Bananas: WTO Rules Against EU

12 April 1999

The WTO last week ruled that the EU has not complied with a 1997 WTO ruling against its banana import regime, and in a parallel ruling found the U.S. could claim US$191 million in damages from lost banana trade. The WTO in January agreed to establish a dispute settlement panel to decide whether the EU had gone far enough in its revised banana import regime to comply with the spirit of a 1997 WTO Panel ruling. (See BRIDGES Weekly Trade News Digest Vol. 2, No 44, 16 November, 1998.) The WTO Dispute Settlement Body (DSB) established the panel in response to
separate requests from Ecuador (one of five complainants - along with the U.S., Mexico, Honduras and Guatemala - in the case against the EU), and from the EU itself. (See BRIDGES Weekly Trade News Digest Vol. 3, No. 1-2, 18 January 1999.)
The EU has said that it reserves the right to appeal last week's ruling.

The requests by the EU and Ecuador were both made under Article 21.5 of the WTO Dispute Settlement Understanding (DSU). Article 21.5 specifies that if one country disagrees with another countries' approach to the implementation of a DSB ruling, the disagreement "shall be decided through recourse to these dispute settlement procedures, including wherever possible resort to the original panel."

The panel found that the revised EU banana import regime violates Articles XIII, Paragraphs 1&2 (import restrictions) of the General Agreement on Tariffs and Trade (GATT), as well as GATT Article I (most-favoured-nation treatment), and also with GATT Articles II and XVII (most-favoured-nation status and national treatment.)

As part of its request to the Dispute Settlement Body, Ecuador asked the panel to suggest measures the EU could take to bring its banana import regime into compliance with WTO rules. The panel recommended three possible choices for implementing its ruling, including a tariff-only scheme, which could include a preferential tariff for ACP bananas; a tariff-quota for ACP bananas under a WTO waiver; or country-specific quotas possibly combined with duty-free treatment for ACP bananas.

In a parallel ruling, the panel determined that the U.S. damages incurred from lost banana trade is worth US$191 million annually. This figure is significantly less than the original list of US$520 million worth of goods the U.S. had targeted. The U.S. said the ruling allows it to impose punitive sanctions against EU imports immediately,
retroactive to 3 March. It is expected to request authorisation to impose sanctions when at the next meeting of the DSB.

Caribbean reaction to the ruling continued to criticise the U.S. for pressing on in the case. Jamaican Prime Minister Percival Patterson accused the Clinton Administration of reneging on previous promises. "We were given the most explicit assurance that some solution was going to be found for this impasse, in a way that would not be to the detriment of the Caribbean. But to date we have not seen that assurance implemented in practice," Mr. Patterson said. Edison James, Prime Minister of Dominica encouraged the EU to appeal the WTO ruling. "The banana arrangement is a treaty obligation which the EU has under the Lome Convention, and this is legally binding," Mr. James said. Former St. Lucia Prime Minister Sir John Compton last week called on Caricom leaders to convene a high-level Caribbean delegation to hold talks with the U.S. and EU on the banana issue. Caribbean growers estimate their banana exports account for account for only 7% of world banana exports and 20% of EU imports.

Panamanian Minister of Trade and Industry, Raul Hernandez has hailed the WTO decision as "a triumph for the multilateral system." Hernandez says his country had lost a US$ 1 billion in the sic years during which the EU had applied its quota system. Hernandez' tone contrasted with that of Costa Rican Deputy Minister of Foreign Trade, Anabelle Gonzalez, who said her country was taking a "wait and see" attitude with respect to the impact of the WTO decision on exporting countries in the region.

In its concluding remarks the panel on Article 21.5 noted, "We recall that the fundamental principles of the WTO and WTO rules are designed to foster development not impede it. . . The
WTO system is flexible enough to allow, through WTO-consistent trade and non-trade measures, appropriate policy responses in a wide variety of circumstances across countries, including countries that are heavily dependent on the production and commercialisation of bananas."

The report is available via the WTO website, at http://www.wto.org/wto/dispute/distab.htm

"US exults but penalties are less than expected," JOURNAL OF COMMERCE, 8 April 1999; "Brittan reacts To WTO arbitrator's report," EU PRESS RELEASE, 7 April 1999; "Jamaica says Clinton reneged on bananas," JOURNAL OF COMMERCE, 6 April 1999; "Jamaican leader assails U.S. 'war' on bananas," DOW JONES, 21 March 1999; "EU banana damage to U.S. set at $191 million," IPS, 8 April 1999; "Confidential WTO report rejects EU banana regime, suggests changes;" "Text: WTO Banana Panel Conclusions;" INSIDE US TRADE, 9 April 1999; "WTO hits EU over banana import system," THE HERALD (St. Vincent-Grenadines), 8 April 1999; "Former Prime Minister calling for talks with the U.S. and European Union," THE HERALD (St. Vincent-Grenadines), 12 April 1999; "U.S. to seek WTO sanctions go-ahead against EU in banana row on April 19," AGENCE FRANCE-PRESSE, 8 April 1999; "Guerre de la banane: l'OMC donne gain de cause aux Etats-Unis," LES ECHOS, 8 April 1999; TRADE-LATAM: Banana growers have mixed feelings over WTO ruling," IPS, 8 April 1999.

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