§ 1.57 p.m.
§ Lord Newby
rose to ask Her Majesty's Government what action they plan to take to safeguard the interests of Caribbean banana growers.
The noble Lord said: My Lords, anybody who thinks that trade matters can be reduced to simple slogans and resolved by simplistic policies should look at the history of the Caribbean banana industry. Trade in bananas between the UK and the Caribbean began in 1901 when Joe Chamberlain, as part of his imperial policy, signed a 10-year deal for fortnightly shipments of bananas from Jamaica, for which the shipping company was paid an annual subsidy of £40,000, some £2 million in today's prices.
Since then the UK has consistently sought to safeguard the interests of the Commonwealth Caribbean banana producers because the industry still remains of great economic and social importance to the region. It does, however, now face its most serious threat to survival and must look again to Her Majesty's Government for support. I declare a former interest as a former adviser to the Caribbean Banana Exporters Association.
The threat arises from the negotiations currently underway to change the EU banana import regime. Under the current system of tariff quotas, the ACP countries have a reserved share of the Community market. This is to be replaced by a simple flat rate tariff, with a duty preference for the ACP. This could destroy the Caribbean banana export trade unless the new single tariff is fixed at a level that will prevent the risk of greatly increased volumes and depressed prices.
The move to a tariff-only regime is required under the agreements between the EU and the USA and Ecuador that brought to an end the lengthy dispute in the WTO over the EU banana import regime. The European Commission has consistently made clear that the objective of this move is not to reduce the total level of protection currently provided for ACP states, but to provide it in a form that is compatible with WTO rules. It should therefore be an exercise in changing the system of support, not of reducing its level. Unfortunately, this now seems unlikely to be the case.
At present, the full rate tariff on bananas from third countries—principally those in Latin America—is 680 euros per tonne, which in practice is a prohibitive duty. But there is a much lower rate of 75 euros for a 516 fixed import quota. The quota was 2.65 million tonnes for the 15 member states prior to enlargement and has since been increased to cater for the 10 new states. Imports from ACP states enter duty free and have a reserve quota of 750,000 tonnes. ACP imports beyond this level will be subject to a preferential but still prohibitive duty of 380 euros for imports above that volume.
The Commission has proposed that the new single tariff for non-ACP countries should be 230 euros per tonne. It claims that that figure has been calculated on the basis of the most thorough economic analysis to be equivalent in its effect to the two existing tariffs. Unfortunately, however, the Commission analysis provides only a static snapshot of the "price gap" between Community and external prices. It fails to take account of the dynamic changes in the market that would inevitably follow the removal of the existing quantitative limits on imports through the tariff quotas.
Market prices are obviously set by the level of supply in relation to demand. Currently, supply in the Community is constrained by the tariff quotas, which effectively limit the total volume of imports and so maintain market stability. Once the constraint of the tariff quota is removed, supplies are bound to increase, given that there is a structural surplus of bananas on the world market. The only restraint on this increase will be an increased tariff, and without a sufficient tariff to limit increased volumes, prices will inevitably fall. The Caribbean is convinced that the figure of 230 euros proposed is not enough to prevent that.
The Caribbean view is supported by the fact that some importers already pay as much as 200 euros for licences to import bananas from Latin America under the reduced-rate quota, so they also pay the 750 euros duty as well. That supports the contention of ACP states that the new single tariff should be at least 275 euros. The realities of the marketplace are, I suspect, a more reliable guide than the academic economic models used by the Commission.
It becomes a difficult issue because the interests of developing countries in Latin America are also profoundly affected. There is great concern there about the proposed change of the regime, but from a diametrically opposed viewpoint. Most Latin American governments and trading companies have insisted that the flat-rate tariff should be no higher than 75 euros a tonne, even though that must lead to a fall in prices. Moreover, they argue that an increase in the tariff inevitably increases the margin of preference for ACP countries because their bananas enter duty free. They fear that that will encourage greater production in the more cost-effective ACP countries in Africa. Incidentally, those ACP countries strongly contest that. Most Latin American countries have therefore declared that they would prefer to keep the present regime rather than face a higher tariff without quotas. From the outset, Costa Rica has argued for the retention of the current regime, at least for a further period.
