By Mikah Lightner, Matt O’Mara
The
item at the center of the most heated international dispute in World Trade
Organization (WTO) history is unrelated to defense, to technology, or even to
petroleum. Rather, the battle rages
over a seemingly innocuous soft fruit—the banana. The Banana Trade War recently has become a hot political issue,
but it is actually in its sixth year.
Ironically, the loudest dissenters, the United States and the European
Union, do not even produce bananas for mass trade.
The disputed issue is an EU trade
practice of giving preference to its former colonies and current possessions in
Africa, the Caribbean, and the Pacific region (ACP). Neither side has clean hands.
The U.S. government is responding to a massive lobbying effort by
Chiquita Brands International, whose banana business is cramped by the EU trade
policy. The EU’s protectionist trade
method has been condemned by the World Trade Organization and, in reality, its
policy has largely benefited European banana traders who import preferentially-treated
ACP bananas.[1]
The issue has become so contentious
that it threatens the stability of the fledgling WTO. Some may scoff that a fruit has polarized international
superpowers. However, the banana trade
is an important industry, worth $8 billion a year[2]. Bananas are the world’s most popular fruit
and the fourth most important staple food.
They are also a key income source for at least 15 Caribbean and Latin
American countries.
The following paper serves to analyze
the political context and effects of the banana trade war and proposes a
workable solution. Part One provides a
detailed chronology the disputed EU banana trade regime. Part Two discusses the banana industry in
light of the history of colonialism in the Caribbean and Latin America; additionally,
it pinpoints key differences in growing conditions between the two regions and
explains how these differences affect production costs. Part Three analyzes the issues brought up by
the different sides in the dispute.
Part Four concludes by proposing a solution to the WTO that can
equitably accommodate the interests involved, particularly the interests of the
vulnerable developing nations.
Part One: The Six Year Banana Split
I. Establishment of the Banana Regime
The establishment of the EU banana
import regime is concurrent with the formation of the single European market in
July 1993. The regime made an Internal
Market of bananas out of the conglomeration of national agreements previously
in place. Before 1993, Europe was
fragmented in its importation of bananas, with each country following a
separate trade policy.[3]
The Lomé Convention, a major trade and
aid pact between European nations and 71 former ACP colonies, bound some
European governments to protect the bananas of their former colonies. Under the Lomé Convention Banana Protocol,
Britain bought most of its bananas from the Windward and Leeward Islands and
Jamaica, France from Martinique, Guadeloupe, and Cameroon, Portugal from
Madeira, Spain from the Canary Islands, and Greece from Crete.[4] Other European countries imported mainly
larger and cheaper bananas harvested by multinationals in Central and South
America.
II. Mechanics and Impact of the Regime
Through a complicated system of tariffs
and quotas, the original EU banana regime gives special duty-free import
privileges and guaranteed import quotas to companies exporting bananas from
members of the Lomé Convention.
Exporters of Latin “dollar” bananas, on the other hand, are subject to a
rigid tariff quota. The system preferentially
awards import licenses to companies that historically have exported ACP
bananas, which are, of course, European companies.
After the banana regime was instituted,
EU countries that previously had imported the “dollar” bananas saw their banana
prices rise by about 50 percent. In
countries such as Germany, which consumes a third of all EU banana imports, the
regime was not widely accepted. In
fact, Germany has opposed the regime from its beginning.[5]
Before the EU imposed the banana
regime in 1993, non-European export companies controlled 95% of the European
banana market. Since then, the European
market shares of American-owned companies like Chiquita and Dole have fallen by
50%.[6] Considering that Europeans consume the
largest portion of the world’s bananas and account for 40% of the total world
banana exports, this is not small change.[7] Hardest hit has been Chiquita, which has
seen negative revenues in four of the past five years. Chiquita officials insist the decline is a
result of being denied access to the European market.[8] Chiquita claims the EU’s system of quotas
and tariffs on Latin-American produced bananas have cost the company $400
million.[9]
III. Politics and Formal Complaints
Soon after the banana regime began,
Chiquita became vocal and persistent in its complaints. The company’s CEO, Karl H. Lindner, poured
money into Republican and Democratic political campaigns. Former Senate Majority Leader Bob Dole flew
on Lindner’s private jet during his presidential campaign, and the Clintons
gave Lindner an overnight stay in the Lincoln bedroom.[10] After the EU failed to comply with two GATT
rulings against its banana regime, the U.S., Mexico, Ecuador, Guatemala and
Honduras filed complaints to the World Trade Organization (WTO). Within 24 hours of the U.S. announcement
that it would challenge the regime to the WTO, Lindner made a $500,000 donation
to Democratic parties in Southern States.[11]
IV.
