Last week, a trade war broke out between the European Union and the United States. For many, the decision by the United States to slap 100 percent tariffs on various European luxury goods was a surprising development. Why did we suddenly take such action on our most important trading partner in this, the era of economic globalization? Well, the current fallout between the world’s two largest economic forces is based on a disagreement over bananas. Yes, you heard me right, bananas.
The fight began when the EU announced it would give preferential treatment to banana exports from its former colonies in the Caribbean, where some island economies rely on the banana trade for economic survival. American multi-nationals, like Dole and Chiquita were not happy, because their bananas come from Latin America. The American government argued that Latin American bananas would be at a disadvantage in European markets. The US took the case to the World Trade Organization, the institution that regulates free trade agreements like GATT.
The EU contended that they were aiding the economies of small, former colonial possessions that could not survive in the face of competition from huge American banana growers in Latin America. American officials said the Europeans were violating WTO rules and circumventing free trade. Consequently, the WTO ruled in favor of the U.S. on three separate occasions; the EU, however, refused to stand down. In which case, after several years of negotiations and WTO tribunals, the US decided to levy 100 percent tariffs on various European goods totaling an estimated $550 million.
On the surface, the European-American trade dispute seems to be quite trivial. But, it is actually about something much bigger than that: the future of international trade itself.
Over the past few decades, the world has been coming together, especially on the economic front. The proliferation of free trade has literally become the law of international economics. Because of such agreements as GATT and The Uruguay Rounds, tariffs and trade barriers have been eliminated around the world. People in virtually every country can own an American computer, drive a German car and own a Japanese CD player. Economic globalization has brought with it the many benefits of free trade. For the most part, no matter where you are on Earth, we are using many of the same products. The benefits that free trade bring us are endless: economic stability, interaction of peoples, more choices for consumers, mutual respect and understanding, among many others. All these factors help lead us to a world that is more peaceful and more stable.
In the past few years, though, some European bureaucrats and politicians have become a little hostile towards the spread of complete global free trade. Because of the pressure brought from increasing unemployment at home and the need to reform social welfare systems in order to maintain a competitive edge in the age of globalization, EU leaders seem not to be as enthusiastic as they once were towards free trade.
The EU has done a wonderful job at eliminating trade barriers within Europe, between various member-states. They have created a system where a Parisian can just as easily purchase goods from Helsinki or Lisbon as from down the street. The Europeans can definitely be applauded for giving the world a model that could hopefully one day be put to good use on the global level.
Despite the EU’s success at eliminating internal trade barriers, some of its recent behaviour seems to show an unwillingness to continue the trend towards free trade around the world. Now that they have removed the trade walls from within, European politicians seem to want to build an economic wall around the newly unified Europe.
On other occasions, the EU has disobeyed its international trade treaty obligations. One such example involves American airline carriers. Citing an obscure noise pollution law, the EU demanded that all American passenger airplanes that fly to Europe with engines built before a certain year must be replaced. Their demand is written in such a way as to benefit European airplane engine makers.
American trade representatives reacted angrily to European demands, citing it as a cheap attempt at giving an edge to the European airplane manufacturer, Airbus. In retaliation, the American government has threatened to bar the crown jewel of European aeronautics, the Concorde (which flies daily from Paris and London to New York) from landing at JFK airport.
In yet another example, the EU refuses to allow American beef to be imported to Europe, because of a certain hormone used in American cattle. The WTO ruled that the EU was violating international free trade agreements and must allow Americans to export beef to Europe, regardless of whether or not it is hormone-treated.
These two examples, along with the “banana” issue, show a disturbing trend in the EU’s trade policies. As Philip Lader, the American Ambassador in London, said this week, “the issue is not [just about] bananas. . .but whether or not WTO rules apply to all members.” The European Union’s actions over the past few months have shown increasing hostility towards free trade. It seems quite obvious that the benefits of free trade far outweigh its drawbacks. Rather than try to violate international law for the benefit of different interests in its member-states, the European Union must come to terms with the future of the global economy.
Europe needs to realize that it cannot take advantage of global institutions like the World Trade Organization in order to unevenly further its own economic interests. Europe’s actions regarding such issues as the banana trade, the air carrier issue, and American beef have been struck down as illegal violations of Europe’s international treaty obligations. I hope the EU can in the future act within the confines of international law and recognize that open free trade is good for all.