To make matters even more complicated, a number of EU member states, led by Sweden, are also campaigning for the 75 euro tariff to reduce the 517 already low prices to consumers. They make the unrealistic suggestion that the vulnerable ACP producers who will be driven out of the market by the consequent fall in prices paid to them should simply diversify into other products with the benefit of Community aid. If only it were so simple.
Although banana prices in Europe are higher than in some other markets, they are already very low by historic standards and cheaper than almost any other fruit. In the UK, which now has some of the lowest prices in Europe, average retail prices have fallen by 25 per cent in the past three years to historically low levels, even in monetary terms. A flat-rate tariff of 75 euros, as the Swedes urge, would cause a further big price fall. It is the individual growers in developing countries, whether Caribbean or Latin American, who would bear the brunt of those price reductions. Obviously, in a free market for a commodity that is in surplus with a substantial labour cost element, the winners are those willing to accept the lowest living standards. It seems bizarre, therefore, for any European state to propose a tariff that would lead to a race to the bottom simply to get the odd penny off a pound of bananas.
The banana export trade remains vital to the Caribbean, economically and socially, even though exports have fallen substantially, largely as a result of the changes to the common regime that followed the WTO rulings. Indeed, the Caribbean share of the EU banana market fell from 10 per cent to 4 per cent in the decade since 1993. With Community aid, the industry is nevertheless now on a sounder footing than in the past, and in the Windward Islands is benefiting also from the support of the Fair Trade movement. But the volume of output there has declined to a critical level, below which it risks sudden collapse, because any significantly lower volume would make shipping uneconomic and make it impossible to meet regular customer requirements. That is why a tariff level that results in higher import volumes and lower prices would have such disastrous results. It is also why it would be extremely unwise simply to fall back on aid for diversification, as the European Union sometimes seems tempted to do.
Loss of the industry would bring considerable hardship to small island economies, particularly those such as Dominica, with very few natural resources or alternative sources of employment, and which have already suffered greatly increased unemployment, poverty and emigration with the decline in their banana production.
In the WTO the most recent agreement on the ongoing Doha round recognises the importance of longstanding preferences, such as the Community's preference for ACP bananas. Moreover, there has been increasing recognition in the WTO and elsewhere of the need to take special account of the problems of small economies. Of course, the Treaty of Rome long ago recognised the need for special consideration for regions within the Community that were handicapped by their remoteness, small size, difficult topography, climate or dependence on a few products. That is the justification for the very high level of support given to Community banana 518 growers, such as those in the Canaries, Martinique and Guadeloupe, which are all situated in peripheral regions—Martinique and Guadeloupe are situated very close to the Commonwealth ACP banana-producing countries. Those EU producers, however, benefit not just from the tariff protection but also from a form of deficiency payment that at times has exceeded half of growers' incomes. Similar principles are enshrined in the Cotonou agreement between the EU and the ACP. That renders all the stronger the moral case for the Community to ensure that its measures on bananas do not harm the Caribbean where the Windward Islands, in particular, present a classic example of small island states with precisely the same handicaps of terrain, topography, size and dependence on a few products, which are so widely regarded as justifying special consideration.
The Commission, however, now faces a very difficult challenge. It can either seek to negotiate a tariff rate that is high enough to support continuing Caribbean production, which would almost certainly lead to arbitration and very considerable uncertainty, or it could support the Costa Rican approach for a continuation of the current system, which is probably the fairest solution all round, if the interested parties and especially the parties to the 2001 agreements were prepared to accept that. It is interesting that recently the Ecuadorians also seem to be coming around to supporting that view. It is therefore disappointing that the EU Trade Commissioner, Peter Mandelson, appeared unwilling to explore that option during his trip to the Caribbean a week or so ago.
Either way, the EU continues to have a moral responsibility towards its former Caribbean colonies that grow bananas. It must be very tempting for Ministers to argue that as trade is now an EU competence, it is simply for the Commission to get a deal, however dire that might prove for the Caribbean, and for the UK to row in behind it.
