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Cw time topbanana { February 7 2000 } Original Source Link: (May no longer be active)
http://www.time.com/time/magazine/article/buylink/oldlink/0,11397,1101000207-38423,00.htmlhttp://www.time.com/time/magazine/article/buylink/oldlink/0,11397,1101000207-38423,00.html
http://www.globalexchange.org/economy/bananas/time020700.html
How to Become a Top Banana
Time Magazine
February 7, 2000
By Donald L. Barlett and James B. Steele
In Summerville, S.C., Rick Reinert has built a small business called Reha Enterprises that sells bath oil, soap and other supplies. But now he is selling many of his products, imported from Germany, at no profit or at a loss. This is the result of an order by the U.S. government.
In New York City, Arthur Kaplan, owner of Galaxy of Graphics Ltd., a retailer of decorative prints, has stopped selling the popular English lithographs produced for him by a venerable London art dealer for two decades. This is the result of an order by the U.S. government.
In Somerset, Wis., Timothy Dove, who heads a 17-year-old family business called Action Battery, which sells and installs industrial batteries, has lost a quarter-million-dollar account and faces the prospect of more losses to come. This is the result of an order by the U.S. government.
What's going on here?
Nearly a year ago, the Clinton Administration imposed a 100% tariff on the products these three businesses and hundreds of others like them import and sell. That's sort of like charging you $40,000 for a $20,000 Ford Taurus.
What did these folks do to encourage the wrath of the White House? Absolutely nothing. It was what they didn't do that matters. They neglected to make huge campaign contributions or hire high-powered Washington lobbyists to plead their case.
Reinert, Kaplan and Dove are what the military refers to as collateral damage -- unwitting victims of what will go down in economic history as the Great Banana War. Except that for these victims, collateral is up close and very personal.
This is partly the story of Carl H. Lindner Jr. of Cincinnati, a certified member since 1982 of the Forbes list of the 400 richest Americans, who has a personal fortune estimated at $800 million and has been a very large contributor to political candidates, both Democratic and Republican.
But mostly this is a story about people who get hurt by contributions, who are paying a steep personal price because of the influence exercised by unlimited money in elections and lobbying. These human casualties are mostly unchronicled, but you can count them in the millions. They are your friends and neighbors.
In simplest terms, Lindner, whose company has dominated the global trade in bananas for a century, was in 1993 frustrated because European countries limited imports of his bananas. He complained to the U.S. government, which complained to the World Trade Organization (WTO), which authorized the U.S. government to retaliate by imposing a stiff tariff -- in effect, a tax -- on select European goods shipped to this country.
So which goods to attack? President Clinton could have slapped the 100% tariff on, say, Mercedes-Benz autos imported from Germany, fine wines from France, or elegant women's shoes from Italy. But that might have provoked retaliation by the Europeans against major American exports. So instead the President chose to punish smaller and less important European companies -- companies that furnished bath products to Reinert, prints to Kaplan and batteries to Dove. In short, the Administration came down with a heavy foot on relatively powerless citizens. People who, like 99% of the population, contribute little or no money directly to politicians.
How heavy was that foot? In Reinert's case, the U.S. government raised the tariff on his most popular product, an herbal foam bath, from just under 5% to 100%. His U.S. Customs bill for the last six months of 1999 spiraled to $37,783 from just $1,851 -- a 1,941% tax increase.
For a small business, that's strong poison. Indeed, when Reinert called the office of U.S. Trade Representative Charlene Barshefsky to describe his plight, an official there expressed amazement. "[They] were very surprised I was still importing," recalls Reinert. "They thought the tariff would cut off the industry -- shut it down. That was their intention. They wanted to kill that industry, whatever industry it is." That, naturally, would have meant killing Reinert's business as well.
Reinert did have an option. He could have found a way around paying the tax. Except it would have been illegal. Sort of like people working off the books to avoid paying income tax on their earnings. That's what many small-business people in Reinert's position are doing -- fudging their import records. It's polite language for falsifying government documents. Each distinct type of product imported into the U.S. is assigned an individual code number. The tariff is collected on the basis of the code numbers. Thus changing a single numeral in the code will convert a taxable product into one that is not subject to tax.
