US-EC WAR OF NERVES MAKES FOR CONFUSION OVER BANANAS

SUNS 4347 Thursday 17 December 1998

US-EC WAR OF NERVES MAKES FOR CONFUSION OVER BANANAS

Geneva, 16 Dec (Chakravarthi Raghavan) -- The United States and the European Communities seemed to be on the verge of pushing each other over the brink in their trade dispute over the EC banana regime, and in the process straining the WTO multilateral trading system.

Some smaller trading nations, particularly from the developing world, were figuratively ringing their hands and viewing the actions and threats of the two sides as disdain for and threatening the system.

While miscalculations on either side, in a war of nerves, can never be ruled out, nevertheless, it is inconceivable that the two major trading powers, who benefit the most from the WTO system, would, in a dispute over the EC banana regime involving a relatively small share of their trade, take the system over the brink.

In some confusing developments, at Geneva Tuesday, the "suspended" meeting of the WTO Dispute Settlements Body was reconvened, with the EC proposing convening of a panel, under Art. 21.5 of the Dispute Settlement Understanding (DSU), to rule that the EC's new banana regime must be presumed to conform to WTO rules, unless it is challenged under appropriate procedures.

The US, and its four co-complainants from Latin America (Ecuador, Guatamala, Honduras and Mexico) rejected the EC move and its terms of reference, and amidst much recrimination the DSB meeting was again "suspended" in some confusion - with the chair speaking of the "goodwill" on both sides to seek a solution and asking them to consult further with each other with a view to the reconvening of the original banana panel to look into the conformity of the new EC regime with the
findings of the panel earlier.

Thereafter in Washington, the United States administration put off for a few days, pending the US-EC Summit meeting in Washington Friday, the publication of a final list of products on which it has announced it will impose 100% penal tariffs in retaliation over the EC's new banana regime. This list was to have been published Tuesday.

An EC communication gave a history of the latest phase of the dispute between the two over the banana import regime into the EC, including the EC regulations of July 1998 and Oct 1998, to become effective on 1 January 1999 to comply with the ruling.

In earlier episodes when the issue has come up before the DSB, with some of the complainants wanting recourse to Art. 21.5 of the DSU (reconvening of the original panel, and its ruling whether the EC regime complied with the panel and appellate body rulings), the EC seemed to argue that while it could agree to this, it has to be preceded by the other DSU rules for 'consultation' etc.

The US in the meanwhile had announced its intention to retaliate, and published a tentative list from out of which it was to have published a final list of products Tuesday.

The EC has warned that any such unilateral determination by the US that the EC regime does not comply with the WTO rules and the panel rulings would be "inadmissible" and would be the end of the multilateral system.

The US told the DSB Tuesday that it would seek the DSB authorization (automatic under the rules) for withdrawal of equivalent concessions (retaliation) against the EC between 21 and 31 January.

In the DSB Tuesday, the EC insisted that under Art. 23 of the DSU there is a general principle that measures taken by members are in conformity with the WTO agreements, unless they are challenged under the DSU and held to be not in conformity.

The EC noted that to invoke the Art. 21.5 procedures, Ecuador which sought such consultations, has held such consultations with the EC, with Mexico joining as a co-complainant and these were held on 23 November. And since none of the complainants had pursued their options under Art. 21.5, it had to be presumed that they were satisfied that the EC had brought its banana measures into conformity with the WTO, EC claimed.

Nevertheless, and within this context, said the EC it would seek the establishment of a panel under Art. 21.5, "with a mandate to find" that the EC implementation "must be presumed to conform to the WTO unless their conformity has been challenged under the appropriate DSU procedures."

But the original banana complainants rejected this move and asked for the adjournment of the DSB, unless the EC was ready to have the original banana panel reconvened under 21.5, to go into all aspects, in an expedited hearing.

In other comments, Jamaica wanted to be assured of its third party rights, while Japan suggested recourse to the Art. 7 of the DSU, enabling the chair to settle the terms of reference.

At the end, the DSB meeting was again 'suspended', with the chairman appealing to the two sides to hold further consultations.

Meanwhile, the US and EC were due to hold consultations Wednesday, on a related but separate dispute raised by the EC, namely over the US S.301 of its trade law, enabling unilateral determination and sanctions.