Trans-Atlantic Banana War Nears Peak

GENEVA -- As the trans-Atlantic dispute over bananas neared a climax, the World Trade Organization agreed to an EU request Tuesday to investigate the legality of the U.S. trade act used by Washington to justify retaliatory sanctions.

It was the second time the European Union had asked for a WTO dispute-settlement panel. Under WTO rules, the request was automatically granted even though the United States registered its displeasure.

U.S. trade ambassador Rita Hayes accused the Europeans of using "tactics" to distract attention from the real issue - the fact that the EU has failed to bring its banana import regime into line with WTO rules.

"It's a case of sour grapes over bananas," Hayes told journalists.

"It's not a diversionary tactic," shot back EU trade ambassador Roderick Abbott. "It's something we feel strongly about."

The United States plans Wednesday to seek official WTO approval to slap massive sanctions on European products to compensate for losses suffered as a result of EU banana import restrictions.

For years, Washington has complained that the EU banana import policy unfairly favors former European colonies and penalizes Latin American producers and U.S. distributors. Brussels maintains it has changed its import laws to bring them into line with WTO standards - an assertion disputed by the United States.

President Bill Clinton's administration earlier this year threatened to impose $520 million of import tariffs on European items ranging from coffee machines to cashmere sweaters. But then it agreed to WTO arbitration to assess the level of damages and hence compensation.

The arbitration panel was due to issue its report Tuesday. But, given the enormous complexities and sensitivities at stake, the findings were expected to be inconclusive. Officials said it was unlikely to set a figure for damages.

Abbott said the arbitration report would just be an interim one. If so, it would cast new doubt on whether the United States would be allowed to go ahead with sanctions.

The banana dispute has taken the four-year-old WTO into new legal waters and nobody seems to know quite how to deal with it. Complicating the matter is the fact that a new WTO panel has been set up to investigate whether the EU banana rules are indeed illegal. This is due to report back by April 12. Until that time, the EU and its allies maintain that any WTO action and U.S. retaliation should not go ahead.

The panel set up Tuesday will look into the disputed Section 301 of the U.S. Trade Act, which Washington cites in determining whether its trade partners are unfairly protecting their markets, and to impose retaliatory measures. The three-member body will have six months to produce its report.

The EU claims that section 301 lets the United States make a unilateral decision, which is against the multilateral principles and rules of the WTO.

Abbott said that Brussels and other countries had long been concerned about the legality of the 301 laws but had never filed a formal complaint about them.

"Now we've had experience of how it can be used and it's no longer academic," he said in reference to the banana row.

He said the EU would persist with its case against U.S. trade law even if there was a satisfactory solution on bananas.