Are the people doing this comfortable with their deception, which an ambitious federal prosecutor could turn into a conviction accompanied by a large fine and prison sentence? Absolutely not. But it's a matter of survival. Further, they figure, if the U.S. government decides to take care of a multinational business whose owner, his family and his fellow executives contribute millions of dollars to political candidates and their parties -- and to punish small businesses whose owners do not contribute -- then why not cheat?
At age 80, Lindner sits atop a corporate agglomeration that includes American Financial Group, Inc., an insurance business (annual revenue: $4 billion); Chiquita Brands International, Inc., the fruit-and-vegetable giant ($2.7 billion); and an array of other businesses, including Provident Financial Group, Inc., a bank holding company (assets: $8 billion); and American Heritage Homes, one of Florida's largest builders.
At American Heritage, Lindner has been a business partner since 1996 with the king of Democratic fund raisers, Terence McAuliffe, described by an admiring Vice President Al Gore as "the greatest fund raiser in the history of the universe." McAuliffe has raised tens of millions of dollars for the Democratic Party, for President Clinton's 1996 re-election campaign, for the President's legal-defense fund, for the President's library and for Hillary Clinton's New York Senate run.
Since 1990, political contributions of $1,000 or more by Lindner, members of his family, his companies and their executives have added up to well over $5 million. Most of the money has gone to the Republican Party and its candidates. But at strategic moments, Lindner has made hefty contributions to the Clinton Administration.
The short version of the money story is this: Europe first offended Lindner when it imposed import restrictions on bananas from Latin America, where his plantations are located. Lindner then contributed a quarter of a million dollars to the Democrats. Gore called and asked for more money. Lindner gave it. And then some more. So much more that Lindner had dinner in the White House, attended a coffee klatch there for the truly generous and slept in the Lincoln Bedroom. Along the way, he periodically met with then U.S. Trade Representative Mickey Kantor and his staff, the officials who ultimately sought the trade sanctions intended to punish the Europeans and force them to give Lindner what he wanted.
Clinton's people weren't the only ones looking after Lindner. Members of Congress -- Democrats and Republicans, fund raisers all, beneficiaries themselves of Lindner's largesse -- called or wrote or met with Kantor and the President to encourage action on behalf of Chiquita. Trent Lott of Mississippi, the Republican majority leader in the Senate, did it. So did John Glenn, at the time a Democratic Senator from Ohio. And Republican Congressman Jim Bunning of Kentucky, now a Senator. And Charles Stenholm, the Democratic Representative from Texas. And Richard Lugar, the Republican Senator from Indiana. And Mike DeWine, the Republican Senator from Ohio. And, of course, Mitch McConnell, the Republican Senator from Kentucky, who is Congress's most strident advocate of unlimited money in elections.
On April 19, 1999, the U.S. Trade Representative imposed the punitive tariffs on nine types of European goods. To be sure, trade experts outside the European Union generally agree that the restrictive banana policies do violate free-trade rules. Indeed, four global trade panels have reached that conclusion over the years. But restrictive trade policies are hardly peculiar to Europe. The U.S. has its own, notably those that restrict the free access of sugar and peanuts to the American market.
The Clinton Administration has been less than forthcoming about its relationship with the banana baron. In response to repeated TIME requests for documents relating to the decision to seek the WTO's help with the banana dispute, the U.S. Trade Representative's office stalled, saying it was having trouble coordinating its many files. When it finally began turning over documents last December, many were censored or blank, with the USTR claiming that release of the information would "constitute a clearly unwarranted invasion of personal privacy."
The Banana Baron's Lament
Carl Lindner began investing in bananas in the 1970s, and by 1984 he had acquired a controlling interest in one of America's enduring brand names. Lindner and his family, through their American Financial Group, own 40% of the outstanding shares in Chiquita Brands International, based in Cincinnati, Ohio.
Before Lindner bought in, Chiquita Brands was the old United Fruit Co., a ruthless buccaneer that earned a justifiable reputation as a tyrant that bribed officials of foreign governments, used armed force to keep its workers in line and generally mistreated its thousands of dirt-poor laborers on impoverished Caribbean islands and Central American plantations. All of which helps explain why Chiquita was -- and is -- the world's dominant banana producer.
But how did it come to pass that the U.S. government launched a trade war over bananas at the expense of small American businesses, especially since the U.S. does not export bananas and Chiquita employs no American production workers?
