Back in 1993, the EU imposed tariffs on bananas imported from countries which were not former colonies of EU countries. These former colonies are in Africa, the Caribbean and the Pacific (the ACP countries). This meant that the main countries bearing the tariffs were banana producing countries in Central and South America.
“In 1996, Ecuador, Guatemala, Honduras and Mexico, together with the US, formally complained to the World Trade Organization (WTO) about the tariffs. Since then the WTO has repeatedly ruled that the EU tariffs are unfair, but little has changed thanks to continued discussions and arguments between the major players.”
Over the years the disputes between the EU and the APC countries on one side and the Latin American countries and the USA on the other have become known as the ‘banana wars’ (see Web cases 24.5 and 24.6 in Economics 7e MyEconLab). The WTO has ruled against the EU on several occasions, but to little effect as appeals have been lodged and talks have continued. At last, however, agreement has been reached – and without the WTO. This should see EU tariffs on Latin American bananas cut from 176 euros per tonne now to 114 euros per tonne over a seven-year period.
So are the banana wars over? Will EU consumers gain? And what will be the effect on Latin American and ACP banana producers? The following articles examine these questions.
Ending the longest trade dispute in history: EU initials deal on bananas with Latin American countries EU Press Release (15/12/09)
The EU-Latin America Bananas Agreement – Questions and Answers EU Press Release (15/12/09)
Lamy hails accord ending long running banana dispute WTO Press Release (15/12/09)
EU ends ‘banana wars’ with Latin America EU Observer (15/12/09)
Bananas dispute at the World Trade Organisation Reuters Factbox (15/12/09)
Banana prices to fall after longest trade dispute in EU history settled Telegraph (16/12/09)
End of banana wars brings hope for Doha Financial Times, Joshua Chaffin (16/12/09)
EU cuts import tariffs in a bid to end ‘banana wars’ (video) BBC News (16/12/09)
EU cuts import tariffs in a bid to end ‘banana wars’ BBC News (15/12/09)
Banana wars: the fruits of world trade BBC News, Nigel Cassidy (15/12/09)
EU, Latin America Proclaim End to “Banana War” Latin American Herald Tribune, Marta Hurtado (15/12/09)
Settlement should help Chiquita Business Courier of Cincinnati, Dan Monk (15/12/09)
Banana deal offers hope for global trade talks Sydney Morning Herald, Alexandra Troubnikoff (16/12/09)
Pact Ends Long Trade Fight Over Bananas New York Times, Stephen Castle (15/12/09)
Banana deal offers hope for global trade talks Sydney Morning Herald, Stephen Castle (15/12/09)
EU banana dispute ends in favor of Latin American exporters Deutsche Welle (15/12/09)
Questions
- Who has gained and who has lost from the tariffs imposed on non-ACP producers over the past 16 years?
- How might the agreement over bananas impact on the stalled Doha round talks?
- What is likely to happen to banana prices in the EU over the coming months? Use a diagram to illustrate your answer.
- Are the banana wars likely to be over now?
In October 2004, the USA brought a complaint to the WTO that Airbus had received illegal subsidies from the UK, French, German and Spanish governments. One of these subsidies was the so-called ‘launch aid’, which the US government argued was a form of export subsidy. In a counter-complaint to the WTO made on the same day, the EU maintained that the US government had provided illegal support to Boeing in the form of subsidies, legislation, regulations and other administrative measures.
On 4 September 2009, the EU and the USA were handed the confidential preliminary findings by the WTO panel in the first of the two disputes. This found that some of the support measures by the EU countries violated WTO rules. However, some two thirds of the complaints by the USA were dismissed.
Despite some progress in its deliberations, the WTO is unlikely to give a final judgment in the first case for several months and not even a preliminary report has been issued on the second case (the EU’s complaint against the USA). But can any conclusions be drawn at this interim stage? The following videos and articles look at the findings and their implications.
