Banana GATT Case (BANANA)


CASE NUMBER:101
CASE MNEMONIC:BANANA
CASE NAME:Banana GATT Case


A. IDENTIFICATION

1. The Issue
The large revenues of the Costa Rican banana industry have come at the expense of one of the world's most biologically diverse rain forests. Recently, the EU installed a quota system for bananas predominantly from Latin America. The Costa Rican banana industry has been hit hard and the delicate balance between business and environmental protection has been affected. There have been many protests to bring an end to the EU banana quota system, including protests to the GATT. The US government is now at the forefront of forging negotiations in the trade dispute because US fruit conglomerates are suffering, whereas the European fruit counterparts are benefitting. The resolution, if any, of the greater international dispute over world banana trade will inevitably have an effect on ecological/banana industry relationship in Costa Rica.

2. Description
Throughout the 1900s, the term "Banana Republic" has been associated with the banana-producing countries of Central and Latin America. Costa Rica is a banana republic since its main money- making industry is the export of bananas ($441 million in 1991), yet at the same time, it is also known as one of the most biologically diverse habitats, even after many years of rain forest deforestation (see MERCK case).

In 1985, Costa Rican environmentalists filed a lawsuit, on behalf of banana plantation workers, claiming that a pesticide, dibromochloropropane (DBCP), heavily used in Costa Rican banana cultivation, poisoned many workers and made them sterile. Since the filing of the suit, Costa Rican environmentalists have decried that the banana industry, mainly run by US fruit conglomerates, such as Chiquita, del Monte and Dole, has devastated the Costa Rican eco-system with the toppling of rain forests, heavy erosion of the soil-base and the use of vast amounts of the DBCP pesticides.

In the pursuing years, the environmentalist movement, under the direction of such groups as the Banana Amigo Project, Rainforest Alliance, Fundaci˘n Ambio and Tsuli Tsuli/Audubon, strengthened, and by 1991, talk of an international ban on Costa Rican bananas surfaced because of ecological problems such as soil erosion, rainforest loss, chemicals in the ground and species loss. The Costa Rican government and the banana multi-nationals began to discuss the problems and act on them. Though the focus was primarily on how to reduce routine spraying of harmful pesticides in order to protect the workers, other areas of environmental protection were worked also covered. For example, laws were passed on proper disposal of blue bags, which are used to protect bananas from inclement weather and from being scarred by banana-plant eating insects, because the plastic bags were being discarded improperly killing fish, smothering birds and choking turtles. Also, laws were implemented which stipulated that banana plantations can be no closer than 33 feet to a water source, as to protect soil erosion and the fragile habitats of inland and coastal fish and coral reefs. Also, projects to restore the rain forests and decree national parks were implemented.

At the support of the Costa Rican environmentalist movement has been the eco-tourism industry, which has been flourishing since 1989. Though still small-scale, tourism to the rain forests and other natural areas has increased enough that many believe eco- tourism in Costa Rica could soon rival banana production as the largest revenue-generating form of business.

The environmental movement and the eco-tourism boom in Costa Rica has helped reduce environmental damage on the rain forests. But in recent years, the banana producers have continued to cultivate more plantation acreage in hopes of increasing exports to an expanding European market because of the fall of the Iron Curtain, EU market integration and the promising reduction of agricultural barriers within the GATT. Also, many of the eco- friendly laws recently established in Costa Rica have not been adhered to by the banana producers or enforced by the Costa Rican authorities.

Though the Costa Rican struggle between the environmentalists and the banana trade industry has continued, there exist strong external factors which have, are and will continue to affect the ecological/banana production relationship in Costa Rica. In June, 1993, the EU put into effect the European banana regime which placed quotas on the amount of bananas allowed into the EU from outside of the trade preference agreements with Europe's old colonial trading partners, the African, Caribbean and Pacific nations. The result of the regime, in effect, disallowed the usual amount of bananas, customarily from Latin America and hence, US conglomerates, to enter into the EU. Costa Rica and other Latin American banana producing countries were forced to cut back banana production and alter immediate and long-range planning (see PFBELIZE case). The reason for the switch to the quota system stems from the market integration initiative (Europe 1992 plan) of the EU whereby the import and export regimes of all the EU members are harmonized and homogenized.

