WTO banana ruling damaging to St. Lucia’s economy

"A Special International Report Prepared by
                           The Washington Times Advertising Department – Published on January 25, 2000

WTO banana ruling damaging to St. Lucia’s economy

 The city of Seattle will likely recover from the November World Trade Organization riots much more quickly than the nation of St. Lucia will recover from the WTO decision to terminate the European Union’s preferential treatment toward former colonies. As Prime Minister Kenny Anthony points out, external factors have a much greater impact on small economies than on large economies. He provides the example of a storm that damages part of Florida leaving the rest of the United States untouched. A similar storm that damages part of St. Lucia will afflict the entire island. In this case, the destructive storm is the WTO ruling.

The acronym WTO became a household name in the United States relatively recently. Recently, that is, compared to St. Lucian households, which have been struggling for two years under the aftershocks of the organization’s decision to alter the EU banana regime. In June 1998, the EU Agricultural Council agreed to modify its regime with African Caribbean Pacific countries, after the United States deemed the regime inconsistent with WTO regulations.

The New Banana Regime was to take effect on Jan. 1, 1999. Under the NBR, the EU would apply the same quota to all ACP countries, rather than giving preferential treatment to its former colonies, including St. Lucia. Also abolished under the NBR, as stated in the St. Lucia Economic and Social Review 1998, would be "the sale of Category B Licenses, which allowed the ACP to reap substantial revenues in cases of supply shortfalls arising from natural disasters." Yet, with the intent of protecting ACP access to the market, safeguards permit "each producer to export traditional quantities to the extent that it can do so."

The WTO can pursue one of two paths: 1) a tariff-only system, whereby no volume restrictions apply, or 2) a system of tariff-rate quotas. The United States, the EU and St. Lucia all are in favor of implementing the tariff-rate quota system before a tariff-only system. However, two issues complicate the tariff-rate quota.

The first complication regards the means of determining quotas. The Windward Islands will be at a disadvantage if trade is carried out on a first-come-first-serve basis, because the small islands are unable to compete in Category A for a quota of 2.5 million tons. Instead, the Windwards view a Category B quota of 850,000 tons as more tangible.

However, the EU wants to distribute licenses in this lower tonnage category through a strike-price auction, allowing anyone to come in and buy, also a method that leaves the Windwards at a disadvantage.

The Windwards and the Windward Islands Banana Development and Exporting Company (WIBDECO) would like a system whereby quotas are determined based on the amount sold during a given reference period. However, this system also puts the Windwards at a disadvantage because their banana production has been down in recent years.

The second issue under discussion regards the amount of time allowed for utilizing the tariff-rate quota system before implementing the tariff-only system. The current proposal is for a five-year transition period. However, the Windward Islands are hoping for a transition period of ten years.

St. Lucia’s outlook last year was less positive than its outlook for 2000 and beyond. Initially, St. Lucia feared completely disappearing from the global market, but over the last year schemes for improving agricultural efficiency have brought back levels of production.

The overall banana output increased by 16.2 percent in the second half of 1998, and the WIBDECO projects that 1999 output will demonstrate a seven percent increase over 1998. This seven percent increase in output accounts for a four percent increase in revenue, making the total earnings from bananas in 1999 approximately $36 million.

Among the schemes contributing to improved efficiency and profitability of the banana industry is the privatization of banana organizations. For example, the St. Lucia Banana Growers Association was converted into the private St. Lucia Banana Corporation (SLBC). According to the Economic and Social Review 1998, SLBC "places farmers in control of decision making in the industry, and is expected to secure greater returns through the establishment of a more direct link between prices and market developments." Another new organization, Tropical Quality Fruit provides healthy competition within the industry, leading to increased efficiency and profitability in the industry.

Also strengthening the St. Lucian banana industry is the Banana Recovery Plan. The Economic and Social Review of 1998 describes the plan as an "aid and loan package intended to transform the banana industry, while increasing production and improving quality, through a process of certification and recapitalization. The plan, which is to involve investment in inputs, working capital support, irrigation and drainage, is expected to last for 2 1/2 years."

A ten-year transition period will be necessary for these improvement projects to considerably raise the state of St. Lucia’s economy.

A number of challenges affect St. Lucia’s ability to compete in standards of efficiency with American banana corporations, thus maintaining the uneven playing field. Because St. Lucia is only 3.5 times the size of Washington, D.C., banana farms in St. Lucia are an average of five acres, considerably smaller than their counterpart plantations in Central America. What is more, St. Lucia’s mountainous terrain makes farming both physically and economically challenging.

George Odlum, minister of foreign affairs and international trade explains, "If we produce a banana here, sometimes our yield costs us twice as much as larger countries with large farms that could be mechanized and so on. So we are really high-cost producers, strongly dependent on the preferential market. So to pull that rope out from under us now, we’re going to stumble."

While there may be some possibility for a future in the cultivation of spices and herbs, the mountainous terrain and the volcanic make-up of the island limit the variety of crops that are suitable for farming in St. Lucia. Alternative fruits are seasonal and are seldom in as high demand as bananas.

Fruit not sold in its raw form goes to waste, because of a scarcity of processing plants and means of preservation for excess fruit. So the possibility of flooding the market available in the small island community is a prevalent risk in agriculture. Thus, the guaranteed European market through preferential treatment is crucial to the prosperity of St. Lucia’s agricultural economy.

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Table of Contents

(1) Investment in domestic human resources attracts foreign capital

(2) WTO banana ruling damaging to St. Lucia’s economy

(3) International financial services sector takes off with new millennium

(4) Facts & Figures

(5) St. Lucia is an island worth fighting for

(6) Investment climate in St. Lucia is hot, hot, hot

(7) Junior achievers head for Washington, D.C.

(8) Mood swings of US government confuse St. Lucia

(9) Roots of small businesses take firm hold as SEDU feeds their growth

(10) St. Lucia is host to a multitude of internationally recognized events

(11) Construction activity rises to meet the demands of tourism

(12) Hotels take initiative to preserve their surroundings

(13) Heritage Tourism Program allows entire island to reap benefits

(14) Jump Up: A hopping experience unique to St. Lucia

(15) Diverse tourism product provides all the amenities that modern tourists desire

(16) Important Contacts

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