It is, however, a temptation that the UK Government must resist. They have a Trade Commissioner who is known very well. They have, I believe, a genuine desire to promote the interests of poor Caribbean states. They will soon assume the EU presidency and can, therefore, seriously influence the next crucial decisions on the banana regime. My plea today is that they exert that influence for the benefit of the Caribbean banana industry as they have so consistently in the past.
§ 2.10 p.m.
§ Lord Faulkner of Worcester
My Lords. I congratulate the noble Lord, Lord Newby, on raising this matter today. I very much hoped that he would go into some of the complexities of the tariff system because that would spare me the need to try to understand it and explain it to your Lordships. He has done that admirably, so my comments on the details of tariff references will be a little limited.
As the noble Lord has explained, these are matters of huge significance. Indeed, the continuation of a banana business in some small Caribbean countries is literally a matter of life and death for them. I am a vice-chair of the parliamentary all-party British-Caribbean 519 group. During my business career before I entered your Lordships' House, I was for more than 25 years an adviser to the Fyffes Group, the company that has imported Caribbean bananas to Britain for more than a century.
The Caribbean country that I got to know best was Jamaica, which at its peak in the 1930s was exporting more than a quarter of a million tonnes of bananas to the United Kingdom. By the late 1990s that had fallen to less than 90,000 tonnes and was down to 40,000 tonnes in 2002. But despite that, according to the Caribbean Banana Exporters Association, banana production, transportation and distribution still account for between 5 and 10 per cent of total employment in Jamaica and it is still second only to sugar in economic significance in the country's agriculture.
As we have heard from the noble Lord, Lord Newby, there are other Caribbean countries in the Commonwealth—particularly three of the four Windward Islands—that are almost wholly dependent on bananas for their economic existence, where they are grown on small family farms in remote and often difficult-to-farm areas. As the International Labour Organization has commented,no other economic activity in the Eastern Caribbean has similar multiplier-effects on employment levels".So it goes well beyond the number of farmers who are just growing the fruit.
What we must appreciate is that the development of the Caribbean banana business throughout the 20th century, interrupted only in war-time, was a remarkable success story, which reflected credit on everyone involved in it: that is, the farmers who strove to improve quality and reliability; the packers, distributors and shippers; the companies—Fyffes, Geest, Jamaica Producers and others; and the governments of the United Kingdom and the Caribbean countries, which did everything in their power to ensure that this business flourished. Credit is also due, most importantly, to the British consumer who loves the Caribbean banana, which has so much more taste, is of much better quality and is of a much more convenient size than the huge rather tasteless object that comes to us from Latin America.
The key to all that has been protection through tariff quotas, giving the Commonwealth Caribbean countries and other members of the ACP the first crack at the European market through the Lome agreement. That system worked reasonably well, even since the advent of the single market in Europe in 1993. It was not an easy deal to do. No other EU member had the same sort of post-colonial links that we had with banana-exporting countries, although the United Kingdom was able to find some common cause with France, which was a banana grower in its own right because of Martinique and Guadeloupe—as the noble Lord, Lord Newby, said—its overseas department territories in the Caribbean, and it also had former colonies in West Africa.
520 Five EU states operated no limits on the quantity of bananas they imported, and Germany managed to maintain an extraordinary arrangement whereby it imported bananas from anywhere it liked duty free. Despite these differences, the deal struck during the time of the British presidency of the EU—here John Gummer, the agriculture Minister at the time, deserves a great deal of credit for taking it through—has maintained some stability.
Levels of employment in the banana growing countries have continued to fall, but at least the business has survived. It has maintained supply to the point that in Britain the banana is now our favourite fruit. We Britons eat 10 kilograms a year. This morning, as I was having my breakfast banana, which weighed 15 grams, I calculated that the average consumption must be between 65 and 70 bananas per head. I probably eat rather more in a year, but those statistics make it by far the most popular fruit in this country. If the banana was promoted better, with a particular emphasis placed on more fair trade bananas of the sort that come from the Windward Islands in the way Switzerland does, I think that we would be able to sell even more.