It started with bananas in Europe. After World War II, the continent's banana market divided into two kinds. Such countries as Britain, France and Spain limited imports and gave preferential treatment to bananas grown in their former colonies. Thus Britain encouraged banana output in Jamaica, Dominica, St. Lucia; France extended special treatment to bananas grown in the Ivory Coast and the Cameroons. At the other extreme, Germany offered a free market with no import restrictions or tariffs.
Britain and France took the position that banana production was essential for both the economic health and the social well-being of their former colonies. By the late 1980s, about one-third of the work forces on the small island nations were employed in banana production.
Protected banana production, that is. Most of the bananas were grown on small family farms and tilled by hand on hilly terrain and poor soil, with little or no mechanization or irrigation. Yields were far below those in places like Honduras, Guatemala and Ecuador. In fact, the cost of growing bananas in the Caribbean was twice that for bananas produced on Latin American plantations. Without their favorable entree to Europe, the banana industries of these small islands might have disappeared.
Chiquita nevertheless cracked the British market through its ownership of a British subsidiary, Fyffes Ltd., which grew bananas in the former British colonies. British consumers paid a relatively high price for those bananas, but Chiquita's margin from this trade was still small compared with the profits from its efficient plantations in Latin America. By 1986, as the European Union began to take shape, Chiquita executives hoped the restrictions would be lifted and its low-cost bananas could take over the market. So Chiquita sold off its Fyffes subsidiary.
It would prove to be the first in a series of missteps by the Lindner-controlled company -- suggesting at least the possibility that the ensuing banana war was really intended to bail out the Lindners from their costly business mistakes.
Meanwhile, in a tariff-free and quota-free Germany, Chiquita had seized 45% of the market. Envisioning the same potential for all of Europe, as well as the former Soviet satellites that were opening up, Chiquita and its chief competitor, Dole Food, decided in the early 1990s to pour more money into production and flood the European market with bananas. With more bananas than buyers, prices -- and hence profits -- plummeted.
Worse still, the E.U. announced that instead of an open market, which Chiquita had hoped for, it would expand the old system, with quotas and tariffs on bananas brought in from Latin America and preferential treatment for bananas grown in the former colonies. The new rules went into effect on July 1, 1993.
They certainly should not have come as a surprise to Chiquita, the U.S. government or anyone else. The signs had been clear for years that Europe intended to continue giving preferential status to bananas from its former colonies. An investment report prepared in October 1990 by the Wall Street firm of Shearson Lehman Bros., Inc., predicted that Europe, contrary to Chiquita's hopes, would maintain the status quo for years to come.
Even Chiquita knew at the time what it faced. In its 1992 annual report filed with the U.S. Securities and Exchange Commission, the company acknowledged that "although we will oppose these restrictive policies in the proper legal forums, we are prepared to adapt to this new regulated environment." By this time, Dole, the world's second largest banana producer and Chiquita's only real rival, had hedged its bets and arranged to acquire bananas from those countries with no tariffs and generous import quotas.
Meanwhile, Chiquita's business was tanking. From 1992 to 1994, the company racked up $407 million in losses. Its stock price plunged from $40 to $11 a share. In meetings with government officials, Chiquita laid the blame squarely on the E.U.'s trade restrictions. The U.S. Trade Representative and the rest of the Clinton Administration bought the line, at least officially. And to this day, Chiquita officials insist that's the case. Steven Warshaw, Chiquita's president, told TIME, "The E.U.'s illegal banana regime is the cause of the company's poor financial results since 1992. It would be absurd to conclude otherwise... It is well accepted that the E.U.'s banana regime was specifically designed to expropriate market share from U.S. banana interests to benefit European multinationals and other interests within the European market ... Our stock price declined precipitously, and our industry has been substantially damaged."
While there is little question that Chiquita's sales would be higher were it not for Europe's quota and licensing system, a close look at company filings with the Securities and Exchange Commission over the past 15 years shows that a good portion of Chiquita's decline is attributable to other causes. In the years it posted record losses, Chiquita said in the SEC reports, its costs "were significantly impacted" by outbreaks of banana disease, bad weather, a strike by workers in Honduras, as well as shipping and operating losses from its "Japanese 'green' banana trading operations."
