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Bananas War, the Raj Bhala the George Washington University McGeorge Law Review Volume 31 | Issue 4 Article 3 1-1-2000 Bananas War, The Raj Bhala The George Washington University Follow this and additional works at: https://scholarlycommons.pacific.edu/mlr Part of the Law Commons Recommended Citation Raj Bhala, Bananas War, The, 31 McGeorge L. Rev. 839 (2000). Available at: https://scholarlycommons.pacific.edu/mlr/vol31/iss4/3 This Article is brought to you for free and open access by the Journals and Law Reviews at Scholarly Commons. It has been accepted for inclusion in McGeorge Law Review by an authorized editor of Scholarly Commons. For more information, please contact [email protected]. Articles The Bananas War Raj Bhala* TABLE OF CONTENTS I. PEELING THE COMPLEXITIES ..................................... 843 I. CAUSES OFTHE BANANAS WAR .................................. 848 A. Origins of the EC Banana Import Regime ..................... 848 B. The EC's Three Import Categoriesand Associated Tariff-Rate Quota Treatment ......................................... 852 1. TraditionalACP Bananas ............................... 855 2. Third-Country Bananas ................................ 855 3. Non-TraditionalACP Bananas ........................... 857 C. The EC's Licensing Requirements ........................... 858 1. Step 1: Operator Categories ............................ 860 2. Step 2: Activity Functions ............................... 864 3. An Example .......................................... 867 4. Step 3: Export CertificatesIssued by BFA Countries .......... 870 * Professor of Law, The George Washington University, 2000 H Street, N.W., Washington, D.C., 20052. Tel. 202-994-2266. Fax. 202-994-9446. Visiting Professor of Law, The University of Michigan (Spring 1999). J.D., Harvard University Law School, 1989; M.SC., Management University of Oxford, 1985; M.SC., Economics, London School of Economics, 1985; A.B., Economics, Duke University, 1984; A.B. Duke Scholar, 1980-84; Marshall Scholar, 1984-86. Professor Bhala is the author of International Trade Law: Theory and Practice (LEXIS Law Publishing, 2ded., forthcoming Fall 2000) and co-authorof World Trade Law (Lexis Law Publishing 1998). I thank my colleagues at the University of the Pacific, McGeorge School of Law, Sacramento, California, for the honor of presenting this Article on 8 March 2000 as part of the McGeorge Distinguished Speaker Series. I am also grateful to them for providing many thoughtful comments and suggestions. I am particularly indebted to Professor Michael Vitiello of McGeorge for his kind invitation to serve as a Distinguished Speaker, and for his hospitality during my very stimulating and enjoyable visit. My sincere thanks also go to my GW colleague, Professor Sean Murphy, who was generous with his time and looked carefully at a draft of the Article, spotting several mistakes. As always, my cosmopolitan Research Assistants provided indispensable aid: Ms. Kris Hansen (Iowa) and Ms. Preeti Kapoor (Michigan) of the GW J.D. Class of 2000, and Messrs. Mohammed Zakirnil Hafez (Bangladesh), Khattar Torbey (Lebanon), and Christian Ulrich (Germany) of the GW LL.M. Class of 2000. In addition, Rachel Shub, Esq., Associate General Counsel, Office of the United States Trade Representative, graciously reviewed a late draft and provided very helpful corrections and insights (that, of course, were not necessarily reflective of the official USTR position). Finally, I appreciate the thoughtful review of an early draft provided by Dr. Dukgeun Ahn, University of Michigan Law School Class of 1999. 2000 / The Bananas War II. THE GATr FRONT ........................................... 871 A. Overview ............................................... 871 B. The First Battle: Tariff-Rate Quotas andMFN Treatment ......... 874 C. The Second Battle: Tariff-Rate Quota Allocations,Discrimination, and Trade Distortion ..................................... 877 1. The Two American Lines of Attack ........................ 877 2. The Two EC Lines of Defense ............................ 883 3. The Panel'sHolding ................................... 886 4. The Appellate Body's Holding ........................... 890 D. The Third Battle: Import Licensing Requirements, MFN Treatment, and National Treatment ................................... 890 1. The Attacks on OperatorCategory Rules ................... 895 2. The Attack on Activity Function Rules ..................... 901 3. The Attack on Export Certificates ........................ 902 IV. THE GATS FRONT ............................................ 904 A. Overview ............................................... 904 B. The First Battle: The Scope of the GATS ...................... 905 C. The Second Battle: The GATS MFN and National Treatment Provisions .............................................. 