Despite all those good things, as the noble Lord, Lord Newby, has told us, the 1993 agreement went wrong because of the challenge through the WTO. I have to say that I find the approach of the United States Administration to this matter absolutely extraordinary. There is scarcely a single banana grown commercially in the United States, aside from a few in Hawaii, but because the Latin American banana growing business is dominated by US multinationals, an action was taken under Section 301 of the US Trade Act at the instigation of Chiquita, which has 40,000 workers, nearly all of whom are in Honduras and Guadeloupe.
It is widely believed that the United States trade representative got involved as a payback for political favours, because it is well known that the boss of Chiquita, Mr Carl Lindner, had made huge political donations to both the Republican and Democrat parties. The US backed up its action with trade sanctions and, as we have heard, the World Trade Organisation upheld the US complaint and found against most of the measures taken by the EU to fulfil the commitment to the ACP countries under Lome. Fortunately, a temporary agreement was reached in 2001 which retained the tariff quota system, but that expires at the end of this year and, as the noble Lord has explained, the EU now has to move to a single tariff or a tariff-only system.
The issue now, and the one which will determine whether there is to be any Caribbean banana export business in the future, is the level of that tariff. If it is set too low, it will simply disappear. The FAO has conducted an independent study and reckons that the tariff will need to be around 300 euros to leave import volumes unchanged, so the Commission's current proposal of 230 euros is clearly not enough.
We hear vague talk about "diversification" as a way out of poverty for destitute farmers, but it really does not help very much. Indeed, the attack made by the 521 United States on the economies of poor countries in the Caribbean is particularly short-sighted as one of the consequences of wiping out the banana growing industries on those islands will be to increase the attractiveness of alternative, less desirable crops.
In March 1998, Oxfam published a paper entitled, A Future for Caribbean Bananas. On the threat to the preference arrangements for Caribbean growers it stated that:The significant achievements of the islands' governments in pursuing democracy and good governance would be severely threatened, as those in power struggled to cope with rising deprivation and social unrest. Low prices, together with the uncertainty over the future of the banana industry, have led to a loss of confidence among farmers. Some are already leaving the land, and unemployment is rising. There is a very real danger that farmers could resort to what, for many, would be their only economic alternative: illegal drugs.A plot with a few dozen marijuana plants on a smallholding will fetch up to 30 times more per kilo than a farmer's banana crop. It is reckoned that St Vincent can now count marijuana as its principal export crop. The cultivation is also … on the increase in Grenada and Dominica".The article goes on to say that there is also a good living to be made from cocaine transhipment from Central America to the United States. So let us be quite clear what so-called "diversification" is likely to mean in a number of those countries.
I conclude with the words of the Minister of Foreign Affairs of St Vincent and the Grenadines, Mr Allen Alpian:Money and greed have been elevated to the status of a religion and care and concern are now regarded as a vice. Our future is now on a life support system. However, I am confident that our resourcefulness and faith will see us through".I believe that it is our duty and that of our Government and the EU to support that resourcefulness and faith, and we must not let them down.
§ 2.20 p.m.
§ Baroness Miller of Chilthorne Domer
My Lords, I congratulate my noble friend on securing the debate on this urgent issue. The number of speakers in the debate should not be taken as an indication of the interest in the issue. A number of noble Lords have said to me that they would have spoken in the debate but for the fact that it was scheduled for a Friday afternoon and they were unable to do so. They want my noble friend Lord Newby to know that they have great sympathy with the points they believed he would put forward.
My noble friend Lord Newby and the noble Lord, Lord Faulkner, have, with their usual clarity, outlined all the historical issues, and I shall not repeat them. However, the original complaint to the WTO was made by the United States and Ecuador. Ecuador is now at the forefront of gathering Latin American support for a complete reversal of its original complaint and is spearheading a campaign for at least the status quo to be maintained in the interests of its neighbours in the Caribbean, as it does not want to see the start of another banana war. What conversations has the UK had with the Ecuador Government about the issue? What representations have the UK and the EU received?