Since Qualified Majority Voting was instituted with the Single European Act for EC (now EU) market issues in 1987, the Germans, who have preferred the cheaper, larger and (to the Germans) more sumptuous bananas from Latin America, were outvoted predominantly by France, Spain, Britain and Portugal who favored maintaining the Lome agreements as part of the integrative "European" initiative. The Germans, in essence, were being forced to accept more expensive, smaller and less desirable (for the Germans) bananas from the ACP. The Germans never had to worry about colonial protection because it had been stripped of its colonies after World War I, unlike France, Spain, Britain and Portugal who maintained their colonies until the end of WWII.

Since the induction of the EU banana regime in June 1993, an international banana crisis has ensued, which journalist David R. Sands says, pits:
the United States against the 12-nation European Union; banana-crazy Germany against France, Spain and Britain; U.S. multi-national giant Chiquita against two powerful European rivals; U.S. investment interests against U.S. diplomatic niceties; Guatemala against Costa Rica; Latin American growers against Caribbean growers; and the U.S. government against four major Latin American nations.
The international banana crisis, however, has had little to do with environmentalist concerns and nearly everything to do with high-level politics and the rules of fair trade.

Several banana-producing Latin American countries, including Guatemala and Ecuador, have filed complaints in the GATT about the unfair protectionist measures of the EU banana regime. The United States has supported the Guatemalan-lead complaint in GATT, and as well has invoked Section 301 of the 1974 US trade acts on behalf of the US conglomerates operating in Latin America charging the EU banana regime distorts fair trade policies under GATT principles. Subsequently, even after many unilateral declarations by the EU of its commitment to GATT and fair trade, the EU applied for exemption of the banana regime in GATT. Fearing greater trade problems, the US has dropped its GATT complaint and has decided to pursue direct negotiations with the EU on increasing access for Latin American producers and US banana-producing companies.

To offset some of the trade tension, the EU arranged a special deal, called the "Framework Agreement," with four Latin American countries, including Costa Rica, Venezuela, Colombia and Nicaragua, that allowed for partial increases in the amount of bananas from these countries to be exported to the EU. Other Latin American banana-producing countries, such as Guatemala, Ecuador, Panama and Mexico have claimed their Latin American counterparts sold-out with "Framework Agreement" instead of Latin America unifying in attempt to nullify the EU banana regime in GATT (and the GATT's supposedly stronger successor, the WTO).

Since 1993, Germany has tried to nullify the EU banana regime in the European Court of Justice, but has failed. The court has claimed on several instances that EU market integration is more important than nationalistic preferences. Also, since the US has dropped its GATT complaint because of EU promises of EU/US bi- lateral talks, the issue, still being pushed by Guatemala in GATT, will not take priority, and most likely will be left to be resolved between the EU and the US.

Currently, the US has supported the banana conglomerates, in contrast with the "Framework Agreement", which has threatened wider trade sanctions with the EU if the banana issue is not resolved. Sir Leon Brittan and Mickey Kantor have met to discuss the banana problem, but no definitive EU/US agreement has been made. Both sides continue to threaten the possibility of greater trade problems, but have yet to initiate such policies.

For Costa Rica, the future of the environmental/trade relationship remains in question. Since 1993, expansion of banana plantations has been stagnated as well as banana production. The "Framework Agreement" helped to restore some of the lost production, but does not restore production back to pre-EU banana regime levels, as the US desires. Some estimates have claimed banana production in Costa Rica will drop by 30 percent.

At the turn of the century, 85 percent of Costa Rica's landscape was rain forests. By 1985, that number had dropped to 26 percent (see COSTBEEF case). Now, the numbers seem to be increasing with the expansion of Costa Rican national parks -- maybe with some help from Steven Speilberg's "Jurassic Park" -- and eco-tourism. Other such ecological projects, as Instituto Nacional de Biodiversidad (INBio), help preserve the biodiversity in Costa Rica as well as provide a source of revenue. The future of the environmental- banana trade relationship within Costa Rica will depend on the results of the EU/US banana trade negotiations. But it will be some time before it is known if Costa Rica becomes less of a banana republic and more of an eco-friendly tourist area.