World Trade Organization Involvement
In May 1996, the WTO formed a panel to
investigate the European regime. A year
later, the panel found the EU in violation of WTO trade rules on sixteen
counts. According to a report by the United States Trade Representative, the
problematic aspects of the regime included:
1)
the EU’s assignment of import licenses for Latin American
bananas to French and British companies (whose previous business had been
limited to the distribution of European, Caribbean and African bananas only),
which took away a major part of the banana distribution business U.S. companies
had developed over this century;
2)
the EU’s assignment of import licenses for Latin American
banana ripening firms (which did not typically import bananas), further taking
away business from U.S. companies;
3)
the EU’s imposition of more burdens on licensing requirements
on banana imports from the Latin American co-complainants than for any other
countries;
4)
the EU’s discriminatory and trade-distorting allocation of
access to its market for bananas, which departed from the fair-share standard
of the WTO (focusing on past levels of trade).[12]
The
EU subsequently appealed parts of the panel’s findings. Six months later, on September 26, 1997, the
WTO’s Appellate Body rejected many of the EU arguments in their appeal. The WTO then gave the EU 15 months (until
Jan 1, 1999) to change the regime and bring it into compliance with the 1996
ruling.
V. Changes But No Resolution
On July 28, 1998, the EU announced
changes to its banana regime that it claimed comply with WTO rulings;[13]
however, the reformed plan retained the contested separate quota system for ACP
traditional banana suppliers and “dollar” bananas.[14] Immediately, the U.S. claimed that the
changes were purely cosmetic and rejected them outright. One U.S. official in Brussels said, “The EU
has put their regime in a new box, put some ribbons on it and said, ‘Look, a
new system.’”[15]
Into 1999, the EU maintains that its
regime is now in compliance with the WTO’s 1997 ruling and, per the changes
made, that the WTO should re-review the regime. The U.S. insists the changes still do not comply with the ruling
and has sought WTO authorization to increase trade tariffs in an amount
equivalent to the harm caused by the EU regime.[16] The WTO has called for the U.S. to delay
action until a panel can determine whether the EU’s banana trade policy is
still discriminatory and whether compensation should be paid.[17]
VI. U.S.-Imposed Trade Sanctions
On
March 3, 1999, the Clinton administration ignored the WTO’s call to delay
action and imposed punitive 100% trade tariffs on European imports to the
United States. The estimated worth of
the tariffs is $250 million. According
to the U.S., this approximates the amount of banana trade lost by American companies
because of the regime;[18]
however, none of the goods targeted have anything to do with bananas, ranging
from Luis Vuitton handbags, to coffee makers, to communion wafers. (For complete list, see Chart 1 in
Appendix).
U.S. officials explained that there was
a method to composing the list of items hit—they wanted to spread the pain
strategically to maximize the political pressure placed on the EU, and they did
not want to target exports that would hurt American companies. Products from Denmark and the Netherlands
were excused from the tariffs because those countries have sided with the
United States on the banana issue.[19]
VII. Current Situation
Currently, the WTO is meeting in Geneva
to attempt to resolve the trade dispute.
The U.S. can not collect on the sanctions it has imposed without WTO
approval. The EU’s trade minister has
called the U.S. tariffs “unacceptable and unlawful” and accuses the U.S. of
jeopardizing the jobs of “people who have nothing whatsoever to do with
bananas.” Trade ministers in Britain,
France, and Italy, the countries hardest hit by the sanctions, have voiced
similar condemnations.[20]
Part Two: Bananas and a History of Colonialism
I. Colonialism and Banana Production
Throughout the development of the
banana trade war, the nations that actually produce the bananas have been
largely ignored. After exploring the
historical roots of banana production, this is not surprising. To tell the history of bananas is to tell
the history of colonialism.
