[Militant International Review, No. 55, January/February 1994, p. 21-25]
The main achievement of the GATT deal, argues Lynn Walsh, was to preserve the status quo – for now.
The long delayed agreement on GATT, reached between US and European union representatives in Geneva on 4 December, was hailed by capitalist leaders as a great triumph for free trade. “Today has been a milestone in the history of world trade” proclaimed EU trade commissioner, Leon Brittan. More bluntly, President Clinton announced: “We are now on the verge of a historic victory in our efforts to open foreign markets to American products”.
There is a huge gap, however, between the triumphant propaganda and the protocols actually agreed (which will provide the basis for the GATT treaty to be ratified later this year). In reality, the main achievement in Geneva was to preserve the status quo. “Nothing changes with the GATT accord”, commented the economic adviser to one City of London finance house, “but everything would be different without one”.
As the GATT talks dragged on past one deadline after another, there were growing fears among capitalist representatives of an escalation of the incipient trade war between the three main capitalist blocs, the US, the EU and Japan. For a time, the black cloud has been lifted. But as a Citibank economist commented, “The deal is not going to reverse the longer term trends in world trade”.
Clinton hailed ‘a historic victory in our efforts to open foreign markets to American products.’
In fact, the trend which gathered pace in the 1980s towards regional trading blocs was accentuated by the US Congress’s approval for the North Atlantic Free Trade Area (NAFTA). This too was hailed as a triumph for free trade, an impression reinforced by the rabid opposition of Congressional representatives who represent sectional business interests and are demanding protectionist measures. Had they succeeded in vetoing or postponing NAFTA, the protectionist lobby might well have blocked or postponed a GATT agreement.
Among some sections of international big business, fears that NAFTA would be defeated and the GATT talks would be stalled evoked the almost apocalyptic scenario of a world slump and open trade war. While exaggerated at this stage, the forebodings of many serious capitalist commentators points to the very real seeds of the global crisis which will break out in the future.
The fact that a defeat for NAFTA would have stimulated protectionist tendencies, however, does not turn NAFTA into an extension of free trade. Writing recently in a personal capacity, Jagdish Bhagwati, chief economic adviser to the GATT director general, spelled out the truth: “Today the enthusiasm for regional free trade areas is dressed up as a great free trade move. But it is evident that the main motivation is protectionist: Mexico becomes America’s preferential market, with Japan and the EU at a disadvantage”. (Foreign Affairs, 1993)
After seven years of the Uruguay Round, the GATT negotiators achieved very mixed results. Tariffs on manufactured goods, currently averaging about five per cent (compared with 40 per cent immediately following World War Two), have been cut by another third on average. On many other issues, however, it was much more difficult to reach agreement.
The possibility of agreement is determined by the relationship between the big three blocs, which dominate world production and trade, complicated by the rivalries between the European union states. The issues covered by the GATT talks fall into three main areas:
(1) issues where the big three have a common interest in the further liberalisation of trade, notably in relation to opening up the underdeveloped countries, where they have little difficulty in imposing a deal on the hundred plus states participating in GATT;
(2) issues like agriculture and textiles, where the big three have conflicting interests, but were able to reach various compromises; and
(3) issues where there is still a sharp conflict between the big three, as in audio-visual trade, financial services, maritime transport, and aircraft industry subsidies, where agreement has been postponed and will be the subject of further discussions – and probable conflict over the next year or so.
(1) Opening up the Third World
At least two-thirds of the gains from the Uruguay Round liberalisation measures will accrue to the advanced capitalist countries. The big three had no hesitation in sweeping away the various shelters erected by third world states to protect their agriculture and basic industries, which allowed a limited economic development during the postwar upswing. The so-called Structural Adjustment Programmes imposed on the heavily indebted countries during the 1980s breached many of the protective fences, opening up third world states to increased capital and trade penetration by the five hundred multinational corporations which account for over half of world trade.
The new GATT rules will legalise the intensified subordination of third world economies. For instance, under the new intellectual property rights regime, third world farmers will be expected to pay annual royalties to multinationals for their use of hybrid seeds. This measure recently aroused a mass movement of over half a million farmers in India, protesting against the big US seed companies.