522 Both previous speakers referred to Fairtrade, which has really taken off in this country. Fairtrade is a way of informing consumers that they are buying something that has been traded fairly and for which the producers have received a fair return on their efforts. It is an extremely important movement. It supports 5 million farmers worldwide in 49 developing countries. Indeed, 750 out of the 1,000 banana farmers in Dominica are Fairtrade producers.
The Fairtrade Foundation fears that if the problems are not solved, because bananas form such a critical part of its income, the Fairtrade movement will be threatened. So, as both previous speakers have said, it is not only the Caribbean islands which are at risk. It is an issue of such gravity that it is difficult to perceive how we could contemplate not only taking away the livelihood of those who live on those islands but destroying a movement that produces real benefits for many small producers throughout the world.
The Fairtrade movement is set to grow—it has been growing exponentially over the past two or three years—and Oxfam and other such organisations have been supporting it with strong campaigns. It would be criminal to undermine the movement by any short-sighted way of satisfying what is now an historical complaint.
The importance of Fairtrade lies not only in giving producers a fair return for what they produce but in the sound sense with which it interprets the meaning of "sustainability". Fairtrade also sets levels for social projects. The fairer returns that the farmers receive for their produce have a small premium attached to them, and there is an obligation for that premium to be returned into the community to be used for various projects such as healthcare centres and schools. The community projects for which the premiums are to be used are decided through a democratic, accountable system whereby the producers come together and decide which ones they will support.
Fairtrade also has a significant environmental impact. Fairtrade producers use less herbicide and less pesticide. That has been noticeable in the Windward Islands, for example, where there was a downward trend in the fish in the rivers. Since many producers have switched to higher environmental standards, as Fairtrade has enabled them to do, the fish have returned. Pesticides were also having an effect on coral reefs. Given their understanding of what was happening to their reefs through the use of pesticide, the islanders saw Fairtrade as being extremely important in discouraging its further use. Fairtrade is about more than salving the consciences of western consumers; it goes to the fundamentals of the way that we want to see trade happen. Does the Minister realise the implications to the Fairtrade movement, if the banana situation is not resolved in the way that my noble friend Lord Newby suggests? At the very least, there should be no hasty move of the sort that the EU is considering. The Government need to make sure that, in the short term, a complete stop is put on any plans to change the system and, in the long term, a good look is taken at the issues raised by my noble friend.
§ 2.25 p.m.
§ Baroness Miller of Hendon
My Lords, I thank the noble Lord, Lord Newby, for introducing the debate. With the reports of mounting pressure on the EU to postpone the revision of its banana import regime, discussing this matter is timely and welcome. The noble Lord fully explained the background to this complicated problem. Some people have said that, without a solution, we could face another round of the banana war.
I say from the outset that, although we on these Benches are proud of our relationship with the Commonwealth, which we have always tried to support whenever and in whatever way possible, we concede that the idea of extending protectionism goes against the values of free trade that we signed up to in Doha. I acknowledge that the Government are caught between two opposing objectives because of the treaty obligations by which we are bound.
It is argued that, in the long run, free trade will help the world's poorest countries to develop and stabilise. My party's policy is that free trade is as vital as aid. My right honourable friend the Leader of the Opposition said:There is an ongoing debate between free trade and fair trade. I believe in making free trade fairer, and fair trade freer".In the case of the banana-growing industry, the leading protagonist is the United States of America, as the noble Lord, Lord Faulkner, said. That powerful country supports three major multinational corporations whose combined income exceeds the income of the tiny group of islands whose entire economies are being imperilled by the impending changes. In turn, they have to face the demands of their European supermarket customers for ever-cheaper supplies, as part of an ongoing price war. It is interesting to note that bananas seem to be the key battleground in that war. As a consequence, the retail price of bananas fell from 49p per pound in 2001 to 40p per pound in 2003, which is a drop of 18 per cent. The price fell to 36p per pound in the early part of 2004, which is a total drop of 26 per cent.