The rise of the ACP banana market in
the 1900s parallels the height of Europe’s colonial expansion. European countries introduced bananas into
their colonies in semi-tropical regions in order to secure a regular supply of
the fruit; the nation-colony alignments have lasted into the present. Although much of colonialism was
exploitative, some positive outcomes did occur.[21] The establishment of banana industries gave
colonies a relatively constant source of income and also worked to underpin the
plantation culture.
In place of huge estates run by a
centralized management with forced labor, small 5-acre banana plots were leased
to farmers, who were encouraged to be “owner-occupiers,” working for
themselves. Under specific
nation-colony trade agreements, the banana crop became so successful that true
“banana republics” were formed. Many
ACP nations now depend on the fruit for up to 60% of export earnings and a
third of all employment. In fact, most
have become so dependent on the economic vitality of the banana that they are
considered one-product economies (See Graph 1, Appendix)[22]. This was not problematic until the
protectionist trade arrangements with European nations began to be torn down.[23]
The history of banana production in
Latin America is tied to a different type of colonialism. As U.S.-owned companies “crypto-colonized”
across Central and South America, they built roads and railways and bought up
the surrounding virgin forest to plant bananas. Soon the trains were fully utilized and the United States had its
own guaranteed supply of bananas.[24]
A strict plantation presence was
established, managed by the United Fruit company. The U.S. government has played a major role in assisting its
American multinational companies in their ultimate domination of the Latin
American banana industry. During
political coups in Honduras and Nicaragua in the early 1900s, the U.S. Navy
invaded to guard the docks of the fruit companies. In 1954, the CIA, with the support of Eisenhower administration,
overthrew a leftist democratic government in Guatemala and replaced it with a
government more friendly to the American-owned fruit companies.[25]
Not ironically, the company most vocal
in the banana dispute, Chiquita, is the corporate successor to the United Fruit
Company. Despite serious human rights
violations, like $3 a day wages and unabashed use of dangerous pesticides,
Chiquita’s U.S. trade standing has never been in jeopardy, nor is the company
pressured to bring its labor conditions above slave status. Today, the Latin American banana industry is
markedly controlled by multinational corporations, who manage huge plantations,
control shipping and ripening plants, and are large enough to be considered
monopolists within the banana trade.
Struggling against the multinational
control of their most profitable industry are the independent Latin American
banana producers. Stronger governments
in some Central and South American nations have been able to withstand pressure
by the multinational companies and foster nationally operated banana companies. In Ecuador, historically the EU’s largest
banana exporting country, the banana industry is controlled by Ecuadorians,
100% in production and 80% in marketing.
More than 1.2 million Ecuadorians, or 10% of the population, depend on
the banana industry for their livelihood.[26] According to Alfredo Pinoargote, Ecuador’s
ambassador the EU, “For too long, discussion about the rights and wrongs of the
EU Banana Regime [has] focused exclusively and wrongly on the implication for
the African, Caribbean and Pacific (ACP) states. But Latin American
countries…are also developing countries.
