TED Case Studies
The United States and Europe Go "Bananas"
Over
Trade!
I. Identification
1. The Issue:
The United States and the European Union
are currently involved in a trade dispute settlement through the World
Trade Organization regarding the sale of bananas by American companies
within the member states of the EU. The European Union has been called
on by the WTO to reform their practices of agriculture so as to comply
with international trade law. Both sides have been haggling with
the WTO's Dispute Settlement Body to resolve the conflict, but continue
to claim wrong doings by their opponents. Whereas the EU claims to
have abided by the DSB's ruling and altered their policies, the trade relationship
has not improved substantially and the US continues to threaten incredible
import tariffs on European goods. Essentially, the April 6th decision
by the DSB which said that it is the responsibility of the EU to comply
with the WTO ruling and reform their trade practices with both developing
nations and America so as to continue friendly economic relations across
the Atlantic, shows that the WTO is effective in managing trade disputes.
2. Description
"Trade relation problems [between
the US and EU] have their roots in culture, but disputes in modernity are
more bitter." -Dr. Jerome Sheridan
EU-US
Relations
The United States was born of European identity, and
because of this, the cultural links between the
two continents are strong. The EU is a primary ally of the US and economic
ties are obvious. The two create over $300 billion in bilateral trade
and $650 billion in investments. One half of all foreign direct investment
from the US is invested in EU countries, while nearly 60% of European FDI
is given to the United States.
The Cold War forced the two areas to streamline policies
so as to protect a common self-interest. This relationship has strengthened
over the years, but is subject to differences in cultural belief.
The political culture of agriculture, for example, is a popular topic of
contention between the regions. The United States and the EU disagree
on the granting of subsidies to farmers in the form of the European Union's
Common Agriculture Policy (CAP). This form of protection is thought by
the US to exclude outside trade from entering the European market.
Another difference in the culture of decision making
is between unilateralism versus multilateralism. Since the begin
of the European Coal and Steel Community at the end of World War II, the
governments of Europe have been accustomed to working in a cooperative
manner. Whereas they favor multilateralism, the United States is
well known for their blatant regard for self-interest and unilateral action
in the world arena.
As a result, organizations such as the Transatlantic
Business Dialogue (TABD home page) have
been created to grant a discussion forum to industries on both sides of
the ocean. This is thought to influence political cooperation and
work to break down the differences in the culture of government and foster
good trade relations between the United States and European Union (Sheridan,
1998).
ACP-EU Relations
The African, Caribbean,
and Pacific Group of States consist of mainly former colonies to the
European Union's member states. This is a system of trade combines
70+1 countries together under the Lome Conventions which are structured
agreements that last a number of years. The countries are granted
one way trade preferences in return for Most Favored Nation status.
States are given development assistance in sums up to 125 million ECU (European
Currency
Unit- not to be confused with the euro) annually (Amb. Links, 1998).
Furthermore, the EU grants an agricultural provision to participating countries:
ACP states are able to receive full CAP moneys.
This might appear to be a sizable charity by the
EU to developing countries, yet there are many provisions in the Convention
which are problematic. To begin, the EU restricts that sale of products
they consider to be in "sensitive sectors." This means that the EU
protects industries that are unable to compete globally due to poor efficiency,
etc. Another point is that manufactured goods exported from ACP countries
have a 50% content requirement from EU products. This restricts ACP
nations from purchasing capital at the most economical price and forces
them to invest in European businesses.
The prevailing problem with these trade agreements
is that the EU has locked these nations into primary product production.
The main agricultural products traded are those which cannot be grown within
the geography of the European Union. These products include such
items as sugarcane, pomegranates, and BANANAS.
Trade preferences also hurt other developing nations
which do not have the luxury of being formerly colonized by the French,
Dutch, or British because they are not granted the same access to the very
large European marketplace (Sheridan, 1998). Today, even the United
States has been closed out of EU grocery stores and corner markets which
leads to the current banana dispute.
Why a dispute?
The history of the dispute began in the early 1990s,
but the EU and US have again been "slicing" their trade relations over
the importation and exportation of bananas since last September.
The European Community (which existed prior to the Maastricht Treaty) has
been held in violation of the GATT, or, General Agreement on Tariffs and
Trade for their external agricultural practices for years and today, with
the presence of the WTO, the European Union must answer to the complaints.
Not only is the US enraged about the European regime, but
five other countries - Guatemala, Ecuador, Honduras, Mexico, and Panama
- have brought their opposition to the trade restriction to the DSB at
the WTO.
The United States claims that the EU
has excluded Latin American produce from their shelves in order to cater
to their ACP program. According to USTR, prior
to 1993, the countries of France, Spain, and the UK were the only ones
to restrict the entrance of bananas from American companies into their
markets. Today, as a result of the formation of the union, all fifteen
nations participate (see US-EU).
The WTO ruled in favor of the US in
1997 and granted the EU until January 1, 1999 to restructure their practices
into compliance. They have, as of yesterday, been said to failed
at that responsibility. As of November, 1998, when the fourth round
of Lome was being debated in Brussels, the US government compiled a list
of products subject to a sharp rise in tariff quotas to make up for the
lost revenue from banana sales. In response, Sir Leon Brittian, the
Directorate General (01) which specializes in External Relations claimed
that the US acted unilaterally (DG01-
Commission).
The US government is asking for a non-discriminatory
EU trade policy (see US-EU). This calls for radical
restructure of the CAP and their development assistance programs
which the EU must reform, nonetheless, in order to prepare for future enlargement
.
