The Banana Wars

Article excerpt

Few would have thought that a trade conflict involving import barriers on Latin American bananas could drag the US into a heated trade conflict with the European Union (EU). Yet, on March 3, 1999, the Clinton administration unilaterally imposed trade sanctions on European products valued at $520 million, an amount the US claims equals the losses incurred by its commercial interests due to European banana import restrictions. The reprisal came after three favorable rulings in the World Trade Organization (WTO) condemned the EU's banana trade restriction as a violation of international trade law, although a subsequent ruling last April trimmed the amount of US sanctions authorized to $191.4 million.

The roots of the conflict go back to 1993, when Latin America's banana-producing countries entered into a dispute with Europe and its former Afro-Caribbean-Pacific colonies (known collectively as the ACP). In what came to be known as the Declaration of Guayaquil, on February 12, 1993, eight Latin American countries pledged to fight the European banana import regime collectively using GATT's dispute resolution mechanisms. In these days before US involvement, the conflict was notable for the divergent levels of economic power among the major players: the European Economic Community (EC)--an economic powerhouse--confronted a loose coalition made up of Costa Rica, Colombia, Panama, Ecuador, Honduras, Nicaragua, Guatemala and Venezuela. Given Latin America's emphasis on outward-oriented models of development, the evolution of the conflict during this period provides important insights as to whether international trade dispute mechanisms can function effectively to defend Latin America against the unfair trading practices of more powerful developed countries.

DOLLAR BANANAS AND ACP BANANAS

The 1993 EC trade legislation limited Latin American banana imports to two million metric tons beginning in 1994, subjected them to a tariff of 100 Ecus (US $175) and created a complex import licensing scheme. Europe justified the trade restrictions to protect former ACP colonies, such as Jamaica, the Philippines, St. Lucia, the Windward Islands, Cameroon and the Ivory Coast, and European domestic possessions, including Guadeloupe, Martinique and the Balearic Islands. Since 1975, the Lome Convention had granted ACP countries trade preferences on bananas, with the rationale that many ACP producers are smaller and less competitive than their Latin American counterparts. Under the new system, ACP countries and European possessions were allocated duty-free annual quotas of 857,700 and 854,000 metric tons, respectively.

Latin Americans greeted Europe's new banana trade policy with predictions of economic devastation. Latin American producers had increased the amount of land under banana cultivation in the 1980s, expecting increased demand from a newly unified Europe and Germany. Trade analysts estimated that the new restrictions would result in a global glut of 900,000 metric tons of surplus production.

To the US multinationals that dominate the commercialization of Latin American production, the most grievous aspect of Europe's banana trade policy was the complicated licensing scheme it introduced. These regulations required an import license for every box of bananas brought into the EU. Of the newly reduced market of two million metric tons now allocated to Latin America, the EU gave many import licenses to European primary importers, banana distributors and ripeners, even though many of these companies had not imported bananas directly from Latin America before. Once the import regime took effect, the licenses were a requirement for anyone wishing to sell in Europe. They could be sold without importing any fruit at all for an average price of between $4 and $8. United Fruit, the largest US exporter to the EU, bore the brunt of the licensing scheme. Its EU market share declined by about 25% from 1991 to 1994, according to EU officials. …