The problem faced by the Windward Islands is that not only do they have to put up with difficult terrain, but the producers are small family concerns that are unable to compete with industrial-scale, high-tech growers operating in South America, where the workers are paid wages that would not correspond to what we call fair trade standards. The paradox is, as I discovered for myself when I got involved in earlier debates about the banana wars, that the small Windward Islands bananas taste infinitely superior to the giants emanating from South America, as the noble Lord, Lord Faulkner, said. He is nodding his head vigorously. I suggest that your Lordships try them for yourselves, before it is too late, if you have not already done so. I wish that they were supplied in the Bishops' Bar.
524 There is talk of diversifying from dependence on this single crop. Indeed, some steps are being taken in that regard. However, there is a danger that, without active assistance to preserve their trade and to find new ones, farmers will inevitably be tempted to start growing less acceptable crops. The examples of Colombia and Afghanistan are there for us to see.
Last June, the Defra Minister told the other place that Her Majesty's Government firmly believe that the inevitable changes to the banana regime must be phased at a rate that allows the Caribbean countries' economies to adjust. Seven months on, can the Minister tell us how well each of the countries seems to be adjusting? What funds are Her Majesty's Government and the EU providing to the area to help diversification of employment? What help is being given to ensure that the changes are being prepared for adequately and that the dispossessed workers are retrained?
I accept that the Minister may not be able to answer those questions today. If he cannot, I am perfectly happy for him to write to me in due course.
It is clear that we will see the decline, if not the total destruction, of a whole local industry which will be sacrificed for what some conceive to be the greater good. I cannot look on that with any degree of equanimity, and neither, I am sure, can anybody else. However, I do not believe that the Government are able to do much because of their treaty obligations and their obligations within the EU. All I can do is urge the Government to do all they can to support the poor independent farmers in an area which is as poor as the areas to which the trade will be shifted.
§ 2.31 p.m.
§ Lord Evans of Temple Guiting
My Lords. I thank the noble Lord, Lord Newby, for securing the debate and all other noble Lords for their contributions. We have to start from a position where everybody in the Chamber has the greatest possible sympathy for the plight of the Caribbean banana growers. I hope in the next few minutes to explore what we can do with our colleagues in Europe to help.
Given the title of the Unstarred Question—to ask HMG what action they plan to take to safeguard the interests of Caribbean banana growers—I start by stating the obvious: there is little, unilaterally, that we can do to help. The responsibilities towards ACP banana exporters expressed in the Lome convention are a collective EU responsibility and not specifically that of the UK. The UK can only assist the other 24 member states in ensuring that the EU meets those responsibilities. It would also be unlawful for the UK unilaterally to use tariffs to ensure that the Caribbean banana growers continued to export their bananas to Europe. It is difficult to conceive of how a policy of paying supermarkets or banana-importing companies to make sure that they continued to buy Caribbean bananas would be acceptable to the British electorate.
The only other direct method would be directly to subsidise the banana growers. However, there are, in our view, far more cost-effective ways of transferring aid money and helping the growers to find a sustainable livelihood for the long term.
525 I refer noble Lords to the Caribbean banana growers' website, which gives some extraordinarily interesting statistics about the plight of the Caribbean banana producers. The website covers the future, the 64 per cent decline in the price of bananas over the past 10 years, the production of bananas and competition from other countries of the world. The picture does not look too bright.
Today's debate has provided a welcome focus on the issues facing the banana industry in the Caribbean as a result of European trade reforms. Most importantly, it has reminded us that the banana industry still employs many of the poorest people in some Caribbean countries. In the Windward Islands alone, there are over 29,000 registered banana farmers and farm workers. In St Lucia, the banana industry employs over 10 per cent of the workforce. Those are underestimates, as many farms in the Windward Islands are worked on by family members not included in the figures.
Just to make matters worse, a number of Caribbean countries also face the prospect of a continuing decline in employment in their sugar industries, as a result of the EU's planned internal reforms. In Jamaica, up to 100,000 jobs are directly or indirectly associated with the sugar industry. Ensuring a secure future for workers and their families who are dependent on bananas or sugar must therefore be an absolute priority.
