US-EU Trade War over Bananas

Author(s): C. Satapathy
Source: Economic and Political Weekly, Vol. 33, No. 52 (Dec. 26, 1998 - Jan. 1, 1999), pp. 3303-
3304
Published by: Economic and Political Weekly
Stable URL: http://www.jstor.org/stable/4407512 .
Accessed: 05/05/2014 10:38
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .
http://www.jstor.org/page/info/about/policies/terms.jsp
.
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of
content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms
of scholarship. For more information about JSTOR, please contact support@jstor.org.
.
Economic and Political Weekly is collaborating with JSTOR to digitize, preserve and extend access to
Economic and Political Weekly.
http://www.jstor.org
This content downloaded from 14.139.209.67 on Mon, 5 May 2014 10:38:41 AM
All use subject to JSTOR Terms and Conditions
tension alive, do not see
any great political
benefit in inciting violence on a
large
scale. Even so. the communal incidents
reported
above should cause concern.
Communal feelings are
being
kept
alive
and
major
incidents can be
provoked
whenever these communal
parties
find it
in their
political
interests to do so. Also.
BJP rule at the centre and in some states
has emboldened members of VHP and
Bajrang
Dal to terrorise
minority
com-
munities. It was during this
year
that
Christians camie under
systematic
attack
by
the saffron
family, particularly
in
Gujarat
where the BJP is in
power.
The VHP and
the
Bajrang
Dal are
acting
as if it is an
unbridled Hindu
Raj.
No wonder then that
in the recent state elections the minorities,
particularly
Muslims. rallied round the
Congress again
from which
they
were
alienated after the demolition of Babri
masjid. If such communal
incidents,
as in
Gujarat,
continue more Muslims and
Christians would
rally
round the
Congress
which
may
be revived even in states like
the UP and Bihar.
US -EU Trade W ar over Bananas
C
S atapathy
W hile ltndia, despite being
the
largest
producer of
bananas in the
world, has no direct interest int the banana war
raging
between the
US and the
European
Union,
the
significance of
the
development
in the context
of
multilateral
tradin,g arrangements
must not be lost
sight oJf
INDIA is the largest
producer
of bananas
in the world and accounted lor 9.5 million
tonnes out of the world
production
of 54.5
million tonnes in 1995
according
to FAO.
The US and the
European
Union
(EU)
are
the largest importers
of bananas. Their
imports
were 3.7 and 3.5 million tonnes,
respectively,
in 1994
according
to FAO
and EUROS TAT.
S adly,
India's
exports
of bananas to the US and the
European
countries are not much. As
per
trade
statistics
p)ublished by
DGCI and S , India
exported
a
meagre
27.7 tonnes to the US .
17.4 tonnes to the UK and 42 tonnes to
Germany
in 1996-97. As such, India has
no direct interest in the current banana
trade war
raging
between the US and the
EU, but its
significance
in the context of
multilateral trading arrangements should
not be lost. Moreover, the recent showdown
between the US and the EU stemming
from the
disputed
banana regime
of the
latter could not have come at a worse time.
The meltdown in the
emerging
economies
in Asia, a near
collapsed economy
in
Russia, the
Japanese economy shrinking,
and economic
gloom spreading
to
large
parts
of the western world have all
contributed to
put
the global trading system
under
great
strain. W hile the
emerging
economies see a
way
out of the crisis
through
more
exports,
the
developed
countries feel threatened
by cheaper
imports. S uddenly protectionism
is on the
increase and
-many
are
questioning
the
merits of globalisation. This is a time that
one would have
expected
the
big
boys
to
take the
leadership
in
restraining pro-
ttctionism
rather than
holding
the world
trade
system
to ransom
by indulging
in a
silly
banana war. In its leader titled 'The
US and EU Go Bananas', the Financial
7imes
says
on November I 1, 1998 that the
political
heat
generated by
the
dispute
is
out of
proportion
to its economic
signi-
ficance and that both
parties'
conduct is,
fOr different reasons,
deeply irresponsible.
Under the title
'Monkey
Business', The
Economist
says
on November 14, 1998
that amid world economic
gloom
and
rising
protectionism,
there are
surely
more
pres-
sing
concerns. It
compares
the US threat
of a trade war with the EU, over the latter
not
importing enough
Latin American
bananas,
to Honduras and El S alvador
going
to warover a
disputed
football match.
Cerald
S egal writing
in Newsweek on
November
23,
1998
aptly
sums
up,
"As
the latest transatlantic trade
dispute,
notionally
over banana
imports,
makes
clear, western leaders are
likely
to make
monkeys
of themselves, and wreck the
global
economy
in the
process".
Interestingly,
the US
grows
no bananas
outside Hawaii and has no bananas to
export.
Yet its
objection
to the banana
import regime
of EU is so severe that it
is
threatening
to
slap
100
per
cent duties
on a host of
European products
from French
cheese and wine to German coffee-makers,
fromn cashmere sweaters to
chandeliers,
from vacuum cleaners to
ball-point pens,
and from
toy
trains to Christmas baubles.
The initial list was four
pages long.
