December/January, 2000

From the Editor

Trade Controversy Affects All

The countries of the European Union barely grow bananas, and the United States of America barely grows bananas. Yet, a dispute over bananas may turn out to be the defining trade dispute of our time.

The parameters of the dispute are simple: The European Union adopted policies to favor the admission of bananas from former colonies in Asian, Pacific and African countries. Spain’s former colonies in Latin America were left out of the equation. This disadvantaged so called “dollar bananas” shipped from Central and South America, mostly by large U.S.-based banana companies.

The United States objected to the European Union’s policies and brought an action to the World Trade Organization (WTO). The WTO decided in favor of the U.S. position. The European Union appealed and a WTO appellate panel once again ruled in favor of the United States.

Then, basically, nothing happened. The European Union made some superficial changes to its rules and essentially challenged Washington to start the action anew. Washington, not willing to see the process drag out for even more years (the dispute is already over a half decade old), gave notice of its intent to retaliate by imposing tariffs on various luxury goods.

These things have a way of being settled at the last minute. The tariffs are due to go into effect on February 1, 1999 so, by the time you read this, the specific issue may be moot.

If the tariffs go into effect, the European Union might retaliate against U.S. goods. This would hurt European importers of U.S. products and change the supply/demand equilibrium for all buyers.

Still, the controversy points out long-term issues of even greater importance:

  1. The importance of world trade: This is a battle over importers’ and exporters’ interests around the world. It is a battle over spheres of interest with countries like France looking for ways to maintain influence in parts of the world that would likely dissipate in a free market environment.
  2. Small interests can do big damage: The truth is that European banana importers are not a powerful group. Yet they are powerful enough to pressure Europe into adopting a very foolish policy. If such small groups can do such damage, we can expect future controversies of this type.
  3. One can’t count on sensible policies: The official reason why the European Union adopted the banana preferences is to protect the economies of these former colonies. This is, of course, nonsensical. Even if the countries of the European Union wish to subsidize these countries, raising prices for banana consumers is an absurd way of dealing with the issue. If the European Union wants to give foreign aid, it has to use tax revenue and give the aid away. Taxes can at least be apportioned fairly according to a democratically selected criterion.
  4. International law in this area must be clarified: When the U.S. won the WTO action, it, reasonably enough, expected the European Union to stop the offending practice. The rules need to be clarified – is stopping the offending practice what is required if one loses a WTO action? Or is it an opinion for the offending country to simply accept retaliation from the winning member? Is there some third type of resolution, such as paying compensation that is acceptable?

The gist of what has been acceptable to the world is that Free Trade Agreements, such as NAFTA in North America, are acceptable. Beyond that, all countries having Most Favored Nation trading status need to be treated similarly. This means that, even though the European Union would like to help some countries, it can’t do so by simply restricting entry of other countries’ products.

Anyone in international trade must realize how vulnerable trade is to political pressure; after all, it is always easy for a company, an industry or a labor union to claim itself a victim of foreign forces. Yet we know that it is trade that, long-term, produces both prosperity and freedom. It is trade that encourages the highest use of resources.

The enemy of trade is self-dealing, small-mindedness and, at base – fear. Fear because one can’t see the vision of how one will exist if one’s current livelihood was to slip.

So trade is the triumph of hope over fear. In wrangling over bananas, let us hope the world finds a way to overcome the fear of slipping on this most dangerous peel.  EXP