WTO
The World Trade Organization
is head quartered in Geneva, Switzerland. One hundred thirty-two
countries are currently members of the WTO. Dispute Settlement Bodies
within the WTO are empowered to mediate trade "wars" and to rule on the
outcome of cases brought to the panels. Click
here for complete information regarding DSB.
3. Related Cases
#101
BANANA
#160
EUMEAT
#446
SOYBEAN
#493
BASMATI
#458
CHICKEN
4. Draft Author:
Kate Dean
April 7, 1999
II. Legal Clusters
5. Discourse and Status:
The involved parties are at a disagreement,
but the case is still IN PROGRESS (info
on DS in WTO).
6. Forum and Scope:
The WTO is settled the dispute,
therefore, the scope is MULTIlateral.
7. Decision Breadth:
The case has been initially ruled
on by the World Trade Organization. The WTO stated that the European
Union was in the wrong and was instructed to change the policies surrounding
import barriers to banana trade with the United States. However,
the EU has a much more difficult task before them because their agricultural
regime with the ACP countries is in great need of reform.
8. Legal Standing:
The ruling was made April 6th,
1999. The WTO has said that the EU must reform it's practices and
that the United States may impose import tariffs of most $200 million on
EU products as retaliation to being closed out of their market. Although
this ruling has been made, it is not unlikely that the EU will appeal the
decision. If this occurs, they will incur more fights from countries
such as Ecuador, however (Agence France Presse, 1999).
III. Geographic Clusters
9. Geographic Locations
a. Geographic Domain: The geographic areas involved
in growing, exporting, and importing the bananas is wide-spread. These
areas include the Caribbean, various regions of Africa, and countries in
the Asian Pacific realm. Banana exporting countries in partnership with
the EU are strictly tropical. However, the United States is also
an exporter through their multinational corporations. (Dole
and Chiquita operate abroad in Latin America.) The US
and EU states are also included as a result of their roles as importers
and exporters.
b. Geographic Site: The primary area of the
dispute is solely constrained to the United States and Western Europe.
10. Sub-National Factors:
No, there are no sub-national factors.
11. Type of Habitat:
The countries which grow the produce
are tropical regions, whereas the EU and US can mainly be considered temperate.
IV. Trade Clusters
12. Type of Measure:
This issue deals with an import
ban on American bananas into the EU.
13. Direct v. Indirect Impacts:
Direct
14. Relation of Trade Measure to Environmental Impact
a. Directly Related to Product: N/A
b. Indirectly Related to Product: N/A
c. Not Related to Product: N/A
d. Related to Process: N/A
15. Trade Product Identification:
Bananas!
16. Economic Data
As of the 6th of April, 1999, the
World Trade Organization has ruled that the United States is permitted
to wage nearly $200 million (for a loss of $191.4M) in import tariffs as
retaliation against the EU and their agricultural regime (see
"AFP").
17. Impact of Trade Restriction:
The impact of trade restriction
into the European market is high. The US estimates that they lose
approximately $520 million of banana sales annually to the trade preferences
of the EU (see "AFP").
18. Industry Sector:
The two governments were initially
concerned only with the agricultural sector of the economy in that bananas
were the main import/export issue, however, due to their disagreement,
the United States has threatened to place bans or import tariffs on manufactured
items such as sweaters, handbags, shoes, electronic items etc. (US
Mission to the EU, 1999).
19. Exporters and Importers:
The exporters in this dispute involve
the seventy plus one countries of the African/Caribbean/Pacific (ACP) trading
partners to the European Union, and two American fruit companies, Dole
and Chiquita. The primary importer is the conglomeration of fifteen
EU states.
VI. Other Factors
Whereas many American
and Germans will say that cultural differences in this conflict resulted
in economic losses because, "Germans love bananas!", the differences in
political culture were discussed in the Description section.
21. Trans-Boundary Issues: N/A
22. Rights:
The rights of many groups are relevant
to this issue. The rights of developing countries to be granted fair
treatment in trade, the necessity for large conglomerates to abide by international
law when attempted to further trade with others, and the right to enter
markets freely are all equally important. There has been an infringement
of rights of corporations and small countries' governments, however the
WTO successfully arbitrated the dispute. All voices were heard and,
neutrally, a decision was made. Albeit, each participating side might
not be placated by the decision, but it brought to light those areas which
are unfair practices in the global marketplace and is therefore, a victory
in international economic policy.
23. Relevant Literature/Links 
1. Agence France Presse. Financial Pages.
April 7, 1999. Brussels, Belgium.
2.. ACP countries Secretariat Web Site.
http:www.acpsec.org
3. Brittian, Sir Leon. DG01 Homepage/EU-US Dispute
on Banana regime. Comments as Commissioner for DG01 1998, 1999.
http://europa.eu.int/comm/dg01/banmen.htm
4. Links. (Ambassador from South Africa to the EU)
Comments made regarding SA-EU Relations; December 7, 1998. Brussels,
Belgium.
5. Sheridan, Dr. Jerome. Director of American
University, Brussels. Lecture on EU Trade Relations : ACP Countries;
December 3, 1998. Brussels, Belgium.
6. World Trade Organization Web Site.
http://www.wto.org
7. United States Trade Representative Web Site.
http:www.ustr.gov
8. United States Mission to the European Union
Web Site.
http://www.useu.be/issues/banana34.html
