28 January, 2008: The U.S.-EU dispute over the trade of bananas induced funny headlines in the 1990s such as Banana Wars, Banana Split, or Going Bananas. But the dispute was no laughing matter and it raged on in the bureaucratic channels of the WTO for seven years.

It all starts…

…with the peeling of 2.5 billion tons of bananas a year. The seven year long trade dispute over bananas started with complaints filed from the U.S. that the EU was giving banana producers from former colonies in the Caribbean special access to European markets, thus braking free trade rules.

EU’s Banana Policies

Seemingly a natural extension of the EU’s 1992 import policy for the Single European Market, 1993 saw the creation of a regulatory regime for imported bananas. That regime was impactful because the European Union is a very significant player in the world banana trade, importing about a third of all traded bananas—about the same amount as the U.S., but more than three times as much as the third biggest importer, Japan. The European Union has the only major managed banana market in the world. The U.S. and Japan, for example, allow bananas in freely, without any tariffs and with no limits on volumes imported.

By choosing to manage their markets, the EU had established the foundation of a dispute that would last the better part of the decade that followed. For in managing their markets, the EU had elected to overwhelmingly give favor to domestic producers and former European colonies over producers in Central and Southern America.

While largely a battle between the U.S. and the EU, the first legal challenge was brought not by the US, but by five Latin-American banana-producing countries (Colombia, Costa Rica, Guatemala, Nicaragua, and Venezuela). They initiated GATT dispute settlement proceedings in June 1993. The GATT panel ruled in January 1994 that the EU regime was GATT-illegal.

The ruling lacked any enforcement mechanism but established a figurative line in the sand. In 1995, the U.S. was joined by Guatemala, Honduras, and Mexico in bringing the dispute to the WTO; the EU exemptions granted under the Lome Convention would be a focal point of what was legal. Ultimately, the WTO sided against the EU and with the 1994 GATT panel ruling, finding the established banana regime to be discriminatory and also expanding on violations of GATT not originally noted in 1994.   

Rather than dismantle the banana regime, the EU sought to modify it in 1998 to the chagrin of the U.S. (which was unable to get a definitive, immediate WTO response on the new regime). In retaliation, the U.S. “announced in November 1998 a preliminary list of EU products that would face prohibitive tariff duties of 100 % ad valorem if the EU failed to implement a WTO-consistent banana regime by January 1, 1999. In mid January, (with the EU having failed to implement what the U.S. regarded as a WTO-consistent banana regime) the U.S. requested authorization to impose retaliation in the amount of $520 million—the estimated annual economic loss of U.S. exports and profits for U.S. suppliers as a result of the EU failure to comply with the panel rulings. The U.S. cited Article 22.2 of the WTO’s Dispute Settlement Understanding that allows a complainant to request authorization to retaliate 20 days after the deadline for implementation imposed by the panel—in this case January 1, 1999.”

When eventually the WTO sided with the U.S. again, the cycle began anew, with the EU again attempting to reframe the regime in 1999, drawing the ire of the U.S. who “rejected this proposal as equally WTO-inconsistent as were the two former banana regimes. Frustrated by what it considered was the EU’s failure to comply with the series of WTO rulings against its banana regime, the U.S., in early 2000, began to consider a novel and controversial approach to retaliation. Under the so-called ‘carousel approach’ the U.S. would periodically alter the products against which it imposed retaliatory duties.”

The EU countered the U.S. strategy by arguing:

• That the U.S. action discriminated against imports from EU countries and imposed charges in violation of various provisions of the General Agreement on Tariffs and Trade 1994;
• That the United States violated various provisions of the WTO Dispute Settlement Understanding by acting against the EU before WTO proceedings were complete; and
• That the United States and the Bananas arbitrator failed to follow procedural rules, rendering all U.S. Bananas tariffs WTO-inconsistent.

Ultimately, these appeals by the EU were rejected by the WTO and the U.S. was green lighted to pursue their own tariff policy.

April 2001 Agreement

This would ultimately be the final round in the banana battle before substantive negotiations brought both the EU and the U.S. to the table for a final solution.  In this final round, the two sides established mutual interestsin:

• Reaching agreement on a WTO-compliant system;
• Ensuring fair and satisfactory access to the European market for bananas from all origins and all operators; and
• Protecting the vulnerable African Caribbean Pacific (ACP) producers.

With those interests in mind, an agreement was reached that allowed for a five year transition to a tariff-only system and established that during the five years bananas would “be imported into the European Union through import licenses distributed on the basis of past trade.” That agreement has remained in place through to the status quo.

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Next Week: "Temelin"
Two Soviet designed nuclear reactors in Temelin, Czech Republic aroused concern primarily because of its proximity to other countries. Situated only 100 km from the Austrian border, nuclear fallout stemming from the Temelin reactors would have devastating transboundary effects. The Austrian government, along with the Austrian based environmental group, Global 2000 and Greenpeace actively lobbied the U.S. congress, the Nuclear Energy Commission, and then Vice President Gore to block the ExIm loan, which financed the building of the reactors.