EU Is a Banana Republic

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Who says Europeans can't be reasoned with? Only eight years after the U.S. first complained to the World Trade Organization that the European Union was discriminating against U.S. fruit exporters, the EU has announced an end to its "banana quota" system.

This news may not be of great interest to all U.S. investors (and companies from Coca-Cola (NYSE: KO) to Intel (Nasdaq: INTC) and Microsoft (Nasdaq: MSFT) to General Electric (NYSE: GE) may beg to differ about the EU's reasonableness). But investors in companies such as Motley Fool Hidden Gems recommendation Fresh Del Monte (NYSE: FDP) and its main competitors, Chiquita Brands (NYSE: CQB) and Dole Food, have been waiting for this for years.

For more than a decade now, the U.S. has backed these companies' arguments that EU quotas, which limit the number of bananas the U.S. companies can export to the EU at reasonable tariff levels, are unfair. Up till now, the EU has responded that the quota system was essential to protect the economies of its former colonies in Africa and the Caribbean.

But finally, the EU has decided to set up a new system embracing the principles of free trade. It will harness the efficiencies of the market to ensure that its citizens get the best-quality products at the lowest costs, and that the most efficient competitors win out over inefficient producers on a level business playing field.

Yeah, right. If you believe that, then you need to check the expiration date on your carton of Dole Banana Juice -- it appears to have fermented.

What will really happen is this: The EU will design a tariff system that accomplishes the same thing that its defunct quota system accomplished, but under a different label. And I am not just being cynical here. EU Agriculture Commissioner Franz Fischler said it himself: "What will change is the import regime, not the level of protection." Translated from the original German, that means: "We are still going to discriminate, just in a slightly different manner."

So the EU does not even have the decency to lie to the WTO about how it intends to "comply" with the WTO's several rulings that the banana quotas are unfair. That explains why yesterday's news barely budged Chiquita's and Fresh Del Monte's stock prices, and why those prices are actually falling today in a generally up market.

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Fool contributor Rich Smith owns shares of Fresh Del Monte, but of no other companies mentioned in this article.