Trade Disputes


The United States and the European Union are undoubtedly among the most important players in the global trading system. Together, they share the largest bilateral trade relationship in the world; in 2006 their trade accounted for nearly 60 percent of global GDP, 33 percent of world trade in goods and 42 percent of world trade in services. [1] It is therefore not surprising that transatlantic trade accounts for almost €1.7 billion every day. [2] These facts are interesting given that both the US and the EU have similar economic characteristics, specialties and interests. Such a high frequency of economic interaction and coupled with such similar economies can understandably also result in trade disputes. This calls to question what trade or economic disputes have troubled US-European relations, why they arose and how they have since been managed or resolved. This essay considers these questions by considering two particular trade disputes: EU-US banana dispute and the EU-US hormone induced Beef dispute. Following this the essay will also explore whether either party is to blame for the particular disputes. It will argue that on initial consideration the European Union is to blame for instigating both disputes, but lobbying and temptation to cheat the international trading system lie at the core or each dispute.

Prior to starting, it is important to put the following discussion into context and retain a sense of proportion. As the figures above demonstrate, considerable trade takes place between the US and Europe. However, of that trade, disputes only constitute approximately 1-2% of the total annual amount. Despite the high political and media profile they achieve, they traditionally remained at this level. [3]

EU-US Banana Dispute

This dispute arguably has its roots in the formation of the European Union in 1993. Prior to its formation, each of the 12 original member states had their own banana importing system. All countries, with the exception of Germany, had a 20% tariff on the importation of foreign bananas; six of these countries also applied import quotas on bananas from Central and South America. [4] However, after the formation of the EU and the signing of the Lome Convention [5], an integrated and uniform regime was established that favoured bananas produced in former EU territories and in the ACP countries. [6]

Under this system banana imports were subject to an initial €100 tariff, per metric tonne, up to 2 million metric tonnes, and then they were subject to an enormous €850 tariff per metric tonne for all imports above that. [7] Understandably banana-producing countries protested immediately however, the US was not one of them. [8] In fact, the US is not a major producer of bananas at all and has no bananas to export globally. The US was brought into the dispute as a result of the effect the Banana Framework Agreement [9] signed by the EU and the initial disputing countries, and the general adverse effect of the quota on US companies what conducted business in Latin America. The most notable of these corporations was Chiquita Brands International (Chiquita), which was famous for its "dollar bananas". [10] When it was revealed that Carl Lindner, owner and CEO of Chiquita, was among the largest contributors to the 1993-1994 US election campaign cycle, criticism mounted as to the true motives for US objections to the regime. [11]

By this time two different panels formed through GATT, the General Agreement on Tariffs and Trade, at the request of the Latin American Countries had found that the EU banana regime was illegal. However, because GATT had no enforcement mechanisms the EU was able to ignore the GATT panel reports. [12]

Negotiations were then held between the US and the EU but the two parties were unable to reach a settlement. So in September 1995, the US, along with other Latin America countries, took the matter to the successor of GATT, the World Trade Organisation (WTO), and a Dispute Settlement Body (DSB) was convened. The WTO was approached because unlike GATT, it had mechanisms that would allow its decisions to be enforced. The US argued that the new regime was unfairly burdensome on "dollar banana" imports to the EU and departed from the WTO's "fair share standards". [13] The EU on the other hand argued that the policy was within the conditions of the Lome Convention, for which it had been granted WTO exemption. After hearing the case for both parties, on 22 May 1997 the DSB it ruled in favour of the United States. [14]

The EU agreed that it would respect the DSB ruling but stated that due to the nature of the subject matter it would take some time for it to implement the findings. [15] By June 1998 the EU Agricultural Council had made minor modifications to their import regime and unilaterally declared it to be WTO consistent. As this was not an acceptable solution, after some petitioning by the US Trade Representative, the WTO allowed the US to impose a 100% valorem duty on EU products up to a value of the estimated loss to US Firms. [16]

The retaliatory move from the US forced the Europeans to come back to the negotiating table with a relatively more serious intention of finding a mutually agreeable solution. On 11 April 2001 the US and EU made a joint press release stating that they had come to an Understanding over their dispute over bananas. [17] Their agreement provided for a transition to a tariff-only system that was competed by 2006. [18] Once the Understanding came into force on 1 July 2001, the trade sanctions imposed by the US in 1999 were also lifted. [19]

This dispute however has failed to be resolved. The EU failed to meet its full commitments under the 2001 Agreement and by 1 January 2006 had only granted a tariff-free regime to bananas from APC countries. It has therefore requested another WTO DSB to look pursue the findings of the 1996 DSB. On 19 May 2009 the DSB again found that the EU banana regime did not comply with the 1994 GATT agreement.

