GENEVA (B)--The European Union has mounted a challenge to sanctions imposed last year by the U.S. in retaliation for the EU's banana import regime. The EU contends that the U.S. illegally imposed $191.4 million worth of sanctions before the WTO had ruled on the validity of EU efforts to reform its banana regime. If the EU appeal against Washington's actions are successful, it would undermine the legal basis for the U.S. sanctions.

The U.S. last year demanded that EU exporting companies should deposit bonds, corresponding to a 100% customs duty of the goods' value for the proposed products targeted by sanctions. The demand became effective from March 3, 1999, six weeks before the WTO approved sanctions on April 19 last year. The WTO therefore found in April this year that the U.S. 'jumped the gun.' Now the EU has appealed against the legal sequence of the U.S. process and thus the legality of even the approved U.S. sanctions.

The EU claims that the U.S. went ahead with sanctions not only before it had been authorized, but also before the WTO had decided that the new EU regime still contravened trade rules.

WTO arbitrators last year fixed a value for U.S. damages and simultaneously determined that EU attempts to reform its banana regime by January 1, 1999 were not in compliance with earlier rulings.

The WTO's arbitrators argued in their April 20 finding this year that they are entitled to decide whether the EU had complied with earlier rulings at the same time as setting the value of U.S. authorized sanctions.

The argument illegally rolls two dispute procedures into one, contends the EU, with the consequence that a member government loses the right to appeal.

Under the confused timetable sequence for existing WTO dispute resolution rules, which trade officials freely concede are in desperate need of overhaul, the U.S. had to request authorization to retaliate before arbitrators ruled whether the EU's reforms to its banana license regime came up to scratch.

"It's like asking a judge to pass sentence before the accused has been convicted by a jury," said one trade official.

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