Ceasefire is declared in nine-year banana war as sanctions suspended

A ceasefire has been declared in the "banana war" that has raged between the European Union and the United States for nine years. Under the deal, the US will suspend from July 1st sanctions it imposed in 1999 on nearly $200 million (€226 million) worth of EU imports ranging from French handbags to British linens.

Washington levied the tariffs, doubling the price of these goods, after winning a case at the World Trade Organisation over banana import rules adopted by the EU in 1993. It complained that the EU favoured shipments from former European colonies in Africa, the Caribbean and Pacific islands (ACP) over cheaper bananas from Latin America sold by US firms Chiquita Brands International and Dole Foods.

The agreement "will end the past friction and move us toward a better basis for the banana trade", said European and US trade officials in a joint statement yesterday. It will provide a transition to a tariff-only system by 2006.

The Irish group Fyffes is the biggest banana distributor in Europe and draws its produce from both the ACP nations and the dollar banana nations of Central and South America. Fyffes is the leading supplier of bananas in Ireland, Britain, Denmark, the Netherlands and Spain and has footholds in Germany and France.

In a statement, Fyffes welcomed the agreement and said it had "consistently held the view that a licence system based on historic trade is in the best interests of the group and its suppliers".

During the transition, bananas will be imported into the European Union through licences distributed on the basis of past trade.

The breaking of the deadlock has removed the risk of the US government applying further retaliatory measures under the Carousel law brought in by the Clinton administration last year, which could have extended sanctions to other industries on a rotating basis.

This could have escalated the transatlantic trade dispute as the EU might then have implemented sanctions against the US over US tax rules on export income. The EU is challenging tax subsidies received by thousands of US firms, including Boeing and Microsoft, and is threatening punitive tariffs on $4 billion of US goods.

The EU's banana import regime was flawed, former Italian foreign minister Mr Lamberto Dini admitted in an Irish Times article last week. "It gives pride of place to the interests of traders that make unjustified profits from bananas sold in Europe at the expense of producers - mainly in developing countries - for whose economies bananas are the principal source of income."

The end of banana hostilities was announced in Brussels and Washington yesterday by the EU Commissioner for Trade, Mr Pascal Lamy, the Commissioner for Agriculture, Mr Franz Fischler, the US Trade Representative, Mr Robert B. Zoellick, and the US Secretary of Commerce, Mr Don Evans.

"Today's step marks a significant breakthrough," they said. "It demonstrates the commitment of the Bush Administration and the European Commission to work together closely and effectively on trade issues. The banana disputes of the past nine years have been disruptive for all the parties involved."

EU officials said the European Union would begin negotiations under WTO rules to introduce the tariff-only system from January 1st, 2006. The European Commission will seek approval from the Council of Ministers and the European Parliament.

Mr Lamy said the deal protected producers in former colonies, although at a "slightly smaller amount" than previously proposed, a quota of 750,000 metric tons instead of 850,000. He sensed a desire under President Bush to "reduce the list of disputes rather than increase it".