False Economy - Alan Beattie [98]
The WTO's predecessor, the General Agreement on Tariffs and Trade, was created by a treaty signed in 1947, part of the apparatus of economic global governance designed after the Second World War. But even the farsighted architects of that edifice had to cope with the effects of lobbying. As we have seen, two of its other main elements, the International Monetary Fund and the World Bank, were created at a conference in Bretton Woods in New Hampshire. Why New Hampshire? To buy off the opposition of an isolationist senator from that state who might otherwise have opposed their existence. Trade politics really does get everywhere.
Litigation at the WTO also illustrates the vehemence and persistence with which vested interests will defend the economic rent they have been extracting. One of the most bitter disputes in world trade over the past few years is, literally, bananas. The low-cost "dollar banana" countries of mainland Central America, such as Ecuador, Honduras, and Panama (favored, in WTO disputes, by the United States), were up against the relatively picturesque but more expensive smallholder bananas from former European colonies in the Caribbean. Appropriately enough, the banana industry in the Caribbean was encouraged by European colonial masters as a replacement for the declining sugar industry. I once visited a former sugar mill in St. Lucia that had ended operations in 1941, just as the severe restrictions on transatlantic trade as a result of the Second World War began to bite. It then became a banana plantation. It is now a museum.
The economic rent that the two sides were fighting over was considerable. The money to be made out of bananas was gigantic, and was reflected strongly in the lobbying power that each side could bring to bear. The remarkable story of United Fruit, the company that created and ran most of the banana plantations in Central America, has been oft told. It managed to get a government overthrown (Guatemala in 1954) for the insolence of proposing to nationalize some unused land owned by United Fruit. The power of the industry has entered the lexicon: such countries are, of course, "banana republics." For decades United Fruit operated almost as an alternative state within Central America, its ubiquitous power and presence earning it the local nickname El Pulpo ("the octopus").
On the European side was more than a guilty desire to help out former colonies. The companies that controlled the banana trade into Europe took a big cut on the way and thus appropriated much of the economic rent for themselves. The fact that two of the banana-growing islands, Guadeloupe and Martinique, are technically part of France and send delegates to the French National Assembly also meant that Europe's most formidable agricultural lobbying country had a particularly strident dog in the fight.
Working out the power of lobbies and who gets hurt by what has now become a science. Since the only sanction the WTO has for violations of its rules is to place retaliatory blocks on imports, governments that have won cases will try to go after those interests that will inflict the most political pain on their antagonists. When the United States was authorized by the WTO to retaliate against the EU for its recalcitrance on reforming its banana regime, it decided in 1999 to threaten to block imports of Scottish cashmere. It calculated that the British interest in helping its banana-growing former colonies might be outweighed by the need to save a symbolic endangered industry—and one based in a country that voted overwhelmingly for the Labour government that had recently come to power.
Similarly, European