The
final list
published
in the third week of
December 1998 covers 16
types
of EU
exports including biscuits, candles,
chandeliers, cashmere
clothing,
coffee-
makers and
handbags.
Pork and other
agricultural products may
be added to this
list later on. Peter S cher, the US
special
trade
ambassador,
says
that the
products
chosen are to maximise
pressure
on the
EU while
limiting damage
toUS
economy.
Exports
of these items worth about $ 590
million are
likely
to be hit affecting UK,
Italy,
France and
Germany mainly. Exports
from Denmark and Netherlands have been
exempted,
as
they
were not
supporters
of
the EU banana
regime.
The
proposed
100
per
cent
duty
on the listed items is
likely
to become
applicable
under the
controversial S ection 301 of the US Trade
Act with effect from March
3,
1999.
It is doubtful that the US threat has
anything
to do with the interests of the
Latin American banana
exporters
who are
allegedly
discriminated
by
the EU banana
import regime.
The
key
to the
mystery
behind such
strong
US action is the fact
that the EU market accounts for
potential
profits
of about $ I billion a
year
and that
a US businessman,
lobbyist
and banana
baron, Carl Lindner, controls 26
per
cent
of the world
production
and trade in
bananas. A school
dropout
and a self-
made
man,
Lindner has come a
long way
from the
family dairy
business and a small
$ 1,200
ice-cream store to become one of
the richest
people
in the Forbes
magazine's
listing.
His
family
wealth is worth over
$ 1 billion. The
family
owns the
Chiquita
Brands International and controls the so-
called 'dollar bananas'
coming
from the
Latin American countries. Lindner came
to banana trade in 1984
taking
over 55.9
per
cent control over United Brands and
renamed it in 1990 as
Chiquita,
which was
its main brand name for bananas. S ince
then he has been
trying
to
protect
his
bananas
against competition
from
African,
Caribbean and Pacific
(ACP)
countries.
Lindner has been accused in the
past
of
CIA connections and of links with the
Guatemala
coup
in 1954.
Though
a
Republican,
he contributes
heavily
to both
the
political parties
in the US .
Many
see
the threatened US trade sanction
against
its
major
trade
partner
over the banana
issue,
that involves no
exports
from the
US and affects no
jobs
in the
US , as a
direct result of Lindner's enormous
lobbying
to
protect
the interests of his
Latin American banana
empire. Many
also
believe that the US is
apparently fighting
an issue of
principle
at Lindner's
bidding.
Economic and Political
W eekly
December 26, 1998 3303
This content downloaded from 14.139.209.67 on Mon, 5 May 2014 10:38:41 AM
All use subject to JSTOR Terms and Conditions
The banana
import regime
of the
EU,
ntroduced on
July
1, 1993,
grants pre-
,erential market access to banana
producers
from the ACP countries. Prior to
1993,
there were different national banana
markets in the EU, which were transformed
into a
single
market. The new banana
regime
took into account EU's
obligations
under the Fourth ACP-EC Convention of
Lome
(the
Lome
Convention). Nearly
1 million tonnes of bananas are allowed
from the former
European
colonies in the
ACP areas under the
regime.
On the other
hand, the tariff rate
quota imports
of the
'dollar' bananas are restricted to about
2.35 million tonnes. W ithin the
EU,
there
are also differences since the Germans and
the S wedes in
particular prefer
the
bigger
and thinner 'dollar' bananas. The EU's
dilemma therefore is how to reconcile
differing
national interests
apart
from
reconciling
its international
obligations
under the W TO Agreement
and the Lome
Convention.
Prior
to the
setting up
of
W TO,
two
earlier GATT
panels
had ruled
against
the
EU banana regime.
Under the W TO
discipline,
fresh consultations initiated in
February
1996 failed and a W TO
panel
was established on
May
8,
1996 to look
into
complaints
filed
by
the US , and the
four Latin American banana
producing
countries -
Ecuador, Guatemala,
Honduras
and Mexico. The W TO's
Dispute
S ettlement
Body (DS B) adopted
the
panel
reports
and the
Appellate Body Report
on
S eptember
25, 1997 and ruled
against
the
EU
regime
as was
expected.
The EU
informed the DS B on October 16, 1997
that it would
fully respect
its international
obligations
but
considering
the
complexity
of the issue it would need a reasonable
period
of time. As further consultations
between the concerned
parties
did not lead
to an
agreement,
the
complaining parties
asked on November 17,
1997 for
binding
arbitration to determine the reasonable
period
of time. The EU
represented
to S aid
El-Naggar,
the arbitrator, that it be
given
reasonable time
up
to
January
1,
1999 on
five
grounds:
(i)
It has to strike a difficult balance
between its
obligation
under the two
coexisting
international
obligations
with
the aim of
respecting
both which will
reopen lengthy
discussions between
member states within EU.
(ii)
Amendment to banana
import regime
would
require acomplex legislative process
involving
the
European
Commission, the
European Parliament, and the Council of
the EU.
(iii) Under Article 12 of the Lome
Convention, the EU has a
legal obligation
to consult the ACP states and take their
views into account.
