7. BANANA SPLITS: THE EUROPEAN & TRANS- ATLANTIC POLITICS OF BANANAS 1. Why did the European Commission propose this kind of regulation?2. How did the Council come to adopt the regulation?3. The banana splits: An update4. Why have the conflicts been so difficult to resolve?5. What does the outcome say about the EU & US trade policy processes?

6. International & regional trade politics: A short review

HAS THE EU GONE BANANAS?

‘Anybody who argues that the best way to helpa group of developing countries is for the EU to bear

a consumer cost of at least $2bn, transfer $1bn to a fewtrading companies and provide a benefit of under $200m

to the favoured countries has some screws missing’

Martin Wolf, ‘Going bananas’,Financial Times, 24 March 1999

1. WHY DID THE COMMISSION PROPOSE THIS KIND OF REGULATION?

• The Commission ‘always makes proposals for which it thinks it can find a majority in the Council’ (Commissioner) - which, on this issue, was protectionist

• To expose EU & ACP banana growers to unconstrained competition with Latin Americans would have been to put a ‘flyweight boxer’ in the same ring as a ‘heavyweight’ (banana trading company representative)

• Banana-growing locations were, moreover, mono- structural economies in peripheral regions

1. WHY DID THE COMMISSION PROPOSE THIS KIND OF REGULATION? (Contd.)

• This regulation had potential to create European bananas ‘champions’ to compete with American MNCs (was it strongly influenced by Geest?)

• NB. (1) The policy coordination process in the Commission failed to produce a consensus. The main responsible DG (VI: Agriculture) made a proposal which a majority of the Commissioners approved

• NB. (2) The competent Council was the Agricultural Council: A different council might have voted a somewhat different regulation

2. HOW DID THE COUNCIL COME TO ADOPT THIS REGULATION? December 1992

• UK was the Council president & supported the regulation

• The British minister put the regulation in a larger policy ‘package’, in which opponents were offered concessions on other - for them more important - issues.

• Ministers for the regulation supported it more intensely than opponents opposed it because, for them, producers’ & regional policy interests were involved as well as traders’

ISSUES ON THE AGRICULTURAL COUNCILAGENDA, SESSION OF DECEMBER 1992

1. Future of agri-monetary system (after 1992 EMS crisis)2. Banana trade3. Dairy quotas (especially the Italian)4. Suckler cow & ewe premiums5. Potatoes6. NZ butter (!!)7. Wine producers’ aids8. Durum wheat9. Extension of structural aids for eastern Germany10.Virginia tobacco11. Spanish, Portuguese transitional measures12. Veterinary & plant health measures

THE DUTCH BANANA VOTE: ONE ACCOUNT

‘A package was produced … In his wisdom, our Agricultural Minister decided that some itemswere more important than others & that bananas

were not so important … The compensatory measures for farmers - the ‘switchover’ - was

quite important for Dutch farmers, more importantthan bananas … The minister, despite having

different instructions from the Dutch govt,decided that he had to go for it’

Official in the Dutch Trade Ministry,interview, March 1997

THE BANANAS PACKAGE DEAL: ONE ANALYSIS

‘After a succession of compromise papers, bilateraldiscussions & new compromises, the final deal was

struck by 12 exhausted ministers in ‘super-restricted’session, deprived of sleep & their closest advisers …

It is therefore no surprise that a number of details onwhat actually had been agreed remained hazy in theimmediate aftermath of the Council … All in all, the

package amounted to a typical EC compromise, basedon damage limitation, fudge & sweeteners for allmember states … This may be only way in whicha common agricultural policy can function at all’

Agra Europe, English edition, 18 December 1992

2. HOW DID THE COUNCIL COME TO ADOPT THIS REGULATION? (Contd.)

February 1993 • French & Spanish ministers threatened to try to paralyze the Agricultural Council if the December decision was revoked

• Danish Council presidency switched to voting for the regulation for fear that if regulation had failed, the entire December package would have collapsed & other current issues would not have been resolved

3. THE BANANA SPLITS: AN UPDATE

• 1997 (Sep.): WTO panel declares regulation illegal• 1998 (June): EU adopts revised bananas regulation• 1998 (Sep.): US: new regulation WTO-incompatible• 1998 (Dec.): US threatens sanctions on EU exports if EU does not change regulation again• 1999 (Jan): New WTO panel created to consider issue• 1999 (Mar.): US begins to impose trade sanctions on EU• 1999 (April): Panel decides regulation is still illegal• 1999-2000: EU & trading partners fail to agree on revised tariff/quota system• 2000 (April): Congress votes to impose ‘carousel’ sanctions on EU exports• 2000 (July): No EU Council QM for tariff-only solution

THE DANISH BANANA VOTE:ONE ACCOUNT

‘I can imagine that they were coerced … Otherwisethey would have had to start all over again. The

Agricultural Council always makes packages withsomething for every country; the whole package deal

would have collapsed. The other ministers [supportingthe bananas regulation] would have said: “The whole

deal is off. We must start over again.”’

Official in the Dutch Trade Ministry,interview, March 1997

4. WHY HAVE THE CONFLICTS BEEN SO DIFFICULT TO RESOLVE?

• Issue involved two sets of concentrated, antagonistic interests that had large stake in defence or defeat of the regulation

• These interests were able to ‘capture’ the political process on both sides of the Atlantic, aided by:

1. Mobilization of Congressional allies in the US; and 2. EU decision-making rules that – normally - make it hard to change policies once adopted

• Decreasing preparedness of US & EU to exercise self-restraint for any higher common good

BANANA REPUBLIC?

