[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

Environmental and human rights issues were two other prominent areas of intense
debate. Environmentalists and human rights advocates wanted to use trade policy to
help achieve their objectives. They worried that countries with inadequate protections
of the environment or of labor rights would be able to undercut American firms, whose
losses would increase pressure within the United States to erode those standards here.
The insistence by some on including clauses in trade agreements concerning labor and
the environment was met with an equally adamant resistance by others, threatening to
stall all efforts at trade liberalization. There was consensus on a few issues—for example,
countries should not be allowed to export goods produced by child or prison labor.
But beyond that, the debate raged on and it is likely to continue in the foreseeable future.
Case in Point
THE BANANA WAR
How could a dispute over bananas lead to unemployment among Scottish cashmere
workers? The explanation lies in the spillover effect of the banana war between the
United States and the European Union (EU). This dispute revolved around the claim
by the United States that the EU was following discriminatory trade practices.
Beginning in 1993, the EU imposed a banana import tariff that favored producers
in former European colonies in the Caribbean, Africa, and the Pacific over those
in Latin America. The United States and five Latin American countries complained
to the WTO. The United States claimed that EU banana import tariffs were harming
the country. Since the United States does not produce bananas, one might reasonably
ask how it could be harmed by the EU’s policy on banana imports. While
not a producer itself, the United States is home to two food distributors, Chiquita
Brands and Dole, that do grow bananas in Central America.
The WTO ruled that the EU regime was in violation of GATT and ordered the
EU to change its policies. The EU did, instituting a new banana import regime on
January 1, 1999. However, the United States and Latin America banana producers
argued that the new policy still effectively discriminated against them, and the dispute
was sent to the WTO Dispute Settlement Body. The United States claimed victory
in the banana war when, in April 1999, the Dispute Settlement Body accepted
the results of the WTO arbitrators, agreeing that the new EU policies harmed the
United States. This decision paved the way for the United States to impose sanctions
against EU products. The WTO ruled that the United States could impose
$191 million in sanctions against the EU, an amount determined by estimating the
economic damages to the United States resulting from the EU policies.
To retaliate against Europe, the United States imposed 100 percent tariffs on a
range of European products, effectively doubling their prices in the United States. The
list of goods hit by the punitive tariffs included Scottish cashmere, Italian cheese, and
German coffee makers. The targeted products were chosen to bring maximum political
pressures on the EU. The WTO ruling allowed the United States to impose these high
tariffs until the EU revised its banana policy to eliminate discrimination against Latin
American producers. The EU conceded defeat, and the banana war ended.
INTERNATIONAL COOPERATION ∂ 447