Outlook: Europe slips up in the banana war

THE BANANA wars now raging between Europe and the US make it very tempting to wheel out the old high horse and climb aboard. How dare the perfidious Americans put the innocent Scottish woollen industry and Britain's makers of scented candles out of business in an apparently ridiculous and petty dispute over whose bananas Europeans ought to buy?

It just so happens that the Latin American banana importer the Clinton Administration has chosen to throw its weight behind, Chiquita, is controlled by a company that has made hundreds of millions of dollars worth of political donations to both Democrats and Republicans. The politics of the pork barrel is threatening the livelihood of Caribbean and West African banana growers, to whom Europe has an obligation dating from colonial days.

As always, however, it is not quite as simple as that. The Americans have a point, for all the Chiquita influence. The EU, like the US, has an obligation to abide strictly by the rules of the World Trade Organisation it was so influential in creating. Both Europe and America must walk their talk on free trade if they expect others to adhere to international trading rules and dispute procedures too. The EU's initial response to the WTO finding that its banana import regime did discriminate against the Latin Americans was slow and grudging.

On the other hand, the US response to the latest WTO delay is equally unhelpful. It plays to the gallery of domestic politics. Both sides need their heads banging together. Without question, the prosperity of the post-war years has been fostered by the increasing liberalisation of trade. The US government has repeatedly demonstrated its commitment to free trade principles as the best and fairest engine of world growth, despite the occasional tactical setback for sordid political reasons.

The Europeans, too, bang the same drum, though admittedly not quite so enthusiastically. Why should either side want to threaten this prosperity over an issue as trivial as banana eating - a fruit, by the way, which neither region produces in any significant quantity?

Again, there is a subtext. Trade tensions always ratchet up when there are big imbalances, as there are now in spades. Strong US growth has resulted in a record trade deficit, while the feeble EU economic recovery has added to Europe's trade surplus.

While American policy-makers have, of necessity, adopted the view that it is now a good thing to have a huge current account deficit - it keeps inflation low, contributes to consumer choice and props up the world economy, runs the spiel - there is no evidence, except perhaps in "liddle ole Britain", of the Europeans adopting a similarly enlightened approach.

In other words, this trade dispute is the flip side of a coin which already has Americans lambasting the Europeans for failure to do anything worthwhile to stimulate their sluggish economies. As if to remind us of this fact, the European Central Bank again left interest rates unchanged yesterday. It is unfortunate that Britain should arbitrarily be hit more than others in Europe by the nature of the US sanctions, but it is also true that while Fortress Europe remains so paralysed by inactivity, the Americans have the better of the argument.

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