SUNS 4363 Friday 29 January 1999

Trade: DSB banana meet put off again



Geneva, 28 Jan (Chakravarthi Raghavan) -- The confrontation over the banana marketing issue continued at the World Trade Organization Thursday, with the talks over the last two days not having yielded any compromise, trade officials said.

The dispute between the US and the Latin banana producers and the EC involves a range of problems, including tariff quotas and regimes for banana exports of the Latin American countries, but behind it is the issue of the ability and right of the US Chiquita TNC, which has banana plantations in Latin America, to market it in EC where the ACP countries enjoy preferential tariffs and quotas.

The meeting of the Dispute Settlement Body, "suspended" on Monday over the banana dispute impasse, and rescheduled for Thursday morning, was again put off till evening as efforts continued to find a compromise, based on a proposal from the WTO head, but acceptable to the US and EC.

This would have enabled the reconvened panel hearings to judge the compliance of the EC's new banana regime (with the earlier panel/appellate body ruling of the panel); the US getting the WTO's
automatic authority to impose retaliatory trade sanctions against the EC, but suspending actual imposition of sanctions; and the panel or an arbitrator in parallel deciding on the value of the trade damage to the US for which sanctions are to be imposed.

But the European Community has found itself in difficulty in accepting the Ruggiero proposal for the arbitrator to assess the damage (before the reconvened panel decides whether the new EC measures are in compliance or not) since this would prejudice the EC position and rights that the measures are in compliance.

Ruggiero in his statement to the DSB has said that his compromise would preserve the rights of the two parties, but the EC view (shared by some others) is that it does not.

Last Friday, WTO Director-General Renato Ruggiero, had put forward to the two sides some compromise ideas and both the US and EC (and WTO officials and Ruggiero) had worked over the weekend to evolve a compromise, which he outlined in an oral statement at the DSB on Monday.

In this oral presentation, Ruggiero had said that his efforts to promote a compromise was based on keeping the issues within the system of rules of the DSU, respecting rights of all parties and allowing them to exercise the rights they claim to have.

The EC, he said, had exercised its right to pursue its arguments before the original panel in ongoing DSU Art. 21.5 proceedings on whether or not its new regime complies with the ruling.

The EC proceedings, though Ruggiero did not specifically mention it, also involves the panel deciding whether anyone could take trade sanctions without such a ruling.

The US, Ruggiero said, had exercised its right to request authority to suspend concessions under Art. 22.

His suggestion was that in the context of the US request (to the DSB for authorization for sanctions), the EC should exercise its right to refer the mater to arbitration under Art. 22.6.

Such a request, he said, would mean that the DSB would consider the US request for authorization, and the EC request (for arbitration on the extent of damage) would be referred by the DSB to the original panel where available or, to an arbitrator appointed by the DG.

Following this, the DSB would revert to the US request for sanctions under Art. 22.7 (after the decision of the arbitrators).

Ruggiero said that he had asked both parties to exercise their rights, and move forward within the system, but without prejudice to the rights of either party, and similarly for the parties to go ahead with the consultations (sought by US and its co-complainants in the banana dispute) to reach an acceptable compromise.

The EC however viewed the Ruggiero proposal (and what one EC source said was the last-minute change by Ruggiero, favouring the US in allowing both the reconvened panel proceedings and the arbitration based on the US request for sanctions) as prejudicing in effect the very issue before the reconvened panel about the legality of the EC regime.

One trade diplomat said that the EC had a point, since if the US could have its way thus, it would really amount to "embedding" in the WTO/DSU, the US family of S.301 laws.

A number of countries, even while critical of the EC's shifting position and circular ways of implementing the banana panel ruling, have been concerned over the systemic implications of the US using its trade law (S.301) to unilaterally determine whether any party has or has not complied with a ruling and imposing sanctions, and then inviting the other party to negotiate a compromise.

The EC, and several of these countries, argue that if the US has its way in this matter, it will really amount to "embedding", the US S.301 law into the WTO.

The EC has already raised a dispute, and this is in the preliminary stage of consultations, over the US S.301 provision. And after this week's announcement by the USTR that the "Super 301" will be reinstated in the US law (by executive order), the EC and Japan (and several others) have denounced it angrily, and might bring up the whole issue of US trade law before the WTO.

On Monday, St. Lucia and Dominica had objected to the adoption of the agenda (with the US item), and a prolonged informal DSB meeting Tuesday at level of heads of delegations, which debated the legal and procedural issues, did not produce a consensus view.

