Banana Wars Essay ⋆ Business Essay Examples ⋆ EssayEmpire

The banana wars were an eight-year trade dispute between the European Union (EU) and the United States that started in 1993. It escalated to include sanctions on the import of a range of other products. By 2008 it still had not been fully resolved.

The European Economic Community (EEC) introduced the European Union Common Market Organisation for bananas in 1992, and the European banana import regime was put in place in 1993. At this time barriers against bananas imported from Latin America were established. The EEC did this to give former banana-producing colonies from Africa, the Caribbean, and the Pacific (ACP) preferential access to European markets by imposing a quota and 25 percent tariff on bananas from Latin and Central America. This was clearly to the detriment of those producers. The objective of the regime was to help smaller farmers from the former colonies compete with large plantations run by U.S. multinationals in Central and Latin America.

In February 1996 the U.S. government along with Ecuador, Guatemala, Honduras, and Mexico filed a legal complaint to the World Trade Organization (WTO) against the European Union’s banana import regime, claiming that it unfairly restricted the entry of their bananas to the EU and favored the former colonies. The action of the U.S. government was partly in response to pressure from one of the big three U.S. banana companies, Cincinnati-based Chiquita Brands International, and its chairman Carl Lindner. (During the period of the banana wars, Chiquita reported that its share of the European market had fallen from 40 percent to 20 percent with estimated revenue losses of $1.5 billion. It said it had been pushed to the brink of bankruptcy.)

In September 1997 the WTO ruled that the EU’s banana import regime was inconsistent with WTO rules. Following further consideration in January 1999, the EU introduced a new banana import regime. However, in April 1999 the WTO again ruled that this new regime was still incompatible with the EU’s WTO obligations. It was at this stage that the WTO granted the United States authorization to impose sanctions up to US$191.4 million per year on EU products entering the U.S. market. This case is one of only seven out of 315 that have reached the stage where the WTO has authorized retaliatory penalties.

The banana wars then spread beyond the banana market. The U.S. government put in place sanctions on a number of European goods, including cashmere, cheese, French fashions, and Danish ham. In return, the Europeans countered by banning the import of hormone-treated beef from the United States. The situation was intensified still further when in May 2000, the WTO granted Ecuador authorization to impose sanctions up to US$201.6 million per year on EU exports to Ecuador. The so-called carousel legislation, introduced into a 2000 trade bill, also required the United States to implement rotating sanctions against Europe until it lifted its restrictions on imports of bananas and hormone-treated beef.

The carousel sanctions were never enacted. The dispute had dragged on for eight years when in April 2001 the EU, United States, and Ecuador accepted a solution whereby Ecuador and the United States agreed to suspend their sanctions and in return the EU agreed to change its banana import regime from the existing tariff-rate quota system to a tariff-only system by January 1, 2006.

The EU Trade Commissioner, Pascal Lamy, announced that the policy would be changed and assured equal access to the European banana market. The new agreement came into effect in July 2001. Under the agreement Chiquita was allowed immediate access to EU markets. It has been suggested by Dole Food Co., a major competitor, that the preferential treatment accorded to Chiquita may have been a result of the substantial campaign contributions given by the company to Democrats and Republicans during the 2000 election cycle.

Subsequently, at the November 2001 Ministerial Conference in Doha, two Ministerial Decisions were adopted that formalized the agreement. These were for a transitional EU import regime for bananas and for the introduction no later than January 1, 2006, of a tariff-only regime that would result in at least maintaining total market access for MFN (most-favored nation) banana suppliers. The Ministerial Decision also spelled out the procedures and timetable for possible arbitration in the event the EU was unable to reach an agreement with the banana-supplying countries on the new tariff-only system.

In January 2005 the EU proposed a new tariff of €230 per ton. This was not agreed to by the Latin American countries. A WTO arbitration panel ruled that the tariff would not maintain access for these countries. The tariff was revised to €176 per ton and a 775,000-ton tariff quota on imports of bananas of ACP origin, but the parties could still not agree, so a second arbitration was requested. The arbitrator concluded that the EU had failed to rectify the matter. On January 1, 2006, the EU unilaterally introduced its own regime.

On March 21, 2007, Colombia requested further consultations, stating that the application of the banana import regime still entailed discrimination between ACP bananas and MFN bananas. Subsequently, the Disputes Settlement Body (DSB) has ruled that the EU has maintained measures inconsistent with different provisions of the GATT 1994. The panel recommended that the DSB request the European Communities to bring the inconsistent measures into conformity with its obligations under the GATT 1994.

Bibliography:

Borrell, “No One Can Afford a New Banana Drama,” Financial Times (April 20, 2004);
Bounos, “Banana Wars,” Latin Trade (v.9/6, 2001);
Meyers, Banana Wars: The Price of Free Trade. A Caribbean Perspective (Zed Books, 2004);
WTO, “Dispute Settlement: Dispute DS361 European Communities—Regime for the Importation of Bananas, 2008,” www.wto.org (cited March 2009);
WTO, “Hong Kong WTO Ministerial 2005: Briefing Notes. Bananas: Discussions Continue on a Long-standing Issue, 2005,” www.wto.org (cited March 2009);
WTO, “WT/DS27/RW/USA, 2008,” wto.org (cited March 2009).

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