I will make three points. First, it is inevitable that the present banana regime must change. Secondly, the Caribbean needs to diversify in ways that create employment. That point was derided by my noble friend Lord Faulkner, but the Oxfam report from which he quoted— an excellent report, although it is five or six years old—recognises that,It is widely accepted that there must be diversification".Alternative sources of employment are mentioned, and the report recommends that the EU helps to reduce Caribbean dependency on bananas. It is sad that there is an assumption that people in the Caribbean who do not grow bananas will immediately start to grow drugs. That is a counsel of despair and not one that I wish to entertain.
Thirdly, the question at the nub of the matter is what the UK can do, directly and through the EU, to help the Caribbean adapt to the changes. Preferential trade access to the European Union market for commodities such as bananas and sugar has played an important role in the development of the Caribbean economy. Access for bananas is controlled by a series of quotas with African, Caribbean and Pacific (ACP) banana exporters enjoying duty-free access. Producers from countries outside the ACP, who generally have lower costs, face a tariff of 75 euros per tonne within their quota, and 680 euros per tonne for imports in excess of this quota.
We have to accept that changes to the regime are inevitable. As we heard, the banana regime was challenged in the World Trade Organisation in the 1990s by Ecuador and the United States, among 526 others. The resulting "banana war" was ended in 2001 only by the EU reaching understanding in the World Trade Organisation to replace the quota system with a tariff-only regime. It was agreed that the regime should be in place by 1 January 2006 and that the waiver allowing ACP bananas to enter the EU duty-free would expire at the end of 2007. Failure to act on the 2001 understandings could lead to retaliatory action by countries such as the Unites States with potentially damaging consequences.
In parallel, preferential trading relations between the EU and the ACP are being renegotiated in economic partnership agreements to start in 2008. One objective of EPAs will be to continue to allow duty-free access for ACP bananas. EPAs will provide the framework to improve and build on the region's trade and aid relationship with the EU, helping the Caribbean to respond to the challenges of preference erosion and fulfil the potential for economic development.
The noble Baroness, Lady Miller of Chilthorne Domer, asked what representations had been received by the EU from Ecuador. Ecuador raised the issue of maintaining the existing system, but it is not clear what support that has among the other exporters, who had a high-level meeting to discuss the matter on 26 January. However, the EU has undertaken in WTO to dismantle the quota system by the end of this year. A reversal of that commitment would require the express agreement of the parties to the 2001 understanding, Ecuador and the United States—an agreement in WTO on variation of the waiver which allows the EU to grant a zero tariff to ACP countries.
So where are we on the negotiations? The level of the new tariff is important to Caribbean banana producers, who struggle to compete, even now, under the current regime, because of their high costs of production. ACP producers collectively have asked for a tariff of 275 euros per tonne. The European Commission has opened negotiations in the WTO with a proposed level of 230 euros per tonne. Negotiations between the Commission, Ecuador and other exporting countries are under way. However., we understand that the positions of the parties remain very far apart. If they cannot agree, interested parties have the right to seek arbitration.
Estimates of the appropriate level of the tariff to secure the same degree of protection as the current regime have varied from as little as 75 euros per tonne, to as much as 300 euros per tonne. DfID commissioned a report to assess the impact of those changes and found that some countries in the region, such as the Dominican Republic, Suriname, Belize and, potentially, Jamaica may be able to compete with the cheaper Latin American bananas under the new regime if their industries modernise and restructure. But most producers in the Windward Islands of St Lucia, St Vincent and Dominica are unlikely to make a profit in the new tariff-only regime, because they have very high costs of production.
527 There have been attempts to enhance the competitiveness of banana production by moving into Fairtrade and other niche markets. A number of noble Lords have raised that matter this afternoon. There has been some limited success in those areas, but ultimately all Windward Island bananas, whether Fairtrade, organic or not, must compete with the cheaper bananas—organic or whatever—produced in Latin America. Diversification into niche markets is unlikely to enable production to remain at current levels.
