January, 1999

Fruits of Thought

Breaking The WTO Rules

At this moment, the produce industry stands at the very crux of a dispute that is likely to define the trading rules under which all produce, indeed all exporters and importers of anything, are forced to exist.

The dispute is over bananas, and, with luck, it will have been settled before you read this. If not, the U.S. may have imposed retaliatory tariffs against a range of European products, which, of course, could lead to European retaliation against the United States. Settled or ongoing, though, the issue at stake is whether a world trade system – in the sense of an agreed set of rules – can actually be sustained.

Over a half-decade ago, the European Union imposed a complicated program of quotas and tariffs that had the effect of restricting the entry of so called “dollar bananas” – these are bananas from Central and South America. The regulations were designed to favor the admission of so-called APC bananas – that is bananas from former European colonies in Africa, the Pacific and the Caribbean.

The ostensible reason given for this policy was to help the economies of struggling former European colonies. This justification doesn’t make sense, of course, since the bananas being discriminated against come from Spain’s former colonies in the Americas, and those countries need help every bit as much as do the beneficiaries of these policies.

The United States was unsuccessful in convincing the European Union to drop this banana policy and, eventually, the U.S. brought an action before the World Trade Organization (WTO) asking for a finding against this policy. The WTO, set up by trading nations as the arbiter of these kinds of disputes, ruled against the European Union. An appellate panel of the WTO also upheld this finding against the European Union.

The reason this dispute is so crucially important is because of what came next. Reasonably enough, the United States, having prevailed at the WTO, expected the Europeans to drop the now-discredited banana policy and allow bananas from Central and South American in on an equal basis with other bananas.

Instead the European Union did nothing. It made some cosmetic changes but in no way altered the substance or effect of the policy. U.S. objections fell on deaf ears and, basically, the European Union declared the problem solved and challenged the U.S. to go through the entire WTO procedure again.

Not willing to see this case drag out into the next millennium, the U.S. announced its intention to impose retaliatory tariffs against certain European Union exports. These tariffs are due to take effect on February 1, 1999 unless a settlement is reached prior to that date.

The history of things is that settlements often are reached before the deadline. So the specifics of this case may be moot.

Whether a settlement is found here or not, however, the crucial issue is what is the effect of a WTO ruling. If this whole elaborate procedure of cases and appeals results in a finding that a country is not obligated to conform, then, clearly, countries will soon decide that participating in the whole WTO process is a waste of time.

After all, if countries are not obligated to change policies to conform to WTO findings, then participation becomes an odd heads-I-win-tails-you-lose sort of game. If a country appeals to the WTO and loses, then the challenged country claims the glory of vindication. If the country that appeals wins, it doesn’t achieve its objective of getting the unfair policies removed. That is not a system, it is a farce.

The odd thing is that, in the end, the U.S. banana companies are not likely to be the ones most hurt by this matter. These are large and strong companies, and during the half decade-plus that this regime has been in place, many of the U.S. banana companies have made investments in Europe and in some of the APC countries to profit from the current policies. Although the U.S. banana companies still, by and large, favor removal of the European system, these companies have various investments that, themselves, would suffer from the adoption of a free market policy in bananas.

In the end, small produce growers and exporters, produce importers and retailers and, yes, consumers will be the ones to suffer if The European Union’s policy of defying the WTO is allowed to stand.

We all benefit from established trading rules. It is this sense that access will be available according to terms outlined in the General Agreement on Tariffs and Trade (GATT) and as defined by the WTO that gives investors the confidence to plant and plan. The investment can be in the European Union, in the United States or any country in the world.

What is really at stake in this banana dispute is whether investors can rely on this system or whether it is the whims and interests of countries that will determine the availability of markets. If the latter were to triumph, investment would be reduced, trade would decline and the cornucopia of product now available to the American consumer would never even be planted.  pb