The battle of GATT
Trade Balances
1989 1990 1991 1992
WORLD ECONOMY / GATT
USA
-116 -108
-72
-79
Japan
77
63
98
106
THE increasing "globalization" of the capitalist economy
FRG
78
73
20
21 does not mean a reduction in competition and the appearance of a new conflict-free order. What It may mean
(Billions of dollars) Source: OECD
In the course of time is that the target market for all the main imbalances on a world level. The growth of the 1980's was supported by an imbalproducts will be the 600 million consumers of North ance between the three great financial
America, Western Europe and Japan.
powers. The growing U.S. deficit was
This Is one of the Issues at stake in the eighth "Uruguay"
financed by Japanese and German budget round of negotlations of the General Agreement on Tariffs surpluses. This imbalance is now being reduced, since the American deficit and and Trade (GATT), which started In 1986.
the German budget surplus is declining while the Japanese budget surplus contin-
CLAUDE GABRIEL ues to grow (see table 2).
Another striking feature of the current conjuncture consists of the reduction of the margins of manoeuvre in terms of economic policy. Here also the effects of the free market decade are strongly felt.
The current recession in the United
States is certainly less serious than that at the beginning of the 1980's, but it is lasting longer, much longer than had been predicted.
A budgetary boost would permit the economy to start up again, but that has been made impossible by the weight of the
The already accumulated public debt.
same reasoning applies to the United
Kingdom and France.
"Inflationary tensions"
Finally, a last factor marks this conjuncture which the bourgeois economists have baptised "inflationary tensions." In reality it goes back to the maintenance of a minimal relation of forces between workers and employers.
Any revival of growth which is too hectic is immediately accompanied by an
"over-rapid" growth in wages, to which the employers respond by raising prices.
This phenomenon contributes to explaining the slowing up of the German and Japanese economies, which has moreover only just begun.
In Japan, inflation went from 0% in
1987 to 4% by the end of 1990. This is not much but it adds up to a very clear symptom of too strong a tension on the labor market. It does not signal a collapse, but rather a progressive bogging down of the accumulation of capital on a world wide scale.
The current conjuncture therefore illustrates perfectly the idea that capitalism has not really emerged from the crisis and that it has not found sufficiently stable mechanisms to assure its dynamism.
The expedients it is therefore using to maintain this dynamism tend to be less and less efficient, and more and more costly.*
HE evolution of the world economy is a product of its crisis. An empirical search for sectoral solutions, and fragmentary remedies has been gradually shaping significant changes in world trade, the international division of labour, the structure of firms and so on.
Two big problems are intertwined: that of the reorganization of the big industrial groups and their need to control increasingly large parts of the world market for their main products; and that of the big trade blocs (Europe, North America, Japan, Asia) which are forming vast free zones internally, while at the same time setting up new protectionist barriers or limits at the frontiers according to the product or branch.
A contradictory relation
The relation of these two phenomena is obviously full of contradictions. While the alliances amongst the multinationals do not necessarily follow the lines of political divide (the case of the car industry being a perfect example, despite the "diabolization" of the Japanese industry in the European and North American media), it is the states that have to deal with the social and political fallout.
The increase in international alliances are in fact combined with a deepening of strictly "national" concentrations. And for many products we are still at the stage of defending the respective national flagship companies, whose loss of competitiveness and market share result in closures and increasing unemployment that the states must attempt to manage.
The aim of the GATT negotiations is not to reduce protectionism as such but to reform its own system of protection while cutting back that of its adversary. This is particularly the case with the battle over agricultural subsidies between the EEC and the United States, which mainly concerns cereals, soya and maize-derived substitutes and meat and milk production. In the EEC the over-producers - the Netherlands, Denmark and France — are the most determined opponents of the USA.
The current battle has many economic, social and political implications, including the control of public deficits, defence of the big agro-business firms, the political relations between governments and farmers, pricing policy and control of markets. Thus, in France, for every job in agriculture there are two in food-related industries.
In 1990 agricultural and food products made up 12% of world trade (as opposed to 20% in 1970), of which 3% involves raw produce. Among the latter only the wheat market is an area of competition between the USA and Europe. The latter, which in 1970 was still an importer of this foodstuff, is now responsible for 17% of world exports as opposed to 36% for the USA. But this is not the only reason for the current trade war.
The end of an epoch
The main problem is that of the necessary reconversion of systems of agricultural management and regulation imposed by the economic crisis and budget deficits. We are at the end of an epoch, but the two camps want to reduce the social, political and financial effects of the change by first of all pushing back the protective barriers of their competitors.
United States agricultural policy is framed by laws (the farm bills) which in principle regulate prices, supply and export aid. The law, which is regularly amended, fixes in advance a guaranteed price on which is based the loan rate, that 5 is the advance to the farmer against the March 2, 1991 • #223 International Viewpoint
GATT coming harvest.
If the real market price is below the loan rate the farmer may place his harvest with the public storage services (thus regulating supply) and in this way ensure the repayment of the advances. There is also a
"price" that is higher than the loan rate but this is a subsidy to the farmer aimed at limiting production, particularly by taking land out of production. Thus at a time when over-production is the norm, the producers gain a guaranteed bonus on
The USA also has a $5bn programme of export assistance, under a law passed in
1990. These subsidies are variable and decided according to destination in order to facilitate dumping and win markets with very low profit yields, such as the former Soviet Union, China or North Africa. The difference between the world market price and that offered under this system can be as much as 40%.