We also depend heavily on our trade in bananas with the EU in order to
maintain our economy. This has not been recognized by those intent upon shoring
up the current, unfair, EU regime.”[27]
However, most of the Latin American
countries who filed WTO complaints do not object to the principle of Lomé
preferences for ACP bananas to export bananas to the EU at zero tariff. They do object to the licensing allocation
system, which determines the volumes of bananas allocated to different
operators. This system has transferred
import license entitlement to those privileged European companies that control
ACP and EU trade of bananas. In doing
so, it has cost independent banana producers like the Ecuadorians millions of
dollars because it has made it extremely expensive for them to access the
European market, a market in which they were previously successful.[28]
II. Differences between Caribbean and Latin American Banana-Growing Structures
There are inherent differences in
the conditions in the Latin American countries and the Caribbean nations that
make the Latin American bananas better and cheaper. Many factors play a part in this inequality, including the
terrain, the fertility of the soil, the geographic location, the organization
of the farms, the treatment of workers, and the size of shipping. See Chart[29]:
Caribbean Countries
|
Central and South American Countries
|
|
Growing
areas hilly or mountainous; Limited
Land Availability |
Large
Flat Plains; Wide
Land Availability |
|
Poor
Soil Conditions and low yields; (not
more than 10 tons/acre) |
Rich
soil and high yields (18-24
tons/acre) |
|
Subject
to Hurricanes |
Hurricanes
are rare |
|
Majority
are independent, small farmers |
Largely
a plantation agriculture, often owned by Multinationals, and vertically
integrated operations |
|
Higher
wages |
Wage
rates low, social conditions poor |
|
Shipping
costs higher, smaller volumes, more port calls |
Lower
shipping costs due to larger volumes |
The terrain in Latin America is widely
available and is made up of large flat plains.
In contrast, the Caribbean island nations have limited land that is not
ideal for growing because of its hilly and mountainous makeup. Additionally, the soil in Latin America is
much more fertile, allowing almost twice the banana yields as produced in the
Caribbean. The geographic location
plays a part because hurricanes are much more common in the Caribbean than in
Latin America.
The organization of farms is a
significant factor in determining production costs: the larger, multinational, vertically integrated operations in
Latin America are able to reduce costs and take advantage of economies of scale
that do not exist in the current Caribbean banana farming structure. Moreover, the catastrophic human rights
abuses by multinational corporations in Latin America contribute to the
cheapness of their bananas. The workers
are paid nearly nonexistent wages and work under abominable conditions, while
Caribbean workers are paid fair wages and many are actually land-owners. Latin American bananas can be harvested for
$162/ton; whereas bananas in the Windward Islands cost closer to $500/ton to
harvest.[30] The wage differential has an obvious
connection to the supposed “cheapness” of the Latin American bananas. Additionally, the lower shipping costs (due
to higher volumes of bananas shipped as well as fewer port calls) deflate the
price of Latin American bananas produced by multinational corporations.
Part Three: Issues Breakdown
I. The Sides and
The Stakes
At stake in the banana dispute is the welfare of the banana-dependent
ACP and Latin American nations, the profits of American and foreign banana
producers, and the future of the WTO, with respect to trade dispute
settlement. News reports have
characterized the two sides of the dispute as being the U.S., which is “supported
by Honduras, Guatemala, Mexico, and
Ecuador,” and the EU, which also “represents” the interests of the ACP
nations. Of course, the policies of the
U.S. and the EU do not fully encompass the interests of all parties
involved. As discussed above, many
independent Latin American farmers do not side with the multinational interests
of the U.S. and even support some aspects of the EU banana regime. On the other hand, some Caribbean farmers no
longer want to be dependent on the paternalistic policies of the EU.
The U.S. claims “free trade” as its
platform. It has called for the
liberalization of trade and an end to the EU’s protectionism of former colonies
and discrimination against Latin American banana producers. The EU has claimed that its trade policies
are required for the development of the Caribbean countries. Without their protectionism, the Caribbean
nations’ one-product economies would collapse and the countries would be
induced to rely more heavily on the drug trade.[31]
The EU’s policy does help to maintain the economies of ACP nations, but it also creates an unsustainable dependency. The EU has essentially guaranteed the consumption of a fixed number of ACP bananas. This favoritism allows an inefficiently produced product, the Caribbean banana, to sell for a relatively low price. Consequently, ACP banana producers have been able to make profits with little investment in improving efficiency. Furthermore, because the bananas are guaranteed, more and more Caribbean people have turned to producing these fruit. As a result the economies of these countries have become increasingly dependent on one good, a risky position. Compounding problems of the ACP nations is their inability to compete with Latin American agriculture. Most agricultural products that grow in the Caribbean grow better in Latin America due to the scarcity of hurricanes, the wide land availability and the rich, fertile soil.[32]
The
U.S. idea to liberalize trade would cause the overall banana market to become
more efficient. This would mean lower
banana prices for consumers, particularly European consumers who now shoulder
the $2 billion cost of the regime[33]. Theoretically, freer trade would also create
more competition among suppliers. At
the same time, it would end trade discrimination against banana producers in
developing Latin American countries.
