How did the Banana War Start?

o It started with bananas in Europe. After World War II, the continent's banana market
divided into two kinds. Such countries as Britain, France and Spain limited imports and gave
preferential treatment to bananas grown in their former colonies. Thus Britain encouraged
banana output in Jamaica, Dominica, St. Lucia; France extended special treatment to bananas
grown in the Ivory Coast and the Cameroons. At the other extreme, Germany offered a free
market with no import restrictions or tariffs.
o Britain and France took the position that banana production was essential for both
the economic health and the social well being of their former colonies. By the late 1980s,
about one-third of the work forces on the small island nations were employed in banana
production.
o Protected banana production, that is. Most of the bananas were grown on small
family farms and tilled by hand on hilly terrain and poor soil, with little or no mechanization
or irrigation. Yields were far below those in places like Honduras, Guatemala and Ecuador. In
fact, the cost of growing bananas in the Caribbean was twice that for bananas produced on
Latin American plantations. Without their favorable entree to Europe, the banana industries of
these small islands might have disappeared.
o Thus, in a tariff-free and quota-free Germany, Chiquita had seized 45% of the
market. Envisioning the same potential for all of Europe, as well as the former Soviet
satellites that were opening up, Chiquita and its chief competitor, Dole Food, decided in the
early 1990s to pour more money into production and flood the European market with bananas.
With more bananas than buyers, prices--and hence profits--plummeted.

Main Causes of the Banana War

o European countries limited the imports of bananas
o Companies complained to the World Trade Organization (WTO)
o The United States responded by imposing a stiff tariff on European goods shipped to the
United States
o Overall cause is due to the European Union (EU) failure to amend to Americas satisfaction on
their banana-import rules

World Trade Organizations Role in the Banana War

o WTO agrees with the United States position, but they are seen as incapable of enforcing their
position
o Main problem is that the WTO doesnt appear to be capable of enforcing its rules
o WTO has twice told the EU that its banana regime is illegal, however, they are unable to bring
the EU into line because its rules on compliance are so unclear
o WTOs dispute-settlement mechanism strength is that countries cannot veto WTO rulings
against them. They have the right to appeal once; if they lose again, they have 15 months in
which to fall into line with world trade law. If they do not comply, the plaintiff can demand
compensation or impose retaliatory sanctions.