Managing The Global Business Environment

Executive Summary

There are three reasons why Ecuador should request a 21.5 panel. First, banana is a vital industry for Ecuador, so that it cannot leave the solution in the hands of others. Second, Ecuador does not have a real ÐŽ§free riderЎЁ opportunity in the banana dispute, since the USÐŽ¦s interests deviate from EcuadorÐŽ¦s best interests. Therefore Ecuador cannot solely rely on the US to fight with EU. Third, Ecuador has played an assertive role in the banana dispute in the past. To be consistent and to maintain credibility, Ecuador has to file as long as EU import regime for bananas has not been compliant with WTO rulings.

If Ecuador does request a 21.5 panel, EU will fight back. At the same time, the US and other Latin American banana exporting countries would join Ecuador aiming at dismantling barriers to trade. By filing, the compliance issue would be put onto WTOÐŽ¦s agenda and EU would be pressured to seek for a solution within certain time frame.

Filing the 21.5 panel would tighten the tension of the bilateral relationship between Ecuador and the EU. As the US government is pressurized by powerful multinationals, such as Chiquita, it would probably place retaliatory duties on European imports, which would lead to job loss in European exporting industry. At the same time, Caribbean economy could collapse if the EUÐŽ¦s preferential treatment is whipped away without giving enough time for Caribbean to adjust. The wider importance of the banana trade dispute is that with the basis of EU trade now shaped by the rulings of the WTO and the consolidation of trade liberalization and globalization. ÐŽ§Free tradeЎЁ has always been a delicate state of affair negotiated between countries. No matter strong or weak, countries need to leverage and fight for their best interests.

Ecuador should request a 21.5 panel. The reasons are as follows:

Firstly, banana exporting is too crucial for EcuadorÐŽ¦s economy to leave the solution in the hands of the USA and the EU. Banana accounts for roughly 30 percent of the total exports in Ecuador, which makes the economy heavily dependent on secure access to banana markets overseas. About 97 percent of all banana output is aimed for the European market, since the European bloc consume the most bananas in the world. There is no excuse for the government of Ecuador to declare that the ÐŽ§banana warЎЁ is over until a fair agreement is reached and EcuadorÐŽ¦s interests are fully taken into account. Ecuador has been the worldÐŽ¦s largest banana exporter since 1953. Ecuador accounts for more than one-third of global banana exports (28.5 percent) (Appendix 1). At the same time, Ecuador is also among the most efficient banana producer in the world, with production costs and average purchase prices lower than those of its neighbors. The current European tariff on bananas is commercially hurtful and inconsistent with the WTOÐŽ¦s market-oriented philosophy. Ecuador obviously has a major interest in ensuring the EUÐŽ¦s banana import system conforms fully to the WTO rules.

Secondly, there is no real ÐŽ§free riderЎЁ opportunity for Ecuador in the banana dispute case. It has to stand up to defend its own interests. In comparison with other countries in the dollar banana zone, multinationals play a very limited role in the Ecuadorian industry. Chiquita does not own any banana farms in Ecuador and Dole has only small holdings. They act only as traders of Ecuadorian bananas. The largest export company in Ecuador, Grupo Noboa, is domestically owned. Therefore, EcuadorÐŽ¦s best interest would not be perfectly matched by the USÐŽ¦s interest. However, as the leading banana exporter, Ecuador is important to the US case. Therefore, Ecuador would definitely benefit from leveraging the superpower of the US to bargain with EU in appropriate circumstances. Despite the fact that in the end, the key to resolving the case is the economic power of the US. Interests of countries like Ecuador will be neglected if they do not stand up and play a tough role on the stage of international trade. Besides, it has been always a zero-sum game between Ecuador and the rest of Central American banana producing countries. Whatever gain that Ecuador obtained would be loss to other Central American banana exporters. Having a reputation of the toughest bargainer in the game would definitely win Ecuador larger share in the EUÐŽ¦s pie for the dollar banana zone. (Appendix 2)

Thirdly, since Ecuador officially joined the WTO on January 26, 1996, it has played an active role in the banana dispute. From joining the USÐŽ¦s WTO complaint against the EU, to deciding to go it alone, from filing the reconstitution under Article 21.5 during the ÐŽ§sequencing crisisЎЁ to requesting for authority for cross-retaliation, Ecuador has been very assertive in defending their interests. It pressed the case aggressively at each stage and devised a creative approach to compliance bargaining after winning at the panel and appellate levels. As far as the EU import regime for bananas has not been compliant with WTO rulings, there is no other option for Ecuador but to file, especially at this stage of its international trade role. On the international trade and WTOÐŽ¦s playing field, the consistency and credibility of the actions of each player is crucial for their power positioning. Given that Ecuador has been persistent on reaching a fair agreement on banana trading with EU in the past, there is no way for it to compromise on the half way through. Any softening actions displayed by Ecuador would lead to the erosion of its prior success in this case. In addition, WTO dispute system continues to have the generally strong support of the members in the nearly 12 years of operation of the system. EU committed to comply in all its past cases and its actual actions to comply has been very good. Notable cases where compliance has been achieved by the EU include: Bed Linen, GSP, Sardines, Trademarks/GIs, Sugar. As one of the residual EU compliance problems, compliance in the banana case is not completely unforeseeable.

What will happen if Ecuador does request a 21.5 panel?

If Ecuador does request a 21.5 panel, EU will fight back on the ground that it has already brought its rules for banana imports in line with WTO rulings. At the same time, the US and other Latin American banana exporting countries would join Ecuador aiming at dismantling barriers to trade. One of the benefits of requesting a 21.5 panel is that the panel needs to circulate its report within 90 days after the date of referral of the matter to it. When the panel considers that it cannot provide its repot within this time frame, it will need to inform the DSB