EU at top of slippery trade slope

Date: 25/09/1997

THE signature of the GATT accord in Marrakech in the spring of 1994 was supposed to herald a new era of international trade understanding, not least between those old enemies the European Union and the United States.

But if recent evidence is anything to go by, peace has yet to break out between the two economic superpowers.

Perhaps more worryingly for the EU, some of the highest-profile cases taken to the World Trade Organisation since then have ended in defeat for the Union, undermining its efforts to integrate the concerns of an increasingly noisy European Parliament and the oft-quoted but hard to define 'European consumer' into its policies.

It came as no great surprise that the Union was condemned by WTO dispute settlement panels over both its banana regime and its ban on imports of US beef produced using hormones.

But the strength of the condemnation in both reports undoubtedly did come as a surprise to the European Commission, and has led to a considerable amount of soul-searching in the corridors of power.

Agriculture Commissioner Franz Fischler, giving way under the pressure he faced from farm ministers and MEPs, was even moved to utter some unguarded words about the need for “clear democratic control as far as international trade rules are concerned”.

This led in turn to an embarrassing public spat with Trade Commissioner Sir Leon Brittan, who felt the need to go into print to ask his colleagues to calm down and respect the WTO, whatever decisions might go against the Union.

The EU evidently has a serious problem, caused to a very large extent by the fact that it is made up of a large and diverse group of institutions, all with different axes to grind.

Add to this the fact that the most senior members of the Union's executive body are mainly politicians with their own agendas, and it is hardly surprising that the EU gets itself into a mess.

After years of internal dispute, the Union's banana import regime was a messy compromise between two diametrically opposing views.

Somehow, agreement had to be reached between those countries - and Commissioners - wanting to supply the European market with plentiful and cheap Latin American bananas, and those with allegiances to former colonies.

Although preferential access for the signatories to the Lomé Convention is in theory protected by the deal signed at Marrakech, the sow's ear of a compromise over how trade licences are handed out was torn apart by the panel in a ruling which could result in the whole system being unravelled.

The Union has three weeks to tell the authorities in Geneva what action it plans to take, but lawyers are still scratching their heads in a desperate search for a way out. In the light of the divisions throughout the EU on the issue, finding a satisfactory compromise seems a virtual impossibility.

Under the WTO's predecessor - the General Agreement on Tariffs and Trade - the Union was free virtually to disregard the findings of earlier panels.

Now, however, it faces a simple but stark choice: it must either alter the regime to improve the distribution of trading licences and increase access for Latin American producers, or compensate the plaintiffs by granting other trade concessions.

The US, one of five countries which brought the case, has already rejected compensation, claiming it would not be of much use to the banana companies on whose behalf it pursued the complaint.

Under-Secretary for Trade Stuart Eizenstat has even prepared a list of punitive tariffs of the order of 2 billion ecu to be imposed on EU agricultural exports if the Union fails to act - a legitimate move under WTO rules.

But while the EU confronts the threat of trade war with it biggest commercial rival on the one hand, it faces the equally unpalatable prospect on the other of bankrupting a number of small developing nations with little else on which to base their economies.

British Socialist MEP Glenys Kinnock told Fischler last week that the US was “totally ignorant” of the impact that the ruling would have on the Caribbean, and called on the Union to refuse to dismantle the regime.

This is where the Commission - as the EU's trade negotiator - has a problem not faced by the likes of the US.

Where the latter has one government and a Congress united in the desire to export American produce, the Commission has to please 15 governments and an increasingly troublesome European Parliament.

On a global scale, diplomats fear the banana issue could be the tip of the iceberg. “The Community has similar tariff quota arrangements for a whole range of agricultural products, for example sugar and rum, governed by this type of import licensing system. There could be implications for all of these,” warned one diplomat this week.

However, since March last year - and the start of the BSE crisis - it is in the area of public health that the Union's problems have been highlighted most clearly.

As expected, the EU this week appealed against the initial panel ruling on hormones. But no one really expects the WTO appellate body to be any less scathing than the disputes settlement panel in its condemnation of a ban which simply does not stand up to the criteria set out in the GATT agreement that substances can only be prohibited if they fail the test of “safety, efficacy and quality”.

Here, the EU has a major problem. It signed up to a world veterinary standard based on pure scientific risk assessment. At the same time, it has in place a ban which its own research has shown is hard to justify on the basis of the criteria it has agreed to.

But thanks to the growing distrust among European lobby groups of food safety - particularly since the BSE scare - there is no way, politically, that the EU can dismantle its current restrictions.

It has been suggested that next year's review of the GATT 'sanitary and phytosanitary' agreement could build additional criteria, such as consumer concerns, into decisions on veterinary standards to allow countries to maintain higher levels of health protection.

But this is unlikely to cut much ice with the Americans, who enjoy the luxury of a public happy to accept the findings of government agencies when they adjudge a product safe.

Fischler's call for “democratic control” of the WTO was an appeal for a mechanism to reflect public concerns. But however laudable that might seem, the WTO is supposed to be an independent adjudicator above political influence, as Brittan was quick to point out.

As long as the current set-up is in place, the Union looks likely to run into considerable difficulties every time it seeks to balance its international duties against the sensibilities of its citizens.

But at least the existence of a WTO with teeth normally persuades the warring parties to reach some sort of a compromise which avoids the anguish of all-out transatlantic trade war.

The next full round of agricultural talks, due to begin in 1999, might allow a full renegotiation of all aspects of global veterinary and health policy. But many believe the EU will have to put its own agricultural house in order first.

Arguing the case for further reform of the Common Agricultural Policy earlier this month, Fischler told farm ministers that it would be in their interests to reach agreement early, as this would make a new trade deal easier to achieve and strengthen the EU's hand when it called for the right to maintain higher public health standards.