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A new trade war?
Bush’s steel and farm policies could yet sink the World
Trade Organisation’s ‘Doha Round’, argues LAURENCE COATES.
PRESIDENT BUSH’S LURCH into protectionism looks set to
trigger retaliation by US capitalism’s major trading partners. In March,
Washington introduced tariffs of up to 30 per cent on imported steel, citing its
right under World Trade Organisation (WTO) rules to impose ‘safeguard’
measures in the face of an imports surge. The president then threw his weight
behind the 2002 Farm Bill — a $173.5 billion package of agricultural subsidies
which may break commitments made in the so-called Uruguay Round (1994) of trade
liberalisation. These developments raise important questions for socialists. Is
this the beginning of an era of trade wars similar to the 1930s? Does it, as The
Economist magazine warned, ‘put globalisation itself at risk’? And will
rising trade tensions mean the sidelining of bodies like the WTO?
The steel conflict is more serious than previous
transatlantic disputes over bananas or hormones in beef. The European Union (EU)
has threatened retaliatory tariffs on $364 million-worth of US exports — from
brassières to grapefruits. The Economist observed that ‘the
transatlantic trade relationship has turned disturbingly dark’.
Each side claims to be following WTO rules and defending ‘free
trade’: Brussels by disputing Washington’s claim that steel imports were on
the rise. Japan is following suit, albeit with a smaller package of anti-US
measures. China, flexing its muscles as a WTO member, has already slapped
tariffs on US steel and may target imported US soybean oil. The US has warned
all parties it will ‘counter-retaliate’, raising the possibility of
escalation. Washington may also challenge the EU’s three-year ban on
genetically modified organisms (GMOs), a move it knows could provoke popular
protests. Brussels, meanwhile, has the option of imposing $4 billion-worth of
anti-US sanctions (tariffs) following a WTO ruling against the US over corporate
tax breaks (Foreign Sales Corporations — FSC). Bush’s trade representative
Robert Zoellick has warned the EU that retaliation on such a scale would unleash
‘a nuclear weapon on the trading system’!
A WTO disputes panel over US steel tariffs was initiated in
June at the request of seven countries — including Brazil, Norway and New
Zealand — plus the 15-member EU. A case in the ‘court’ of the WTO could
drag on for one to two years, but may result in a compromise on steel. In the
meantime, however, Bush’s endorsement of the protectionist farm bill threatens
an even bigger conflict, with the potential to wreck the so-called Doha Round of
multilateral trade talks. The transnational corporations which account for
two-thirds of global trade prefer multilateral ‘all-inclusive’ talks which
hold out the prospect of bigger gains than bilateral (state-to-state)
negotiations. A collapse of the Doha process could render the WTO effectively
redundant — increasingly elbowed aside in a scramble for bilateral deals. The
capitalists fear such a prospect, especially since world trade declined by one
per cent last year — the worst figure for 20 years. They fear that Bush’s
steel tariffs can unleash an epidemic of ‘safeguard’ measures from all sides
— the number has already risen from five in 1996 to 53 last year.
The US measures therefore drew unprecedented criticism at
the annual meeting of the OECD club of rich nations in May. A joint letter
signed by Horst Köhler, James Wolfensohn and Mike Moore — the chiefs of the
IMF, World Bank and WTO — warned that ‘any increase in protectionism by one
country is damaging’. At this meeting, Canada’s trade minister accused
Washington of ‘destroying the multilateral trade system’. Ottawa is furious
over the farm bill and Bush’s decision to slap 29 per cent tariffs on imports
of Canadian softwood lumber. This was a concession to senators in
lumber-producing states ahead of mid-term elections to the US congress in
November.
The Doha Round
MEETING IN THE shadow of the September 11th terrorist
attacks, the WTO narrowly managed in Doha, Qatar, last November to launch a new
round of trade talks, for completion by 2005. Poor countries, bitter over
repeatedly broken promises, were dragooned into supporting the new round by a
massive lobbying campaign from the imperialist states. They were threatened with
the loss of development aid and other economic support if they didn’t tow the
line. This underlines the WTO’s true role as an instrument for the collective
exploitation of the Third World by imperialist governments and corporations.
