US starts banana war with Europe

THE SIMMERING dispute between the United States and Europe over banana imports exploded into open conflict yesterday as America threatened to start a trade war.

In a significant development, after months of tension, Washington proposed sanctions against a range of European products, expected to include Scotch whisky and French wine and cheeses.

Brussels warned it would pursue the US through the World Trade Organisation, where it would appeal for compensation against any action, and demand the right to impose comparable sanctions.

Although extra duties on European goods could not be imposed for four months, EU officials are alarmed that the American action indicates a protectionist response to the global economic downturn.

The long-running dispute involves the favoured nation status, granted by Europe under an international treaty, to banana imports from 71 African, Caribbean and Pacific countries, (ACP) most of which are former European colonies.

Europe points out that, without special help, small producers will be undercut by the big mechanised plants in central America. Europe has long warned that removing aid to the Windward Islands in the Caribbean would devastate economies and increase the risk of growers turning to the production of drugs there as a substitute crop.

The United States is not a banana producer but has backed the case of multi-nationals, such as Chiquita, which argues that Latin American producers lose out and that EU policy discourages diversification. The latest development revolves around a WTO ruling last year, which the EU says it has implemented through its latest import regulations.

Washington disputes that, claiming that the regime is still discriminatory, and argues that another appeal to the WTO would be time-consuming.

In all, the EU permits a limit of 857,000 tonnes of bananas to be imported free of duty from the ACP countries.

The list of products targetted by the USA yesterday will be reduced to a smaller number of items on December 15. Countries that favour the EU's banana regime, including Britain and France, are expecting to be singled out for particular attention and those not so enthusiastic, such as Germany, are likely to be left relatively untouched.

Sir Leon Brittan, vice- president of the European Commission, accused Washington of "setting itself above the law" and adopting a "might is right" attitude. He warned: "If the US continues on this course it will inevitably risk damaging broader economic and political co-operation. For the US to take such unjustified action is a particularly grave error of judgement at a time when we both need to give strong, joint leadership in responding to the economic problems in the world."

Last month a US trade representative, Charlene Barshefsky, accused Brussels of failing to do enough to ease the world economic crisis. At the time Sir Leon said electoral considerations were behind the tough posture. Yesterday he said: "I believe this dispute is not really about bananas. What has been done has been done for political reasons."