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Pundit’s Mailbag — Fairtrade And Harsh Capitalism

At the request of the United States, the WTO has set up a panel to investigate whether the European Union has violated WTO rules in how it handled an earlier verdict in favor of the U.S. and various Latin American countries related to banana imports.

Simultaneously, we have received a letter from Mr. Richard Yudin of Fyffes Tropical Produce. We previously heard from Mr. Yudin and addressed his letter in a piece entitled, Why Don’t American Retailers Just Standardize On EurepGAP?

Today, however, Mr. Yudin writes us in regard to our piece, Banana Import Policies In Europe Defy Logic And Ultimately Hurt Consumers, in which we argued that it made no sense for Europe to punish former Spanish colonies by favoring former British and French colonies in the banana business:

The other side of the coin is that the assured markets for their produce allowed many thousands of smallholders in the Caribbean islands to enjoy a steady income and remain in their land. No other low-tech fruit crop is harvested all year round and this ensures a weekly income to the growers. The preferential treatment for these economically weak nations kept their rural communities economically viable and socially stable.

The Commonwealth marketing schemes existed since the 1940’s, favouring Belize, Jamaica, and the four Windward Islands. They are by no means new creations that appeared since the advent of the Common Market.

The US actions in support of the banana multinationals based in that country have destroyed the market preference these small countries once enjoyed, leading to migration to the already-inadequate cities, a rise in crime in both urban and rural areas, and economic devastation. Tourism is not the answer, it is focused on a few coastal areas, on a few islands where a jet-worthy airport exists, and the jobs available to local employees are only seasonal.

At a time when the US government is straining to control the import of illegal substances, the demise of the banana industry has led to more drug crops being grown, intended for the US market.

It is sad to hear that international donor bodies are now discussing poverty-alleviation schemes for these island states which once were very pleasant places to live in, thanks to their steady flow of banana income.

— Richard Yudin
Fyffes Tropical Produce
Coral Gables, Florida

This is the other side of the coin and we ought to think about it.

The first problem is that although these were, as Mr. Yudin states, longstanding programs, they never affected important markets such as Germany. It might have been easier to negotiate a transition or even an exemption if these longstanding programs were preserved in their longstanding markets but the rest of Europe traded freely.

The second problem is that every country has its own favored places. Whether due to history, geography or policy, every country has favored suppliers. Whatever the case to be made in favor of St. Lucia and similar places, it is hard in international negotiations to pluck out one industry, select places and say that here, and only here, free trade stops.

The third problem is that the U.K. and Europe are themselves very limited in their commitments to these places. The WTO provides one clear exemption allowing one country favored status over another: A free trade agreement.

All Europe has to do is take a place like St. Lucia, enter into a free trade agreement and all its bananas can enter duty free — regardless of what duties are imposed on other producers. That Europe declines to do so leads one to suspect that Europe only wants to help St. Lucia to the extent in can do so on the back of Colombia and other Latin American countries.

The fourth problem is that, as Mr. Yudin says, these are old preferences, meaning everyone knew about them during several rounds of WTO and earlier GATT talks. These agreements are contentiously negotiated, and if Europe wanted to preserve the right to offer preferences on bananas it surely could have achieved that goal, but it would have had to trade something away. It wasn’t willing to do that.

All this says is that under WTO law, Europe gave up the right — whatever the benefits may be — of providing preferential access to one country over another in the banana industry.

So we hold to the position that, as a matter of law, Europe’s position is simply indefensible. It is the opposite of what the WTO was designed to accomplish.

Now to the substance of his point, we agree with Mr. Yudin — the loss of a traditional industry has enormous consequences. This is true of St. Lucia, downtown Detroit and countless old mill towns in the U.K.

In this case drugs, emigration, violence, urbanization, etc., are all real consequences.

Yet the solution can scarcely be to freeze in place and to maintain industries that are no longer competitive.

We know Europeans sometimes see this as “harsh capitalism”; we would just say it is reality. If we subsidize non-competitive industries, we will get poorer and poorer and the producers will never get richer as they, in effect, will live their lives as our charity cases.

What to do? We can help some. And we should do what we can. But, for the most part, the help we can provide is to open our markets.

In the end, these countries and these people have to find ways to help themselves. We say that without animosity. We wish these people only the best. But if their traditional industry is not competitive, they have to find a way to make it competitive or find something else to do.

In a world where outsourcing is common, there are opportunities. Perhaps in subsidizing old out-of-date ways of making a living, we keep blinders on people and they don’t find new ways that could lead them to greater prosperity.

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