ARTICLES
When will the Trade War End?
By Thompson Ayodele*
posted on 24 February, 2004
In the first quarter of 2002, US President Bush George W. Bush imposed a 30 per cent temporary tariff on imported steel, ostensibly to provide ‘breathing space’ for the domestic steel industry to restructure, consolidate and become more competitive. In recent weeks, the threat of retaliatory measures by the EU, Japan, Korea, Brazil, and Russia among others have prompted the President to rethink. Russia had said it would stop American chicken imports, whilst the EU threatened to target products in areas important to the Republicans.
The US steel industry has been slipping in and out of protection since the 1930s. The reasoning behind protection has fluctuated between ‘voluntary restraint’, used by President Reagan in the 80s to satisfy steel producing interests, ‘breathing space’, used in the US since 1791 to protect domestic steel industry, and ‘infant industries protection’ which the US sugar industry has used to protect itself from Caribbean sugar producers as far back as 1816.
Protecting industries, whether steel, textile, agriculture, sugar, or automobile, is never cost free. Those who pay for the protected industry are the citizens themselves, either as taxpayers or as consumers. Subsidies are paid for directly by taxpayers, while tariffs, quotas, and anti-dumping laws artificially raise prices of consumer goods. According to Brookings Institution Study, trade restraint and supports to steel industry between 1969 and 2000 cost consumers in the US between $90 billion and $151 billion.
In 1984, the study further maintained, the voluntary export restraint slammed on cars enabled car manufacturers to rake in $9 billion while American consumers coughed up $14 billion. Interestingly, the focus was on the gain of the car industry, not the net loss of $5 billion. Regarding job losses in the steel industry, studies showed in 1984 that 16,900 jobs would be saved in the steel industry but 52,400 jobs would be lost in industries that use steel as a raw material because of the rise in costs.
The prevailing trade war would have been solved if the rules as stated in the World Trade Organization document were adhered to. The primary objective of the World Trade Organization is to liberalize world trade thereby ending decades of protectionism and other inward looking policies which have characterized the world economy. The Doha Development Agenda which specifically draws attention to agriculture and market access has been sidelined. The US, EU and Japan have been foot dragging market access for developing countries. The US says it would grant market access to developing countries if the EU is willing to do the same.
The ultimate victims of this waiting game are billions of poor in developing countries. The EU which intended to take retaliatory measures against the US over steel tariffs is itself guilty of stifling trade and market distortion, through its Common Agriculture Policy (CAP). Overall, EU protection and support has not been reduced. Concentration on the agriculture sector has beclouded the protection placed on industrial goods, which also get a great deal of protection. According to Institute for International Economics, in 1999, 24 per cent of the EU’s industrial value-added got protection of more than 10 per cent.
Support to 14 cotton producers rose from $3.8 billion in 2000/01 to $5 billion in 2001/02. Subsidizes to its farmers is $86.6 billion annually. This has resulted in overproduction of many goods, like sugar, milk and cereals, which are then dumped on developing countries markets.
Removal of those supports would increase the world market share of cotton exports for cotton-dependent economies across western and central Africa, such as Burkina Faso, Benin, Chad, and Mali. The gains are obvious: income of farmers in Africa will increase, enabling millions of peasant farmers in Africa to have access to life-saving drugs, live in a decent environment and have access to sustained energy supply, rather than using cow dung and wood for fuel.
Apart from anything, President Bush’s flirtation with steel tariffs has highlighted the dangerous consequences that may ensue if the trade game is not played according to the rules. The WTO is the appropriate platform to address trade concerns of both developed and developing countries alike. Unilateral action would inevitably lead to trade war or some narrow interests being pacified. If any country is bent on averting the impending trade war, it must fast-track the stalled trade negotiations and be willing to give trade concessions.
More worrisome is the resurgent penchant for regional and bilateral trade agreements over multilateral negotiations. The US, for example, is waxing stronger in spearheading regional and bilateral agreements in the Americas and across Asia, and talking of prolonging the Africa Growth and Opportunity Act. Unfortunately, none of these regional or bilateral agreements has agriculture subsidies removal, which is at the core to developing countries interests, on the table. Only time will tell if the trade war would indeed be averted.
*Thompson Ayodele (thompson -at- ippanigeria.org) is the Coordinator of the Institute of Public Policy Analysis in Lagos, Nigeria.