‘For a small amount [sic] of money, Chiquitahas been making US trade policy on this issue … It’s a classic case for [justifying]campaign finance reform … The level oflegal corruption has been very extensive’

US trade policy official, interviewed onmaking of US banana trade policy,

October 1999

CHIQUITA AS A POLITICAL DONOR

5th biggest corporate donor of ‘soft-money’ contributions in 1997-98

3rd biggest individual donors in same period

Biggest political donor in Ohio state

11 Lindner family members made almost 1000 donations worth $1.6 mn from 1993 to 1998

5. WHAT DOES THE OUTCOME SAY ABOUT THE EU & US POLICY PROCESSES?

I. EU

• Who is in charge can be very important (policy division of labour in Commission & Council)

• Sectoral segmentation of process (no strong coordinating organ)

• Indispensability of issue-linkage for conflict- resolution & unpredictability of policy outcomes

• Once adopted, policy may be hard to change

5. WHAT DOES THE OUTCOME SAY ABOUT THE EU & US POLICY PROCESSES?

II. Washington

• Money talks!

• Congress matters a lot and increasingly!

• Individual firms may wield strong influence! (As they may do also in the EU)

• Unpredictability of outcomes owing to linkage of issue with Presidential affairs!

BANANAS & BILL CLINTON’S ZIPPER PROBLEM

‘Senior European Commission officials say Mr Clinton’sconcern with securing his defence in Congress torpedoeda deal late last year that would have prevented a subse-

quent showdown over bananas in the WTO. They say thetwo sides’ negotiators had drafted a compromise. However

the White House scotched the deal on the eve of the December 18 EU-US summit … because it had been

rejected by Carl Lindner. Mr Clinton’s advisers are said to have judged that offending Mr Lindner could cause him

to use his formidable lobbying power to swing impeachment votes against the president’.

‘Politicians unable to escape proceedings’,Financial Times, 12 February 1999

• INTERNATIONAL & REGIONAL TRADE POLITICS

I. Is the US willing & able to be stabilizing hegemonic power? • Less willing (NAFTA controversy > new Congressional activism > FTA failures > trade liberalization projects derailed)

• Less able (both EU & Japan are increasingly willing to say ‘no’ – through WTO, or in defiance of the WTO, or - in Japan’s case – also in APEC)

6. INTERNATIONAL & REGIONAL TRADE POLITICS II. In the absence of a hegemonic power, can there be a stable ‘condominium’ of great trading powers?

• US-EU tandem worked fairly well in the past, but ‘Battle of Seattle’ point to their declining capacity to cooperate:

* Renewed Congressional trade policy activism * National govts’ reassertion of trade policy powers vis-à-vis the Commission in EU

• Japan is still too much a ‘reactive state’ in trade policy & East Asia still too disunited

6. INTERNATIONAL & REGIONAL TRADE POLITICS III. Are there sufficiently strong international institutions to keep the system stable?

• Stronger WTO disputes procedure has worked well

• But ‘great-power’ egoism (see banana splits!) threatens its authority

• Great-power conflicts stymie new initiatives (eg. Seattle)

• Membership expansion increases likelihood of conflicts & difficulty of conflict-resolution

6. INTERNATIONAL & REGIONAL TRADE POLITICS

IV. What drives formation of regional blocs?

• Less the growth of cross-border exchange than politics, in particular strategic/security concerns:

1. EU: to banish war & resist Communism 2. ASEAN: to banish war & resist Communism 3. APEC: to create counterweight v. EU, to integrate US in Asia-Pacific, strengthen GATT 4. NAFTA: to lock in economic reforms (Mexico); to assist in this process & stabilize Mexico (US)

• But low volume of cross-border exchange may put brake on integration (ASEAN example)

6. INTERNATIONAL & REGIONAL TRADE POLITICS

V. What determines success or ‘feasibility’ of integration?

• Availability of benevolent hegemonic power? - Single hegemonic power may not always be necessary, or even be acceptable … - Bigemony may work as well – or better (FGR in EU) - Authority, legitimacy of hegemon may not be read off from demographic, economic, military capacity – history & memories are also crucial!

• ‘Commitment institutions’ for enforcement? - Distinguishing trait of EU, important motor as well as ‘police’ of integration - As much integration consequence as cause?

6. INTERNATIONAL & REGIONAL TRADE POLITICS

V. What determines success or ‘feasibility’ of integration? (Contd.)

• National governments’ economic difficulties? - Will integration necessarily alleviate economic problems? - Regardless, is it politically opportune? - In EU at least, integration has tended to advance faster in periods of economic expansion than in recessions, which strengthen national protectionist reflexes

• Mattli under-estimates role of ‘sense of community’ (Cohen) buttressed by core of common cultural, economic & political values?

THE FUTURE OF GLOBALIZATION:A WARNING VOICE

‘The pressure for non-tariff barriers to imports in the US, such as quotas, has grown. Latent anti-free

trade sentiment has only been suppressed by strong economic growth. If we had not had the surge of

economic activity we have had in the US, the march towards increasing use of quotas would have continued.

Cyclically adjusted protectionism is on the rise’

Alan Greenspan, chairman of the USFederal Reserve Bank, quoted in:

‘Critics of globalisation promised a hearing’,Financial Times, 28 August 2000