Managing the Global Business Environment

Executive Summary

There are three reasons why Ecuador should request a 21.5 panel. First, banana is a vital industry for Ecuador, so that it cannot leave the solution in the hands of others. Second, Ecuador does not have a real Ў§free riderЎЁ opportunity in the banana dispute, since the USЎ¦s interests deviate from EcuadorЎ¦s best interests. Therefore Ecuador cannot solely rely on the US to fight with EU. Third, Ecuador has played an assertive role in the banana dispute in the past. To be consistent and to maintain credibility, Ecuador has to file as long as EU import regime for bananas has not been compliant with WTO rulings.

If Ecuador does request a 21.5 panel, EU will fight back. At the same time, the US and other Latin American banana exporting countries would join Ecuador aiming at dismantling barriers to trade. By filing, the compliance issue would be put onto WTOЎ¦s agenda and EU would be pressured to seek for a solution within certain time frame.

Filing the 21.5 panel would tighten the tension of the bilateral relationship between Ecuador and the EU. As the US government is pressurized by powerful multinationals, such as Chiquita, it would probably place retaliatory duties on European imports, which would lead to job loss in European exporting industry. At the same time, Caribbean economy could collapse if the EUЎ¦s preferential treatment is whipped away without giving enough time for Caribbean to adjust. The wider importance of the banana trade dispute is that with the basis of EU trade now shaped by the rulings of the WTO and the consolidation of trade liberalization and globalization. Ў§Free tradeЎЁ has always been a delicate state of affair negotiated between countries. No matter strong or weak, countries need to leverage and fight for their best interests.

Ecuador should request a 21.5 panel. The reasons are as follows:

Firstly, banana exporting is too crucial for EcuadorЎ¦s economy to leave the solution in the hands of the USA and the EU. Banana accounts for roughly 30 percent of the total exports in Ecuador, which makes the economy heavily dependent on secure access to banana markets overseas. About 97 percent of all banana output is aimed for the European market, since the European bloc consume the most bananas in the world. There is no excuse for the government of Ecuador to declare that the Ў§banana warЎЁ is over until a fair agreement is reached and EcuadorЎ¦s interests are fully taken into account. Ecuador has been the worldЎ¦s largest banana exporter since 1953. Ecuador accounts for more than one-third of global banana exports (28.5 percent) (Appendix 1). At the same time, Ecuador is also among the most efficient banana producer in the world, with production costs and average purchase prices lower than those of its neighbors. The current European tariff on bananas is commercially hurtful and inconsistent with the WTOЎ¦s market-oriented philosophy. Ecuador obviously has a major interest in ensuring the EUЎ¦s banana import system conforms fully to the WTO rules.

Secondly, there is no real Ў§free riderЎЁ opportunity for Ecuador in the banana dispute case. It has to stand up to defend its own interests. In comparison with other countries in the dollar banana zone, multinationals play a very limited role in the Ecuadorian industry. Chiquita does not own any banana farms in Ecuador and Dole has only small holdings. They act only as traders of Ecuadorian bananas. The largest export company in Ecuador, Grupo Noboa, is domestically owned. Therefore, EcuadorЎ¦s best interest would not be perfectly matched by the USЎ¦s interest. However, as the leading banana exporter, Ecuador is important to the US case. Therefore, Ecuador would definitely benefit from leveraging the superpower of the US to bargain with EU in appropriate circumstances. Despite the fact that in the end, the key to resolving the case is the economic power of the US. Interests of countries like Ecuador will be neglected if they do not stand up and play a tough role on the stage of international trade. Besides, it has been always a zero-sum game between Ecuador and the rest of Central American banana producing countries. Whatever gain that Ecuador obtained would be loss to other Central American banana exporters. Having a reputation of the toughest bargainer in the game would definitely win Ecuador larger share in the EUЎ¦s pie for the dollar banana zone. (Appendix 2)

Thirdly, since Ecuador officially joined the WTO on January 26, 1996, it has played an active role in the banana dispute. From joining the USЎ¦s WTO complaint against the EU, to deciding to go it alone, from filing the reconstitution under Article 21.5 during the Ў§sequencing crisisЎЁ to requesting for authority for cross-retaliation, Ecuador has been very assertive in