Tourism has now become the mainstay of most Caribbean economies, along with other parts of the service sector. It is the primary source of foreign exchange and contributes a significant share of GDP. But, although it has absorbed many who previously worked on bananas, many of the most vulnerable—the poor and many older people—have remained in banana production. We have to recognise that, for many in banana-producing areas, particularly the young in the Windward Islands, the best hope of a reasonable livelihood lies in being able to work in other sectors. That requires a favourable economic environment for investment and the right kind of education to create the necessary skills.
The British Government believe that the best way in which to help the Caribbean countries now is to try to ensure as smooth a transition to the new tariff regime—and ultimately to EPAs—as possible. That will mean different things for different countries, and each country must decide on its own future. For example, it may mean restructuring banana-growing industries in some countries or continuing the process of diversifying economies towards tourism, other forms of agriculture or other services.
The Government are helping directly and through the EU. Through our bilateral aid programme to the Caribbean, we are helping to create the conditions necessary to enable new job opportunities. We are helping by supporting the governments of the region to improve their economic management and by improving access to finance by small-scale producers. For example, we are working with Microfin Caribbean Ltd to provide microfmance to small-scale entrepreneurs in St Lucia. We are also helping by improving the relevance and effectiveness of the education system in the Windward Islands, where we are helping to revise school curricula to meet the needs of students better.
Through the EU, we have been providing funding through the special framework of assistance, the European aid instrument to banana-exporting countries, to help improve competitiveness and, when that is not possible, to assist with diversification into other economic activities. The SFA has already allocated nearly 180 million euros to Caribbean countries since its inception in 1999. However, implementation performance has been very poor. Less than a quarter of the funds have been paid out to date. That results from burdensome EC administrative 528 requirements and also happens because Caribbean countries often do not have the capacity to implement the projects and programmes agreed to.
The British Government have recognised the need for a step change in the SFA's performance. Hilary Benn and Gareth Thomas, DfID's Parliamentary Under-secretary of State, have made a number of representations in recent months to the European Commissioner for Development to overcome these problems, both for the SFA and to ensure that its problems are not repeated in setting up transitional support for sugar. I am pleased to say that the particular internal EC problems that caused the funding for 2003–04 to be frozen and the funding delays for 1999–2002 have now been resolved. DfID's Caribbean office is also working closely with the EC delegation in Barbados to speed up the disbursement of the funds and enhance their impact
We fully realise that changes to the European banana regime pose serious challenges, both economic and social, that cannot be avoided. With successful restructuring, the banana industry will continue to play an important role in some countries, but, in many, there is a growing recognition that its role will continue to decline—as evidenced by the fact that in most Caribbean countries the majority of recent SFA allocations has been for diversification into other sectors.
The governments and people of the Caribbean need to continue to take the lead in responding to the challenges, but Britain also has an important part to play by using our bilateral aid programmes to help create the conditions for employment generation; by providing analysis of the options for EU/Caribbean trading relations post-2008 and the nature of the transition required in individual countries; by supporting the Commission's mandate to ensure that full account is taken of the needs of ACP countries; and in helping to make the EC's transitional assistance more effective.
I should like to finish on two points. The noble Lord, Lord Newby, made a point about Peter Mandelson's visit to the Caribbean and how disappointing it was. I draw the noble Lord's attention to the speech that Peter Mandelson gave in Brussels on 1 December, on the ACP/EU relationship in the global economy. Not only did I find the speech extraordinarily interesting, but, if I were a banana grower or involved in the economy of the Caribbean, I would be very encouraged by what Mr Mandelson has said on the record.
The noble Lord, Lord Newby, also asked why we could not offer the same support to ACPs as we do to community producers in the same region. The deficiency payment system referred to by the noble Lord is out of place in the post-reform common agricultural policy. The CAP has been very largely reformed to break the link between production and subsidy. The Commission's approach is strongly supported by the UK, and the removal of deficiency payments must be an eventual consequence of that approach.
529 I hope that I have given your Lordships a strong and powerful feeling that the British Government acknowledge the problems and are anxious to do everything we can by working with colleagues in Europe to solve them. No one minimises the problems or disagrees about them. I can assure noble Lords that 530 the Government remain absolutely committed to playing a vital and important role in this area in these industries.
§ House adjourned at eleven minutes before three o'clock.