The Week in Europe, 16 October 1998
Executive Director of the Caribbean Council for Europe
The trans-Atlantic war over bananas is entering a new phase. Under pressure from the US Congress, the US administration has made clear that if the EU is not prepared to negotiate a solution, then the United States will take unilateral retaliatory trade action against the EU. It will not, it says, go back to the Word Trade Organisation (WTO) disputes panel for a fourth time.
While this in part reflects an attempt by the US administration to raise the stakes in order to try to get the EU to reach a compromise, it is yet another example of how the US Congress, under pressure from US companies making large donations to individual Republican and Democratic congressmen, is attempting to conduct US trade policy over the head of a weak administration.
The origin of this latest development is rooted in the failure of an EU/US compromise attempt on September 21 which collapsed when non-banana trade concerns and other pressures in Washington led the US to withdraw from its original position.
None of this was surprising. It had long been thought that the most difficult aspect of the proposed new EU single market regime for bananas was achieving a WTO compatible management scheme.
What has happened in the last two weeks, however, has been less predictable. Under pressure from major campaign contributors in the run up to the mid-term Congressional elections, the US Congress decided that they would seek to intervene in the dispute in order to try to force the US administration’s hand.
The US House of Representatives introduced a bill in early October that sought to accelerate retaliatory actions against the EU over non-compliance with both the banana ruling and another WTO panel ruling relating to beef. Fearing once again being placed in an embarrassing position by the US Congress and recognising that President Clinton appeared to be loosing control of the conduct of international trade relations, the US administration moved quickly. The US Trade Representative, Charlene Barshefsky, on October 10 persuaded the House of Representatives to withdraw the bill in return for a letter from President Clinton’s Chief of Staff, stating that the US administration was considering taking all necessary action to ensure full and timely EU compliance in these cases.
In the last week, the dispute between the EU and US over bananas has become more tense. As Washington considered possible trade sanctions against the EU, European officials responded by calling the US actions "very serious". Officials were quoted as saying: "unilateral US retaliation, would be a clear violation of trade rules which the EU would immediately challenge through the WTO’s dispute procedures. It is not for the US to lay down the law. There are formal WTO procedures for dealing with this kind of issue".
The situation now is that the US administration is suggesting that unless the EU’s banana regime is in full compliance with WTO rules, it would announce on December 15 a list of specific retaliatory actions to take effect on February 1.
As an incentive to the EU to try to settle the US has indicated that the deadline for action in the banana case might be suspended until March 3 if the EU agreed to go to WTO arbitration. For its part the EU is not yet budging.
A number of important messages come out of these latest developments. Although what has happened may be posturing prior to a settlement of a dispute, it again shows the way the global trade environment has changed. The issue no longer is about banana farmers, their livelihoods, Caribbean economies, or justice. The banana issue has become a stepping stone along the way to international trade governance through the WTO in which the strongest and those with money, the most powerful lawyers and the biggest stick have their way. Small banana farmers who want certainty and a new regime are the losers.
Secondly, the developments indicate once again the weakness of the US administration and the increasing willingness of the US Congress to try to control the world on behalf of US business interests, irrespective of the political or economic consequences for neighbours.
Thirdly, the new dispute points to an inherent weakness in the WTO. That is to say that in issues that affect vulnerable third states directly affected by a dispute, such nations have little, if any, voice or ability to ensure that their views are taken into account.
Over the last few weeks there has been much debate in the international media about the need for new institutions to try to regulate international capital flows so that speculation by powerful interests cannot destroy developing economies. This has led to questions being asked about the role of the IMF and World Bank and whether or not some form of new global institution is required that can better manage and regulate international financial affairs. The banana dispute points to problems that will arise if the developing world were not to have a significant say in the structure of any new organisation.
While there is great sense in seeking, as globalisation progresses, to establish a financial regulatory mechanism in parallel to the WTO, this will only have value if it is not simply a structure aimed at enhancing the capacity of rich and powerful nations and their corporate sponsors, to have their own way.
There is a pressing need for socially responsible provisions to be inserted into the rules governing multilateral procedures. The latest development in the banana war suggest that ideas promoted by Barbados’ Prime Minister, Owen Arthur, on recognising a new category of the vulnerable state, urgently need promoting on a global basis.