Good Riddance to This Banana Split
By Paul Magnusson
It was the silliest trade dispute in the world, a favorite of editorial cartoonists and late-night-TV comedians. Bananas, it seems, are our funniest fruit.
Yet for nine years, Europe's insistence on favoring banana imports from its former colonies in the Caribbean, Africa, and the Pacific -- over those grown in Central and South America for U.S. fruit exporters -- held some pretty serious consequences. The banana dispute symbolized the increasingly contentious relations between the world's two largest trading powers. By its refusal to abide by the World Trade Organization's repeated rulings holding the Continent's banana quota to be illegal, the European Union blithely threatened to destroy the legitimacy of the fledgling WTO. There was even a warning from Chiquita Brands International (CQB) that it could be forced into bankruptcy by Europe's actions.
OTHER SOLUTIONS AHEAD?
But on Apr. 11, U.S. and EU negotiators reached agreement on a plan to phase out Europe's quota system by 2006, apparently complying with three international dispute-panel decisions dating all the way back to 1992. Chiquita has approved the deal, despite the fairly long quota phaseout. And free-traders hope it could also clear the way for agreement on disputes over U.S. export-tax subsidies, European bans on U.S. hormone-fed beef, restrictions on genetically modified food, and European farm and aircraft subsidies.
The decision must still be approved by the WTO, the European Council of Ministers, and other plaintiffs in the dispute -- notably Ecuador, a major banana exporter. Yet it could represent the first improvement in U.S.-Europe trade relations in a decade. Senate Finance Committee Chairman Charles Grassley (R-Iowa) says the impasse had "undermined confidence in the WTO's ability to effectively resolve disputes between member countries."
The wonder of it all was how little was at stake for the U.S. and Europe when the EU first imposed a quota on bananas from U.S. companies produced in Central and South America. Few U.S. or European jobs were at risk, since bananas are grown in neither of those places. Yet the dispute quickly spiraled out of control. The U.S. eventually found itself levying $191 million in retaliatory tariffs in 1999 on a variety of European goods, such as linens, coffeemakers, and women's handbags. After the Europeans still refused to comply with the WTO ruling, Congress last year passed legislation that required the Administration to begin rotating the 100% tariffs among a wider list of European goods.
The EU retaliated by bringing a WTO case against an American subsidy that rebates a portion of U.S. income taxes for exports to U.S.-based manufacturers. America lost that case last year, and so Europe may eventually be authorized to impose $4 billion worth of retaliatory tariffs on U.S. exports to the Continent.
Credit for calling a halt to the escalating trade battle goes to the EU's top trade negotiator, Pascal Lamy, and the new U.S. Trade Representative, Robert B. Zoellick. The two had formed a close relationship over years of preparing their bosses for G-8 summit meetings.
Now, their challenge will be to use their friendship to address far more difficult issues. One possibility: The U.S. and the EU might be able to persuade the rest of the world to kick off a new round of global trade negotiations at a WTO meeting in Qatar next November. Such an effort failed during the last WTO meeting in Seattle in 1999. But if nothing else, the EU and the U.S. can at least begin focusing on some disputes where the stakes and the principles involved are a little higher. Yes, we have no bananas -- in dispute anymore.
Magnusson covers international trade and economics from Washington
Edited by Douglas Harbrecht