A US, EU split over bananas ripens into bigger trade row

Calls for fair play and acts of economic self-interest led toplanned World Trade Organization mediation yesterday.

The link between bananas and cashmere may not seem obvious, but the people of Hawick, a small Scottish town near the border with England, are having no problem making the connection.

They are caught up in a bizarre trade war between the United States and Europe that threatens to wreck their community.

Hawick is famous for producing garments made from the finest fleeces and woven to smooth perfection. In a tit-for-tat move, the US has targeted cashmere products as part of a drive to force Europe to switch policy on where it gets it bananas.

Central to the dispute: European Union rules that for decades have favored fruit from the former colonies in the Caribbean rather than from big producers in Latin America, whose economic success is often tied to that of US-based fruit companies.

On Jan. 1 the EU amended the rules, but the US and Latin American growers say the changes made little difference.

In retaliation, the US says it will slap a 100 percent import tariff on cashmere (the current rate is 5.4 percent).

Ninety percent of British cashmere is made in the border area in and around Hawick, and the US is the UK cashmere industry's largest market, with imports worth $28 million to $33 million a year.

If the US remains resolute over bananas, some 1,000 jobs in Hawick will be lost, according to Peter Ackroyd, director of the British Wool Exports Corporation.

A banana war has been raging across the Atlantic for six years. The Americans say EU insistence that former colonial economies in the Caribbean be given favored treatment for their banana exports breaches world-trade rules.

Brussels responds that if Caribbean nations where bananas are the sole crop lose their market in Europe, farmers may resort to producing and trafficking narcotics.

The EU is the world's largest importer of the fruit, consuming nearly 40 percent of all traded bananas.

But US politics complicates the picture. The Clinton administration has long been pressed by Carl Lindner, head of Chiquita Brands, to punish the Europeans for their attitude.

Chiquita, which sells about a third of the world's supply of bananas from plantations in Panama, Costa Rica, Colombia, and Honduras, has been a big donor to both Democratic and Republican campaign funds.

In December, US Trade Representative Charlene Batshefsky complained to Brussels about the EU's "discriminatory banana regime" and said 100 percent tariff increases would be put on "selected items," including cashmere, unless the Europeans changed their ways.

Last week the EU formally challenged the right of the US to impose the sanctions and called for an emergency meeting at the Geneva-based World Trade Organization, whose settlement body convened yesterday to help mediate.

Brussels says that on economic grounds alone, the US move to raise the stakes in the banana war is unreasonable. EU Trade Commissioner Sir Leon Brittan notes that already 78 percent of bananas sold in the EU are from Latin America.

So far the Europeans have remained united in rallying to support the Caribbean banana, but there are potential rifts.

Germans, the EU's largest consumers of the fruit, eat more than 50 pounds per capita each year. They tend to prefer Latin American bananas, which are longer and fatter than their Caribbean cousins. Support for Caribbean bananas comes from Britain, whose former colonies will be in the firing line if the US gets its way.

Cashmere workers are pinning their hopes on transatlantic diplomacy. Archy Kirkwood, a member of Parliament for the border area, has asked Prime Minister Tony Blair to write to President Clinton and argue that the "special relationship" still perceived to exist between London and Washington should be invoked to defend both Caribbean bananas and cashmere.