3. Related Cases
Keyword Clusters
(1): Trade Product = BANANA
(2): Bio-geography = TROPical
(3): Environmental Problem = HABIT Loss
4. Draft Author: Todd M. Porter

B. LEGAL Clusters

5. Discourse and Status: DISagreement and INProgress

6. Forum and Scope: MULTIateral

7. Decision Breadth: 110

8. Legal Standing: TREATY
The Lome Conventions are treaties, there are environmental laws in Costa Rica and the INBio project and other organizations are NGO factors.

C. GEOGRAPHIC Clusters

9. Geographic Locations
a. Geographic Domain: North America [NAMER]
b. Geographic Site: Southern North America [SNAMER]
c. Geographic Impact: COSTA Rica
10. Sub-National Factors: YES
There are sub-national factors at work, especially local laws and regulations on banana planting. There are also regional environmental groups. For example, the Costa Rican government has laws on how far banana plantations can be from roads and water sources. Also, local Costa Rican environmentalist groups have strong lobbies, with support from outsiders.

11. Type of Habitat: TROPical

D. TRADE Clusters

12. Type of Measure: QUOTA
The case also includes other aspects including subsidies, import standards and licensing agreements.

13. Direct vs. Indirect Impacts: DIRect

14. Relation of Measure to Environmental Impact
a. Directly Related: YES BANANA
b. Indirectly Related: NO
c. Not Related: NO
d. Process Related: YES DEFORestaion
The process of how the bananas are cultivated -- i.e., the pesticides and blue plastic bags -- have been part of the process of altering banana production.

15. Trade Product Identification: BANANA

16. Economic Data
Banana industry output of Costa Rica was $616 million in 1993 with direct banana employment of 50,000. Total world trade in bananas in 1991 was $5.1 Billion. The estimated Costa Rican eco- tourism industry market in 1992 was $300 million.

17. Impact of Measure on Trade Competitiveness: HIGH
The degree of competitiveness for bananas has been drastically altered by the EU market integration initiative and this has hurt the Costa Rican economy. Of course, since much of the Costa Rican economy is banana-based, any restrictions placed on Costa Rican bananas would have a high impact of competitiveness. Even between the US and European banana conglomerates the impact on competitiveness is significant. It may not exactly be as high as is noticeable in Costa Rica, but the banana regime surely favors the European fruit companies over the American fruit companies.

The US/EU debates may in effect, severely cut back banana production in Costa Rica, thus encouraging more eco-tourism. Since most of Costa Rican farmland is for bananas, and only bananas, it would be difficult and costly for the producers to quickly switch to another crop/fruit. Also, bananas are a good cash crop, so even though other crops can be grown, the lack of profitability for other fruits prompts the producers to try and change the EU banana regime, not switch to another commodity.

18. Industry Sector: FOOD
Also, the banana transportation sector is affected because many American companies own the methods of banana transportation, and it too has been adversely affected.

19. Exporters and Importers: COSTA Rica and Europe [EURCOM]
Costa Rica exported $441 million (1991) worth of bananas to the EU and, in all, the EU (12) imports approximately 2.7 million tons of bananas a year. Corbana is the national banana Corporation in Costa Rica and is responsible for the management of the exports, including the major US conglomerates. They are responsible for nearly all of the banana exports.

The leading company-importers of bananas in the EU are Geest of Britain and Fyffes of Ireland, but they get most of their banana imports from the ACP. The leading importer of Latin American bananas are the Germans, who imported before the banana regime most of Latin America's exports to the EU.

E. ENVIRONMENT Clusters

20. Environmental Problem Type: DEFORestation
Deforestation is by far the biggest environmental problem in Costa Rica. Around 1900, 85 percent% of Costa Rica was rainforest. By 1985, only 26 percent remained, most of the loss going to banana plantations.