The suggestion from India that the two parties (and the WTO head) find a compromise on the substance of the DSB (to clear the way for its functioning), and for the procedural and legal questions to resolved separately, was accepted.

While the adoption of the agenda with the US was blocked by the two Caribbean Windward Island producers, and they insisted they were acting to safeguard their interest (in their only export commodity), the general assumption clearly at the WTO is that once the US and EC reach a compromise, two small nations cannot stick to their position (and as on Monday, the DSB chair could attempt to outstare the two by declaring the agenda adopted by consensus).

But Ruggiero's efforts in further consultations with both parties on Tuesday and Wednesday, do not seem to have produced a compromise, and the DSB meeting was put off, pending further efforts.

The various descriptions of the talks (involving the WTO head, the DSB chair, Kamel Morjane of Tunisia, and the US, EC) as "frank", "constructive" and "useful", only tended to confirm the impasse.

But some trade officials said that even if the DSB remains blocked, time is running out since, in the US view of the limited 30-day period from 1 January (when the new EC regime came into force) within which the US must exercise its option under Art. 22.6 to seek and get automatic authority for trade retaliation.

These trade officials say that given the dynamics in Washington, the US might decide to go ahead on its own and impose the sanctions, creating a situation where the WTO system (and the processes and moves for a new round of negotiations that the US, EC and several others) are ardently seeking and pushing.

In terms of political economy and the politics of negotiations, even one based on power, there is an assumption that countries act rationally, on basis of weighing over all costs and benefits.

And rationality would suggest that having waited so long, the US (the biggest gainer from the WTO trading system) could wait a little more (provided the 30-day period for its right to seek authority for
sanctions is not exhausted) for the reconvened panel (and if needed on legal points the appellate body) to rule on the EC regime's compliance with the WTO ruling, and if necessary another month for arbitration on the size of the damage, rather than imposing sanctions, and forcing the EC to negotiate under this threat, but in the process wrecking the WTO system itself.

However, in terms of the Washington political dynamics, the shots in this fight are being called by others -- including Chiquita banana's Lindner, and Senators and Congressmen (on the left, right and centre) involved in trade issues -- and the Clinton White House's need to keep (and perhaps gain some more) all the votes to prevent the Senate adopting the impeachment articles. And looking beyond that is also the election politics of 2000 that has already begun.

Sir Leon Brittan, may or may not have been diplomatic, in telling the EU Parliament's external relations committee about a compromise having been blocked by Chiquita and that the US administration, in the throes of the conflict with Iraq and the impeachment trial, has been unable to
over-ride the political influence of Chiquita.

And while Chiquita angrily denounced Brittan and the EC for this, disclosures in the US media about the Lindner contribution of $500,000 to the 1996 Democratic Party election campaign chest and the US lodging its complaint at the WTO the next day, and subsequent disclosures about
the Lindner contributions to Democratic and Republican House and Senate candidates and their lobbying and pressuring the USTR, has neither been lost on the trade diplomats and officials, nor on the public.

But the US has been so long accustomed (or hooked to use a common street language about drug addict dependents) to issuing threats of sanctions and getting others to the negotiating table and winning, that it may have become difficult for it to give up this dependency.

And if any doubts were left, the latest announcement about the Clinton intention to "reinstitute" by executive order the "Super 301" provisions of the trade law, would remove it.

One experienced trade negotiator said Thursday that with the WTO General Council's general rules of procedure (for drawing up and circulation of draft agenda by the secretariat and its adoption at any WTO body) applicable at the DSB too, without an EC-US compromise, when the DSB meets and there is still objection to the adoption of the agenda etc, there were no "black and white options, but only shades of grey".

If the agenda adoption is blocked by objection, any one (the US, or any of the other banana exporters allied with it, or even some others who have been siding with the US) could call for a vote to decide the agenda adoption (as the WTO rules provide).

During the final stages of the Uruguay Round (and in the negotiations in December 1993 over the WTO agreement and the consensus requirements), one of the US negotiators said that within the GATT or the future WTO, the EC with its web of trade accords and relationships, could always manage to get a majority, or even a two-thirds majority, and hence the US insistence for amendments and changes by consensus or at least three-fourths majority.

This may or may not prove to be correct, if a vote is called on the procedural issue of adoption of agenda. But both the EC and the US might not want to test it - since once "voting" creeps in others too would call for votes in the WTO bodies and the fat could be on fire for both the major entities.

One trade diplomat said that the EC had a point, since if the US could have its way thus, it would really amount to "embedding" in the WTO/DSU, the US family of S.301 laws.