<OT> What Bananas? Tariff Fight Baffles Europe
March 5, 1999
New York Times
By EDMUND L. ANDREWS
RANKFURT, Germany -- Marc Ecrepont does not care about
bananas. But on Thursday he became a pawn in a trade war over
them between the United States and Europe.
Ecrepont, general manager Groupe Fremaux SA in Lille, France,
exports bedsheets and other linens to the United States. As of
Thursday, the United States is imposing a 100 percent tariff on those
sheets after it failed to settle a long-running dispute over European
import rules for bananas.
"We don't have anything to do with bananas, except perhaps to print
them on our sheets," Ecremont said. "I am in the middle of a war, and I
don't even know what they are fighting about. What can I do? Go to
church and light a candle?"
Fremaux was one of scores of companies that are caught in a bitter
trade battle in which they have no stake and over which they have no
control.
On Wednesday, the Clinton administration imposed punitive 100
percent tariffs on about $520 million worth of European exports to the
United States.
The tariffs followed months of bitter feuding over Europe's import
preferences for bananas from its former colonies. Neither side produces
bananas itself, but both have companies that market them, and both
have elevated the issue to one of righteous indignation.
As trade wars go, this one may rank as one of the most confusing. The
hit list includes 15 finely sliced categories, none of which have anything
to do with bananas. It includes cashmere sweaters, but not cashmere
jackets; bath preparations, but not bath salts; printed bedsheets, but not
embroidered ones.
U.S. officials say there was a method to the madness in composing the
list, which they announced in December, as the banana brawl was
heating up. The Americans wanted to come up with a volume of exports
roughly equal to the lost banana trade, and they wanted to spread the
pain to maximize the political pressure.
They also excluded products exported by Denmark and the
Netherlands, which agreed with the United States on the banana issue.
Last but not least, they did not want to target exports that would hurt
U.S. companies. They dropped washing machines at the last minute,
because European machines use many U.S. components.
Clinton administration officials argue this retaliation is justified because
Europe has refused to abandon its banana preferences, even though
they were declared illegal last year by the Geneva-based World Trade
Organization.
But European business executives and government officials angrily
denounced the United States on Thursday, calling its action arbitrary,
unjustified and illegal.
Leon Brittan, the European Union's minister of trade, called the tariffs
"unacceptable and unlawful" and accused the United States of
endangering the jobs of "people who have nothing whatsoever to do
with bananas." Trade ministers from Britain, France and Italy all
condemned the action in similar terms.
But the impact was far more tangible and unnerving at the street level, at
scores of small companies that woke up Thursday morning to find their
businesses in jeopardy.
Nowhere was the shock greater than in the border region between
Scotland and England, where Scottish companies make about half of all
the cashmere sweaters that go from Europe to the United States.
"If this goes through and it's long term, we'll go bankrupt," said Jeff
Guttridge, financial director of Clan Douglas Ltd. in Hawick, Scotland.
Clan Douglas, which employs about 120 workers, ships about $8
million worth of cashmere sweaters a year to American stores like
Nordstrom's, Neiman-Marcus and Bergdorf-Goodman.
Many stores have already placed orders for the fall, and Clan Douglas
has guaranteed prices based on the normal tariff of 6.5 percent. With a
100 percent tariff, the company will have to pay the difference itself.
And U.S. merchants who have not yet placed their orders for the fall
will almost certainly decide against cashmere this year because they
would have to pay the tariff.
It is more than just a blow to Clan Douglas. The villages in Scotland's
border region include a number of small companies that make
cashmere. About 15,000 people live in Hawick itself, and about 3,000
of them work in the cashmere industry.
People like Guttridge say they are as baffled as they are alarmed by the
U.S. position.
"The question we're asking is, Why cashmere?" Guttridge said. "Why is
cashmere on this list? You can't see any logical relationship with
bananas." British government leaders were so angry that the trade
minister, Stephen Byer, summoned the American ambassador in
London, Philip Lader, to register a formal protest.
But several business executives said their own governments had not
paid them much heed either, at least until Thursday. Because the tariffs
affect small slices of industry, such as candles or bath preparations or
one particular type of pecorino cheese, companies that make those
products said they had found it hard to attract any attention in the
broader banana battle.
"If I complain to the French government, nobody is going to care about
it because we are too small," Ecrepont said. "I am all alone."
It is still possible that no one will have to pay the tariffs. Two separate
panels at the World Trade Organization are still weighing several key
issues and will be making additional rulings in coming weeks.
U.S. officials have said they will not actually collect the tariffs until one
of those panels rules on precisely how much compensation the United
States is entitled to over the banana issue. The Geneva-based panel
was supposed to decide that on March 2 but said it needed more
information from both sides.
For companies now trapped in the fight, that is cold comfort. For one
thing, U.S. officials are demanding that importers put up bonds
guaranteeing they will pay the tariffs if they are ultimately collected. In
addition, the mere threat of a 100-percent surcharge is enough to kill off
most orders.
Many exporters scrambled on Thursday just to figure out if their
products were on the list.
The action could spell trouble for two of Europe's best-known luxury
names: Gucci of Italy and Louis Vuitton of France. Both would be hit
by tariffs on leather handbags. As it happens, Gucci is fighting a possible
takeover attempt from Louis Vuitton's parent, LVMH Moet Hennessy
Louis Vuitton. Neither company would comment on the banana issue.
In the Italian region of Sardinia, there was much confusion over the
matter of pecorino cheese, produced from sheep's milk.
Did the tariffs apply to hard pecorino, exported in large quantities, or
did it apply only to the soft fresh variety sold primarily in Europe? After
some initial alarm, Italian business executives tentatively concluded that
only the fresh variety is threatened.
They still were not happy.
"If it had been the hard cheese, we would have been totally ruined," said
Nino Mura, chief executive of Sarda Formaggi in Olbia, Sardinia.
Many affected exporters are angry that the United States has singled
them out for punishment.
"Whatever happened to the special relationship between the U.S. and
the U.K that everybody talked about?" Guttridge asked. "After all, we
supported the United States in the Gulf, did not we?"
In France, Ecrepont is glumly waiting for the great powers to make up
their minds. "All I know is that as of today, I hate everything that has
anything to do with bananas," he said.
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