The Political Environment

As the old saying goes Politics makes strange bedfellows but in this case the only one making out is Miss Chiquita Banana Prosciutto di Parma, ham from Italy, hand bags from France, bath oils and soaps from Germany and host of other imported products from Europe were all slapped with a 100 percent import as retaliation by the US government against European Union banana import rules that favor Caribbean bananas over Latin American bananas. Keep in mind that no bananas are exported from the United States, yet the United States has been engaged in a trade war over the last seven years that has Atlantic millions of dollars. But how can this be, you ask? Politics that is how.

One small business, Reha Enterprises for example sells bath oil soap and other supplies imported from Germany. The tariff on its most popular product, a herbal foam bath, was raised from 5 percent to 100 percent. The customs bill for six months spiraled to $37,783 from just $1,851 – a 1,941 percent tax increase. For a small business whose gross sales are less than $ 1 million annually, it was crippling. When Mr. Rhea heard of the impending banana war called everyone – his congressman, his senator, the United States trade Representative (USTR). When he described his plight to a USTR representative the official expressed amazement. They were surprised it was till importing because they thought the tariff would cut off the industry entirely. That was their intention, which of course entirely. That was their intentions, which of course, would have meant killing Reha Enterprise as well.

In effect he was told it was his fault that he got caught up in the trade war. He should have attended the hearings in Washington just like Gillette and Mattel, and may be hi products would have been dropped from the targeted list just as theirs were. Scores of European products, form clothing to stoves to glass Christmas ornaments, dolls and ballpoint pens that were originally targeted for the retaliatory tariffs. Aggressive lobbying by large corporations, trade groups, and members of Congress got most of the threatened imported products as off the list. The USTR had published a list of the targeted imports in the Federal Register inviting affected companies to testify. Unfortunately, the Federal Register was not Rhea’s reading list.

In that case he was told he should have hired a lobbyist in Washington to keep him briefed. Good advice – but it doesn’t make much sense to a company that grosses less than $ 1 million a year. Other advice received from an official of the USTR included of the record suggestion that he might want to change the custom number on the invoice or it would appear that he was importing goods not subject to the tariff a decision that could, if he were caught, result in a hefty fine or jail. Smaller businesses in Europe faced similar problems as their export business dried up because of the tariffs.

How did this banana war start? The European Union imposed a quota and tariffs that favored imports from former colonies in the Caribbean and Africa, distributed by European firms, over Latin American Bananas distributed by US firms. Chiquita Brands international and Dole Food Company, contending that the EU’s illegal trade carriers were costing $ 520 million annually in lost sales to Europe asked the US government for help. The government agreed that unfair barriers were damaging heir business and 100 percent tariffs on selected European imports are levied. Coincidentally Chiquita Brands’ annual campaign contributions increased from barely over $40,000 in 1991 to $ 3.1 million in 1998.

The European Union complained about the proposed US tariffs and took a grievance to the World Trade Organization (WTO), which ruled in favor of the US. The EU ignored the WTO and continued the banana tariffs, and the US continued with its high tariffs – the banana war continued. Because of lack of compliance the USTR imposed a carousel provision that allowed it to rotate, every six months, products that were to be targeted for the 100% tariffs. Like all trade disputes, this one was apparently settled, but all that cost to those caught in the middle between two nations and a giant MNC? The biggest losers were the African and Caribbean countries that Europe favored in the dispute. A glut in production has driven prices down and farmers are selling fewer bananas at lower prices. Most recently, the European Union proposed new tariffs in anticipation of congress passing the Central American Free trade Agreement. Will bananas be bruised again? —