Geneva, Dec. 10 - The European Union has failed to bring its import tariffs for bananas in line with international trade rules, a World Trade Organization compliance panel ruled Monday, possibly opening up the door to millions of dollars in commercial sanctions from Ecuador.
The confidential decision - distributed Monday to the parties and confirmed by Ecuadorean and European officials -is an important development in the decade-old WTO dispute pitting Latin American countries and the U.S. against the E.U.
The verdict will also be closely followed by Chiquita Brands International Inc. (CQB), whose shares climbed 9.2% last Tuesday on early reports that the E.U. would lose the case. The tariff costs Chiquita $1 a share annually, according to Barry Sine, an Oppenheimer & Co. analyst.
"It was a total victory," said an Ecuadorean official to the WTO after reviewing the report. "We are very happy with the result." The official asked not to be cited by name because he was not authorized to speak to the media.
Michael Mann, spokesman for E.U. Farm Commissioner Marian Fisher Boel, confirmed the loss, but criticized the WTO panel for taking a "purely formalistic" approach that ignored data showing an increase in European imports of bananas from Latin America as a whole.
The WTO has consistently ruled against how Brussels sets tariffs for bananas, forcing it to overhaul a system that grants preferential conditions for producers from African and Caribbean countries, mainly former U.K. and French colonies.
The E.U. said that a new banana tariff established last year - EUR176 a ton - brought its import rules in line with WTO rulings. But Ecuador, the world's largest banana producer, said the new tariff actually took away some of its market share in Europe, hurting more than 1 million Ecuadoreans dependent on the banana industry.
"In any event, all this is largely academic," Mann said, adding that preferences will be granted under WTO-compliant economic partnership agreements as of next year. "The E.U. is engaged in good-faith negotiations on the future bound tariff for bananas with all suppliers. It is through negotiations, not litigation, that we will find a solution that is satisfactory for all."
The verdict is expected to be publicly released in March, at which point the EU can lodge a final appeal.
The U.S. also revived a complaint against Brussels' banana rules at the WTO this year. Colombia initiated a new dispute.
Ecuador claimed in March to have already lost $131 million because of the discriminatory tariff. It has yet to say how it would retaliate against the E.U.
Latin American bananas currently have around 60% of the E.U. banana market, while African and Caribbean producers have 20%, according to E.U. officials. Bananas grown in the E.U. - mostly on Spanish and French islands - account for another 20%.
The bananas case was first brought to the Geneva-based trade referee in 1996, but has since spawned a series of disputes as trade lawyers wrangled over procedural intricacies and legislation that had previously never been tested.
The U.S., in 1999, and Ecuador a year later both won the right to impose trade sanctions on European goods after the WTO found the E.U.'s rules to be illegal.
A deal in 2001 gave the E.U. five years to comply with WTO rulings.