Chapter 8Compliance Bargaining in the WTO: Ecuador and the Bananas DisputeJames McCall SmithGeorge Washington UniversityI. INTRODUCTIONStudies of bargaining in the international economy routinely focus on negotiationsregarding the original terms of agreements ex ante rather than on discussions regarding compliance with those commitments ex post. A few scholars have called attention to this often neglected aspect of international negotiations: compliance bargaining.1 The dynamics of compliance bargaining have particular importance for developing countries, whose post-agreement negotiating power is arguably constrained in many settings. This paper examines compliance bargaining in the World Trade Organization (WTO) through a case study of Ecuador's tactics in its challenge against the banana import regime of the European Union (EU). After prevailing in its legal case against the EU banana scheme (as a co-complainant with others), Ecuador pursued an aggressive strategy to encourage compliance with the ruling. In the framework of Odell, Ecuador's stance in this high-profile dispute was a purely distributive strategy.2 In the universe of international economic negotiations, all compliance bargaining tilts toward the distributive end of the spectrum, as one party claims another has failed to deliver benefits that were previously promised. In the bananas dispute, Ecuador's negotiators creatively sought to maximize their leverage within the specific institutional framework of WTO rules. What is striking about this case is the extent to which those rules — some interpreted and applied for the first time — enabled Ecuador, in effect, to punch above its weight in the multilateral tradesystem. As a test of developing country leverage in WTO compliance bargaining, the bananas dispute is a least likely case. At the outset of the dispute, as Ecuador rushed its 2WTO accession to join the proceedings, the odds of success were hardly high. The EU had already defied two GATT panel rulings against its banana regime in 1993 and 1994. A broad coalition of African, Caribbean, and Pacific (ACP) countries staunchly defended their preferential access to the European market, playing the same developing country card on which Ecuador would in part rely. Although by no means heavyweights in international economic affairs, the ACP banana exporters had two advantages: many enjoyed deep-rooted economic ties to former colonial powers, and their coalition sought to defend the status quo rather than to change it. Finally, despite the obvious advantages of joining a complaint filed by the United States (US), Ecuador's economic interests diverged in several crucial respects from those of Chiquita International, the firm on whose behalf the US (and others) initiated the dispute. Facing the prospect of pressure from the US, rather than from Latin American countries alone, the EU was more likely to comply with an adverse ruling than in the past — but whether it would accommodate Ecuador’s specific concerns in choosing how to do so was an open question.Conventional measures of political power suggested that Ecuador's demands would carry little weight in this cacophony of competing interests. Ecuador is the world’s largest banana exporter, but market power in that limited economic realm offered it little or no direct political leverage over the broad issue in dispute: EU trade preferences for former colonial territories. Power in the trade realm typically accrues to states that control market access, not to those that seek it, and Ecuador had little with which to threaten the EU. Despite overwhelming asymmetries (in market size, political clout, and legal resources) between Ecuador and the principal disputants on either side of the Atlantic, Ecuador managed to play an influential role throughout the controversy. Its 3negotiators did so by charting an independent and assertive course through the maze of WTO dispute settlement procedures, many of which at that time remained untested.While collaborating with the other complainants, Ecuador's negotiators were careful to maintain their independence at several crucial junctures. When the US moved quickly to retaliate against the EU, for example, Ecuador refused to follow its lead, insisting that a WTO compliance panel first rule on the legality of the revised European regulations. Although this move drew criticism from Washington, it won support from other member states and has since been adopted as customary practice in subsequent WTO disputes. Similarly, when the EU and US finally reached a settlement, Ecuador initially refused to ratify their deal, threatening to challenge it before a second compliance panel unless important modifications were made. Ecuador's negotiators also made assertive use of certain WTO rules to enhance their bargaining leverage. Two instances stand out as worthy of note. First, Ecuador sought and won the authority to retaliate against the EU by suspending benefits in areas outside of merchandise trade in goods — marking the first time that the WTO ever endorsed the right of cross retaliation. Ecuador's innovative request to cross retaliate focused on the intellectual property rights of European firms in several sensitive sectors, including industrial design patents, copyrights in the music industry, and (most significantly) geographical indications for alcoholic beverages. By obtaining this authority, Ecuador signaled its commitment to press for full compliance on the part of theEU, enhancing its leverage in subsequent negotiations. Second, after reaching a settlement in the case, Ecuador continued to adopt an aggressive stance by demanding special institutional guarantees that the EU would honor 4its commitment to comply fully with the WTO rulings by 2006. During the Doha ministerial meetings, Ecuador made its support of two waivers sought by the EU (for the Cotonou pact and for the transitional banana regime, both of which give preferences to ACP countries) contingent on the creation of a special ad hoc arbitration procedure. This institutional innovation, which is outside of the normal WTO dispute settlement system, guarantees a timely review of whether the EU’s banana regime (for 2006 and beyond) will diminish the market access of Ecuador and other Latin American banana exporters. This combination of tactics enabled Ecuador to wield surprising influence over the ultimate resolution of the bananas