Banana pricing wars also took a toll, but even more telling, the company ran up its long-term debt so that cash payments for interest charges spiraled from $52.6 million in 1990 to $164.3 million in 1993. Even if Chiquita sales had reached the level the WTO said they would have in the absence of European restrictive policies, the company still would have recorded losses or, at best, a marginal profit. As a Wall Street investment analyst who tracked the banana industry put it in 1992, "we have serious doubts about the abilities of management to deal with the company's problems."
Over the 15 years ending in 1998, with the Lindners in control, Chiquita tallied total sales of $45 billion but profits of only $44 million. That's the equivalent of a $10,000 investment that returns 65[cents] a year. Not surprisingly, the company's stock is now trading at less than $5 a share.
In an SEC filing last December, a minority shareholder of Chiquita's reported that the Lindners were pondering an auction to sell off Chiquita. All of which may explain the money trail the Linders left behind in Washington.
Throwing Money at the Problem
Lindner, a nonsmoking, nondrinking, nonswearing Baptist, has been a major supporter of the Republican Party, its candidates and causes. This may account for the less than enthusiastic response that Lindner received when he first took his banana case to the Clinton Administration early in 1993. In fact, at that time the U.S. Trade Representative's internal memos show that bananas were a low priority for the U.S. government. What's more, USTR and State Department officials had given -- and would continue to give -- repeated assurances to leaders of Caribbean governments that the U.S. supported European preferences for their bananas. And not without good reason. Everyone was fearful that islanders unable to grow and sell bananas would turn to a much bigger cash crop -- drugs.
It was against this background that in June of that year, Keith Lindner, then president of Chiquita and one of Carl's three sons in the family businesses, wrote a "Dear Ambassador" letter to Mickey Kantor outlining concerns over Europe's import restrictions. There was little response.
That December, Carl Lindner contributed a quarter of a million dollars to the Democratic National Committee, establishing himself as a generous supporter of both political parties.
Through the early months of 1994, the Lindner lobbying juggernaut concentrated on building congressional support to pressure the Clinton Administration into action. From January to August, lawmakers of both parties bombarded Clinton and Kantor with letters demanding action.
Among the more strident and persistent correspondents were Bob Dole, who would eventually campaign for the presidency aboard Lindner's corporate jet, and John Glenn, who counted Lindner as a campaign contributor.
In January, Dole and Glenn, along with Senator Richard Lugar, wrote to the President calling for "sustained interventions" with European Union officials to make clear that export quotas and licensing "are not an acceptable solution." By August, Dole and Glenn demanded that Kantor initiate a so-called 301 investigation. The name comes from a section of the 1974 trade law that gives the USTR authority to investigate foreign trade practices and impose tariffs in retaliation.
On Sept. 13, Dole arranged a breakfast meeting with Kantor and Lindner. A day later, according to an internal USTR memo, Kantor and his staff had a follow-up meeting with Lindner and his colleagues to discuss "possible strategies" to overturn the European quotas.
Over the years, the USTR has averaged only about five 301 investigations annually. Even rarer are cases in which the USTR has recommended punitive tariffs on the imports of the offending nation. The Chiquita case was rarer still -- an instance in which the complaining company was not even a U.S. exporter. Two USTR staff members acknowledged this in a memo to Kantor on Oct. 13, 1994, saying that "if initiated, this investigation would break new ground, as this would be the first time that USTR had ever used Section 301 in connection with a product not exported from the United States but from elsewhere." Nonetheless, the staff members said "we have been persuaded by Chiquita that the practices here do have a significant effect on U.S. commerce." Lawyers for other U.S. corporations disagreed strongly. Natalie Shields, tax and trade counsel for Black & Decker, later captured the logic of the USTR decision this way: "This would inflict substantial harm on one U.S. company in an effort to benefit other U.S. companies which export bananas from third countries."
But the Clinton Administration liked the notion. On Monday, Oct. 17, 1994, Kantor authorized the 301 investigation. That Thursday night Lindner was in the White House, attending a dinner as a guest of the President. And the following week, Al Gore called Lindner, asking for another major donation. Lindner delivered. On Nov. 3, Lindner's American Financial Corp. donated $50,000 to the D.N.C. His Great American Holding Corp. donated $25,000, and his American Money Management kicked in $25,000, bringing the one-day total to $100,000.
At the same time, Senators Dole and Glenn kept the pressure on, urging Kantor in another letter on Nov. 17 to retaliate against the Europeans.