A vague commitment by EU representatives to ‘phase out’
agricultural subsidies was instrumental in averting a breakdown at Doha. This
partly reflects the EU’s need, as a result of its planned enlargement, to make
cuts in the Common Agricultural Policy (CAP), probably offloading responsibility
onto national governments. A secret EU document quoted in The Guardian,
revealed plans to extract huge concessions in return for cuts in the CAP,
including ‘full-scale privatisation of public monopolies across the world’.
Thanks partly to Usama bin Ladin, but also the risk that a
new WTO fiasco, as in Seattle, would effectively cripple the organisation and
hand a major propaganda victory to anti-capitalists, Brussels, Washington and
Tokyo closed ranks in Doha. The resulting agreement removed ‘the stain of
Seattle’ according to Robert Zoellick, while in reality it achieved no more
than an agenda for talks.
Nevertheless, the scope of the Doha Round is extremely
broad, representing a potential goldmine for transnational companies. Their
problem is how to sell such agreements to poor countries. Despite cuts mandated
by the previous Uruguay Round, agricultural tariffs in rich countries are still
three times higher than those on industrial products. Textile exports, another
key area for ‘developing’ countries, face a raft of anti-dumping rules in
rich countries. In Doha, 80 poor countries demanded these ‘imbalances’ from
the Uruguay Round be addressed as a pre-condition for any new round.
Against this background, the new US farm bill is akin to
driving a tank over a rope bridge. The bill allows for an 80 per cent increase
in subsidies over ten years. As in Europe, three-quarters of this money will go
to the biggest, richest, ten per cent of farmers. Bush’s actions are a
diplomatic ‘own goal’, letting the traditional villains of the agricultural
debate — the EU, Japan and South Korea — off the hook. Former US allies in
the 18-member Cairns Group of farm exporters (Australia, Canada, Argentina etc)
have condemned the US move. Meanwhile, a new front may open inside US capitalism’s
backyard with Bush threatening to drag Canada before a NAFTA panel over ‘subsidised’
wheat exports to the US.
Without at least some concessions to poor countries over
farming and textiles, a future WTO round is very unlikely. If the Doha agenda
unravels, the WTO could begin to resemble the UN — a ceremonial body —
largely bypassed by the push into regional alliances.
Bush the ‘anti-globalist’?
A NUMBER OF commentators claimed that Bush’s steel tariffs
were a victory ‘for anti-globalists’. This is only true in so far as the
tariffs expose the myth of ‘free trade’ under capitalist imperialism, in
which a few financially powerful countries or blocs have a stranglehold on the
world market. Bush’s ‘free trade’ credentials have begun to wilt in the
face of opinion polls which currently give the Democrats a seven point lead in
the congressional race. Demands for protectionism have intensified as a result
of the widening US current account deficit, set to reach $500 billion next year
— 4.9 per cent of gross domestic product (GDP). This is mainly due to the
unprecedented strength of the dollar from 1996 until recently. While powering
global growth in the late 1990s, by sucking in record levels of imports, the
strong dollar took a heavy toll on traditional US industries such as textiles
and steel. Since the Asian crisis of 1997, 180,000 US textile jobs have been
lost. Even hi-tech production — computers and micro-electronics — has
increasingly been ‘outsourced’ to cheaper facilities overseas. Manufacturing
accounted for just 16 per cent of US GDP last year.
Rather than a conscious protectionist strategy, however, the
Bush measures are partly the result of political miscalculation. The president
is clearly eyeing votes in steel-producing and farming states ahead of November’s
mid-term elections. But his measures were also aimed at securing trade promotion
authority (TPA) or ‘fast-track’ authority from congress, a move giving the
president power over trade policy.
