The WTO arbitrators concluded that the new import regime did not take into account ACP (African, Caribbean and Pacific) preference.
Mariann Fischer Boel, EU Commissioner for agriculture and rural development, voiced his disappointment over the decision.
"The EU has calculated the MFN (most favoured nation) import duty for bananas in a neutral and transparent manner and has engaged in consultations with the Latin American countries concerned and in this arbitration in a constructive spirit," she said.
"It has always been our intention that the form of the EU banana import regime would change but that the level of protection would not increase. We are currently evaluating the options available for putting into place the new import regime for bananas as from 1 January 2006."
In order to put an end to the long-standing bananas dispute, the EU agreed with Ecuador and the United States in 2001 to move from a complex import system based on a combination of tariffs and quotas for MFN bananas to a regime solely based on a tariff by 1 January 2006.
In accordance with these understandings the EU proposed in January 2005 an import duty of 230 €/tonne to replace the existing commitments in the EC Schedule in the form of a bound duty of 680 €/tonne with a quota of 2,200,000 tonnes subject to an in-quota rate of 75 €/tonne.
The long-running banana dispute is highly complex. Some companies have expressed fears that changes in the EU banana tariff import system could adversely affect their European business and overall operating results.
Chiquita for example has said that any change could result in its bananas being more expensive than imports from countries exempted from a higher tarrif system.
As the new tariff system would not apply to bananas imported from certain countries in Africa, the Caribbean and the Pacific, it would put Latin-America-based Chiquita at a disadvantage, the company said.
The current arbitration was established after a request of Brazil, Colombia, Costa Rica, Ecuador and Guatemala, Honduras, Nicaragua and Panama and Venezuela. WTO arbitrators found that the proposed tariff would not result in at least maintaining total market access for MFN banana suppliers.
More specifically, the arbitrators read their mandate to include looking at all aspects of the import regime, including the ACP (African, Caribbean and Pacific) preference, but acknowledged that the rebinding could not give any guarantees on a particular level of future trade.
As regards the price gap methodology used by the EU, the arbitrators found it appropriate in principle, but found that, as applied in this case, it did not take into account the ACP preference. They also shared the concerns expressed by the EU during the arbitration on the technical uncertainties associated with the use of econometric models.
The European Commission will now initiate consultations with the interested parties within the next 10 days. Should those consultations fail to lead to an agreement, a second arbitration could be requested. This arbitration should be completed within thirty days from the date the second arbitration was requested.
"We will start consultations with interested parties without delay," said Peter Mandelson, the EU's trade commissioner. "I hope that everyone will cooperate in finding a mutually acceptable solution within the strict deadline set by the WTO."
The intention remains to have a tariff only system in place on 1 January 2006, as agreed at the WTO Doha Ministerial held in 2001.