Page 181 - DECO303_INDIAN_ECONOMY_ENGLISH

Indian Economy

Notes The “banana war” had all the ingredients of a hallmark case:
The dispute was between two powerful members of the Quad who were confronting
each other from the area of currency trade (Euro vs. US Dollar) to military
understandings. Some members of the EC appear to be inclined towards the belief
that countries can flourish more in a bipolar world than a unipolar one.

The dispute involved Article I of GATT 1994, the Most Favoured Nation (MFN)
treatment, i.e., the non-discriminatory approach that all contracting parties must
extend to each other on trade-related matters.
The DSB’s Appellate Body, hearing the dispute in 1997, indicated that the MFN
philosophy transcended any preferential trade agreement or understanding that
contracting parties might have outside of the WTO Agreement. The Appellate Body
did not agree with the EC’s stand that preferential trade with African, Caribbean
and Pacific countries, covered under the Lome Convention, was outside the purview
of WTO. (Note: Under the 1979 Lome convention, the EC seeks to extend technical
and financial assistance to about 70 ACP countries. The Convention also provides
for a duty-free regime for ACP products entering the EC).
Aligned with the main complainant, the United States, were, as in the days of yore,
‘small’ countries like Ecuador, Guatemala and Honduras. The only other ‘big’ member
in this camp was the NAFTA member, Mexico.
The duration of the dispute was perhaps the longest – the whole dispute stretching
well beyond the 30 month period normally envisaged in settlement of disputes.
Time for conclusion of Panel’s hearings 15 months
Reasonable period of time given to member, to implement findings 15 months

Normal time envisaged for the successful settlement of dispute 30 months
The level of suspensions of concessions that the DSB authorised in the case of the United
States was $ 191.4 million. Ecuador, one of the original complainants, expressed
dissatisfaction with the measures taken by the EC in pursuance of the panel’s findings and
requested a hearing before the original panel.
The third parties to the Ecuador complaint were again mostly “small” countries belonging
to the Americas, a region over which the US has a proprietary interest. This is the region
whose countries the US wants to coalesce into a major trade bloc called the Free Trade
Agreement of the Americas (FTAA).

The suspension of concessions awarded in favour of Ecuador was $ 201.6 million. The
amount can be seen in proper perspective if we are to consider the fact that the net foreign
capital inflow to Ecuador was $829 million in 1997. (Note: Suspension of concessions is
essentially an indirect compensation to the winning party. In this case, Ecuador, in effect,
can raise tariffs on imports from EC countries to fetch increased revenue of 200 million
dollars).
In the case of Ecuador, the arbitrators gave the opportunity to the country to suspend
concessions or other obligations in diverse areas such as copyright, geographical
indications, and industrial designs, and also under the General Agreement on Trade in
Services (GATS) with respect to “wholesale trade services”.
The aftermath of the dispute will be felt as long into the future as January 1st, 2006, when
banana trade in the EC will come under the tariff-only system. It will be a decade (96-06)
Contd...

176 LOVELY PROFESSIONAL UNIVERSITY