Videos
Airbus violated trade laws msnbc news (4/9/09)
WTO issues report on Airbus-Boeing dispute AlJazeera (4/9/09)
Update – Boeing vs. Airbus Bloomberg (4/9/09)
Articles
Airbus Loans Toward A380 Jumbo Faulted in WTO Ruling Bloomberg (4/9/09)
World trade body ruling reflects pre-crisis time Boston Globe (Associated Press report) (5/9/09)
WTO rules that Airbus benefited from E.U. subsidies MarketWatch (4/9/09)
Boeing wins first round in trade battle with Airbus Independent (5/9/09)
WTO rules on huge plane dispute BBC News (4/9/09)
Boeing and Airbus: Round one to Boeing The Economist (4/9/09)
Partial US victory on Airbus funds Financial Times (5/9/09)
Questions
- What sanctions does the WTO have to enforce its rulings? (see the WTO site.)
- What sanctions do individual governments have for ensuring that countries abide by the WTO rulings?
- How could strategic trade theory be used to justify support to aircraft manufacturers? Do such arguments apply to Airbus and Boeing?
- Do airlines and airline passengers gain or lose from the behaviour of Airbus and Boeing? Should the WTO take this into account?
The G20 countries meet each year. Normally their meetings are full of fine words resulting in little action. But at a summit in London on 2 April 2009, the fear of a deepening global recession focused minds and a package of measures worth over $1 trillion was agreed to stimulate trade and growth. This included $750 billion for the IMF to help economies in severe difficulties, $250 billion for financing world trade and $100 to multilateral development banks (such as the Asian Development Bank) to provide extra aid to the poorest countries.
The extra money for the IMF would include $500 billion of loans from member countries and £250 billion in new money – a form of international quantitative easing. This new money would be in the form of ‘special drawing rights’. These are denominated in dollars and are created by the IMF to be drawn on by countries in difficulties.
There was also agreement to tighten financial regulation and to resist protectionism. A ‘Financial Stability Board’ would be set up and work with the IMF to design a strengthened regulatory system for banks and other financial institutions and for financial markets and instruments.
The following articles look at the agreement and its likely effects.
‘This is the day the world came together to fight back’ Independent (2/4/09)
G20 communiqué: Point by point analysis Telegraph (2/4/09)
G20 summit – leaders’ statement. Full text of the communiqué Guardian (2/4/09)
G20: Economic summit snapshot BBC News Online (2/4/09)
G20 leaders seal $1tn global deal BBC News Online (2/4/09)
G-force The Economist (2/4/09)
World leaders declare war on risk Sydney Morning Herald (3/4/09)
Postscript (Sept 2009)
G20: What progress has been made? BBC News (23/9/09)
G20: Pledge by pledge BBC News (25/9/09)
Questions
- What will determine the success or failure of the G20 agreement to revive the world economy?
- Identify any multiplier effects from the agreed measures.
- Why did the French and German governments object to any further fiscal stimulus packages?
The November 2008 trade statistics have just been released and they show that the UK had the largest nominal trade deficit on record at £8.3 billion (up from 7.6 billion in October). This represents nearly 7 per cent of GDP, the highest since 1974.
Trade gap widens despite pound’s slump Independent (14/1/09)
UK trade deficit hits a record as weak pound fails to help Telegraph (13/1/09)
Britain’s trade deficit widens to new record Guardian (13/1/09)
UK Trade, November 2008 National Statistics (13/1/09)
Questions
- Why has the UK’s trade gap widened?
- How can the concepts of income and price elasticity of demand be used in analysing the causes of the widening deficit?
- Explain how these elasticity values are likely to differ in the short and long run.
- Explain the factors that will determine whether the trade gap will widen or narrow over the coming months.
The surprise winner of the Nobel prize for economics this year was Paul Krugman: academic, writer and columnist for the New York Times. He is an economist with a gift for explaining economic principles and concepts in clear and simple terms. However, the award was given, not for his writing skills, but for his work on international trade theory and economic geography.
In praise of ….Paul Krugman Guardian (14/10/08)
Hotdog economics Guardian (13/10/08)
Nobel economics prize: And the winner is ….. Guardian (13/10/08)
Academic and columnist Paul Krugman wins Nobel Prize for Economics Times Online (13/10/08)
Bold strokes The Economist (16/10/08)
Questions
| 1. |
Write a brief paragraph summarising Krugman’s work on trade patterns. |
| 2. |
Define the term ‘economies of scale’. Explain why this concept was important to Krugman’s work on trade patterns. |
| 3. |
Assess the extent to which Krugman’s work has helped to explain the impact of free trade and globalisation. |