Land pollution because of pesticide use on bananas has been one of the major problems in Costa Rica. Law suits have occurred and continue to occur because the pesticides have killed flora and fauna in Costa Rica as well as have harmed the banana plantation workers. Studies have shown that DBCP can cause sterility in humans and other animals.

21. Name, Type, and Diversity of Species
Name: Banana
Type: Plant
Diversity: 12,119 Higher Plants per 10,000 km (Costa Rica)
According to INBio, a leading institute on biodiversity in Costa Rica, it is believed Costa Rica houses half a million plant and animal species, roughly 5 percent of the world's total (a very large amount for such a small area). Only about 16 percent of the variety has been classified (under 100,000 different plant and animal species). It is assumed that nearly all of the plant and animal species are affected because of the large change in habitat since 1900. (Since 1970, 2.4 million acres of land have been deforested).

22. Resource Impact and Effect: HIGH
Many believe that the banana plantations, along with grazing have drastically changed the ecological balance in Costa Rica. The fact that Costa Rica today is known as one of the greatest environmentally protected areas means that the impact on bio-diversity and species lost must be high.

There are two types of effects and the first is structural. The EU's effect on the Costa Rican banana trade is quota-based, thus reducing banana production. This is all part of the market structure of the EU. The second factor is production. The effect is also production because the production of bananas and the methods employed in producing bananas in Costa Rica is largely attributable to the environmental problems.

24. Urgency and Lifetime: LOW and 100s of years

24. Substitutes: LIKE
However, there can really be no substitute for the banana, unless people eat different fruit. But, the methods employed in banana production can be improved, as well as the pesticides that go into banana production. Much of the problem has been blamed on the fact that the banana producers don't put enough resources into making the methods of banana production safer. They are usually concerned with increasing yields.

F. OTHER Factors

25. Culture: YES
Culture could be viewed as having an influence on the Costa Rican environmental problem. Many would claim that the inherent cultural relationship between Protestant work ethic/capitalism and the long period of Northern colonization of the South (until the 1960s) was culturally derived. The US has often been criticized, as well as Europe, for colonizing and controlling the South. And, over the 20th century, the banana in Costa Rica has become a large part of the culture simply because it is the main export and the banana industry is the largest employer in Costa Rica.

26. Trans-Boundary Issues:YES
As has been described, the relationship between the banana trade and the environment in Costa Rica is affected by many countries and non-state actors.

27. Rights: YES
The plight of the Costa Rican workers, their wages, their lifestyles have all been claimed to be an abuse of human rights. The colonial/dependency theories claim such abuses.

