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The World Trade Organization's
dispute resolution mechanism is designed to ensure that members can conduct trade
according to its rules and can expect other nations to be brought into line when
they fail to do the same. However, developing nations often argue that they lack
the clout to successfully navigate this process. A
dispute over bananas launched a trade war that, according to leaders of several
Latin American nations, illustrates the vulnerability of those with less economic
might when they face more powerful nations in trade disputes mediated through
the WTO. The
dispute began in 1993, when the European Union -- then the European Commission
(E.C.) -- implemented its European Banana Regime, which placed limits on imports
of bananas from  countries
not included in its preferential trade agreements with some former European colonies.
The E.C. initiated this import system despite its WTO obligations to gradually
eliminate quotas, import tariffs on agricultural goods and farm subsidies. Colombia,
Costa Rica, Guatemala, Venezuela and Nicaragua requested that GATT (General Agreement
on Tariffs and Trade) countries -- the WTO's predecessor -- examine the validity
of the E.C.'s banana trade policy. Though the GATT panel in 1993 and 1994 ruled
in favor of the Latin American nations, the E.C. gained the requisite majority
votes from other GATT members to overrule the panel's decision. The
case gained momentum in 1996, when a major U.S. corporation, Chiquita Brands International,
threw its weight behind the Latin American nations' case. The U.S. government
filed a complaint with the WTO on behalf of several U.S. companies against the
E.C. Several Latin American nations that had suffered under Europe's banana import
regime joined in the U.S. complaint. In
1997, the WTO ordered Europe to amend its banana import rules by the end of 1998.
Concerned that the E.U.'s changes would still favor the Africa, Caribbean
and Pacific region (ACP) nations, Ecuador in January 1999 called for another WTO
panel to reexamine whether the E.U.'s amended import policy complied with the
WTO ruling. However,
soon after, the United States dropped its case with the WTO arbitration panel,
saying another ruling could take years. Instead, the United States threatened
to impose trade sanctions worth $500 million against a variety of E.U. products
if the E.U. didn't amend its banana import scheme. The E.U. vowed to retaliate
with counter-sanctions against the United States. With
the United States and E.U. exchanging threats of bilateral retaliation, the banana
dispute threatened to erupt into a transatlantic trade war. The two economic powerhouses
no longer sought the WTO to resolve the dispute, much less consulted the developing
nations involved. This largely left the five Latin American nations that initially
filed the complaint with the WTO in 1993 shut out of resolving the dispute. "What
lies at the heart of the E.U.-U.S. trade dispute is the commercial interest of
these superpowers. The interest of the developing countries where bananas are
grown have been totally obscured," the Ecuadorian ambassador to England summarized
in 1999, as quoted by Douglas Ierley in Georgetown University's summer 2002 edition
of Law and Policy in International Business Journal. Finally
in April 1999, the WTO ruled in favor of the U.S. and Latin American nations,
and authorized the United States to impose sanctions on E.U. products worth $191
million. The  WTO,
in a separate decision, also granted Ecuador the right to impose $201.6 million
of sanctions on the E.U., but the tiny South American nation did not impose them,
fearing retribution.
Despite the WTO's decision, the U.S.-E.U. dispute continued until April 2001,
when U.S. Trade Representative Robert Zoellick and European Commissioner for Trade
Pascal Lamy reached a bilateral agreement. Yet,
not all nations welcomed the E.U.-U.S. resolution since developing nations were
essentially shut out of the settlement. Ecuador,
whose national income depends on its banana exports, accused the E.U. and the
United States of reaching the agreement behind its back, saying aspects of the
pact were in flagrant violation of WTO rules.
"It is disconcerting ... that the U.S. and the E.U ... believe that their
will can prevail over the principles of the multilateral trading system,"
Ecuador's mission in Brussels said in a statement to the E.U., as quoted in Ierley's
study. Because
of its small economy, Ecuador lacked the financial muscle to use sanctions effectively.
If Ecuador had followed the U.S. example and placed sanctions on the E.U., Ecuador
would have made itself vulnerable to potentially devastating counter-sanctions
and could endanger future trade pacts with the E.U. or other major economies.
A 1999 Oxfam
International report referred to the banana dispute to exemplify how major trading
powers like the E.U. and United States are able to override the wider interests
of the developing world in the trade system. "The
dispute about the compatibility of Europe's banana import regime with WTO rules
is an illustration of how the liberalizing agenda of the WTO fails to provide
for the special circumstances of vulnerable economies," the report, entitled
"Loaded against the Poor: World Trade Organization," stated. "Thus
far, trade liberalization has been an unequal bargain, with the greatest gains
from tariff agreements accruing to developed countries. Meanwhile, many developing
countries have undertaken substantial unilateral trade liberalization under structural
adjustment programs, which has not been reciprocated by developed countries,"
the Oxfam report said. If
the United States had not been involved in the dispute, it is debatable whether
the E.U. would unilaterally amend its regime to take account of Ecuadorian banana
producers, even after a WTO ruling, the Oxfam report concluded. The
transatlantic banana dispute highlights the principle challenges developing nations
face as they strive to compete in today's global marketplace. Such challenges
include the lengthy arbitration process, the lack of financial resources, inability
to negotiate unilateral deals and the fear of retaliation. "It
took, in the end, the economic power of the United States to push for resolution
in the case. The weakness of the Latin American countries relative to the E.U.
would certainly have meant the dispute would still be unresolved had the United
States not been a party to the proceedings," Ierley concluded. --
By Liz Harper, Online NewsHour | 
