Allies split over banana war

ONCE AGAIN, it is war. Just days after the United States ceased its attacks on Iraq, it has plunged into another conflict, one where the stakes may be just as high, though the casualty count will be lower.

This war is not concerned with weapons of mass destruction, but with bananas. The US says that the European Union discriminates against imports from American companies; but there is no right and wrong in the banana war, just various shades of grey (or rather, yellow). On Monday, the US announced projected sanctions against a long schedule of European exports, with Britain at the top of the list, and if there is no resolution in the next two months sanctions will be applied.

The dispute has its roots in the voyages of discovery in the 17th century, when Britain and France both picked up clutches of Caribbean islands as colonies. When those colonies became independent, Paris and London maintained preferential trade links and special regimes for importing fruit. However, US companies became dominant in the formerly Spanish colonies in Central and South America, often maintaining their position by supporting violent military regimes. They sold mainly to the US, and their exports are known as "dollar bananas".

When the Common Market was formed in Europe, Britain and France maintained special links with the Caribbean banana producers, while Germany and other countries kept their own free-trade regimes. A special protocol was added to the 1957 Treaty of Rome, ensuring that amid the drive to create a single market, bananas were excluded.

That became a frequent cause of conflict with the US, which contended its companies were being excluded from the European market. Only in the 1990s did the EU try to harmonise its rules. But the US argued that the resulting trade regime still discriminates against its companies, which export bananas from Central America. The World Trade Organisation (WTO) agreed, and the EU has revised its rules - but not by enough to satisfy the US.

The EU likes to portray itself as a great benefactor, saying that the Caribbean nations need the support they get from banana exports. In fact, the reason for protecting imports from these countries is that they are largely made by European companies. Though the British banana company Geest was bought by Fyffes, the Irish company, Britain continues to side with the Caribbean countries and the companies linked to them. So Britain finds itself in a group with southern European countries resisting the pursuit of free trade, when it would normally be siding with Germany and the free-traders.

The rival Central American bananas are exported by American companies, and in particular the Big Banana itself, Cincinnati-based Chiquita. Carl Lindner, Chiquita's boss, has made hefty donations to both political parties, which means Washington takes the dispute seriously.

The US has threatened sanctions on $600m (pounds 365m) of EU imports, mainly luxury goods. All may face 100 per cent duties if the dispute is not settled. The US sanctions are aimed at opening up a divide within the EU (the so-called "banana split"), by targeting the southern Europeans and avoiding the Netherlands and Denmark, which oppose the new banana regime. Britain and Italy would be hardest hit, with exports of about $100m at risk, followed by France and Germany. The duties would apply by 3 March.

The EU wants the deal settled in the WTO, and accuses Washington of ignoring global laws. It sees the conflict as a symbol of US unilateralism, not dissimilar to the claims that America ignored the United Nations during its attacks on Iraq. "The EU will play by the rulebook of the WTO, which rules out unilateral sanctions," said Nigel Gardner, spokesman for Sir Leon Brittan, EU trade commissioner.

The US says the EU is itself ignoring what the WTO has already ruled, and that taking the case back to the WTO will simply absorb more time.

If previous EU-US trade spats are anything to go by, the end result will a last-minute compromise. In between, there will be a growing campaign of rhetoric.