Strong growth in banana consumption in the EU based on ‘alarmingly low prices’

While APEB is right to be concerned about the possible diversion of $ banana exports to the UK to EU27 markets, this is not likely to be a result of changes of UK tariff policy, but the implications of Brexit for existing EU trade agreement commitments. While the UK’s withdrawal from the EU will shrink EU import demand by around 20%, the banana market access commitments under bilateral EU trade agreements will remain unchanged.

In this context, as existing EU bilaterally negotiated market access commitments for bananas are fully implemented, from April 2019, this will apply exclusively to the territory of the EU27 (although if a two year transitional EU27/UK trade deal were to be agreed which required the UK to continue to abide by EU rules and regulations during this period, this development would probably be deferred until 2021).

EU $ Banana TRQs 2015 and 2019+

* Duty €70/tonne, but currently subject to renegotiations as part of the updating of the EU-Mexico agreement.

It is the future application of the EU’s existing banana TRQ commitments solely to the EU27 market which will intensify competition on EU27 markets as a result of Brexit.

In the short term this could carry serious implications for those ACP suppliers who primarily serve EU27 markets, most notable Cote d’Ivoire and Cameroon, but also Suriname.  However in the longer term further growth in banana consumption in Eastern Europe could serve to ease these Brexit related pressures.

While in terms of WTO quotas the EU and the UK have reached agreement on the framework for the apportionment of these market access obligations between the EU27 and the UK, this framework has been rejected by leading WTO members. This rejection is based on concerns that it would restrict their access to the EU market, in a context of profound uncertainty over future UK trade policy (see companion article ‘Concerns over Division of EU28 WTO TRQ Commitments Emerge’, 26 October 2017).

Given this opposition in regard to WTO market access commitments, opposition is likely to be even more intense to the apportionment of bilaterally negotiated TRQ market access commitments between the UK and the EU27.

This issue of the future of TRQ restricted access to the EU market is likely to be further complicated by the fact that under bilateral EU trade agreements TRQ market access concessions were often exchanged.

Post Brexit no UK exporters will be eligible to gain market access under TRQs granted EU exporters, since the UK will no longer be a party of EU trade agreements. What is more, post-Brexit, EU27 exporters are unlikely to be willing to voluntarily share hard won market access rights with competing UK exporters.

UK market access to third countries where the EU has a trade agreement in place, will need to be subject to separate bilateral trade deals, as will the market access granted to third country suppliers to the UK market.

The scope and nature of these new bilateral trade deals is potentially a major issue of concern to ACP banana exporters with a high dependence on the UK market.  Unlike in the EU, the UK has no domestic banana producers to protect and is keen to quickly conclude trade agreements with large non-EU economies, based on the exchange of major market access concessions. This could lead to an early downward revision of UK banana sector tariffs.

However while the UK government has committed to replicating EU market access arrangement as bilateral deals and favours a ‘cut and paste’ approach, it may take some time to set in place these bilateral trade arrangements with the UK.  This is a consequence of the human resource constraints in the UK’s Department of International Trade (DIT), the complexities around TRQ arrangements, rules of origin issues for UK exports and the large number of EU-third country trade  agreements which will need to be replicated.

In this context the UK may unilaterally offer concessions on banana tariffs under and GSP or GSP+ schemes, given the high food price inflation which could result from the Brexit process and the role bananas play as the most frequently consumed fruit in the UK.

Banana exports to the EU and UK 2016 Volume and Value (tonnes & Euro)

Source: EC, Market Access Data Base

Any move towards UK banana tariffs which are lower than existing EU tariffs would carry serious implications for those ACP banana exporters who primarily serve the UK market (Ghana, Belize Dominican Republic, St Lucia).

Given the maturity of the banana market in the UK (which contrasts sharply with the situation in eastern Europe), it is unlikely per capita consumption growth in the UK will provide any significant degree of relief from the competitive pressures traditional ACP exporters may come to face.

Beyond the Brexit issue the ‘alarmingly low prices’ of bananas would suggest an urgent need to extend the scope of the UK Groceries Code to importers of bananas and extend the coverage of the new proposed EU regulations on unfair trading practices to include ACP-EU agro-food sector supply chains, with a particular focus on bananas. Initiatives in this area have been a long standing demand of ACP banana sector campaigners.

To date however there is no indication that the UK or the EU authorities are contemplating such a course of action, despite the current review of regulatory initiatives aimed at strengthening the functioning of agro-food sector supply chains and eliminating unfair trading practices (see companion articles ‘Proposed EC Regulatory Initiative on UTPs Needs to be Extended to ACP-EU Supply Chains’, 8 September 2017 and ‘Role of UK Groceries Code Adjudicator could be extended’, 17 July 2017).