Failure by third world states to comply with the new rules will undoubtedly result in further retaliatory action, especially by the US. Countries refusing to open markets to US banks and insurance companies, or to implement patent protection laws acceptable to the US, will be threatened with trade sanctions under the US’s ‘Section 301’ trade laws, which have been evoked against underdeveloped countries over 30 times in the recent period. The main beneficiaries of these measures will be the big corporations based in the advanced capitalist countries, who will swell their profits through intensified exploitation of the labour, natural resources, and markets of the third world.
(2) Farming Fudge
The main issue blocking a GATT deal over the last year or so was agriculture. Farming is heavily subsidised in the US, the European union and Japan, a fundamentally protectionist arrangement under which taxpayers and consumers in the advanced countries subsidise a handful of mainly capitalist farmers at the expense of millions of mainly peasant farmers in third world countries.
On the initiative of the US government, which has been striving to cut the phenomenal rise of farm subsidies and reverse the decline in agricultural exports (especially grain and soya animal-feed products), the Uruguay Round for the first time brought agriculture under the GATT rules.
The US was strongly supported by the so-called Cairns Group of countries, including Canada, New Zealand, Brazil, etc., who are big agricultural exporters. But the US came into collision with both Japan, whose conservative Liberal Democratic Party governments have long subsidised rice farmers whose votes they need, and the European union, which is linked historically to the Common Agricultural Policy (CAP), under which home farmers are protected and heavily subsidised.
Desperate to maintain its access for manufactured exports to the US, the Japanese government conceded the opening of their home markets to rice imports, and processed foods. Within the EU, both Germany and Britain, also faced with the escalating costs of CAP subsidies, were prepared to concede modifications in CAP. Ever fearful of violent protests from its volatile farmers, the French government was much less ready to concede reform.
Last year US and EU negotiators concluded the Blair House accord. This provided for a phased reduction of CAP subsidies and increased quotas for grain imports from the US. It also accepted the principle of a phased switch from price support (thus allowing a reduction of consumer prices) to income support (a form of social security for farmers). The agreement appeared to clear the way for a GATT settlement.
Almost immediately, however, the accord was repudiated by French political leaders jockeying for position in forthcoming elections. Jacques Delors himself, with an eye to the future presidential elections, unsuccessfully attempted to put pressure on the EU agricultural commissioner, MacSharry, to sabotage the Blair House deal. Despite the secrecy shrouding the exact terms of the accord, news of the deal triggered riots by French farmers. Whether the deal was compatible with existing CAP rules was doubtful. More importantly, the French government’s adherence to the deal remained in question, despite the intense pressure from Germany, Britain, and other EU governments for the French to stay in line. However, alarmed by the political shock wave generated by the French farmers’ protest action, other EU governments, terrified that workers elsewhere would emulate the farmers, evidently made concessions to France. These were incorporated into the EU negotiating position which Leon Brittan defended against US negotiators in Geneva.
Faced with a common European union front, and once the NAFTA treaty was safely through Congress, the US government eventually compromised on the diluted Blair House agreement. There is a commitment to cut domestic subsidies by 20 per cent and the volume of export subsidies by 21 per cent over six years. However, by fudging the ‘base year’ from which cuts will be made, and adopting a ‘peace clause’ preventing any challenge to the settlement for nine years, the blow to EU farmers has been softened. While Le Monde described the agreement as being as “difficult to read as a goat’s entrails”, Balladur claimed a great victory. French farmers, however, are not convinced and will undoubtedly move into action again as the cuts bite into their incomes.
The EU compromise on GATT agricultural policy, moreover, is a sure recipe for renewed conflict amongst the European union countries. Balladur has warned other EU leaders that the Blair House accord remains the bottom line for French concessions. Any further production cuts required from French farmers will have to be compensated out of EU funds. During the Geneva negotiations, one EU diplomat commented: “The French have realised they have squeezed as much as they can expect out of the Americans, now they are looking to do the same to their European partners”. (Financial Times, 8 December, 1993).
French claims for additional compensation, however, are likely to exceed the cash available within the seven-year Delors II budget package which was agreed at the Edinburgh European union summit in December 1992. Since then the German government has already drawn on EU funds to compensate German farmers against the effects of Deutschmark revaluations. This leaves little room to manoeuvre within the 1992 budget settlement.
The benefits for ordinary consumers in Europe will be very modest. The CAP is currently estimated to cost a family of four between £16 and £20 a week, half through tax to finance CAP and half through higher food prices. GATT officials claim that, as a result of the CAP reforms, the weekly cost to an average family could be cut by £12. But the Consumers’ Association believes that this figure is exaggerated, and the real savings will be much less.
(3) Paradise Postponed
In order to conclude a GATT deal before the expiry of President Clinton’s deadline for ‘fast track’ congressional approval, the US and EU postponed settlement or even excluded from GATT several highly contentious issues. “We have agreed to disagree”, commented the US trade representative, Micky Kantor, “but our differences remain”. As the Wall Street Journal commented, “The deal leaves room for fights to flare up down the road”. (15 December, 1993).
While US negotiators focussed attention on France’s allegedly unfair restrictions on the import of US ‘cultural goods’ (i.e., films, videos, etc.), it was the US which manoeuvred to postpone for 18 months a settlement on textiles, financial services, and maritime services.
For the first time, the Uruguay Round brings textile trade under GATT. The US attempted to stretch the ten-year phasing out of the existing multi-fibre agreement (MFA) to 15 years. Clinton is now demanding a further opening of Indian, Pakistan, and other markets to US clothing imports before agreeing to a textile settlement.
The US has also postponed a settlement on financial services for a further 18 months, declining to remove remaining barriers to the penetration of the US banking and insurance markets by international companies. The US (which has a large merchant marine fleet) also opposed the liberalisation of ocean shipping, ports and auxiliary services.
The Clinton administration, under pressure from the big US aircraft manufacturers which are facing a crisis due to cuts in arms spending, has long criticised European union subsidies for the manufacture of Airbus. The Geneva deal, however, was concluded without any agreement on aircraft subsidies – apart from an understanding that any subsidies exceeding five per cent of the final aircraft value would create ‘serious prejudice’ requiring special justification.
The biggest row, which flared up just before the deal was struck, was over audio-visual products. For a few days it appeared that the French government’s insistence on maintaining a levy on foreign films and subsidising French film production could lead to a collapse of the whole negotiating process. At the last minute, however, the whole issue was excluded from GATT. “Continued disagreement here”, commented The Times, “is not expected to prevent further US penetration of the EU market, as US companies will be able to set up inside the single market. America’s $3.8 billion trade surplus with Europe in the audio-visual field looks unlikely to be diminished’. (15 December, 1993).
The Geneva agreement includes a pledge to establish a new multilateral trade organisation (MTO), with powers to police GATT agreements. GATT members will be expected to bring their national trade legislation into line with the MTO. However, Micky Kantor, the US trade representative, has made it clear that the US reserves its right to take unilateral retaliation against dumping and other allegedly discriminatory practices. Within the European union, France was been pushing for stronger ‘trade defence rules’.
World capitalism has far from reached the paradise of ‘perfectly liberal trade’. “Significant uncertainties remain concerning the trade policies of the biggest players, the US and EU, with the former reaching all too readily for unilateral instruments of ‘managed trade’ and the latter increasingly following suit”. (Financial Times editorial, 16 December, 1993).
The Twilight of an Era
Various figures have been put forward for the gains which will flow from the GATT settlement. According to the GATT secretariat, world trade will be boosted by $270 billion by the year 2005. Even if such gains actually materialise, spread over the world’s population they would amount to only $40 (£27) per head per year.
Underlying the optimistic projections trumpeted by capitalist leaders is the simplistic assumption that liberalisation will automatically boost trade and that the growth of trade will automatically boost production. During the long economic upswing following World War Two, the growth of trade was, it is true, a dynamic stimulus to growth. During the whole period 1950-91, the volume of world exports grew twelve times, while world output grew six times. However, the volume of world exports of manufactures, where tariff reductions were greatest, rose 23 times, while output grew eight times.
Trade is not an independent economic variable.
Trade, however, is not an independent economic variable. The growth of trade sprang from a combination of social and economic relations favourable to profitable capitalist growth. The period of exceptional growth came to an end with the slump of 1974-75, which opened a new period of chronic stagnation. In spite of the 1980s ‘boom’, the advanced capitalist economies are all experiencing slow growth, stagnant investment, mass unemployment, and a crippling accumulation of state budget deficits and private debt.
On the arena of the world economy, some of the key foundations of sustained export growth have crumbled. The system of stable exchange rates, based on the dollar/gold standard, was also swept away in the mid-1970s, replaced by volatile floating rates. The massive daily flow of liquid capital across the world’s foreign exchange markets (now exceeding $880 billion a day), can cause wild fluctuations in the relative value of national currencies independently of productivity levels and trade balances. This drastically distorts trade flows.
The high value of the dollar, for instance, in the first period of the ‘Reagan boom’, undermined US exports (which became more expensive) and sucked in massive imports (now cheaper), especially from Japan. This accelerated the relative decline of US capitalism, which had previously upheld GATT’s free trade regime. Successive US administrations, under increasing pressure from sectional capitalist interests, moved more and more towards ‘managed trade’,
For the time being, open warfare over trade has been postponed.
A whole array of non-tariff barriers were erected against imports, especially the high value, high technology products coming from Japan and other South East Asian producers. Congress also passed legislation empowering presidents to take retaliatory action against any number of countries accused of dumping or restricting US imports. Even if these measures conform to the letter of the GATT rules, most of them clearly violate their spirit.
In establishing NAFTA, the US has also given a new twist to the development of three regional trading blocs. Although defended as an advance for free trade principles, NAFTA aims to create a privileged sphere in which US capital has the freedom to exploit natural resources and cheap labour. Clinton has not disguised this aim of extending this US-dominated trading zone to South America and, if possible, to the Pacific Rim. Moreover, the NAFTA trade regime, tailored to the needs of the US multinational corporations, is being used by the US as a model and a lever in international negotiations such as GATT.
In the GATT negotiations themselves, “the US negotiating position has been based on the outright pursuit of economic advantage”. (Financial Times editorial, 15 December). The Guardian commentator, Will Hutton, summed up the situation well: “The Uruguay Round more nearly represents the last gasp of the postwar efforts progressively to liberalise the world trading order than the beginning of a new era”. (15 December, 1993).
In reality, an incipient trade war has been steadily fomenting since the world economic crisis of 1974-75, The prolonged character of the Uruguay Round negotiations and the limited character of the settlement make this clear. For the time being, open warfare over trade has been postponed. The big multinational companies, in particular, depend on being able to invest freely and trade across the globe, Even the giant corporations, however, are rooted in national economies which, despite the enormous ‘globalisation’ of investment and trade,
are still the basic units of the capitalist system. The irreducible national interests and the inevitability of national rivalry and conflict, especially in a period of stagnation and decline, mean that national governments are bound to turn, sooner or later, to ‘beggar-thy-neighbour’ policies.
The strengthening of two major trade blocs, NAFTA and the European union, with the consequential crystallisation of an East Asia bloc dominated by Japanese capitalism, is really a preparatory process which foreshadows open conflict in the future. But a retreat by capitalist states behind protective walls and renewed attempts, emulating the 1930s, to foster autarkic national economies, will not provide a way out for capitalism. The larger, stronger economies might gain a little time and some room to manoeuvre at the expense of weaker economies. A systematic turn to such beggar-thy-neighbour measures, however, would aggravate the world economic crisis – and provoke massive social upheavals and movements of the working class and exploited peasantry. The uprising in Mexico, provoked partly by the NAFTA agreement, the mass movement of Indian farmers, and the protest demonstrations of the French farmers which spilled over into mass public-sector strikes throughout Europe, are just the beginning.
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