Bush’s trade agenda is heavily focused on Latin America,
which he calls ‘a fundamental commitment of my presidency’. His ultimate
goal is a 34-nation Free Trade Area of the Americas (FTAA), a pre-condition for
which is winning ‘fast-track’.
At the very moment steel tariffs were imposed, Bush was in
San Salvador discussing a free trade pact with leaders of seven Central American
states — seen as a step on the road to FTAA. Socialists are completely opposed
to the FTAA, through which the big corporations aim to extend their power at the
expense of workers, poor farmers and the environment. Workers in the US, Mexico
and Canada already have the experience of the North American Free Trade Area (NAFTA)
— negotiated by George Bush senior — which has resulted in cross-border job
losses and wage cuts. FTAA has been dubbed ‘NAFTA on steroids’.
Far from placating protectionists on Capitol Hill, however,
Bush’s farm and steel measures opened a Pandora’s box of protectionist
amendments to the ‘fast-track’ legislation — particularly from Democrats.
The result is a diluted version of TPA passed by the senate in May which, for
example, includes a clause banning changes to current US anti-dumping rules.
Without such changes there is little chance of progress on FTAA. The struggle
between the White House and congress over TPA is therefore set to continue and
intensify.
National solutions?
THE BUSH ADMINISTRATION, drunk on its apparent success in
the ‘war against terrorism’, is not a reliable instrument for the US
capitalist class. The president, who claims to read the bible every day, is in
hock to the Republican Party’s Christian Right, with a messianic view of his
world role. The major mouthpieces of US capitalism are scathing about his
protectionist ‘blunders’. The Washington Post recently blasted the
‘appalling farm bill’, which it said was ‘worse than anything Europe’s
protectionists have dared to propose’. The newspaper urged the Bush
administration to compensate countries hit by steel tariffs and stop its
delaying tactics in the WTO.
The Wall Street Journal, speaking for major
industries like car and appliance manufacturers, published a study which showed
that eight US jobs will be lost for every job saved by the steel tariffs. By
raising steel prices the tariffs will accelerate the exodus of US manufacturing
abroad. This underlines the problems confronting governments which seek national
solutions to the crisis of global capitalism. Today, with the global industry
dominated by a few giant monopolies, 40 per cent of all steel produced crosses a
national border compared to 20 per cent in the early 1970s. The Bush
administration has already been forced, under pressure from US exporters, to
exclude 61 European specialised ‘niche’ steel products from the tariff
regime as these are not produced in the USA. A further softening of the tariffs
may follow, partly to forestall European retaliation, but also out of
self-interest: US steel prices have risen by more than a third this year.
US steel bosses are themselves looking to global solutions
to their problems: mergers and foreign joint ventures. Bethlehem Steel, the
third biggest US producer, is discussing a takeover of all or part of its
operations with the world’s biggest steel company, EU-based Arcelor. Other US
steelmakers, like Nucor, have expanded rapidly abroad in recent years. In the
course of this ‘consolidation’ the bosses are shedding their health-care and
pension obligations to US steelworkers, agreed in the past in return for wage
cuts. Bush has made clear he will not pick up the bill for these entitlements,
estimated at $13.5 billion.
A US treasury report puts current overcapacity in the global
steel industry at 35 per cent, meaning a staggering 315 million tons ‘too much’
steel capacity. This is more than all the steel produced by the two top
producers — the EU and China — together.
‘We’re in the business of making profits, not steel’,
admitted the boss of the British-Dutch steel corporation, Corus. This explains
capitalism’s inability to fully utilise existing steel capacity in order to
repair the crumbling infrastructure in most industrialised countries, not to
mention tackling the non-existent infrastructure in poor countries.
Steelworkers and others whose jobs are threatened must build
support globally, through the workers’ movement, for action: against job
losses; for opening company books to workers’ inspection; and for public
ownership and democratic planning of the industry. A key issue in the US is the
need to unionise the ‘mini-mills’ which undercut the older integrated steel
mills and now account for nearly half the market. Another key issue is the need
for a huge injection of new investment, under the control of the working class.
