ECUADOR, THE WTO, AND THE BIG BANANA:
Ecuador learns the hard way that the WTO doesn't work the way they say it does.

By Gerard Coffey*

Back in the heady days of 2000, Ecuador, the world's biggest banana exporter, felt that it had played its cards well. First, by winning a case in the World Trade Organisation (WTO) against the European Union's banana importation scheme, and then by backing the EU against the US, its ally in the WTO case, it had come out a winner in the European's new "first come, first served" importation scheme which promised greater exports to the favoured European market which pays more per box than most importing countries.

But the champagne cork got stuck in the bottle, and things didn't turn out as well as the exporters and the government had hoped.

Despite the favourable ruling of a WTO dispute panel, Ecuador ended up on the losing end of the dispute, when the EU and the US (which isn't a producer) decided to settle the case between them. The winners were the big transnational distributors, above all Chiquita, whose connections, and big donations to the Republican Party (more than $1 million in 1999-2000 alone) paid off. Also on the losing end of the dispute is the already tarnished credibility of the WTO which, despite rhetoric to the contrary, does not provide a level playing field for its members (even if such a thing were desirable) or an unbiased method of dispute resolution. Evidently, the WTO follows the rules of the jungle where the strong battle the strong, and the weak, if they don't find some friends or get out of the way, get hurt.

It wasn't supposed to be this way. According to the WTO's first director general (and now Italy's foreign minister) Renato Ruggiero, the WTO would put an end to the arbitrary nature of trade disputes and would be a rules-based organisation where power was controlled, not flaunted. The second director general (and former New Zealand prime minister) Mike Moore recently took up the same theme expounding the virtues of the WTO and painting a bleak picture of a wild and wicked world without the benevolent equanimity of his organisation.

However, these lofty ideals are in sorry contrast to the reality, as the banana case shows. Here is a brief history.

When the European Union changed its rules on banana importation in 1993, introducing a country quota scheme in order to favour its small suppliers from Africa and the Caribbean, the big producers, such as Ecuador and, more importantly, the big distributors Dole and Chiquita (the latter almost ending up bankrupt) weren't at all happy with the idea. A case was launched by Ecuador under the GATT, which it won in 1994. Again in 1996 a demand was made at the WTO, together with the US and others, on the grounds that the import licenses and quotas required by the EU contravened GATT/WTO rules. The implication being that they were anti "free trade".

Ecuador, the US and its allies won their case in 1997. The EU was asked to change the rules to make them consistent with the WTO's free trade principles. Ecuador and the US also won the right to impose sanctions on the EU ($190 and $200 million respectively). After a number of appeals and delays, the Europeans appeared to have found the right formula when, in October 2000, it announced its "first come, first served" scheme which, while reserving a portion of the market for its small producers, would in theory have given everyone the possibility to ship what they wanted. Of course, the other side of the coin was that a ship might have only half its load accepted. But it was, more or less, "free trade".

SMALL PRODUCERS SIDELINED
The idea was ruled acceptable by the WTO, and by the Ecuadorians, at least some of whom were happy, given that the scheme appeared to offer the possibility of increased sales based on the elimination of the ceilings imposed by the country quotas and on a more "competitive" product. Those that weren't so happy were the smaller independent Ecuadorian producers, who fought for an increased country quota and shied away from a form of competitiveness based on extremely low, some might call starvation, production costs. These producers depend on the exporters and intermediaries and are often not paid even half the legally stipulated minimum price per box, which in turn is generally around 1/3 to 1/2 the price paid, for example, to Costa Rican producers. It's almost redundant to say that, due to the need to be "competitive", the standard of living of workers in the industry hasn't improved in 50 years.

In fact, during the process of the negotiations between the producer countries (and the US), the Costa Ricans threatened actions against the Ecuadorians for "dumping" their product. At the same time Alberto Serrano, the President of the small producers in the Ecuadorian Province of El Oro, stated that the small producers had not seen even one cent of the better prices paid by the European Union .

The US, its companies, in particular Chiquita, and a majority of the other producing countries were also not happy. Caught between the "competitive" production costs in Ecuador, which they found difficult to undercut, and the free trade doctrine, Chiquita and the new US administration decided in favour of what suited them best, to opt out of "free trade" and settle for the old style quotas and licences.

So as it stood on 10 April 2001, Ecuador was isolated in its position of support for the apparently firm, and WTO consistent, EU position. While the rest, once again, took the battle to the Europeans.

Surprisingly, at least to the Ecuadorians, whose ambassador to the EU made an embarrassing speech about the benefits of the "new" first come first served system the same day that US Trade Representative Robert Zoellick and the EU's Pascal Lamy announced their own version of the "new" importation scheme, the expected battle didn't last long.

"NEW" SYSTEM FAVOURS THE "OLD BOYS"
On 11 April, the EU and the US announced a "mutual" settlement, exchanging $190 million of US rotating sanctions on European luxury goods for a political and economic favour to Chiquita, and its president Robert Lindner. The "new" system reverted to the "old" system, quotas, but with a new twist, this time handing them out to distributors instead of countries. And, of course, on favourable terms.

The "traditional" distributors (determined based on 1992 participation) getting 87 per cent of the market, while the rest of the "newcomers" (which include the majority of the Ecuadorians) were left to fight over the remaining13 per cent. Chiquita came out on top, getting what amounts to 40 per cent of the market, based on their sales between 1994-6, a period which particularly favoured them and not the Ecuadorians, whose market participation increased dramatically after 1996.