910 1. Conflict over the Meaning of "Treatment No Less Favorable" in the MFN Clause .................................... 915 2. Conflict over Discriminationunder the MFN Clause ......... 917 3. Conflict over DiscriminationUnder the National Treatment Clause ..................................... 922 4. Other Conflicts Under the National Treatment Clause: Activity FunctionRules and Export Certificates .................... 926 a. The Opening Confrontationover Activity Function Rules... 926 b. The Pounding of Export Certificates ................... 929 c. The Final Showdown over Activity Function Rules ........ 931 V. THE BLOODY AFTERMATH ..................................... 932 A. The United States Rejects the EC's FirstProposed Reform ........ 933 B. The Battle over DSU Articles 21:5-6 and 22 and the American ParallelTrack Strategy .................................... 935 C. Vindicationfor the UnitedStates ............................ 943 D. Reform Options .......................................... 946 VI. LESSONS FROM THE BANANAS WAR ............................. 954 A. Trade and the English Language:How Not to Write ............. 955 B. Trade and InternationalLaw: Compliance with Appellate Body Recommendations ........................................ 958 McGeorge Law Review / Vol. 31 C. Trade and Development Economics: Helping and Hurting the Third World .......................................... 961 D. Trade and Domestic Politics:A Victoryfor Public Choice Theory .. 967 VII. NOT A WAR TO END ALL WARS ................................ 970 2000 /The Bananas War LIST OF TABLES TABLE 1: THE THREE IMPORT CATEGORIES AND ASSOCIATED TARIFF-RATE QUOTAS .................................. 853 TABLE 2: OPERATOR CATEGORIES UNDER THE EC'S TARIFF-RATE QUOTA FOR IMPORTED BANANAS FROM THIRD COUNTRIES AND NON-TRADITIONAL ACP COUNTRIEs ...................... 861 TABLE 3: ACTIvITY FUNCTIONS UNDER THE EC's TARIFF-RATE QUOTA FOR IMPORTED BANANAS FROM THIRD COUNTRIES AND NON-TRADITIONAL ACP COUNTRES ...................... 865 TABLE 4: THE FIRST BATTLE ON THE GATr FRONT-TARIFFS IN THE EC's TARIFF-RATE QUOTA SYSTEM ...................... 874 TABLE 5: THE SECOND BATTLE ON THE GATr FRONT-ALLOCATION OF QUOTAS IN THE EC's TARIFF-RATE QUOTA SYSTEM ........ 880 TABLE 6A: THE THIRD BATTLE ON THE GATT FRONT-APPLICATION OF THE EC'S IMPORT LICENSING REQUIREMENTS: OPERATOR CATEGORY RULES ............................ 893 TABLE 6B: THE THIRD BATTLE ON THE GATT FRONT-APPLICATION OF THE EC's IMPORT LICENSING REQUIREMENTS: ACIVITY FUNCTION RULES ............................. 894 TABLE 6C: THE THIRD BATTLE ON THE GAIT FRONT-APPLICATION OF THE EC's IMPORT LICENSING REQUIREMENTS: EXPORT CERTIFICATES ................................. 895 TABLE 7: THE FIRST BATTLE ON THE GATS FRONT-THE SCOPE OF THE GATS ........................................ 906 TABLE 8A: THE SECOND BATTLE ON THE GATS FRONT-CONFLICT OVER THE MEANING OF "TREATMENT No LESS FAVORABLE" ........ 911 TABLE 8B: THE SECOND BATTLE ON THE GATS FRONT-CONFLICT OVER MFN AND THE EC's OPERATOR CATEGORY RULES ........... 912 TABLE 8C: THE SECOND BATTLE ON THE GATS FRONT-CONFLICT OVER NATIONAL TREATMENT AND THE EC's OPERATOR CATEGORY RULES ..................................... 913 McGeorge Law Review / Vol. 31 I. PEELING THE COMPLEXITIES This case is an exceedingly complex one. The complexity of this case, and the unprecedented number of claims, argumentsandAgreements involved, has resulted in a long report with an unprecedentednumber offindings. WTO, Panel Report on the European Communities-Regime for the Importation, Sale and Distribution of Bananas, WT/DS27JR/USA (May 22, 1997) (adopted 25 Sept. 1997) I 7.1, at 293; 7.399, at 401. There is no sense in being anything other than direct. There was a war. It was fought between allies. It was fought over a fruit. It might have been avoided. It raised fundamental issues of principle. It taught us a great deal about the global trading system on which we all rely and in which, directly or indirectly, we all participate. How did the Bananas War happen? Why did it happen? What are the ramifications? These are the three questions I seek to address. To this point in the history of the General Agreement on Tariffs and Trade (GATI) and the World Trade Organization (WTO), no case has been more contentious than European Communities-Regimefor the Importation, Sale and Distributionof Bananas(EC-Bananas). 1 The two sides in the War, the United 1. The official text of the Panel Report addressing the American complaint is WTO, Panel Reporton the European Communities-Regimefor the Importation, Sale and Distribution of Bananas, WT/DS27/R/USA (22 May 1997) (adopted 25 Sept. 1997) [hereinafter Panel Report]. The official text of the Appellate Body Report
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