The Banana Dispute: Survey and Lessons

Abstract

The disadvantages of the introduction of the CMOB from an allocative point of view have been widely elaborated in the economic literature. Despite this, the EU has tried to safeguard the preferences for EU producers and ACP banana exporters on the market. The EU has reacted by adjusting the CMOB several times according to external pressure without moving consistently towards a liberalized banana regime. The objective of our paper was to survey concisely the complex banana dispute and to draw economic lessons from this case study. The survey referred to the historical development of the CMOB itself, but also to the main contents of the WTO Panel Reports on Bananas, which are cornerstones for the assessment of many other agricultural TRQs under the WTO. One important implication of the analysis of the CMOBs institutional details is that this type of trade-tied aid induces substantial additional adjustment and transaction costs as well as excessive rent-seeking activities. These are additional arguments for a liberalized banana regime beyond the net welfare losses that arise from price distortions due to the CMOB. From the developing countries' point of view, FINGER and SCHULER [1999] pointed out that the scope and complexity of trade regulations which have been agreed upon during the Uruguay Round put a substantial strain on financial budgets and institutions of developing countries which can amount to an entire year' s development budget in the least developed countries. The complexity and instability of the institutional details of the CMOB place a heavy burden on banana-exporting countries, too.