President Bill Clinton's willingness to
start a transatlantic trade war over bananas is proving to be
anything but wise. On March 3, the President imposed duties of 100
percent on $520 million worth of popular European products, such as
Waterford crystal and Italian pecorino cheese. The duties are
supposed to punish the European Union (EU) for disregarding a 1997
World Trade Organization (WTO) ruling that it change its
preferential policy favoring banana exports from countries in
Africa, the Caribbean, and the Pacific.
Because of the President's action,
hundreds of American and European companies that have nothing to do
with bananas now face trade sanctions that will price them out of
the U.S. market. The duties will affect a wide range of European
products, including cashmere sweaters, greeting cards, coffee
makers, chocolates, biscuits, pasta, bath oils, candles, handbags,
and ham. The government will start collecting the duties on April
12, the day a WTO dispute settlement panel is expected to rule on
U.S. charges that the EU's policy change still does not comply with
WTO rules. Meanwhile, because U.S. importers of these products will
have to post a bond equivalent to the sanctions, they already may
have begun to curtail their imports.
President's protectionist response not only undermines the
authority and principles of the WTO, but also is straining
relations with many of the countries involved.
The Banana Battle.
More than six years ago, the EU created a complicated quota system
for banana imports that favors former European colonies in Africa,
the Caribbean, and the Pacific. The United States objected,
charging that these quotas discriminated against bananas grown in
the Central American "dollar zone" by U.S. multinational companies.
In 1997, the WTO sided with the United States and ruled that the EU
must change its preferential policy. Instead of complying, the EU
made superficial adjustments to its banana regime, in effect
mocking the WTO dispute settlement process.
EU is resisting the ruling because banana production in Africa, the
Caribbean, and the Pacific is not competitive with "dollar zone"
production. Moreover, the EU argues that the 1975 Lome Convention
entitles it to aid signatory countries in Africa, the Caribbean,
and the Pacific--primarily former British and French colonies--for
which banana production generates up to 70 percent of total export
earnings and up to a third of all jobs. According to the European
Commission, however, these countries account for less than a third
of the 3.9 million metric tons of bananas annually consumed in
Europe; Latin America accounts for over two-thirds.
Sir Leon Brittan, EU Vice President, warned on March 9, 1999, that
the banana dispute threatens the Transatlantic Economic
Partnership, a joint effort with the United States designed to
reduce bilateral trade barriers and improve cooperation in
multilateral forums such as the WTO. Ironically, Brittan proposed
Administration's decision also is damaging U.S. relations with
Caribbean countries. On March 8, the 15 members of the Caribbean
Common Market (Caricom) issued a statement deploring the
"unauthorized and illegal action [that] undermines the World Trade
Organization and threatens the economic survival, and social and
political stability of several Caribbean countries." Caribbean
leaders also warned that if banana exports to Europe ceased, the
next cash crop would be illegal drugs.
Caricom is threatening to withdraw from
the Partnership for Prosperity and Security in the Caribbean signed
with the United States in May 1997. Under this agreement, U.S.
anti-drug agencies can pursue suspected drug traffickers into the
territorial waters and air space of Caricom member states. If
Caricom makes good on this threat, the Administration's war on
drugs in the Caribbean region would suffer a serious setback.
A Better Trade Policy
The United States is right to be frustrated by EU protectionism
and legalistic filibustering, but adopting protectionist policies
and fighting a transatlantic trade war over $520 million worth of
bananas--barely 1.0 percent of total yearly bilateral U.S.-EU
trade--is a no-win proposition for all concerned. Instead, the
Clinton Administration should:
Remove the unilateral
import duties immediately. Countering EU banana protectionism with
U.S. protectionism hurts both U.S. and European consumers and
poisons U.S.-EU relations so that any compromise is more
Pursue its claim
against the EU through the WTO's dispute settlement process. If the
United States, the principal architect of the trading system that
led to the WTO's creation in 1995, breaks WTO rules by imposing
unilateral trade sanctions against Europe, other countries will be
less likely to respect WTO rules.
Extend free trade
benefits under the North American Free Trade Agreement (NAFTA) to
the Caribbean and Central America. Granting these countries NAFTA
trading parity would help to offset any harm they might suffer from
a change in EU banana policy.
Work to secure
fast-track negotiating authority for the President, which would
strengthen the hand of U.S. trade negotiators in upcoming WTO
negotiations on agriculture and services in 1999 and 2000.
Launch a new round of
WTO multilateral negotiations with Europe covering tariff and
non-tariff barriers, agriculture, services, and improvements in
negotiations on duplicative or conflicting product standards,
eliminating barriers to trade in services, finding common ground on
biotechnology issues, facilitating electronic commerce, negotiating
international rules on investment, and cooperating more on
intellectual property and competition issues.
The Clinton Administration wants to show congressional critics
that it is serious about enforcing the trading rights of U.S. firms
in Europe. However, by not waiting for the WTO ruling, the
Administration has sacrificed the moral and legal high ground on
this conflict and has needlessly angered other WTO members.
Moreover, other countries may decide to ignore future WTO decisions
in dispute settlements if the EU is successful and if the U.S.
enforces the import duties. This would undermine the institutional
legitimacy of the WTO and increasingly would tilt a rules-based,
open international trading system toward protectionism, causing
economic hardship for consumers and workers around the world.
John P. Sweeney is a former Latin America
Policy Analyst in The Kathryn and Shelby Cullom Davis International
Studies Center at The Heritage Foundation.