Yes, We Sell No Bananas

November 23, 1998 • Commentary

If a bottle of Bordeaux costs more than usual next year, you can thank the Clinton administration. French wine is just one of a bunch of European exports potentially subject to tariffs in retaliation for the European Union’s failure to comply with a World Trade Organization ruling on banana imports. Europe may be guilty, but the U.S. threats are an ill‐​conceived response that could undermine the world trading system.

The whole situation might be funny if it weren’t so serious. After all, the United States doesn’t even sell bananas to Europe. At issue is a system of preferences for former European colonies in the Caribbean and the Pacific that Washington thinks unfairly discriminates against Central American banana exports. The facts of the case support that claim, and in 1997 the WTO ruled — on appeal — that the EU banana regime was inconsistent with free‐​trade rules.

This is where things get sticky. The European Union says that changes to its preference system are forthcoming and that it will comply with the WTO decision by January 1. Washington disagrees, noting that the proposed EU scheme wouldn’t significantly alter the current system of awarding import licenses. Thus, the United States is threatening a unilateral retaliatory tariff of over 100 percent on various European products.

European leaders are puzzled by the severity of the administration’s threats. U.S. Trade Representative Charlene Barshefsky said Europe’s banana import barriers could lead to a “major confrontation.” No hyperbole there: the tariffs would disrupt an estimated $1.6 billion of transatlantic trade.

By allowing special interests to drive U.S. trade policy, the administration and Congress risk crippling the world’s multilateral trading system.

The fierce rhetoric about such a seemingly trivial issue has caused many observers to question the motivation behind it. European officials note that the administration lodged a complaint with the WTO last year within 24 hours of a decision by Carl H. Linder Jr., chairman of Chiquita, to make a large donation to the Democratic Party.

But whatever the motivation, there are several reasons why the current U.S. strategy is misguided.

First, the harsh rhetoric isn’t likely to work. Indeed, officials in Brussels are already showing defiance. “No WTO member has the right unilaterally to judge the compliance of another, nor to be judge and jury in its own cause,” said European Trade Commissioner Sir Leon Brittan. “If the United States persists with such unilateral action, the EU will have no choice but to take rapid steps to challenge it in the WTO.”

Unfortunately, Europe’s response isn’t likely to be limited to a WTO challenge. Asked whether by the EU would back down from the threat of an all‐​out trade war, a spokesman for European Commission president Jacques Santer said that the EU was completely ready to take any necessary actions.

Second, as even most fans of aggressive brinkmanship admit, this is a terrible time to be contemplating new trade barriers. It’s bad enough that the U.S. economy may soon take a hit for the benefit of a few steel and semiconductor firms. Endangering U.S.-EU trade on behalf of mammoth fruit companies is another step down that slippery protectionist slope. And by allowing such special interests to drive U.S. trade policy, the administration and Congress risk crippling the world’s multilateral trading system.

Mr. Santer described that danger in a recent letter to Bill Clinton. “The consequence of the U.S. pursuing its unilateral action against the EU,” he wrote, “would be serious damage to the entire multilateral WTO system as well as to the agenda for positive EU-U.S. cooperation.”

Finally, aggressive saber rattling isn’t Washington’s only — or its best — available option. Instead of disciplining Europe at the expense of U.S. consumers and importers, the administration should seek to negotiate compensation through the WTO’s regular dispute settlement channels. If the ultimate goal is open markets, compensation would be a step in that direction, allowing Washington to take a firm line without shooting itself in the foot.

If anything, the banana dispute illustrates the need for a change in the overall U.S. trade strategy. If Europe insists on clinging to self‐​destructive economic policies, let it. It is ludicrous for America to threaten to close its markets for the benefit of a few politically favored firms. A much better strategy would be to lead by example: to enjoy the benefits of open trade regardless of the folly of others.

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