Potentially, this could allow
independent farmers to compete more effectively with large multinational
corporations for market share in the EU.
Without the regime, the independent producers would not have to absorb
the large import tariffs, which affect them much more heavily than they do the
larger multinational corporations. In
the long term, an end to protectionism and an opening of trade barriers would
force ACP nations to abandon their risky one-product economies and diversify
their economic position. They would
also be forced to make their existing production processes more efficient.
However beneficial, the problems associated with the U.S.-backed “free trade” ideas are serious. An immediate end to the EU banana regime would have disastrous consequences for the economies of ACP nations. Unfortunately, one viable option for the Caribbean countries is black-market drug production. Currently, marijuana gets 30 times more per pound on the market than bananas[34]. Many Caribbean leaders forecast that a collapse of their banana business may lead to an explosion in the drug trade[35].
At the same time, unrestricted free trade would probably lead to increased monopolization of the banana trade by huge multinational corporations such as Dole and Chiquita. The human rights violations associated with these companies would likely worsen, and the companies would become monopolist price-setters. This could adversely affect the independent Latin American producers, who are currently struggling to compete with the multinationals.
II. The Profits of
Banana Producers
Two companies have the highest stake
in the banana dispute: Chiquita Brands and Fyffes. Chiquita Brands, an American company claims the EU’s banana
regime has caused the company to lose millions of dollars. Chiquita President
Steve Warshaw claims that Chiquita, once Europe’s top banana supplier, has seen
the volume of its European sales decline by 50%. In addition the European banana regime has cost 4,000 American
Chiquita employees their jobs as well as resulting in over $1 billion in lost
profit[36].
While
Chiquita has been the biggest loser, Irish banana supplier Fyffes has been the
biggest beneficiary of the EU’s preference towards ACP produced bananas. In
recent years, it has surpassed Chiquita as the largest supplier of bananas to
the EU and has grown to become the fifth largest banana exporter in the world.
In one interview, Fyffes CEO David McCann said, “What Fyffes is most interested
in is a stable marketplace. It’s true
to say that a quota system provides stability in a marketplace.” As a result of this “stable marketplace,”
the company has seen constant profit growth in the double-digits over the last
twenty years, increasing by 15% in 1997 alone[37].
III. The Future of
the WTO
The banana trade war has placed the
recently formed WTO in a risky situation.
The banana issue is the first major trade battle that the WTO has
attempted to mediate, and it will be a test to see how much power the
organization will be at solving trade disputes in the future. One problem the WTO has encountered is that
it does not specify what governments need to do to comply with its rulings. As a result, countries are able to
continually delay compliance, like the EU has done in the banana dispute. In addition to the EU, other countries are
taking advantage of this flaw in WTO procedures, including Canada (in effort to
keep American magazines out) and the U.S. (in a refusal to lift an import ban
on shrimp caught with nets that trap turtles).
Clearly, if these major countries do not comply with WTO rulings, the
WTO will be an ineffective mechanism for trade dispute settlement. As explained by Peter Scher, chief American
negotiator on agricultural trade, “You can’t have selective compliance with WTO
rules because that would mean the end of the WTO system.[38]”
Part Four: Recommendation
The most powerful sides in the banana
dispute have been arguing for years, but rarely mentioned are the countries who
will bear the biggest brunt of their actions.
The U.S. is involved mainly because of Chiquita; the EU is desperately
trying to protect its own banana export companies, namely, Fyffes. These large corporations have established
that they are perfectly capable of fending for themselves in the business of
international trade. With this in mind,
we feel that the WTO should give serious attention to the most vulnerable
interests, those of the developing nations.
The following is our suggestion of how the WTO can resolve the banana
trade war in an equitable fashion.
