International Business : Countries Split by International Banana Brouhaha : Trade: Plantations in Latin America struggle to survive under EU import quotas. United States has launched probe.

Pardon the Ecuadoreans for being a little dubious about “free trade.” An international banana war triggered by the European Union has devastated plantations clustered around this coastal city.

The effect has been the same in Panama, Guatemala, Honduras and El Salvador. It has also rippled through the boardroom at Dole Food Co. in Westlake Village and clobbered consumers in Europe.

Ecuadorean farmers are switching crops because banana sales and prices have plummeted for reasons beyond their control or comprehension. Dole and Cincinnati-based Chiquita Brands, the world’s two banana behemoths, are losing hundreds of millions of dollars in sales.

And Germans, who eat more bananas per capita than anyone else, are paying double what they paid at the checkout counter in 1992--and getting lower-quality fruit.

U.S. Trade Representative Mickey Kantor launched an investigation on behalf of Chiquita Brands and Hawaiian growers several months ago, and U.S. sanctions are said to be near.

“The U.S. view is that the EU on this issue, like every other agricultural issue, is being hopelessly protectionist,” said Gary Hufbauer, a trade specialist and senior fellow at the Institute for International Economics, a think tank in Washington. “The same thing has happened in sugar and cattle feed.”

The banana dispute was touched off by the EU’s imposition of banana import restrictions in July, 1993, on all countries except about 70 former European colonies and protectorates, which together had just 15% of the European banana market.

The favored-producer countries include such Caribbean island nations as Jamaica, Martinique, Guadalupe, Montserrat and Santa Lucia, whose economies depend on bananas but whose small, largely family-owned operations cannot compete in efficiency or quality with the giant multinational concerns.

Countries penalized by the restrictions, such as Panama and Ecuador, where Dole and Chiquita each operate huge farms, became subject to strict quotas.

The measures reduced--in some cases by half--the banana exports to Europe from many low-cost producers, not just Dole and Chiquita, but companies such as Corporacion Noboa of Ecuador, which operates a sprawling 25,000-acre plantation called Clementina about 45 miles northeast of here.

The trade dispute has been devastating to Ecuador because bananas are its second-largest source of export dollars after oil. And it has caused government officials to question the validity of the emerging global free-trade doctrine.

“We have reduced tariffs, opened our markets and yet we have a problem trying to sell our products,” Ecuador’s minister of agriculture, Mariano Gonzalez, said in a recent interview. “If we are making this effort on one side, we need the ability to sell in a free-trade environment on the other side.”

The banana brouhaha has created an artificial market that no one seems happy about, not even EU agricultural commissioner Franz Fischler, who has criticized the restrictions.

But last month, Fischler failed to deliver on a pledge to the Clinton Administration to get permission from the EU to overhaul the import quotas. He met stiff resistance from Britain and France, which are afraid that civil unrest and higher immigration could result if former colonies’ banana economies go in the tank, Hufbauer said.

Dole and Chiquita have spent hundreds of millions of dollars to modernize production and transport in recent years, largely to exploit the 4-million-ton-a-year European banana market that, until the restrictions were imposed, was growing 8% annually.

Those investments are now in trouble. For example, Chiquita blames the banana restrictions for losses exceeding $400 million since 1992. Not only is Chiquita’s volume down, but bananas diverted from Europe have glutted other markets and driven down prices.

“If you look at all the attempts by a variety of worldwide nations to establish a freer flow of goods and investments, the action that was taken by the EU is 180 degrees in reverse of that direction,” said Steven G. Warshaw, Chiquita’s chief financial officer.

Though the impact on Dole has been less severe because the company is more diversified, Dole still relies on bananas for 30% of its revenue, said Timothy S. Ramey, an analyst with C.J. Lawrence/Deutsche Bank Securities.

“Their earnings are still below the levels they had in 1991 before all this started. It’s a profound negative. It has cost them hundreds of millions of dollars,” Ramey said.

Dole has kept a lower profile on the issue than Chiquita and has partly offset the effects of the banana war by increasing sales to Japan, said Bill Maguire, a Merrill Lynch analyst.

The glut of bananas has pushed wholesale prices down on the West Coast by 15% to 20%, Warshaw said. But banana prices in California supermarkets have dipped only slightly if at all since the dispute began, suggesting a windfall for grocery produce sections.

Spokespersons at the Vons and Lucky supermarket chains did not respond to queries about the retail price stability in the face of tumbling wholesale prices. “I’ll have to call you back on that,” said a Vons official who did not do so.

Latin American countries have twice protested the restrictions and won judgments before two separate General Agreement on Tariffs and Trade panels, but little has changed, except that the EU made separate deals to mollify Colombia and Costa Rica, increasing their quotas. That has enraged Chiquita, which does not benefit from those side deals and wants Kantor to place punitive U.S. trade sanctions on the two maverick countries.

Said Diego Ante, executive assistant at Guayaquil-based Corporacion Noboa, the largest Ecuadorean exporter: “It’s unbelievable that the world screams free trade, free trade, free trade, and this thing happens.”