28. Relevant Literature
Electronic:
     There is an electronic archive at the National Biodiversity
Inventory which houses lots of information on flora and fauna in
Costa Rica and environmental problems in the country.  The World
Wide Web site is http//:www.inbio.ac.cr.
International and EU/US banana trade relations:
Andrew, Don, "European banana deal could lower prices." Super 
     Marketing (April 8, 1994).
"Bananas: Court of Justice ruling expected on August 20."   
European Report no. 1933 (April 5, 1994).
Brewer, James, "EU: EU Warning Over Banana Trade War." Lloyds
     List (October 20, 1994).
Brewer, James, "USA: Kantor probes EU banana import system." 
     Lloyds List (October 19, 1994).
Brooke, James, "A Forbidden fruit in Europe; Latin bananas face 
     hurdles." The New York Times (April 5, 1993).
Carvel, John, and Erlichman, James, "Eurocrats Bend over Backward
     to Straighten out Banana Ban Furore." The Guardian (September
     22, 1994).
"Commission to Discuss Banana Trade Probe with US." The Reuter 
     European Community Report (October 18, 1994).
"Commission Urges Latins to Drop GATT Complaint." The Reuter 
     European Community Report (January 14, 1994).
"Costa Rican Banana Business nears Bankruptcy." The Xinhua News 
     Agency (November 19, 1994).
"Council Approves Aid for ACP Banana Growers." The Reuter 
     European Community Report (July 11, 1994).
"Court of Justice Rejects Challenge to Banana Regime." The Reuter
     European Community Report (October 5, 1994).
"EU: A Look Behind the News-Agriculture." Agence Europe Presse 
     (October 5, 1994).
"EU and ACP States seek GATT waiver for Lom‚." The Reuter 
     European Community Report (October 27, 1994).
"EU: Court rejects Germany's case against banana import 
     Arrangements." Agence Europe (October 6, 1994).
"EU/Ivory Coast: Prime Minister Wins Confirmation of EU aid." 
     European Report 1940 (April 9, 1994). 
"First Draft of GATT Implementing Regulations; European Community
     on General Agreement on Tariffs and Trade." Agra Europe
     (September 9, 1994).
Gardner, David, "EC Sets Banana Quota and Tariffs." The Financial
     Times (December 18, 1992).
Lambert, Sarah, "Commodities: Germans Fail to Repeal EC Banana
     Tariffs." The Independent (July 5, 1993).
"Latin Banana Exporters Seek Loose Partnership with ACP Growers."
     Agence France Presse (March 8, 1994).
Lovell, Jeremy, "EU's Brittan to open Investment Debate on U.S. 
     Trip." Reuter European Business Report (January 24, 1995).
Maitland, Alison, "Controversy Continues to Dog EU Banana Regime
     -- A Problem Highlighted by Storm Damage to the Windward
     Islands' Crops." The Financial Times (September 23, 1994).
"Panama: Special Report-Economy Hard Hit by EC Banana Quotas." 
     Lloyds List (September 7, 1993).
Percival, Debra, "Caribbean-Trade: Jamaican Banana Firm Will 
     Benefit from US Deal." Inter Press Service (May 10, 1994).
Reid, Michael, "Driving Central America Bananas." The Guardian. 
     (July 19, 1993).
Sands, David R., "Banana Trouble; Trade Rivalries Ripen as
     Chiquita Challenges European Banana Regime." The
     Washington Times (November 6, 1994).
Sharrock, David, "Europe's Banana Splits; Caribbean Fruit
     Farmer's New Fear." The Guardian (May 21, 1993).
"Trade: EC Regime Under the Scrutiny of its Detractors." Inter 
     Press Service (August 24, 1994).
Tutt, Nigel, "EC: UK Agriculture Minister to Make New Proposals 
     on banana imports." Lloyds List (December 14, 1992).
"US Banana Producers File Complaint with the US over European 
     Import Regime." BNA International Trade Daily (September 8,
     1994).
Watkins, Kevin, "Banana Fudge; The Black Cloud of Ruin Looms Over
     the Caribbean in the Long-running Dispute over Single-market
     Tariffs and Quotas." The Guardian (December 19, 1992).

Environmental and eco-tourism issues in Costa Rica:

"Adjusting Farmers out of their Land." Environment v35n9
     (November 1993).
Blum, Elissa, "Making Biodiversity Conservation Profitable: a 
     Case Study of the Merck/INBio Agreement." Environment v35n4
     (May, 1993).
Castilho, Carlos, "Prospecting for Green Gold; Ecology and
     Tourism." World Paper (May, 1994).
Christian, Shirley, "There's a Bonanza in Nature for Costa Rica,
     but its Forests too are Besieged." New York Times (May 29,
     1992).
Douglis, Carole, "Banana Split." World Watch 6/1 (January,
     1993).
Hall, Bill, "The Cause of Environmental Woes in Guatemala and 
     Honduras." Utne Reader (January, 1988).

"In Search of the Green Banana." Gannett News Service (January 
     14, 1993).
Lewis, Scott Alan, "Banana Bonanza: Multinational Fruit Companies
     in Costa Rica." 22/6 (November, 1992).
Paarlberg, Robert L., "The Politics of Agricultural Resource 
     Abuse." Environment (October, 1994).
Redford, Kent H., "The Empty Forest; forest fauna are slowly 
     facing rapid extinction due to indiscriminate human
     activities." BioScience 42/6 (June, 1992).
Salibian, E. Catherine, "Green Tourism Spells Currency for Costa 
     Rica." Rochester Business Journal 10/4 (May 13, 1994).
"Sweet Fruit, Bitter Harvest--Pesticides and Bananas." CNN
     Television Program 147 (December 26, 1992).

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