BY EVA CHENG
Bilateral trade conflicts between the world's two biggest economic blocs — the US and the European Union — are escalating, threatening to undermine their collective ability to screw the Third World, especially within the framework of the ongoing Doha Round of global trade talks under the auspices of the World Trade Organisation (WTO).
Various sections of the capitalist ruling classes of the US and the EU are seeking to sort out their differences before the September 10-14 WTO ministerial summit in Cancun, Mexico. They aim to ensure that their agenda, rather than that of the Third World, will prevail.
But to achieve this won't be easy, because the room to manoeuvre for both blocs is being seriously squeezed by the continuing stagnation of the world capitalist economy.
On the US side, even though its 2001 recession was officially declared to have ended in November 2001, employment has continued to contract, with more than 1 million jobs lost since then.
Despite US GDP growing 1.4% and 2.4% respectively in the first two quarters of this year, following a 2.4% increase in 2002, 85,000 jobs were lost in July bringing the job losses since early 2001 to 3.3 million.
Though a much smaller portion of US output is exported than is the case with its major capitalist competitors, external trade is not insignificant to the US. The US continues to import more goods than it exports to all major regions of the world.
The US current account deficit rose from US$393.7 billion in 2001 — roughly the size of the Australian economy — to $480.8 billion in 2002. It rose a further $136.1 billion in the first quarter of this year alone.
The 15-member EU is similarly in trouble. Its combined GDP growth rate fell from 3.5% in 2000 to 1.6% in 2001 and 1% last year. Indicative of worse to come, the biggest economy in the EU, Germany, reported a GDP growth of 2.9%, 0.6% and 0.2% respectively in those three years. Four million Germans are now unemployed.
Both the US and the EU are anxious to export more to boost their economies. Whether they can pierce open each other's markets further is also important because they are one another's biggest trade partners. In 2002, the goods, services and foreign investment flow between them totalled more than $1.1 trillion.
Commenting on the rising trade contradictions between the EU and the US, EU trade commissioner Pascal Lamy said as early as November 20, 2000, that the problems "seem to get worse". Speaking on the same subject, Richard Morningstar, then US ambassador to the EU, said on January 23, 2001, that EU-US trade disputes "are growing in both number and severity" and their inability to resolve them "is beginning to overshadow the rest of [their] relationship".
Then on April 28 this year, the US undersecretary of commerce for international trade, Grant Aldonas, warned that while the world is no longer operating "strictly on the US-European axis" and organisations such as the WTO have been created to perform some of those functions, "those organisations can't function" if the US and Europe can't agree.
EU-US trade conflicts began to escalate following the 1997-98 economic crisis in Asia, Latin America and Russia. Still hyping the "new economy" myth, Washington claimed the US would not be hit by the crisis.
However, not long after the crisis started, the US steel industry launched a series of "anti-dumping and countervailing duty" legal actions against EU steel exporters. This culminated in US President George Bush's March 20, 2002, decision to impose punitive tariffs of up to 30% on $8 billion worth of steel imports for three years. Those tariffs made a mockery of Washington's rhetoric on "free trade".
Spearheaded by the EU, eight steel-exporting countries (including Japan, South Korea, China and Brazil) swiftly filed a formal challenge with the WTO against Bush's tariff hike. They pointed out while the US included the steel imports from Mexico and Canada in the calculation of alleged foreign "dumping" (selling below cost) in the US market, both countries (along with Israel and Jordan) had been exempted from the associated punishment.
A WTO panel ruled in favour of the eight complainants on July 11 this year, which allows them to retaliate if the US doesn't lift its steel tariff within a designated time frame. The US has appealed to the WTO and a final judgement is expected later this year.
Apparently in response to aggressive US trade tactics, in November 1997, the EU found fault with a 14-year-old US practice in subsidising its exporters through partial tax exemption under a "foreign sales corporation" (FSC) provision. The EU challenged that practice and won a WTO judgement in its favour in October 1999.
The US was given a year to comply and at the end of that period, it replaced the FSC with an "extraterritorial income" (ETI) regime. The EU immediately launched a complaint against the ETI, calling it a repackaged FSC, and won a positive WTO ruling on May 7. This enables the EU to immediately impose $4 billion worth of punitive duties on US exports to the EU. To date, the EU hasn't done so.
In 1999, Washington exercised its right to impose a punitive tariff on $308 million worth of EU exports in retaliation for the EU's refusal to stop preferencing banana imports from some of its former colonies or to lift a 1989 ban on the import of hormone-treated beef. Hormone treatment is common in US beef production.
Washington insisted on retaliating rather than accepting EU compensation for its beef importing policies.
The WTO ruled against the EU in both cases but the EU refused to comply — citing health concerns in the wake of the "mad cow" and the foot-and-mouth epidemics.
Since 1999, the EU has also imposed a de facto ban on new approvals of genetically modified (GM) food products. This has significantly reduced US agricultural exports to the EU since most of them are genetically modified products.
The EU is also seeking to require all products with GM ingredients to be declared and labelled. In response, in a May 21 public speech, Bush held the EU responsible for worsening African hunger due to its GM food policy. On June 19, Washington formally launched a WTO dispute against the EU on the issue.
Despite having long attacked the EU for its export subsidies for farm products, the US last year announced a massive new farm subsidy scheme to benefit its own agribusinesses on the pretext that the measures weren't trade distorting.
The long-running dispute between the US and the EU over the latter's subsidy for aircraft manufacture has heated up again since 2000 when Airbus, the EU's prime civil aircraft manufacturer, announced a plan to build a new jumbo jet.
Washington contended that the EU was subsidising Airbus under various disguises in contradiction with WTO rules. The EU replied by calling attention to Washington's subsidies to the major US manufacturer of civil passenger aircraft, Boeing, through the contracts granted by the Pentagon to Boeing's military aircraft and space technology division.
What underlies this conflict is the massive levels of underutilisation of manufacturing capacity in the US and EU. US manufacturers are now using only 73.5% of capacity, comparing to an average of 80.9% between 1967 and 2001. Their European competitors are facing a similar problem. Hence, their growing bilateral battle for increased foreign market outlets, and attempts to protect their domestic markets from both each other's and the industrialised Third World's exports.
From Green Left Weekly, August 13, 2003.
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