dispute. Declare that Without prejudice to all our WTO rights and as a result of the negotiations of the Association Agreements that are to be agreed with the European Union, the undesigned governments consider that an amicable negotiation is a solution to the Banana Dispute, under a framework in which the MFN tariff is substantially reduced over a brief period of time in an effective and timely manner, under the following terms: (1) the gradual phased reduction period shall be the shortest possible, with the first of the three resulting tariff cuts installed no later than 1 January 2008; (2) the first cut would be far below the EC Commission's proposed first cut of (170) Euros/tonne and in a consistent manner with the 2005 Arbitration findings; (3) the tariff cut in the last year would be substantially lower than the Commission's proposed final rate of (123) Euros/tonne and take due account of the Arbitration finding that any tariff preference higher than 75 Euros./tonne would be detrimental to Latin American suppliers; (4) the current preferential treatment between the ACP and Latin American suppliers shall be resolved; and (5) the principal elements of the settlement would be WTO-enforceable; Our governments consider that the foregoing terms and conditions establish the framework for a permanent resolution of this long-standing dispute. To accomplish this objective, it is necessary to include all the MNF (sic) supplier countries, by which we reaffirm to the EU the necessity to include Ecuador in the process. Issued in the City of Panama, Republic of Panama in October 4, 2007. /s/ Eduardo Munoz Republic of Colombia /s/ (unsigned; to be signed in Guatemala) Republic of Guatemala /s/ Veronica Ropas Republic of Nicaragua /s/ Mentor Villagomez Republic of Ecuador /s/ Jorge Rosas Republic of Honduras /s/ Leroy Sheffer Republic of Panama End text. ¶8. (U) Mowry did not have an opportunity to clear this cable. EATON