U.S., EU Settle Dispute Over Banana Imports

The United States agreed Wednesday to call a truce in its bitter eight-year banana dispute with Europe, clearing the way for improved relations with a key ally in the global trade liberalization battle.

Under the deal announced in Brussels, the European Union agreed to amend a controversial banana import system opposed by Chiquita Brands International Inc. and Dole Food Co. by July 1, and the U.S. said it will drop stiff sanctions it imposed two years ago on European goods. Those penalties, in the form of duties, raised the costs of European products by $191 million.

Although the deal’s economic benefits are limited to a handful of firms and banana-exporting nations, it gives a symbolic boost to the beleaguered global-trading system by clearing away a festering issue between two of the world’s most powerful trade advocates, according to experts.

It also is the first trade settlement brokered by new U.S. Trade Representative Robert B. Zoellick, an aggressive negotiator brought in by President Bush to pursue his free-trade agenda.

The Bush administration has voiced support for launching a new round of multilateral trade talks through the World Trade Organization, an effort that has been stalled since the anti-globalization fracas in Seattle in 1999. The WTO hopes to start the so-called millennium trade round at its ministerial meeting in November in Doha, Qatar.

“One approach to getting this millennium round launched is to clear off some of these [bilateral] disputes first,” said Gary Hufbauer, a trade expert at the Washington-based Institute for International Economics.

This deal, finalized Tuesday night in a series of transatlantic telephone calls, marked a compromise in a highly contentious battle that pitted U.S. fruit giants, which buy their bananas from cheaper Latin American producers, against European importers representing banana growers in the Caribbean, Africa and the Pacific islands. Those regions have special trade arrangements with Europe dating back to colonial days.

Since the controversial banana import system was instituted in 1993, the U.S. has won two separate cases at the Geneva-based WTO, but the Europeans have balked at making the changes.

“The U.S., Canada, Japan and the EU have all had disputes not go their way,” said Peter Morici, a trade expert with the Economic Strategy Institute in Washington. “We have been willing to address domestic constituencies when required to, and now the Europeans are finally doing the same.”

In a joint statement Wednesday, Zoellick, U.S. Commerce Secretary Don Evans and EU Trade Commissioner Pascal Lamy called the deal a “significant breakthrough” that will “end the past friction and move us toward a better basis for the banana trade.”

Chiquita, the biggest beneficiary of the agreement, said Wednesday that it was pleased with the deal and expected it to result in a partial recovery of its sales in Europe.

Chiquita had sued the EU in international court, claiming the banana-import program cost it more than $525 million in lost sales. The ailing Cincinnati-based firm said it still plans to proceed with a debt restructuring that it blames on poor sales in Europe.

Westlake Village-based Dole, which also has filed numerous lawsuits alleging damage caused by the European banana policy, did not respond to a request for an interview Wednesday.

Under the agreement, Europe will create a transition system in which banana-import licenses are allocated based on past sales. They will expand quotas for Latin American-grown bananas but still set aside a portion of the market for banana producers with ties to Europe dating back to colonial days. After 2006, all banana trade will shift to a tariff system.

In Berlin, German Economics Minister Werner Mueller said resolution of the banana standoff should benefit transatlantic trade. Germany is Europe’s biggest exporter as well as the EU’s biggest economy and has suffered from the sanctions.

But the U.S. and Europe are hardly in the clear. The two governments still have half a dozen contentious trade issues on the table, including a European ban on U.S. hormone-fed beef and European anger with a U.S. system of tax breaks for exporters deemed illegal by the WTO.

Amy Stillwell, a spokeswoman for the U.S. trade representative’s office, said there has been no progress on the hormone-fed beef dispute. That issue has taken a back seat in Europe to efforts to control a devastating outbreak of livestock-related illnesses, including the “mad-cow” and foot-and-mouth diseases. The U.S. still maintains sanctions on EU goods in the beef dispute that raises their costs by $117 million.

Stillwell said a WTO dispute panel is slated to rule in late May on the EU challenge of tax subsidies received by thousands of U.S. firms. Congress amended the tax law last fall, but the EU is dissatisfied and has threatened to impose sanctions on U.S. goods that would raise their costs by $4 billion. However, Europe has agreed not to impose the sanctions until the WTO rules.

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Times staff writer Carol J. Williams in Amsterdam contributed to this report.