The following month, on Dec. 10, the Lindners again met with Kantor, after which they fired off a "Dear Mickey" letter, thanking him for his efforts.
At year's end, on Dec. 30, James E. Evans, a Lindner executive, contributed $150,000 to the D.N.C., bringing to $250,000 the sum that in one year Lindner, his companies and their executives poured into Democratic coffers.
On Jan. 3, 1995, four days after the latest Lindner-related contribution, Kantor announced "a list of retaliatory actions that he [was] considering against the European Union to counter E.U. policies which discriminate against U.S. banana marketing companies." Specifically, Kantor said he was contemplating sanctions "that would directly hit E.U. firms providing air, maritime and space transportation services."
On Thursday of the same week, Terry McAuliffe, Bill Clinton's moneyman and Lindner's home-building partner, sent a memo to Nancy Hernreich, one of the President's administrative assistants, summarizing a conversation he had had with the President on fund-raising activities. McAuliffe asked that overnight stays at the White House be arranged for major contributors; that dates be scheduled for contributors to have breakfast, lunch or coffee with the President; and that other contributors be included in such presidential activities as golf and jogging.
The next day another aide passed along a memo to Harold Ickes, the President's deputy chief of staff, saying that "Nancy has asked us to follow up on this at the President's direction and his note indicates 'promptly.'" The memo called for "overnights for top top supporters." Accompanying McAuliffe's memo was a 10-person list of those "top top" supporters prepared by McAuliffe. Prominently holding down the No. 2 slot: longtime Republican Carl H. Lindner.
Five weeks later, on Feb. 9, Lindner was in the White House at a state dinner honoring German Chancellor Helmut Kohl. After entertainment by Tony Bennett and a German chorus, Lindner went upstairs to bed. Less than two weeks later, he was back in the White House for coffee.
Cranking Up the Pressure
Throughout this period, Lindner's allies in Congress kept the pressure on the Clinton Administration. On June 21, Senator Dole wrote to Kantor: "I am concerned that time is running out in the banana case. U.S. banana companies are on the verge of suffering even greater irreparable damage as a result of the E.U. and Latin practices."
Kantor scribbled a note in the margin of the letter, addressed to Jeff N. -- Jeffrey Nuechterlein, senior counsel to Kantor -- and Jeffrey L. -- Jeffrey Lang, one of his top aides: "Please give me a way to proceed. Pressure is going to grow. MK."
Kantor says he has no recollection of the note. "I don't remember writing it," he says. Lang doesn't remember it either. He recused himself from the banana dispute, he says, because before his appointment as Deputy U.S. Trade Representative, he represented the European side in the WTO proceedings. Nuechterlein, likewise, doesn't remember anything about it. "I was not involved with bananas substantively," he says.
Dim memories aside, the pressure did indeed grow. On July 19 Carl and Keith Lindner wrote to Kantor again, expressing their dissatisfaction with proposals put forth by the Europeans to resolve the banana dispute. At least in the view of the Lindners, the war should be waged as a joint effort, with Chiquita and its ally, the U.S. government, on one side and the European Union Commission on the other.
On Aug. 3, the four-member Hawaiian congressional delegation sent a letter to Kantor saying they were prepared to talk about possible "international courses of action" against the E.U. As America's only state producing bananas -- most were grown for consumption on the islands -- Hawaii had an indirect stake in the outcome of the banana war; because Chiquita, Dole and other producers had flooded the European market, tariffs notwithstanding, the overflow had found its way back into the U.S., driving down retail prices.
The following day, Lindner's American Financial Corp. delivered an additional $100,000 to the D.N.C. A few days later, the Lindners met once again with Kantor. Two months went by. On Nov. 3, the Lindners advised Kantor's staff that it was "very important" they get together for 20 minutes. This particular meeting did not take place, but nine days later, on a Sunday night, Lindner was sitting behind Clinton at a presidential gala in Ford's Theatre.
As 1995 gave way to 1996, the money kept gushing from the Lindner empire, much of it in smaller, harder-to-trace donations. In February a Lindner executive gave $10,000 to the D.N.C., and American Financial Corp. contributed $15,000. In March, Lindner directed $10,000 each to the Minnesota, North Carolina, Tennessee and Iowa Democratic parties, $15,000 to the Michigan Democratic Party and $5,000 to the Connecticut Democratic Party. In April he steered $10,000 to the Pennsylvania Democratic Party.