(iv)
As
per
its administrative
practice
any change
in
legislation affecting
customs
treatment of
imported
and
exported pro-
ducts enters into force
only
on
January
1
or
July
1 of a
year.
(v)
Advance notice with reasonable
lead-time is
required
to be
given
in res-
pect
of
any major changes
in
legislation
to those involved in the banana
supply
chain.
The
complaining parties
countered these
arguments
and
suggested
that time
up
to
July
1, 1998 should be
adequate
for EU
to
change
its banana
regime.
The arbitrator,
however, determined the reasonable time
to
expire
on
January
1, 1999 in his Award
dated December 23, 1997.
S ometime back, the EU
presented
its
second status
report
on the issue
claiming
partial implementations
of the DS B
recommendations and that the time
period
for
implementation
has not
yet expired.
The US believed that the
changes
made
by
the EU were inconsistent with W TO
provisions
and hence the recent threats of
a trade war. The EU on its
part through
its trade commissioner, Leon
Brittan,
has
condemned the US move to be
politically
unwise and a
grave
error of
political
judgment.
Brittan has also accused the US
of
acting
in a
'petulant
and
impatient'
manner. The EU has also
formally
filed
a
complaint
in the W TO
against
S ection
301 of the US Trade Act which is often
arbitrarily
used
by
the US . In the
politically
charged
trade war, the US is
accusing
EU
of
favouring
banana
imports
from the
former
European
colonies in violation of
its international trade
obligation
under the
W TO
discipline
whereas the EU is
calling
the US
retaliatory
action as "unilateralism
at its worst". EU also feels that the
legality
of US threat to
impose retaliatory
sanction
is dubious as no W TO
panel
has
yet
ruled
against
its amended banana
regime. Apart
from
challenging
S ection 301 of the US
Trade Act on which the threatened
sanctions are based, the EU has also
formally
asked for a W TO
panel
to be
established to review
conformity
of its
modified banana
regime.
If the
panel
is
established it will take 90
days
to
give
its
findings.
The US is in no mood to wait
that
long
and wants to
go
ahead with its
trade sanctions. The Financial Times in
its leader
'Banana-S plit' says
on December
18, 1998 that while the US seems to be
recklessly taking
the law into its own
hands,
the EU looks
stubbornly intransigent
and
has resorted to a
variety
of
procedural
rules and
lawyer's tricks. It further says
that W TO' s
dispute settlement mechanism
is closest to a
global
economic court
but,
through
the banana war, the US and the
EU seem bent on
destroying
this
fledgling
justice system
and its
binding
arbitration
procedure.
For countries like India that are not
involved in this
mega dispute,
it is a time
to reflect on how the
big boys
of world
trade are
using
and
misusing
the W TO
forum not
really
to set the world trade free
but to further theirown interests - economic
and
political.
W TO rules are often
being
used to
gain
further market access for their
products
in the
developing
countries. But
when it comes to
allowing imports
from
the less
developed
countries, various W TO
provisions
are invoked to obstruct trade
and
protect
their own
producers against
competition
from
poor
countries. No doubt
tariff barriers have been
brought
down
by
the
developed
countries, but
exporters
from
poor
countries have to often face
disguised
tariff barriers in the form of
anti-dumping,
anti-subsidy, countervailing
and
safeguard
duties that are
imposed frequently.
It is an
irony
that after
exploiting
the
poor
countries
for
ages,
the rich
producers
who
enjoy
the
advantages
of
sophisticated technology,
economies of scale, better infrastructure
and market access have to be
protected
against cheaper foreign:imports
from the
less
developed
world. In 1997
alone,
the
developed
countries instituted as
many
as
136
anti-dumping
cases.
Anti-dumping
duties are often
hefty
and once
imposed,
they
last for five
years. Anti-dumping
battles are difficult to
fight
on
foreign
soil
and entail
huge legal
costs for the
exporters
from
developing
countries.
Recently,
W TO's
outgoing director-general,
Renato
Ruggeiro,
has
urged
the
leading
industrial
powers
to check their
arbitrary
use of anti-
dumping
measures and other trade
defences. His call for restraint on
protectionism
has not come too soon.
Closely following
the banana
war,
an
intense trade war in steel is
developing
on
a much
larger
scale.
Everyone
is
crying
for
everyone's
blood and
producers
across
the
globe
are
demanding anti-dumping
action
against
each other. The steel war
is fast
encompassing
US , EC, Canada,
Brazil, Russia, Ukraine,
Japan,
China,
S outh Korea, Taiwan,
S outh Africa and
India. The
uppermost question
in
everyone's
mind is whether W TO can
emerge
unscathed from the banana war to
be able to
grapple
with the steel war or
will world trade see more and more of
unilateral sanctions and unfair
protection
in other sectors
ultimately leading
to a
slow
collapse
of the newly established
world trade order.
[The views expressed are personal.]
3304 Economic and Political
W eekly
December 26, 1998
This content downloaded from 14.139.209.67 on Mon, 5 May 2014 10:38:41 AM
All use subject to JSTOR Terms and Conditions