World Trade Organization Director-General Supachai Panitchpakdi has appointed three arbitrators who will decide a critical aspect of a banana fight pitting Latin American producers against the European Union. The panel will decide whether an EU proposed tariff for bananas to be imposed in January 2006 provides market access at least as favourable as what these banana exporters enjoy now.{{more}}

Supachai appointed John Weekes, John Lockhart and Yasuahei Taniguchi to be the arbitrators in the case, according to a May 3 announcement. They are expected to make a decision within 90 days under terms of an agreement laying out the arbitration process.

Weekes, who is a former ambassador to the WTO for Canada and now an Attorney at Sidley Austin Brown and Wood, will serve as Chairman of the panel. Lockhart, an Australian, served as the Executive Director of the Asian Development Bank until 2002, and Taniguchi is a Professor at Tokyo Keizai University and a Lawyer.

The EU now regulates its banana trade with a combination of tariff-rate quotas and tariffs. Within their separate quantitative restraints, Latin American bananas face a tariff of 75 euros a ton while bananas from Africa, the Pacific and Caribbean (ACP) countries enter the EU market duty free.

The European Commission has proposed a tariff of 230 euros a ton on Latin American countries after Jan. 1 2006, and exporters from these countries are charging this would reduce their market access and thus violate the terms of the waiver WTO members granted for the EU-ACP partnership agreement. Several Latin American countries have said they could accept no tariff higher than 75 euros a ton under the new system.

The fight pits Brazil, Colombia, Costa Rica, Ecuador, Guatemala, Honduras, Nicaragua, Panama and Venezuela against the EU. Separately, ACP states have been calling for the EU to introduce an even higher tariff than the 230-euros a ton the commission has proposed.

The fight went to arbitration after the parties could not reach a negotiated agreement on what would be an acceptable tariff level. Formally, these negotiations over the new European tariff are being conducted under Article 28 of the General Agreement on Tariffs and Trade. They involve principal suppliers as well as the countries holding the original negotiating rights.

Latin American countries then requested arbitration on March 30 under terms laid out in an annex to the waiver allowing the EU-ACP partnership agreement. The two sides met on April 6 but failed to reach an agreement on the appointment of an arbitrator, which triggers a provision in the waiver calling on the WTO’s Director General to appoint arbitrators within 30 days of the arbitration request if the parties cannot agree on them.

In the fight over arbitration, the EU called for only one arbitrator while the Latin American countries called for a broader panel of five arbitrators. As a result, the appointment of three arbitrators seems to serve as a compromise between the two sides, according to sources.

The European Commission has said it wants to finish arbitration by Sept. 30 so it would have three months to get member state backing for the new tariffs it would impose on Jan. 1, 2006 (Inside U.S. Trade, March 4, p.1).

EU officials have said this timeframe can be met, but it will be difficult. The announcement of the arbitrators this week means a decision is likely by early August, when much of Europe is on holiday. However, if the arbitration panel finds against the EU and asks it to change its proposed tariff, the EU’s second proposal could also be challenged by the Latin American countries to the same arbitration panel under a shorter time frame.

A Chairman, one informed source said, can often dominate arbitration panels. However, this source said this is less likely to happen on a panel where the Chairman is not a member of the Appellate Body, and where the other two members are on the Appellate Body.

EU officials last week speaking at the International Banana Conference in Brussels said the final tariff on Latin American bananas will have to be higher than the current 75 euros per metric ton, and also said the tariff-only system was inevitable, according to a participant.

Karl Falkenberg, a senior EU trade official charged with EU trade with the ACP, said the commission does not see any other possibility than the tariff-only system. Another EU official told the conference that it makes sense that the final tariff will be higher than the current 75 euros since the value of licenses under which companies can sell bananas brought into the EU under quota must also be reflected in the final tariff, the source said.