With at least an additional $95,000 of Lindner money in the Democratic Party's bank accounts, the U.S. Trade Representative on May 8 took its banana case to the WTO. At long last, the Clinton Administration was ready to mount a global trade war on Lindner's behalf.
A spokesman for Chiquita dismissed the suggestion that campaign contributions by Lindner had anything to do with the USTR's taking the case. "It is well known that Carl Lindner has been actively involved and a major contributor to candidates and other causes on a multipartisan basis for many decades," he said.
Former Trade Representative Kantor also insisted that contributions played no part in his decision. "The staff made a unanimous recommendation to me that we bring the case," he said.
Of Lindner's contributions, Kantor said, "I couldn't have cared less. It made no difference to us whatsoever. We didn't hear a word from the White House."
Be that as it may, the USTR decision to pursue a trade war over bananas was sharply at odds with its handling of similar agricultural issues. Consider this: today, even with the tough trade restrictions still in place, Chiquita controls 20% of the European market. By way of contrast, the USTR has negotiated with Japan to allow American companies a 3% share of the Japanese market for rice.
In other words, the U.S. went to war on behalf of one American company that already had 20% of a foreign market, and it negotiated to secure 3% of another foreign market for the benefit of seven to 10 American companies.
Over the next two years, Lindner continued to dispense cash to the Democrats. In June 1997, two installments of $10,000 each went to the Democratic National Committee Services Corp. In November he gave $75,000 to the D.N.C. and in February 1998 another $75,000. That was followed by contributions of $10,000, $10,000, $25,000, $50,000, $25,000 and $5,000.
Throughout this period, Lindner and Chiquita enjoyed a close working relationship with the USTR office. Copies of U.S. government correspondence with heads of state in other countries were voluntarily turned over to Lindner. Finally, on Nov. 10, 1998, the USTR proposed 100% tariffs on several dozen European imports. The agency said the increased tariffs would be imposed on March 3, 1999, if Europe did not relent and relax its restrictions on Latin American bananas.
The products included pecorino cheese, certain wines, apple juice, bath preparations, candles, furs, coniferous wood, paper boxes, lithographs, cashmere sweaters, women's suits, dresses, skirts, bed linens, scissors, sewing machines, vacuum cleaners, food grinders, windshield wipers, dolls, photographic equipment, chandeliers, glass Christmas ornaments, sweet biscuits, wafers, felt paper, plastic handbags, coffee or tea makers, electric toy trains, greeting cards, stoves and ballpoint pens.
In short, it was a list of products bearing absolutely no relation to bananas.
While government officials were assuring reporters that the tariffs would never be levied, the U.S.-based companies that would be affected were taking no chances. In all, 42 types of products were targeted for tariff increases and, as it had to do by law, the USTR asked interested parties to respond.
Respond they did, setting off a furious lobbying campaign to try to get off the banana hit list. Companies and politicians showered the agency with letters warning of potential job losses in their districts if the increased tariffs were imposed.
At a USTR hearing on Dec. 9 attended by trade associations and Washington lobbyists, various interest groups spoke out against the tariffs, saying they would cripple or possibly destroy their businesses.
"The imposition of a prohibitive duty on ballpoint pens would have a devastating effect on Gillette's writing-instruments business in the U.S.," a representative for the Gillette Co. warned.
"Subjecting these dolls to a 100% duty could well result in the collapse of the entire line of American Girl products," a representative for Mattel cautioned.
"The imposition of a 100% duty rate on articles of fur clothing and garments will seriously impact our members, making their garments outrageously expensive, even for a luxury product," declared a representative of the Fur Information Council of America.
Two weeks later, on Dec. 21, products imported by Gillette, Mattel and fur retailers, as well as those of some two dozen other trade groups and industries that testified at the hearing or lobbied the USTR, were dropped from the list.
More lobbying ensued. On April 19, when the final list was published, most of the goods once proposed for high tariffs had been stricken from the list. Only nine types of products were covered.
In announcing the final list, Barshefsky, who had replaced Kantor as U.S. Trade Representative, reiterated that the higher annual tariffs on European goods were in retaliation for Europe's refusal to change its import rules on bananas.
"It is proof that the system works," she said. "When members [of the WTO] refuse to live by the rules, they will pay a price." There was one major oversight in Barshefsky's reasoning: the wrong people were going to pay the price.
