Banana row sets scene for bigger battles

Date: 07/01/1999

The US appears to be prepared to see relations with its most important trading partner sink to an all-time low over a product which is not grown in significant numbers in any of its 50 states. Simon Taylor explains why

THE dispute between the EU and the US over bananas may be turning increasingly nasty, but trade experts are warning that it is little more than a skirmish compared to the future battles which lie ahead in the World Trade Organisation over beef hormones and biotechnology.

Transatlantic tension over the Union's banana import rules reached a new high just before Christmas when Washington published a list of EU products which face a doubling of import tariffs by 3 March at the latest if the Union refuses to back down.

The European Commission estimated the value of the exports targeted - which include pecorino cheese, candles, handbags, cashmere jumpers, bed linen, car batteries and coffee makers - at €490 million.

Exports from the UK, and France would be hit particularly hard, reflecting these countries' support for the changes made to the Union's banana regime in July last year. Denmark and the Netherlands would, however, escape sanctions as they voted against the arrangements.

Predictably, Trade Commissioner Sir Leon Brittan attacked Washington's move as “an example of unilateralism at its worst”. Although he stressed that the EU would not retaliate against the US if the sanctions were applied, he confirmed that the Union would press ahead with a challenge in the WTO to American Section 301 legislation which the US uses to impose penalties on countries it believes are breaking trade rules.

As the war of words has spiralled, the big question remains why Washington is so concerned about a product which is not grown in significant numbers in any of its 50 states.

It is still unclear precisely how the US calculated the exact value of the losses it has allegedly suffered as a result of the EU's banana regime, which is designed to ensure favourable access for fruit from former colonies and overseas territories, in drawing up its final list of Union exports to be targeted by the threatened sanctions.

The huge price tag supposedly reflects the amount of business lost by big US banana companies such as Chiquita and Dole which own plantations and ship and ripen bananas plus lost sales of tractors, fertilisers and pesticides by US manufacturers to growers in Latin America.

Under WTO rules, the US would be entitled to compensation if the Geneva-based body agreed that the EU's revised rules still conflict with the guidelines. But legal experts doubt that the trade body would support the figure even if it ruled against the Union.

So even if Washington wins its argument that the ten changes the Union made to its regime in July 1998 were not enough to bring the system into line, the US could end up with much lower levels of compensation.

On top of that there is the fact that the Clinton administration has, until now, refused to allow the WTO to decide whether the revised regime is compatible with its rules. Washington insists it is acting in accordance with WTO rules by preparing to impose sanctions, as the EU has failed to implement the trade body's original ruling against its import regime. But the US' refusal to refer the case back for a ruling on the merits of its complaint has enabled the Union to take the lead in the case, launching its own request for a panel to rule that the new regime does comply with trade rules.

By preparing the ground for retaliatory sanctions against the EU, Washington has also given Brittan the opportunity to accuse it of undermining the multilateral system.

So why has the US refused to allow the WTO to decide whether the Union's changes have gone far enough?

The only convincing explanation is that it would take the trade body considerable longer to deliver its verdict than the two months left before the 3 March deadline which Washington is working to.

All the indications are that this timetable is being dictated by the US Congress at the behest of American banana multinational Chiquita. In the autumn, the Congress succeeded in getting a commitment from the White House that it would take action against the EU early in 1999.

Trade experts also doubt that the US would win its case if it did go back to the WTO.

They argue that the Union had to perform a delicate balancing act in reforming the system to comply with trade body's rules while honouring its commitments to banana-producing countries under the Lomé Convention, which promises trade concessions for African, Caribbean and Pacific (ACP) countries.

That is why EU farm ministers agreed in July last year to retain some aspects of the existing banana regime, such as in-quota tariff rates, instead of scrapping it all and moving to a more transparent tariff-based system as demanded by the US. The EU argues under such an agreement would have to be set so low it would wipe out Caribbean producers or so high it would drive Latin American growers out of business - and many believe the WTO is likely to accept this argument.

Given all this, the question still remains why the US is prepared to see relations with its most important trade and political partner sink to such a low point over a relatively minor political issue. Apart from Chiquita's well-paid corporate officers and lawyers, there are no angry banana growers knocking on the US trade office's doors in the same way that the White House comes under

pressure from grain farmers or representatives of exporting industries whenever US producers lose out to European rivals.

One answer seems to be a desire to test the WTO's procedures before a spate of further trade issues on the horizon come to a head.

By next May, the EU will have to produce adequate scientific proof to support its claims that growth-promoting hormones in meat are a threat to public health. If it cannot, the Union will come under intense pressure to drop its ten-year-old ban on imports of US meat or face penalties.

If the EU refuses to lift the ban, it can offer to pay compensation up to the value of lost trade, generally agreed to be around €85 million annually.

But the US could use the hormones dispute as a test case, arguing that the lack of scientific evidence of any risk means indemnity is not an acceptable way of resolving the dispute and an end to the ban is the only option.

But again, the total for beef is small fry compared to the €850 billion of annual two-way trade between the EU and the US.

Many trade officials believe that the real aim of Washington's tough stand is to clarify the WTO's rules ahead of the big fight which is looming over biotechnology and the US' annual sales of €2.54 billion worth of feed grains to the EU.

By the end of the century, farm experts estimate that 80&percent; of all feed grains grown in the US will be genetically modified varieties.

If the EU responds to mounting public anxiety over GM produce, illustrated in the recent discussions between EU environment ministers about a possible moratorium on biotech crops, and raises new barriers to US grain exports, Washington's legal challenge will be on the table in Geneva before breakfast.

The US will point to recent rulings such as that against Australia's ban on imports of Canadian salmon and tuna as evidence that countries have to demonstrate that there is scientific proof of a risk to public health before products can be banned.

If the EU cannot do so, but nevertheless decides to press ahead with a moratorium on GM crops, the banana dispute will look like a tea party compared with the ensuing biotech battle.