Something Worth Fighting For

As the specialty food industry gathers in San Francisco for the NASFT’s Winter Fancy Food Show, the cornucopia at hand will doubtless win everyone’s attention. Yet far away from the City by the Bay, a war is brewing – and I’m not talking about Iraq. I’m talking about a trade war over bananas, which is in danger of spilling over into the specialty food industry.

The story is simple: A few years back, the European Union adopted regulations that provided preferential access to bananas from former colonies in Africa, the Caribbean and the Pacific. Notably excluded from the preferential treatment are Spain’s former colonies in Latin America.

In effect, these rules created a disadvantage for Latin American banana production and the heavily U.S.-owned producing and exporting companies. The United States objected to these regulations and brought an action at the World Trade Organization to have the European Union drop the policy. The United States won, and the WTO ordered the European Union to change its regulations.

The European Union made some minor cosmetic changes but maintained the substance of its policy basically demanding that the United States go through the whole WTO process again.

The United States, having already spent six years litigating the matter through the WTO, is not inclined to postpone the issue for another half decade and, instead, has announced that it will impose 100% retaliatory tariffs on certain luxury goods. It is expected that the tariffs will become effective February 1, 1999.

The two food items scheduled to be included are “Pecorino cheese, from sheep’s milk, in original loaves” and “Sweet biscuits, waffles and wafers.”

Also mentioned as possibly being subject to the tariffs were “Certain Pork Products” and “Canned, sliced black olives.”

The whole situation is fascinating for many reasons, most notably because neither the United States nor the European Union actually grow many bananas. In fact if you want to see a vivid demonstration of the importance of international trade, simply look at this dispute.

The United States and European Union are fighting for many things. First they are each fighting for their own companies – the big U.S.-based banana giants have their main growing interests in Central and South America. The Europeans on the other hand have importers with long ties to former colonies and few operations in Central America.

There is also a “sphere of influence” battle. If the money from banana production goes to Central America, much of it will be spent on U.S. imports. If it is in French West Africa, most will be spent in France. Even beyond money, influence in the world is at stake. If many countries are dependent on the European Union for markets, they will tend to support the European Union in international forums.

What is interesting, and important, though, is that whatever the true cause of the dispute between the United States and the European Union, the targets for retaliation point out a clear need for a united specialty food industry.

Total Pecorino cheese imports totaled only about $26.1 million in 1997. The sweet biscuits market totaled roughly $264 million. Since a lot of these imports come from outside the European Union – and within the EU, both the Netherlands and Denmark are exempt from the tariffs as these two countries voted against the EU’s banana policy – only about a third of the sweet biscuit imports and about 75% of the Pecorino cheese imports would be touched by the tariff.

In other words these are not necessarily big volume items. These are about as obscure foods as one could imagine the U.S. government selecting. This is not an accident.

On the one hand, such items were selected because, being relatively low volume, they do not have robust defenders. The non-existent Association of Pecorino Cheese Importers is not likely to overwhelm Washington. With high-powered lobbyists in fact, cheese importers are likely to simply go on with their business missing one low-volume item. This is why the U.S. government is not putting tariffs on, say, foreign cars, which have a substantial domestic lobbying force in the form of their dealers.

On the other hand, such specialized victims will create a true lobbying force in Europe to overturn the banana policy. The cheese makers and the sweet biscuit makers will be severely hurt by such tariffs – possibly put out of business.

Substantively, it is worth saying that the European position is outrageous. From an economic perspective, if Guadeloupe cannot grow bananas competitively, it better get on with finding what it can do competitively. If Europe desires to transfer money to its former colonies, a tax is the proper form for raising such monies because a tax can be spread fairly across the population. Causing European consumers to pay inflated banana prices imposes costs that are absurdly allocated by an individual’s desire to eat bananas.

Legally, the European Union is on even more shaky ground. The United States followed the right procedures and won in the WTO. For Europe not to abandon the enterprise after the ruling makes a mockery of the WTO and the very idea that we can establish structures to regulate International Trade.

Europe has to decide if it wishes to opt for an insular, protectionist society, or if it has the courage to trade openly with the world. By defying the WTO, Europe is sending a very bad sign. Still, this is where we stand and the implications are clear. In today’s world, economic disputes between nations will increasingly be taken out on small players, unable to defend themselves, yet capable of arousing opposition in the home country.

For the specialty food industry this means that we can count on small corners of our industry being destroyed around the world at different times for different reasons.

The only hope is a unified effort, a one-for-all-and-all-for-one effort. When the Pecorino cheese exporters are in trouble; it becomes the entire industry’s battle.

European specialty food exporters need to put pressure on their governments to conform to the spirit of the WTO rulings. Otherwise these exports will find themselves constantly playing the pawn in a very big chess game.

The U.S. specialty food industry needs to remind the U.S. government that it will not tolerate treating small parts of the specialty food industry casually, as if they don’t really matter. The message clearly has to be sent that even small industry segments will be defended.

It is surely easier to sit out these kinds of disputes. By definition, at any given time, they will involve few members of the broad specialty food industry. Still, if we do not stand up for our peers in the specialty food industry, if we do not object to the livelihoods of Pecorino cheese producers being played with – who will stand up for us when our turn comes?