BANANA CASE THREATENS RULE OF LAW

Why care about the trade row between the United States and the European Union over bananas?

President Clinton's impeachment raises difficult constitutional questions, and four nights of military attacks on Iraq are, at root, about our national security. How could a dispute among allies over a fruit possibly compare to these weighty matters?Don't be distracted by impeachment, Iraq or even the holiday season. At stake is the safety and soundness of the global trading system and the international rule of law.

The longstanding banana dispute stems from a preferential trading plan sponsored by the EU for its former colonies in Africa, the Caribbean and the Pacific, the ACP countries. Under a complex tariff-quota system, bananas from these nations get greater access to the EU market than bananas from Latin American countries, even though Latin bananas (many of which are grown on plantations owned by Chiquita and Dole) are cheaper.

Washington prevailed in its arguments to a World Trade Organization panel and the WTO Appellate Body that the EU plan unfairly discriminates against non-ACP bananas. Not unreasonably, it expected the EU to implement the WTO recommendations and redo its plan to end the discrimination.

The EU dithered, and the United States announced unilateral sanctions on EU goods to punish its ally for noncompliance with the WTO rulings.

So why care? The self-interested economic answer is that American retaliation, if carried through, will mean higher priced imports from the EU of goods like candles, chandeliers, cashmere clothing, coffee makers and handbags. If the EU counter-retaliates, then American exports to the EU may face stiffer tariffs or tighter quotas.

It's a good answer, but it hardly competes with a constitutional or national security crisis.

The self-interested political answer is that the dispute matters because the credibility of the Clinton administration's trade policy is at stake. If the administration does not force compliance, then, in the future, other WTO members that lose cases to the United States will not feel a sense of urgency to take remedial action.

This answer wrongly assumes the administration has some credibility to lose. Perhaps, but not much. In most of the major recent trade rows - most notably the 1995 auto and auto parts dispute with Japan - the administration backed down at the eleventh hour.

A slightly more sophisticated spin on this answer is that the dispute matters because it highlights not only the administration's willingness to deploy America's unilateral trade weapon - Section 301 of the Trade Act of 1974 - but also the eagerness of the EU to challenge the legality of this weapon under WTO trade rules.

Unfortunately, this spin is not convincing. Given amendments made to Section 301 in the wake of the Uruguay Round, and other international and domestic law arguments, the weapon probably is legal. In any event, the United States is hardly likely to disarm itself.

The best, and most persuasive, reason to care about the U.S.-EU banana spat is twofold.

First is the safety and soundness of the global trading system. If the WTO system is to have any integrity, it must be viewed as the forum of first and last resort by all WTO members for all phases of their trade disputes.

It is wonderful if Bangladesh and Costa Rica use the WTO's dispute-resolution mechanism to resolve a trade disagreement. It is indispensable that the United States, EU and other major trading partners such as Japan do so.

Only when the big countries entrust to the mechanism their most precious disputes will the WTO have the importance in the global economic arena that many of us would like to see the United Nations have in the global political arena. Anything short of this will be seen in the Third World - rightly - as blatant hypocrisy by the First World.

But the big countries cannot casually use the WTO simply to win a judgment, and then wave the judgment like a bloody shirt to justify unilateral action. The multilateral dispute-resolution mechanism is designed to provide relief as well. Winners in WTO cases must accept this relief as effective, and losers must see it as legitimate.

The second part of the reason to care is the international rule of law. If there is to be a strong legal infrastructure on which global trade is built, then the legal obligation created by a WTO panel or Appellate Body report must be clear. The current dispute tells us it is not.

Is the losing WTO member, here the EU, compelled as a matter of international law to comply with the recommendations of the report? Or can the loser choose not to comply and, instead, either pay compensation to the winning member or accept retaliation from the winning member?

Reasonable minds can differ on the interpretation of key passages from the relevant WTO agreements bearing on this problem. What is harder to dispute is that if we are all serious about the international rule of law, then we ought to eschew the second interpretation.

Presidents come and go. Middle East crises come and go.

But trade relations and the institutions that support them take years to build up and can deteriorate rapidly when countries slip up on a few big cases.

Bananas is one such case.

The U.S.-EU row jeopardizes continued global economic integration among developed and developing countries under the auspices of the WTO.

It undermines the international rule of law.

Therefore, pay attention.

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