06 August 2005

Banana Wars

Some people still don't quite seem to get this free trade idea. I refer, of course, to Peter Mandelson's minions in Brussels who have once again been found to be in the wrong by the World Trade Organization.

Brussels suffered a blow in its latest trade war yesterday after the World Trade Organization ruled against its plans to triple import duties on bananas imported from the Americas.

They have managed to understand one small piece of the puzzle, that tariffs are at least better, less distorting, than quotas:

The "banana wars" go back to at least the 1990s when the EU agreed to dismantle its complex quota system and replace it with tariffs.

Why is it that they actually want to have tariffs at all? The European Union (small volumes from the Azores and Canaries aside) is not known as a producer of bananas so there is no domestic industry to protect (not that that would be a good reason even if there were).

The EU wants to give privileged access to its markets to African, Caribbean and Pacific region countries - many of which are former colonies. It had planned to lift tariffs on Latin American bananas from €75 (£52) a ton to €230 from the beginning of next year.

This shows up two points. Firstly, that organizations like the WTO are essential to keep those who sign agreements to the terms of those very agreements they have signed. Without a complaints procedure ("Teacher! He did it first!") whatever was actually down there on the piece of paper would be ignored in a welter of recriminations.

The second is that the Brussels mandarins seem not to have grasped the important point about free trade. If we wish to aid banana growers who are woefully uncompetitive in the world market (as, for example, many of the Caribbean ones are) we would be best served by aiding them directly, perhaps by helping to upgrade their production or by assisting their move into the production of other items.

Forcing every mother on the continent to pay more for the mashed banana she forces down her little one's throat is a grossly inefficient way of perpetuating those poor countries' dependency.

Far better to have free trade, zero tariffs and quotas, and then deal with the displaced and losers from the change directly.

Originally published on the Globalization Institute Blog by Tim Worstall.

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