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International Business, 8th Edition by Michael H. Moffett, Iikka A. Ronkainen, Michael Czinkota

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PART 3 CASE 1

THE BANANA WARS

The European Union (EU) is the main market in the world for bananas, constituting 33.3 percent of all world trade (see Figure 1).

That is why a decision by the EU Farm Council in December of 1992 attracted attention among banana-producing nations. Up until the decision, different EU countries had different policies regarding imports of bananas. While Germany, for example, had no restrictions at all, countries such as the United Kingdom, France, and Spain restricted their imports to favor those from their current and former African, Caribbean, and Pacific (ACP) colonies. (This preferential trading agreement is known as the Lomé Convention.) The decision called for a quota of 2.2 million tons with a 20 percent tariff for all banana imports from Latin America ($126 per ton), rising to 170 percent for quantities over that limit ($1,150 per ton). Because Latin American exports to Europe were approximately 2.7 million tons in 1992, the quota has effectively cut almost 25 percent of the countries’ exports to the EU.

The main stated reason for imposing the quota and the tariffs is to protect former colonies by allowing them to enjoy preferential access to the EU market. Other reasons implied have been the $300 million in tariff revenue resulting from the measures, as well as moving against the “banana dollar” (reference to the U.S. control of the Latin American banana trade through its multinationals). Belgium, Germany, and Holland have objected to the measures ...

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