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U.S.-EU trade war looms
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November 10, 1998: 3:11 p.m. ET
U.S. proposes trade sanctions against EU over banana rules; retaliation expected
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NEW YORK (CNNfn) - European exporters of cheese, wine and women's suits were singled out Tuesday by Washington as possible candidates for trade sanctions, the latest chapter in a political shoving match that could escalate into a transatlantic trade war.
The list, published in the government's Federal Register newspaper, includes a slew of product classes for which the U.S. is considering imposing trade penalties in retaliation for the European Union's so-called "unlawful" banana regulations.
Other items on the preliminary four-page list of product categories are linen, sewing machines, suitcases, lamps and "articles of apparel and clothing accessories."
Historically, U.S. trade sanctions against overseas territories are designed to hit those countries where it hurts most, with as little disruption to domestic industry as possible.
Once commentary on the effects of possible sanctions is heard by U.S. industry, the United States Trade Representative's office will print a final short list Dec. 15 of products to be sanctioned, describing the actions it will take against the EU beginning in February 1999 if the dispute isn't resolved.
(Click here for a text version of the Federal Register notice)
At issue are the restrictive banana import laws implemented by the European community in the late 1980s. The EU is the world's largest banana market, estimated to be worth $5 billion a year on the retail level.
The World Trade Organization, acting on complaints from the United States and a group of Latin American countries, ruled last year that the EU rules violate international trade laws.
Under Europe's current import laws, banana growers in the former African, Caribbean and Pacific colonies of France and the United Kingdom are given easier access to the EU market.
The EU says its new policies, geared to open up banana import laws early next year, comply with WTO orders.
The Clinton administration disagrees.
"The EU has clearly violated international decisions on three separate decisions and we would not be on this course today if Europe had followed the decision of independent panels reviewing its trade practices," said Jay Ziegler, assistant U.S. Trade Representative for public affairs.
He added that inaction by effected countries, including the United States, sends a "chilling signal to other countries about their responsibilities as a member of the system."
At present, Ziegler said, negotiations are getting nowhere.
"We are attempting to engage directly with the EU, but we do not have anything to report on that front yet," he said.
Trade wars
The U.S. says it will impose trade sanctions against EU exports if the dispute isn't resolved by the Jan. 1, 1999, deadline outlined by the WTO.
Such "unjustified" action, according to EU officials, however, steps outside the bounds of appropriate WTO dispute resolution channels and is tantamount to a declaration of trade war.
"For the United States to take such unjustified action against the EU is a particularly grave error of political judgment…" European Trade Commissioner Sir Leon Brittan said Tuesday. "If the United States persists with such unilateral action, the EU will have no choice but to take rapid steps to challenge it in the WTO."
He added the EU would cooperate with Washington within the WTO, but not "under the threat of illegal action."
Taking sides
At least one U.S. group representing the export-import industry is critical of the way Washington is handling the situation.
"We believe we should take the dispute back to the WTO," said Lee Greenbaum, trade advisor for the American Association of Exporters and Importers (AAEI) in New York. "We would like to see a rule of law rather than us acting as jury and judge."
Government officials argue the U.S. has the right and obligation to impose EU sanctions under its existing domestic trade laws.
The AAEI, however, believes the U.S. should resolve all disputes through the WTO -- where the organization's rules apply, that is. Not all trade areas are covered, but in this case, Greenbaum said it is.
He added the U.S. typically tallies the losses it believes unfair trade practices have cost the country -- in this case the banana regime -- and strikes back at other trade products to make up the difference.
"[EU sanctions] would affect U.S. importers [those products] first," Greenbaum said. "But if the EU retaliates [by imposing its own trade tariffs] it could hurt any company [in the import-export business]. We don't know which categories they would choose to sanction."
How bad is it?
Banana growers estimate that EU trade restrictions cost the industry some $1 billion a year.
"This has been a very significant issue to Chiquita and the entire banana industry for the last six years," said Michael Sims, vice president of investor relations at Chiquita Brands International Inc. "By imposing the sanctions [the EU] reduced what was a growing banana market. They restricted its growth and reallocated access to the marketplace."
Although he would not release financial data on the subject, Sims said the company once exported more than 50 percent of its banana crop to the European market.
The U.S. says the impact of EU trade restrictions on the domestic banana industry justifies retaliation.
"We believe what we are doing is entirely consistent with WTO rules and procedures and I think it's important to recognize that we have tried to get the EU to engage openly on this issue since [last year]," Ziegler said. "They have consistently refused to discuss compliance options with us. Their [existing compliance] proposal is nothing more than the current status quo."
Furthermore, he noted, the proposal outlined by the United States, which would open up banana trading, also would allow the Caribbean countries to keep their favored trading status with the EU.
"Our preferred course here is to re-engage with Europe and find a negotiable solution," Ziegler said.
Trade agreements on the rocks?
The United States and EU reached a sweeping agreement Monday designed to facilitate trade between the two blocs.
About eight primary areas of the export-import industry were covered by the deal, including agriculture, intellectual property and regulatory cooperation.
U.S. Trade Representative Charlene Barshefsky said the agreement, dubbed the "Transatlantic Economic Partnership," potentially could stimulate "tens of billions of dollars in transatlantic trade."
But the EU warns that that fragile agreement, and others forged between the two blocs in recent years may shatter if the United States proceeds with its sanctions. 
-- by staff writer Shelly K. Schwartz
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