Yesterday, an arbitration panel of the World Trade Organization (WTO) determined the level of retaliation the United States (and Canada as well) is entitled to exact from the European Union (EU) for an illegal policy that has blocked EU imports of American beef for a decade. This is the second time the WTO has officially determined a retaliation figure; the first was in April, when the WTO authorized $191.4 million in U.S. retaliation for the EU's illegal banana import regime.
The WTO decisions in these cases mark a milestone in the history of international trade. For the first time in nearly a half-century, an international trade body has begun authorizing retaliation by one nation against a trading partner because of illegal behavior. In affirming the concept that nations that violate international trade laws must bear some consequences, the WTO has raised its credibility and passed a test that its predecessor, the General Agreement on Tariffs and Trade, had failed for decades.
But raising the WTO's credibility is not the same as fulfilling its promise. If the banana and beef cases end in retaliation alone, the WTO will have dispensed retribution, but not justice. In so doing, it will have fallen far short of achieving one of its central purposes: ensuring binding and prompt compliance with international trade rules.
The problem that continues to exist in the banana case, and is virtually certain to repeat itself in the beef case, is that the losing litigant has not been induced to change its illegal ways. All that has happened thus far in the banana case is that the winning litigant has been officially permitted to exact an equivalent pound of flesh. Another pound will soon be taken in beef. Still, in both cases, there will remain the gap between the WTO's promise and its performance.
In the banana case, the WTO determined that American commercial interests have suffered losses of $191.4 million in each of the years the EU regime has existed, for a total of more than $1 billion in harm. But does the ruling provide compensation to the injured U.S. interests? Not a penny's worth.
So long as the EU perpetuates its illegal policy, all that can be done is for the United States to impose tit-for-tat penalties in the same amount on European exporters who sell their products here. The United States has slapped sanctions on European businesses not directly involved in the dispute. The EU continues its illegal trade practices. And EU multinational banana marketers continue to profit from those illegal practices.
In the months since the WTO banana retaliation (and in the more than two years since the initial WTO ruling), no changes have been made to bring the EU system into conformity with WTO rules. Every day, there is more damage to more parties. For people inclined to believe that the EU might eventually make good on its promise to bring the banana regime into WTO conformity, recent events have not been encouraging.
EU officials in Brussels are even today putting forward illegal banana "reform" proposals, apparently under no pressure from the 15 countries of the EU to deliver true relief to the injured parties. The beef case is taking a similar course, with EU officials warning they will never lift their ban on U.S. products despite any retaliation that might occur. Under the circumstances, it is no wonder that American agricultural groups are growing extremely frustrated with the WTO process and are calling for significant reforms in the dispute settlement system.
What to do while the Europeans prevaricate and the WTO procedures remain intact? Here's a start: The nations of the world should stop acting as if the banana and beef cases end once retaliation begins. The fact is they will not be over until the EU changes its illegal policies. Absent such changes, American agriculture -- or any other interests that might one day bring a WTO case -- will be unable to view the WTO as a place to go for the redress of legitimate grievances.
The WTO cannot work if its largest member opts out of compliance. When the EU brings its banana and beef regimes into conformity with international trade rules -- and only then -- will the cases be over and victory achieved, not just by the United States but by the entire world trading community.
The writer is a former deputy U.S. trade representative and ambassador to the GATT.