EU and US should bury the hatchet in banana row
by Maria Livanos Cattaui
Paris, 15 March 1999 - Even if the banana dispute between the United States and the European Union is quickly settled it has already dealt a blow to the authority of the World Trade Organization, the world's bulwark against protectionism.
Both sides should call a truce now and allow the WTO's dispute settlement mechanism to do its work, however slow it may be. Certainly, the system itself could be improved. Ambiguities over compliance with its rulings should be removed.
The last thing the world needs in the aftermath of economic and financial crises in Asia, Russia and Latin America is for the two biggest trade blocks to persist in their banana squabble while the rest of us look on in dismay and disbelief.
Pointing the finger of blame will not help and brinkmanship or posturing will only make matters worse. Until now the WTO dispute settlement process has worked remarkably well, imposing the rule of law instead of the law of the jungle in trade disputes, and it must not be endangered in any way.
The European Union castigates the US for penalizing a bizarre collection of 14 European products, from cashmere sweaters to cheese, biscuit, candles and handbags. The Americans claim that they are justified because the EU has persistently defied WTO rulings that would oblige the Europeans to cease favouring banana exporters in the Caribbean and Africa over American companies operating in Latin America.
Ironically, neither the EU nor the US exports bananas. The issue here is one of market access for poor economies in the Caribbean, Africa and Latin America who seek market access for a product that is vital to their economies.
This is as much a development problem as it is a trade problem. Maybe one lesson to be learned from the imbroglio is the need for more effective multilateral assistance to help poor countries adapt to trade liberalization.
Insignificant though the dispute may be in comparison with the total volumes of trade between the two economic giants, it is a manifestation of today's uneasy economic climate. The stakes are much higher than the $500 million worth of European exports that the Americans are targeting in the banana dispute.
The Europeans and Americans are at odds with each other and their trading partners on several fronts, from steel to timber, textiles, hormone-treated beef, genetically-modified foods and even the cross-border transfer of personal data. Whether these potentially much more serious disputes can be settled amicably will be greatly influenced by what happens over bananas.
A direct cause of the current trade tensions is the disparity between the booming US economy and weak growth in both Europe and Asia. Today, devaluations against the dollar have increased exports to the American market and drawn political attention to the yawning trade deficits and surpluses. In 1998, the US trade deficit widened to almost $250 billion and the outlook for this year is that the gap will become even greater. In contrast, the Europeans have piled up a healthy trade surplus.
But whatever the causes of the transatlantic aggrav
ation over trade, the solution to the world's economic ills lies not in protection, but in respect for the rules-based multilateral trading system that the United States over many decades has done so much to build. It would be a severe setback to trade-driven economic recovery if that distinguished record were to be blemished.
A heavy responsibility lies on the United States and the European Union to exercise leadership. Both trade giants are pressing for a new round of global trade negotiations when WTO ministers meet in Seattle at the end of this year. As the only organization of business enterprises that covers all sectors and spans the entire world, the International Chamber of Commerce shares their desire for further progress on the trade front.
A successful round would provide a powerful tonic for the restoration of business confidence after the shocks of the past year. It would forestall the re-emergence of protectionism into the bargain. But the chances of getting new trade negotiations off the ground will be jeopardized if the row over bananas drags on and is allowed to sour the atmosphere.
Maria Livanos Cattaui is Secretary General of the International Chamber of Commerce