New Developments Complicate Banana Dispute

By Staff -- Logistics Management, 4/1/1999

The dispute between the United States and the European Union over the EU's banana-tariff regime is sounding more like a soap opera than a trade dispute.

The two governments have been battling for several years over EU policies that favor banana producers in former European colonies in Africa, the Caribbean, and the Pacific. The United States charges that U.S.-based growers in Latin America have lost more than $500 million in export business to Europe because of those policies and that the EU's banana regime violates World Trade Organization (WTO) rules. The European Union counters that recent changes have brought its tariff policies into full compliance.

The U.S. Trade Representative last year asked WTO either to force the EU to change its policies or to allow the United States to impose retaliatory tariffs on EU-produced goods. (For more on the dispute, see "Yes, we have no bananas ...," Logistics, March 1999, Page 93.)

The WTO ruled in favor of the United States. The EU eventually implemented the WTO's decisions, but not to the United States' satisfaction. U.S. negotiators asked WTO for arbitration, which they had expected would authorize punitive tariffs effective March 3. But a series of unexpected events has threatened to turn the already contentious affair into high political drama:

* On March 2, the WTO arbitration panel announced its decision that the EU's banana regime was not fully consistent with WTO rules but added that it could not authorize punitive tariffs until it determined the extent of that inconsistency. The panel also questioned the U.S. claim of $520 million in damages.

* On March 3, the United States began imposing conditional 100-percent tariffs on 15 products, one from each of the countries that supported the current banana policies. (A list of the affected goods can be found at www.ustr.gov/releases.) The U.S. government will not collect the higher duties until the arbitration process has been completed. At that point--depending on the arbitration panel's decision--U.S. Customs will liquidate entries for some or all of the listed goods entered on or after March 3 at the 100-percent duty rate.

* On March 8, John J. Sweeney, president of the AFL-CIO labor organization, sent a letter to U.S. Trade Representative Charlene Barshefsky suggesting that the issues at stake did not justify the risks of a trade war with Europe, and asking her to reconsider the decision to impose punitive tariffs. Sweeney also blasted Chiquita Banana Co., a major beneficiary of the U.S. decision, charging that the company recently has tried to weaken unions in Central America. A representative for Chiquita fired back by accusing unnamed "opponents" of slandering the company and providing Sweeney with false information.

* On March 15, the entire European Commission resigned after the release of results of an internal investigation into corruption. Although the commissioners remain in an interim capacity until successors are named, the incident has thrown most of Europe into a political uproar. That's likely to slow any progress on the banana issue, says Matthew T. McGrath, Washington counsel for the American Association of Exporters and Importers and a Logistics columnist.

Although the banana dispute on its own could have far-reaching effects on trade relations between the United States and Europe, it's just the "first shot across the bow," McGrath cautions. Disagreements over access to European markets for U.S.-produced beef containing growth hormones and genetically modified agricultural products are expected to come to a head before summer, he reports. Importers of European products, therefore, should be prepared to see the list of punitive tariffs grow within the next few months.