Clearly, workers can give no support whatsoever to Bush’s policies.
The EU response
REFLECTING THE INCREASING cohesion of the EU after a decade
of rapid integration, trade negotiations are centralised in the hands of trade
commissioner, Pascal Lamy. A decision to retaliate against US steel tariffs now
only requires a qualified majority of member states. Nevertheless, the European
capitalists are split, like their counterparts in the US, a fact which has not
escaped Washington’s notice. Zoellick has consciously worked to widen this
split between northern and southern EU governments, by dangling a carrot (tariff
exemptions) before the technologically more specialised steel producers of
Britain, Sweden and Germany. When EU foreign ministers unanimously backed
retaliatory tariffs at a meeting in June (while conspicuously not setting a
date), a relieved Lamy declared this was a ‘clear political signal’ to
Washington that the EU would ‘stand united’.
For Brussels, the steel conflict is about much more than
steel. They fear Bush’s unilateralism — already apparent in the
military-diplomatic sphere — is beginning to manifest itself in trade
relations. The extension of US military power since the collapse of the
Stalinist regimes has exposed the EU as a military ‘pygmy’, in the words of
NATO boss Lord Robertson. But, as numerous bourgeois commentators point out,
trade is one area where the EU is a ‘superpower’ rivalling the US. Both
account for about one-fifth of global trade.
All the major capitalist powers, including the US, risk
heavy losses from any increase in global trade barriers: to a far greater extent
than in the 1930s. This flows from the character of globalised capitalism, with
its unprecedented inter-linking of trade and — even more so — financial
flows and cross-border business mergers. Today, world trade accounts for 24 per
cent of global gross domestic product, compared with 17-18 per cent during the
recessions of the 1970s and 1980s. One in seven US manufacturing workers is now
employed by a foreign firm. Japanese car giant Toyota employs more Americans
(123,000) than Coca Cola, Microsoft and Oracle combined, and almost as many as
the US steel industry (142,000). Bush’s protectionist tilt risks triggering a
chain reaction with far-reaching consequences for global capitalism. The 1929
Wall Street crash, it should not be forgotten, was partly triggered by fears
over the impact of the Hawley-Smoot Bill of protectionist measures.
For these reasons all sides will attempt — at least after
November’s US elections — to de-escalate the situation. In the meantime, the
trend towards regional trade blocs will gather pace. The EU is aggressively
pursuing bilateral ‘free trade’ deals with economies in Latin America, Asia
and now Russia. During the EU-Russia summit in May, Romano Prodi and other EU
leaders hastened to approve an agreement with Vladimir Putin, recognising Russia
as a ‘market economy’. This then forced the Bush administration to ‘recognise’
Russian capitalism, a ritual which facilitates the country’s WTO accession.
The EU deal with Russia is inextricably linked to its eastward expansion, which
itself creates problems for US capitalism. After the signing of an extensive ‘free
trade’ agreement between Chile and the EU in April, US business groups
complained the US administration was ‘falling behind’ in its own backyard.
Conflicts with fellow NAFTA-member Canada (over lumber and wheat) and Brazil
(over steel and farming) can block progress on FTAA while US capitalism’s
rivals push ahead.
A hardening of protectionist sentiments in Washington can
push China and Japan — traditional foes — into a closer form of cooperation.
Japan has replaced the US as China’s main trading partner and mutual ties are
growing rapidly, partly as a result of China’s WTO membership. A China-Japan
axis is a pre-condition for any serious move towards an Asian bloc as a
counterweight to NAFTA/FTAA and an enlarged EU. Regionalism — or regional ‘globalisation’
— will especially come to the fore if, or when, the Doha Round gets bogged
down. Socialists oppose the WTO, the Doha agenda and capitalist ‘multilateralism’
which are all expressions of big business’ interests. We similarly reject
reactionary notions of building Fortress America or Fortress Europe. Our
alternative is global socialism, in which working people themselves control what
is produced, how and where.
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