The banana ‘story’ continues, Ecuador warns of new claims

by Chakravarthi Raghavan

Geneva, 26 Sep 2000 - Ecuador, the world’s leading banana producer, threatened Tuesday to take new legal action against the European Union (EU) for financial reparations over the injury caused to Ecuador by the EC’s continued restrictions on the import and marketing of bananas.

The Ecuador representative warned that there could soon be a new Banana IV case at the WTO (the first two were under the old GATT, and the third was where the rulings went against the EC, and which has now become a case of the EC regularly reporting about its efforts to implement a long-overdue implementation).

But neither an unofficial english text of Ecuador’s intervention at the Dispute Settlement Body Tuesday, nor the official briefings indicate what Ecuador would, or could do, in pursuance of the WTO or other general international treaty obligations to get financial reparations.

Ecuador told the DSB Tuesday, when the issue came up under the DSB agenda item about surveillance of rulings and implementation, that on several occasions it had shown great flexibility, even though it had not been reciprocated.

It was Ecuador’s view that the import licensing distribution system to be presented by the Commission to its Council of Ministers will combine the “first-come, first-served” method with a “simultaneous examination”. Ecuador was clear it “shall not include a ‘boat race’ and this aspect should be out of the new system.”

Ecuador would await this new method of license distribution for a brief transitional period (as envisaged by the EC), with a firm commitment to apply thereafter a “tariff only” system.

Outlining the history of the dispute and rulings so far, Ecuador asked: “If there is no movement forward, that is if the EC maintains the current illegal situation, what is there to be done for the banana exporting countries? Does the lack of compliance by the EC actual mean that it has mocked the dispute settlement system of the WTO? Has this lack of compliance exhausted the system reaching the limits where those who have been injured have their rights simply extinguished? Ecuador does not believe this is the case and that is why we should not be surprised by the possibility of starting a new Banana IV case.”

But such a new legal action was a forced step they would have to take, in the face of non-compliance, and the expiry of the waiver for ACP preferences on 29 February. There was thus a non-authorized discrimination violating Article I of the GATT. This, and an examination of the illegal distribution of tariff rate quotas currently applied by the EC.

The new legal action would seek a “just reparation of the injury caused,” Ecuador said.

“General international law on state responsibility requires states not only to terminate any violation of international law, in this case the WTO agreements, but also to permit full reparation of injury, including monetary compensation of damage caused by the wrongful act.”

In Ecuador’s view, a careful reading of Art. 3.2 of the DSU, read along with Art 31.3 of the Vienna Convention on Interpretation of Treaties, “confirms that general international law on state responsibility is applicable for this case.” The responsibility of the EC does not cease by recognising a violation exists.  But the EC must also terminate the violation, terminate the cause of injury, and must proceed to repair the injury.

While Ecuador admitted there were different views on how pertinent it was to seek from a panel and from the Appellate Body a finding on this right for reparation of injury, its statement did not make clear how or what the WTO and the DSB could do - since the only remedy envisaged is ‘withdrawal of equivalent concessions’, something that the DSB has already authorized Ecuador to take, but a remedy worse than the disease for any weak trading partner, and as shown in other cases, for the stronger too.

The various GATT and WTO rulings—by panels, Appellate Body, compliance panels, arbitration panels etc—have already ruled against the EU, which purchases 40% of the bananas sold on the world market.

The EU’s trade policy restricts the entry of bananas coming from Latin America, which are largely placed on the European market by US-based transnational corporations.

Europe’s subsidies tend to favour its former colonies of the Africa, Caribbean and Pacific (ACP) group of countries, which produce bananas at a higher cost than the Latin American nations. But the import regime of Europe also favour its own transnationals engaged in distribution, as also production and sale of bananas from the “overseas territories”.

This week, in its latest statement, the European Commission, the EU’s executive body, announced the EU was studying the feasibility of administering the proposed contingent tariffs based on the order in which requests are received.

Ecuador, one of several plaintiffs in the banana claims against the EU, has agreed to accept this system that melds a “first- come, first-served” approach with simultaneous examination.

But the Ecuador government says this mechanism should only be applied during a very short transition period, followed by a new system based solely on tariffs.

Latin America’s banana-exporting countries consider the EU’s import regimen similar to its agricultural subsidy policy, which “seeks to protect inefficiency at the expense of other countries that generally are going to great lengths to escape underdevelopment.”

A study conducted at the request of the World Bank indicates that it costs EU consumers $2 billion to maintain the scant $151 million annual transference for preferred ACP suppliers through the EU’s “banana aid.”

For every dollar spent on banana subsidies, European consumers pay $13.25, according to the Bank’s study by Brent Borrell, of the Australian-based Centre for International Economics.

Though the international banana trade is limited in relation to other commodities, it is the “most negotiated fruit” on the world market and takes on crucial importance for many developing countries.

The countries of the Caribbean in particular have warned that a modification of the European policy would endanger many of their region’s economies, which are mainly, if not solely dependent on the banana economy.

The St. Lucia delegation to the WTO said that imposing a tariff system for the banana trade in Europe could prove disastrous.

In reference to a potential claim by Ecuador for economic damages caused by the European policy, the Caribbean island’s representation stressed that the real question should be “which are the vulnerable countries in this business?”

Earlier, at the DSB meeting Mr. Carlo Trojan, the EU representative to the WTO, affirmed that the Commission would present a proposal for a solution before the bloc’s ministerial council next week.

The EU is not engaging in delay tactics, he emphasised, adding that it genuinely intends to find a solution to the conflict that has already cost the Europeans several adverse rulings and economic sanctions, the latter resulting from cases initiated by the United States and Ecuador.

Guatemala, Honduras, Mexico and Panama supported Ecuador’s position at the DSB.

The Honduran delegation stressed that the solution proposed by the EU would automatically grant import licenses to the ACP countries, and continue the exclusion of Latin American countries from the European banana market.-SUNS4749

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

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