The US-EU Agreement to Resolve the Banana Dispute

On April 11, 2001 the US and the EU reached an agreement (the "Agreement") in the decade-long dispute over the EU's banana import regime.  The Agreement requires the EU to abandon its proposal to institute on July 1 a "first-come-first-served" licensing regulation and to move in 2 stages to a tariff-only system by 2006.

 

In the first stage, beginning July 1, the EU will institute a transitional "historical reference" licensing scheme that will allocate licenses for 83% of two tariff-rate quotas (TRQ's "A" and "B") to  "primary operators"- companies that own the bananas brought in for sale in the EU - based on their market share during the period 1994-96. The remaining 17% of TRQs "A" and "B" will be reserved for so-called "non-traditional" or "new comer" operators. A third TRQ- "C"- will be created exclusively for ACP bananas.  ACP countries are former colonies in Africa, the Caribbean, and the Pacific. Chiquita Brands International, the US company that filed the section 301 petition that led to the WTO case, is among the primary beneficiaries of this transitional licensing scheme.  Operators in Ecuador are expected to lose licenses. 

 

In the second stage the EU will transfer 100,000 tons of bananas from TRQ "C"- which is reserved for ACP bananas- to TRQs "A" and "B"- which are open to bananas imported from Latin America.  Chiquita, whose plantations are in Latin America, is a primary beneficiary of this second stage as well.

 

For its part the US agreed to suspend as of July 1, and later remove, the approximately $200 million in sanctions on EU exports approved by the WTO.  The US further agreed to join the EU in seeking a waiver of WTO rules prohibiting the discriminatory administration of import restrictions based on country of origin.  This rule is found in GATT Article XIII.  The waiver is necessary to allow the EU to continue to reserve the TRQ "C" exclusively for bananas from ACP countries.

 

The US also agreed to drop its opposition to a waiver of WTO rules on non-discrimination found in GATT Article I that the EU needs for the Cotonou Agreement- the successor agreement to the Lomé Convention.  These agreements provide special trade benefits to ACP countries.

 

The Agreement, while hailed by both sides as a felicitous conclusion to a dispute that threatened transatlantic relations, still faces several hurdles.  First and foremost, it must be approved by the European Council of Ministers.  Approval is considered likely, but not certain given the complexity of the Agreement and the long-running disagreement among member states over banana trade policy.  The endorsement by the European Parliament, while not legally required, also will be sought. 

 

A higher hurdle is gaining the approval of Ecuador. Like the United States, Ecuador challenged the EU banana regime in the WTO and obtained WTO authorization in March 2000 to impose sanctions. So far Ecuador has refrained from imposing sanctions but this week pointedly announced that it retains the right to do so at any time. More significantly, on April 17 Ecuador requested formal consultations in the WTO with the EU  to discuss its complaints about the US-EU deal and warned that if  a mutually satisfactory solution is not achieved it will request the establishment of a WTO panel under Article 21.5. According to Ecuador, the  Agreement is "flagrantly WTO incompatible" and  places Ecuadoran operators at a competitive disadvantage vis-a-vis US operators.  Ecuador is known to favor the first-come first-serve system that was scrapped as part of the Agreement. Ecuador also opposes the waiver of GATT Article XIII and has said it expects other WTO members to join in its opposition. EU officials acknowledge that it may be necessary for the EU to offer concessions to Ecuador to secure its support for the new system. 

 

Even if approved by all parties and duly implemented, the Agreement will not end all legal action over bananas.  Chiquita has said it will not drop its 2001 lawsuit against the European Commission in the European Court of Justice in which it is seeking $525 million in damages allegedly done to its business as a result of prior banana import restrictions. 

 

Nevertheless, implementation of the Agreement is expected to have important, beneficial, consequences for transatlantic relations.  Most immediately, it removes the risk that the US will trigger an EU complaint in the WTO by instituting the controversial "carrousel" approach to retaliation.  Under the carrousel approach, mandated by Congress but never implemented by the Clinton Administration, the US would periodically alter the products against which it imposed retaliatory duties. The EU has said it would challenge in the WTO any such product rotation. 

 

More importantly, the Agreement is seen as an indication of a new commitment on the part of the US and the EU to work together to resolve trade disputes - a commitment which both sides hope will lead to similar breakthroughs in the disputes over the EU's ban on US hormone-treated beef and the US Foreign Sales Corporation tax. This latter case, it is widely acknowledged, was brought as a means of gaining leverage in the banana case.

 

Finally, and perhaps most significantly, the Agreement is seen by both sides as laying the foundation for a joint EU-US effort to launch a new WTO round of trade-liberalizing negotiations later this year. 

 

About the Author: Eliza Patterson is a trade lawyer currently working for the Washington Office of the Port Authority of New York and New Jersey and can be reached at ERPatterson@msn.com. She graduated from Harvard Law School in 1975.