The Clinton Administration salvo aimed at giant European corporations hit Rick Reinert, Arthur Kaplan, Timothy Dove and other small entrepreneurs, whose only connection to bananas is to eat one every now and then.
"I Thought It Was a Joke"
Reinert is -- or more accurately was -- the typical American small-town, small-business success story. He grew up in LaPorte, Ind., and attended Western Kentucky University before enlisting in the U.S. Army in 1975. He and his wife, whom he met during his Army stint in Germany, started their wholesale bath-supplies business in 1994 out of the family garage in Summerville, S.C., a pine tree-studded bedroom community of Charleston. "We began very meagerly," says Reinert. "We didn't have one account." By knocking on doors, attending an endless parade of trade shows and selecting the right representatives, they built a solid customer base of some 2,000 stores -- gift shops, beauty salons, boutiques, grocery stores, independent pharmacies and a major drugstore chain. Their most popular items, which they buy from a German supplier and account for 60% of sales, are aromatic foam baths scented with herbs from lavender to rosemary. And these items were among the ones singled out by the USTR office for its trade war with Europe over bananas.
Reinert remained blissfully unaware until January 1999 that he was on his way to war. That's when he first heard about the proposed tariffs. "I was at a Portland [Ore.] gift show...and I happened to read this little blurb in TIME about bath products. I thought it was a joke." He investigated. "It was no joke. We were on the potential hit list."
That's when Reinert started writing letters and calling everyone -- his Congressman, his Senator, the USTR. It was during one of many conversations with a ustr staff member that he was told, in effect, it was his own fault that he had got caught up in the trade war. After all, the USTR had published a list of the targeted imports in the Federal Register. He should have attended the hearings in Washington, just like Gillette (annual sales: $10 billion) and Mattel ($5 billion). If he had, then Reha Enterprises (less than $1 million) might have been removed from the list as well.
Reinert is still fuming. "That's ridiculous. I mean, do you read the Federal Register? Does anybody in Summerville read the Federal Register?" The trade official suggested Reinert should have hired a lobbyist in Washington to keep him briefed. That one didn't go over well either. "I mean, we've got two kids. It's a small business," says Reinert. "Who in his right mind would come up with stuff like that?"
"We're only [six] years old," Reinert says. "Cash flow is always a problem. Finance is always a problem. But they are just destroying the base of our company."
What other advice has Reinert received from officials in the U.S. Trade Representative office and from the staffs of members of Congress?
He says one official urged him, off the record, to break the law -- to change the number on the Customs invoice so it would appear that he was importing goods not subject to the tariff. Reinert demurred. "I could end up in jail for it," he says. "I don't want to be the only one without a chair when the music stops."
Another official chided Reinert for not buying American, a rebuke that angered him. Reinert responded, "'Why don't you go out in your parking lot and count all the Mercedes and Porsches, BMWs, Lexuses and Toyotas?' I mean, these are just ridiculous arguments."
In response to repeated calls and letters, Reinert heard personally from Barshefsky last August. The news was not good. Reinert, she suggested, was standing in the wrong place at the wrong time when the war started. She explained in her best bureaucratic language that it was legally impossible to remove Reinert's bath products from the tariff list. Said she: "We have examined the question of whether [the USTR office] has the authority to grant exemptions to small businesses, such as yours, that are severely harmed by the increased tariffs... We have concluded that the relevant statute...does not provide such authority to USTR."
Three months later, in November 1999, Barshefsky told quite a different story when she testified before the Senate Banking Committee concerning the upcoming WTO gathering in Seattle. In response to a committee member who suggested legislation that would rotate products on and off the tariff hit lists, Barshefsky asserted that "I have discretionary authority as it is to alter a retaliation list if that becomes necessary or advisable. So the authority is already there."
None of this is any help to Reinert, Kaplan, Dove and the hundreds of other small entrepreneurs like them, some of whom have already been forced out of business. Nor is it any consolation for all those who have been caught up in the ripple effect -- the peripheral businesses, from trucking companies to local suppliers, who deal with those on the tariff list.
For his part, Reinert continues to wage his battle, writing letters to whoever he thinks just might take an interest in his case. "It's been mentioned to me, you know, from all levels of government, [that] you cannot fight the government. Well, I think you can. It's wrong what they're doing."