On examination it appears that no matter what new package the deal is wrapped in, the new/old system is basically what Ecuador and the US, and all the rest, battled to defeat in the second half of the 1990s. Some would call it ironic, but apart from the fact that reality has its ironic side, the decision is in keeping with the nature of the WTO, the other multilateral institutions, and the present state of power relations in the world. Despite the obvious contradiction, in such cases the WTO is not prone to concern itself about the details, and being extremely cognizant of where the power lies, the agency consented to be violated. A spokesperson announced WTO's blessing for the deal, stating that not going all the way down the conflict solution road "is in accordance with the criteria expressed by the Director General (Mike Moore) in the sense that arrangements between countries are the most positive thing for the countries involved."

Of course, the EU has promised that in 2002 it will begin the negotiations that will determine the possibility of an agreement, on the possibility of a "free trade" system of tariffs, possibly to be put in place for 2006. Possibly, possibly. Based on past experience at the WTO, and without Chiquita or the US government pushing hard, no one should be fool enough to hold their breath. Not even the Ecuadorian Minister of External Affairs, and free trade promoter, Heinz Moeller, who still contends that the Europeans have signed a legally binding "convention" to move toward "free trade". Meanwhile, Chiquita has shown that what really matters is neither conventions nor the WTO's "rules based system" but pure financial and political clout in Washington. According to ex US commercial negotiator C. Christopher Parlin, who served under four presidents "it's the typical example that money gets it all."

FREE TRADE FAIRY TALE TAKES A REALITY CHECK
As for the Ecuadorian government, which had swallowed the whole free trade fairy tale, the result was a rude and extremely embarrassing awakening. Perhaps what it had failed to note was that WTO rules are only for use by the strong against the weak. When the big boys start to battle it's a different story, then it's the "agreement between countries" that counts. The decision that Ecuador won at the WTO and the some US$200 million in damages that were subsequently award to it amounted to a Pyrrhic victory. The country was never able to convert the award panel damages into anything concrete. Not even in exchange for social programs, as was at one time mooted. In fact, the European government creditors continue to insist on the IMF's approval and IMF sponsored (demanded) tax changes at the national level before any debt swap will be considered. Not that the amounts proposed are even significant.

What the Ecuadorians had also perhaps failed to notice was that the way is being cleared for a second attempt to launch both a new round of negotiations at the WTO, and to solidify the imposition of the Free Trade Area of the Americas. In these cases there appears to be a pattern of attempting to tie up whatever loose ends are possible before trying to convince the doubters about the benefits of free trade or the WTO.

With regard to the WTO and the new round, on a scale of one to ten, the banana dispute was much easier to solve than other outstanding disputes. For the Europeans, the decision involved no losses to national production and the removal of the sanctions was a relief to many exporters. Other problems may not be so easy to put out of the way. For example, the unprecedented outcry over (and rejection of) GMOs by Europeans in many countries, something which goes to the heart of control of agricultural policy and ironically, food self sufficiency, which both the EU and the US have been supporting through massive subsidies for many decades.

So what are the lessons to be drawn from this?

The first is that the trade in bananas, or anything else for that matter, is controlled by the big players, in particular the US and the EU, and that in these countries, particularly the US, money and influence controls much of the political decision-making.

The second is that, rhetoric to the contrary, the WTO isn't a level playing field. The idea that mutually "agreed" rules would provide the small economies a degree of protection from the bigger players, is fine in principal but suffers from two major flaws. On the one hand, it ignores the fact that even though in many Third World countries the state has become so small as to be almost totally irrelevant, there still exist many large and powerful states in the world and they generally act in their own interests. In many cases of "national interest" the strong only concern themselves with the rules when it suites them, or when another big player forces them to. This is especially true with a US administration that, according to Condoleezza Rice, the National Security Advisor, shouldn't be afraid to use its power and act in its own interest, something that "will create the conditions necessary for promoting liberty, markets, and peace."

In this regard it is interesting to note that one of the negotiating strategies of the office of the US Trade Representative is to "...devise policy options regarding continued US participation in the WTO and areas where further negotiations will yield benefits for US interests - in terms of commercial interests as well as the promotion of American values abroad."

The WTO, or any other institution, is not likely to change this. In fact, it will probably make things worse given how dependent these institutions are on the US, the legal nature of its contracts, and how things actually work in practice

AND THE STRONG WILL PUNISH THE WEAK…
The WTO, and other asymmetrical commercial agreements, give the strong a legal basis for punishing the weak when they can extract some benefit from doing so. As the failure of Ecuador to impose authorised sanctions on the EU makes plain, in the reverse situation this simply isn't an issue.

It is also absurd, not to put too fine a point on it, that states such as Ecuador and Jamaica should be bound by the same commercial rules as the US or the EU. The WTO is a monolithic institution in a diverse world. Evidently not all countries are alike, have the same needs or capacities. In this sense the brave new world of the WTO is much worse than the supposed chaos of its predecessor, the GATT, where countries at least enjoyed some leeway to design and control their own future. Binding all countries together under the same rules is little more than absurd, unless of course, the real objective is to institutionalise control of the majority by the minority. But even in this case, sooner or later, the differences and instability caused by exclusionary centralised decision making processes are bound to make themselves felt.

Finally, this is just another example that "free Trade" only works in the laboratory. The Ecuadorian workers who produce the "competitive" product haven't benefited at all, and the only thing that increased exports is likely to do is increase pesticide use (and related illnesses); give the exporters more money to spend in Miami, Houston or New York; and possibly create starvation wage jobs, at the expense of better paid workers in other exporting countries. So, it's not difficult to see exactly who wins and losses with free trade, or the fact that we need something better.

* Gerard Coffey is a journalist, activists and the Latin America editor and translator for Focus on Trade. He lives in Ecuador and has recently established the Centro de Informacion Globalizacion. For more information contact ciag@ecuanex.net.ec