THE World Trade Organisation has agreed with the United States, Ecuador, Guatemala, Honduras and Mexico that Europe's banana import regime is protectionist, a ruling that could have major implications for Fyffes.
The Irish company is one of the main beneficiaries of the European regime, which imposes penal tariffs on "dollar banana" imports over a certain level. It is aimed at supporting smaller banana producers in the Caribbean.
The WTO ruling is a blow for several small Caribbean nations that depend on preferential exports of bananas to keep their local economies afloat. Some Caribbean leaders have argued that democracy could be at risk if banana producers lost their preferential trade terms.
"This final report sets an important precedent for all US exporters of services and agricultural goods," US Trade Representative, Ms Charlene Barshefsky said.
"I am gratified that the WTO has denounced a variety of egregious non tariff barriers that impede US exports."
The WTO report, which was released confidentially to the governments involved three weeks ago found that Europe's banana import regime violated WTO rules on 16 counts. European Union measures found to be inconsistent with WTO rules included:
. distribution of import licences for Latin American bananas to French and British companies, taking away a major part of the banana distribution business US companies had developed over years;
. distribution of import licences for Latin American bananas to European banana ripening firms, also taking away US company business;
. imposition of more burdensome licensing requirements for imports from Latin America than for other countries;
. discriminatory allocation of access to the EU market into shares not based on past levels of trade.
The EU has said that its policy under the Lome Convention tries to help the economic development of poor African, Caribbean and Pacific (ACP) states that depend on banana exports.
Fyffes chairman, Mr Neil McCann told the group's annual general meeting last month that Fyffes was unlikely to be adversely affected by any changes to the regime which the implementation of any final WTO proposals would involve.
Fyffes share price has been weak in recent months, partly due to an expectation that the WTO report would come out against the EU restrictions on dollar bananas, and partly because of a surprise fall in first half profits.
At the current level of 95p, the share is 20p below the 125p takeover offer from Dole Foods rejected four years ago. Dole itself is one of the American companies, together with Chiquita and the Ecuadorian group Noboa, most affected by the EU banana regime.
Fyffes, however, increased its exposure to the so called ACP bananas favoured by the regime when it acquired the former Geest banana business in the West Indies in a joint venture with the local growers and local governments. That £147 million deal made Fyffes the second biggest banana group in Europe and the fifth biggest in the world.
The EU now has until early June to file an appeal against the WTO ruling and a further few weeks to state precisely why the WTO should alter its ruling. A final decision from the WTO is likely later this year.
Analysts in Dublin believe that, despite yesterday's ruling from the WTO, the banana regime is unlikely to be dismantled totally. The EU instead could pay compensation to countries adversely affected by the regime or modify the regime to satisfy the WTO.
