EU: SEEKING OUT-OF-COURT SETTLEMENT IN BANANA DISPUTE

Created: 2/22/1995

OCR scan of the original document, errors are possible

Intelligence

Office of European Analysis

EU: Seeking Out-of-Court Settlement in Banana Dispute

The EU would prefer to workompromise with Washington over theimportCommission

officials doubt that the Uniontrong legal ease to defend the regime before the World Trade Organization (WTO).

Inettlement with tht United States, the Commission would try to mollifyoncerns and ease the problems ofEU opponents of the regime, such as Germany, by increasing the quota for banana imports from Latin American countries and by tinkering with the licensing provisions and duty levels:

During bilateral negotiations in January. EU officials suggested liberalizing ibe distribution of import licenses or adjusting quota levels based on EU expansion to

embers.

Tbe EU. however, probably will still resist suspending the framework agreement with Latin American banana exporters, which would risk reopening member-state debate over banana imports

If the US takes unilateral action against the banana regime, the EU is confident that it could successfullyTO case, accordingariety of reporting. The EU almost certainly would try to seize the moral high ground by accusing the United States of undercutting the new, tougher dispute settlement procedures Washington fought for in the Uruguay

British. Spanish, and Dutch officials have questioned the ability and the propriety of the Uniied Sutes resorting to unilateral action just after the WTO was launched, and German officials indicate lhat Bonn would not try toomrnission challenge although it sympathizes with the US complaint.

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Keeping the Rhetoric Cool

Since the USTTt's request last month for public comment on possible retaliation in thenvestigation of the EU banana import regime, reaction from tbe Corrurussion and the member slates has been muted Although Track Cornmuiioner Leon Britun defended the regime is complying with the WTO and warned against unilateral US action, there were no threats of EU counteraction during his late January visit to Washington

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Slates isanana exporter.

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several Commission officials doubl the hU couldrwTOr

compiirm oecause rneurv: several panel:

Although the EU is arguing that the United States must use the WTO dispute settlementthan unilateral action to resolve thisariety of reporting indicates EUthe strength of its caseand Spanish officials

tne oanans feguiie m

EtV concern about taking tht banana disputeTO panel almost certainty reflects Us two previous losses on this issue in GA TT panels:

The new WTO dispute settlement system is still an unknown quantity and, based on thedefeats, Brussels can hardly be confident of victory. Moreover, unlike under theEU would no- be able to block actoptionTO pand

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The EU Banana Import Regime

Tlie current EU banana regime resulted from the inauguration of the Single Market in the beginning3 which required ihe elimination of member-state quotas and internal trade barriers. Previously, some member states, such as ihe United Kingdom and France, offered protected markets for bananas from former EU colonies in the African, Caribbean, and Pacific 'ACPI countries by maintaining quotas on importson-ACPdollar bananas. Others with no colonial ties, such as Germany, imported the cheaper dollar bananas duty free.

Under the new banana regime, the EU provides duty-free access for ACPbananas and limits imports of dollar bananasariff-rate quota that sharply increases the duty on dollar bananaset quantity.

An import licensing system also gives the bulk of the import business to several established EU import firms.

The EU justifies the regimeegitimate method of providing aid to ACP countries that are heavily dependent on bananaecent World Bank study, however, branded ihe system as inefficient because it gives little economic benefit to the ACP producers, raises EU banana prices, and funnels most of the profit to middleman firms.

Following successful GA TT challenges to the regime by Latin American exporters, the EU. after difficult negotiations, worked out aframework,Costa Rica, Colombia. Nicaragua, and Venezuela. In return for an increase in the annual quotaillionillion tonspercent cut in the above-quota duty, these four countries agreed to withdraw their GATTcomplaint.

Trie four Latin exporters also were allowed to control issuance of export licenses for their respective shares of the quota.

In addition. Brussels mayias in favor of the United States because nf the review mechanism included in Ihe US WTO ratificationcan leadS withdrawal from the WTO after three panel decisions are judged unfairS watchdog corranmce.

Ready To Counterction

On the other hand. Lite EU is confident of its ability lo iucctssfiiUy challenge unilateral USEU is prepared to initiate a

WTO cornpium uine uniteo sores imposes wi trade sanctions without firstTO panel. The EU almost certainly believes It would seize the moral high ground by accusing the

After much internalegal challenge in the European Cowl ofregime was finally enacted as part of the EU's Uruguay Round ratification package.

and Spanish officials have questioned the

anaus usem action just after tbe WTO was launched; Paris almost certainly would trumpet this as evidence that Washington is unwilling to live by global trade rules.

Dutchthe US position on the banana regime but

see unilateralat the outset of the WTO

Bonn has been the major opponent of the regime and stillhallenge to its legality pending before the European Court of Justice.onfidential contact reports that Germany wouldommission complaint to the WTO overanctionsi^

Settling Out of Court

Given the Commission's concern about its ability to defend the banana regimeTO challengeroad desire not to let this issue escalateajor tradeParis has not been pressingardlineEU probably hopes to workilateral deal with Washington to defuse the problem:

In his recent talks in Washington, Brittan voiced hopeompromise could be reached, and French Foreign Minister Juppe, representing the EU presidency, downplayed the issue in talks with the Secretary of State.

During theanuary bilateral negotiations. EU officials suggested internal changes to the regime, such as liberalizing the distribution of licenses among importers or adjusting the quotas for the Latin American exporters based on the expansion of the EU toembers.

ompromise settlement with the United States, the Commission probably would hope to mollify US concerns and ease the problems the Germans and other member states have with the regime by increasing the amount of bananas imported from the Latin American countries. In addition, the EUmay be willing to tinker at tht margins with the tariff rates imposed on non-ACP bananas:

The three new EU members previously imported the bulk of their bananas from Latin America and are sympathetic to Bonn's position.P

The EU, however, probably will continue to resist fundamental changes, such as suspending the framework agreement with the Latin American exporters, because of the risk ofontentious internal debate among the member states over banana imports:

New internal challenges to the ACP preferences for bananas could also call into question the broader trade preferences that EU members provide to support their former colonies!-

United States of undercutting the new, tougher dispute settlement procedure that Washington had/ought for in the Uruguay Hound. Moreover, thr memberthose such as Germany and the Netherlands that disagree with the bananawould back an EU protest of US unilateralism:

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