EU Bananarama III

On July 1, 1993 the European Union (EU) adopted a unified banana policy that is even more distortionary and costly than some of the disparate national policies it replaced. Before, some EU countries gave preferred market access and high prices to banana producers from selected developing countries in Africa, the Caribbean, and the Pacific, and from EU territorial suppliers. This preferential status was regarded as a form of aid to countries with historical ties to certain EU countries (France, Great Britain, Italy, Portugal, and Spain). Other EU countries (Belgium, Denmark, Germany, Ireland, Luxembourg, and the Netherlands) granted no preferences and either had free trade policies or imposed only low tariffs. The earlier quota-based national policies were inefficient because the main benefits of the quotas and high prices were enjoyed by importers, wholesalers, and retailers in the quota-restricted countries. Under the unified EU policy, quotas, high prices, and preferential access provide aid to preferred suppliers, but cost EU consumers dearly and the quota restrictions hurt nonpreferred suppliers (mainly Latin American countries). But the main problem with the new policy is that it extends protection (and consequent inefficiencies) to countries where it didn't exist before. As the costs of the new EU policy become better understood, new forces are emerging that will probably create pressure for change over the next decade. Banana producers who now receive aid through preferential access to the EU banana market are likely to lose those preferences. This could deal a hefty blow to several small Caribbean island economies and some African countries. But much more efficient alternative mechanisms exist through which the European Union could grant aid to these economies. The European Union and the favored Caribbean countries could all gain much by shifting from banana aid to formalized, targeted general development aid.