The tariff-only regime for bananas in the European Union: Settingthe tariff at right level is impossible mission

First versions of this paper were presented at a FAO (Food and Agriculture Organisation of the United Nations) seminar (Rome, October 2004), an IATRC (International Agricultural Trade Research Consortium) meeting (Seville, June 2005) and the XIth EAAE (European Association of Agricultural Economists) congress (Copenhagen, September 2005).On 29 November 2005, the European Union (EU) unilaterally introduced a tariff of €176 per tonne to apply from 1 January 2006 to bananas imported from countries enjoying the Most Favoured Nation (MFN) status. The new EU trade policy includes a duty-free annual import quota of 775,000 tonnes for bananas originating from African, Caribbean and Pacific (ACP) states. This regime replaces the very complex and highly contested tariff-rate quota policy in place in the EU between 1993 and 2005. However, the banana international trade war very likely has not come to an end. Several Latin American countries have announced their intention to challenge the new EU trade policy by initiating a new WTO complaint. In this paper, we first propose an analysis of the two WTO arbitration awards that ruled against the initial EU tariff proposals. We show that the arbitrators’ awards are incomplete notably because they do not explain why CIF (Cost, Insurance and Freight) import unit values in the EU-15 from MFN suppliers are much higher than FOB (Free on Board) export unit values in corresponding MFN countries adjusted by all relevant costs that should theoretically be added to transform FOB into CIF prices. One plausible explanation to this apparent paradox is that reported CIF prices include at least part of quota rents generated by the tariff-rate quota policy. On this basis, we analyse the impacts of different MFN tariff levels on EU banana imports under contrasting hypotheses regarding, first whether the price gap between CIF and FOB unit values does include at least part of quota rents, second whether banana exports to the EU from Western African ACP countries were constrained under the previous regime where a specific import quota were reserved to ACP countries. We also analyse the consequences of an “augmented” tariff-only import regime including a MFN tariff and a duty-free import quota for ACP bananas