EU-US Beef Dispute

As with the banana dispute, the origins of this dispute do not initially involve the United States. The facts behind this dispute go back to November 1977 when an Italian physician in Milan reported that 42.9% of children at a local school showed physical signs of the early onset of puberty. [20] After some investigation by the town authorities it was found that Italian baby food contained forms of estrogen that traced back to anabolic agents used in meat production. These chemicals were hypothesised to have come remained in the meat for several months and become incorporated in products such as baby food, meatballs and hamburgers. [21] As a result, this became a food safety became a serious public concern, especially with regard to meat, in Europe. In the end, somewhat surprisingly, it was consumers who won out over producers. [22] In 1981, the European Council adopted Directive 81/602, which prohibited the use of hormones in meat production. [23]

It was the adoption of Directive 81/602 that really brought the dispute to life. After some delays in its implementation, on the 1 January 1989 the then European Community, banned all US meat imports containing hormones, including beef. For US farmers, growth-inducing hormones resulted in a saving of $60-80USD per cow and thus the ban on hormones would result in considerable profit losses. [24] In 1996, after some lobbying, the US along with Canada brought a complaint to the WTO. They claimed that the ban was not so much as to protect the public from health risks but to protect the European cattle industry. [25]

The DSB found in favour of the US finding that the ban was inconsistent with earlier international agreements and that there was no scientific justification for it. [26] The EU appealed and in 1998 the decision was upheld. It was found that the ban violated the WTO Sanitary and Phytosanitary (SPS) Agreement and they gave it 15 months to comply with its decisions. [27]

In July 1999 the US informed the WTO of its intention to impose retaliatory tariffs on EU products up to the value of their own losses. These tariffs were imposed on Germany, France, Italy and Denmark because of their political influence in the EU and their support of the bans. [28] The EU maintained its bans and proposed various alternatives such as a proposal for temporary compensation. Under this proposal the EU would agree to increase market access to hormone-free beef in exchange for lifting the new US duties. However, this proposal was soon dropped for several reasons. Firstly, most major US suppliers of beef were not in the "niche market" of hormone-free beef. [29] Secondly, the US certification system was not stringent enough to properly differentiate between the two types of meat. This became apparent after spot checks found that 12% of beef imports contained traces of hormones even though they were designated as hormone-free. [30]

The parties continued to negotiate using the WTO as a forum for the next few years, although it dropped out of immediate public attention. [31] Then on the 13 May 2009 the US and EU announced that they had signed a Memorandum of Understanding in the beef-hormones dispute. Under the agreement US producers would have increased access to the European market at zero duty for hormone-free beef. This access would be set at 20,000 tons for each of the first three years, then 45,000 tons for the fourth year. There would also be an option to extend the agreement for additional years. [32]

Where Does the Blame Lie?

It is clear from the facts above that on both occasions it was the Europeans that took actions that brought about the disputes. In the case of bananas the initiated uncompetitive and restrictive tariffs and in the case of beef they put in a total ban. There can be no contention that this is where the blame, put simply, should lie. It was the result of those actions that in turn resulted in the US taking the matter to the WTO and eventually initiating it's own retaliatory tariffs.

However, as was alluded to in the preceding discussion, in both cases, governments were pressured into bringing about protectionist trade measures as a result of internal lobbying. In the case of the banana dispute, the US as an exporting nation did not have a substantive interest in the trade restrictions. As Satapathy suggests, US incentives to dispute the actions of the Europeans was most probably not out of concern for the loss of trade of Latin American countries. [33] Instead it appears that it was the result of political pressure from internal corporations, and even their owners, whose profits and interests were at stake, that truly motivated US action. [34]

Similarly, in the case of the European ban on US beef, it is arguable that European protectionism is fuelled by consumer lobbyists who have been able to capture public opinion and influence government action. [35]

Lastly, when we consider the economic trading system, especially under the WTO, it becomes apparent that it is based on a requirement of mutual cooperation. No doubt, it is hoped that through cooperation the global community can develop together by trading under equal standards. However, there are still incentives to cheat this system and it is these incentives that can lead to protectionism so as to achieve short term gains. This is illustrated in both the cases discussed above. There was initial cooperation between the EU and US until, in these cases, the EU cheated and brought in protectionist trading regimes. As a result the US, resorted to retaliatory cheating. This mutual cheating continued until the individual losses forced both parties to negotiate and come to a cooperative position. This transaction of events could be likened to the logic that characterises a traditional Prisoners Dilemma. [36] Although this does not excuse the actions of the any "cheating" state, it can possibly shed some light on the individual motives behind disputes. This similar logic is can also been seen in the general global tension between multilateral, through the WTO, and bilateral trade free-trade agreements.


As the two cases explored have shown, the US-EU Banana Dispute and the US-EU Hormone Beef Dispute were both have their roots in the actions of the European Union. Once the dispute broke out, the US turned to established means of attempting to resolve them. That is, through the WTO and its Dispute Settlement Bodies. Although the US-EU Banana Dispute has not been fully resolved, for the time being it appears that the two parties have come to an Understanding with regard to the beef dispute.

