Who won the banana war?

The EU is well known for its protection of agriculture. Farmers in the EU have benefited from taxes on agricultural imports that have made more efficient farmers from outside the EU uncompetitive within the EU.

So perhaps it is surprising to learn that the EU has also protected farmers in the Caribbean. They did this by putting a tax on bananas grown in countries that were not former colonies of EU countries benefiting mainly former UK and French dependencies in the West Indies.

Other countries, such as Costa Rica and Venezuela complained to the World Trade Organisation that this was unfair. Their plantation grown bananas were, according to them, bigger and better quality than the small Caribbean bananas and were being unfairly disadvantaged in the EU market.

For more than twenty years this dispute raged on and now the EU has agreed to lower the tariffs on bananas. (Details are in the linked Daily Telegraph article.)

So who has 'won'. Well the non-EU colonies have greater access to the EU market, so they have a victory. The other big winner is the EU consumer who will now be able to buy bananas more cheaply as tariffs fall and competition in the market will increase.

However the tariff is not abolished, just reduced. So EU consumers will still be paying more than they could do for  bananas and so there is a continued welfare loss due to the tariff that remains.

The clear losers are Caribbean banana growers. They are high cost, small producers who operate in conditions that produced lower quality and smaller bananas than other countries. They will probably find their incomes will fall. Fortunately sugar cane is the best crop to use for making bio-fuel and the Caribbean is ideally suited to produce that leading to a rapid expansion of that industry.

A victory for partial free trade anyway.

The Daily Telegraph covers the story here

The sharp end of international trade and specialisation

-->

Ford have announced the closure of the Transit van factory in Southampton. The last 500 jobs will be lost from a plant that has produced over two million vans since 1972.

This was not a surprise. A Belgian Ford factory is also to close as the vehicle maker can produce far more cheaply elsewhere.

The closure reflects the continuing decline of Britain’s comparative advantage in basic manufacturing. Turkey will benefit as all production is transferred there.

The move illustrates one of the important effects of specialisation and exchange. We know that specialising allows more goods and services to be produced overall and through trade everyone can consume more and so be better off.

While overall welfare rises somebody bears a cost during the 'adjustment period'. This must occur as an industry grows in one trading partner through specialisation another, somewhere else, must decline. Where an industry declines workers lose their jobs and must seek new ones.

Those who lose their jobs are structurally unemployed. They are in need of retraining and because so many are losing their jobs at the same time it may be difficult to clear the local labour market for some time. The costs will fall particularly heavily on the over 40’s who will find it most difficult to find work.

A point to consider is why BMW (the Mini) and Honda are growing in the UK. Is it because of their product?

The local paper reports this move here