SUNS 4350 Tuesday 22 December 1998



US AND EC ESCALATE DISPUTE OVER BANANA MARKETING

Geneva, 21 Dec (Chakravarthi Raghavan) -- The United States and the European Communities escalated their "banana" war Monday, with the US publishing the "final" list of products imported from the EU members which would be slapped with a 100% penal tariff as early as 2 February, and the EC threatening to press ahead with its WTO challenge to the US S.301 trade law under which the sanctions are imposed.

Meanwhile, at the WTO itself, the Dispute Settlement Body (DSB) received two separate requests for panels to look into the EC new banana regime, under an accelerated inquiry process, but was unable to refer them to the panel at this meeting - where the issue came on the agenda for the first time.

The DSB meeting Monday was in fact a "resumed" session of the meeting, suspended on 15 December, when it was considering an EC call for a panel reference under Art. 21.5, but worded in a way that seemed to ask the panel to find the new regime to be effective from 1 January legal,
since it had not been challenged under WTO procedures.

On Monday the EC clarified its request as seeking a review of its regime, but several members wanted to see the clarification in writing and refer it to their capitals, in the meanwhile withholding consensus.

The two requests will automatically go to the panel at the next meeting which, the EC has said, would be convened by it, as it was entitled under the rules, in the week of 4 January. The meeting is expected to be set for 8 January.

The EC's new banana regime to comply with the earlier WTO ruling (panel ruling, as upheld and modified by the appellate body) is to come into effect on 1 January.

While the EC claims that its regime is in consonance with the ruling, the five complaints have repeatedly during 1998 questioned it, and had sought modifications of the regime from the EC.

Under the WTO's dispute settlement rules, Art. 21.5, any disagreement about the whether the measures taken to comply with a panel ruling in fact are consistent with the obligations under the agreements are to be settled by recourse to the dispute settlement procedures, and if possible by resort to the original panel, which would give a ruling within 90 days.

In a war of nerves, and disputes over procedures on how to do this the US administration, announced procedures under its domestic law S.301 to determine the EC's non-compliance, and published a tentative list of products, from out of which a final list would be selected on 21 December, on which penal duties would be levied effective 2 February. The US made clear it would not go through the Art. 21.5 procedure as to whether or not the EC regime has complied, but proceed on the basis that the EC was not complying, and would impose the sanctions, after
seeking the DSB authorization, which is automatic.

But the Latin American banana exporting complainants, while standing with the US, nevertheless have left little doubt that they are unhappy with the sanctions approach, since the sanctions could compensate the US for the trade damages -- that chiquita and dole banana TNCs have suffered in terms of their marketing rights, but can't even compensate the two TNCs for their losses. While it could be argued that the Latin exporters would get some trickle down benefits when chiquita or dole
TNCs regained the markets, the sanctions can't ensure it nor compensate the Latin American producers and exporters.

Ecuador had sought consultations with the EC in August, and renewed in September, over the new banana regime, with a view to invoking Art. 21.5 procedures. These consultations, held on 17 September and 23 November having failed, Ecuador put forward on 18 Dec a request for panel to rule on the EC compliance, and in addition to suggest how the EC implement the recommendations, by an immediate amendment to the EC regulations, without another reasonable period of time to implement.

Monday's resumed DSB meeting had before it, the EC's request for a panel under Art. 21.5 with a mandate to find the EC regime to be in compliance unless challenged under appropriate WTO procedures. The DSB also had the separate request from Ecuador.

At the meeting Monday, the EC "clarified" that it was seeking under Art. 21.5 that the panel review the EC's implementation measures, and that it was not opposing the separate Ecuador request either.

The Philippines and Jamaica among others raised several procedural issues relating to the two requests and the way they had been formulated.

After a long procedural discussions, with several members wanting to refer the subject to their capitals for clear instructions (given the systemic implications), there was no consensus for panel references.

The two requests, appeared on the agenda for the first time, and thus were blocked, but reference would be automatic the next time the DSB meets and the requests are on the agenda.

The EC said it would request a special meeting, as it was entitled under the rules, to consider the panel references, and such a meeting should be held in the week of 4 January.

But as the meeting ended, and delegations dispersed for the year-end seasonal holidays, many of them are clearly disturbed that the assumptions behind the WTO and the DSU, and the claims for the "rule-based system" and its importance are now turning out to be hollow.

The old GATT was a contract among governments, and whatever their mercantalist fights and interests, when governments accepted the rules, they tried to abide.

A member losing a dispute will implement the ruling, though sometimes blocking the adoption. But if it did allow the adoption of the ruling, it implemented it. If it could not, it would say so, and seek to
compensate the trading partner which would strike a hard bargain, but accept the limitations of its partner.

The DSU provisions whether for compensation or retaliation etc are based on this premise.
And the WTO and the DSU assume this will continue, but the legalisms in the dispute process, and the behaviour of panels, the appellate body, and the sharpening of neo-mercantilism have changed all this.

The banana ruling and its implementation, and others waiting in the wings (trade delegates were mentioning Monday the shrimp-turtle ruling against the US which it is yet to disclose how or whether it will implement), show that there is no trade certainty or security under the WTO regime, when major trading entities are involved.