First, we feel that the EU should be
able to keep its preferential, zero-tariff relationship with its former ACP
colonies. The WTO has already exempted
the provisions of the Lomé Convention from scrutiny. However, this exception expires in 2002, at the latest. During this time, the EU should pay more
hindrance to the aid portion of the Lomé Agreement and assist the ACP nations
in establishing more sustainable, diversified economies.
Secondly, we feel that the licensing
portion of the EU’s regime is inherently unfair, as it punishes companies for
no reason other than that they grow bananas in certain geographic regions. However, as discussed in Part Three, the
complete abolition of the licensing system will most likely allow the large
multinational corporations to overtake the European banana market. We suggest that the EU re-allot its licenses
on the basis of whether companies export “Fair Trade Mark” bananas. If a strict licensing quota system that
requires companies to export Fair Trade Mark bananas is found to be
non-compliant with WTO rules, the licenses can still be allotted strategically
using tax incentives or tariff relaxation.
“Fair Trade Mark” bananas are produced
using sustainable, environmentally safe methods and stipulate that workers are
well-treated and justly paid. Banana
farmer associations in the Windward Islands have already been working to
promote a Fair Trade banana industry, and in April 1997, the Fair Trade Labeling
Organizations International (FLO) was established. Its role is to promote the sale and consumption of Fair Trade
Mark bananas, and to verify that Fair Trade banana growers are meeting Fair
Trade Mark standards.[39]
There is an increasing demand among
European consumers for bananas produced using fair and sustainable
methods. A recent Eurobarometer survey
demonstrated that nearly 75% the EU citizens questioned would buy certified
Fair Trade bananas, if sold at the same price and quality as already available
bananas. Fair Trade bananas are
especially favored by the Germans, the British, the Dutch and the Danes.[40] If marketed and advertised in the United
States, there is no reason to assume that the Fair Trade bananas would not be
accepted by American consumers, particularly consumers in the inner-city
produce market.
Currently, about half of the Windward
Island banana farmers would be able to meet the Fair Trade standard. It is likely that many more would comply if
they had additional resources (e.g. soil nutrients and environmentally safe
pesticides).[41] Per conditions of the Lomé Agreement, it
would be appropriate for the EU to provide aid for the needed resources. Additionally, it can be assumed that the
Latin American independent grower associations also meet the Fair Trade
standard, as it would be nonsensical for them to ruin their own land and pay
themselves subhuman wages.
A well-established and well-marketed
Fair Trade banana industry could provide ACP and Latin American farmers a
sizeable market of discriminating European and American consumers. Since European trading companies already
deal with growers in the Caribbean and some in Latin American, the new system
should not require exceptional restructuring on their parts. Additionally, it provides an inducement for
multinational corporations to improve their labor and environmental standards
in order to have access to the large EU banana market.
The success of the Fair Trade bananas
depends on the support of the international community. It seems likely that the EU would endorse
the Fair Trade Standard system, as it would allow them to maintain parts of
their current regime and still protect their exporting companies and the ACP
banana industries. Since the system
does not allot export licenses based on trading histories and instead attempts
to reward companies who protect human rights and environmental safety, it
should comply with WTO rules. More
importantly, making human rights and environmental safety key issues lessens
the threat that the U.S. will rage against this new system.
Appendix
Chart
One: List of European Imports
Sanctioned by the U.S.
|
Candles |
|
Cashmere
sweaters and vests |
|
Cotton
bed linens |
|
Electric
coffee or tea makers |
|
Lead-acid
batteries, except car batteries |
|
Lithographs
on paper, less than 20 years old |
|
Nonadhesive
polypropylene resin, used for cooling and packaging |
|
Noncorrugated
folding cartons |
|
Pecorino
cheese, not suitable for grating |
|
Pork
products (salted, in brine, dried, or smoked) except hams, shoulders, and
bellies |
|
Plastic
handbags |
|
Pocket
or handbag accessories made of plastic |
|
Sweet
biscuits, waffles, and wafers |
|
Uncoated
felt paper and paperboard, in rolls and sheets |
Graph
One:
