US subsidy grabs another wheat market

Wednesday, August 14, 1991

By Peter Boyle

The offer by the United States to sell 300,000 tonnes of subsidised wheat to Yemen has sparked outrage from trade minister Neil Blewett. The nation that claims to be the home of free trade had elbowed its loyal partner Australia out of a "traditional market" for the fifth time in recent history.

Subsidised US wheat deals have torpedoed Australian exports to Egypt, the Soviet Union, Kuwait, China and now Yemen.

Sandra Kristoff, US assistant trade representative for Asia and the Pacific, responded that the US will not forgo using its Export Enhancement Program against its European competitors just "because good allies like Australia are unfortunately caught in the cross-fire". But the Yemen wheat offer was for white wheat — a market Europe hadn't entered but Australia had.

Behind these events is the failure of the General Agreement on Tariffs and Trade (GATT) negotiations and the growing trade war between the major industrialised nations.

For most of this century, the major powers of the West used subsidies and protection in their drive to dominate as much of the world economy as they could. Competing nations were cut out with tariffs, quotas, direct legislation and, if necessary, force.

Postwar truce

Conflicts over markets contributed to two world wars and the economic depression between them. But then followed three decades in which war and misery seem to be the lot only of one part of the world — the poor and underdeveloped Third World. And the major international conflict appeared to be between the East and the West.

Now, with the end of the Cold War, conflict between the major economic powers of the West is rising with a vengeance.

The post-1945 truce between the capitalist powers was built on the temporary dominance of the US. Europe and Japan were devastated. US goods and investment flowed anywhere in the capitalist world unchallenged, and it seemed that this was the beginning of an "American Century". With no serious competitors, the US championed "free trade".

Three international institutions were created to safeguard the postwar order: the International Monetary Fund, the World Bank and GATT.

But from the start, the US reserved the right to decide its own trading policy and delayed the ratification of GATT, which remained for 40 years a provisional treaty. In early GATT rounds, agricultural products were separated from other trade at US insistence — because it then wanted to protect its large farm sector from international competition.

Agricultural subsidies, while receiving the most publicity in Australia, are only a small part of the Uruguay Round. The present US determination to remove the special treatment of agriculture has delayed the conclusion of the Uruguay Round.

US slipping

The reason for the US turnaround is primarily the rise of Japanese and German economic might, a result of the relative modernism of their reconstructed industries and their freedom from the financial burden of maintaining the military power that went with US hegemony.

By the 1970s, Germany and Japan were jostling the US for trade in manufactured goods. Toyota cars began to displace Fords even in the US.

With the rise of the European Community, this area's industrial strength made possible a massive subsidy to European agriculture (farmers are a political base for conservative parties in several European countries). From a net importer of agricultural goods, the EC became a major exporter by the mid-1980s.

Soon the legendary mountains of unsold butter and other farm products grew, triggering more subsidies and dumping, all of which threatened other major exporters of agricultural products, like the US and Australia.

When Ronald Reagan became US president, he began pushing for a new round of GATT talks — the current Uruguay Round. On the agenda was not only the removal of all barriers to trade and investment but also the recognition of property rights for new technology — such as software and biotechnology. This would leave the Third World even more at the mercy of the transnational corporations, so all the industrialised countries stood to gain something from the proposals — if only they could work out how to divide the spoils among themselves. That is what has proved difficult.

As the Uruguay Round proceeded slowly, trade conflicts between the three major economic powers grew. The US devalued its dollar, making its exports cheaper and imports dearer, Europe restricted US meat imports, the US used its Export Enhancement Program to subsidise its exports, and so on.

Trade blocs

Each of the economic powers has been building trading blocs in anticipation of a failure of the GATT talks. Germany has the EC; the US has stitched up a free trade pact with Canada and Mexico, and may include other Latin American countries; Japan seems to have the choice of using the Australian-initiated Asia Pacific Economic Cooperation (APEC) group or the rival Malaysian-initiated East Asian Economic Group.

Prime Minister Bob Hawke conceded to the Age's Michelle Grattan on August 7 that if there was no "appropriate outcome" of the GATT talks, Australia would have to join a trading bloc that would emerge out of APEC or some other body.

Japan has been the slowest to build a trade bloc because it is doing best in trade. It enjoyed a US$35.8 billion trade surplus last year, 70% of which came from the US. While this year Germany is expected to move into trade deficit because of the cost of absorbing East Germany, Japan is expected by OECD economists to record a US$41 billion trade surplus (14.5% up).

Japanese confidence is even more understandable if the other East Asian nations, its likely partners in a bloc, are taken into account. Together, South Korea, Singapore, Taiwan and Hong Kong had a US$15 billion trade surplus last year (though this is less than half what it was two years ago and is expected to fall further, indicating the still dependent nature of the "Asian Tigers"). China too is running a US$15 billion trade surplus against the US.

Agreement on GATT seems to be receding. The last G7 meeting (US, Canada, Britain, France, Germany, Italy, Japan) postponed the conclusion of the Uruguay Round to 1992 (it was originally due to conclude in November 1990).

A completion of GATT will speed up the de-industrialisation of most of Africa and Latin America and parts of Asia, already begun under IMF dictatorship. Australia too could lose more industry, though its agricultural sector (already dominated by large, corporate farms) might gain.

A failure of GATT and the rise of trading blocs could restrict trade and bring on a world recession, which again would hurt the poorest countries most.

Lost in the archives of the United Nations are the beginnings of plans that could provide a better alternative — the documents on a New International Economic Order and the North-South dialogues of the 1970s, which were cast aside by a world dominated by

transnational corporations and the governments of the industrialised nations.

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