Arbitrators set US banana "damage" at $191 million

by Chakravarthi Raghavan

GENEVA: The "reconvened" WTO panel on the WTO-consistency of
the EC measures to implement its earlier 1997 banana ruling,
which is also acting as "arbitrator" on the level of damage to
the US trade, has assessed the damage at $191.4 million, as
against a US claim of $520 million.

The panel had also been hearing - on a reference by Ecuador
and the EC itself - on the compliance of the EC measures.
The arbitration award of damage to the US "rights" (mainly
in terms of GATS, and the EC commitments on wholesale and
retail trades) caused by the new EC measures implies that the
new regime, at least to that extent, is not in compliance with
the original ruling of the panel and the Appellate Body.

Systemic implications

Only a study of the details, if any, in the arbitrator's award
when published (the arbitrators are precluded from going into
the merits of compliance), and the rulings on the Ecuador and
EC references (provided to the parties), would enable outside
observers and experts to assess the systemic implications.
This includes the question of whether or not the party that
has won a dispute over compliance with a ruling can
unilaterally announce and take the sanctions route, without
going through the DSU procedure for a reconvened panel to rule
on this.

From these viewpoints, the case and the ruling are of
importance, given the fact that the US is a complainant in many
disputes, not only with other majors (the EC, Japan and Canada)
but also with many developing countries - for many of which the
WTO obligations in terms of rules in many agreements kick in
only on 1 January 2000. And the complaints will proliferate

In the banana case, the US has staked out a position that
when it wins a ruling, it expects the other side to negotiate
with it on "how the ruling will be implemented", within the
maximum period available, and if no satisfactory solution is
reached, the US will go ahead and impose sanctions - starting
with announcement of sanctions on a wide range of products, and
then choosing from among them, with a view to generating
pressures in the other country against its government.
While no one defends the EU's ways of decision-making and
abiding by obligations, the US assertion means that the WTO
regime will not ensure trade security for other nations,
especially weaker trading partners, and the exercise of US
power on the trade front will match and complement other
exercises of power by the United States.

The arbitration award is not appealable, but the panel's
ruling on the substantive question may be appealable on issues
of law, and the EC Vice-President and Trade Commissioner Sir
Leon Brittan announced that the EC was reserving its right of

The US, in pursuance of the arbitral award, must still go
before the Dispute Settlement Body to get authorization,
automatic under the rules, and has to submit a new or revised
list of products on which it wants to impose the sanctions.
Ahead of such authorization, though technically calling it
a customs clearance issue, the US has already levied
provisionally a 100% duty on a range of products imported from
the EC valued at $520 million, and may have to scale them back.
And the EC has demanded such withdrawal immediately.

Brittan, in a statement (issued in Delhi where he is
canvassing support for a new "Millennium Round", but faxed out
to the media by the EC Commission office here), claimed that it
was already clear from the arbitrator's award that the US
retaliation currently in place against the EU exports "has been
and remains largely illegal, as it is set at a level over
double that determined by the arbitrators."
"To comply with the (WTO) law, the US must now in any event
immediately end sanctions and threat of sanctions on over half
the trade subject to them," Brittan said.

However, the US Trade Representative, Ms. Charlene
Barshefsky, in her statement (on the arbitration outcome) out
of Washington, said that the arbitrators had concurred with the
US position that the EC regime was WTO-inconsistent and
continued to damage the US economy, that the US would exercise
its WTO right to suspend tariff concessions on a list of
selected imports from the EU, and that the final list of
products dutiable would be published in the Federal Register
within the next few days.

But beyond the banana ruling and the $191 million damage for
which the US will now seek authorization for sanctions, are
other issues like the beef-hormone dispute and other trans-
Atlantic disputes.

Fate of Latin American exporters

Potential problems remain for other banana exporters, like
Ecuador, which has been with the US in this case but sought a
reconvened panel (rather than seeking authority to impose
retaliatory measures). The others involved in the banana
dispute were Honduras, Mexico and Guatemala, and, separately
(after its accession), Panama.

For these countries, the question remains as to how their
"loss" of trade and exports of bananas due to the EC regime can
be compensated and whether retaliation is feasible if the EC,
having been hit by the US, chooses not to do anything more.
When Nicaragua (under the Sandinistas) won a sugar dispute
against the US in the old GATT, the US under President Reagan
allowed the panel ruling to be adopted but said it could not
implement and Nicaragua could withdraw equivalent concessions.
Everyone deplored this, but no one could help Nicaragua, nor
did the Contracting Parties exercise their collective and joint
rights in this matter.

The US reimposed the sugar restrictions by getting rid
of the infirmities pointed out by the panel, claiming this was
a measure to protect its security, and the GATT and the new
panel could do even less - while the US in parallel mounted
operations to help rebels and bring down the Sandinistas.
The threat of retaliation in the WTO and trading system is
useful only if it persuades the other party to comply. But once
exercised, as by the US now, it does not even compensate
Chiquita Bananas, leave aside the Latin American countries
whose bananas are exported by Chiquita. (SUNS4410)

The above article was originally published in the
South-North Development Monitor(SUNS) of which Chakravarthi
Raghavan is the Chief-Editor.