With regard to who should bare the burden of the blame for each case above, it is clear that the actions of the EU catalysed both disputes. However, in writing the final essay in my Bachelor of Law and Arts degree, there are reasons to suggest that in light of the nature of the global trading system, a colloquial saying may provide a simple but further explanation, "Don't hate the playa, hate the game".



[1] Europa, European Trade Commission, Bilateral Trade Relations by country, United States, <>, accessed 27 May 2009.

[2] Ibid. It is recognised that this figure could potentially appear misleading given that Canada could also be understood to be included when the term "transatlantic" is used. For the purpose of clarity, as Canada is not a subject of direct discussion, the use of the term does not include Canada.

[3] Michael D C Johnson, US-EU Trade Disputes: Their causes, resolution and prevention, European University Institute, The Robert Schuman Centre for Advanced Studies, <>, accessed 27 May 2009.

[4] Eliza Patterson, "The US-EU Banana Dispute",The American Society of International Law, February 2001, <>, accessed 27 May 2009. (No page numbers) The six countries were France, Italy, Portugal, Spain, Greece and the UK.

[5] The Lome Convention is a trade and aid agreement between the EU and ACP countries (where ACP stands for Africa, Caribbean and Pacific). The convention, among other things, required the EU give preferential treatment to certain goods from ACP countries.

[6] Eliza Patterson, above no. 4.

[7] Ibid.

[8] The countries that first protested were Columbia, Costa Rica, Guatemala, Nicaragua and Venezuela.

[9] This Banana Framing Agreement would eventually lead to the Latin American countries being able to import their produce at relatively more favourable rates but would still not benefit US based banana companies.

[10] C Satapathy, "US-EU Trade War Over Bananas",Economic and Political Weekly, Volume 33, No. 52 (December 26 - 1 January 1999), pp.3303-3304, p.3303.

[11] Eliza Patterson, above no. 4.

[12] C Satapathy, above no.10, p.3304.

[13] Glenn C W Ames,Bananas, Beef and Biotechnology: Three Contentious US-EU Trade Disputes, Review of Agricultural Economics, Volume 23, No. 1 (Spring - Summer 2001), pp.214-222, p.216

[14] C Satapathy, above no.10, p.3304.

[15] C Satapathy, above no.10, p.3304.

[16] Glenn C W Ames,Bananas, Beef and Biotechnology: Three Contentious US-EU Trade Disputes, Review of Agricultural Economics, Volume 23, No. 1 (Spring - Summer 2001), pp.214-222, p.216.

[17] Office of the United States Trade Representative, "Joint United States - European Union Release - US Governmentn and European Commission Reach Agreement to Resolve Long Standing Banana Dispute, 11 May 2001, <>, accessed 27 May 2009.

[18] Ibid.

[19] Office of the United States Trade Representative, above no. 17.

[20] Glenn C W Ames, above no.16, p.217.

[21] Glenn C W Ames, above no.16, p.217.

[22] Ladina Caduff,Growth Hormones and Beyond, Swiss Federal Institute of Technology Zurich - Centre for International Studies, Working Paper August 2002, pp.14-15, <>, accessed at 27 May 2009.

[23] Glenn C W Ames, above no.16,, p.217.

[24] Ladina Caduff, above no.22, p.5 <>, accessed at 27 May 2009.

[25] Michael Balter, "Scientific Cross-Claims Fly in Continuing Beef War",Science, New Series, Volume 284, No.5419 (May 29, 1999), pp.1453-1455, p.1453.

[26] John McCormick,The European Superpower (Palgrave Macmillan, New York, 2007) p.28. It should however be noted that both parties believe that there is a scientific basis for their claims, see Michael Balter, "Scientific Cross-Claims Fly in Continuing Beef War", number 25 above.

[27] Glenn C W Ames above no.16, p.217. The WTO Sanitary and Phytosanitary Agreement is an agreement on how governments can apply food safety and animal and plant health measures to make sure the food available to their consumers is safe ( It should also be noted that the Appellate Body of the DSB did support the EU's claim that countries could impose stricter standards than those set by international bodies, with the condition that they were based on an adequate risk assessment.

[28] Ladina Caduff, above no.22, p.27 <>, accessed at 27 May 2009.

[29] Glenn C W Ames, above no.16, p.218.

[30] Glenn C W Ames, above no.16, p.218.

[31] United States Mission to the European Union, Beef Hormones, <>, accessed at 27 May 2009.

[32] The United States Mission to the European Union, "Statement on US-EU Beef Hormone Agreement", (14 May 2009) <>, accessed 27 May 2009.

[33] C Satapathy, above no.10, p.3303.

[34] C Satapathy, above no.10, p.3304. See also Glenn C W Ames,Bananas, Beef and Biotechnology: Three Contentious US-EU Trade Disputes, Review of Agricultural Economics, Volume 23, No. 1 (Spring - Summer 2001), pp.214-222, p.216.

[35] See Ladina Caduff, above no.22, pp.1-5. She also suggests that this is why a resolution has not been easy to come by.

[36] Please see Annexure A for an explanatory diagram if needed.