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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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