### System in crisis
This whole system has gone into a crisis since market conditions have exercised a long term downward pressure on prices, which has had to be compensated for out of the public purse. Between 1984 and
1990 subsidies to encourage reduced production have risen from $24 to $75 for a tonne of wheat.
The European Community is no better off. The Common Agricultural Policy (CAP) was initiated in 1962. The EEC system gives high levels of protection to all produce in competition with other countries. On the other hand, it offers great freedom of access to its markets for other produce, such as tropical produce (under the Lomé Convention) and also soya and maize gluten, which is used for animal feed and is often imported from
As for the protected produce, guaranteed prices which are well above world prices are paid to the producers. The Community subsidizes exports by making up the difference between the world market and guaranteed prices. Furthermore, there are customs barriers on entry, which make imported produce more expensive than domestic produce. This does not, however, stop it from shifting its own surpluses onto the world market at low prices.
From 1960 to 1973, the income of farmers in the EEC rose by 5% a year while the CAP was financed without problems. A study by the Organization for Economic Cooperation and Development (OECD) in 1987 established that the Community's intervention policy for the period 1979-81 represented an average subsidy per product of 43%, between 4 and 24% of which was passed on to the consumer.' But little by little, the guaranteed prices have led to growing over-production for a European market where demand is stagnating.
The surplus has thus increasingly to be directed towards export, which increases International Viewpoint #223 • March 2, 1992 the demand for subsidies to make up the difference between the world market and guaranteed prices.
The world market price is closely related to domestic US prices, given the US role in world production. EEC compensation payments for cereal exports have risen from 918m to 2.6bn Ecus, to which the cost of storing a rising amount of stocks
In order to limit the losses, Brussels has imposed quotas on milk production and set quantitative limits on the amount of cereal production that will be compensated for. As a result farmers' income has fallen by an average of 25% between
1973 and 1991.
In order to maintain their earnings farmers have stepped increasing investment, but this has run up against rising interest rates and increased
In the final analysis, the CAP costs a lot, absorbing 60% of the community budget while no longer resolving anything in terms of protecting the rural electorates.
The total for compensation payments is much the same in the USA and Europe.
in Europe it is the consumer who pays the difference while in the US it is the tax payer. Thus, in the USA there are "true prices" with aid going to the producers, while in Europe the aid is provided by manipulating prices.
In the US, the attempt has been made to push down world market prices while winning export markets through high productivity. In Europe the main preoccupation at first was to maintain the income of farmers and protect the domestic market.
US targets European market
Now the USA wants to resolve its crisis by imposing "true prices" on Europe. They hope to break down the tariff barriers and gain a part of the European mar-
On the other hand, the Europeans are no longer able to limit the entry of soya and maize derivatives (mainly imported from the USA) which are exempt from customs duties and which are the main source of animal feed. A reduction in this dependence would allow a partial return to the use of cereals and fodder for animal feed and thus would also teduce internal sur-
But the entire system is cracking under the weight of its cost. A US farmer costs an average of $20,000 a year compared to $8,000 for his European counterpart. The Uruguay Round has thus, for the first time in the history of GATT, seen the agricultural issue raised. Previously the doctrine of free trade had not got that far.
This time it is the US that has unleashed the hostilities. Other countries with highly protected agricultural sectors, such as Japan. Switzerland or the Scandinaviar countries, tend to line up behind the EEC, while Australia, New Zealand or Argentina prefer Washington's position — which has not stopped Australian farmers demonstrating during Bush's recent visit.
Today, the USA is proposing that the
EEC reduce its compensation payments by 70% from now until 1998, principally by removing export subsidies. Such a solution would wreck the European CAP in which internal prices and export policy are connected. After a reduction in export subsidies, the European farmers will also have to accept a corresponding reduction in their incomes to stay competitive on the world market.
We would be seeing the dismantling of the system of guaranteed prices. Furthermore, inertia in the passage from one mechanism to another would lose Europe a very important part of its export capacities, without the USA being forced to reduce their exports of soya and maize
The GATT leadership has worked out a very complicated "compromise, which, in the final analysis, tends in the direction of US radicalism.
### Brussels proposes cuts
The Brussels Commission, knows that it must cut the cost of its agricultural policy for reasons of budget austerity, has already proposed a staggered cut of 30%. In reality, the Europeans may find themselves turning to an American style mechanism, giving up artificial prices in favour of explicit and budgeted aid
But this would raise the question of the different categories of farmer, and of the diversity of regional and national conditions in an even more explosive fashion than now. In this case, the present system, which is already very unequal, may be replaced by an even more inegalitarian
In a country such as France, which is responsible for 34% of the Community's cereal production, such a measure would have a significant political and social
In the USA on the other hand, the govemment seems far less worried about the social impact of an end to import subsidies. And, above all, it is still able to use the mechanism of compensation payments to producers, which does involve direct "manipulation of prices".
This situation is generally presented as a crisis of growth of the world market and as a necessity of free trade which will clarify the situation on the agricultural markets. However doctrine has nothing to do with it. The main reason for this battle is the budgetary crises of the various states involved and the destabilization of the previous practices in this field in both the US and Europe. None of the protagonists has proposed to save Third World agriculture from competition from Northern producers or to put an end to the competition in "food
US economy: the point of no return?
aid" in relation to locally produced
Nobody has denounced the scandal of a situation where production has to be reduced to bring prices under control when two thirds of humanity is dying of hunger or does not get enough to eat. What is the sense of this "liberating" doctrine that justifies Brussels in ordering