The USTR, for its part, insists that the products chosen for high tariffs were intended to "minimize the impact" on Americans and "maximize the impact on Europeans," in the words of Peter Scher, a special trade negotiator. As to how much pressure they have had on Europe, Scher said, "I think it has had an impact. Has it moved the E.U. as far as we want them? No. But it has certainly moved the E.U. to the negotiating table."
Might the tariffs that have squeezed Rick Reinert and other small businesses remain in place another year or two? "Anything is possible," said Scher. "The ball is in the E.U.'s court." Even Chiquita acknowledges that there is little movement toward a settlement. "There is no end in sight," said a company spokesman.
So what does the battlefield look like as the Great Banana War's tariffs approach their first anniversary?
Well, the operators of some small businesses, like Reinert, are limping along from month to month. Other small-business people are filing fraudulent Customs documents to escape payment. Other businesses are doing just fine because their suppliers in Europe agreed to pick up the tariff or it applies to just a small percentage of the goods they sell. In Europe as in America, small businesses have been harmed by the U.S. tariffs. Larger companies have been mostly unaffected. And the European Union has kept in place its system of quotas and licenses to limit Chiquita bananas. Who, then, is the winner in this war?
That's easy. It's the President, many members of Congress and the Democratic and Republican parties -- all of whom have milked the war for millions of dollars in campaign contributions -- along with the lobbyists who abetted the process.
A final note. While Lindner had many areas of political interest beyond his battle with the European Union, a partial accounting of the flow of his dollars during the Great Banana War -- as measured by contributions of $1,000 or more -- as well as lobbying expenditures on the war, shows:
Republicans $4.2 million
Democrats $1.4 million
Washington lobbyists $1.5 million
That's more money than a business like Rick Reinert's will earn in a lifetime.
First in a series of Investigative Reports on campaign finance
-- WITH REPORTING BY LAURA KARMATZ AND ANDREW GOLDSTEIN AND RESEARCH BY JOAN LEVINSTEIN
Some Winners and Losers
What's on the List ...
After Chiquita lobbied the Clinton Administration to put pressure on Europe to drop tariffs on bananas, the U.S. answered by imposing huge tariffs on a variety of European goods. Among those penalized: coffeemakers, plastic handbags, uncoated felt paper and bed linens
...And What Escaped It
Scores of European products, from clothing to stoves to glass Christmas ornaments, were originally targeted for the retaliatory tariffs. But aggressive lobbying by big corporations, trade groups and members of Congress got most of the threatened import products off the list
Friends in High Places
The banana king fervently courted the help of U.S. Trade Representative Kantor, above with Clinton. A sample of events:
The President's chief moneyman, Terry McAuliffe, identifies lifelong Republican Carl Lindner as one of top 10 contributors to Democratic Party
Kantor concludes that the European Union's banana restrictions have harmed Lindner's company and suggests U.S. retaliation
On the same day, Lindner writes a "Dear Mickey" thank-you letter, expressing appreciation for Kantor's "personal commitment to this case"
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LETTERS
Chiquita Speaks Out
February 28, 2000
By Steven G. Warshaw
The U.S. and five Latin American countries brought the banana dispute to the World Trade Organization because Europe's import restrictions violate international trade laws [BIG MONEY & POLITICS, Feb. 7]. Our businesses have lost hundreds of millions of dollars to a handful of European banana-marketing companies. Chiquita's share of the European market was reduced more than 50% as a result of Europe's illegal practices. The GATT and the WTO confirmed the legitimacy of this case by finding Europe's banana scheme to be illegal in seven separate rulings. The banana dispute is about much more than bananas. This precedent-setting case will determine whether the WTO can resolve trade disputes quickly and fairly.
No citizen, company or union should be expected to give up the right to due process under our trade laws simply because of a contribution to a political party. Under the WTO system, retaliation is automatic when a losing party refuses to comply with a dispute-settlement ruling.
It is Europe that has created this unfair situation. It is unfortunate when any American becomes an innocent victim in a trade dispute. However, it's unfair and wrong to blame Chiquita for seeking to have the trade laws properly enforced. Those who want to know more about this complex issue can visit our website, http://chiquita.com.
Steven G. Warshaw is President and COO, Chiquita Brands International, Cincinnati, Ohio
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