Global Policy Forum

By Erich Marquardt

On July 11 the World Trade Organization (WTO) argued that the Bush administration's attempt to protect the U.S. domestic steel industry by placing protectionist tariffs on imported steel violates international agreements and, in general, free trade. The tariffs, which in some cases amount to 30 percent of the price of imported steel, have created controversy abroad due to what many countries consider to be unfair trade practices.

The purpose of the tariffs is to protect the U.S. steel industry, which has suffered economic hardship partially due to the global economic downturn. By placing tariffs on foreign steel imports, U.S. domestic steel companies are able to increase their share of the consumer market, since consumers are more apt to purchase cheaper steel. Fueling the controversy, and in what is a violation of the ideals of global free trade, selected states that are part of regional free trade pacts with the United States are exempt from the tariffs, such as Canada, Mexico, Israel and Jordan.

The decision by the Bush administration to shield the domestic U.S. steel industry is also at odds with Washington's argument that free trade must be followed by all countries, and will lead to great prosperity and peace for all participants. Best displayed in The National Security Strategy of the United States of America, a document released in September of 2002, President Bush wrote: "The United States will ... bring the hope of democracy, development, free markets, and free trade to every corner of the world." The Bush administration also proclaimed in this report that free trade is more than just an economic theory but should instead be considered a "moral principle."

In addition to steel protectionism, the Bush administration has also sought to protect its agriculture industry. The 2002 Farm Security and Rural Investment Act will bring about $180 billion of federal funds to the U.S. farm industry over the next decade -- a 70 to 80 percent increase and the maximum level allowed under its current WTO subsidy ceiling. Analysts argue that such subsidization will result in further U.S. overproduction and lead to a worldwide drop in the prices of agricultural goods. For example, the United States exports wheat and corn below the cost of actual production, resulting in Mexican corn farmers being put out of business since they cannot compete with the products of U.S. subsidized companies. Cotton is another industry that received financial support from the U.S. government; cotton farmers argue that this action sent world prices plunging. In addition to U.S. agricultural subsidies, other developed countries practice similar policies in order to shield their domestic farm industries from foreign competition. In Europe, the European Union's European Common Agriculture Policy (CAP) has resulted in surpluses and overproduction of agricultural products. Japan, too, has a strong agricultural subsidy program that works to insulate its domestic industry from foreign competition.

The cause of such concern over the actions of the United States, European Union and other developed countries that shield their domestic industries from global competition is that it can work to destroy industries in poor countries unable to provide the same domestic industry insulation and protectionist barriers. Poor countries, which have outstanding loans with international loan institutions such as the International Monetary Fund and the World Bank, are pressured to follow strict guidelines over how they manage their economies. They are often forced to privatize all government services and industries, and to eliminate tariffs and government subsidies, thus losing the ability to shield their domestic industries from competition abroad.

This handicap allows developed countries to protect their local industries, while poorer countries are often flooded with developed-country products, often destroying their local industries. Haiti, for example, suffered in the mid-90s from opening up its rice market to foreign competition. This led to an influx of cheap U.S. imports causing a collapse of local production, and inevitably leading to an increase in unemployment and a dependence on U.S. food imports. Other countries, such as Mexico and many African states, have succumbed to the pressure from international lending institutions to liberalize their trade restrictions and have thus suffered from unfair trade practices. Even World Bank president, James Wolfensohn, has acknowledged this unfair reality, stating, "these subsidies are crippling Africa's chance to export its way out of poverty."

The economic vulnerabilities exploited through current free trade practices have helped to further widen the gap between the rich and the poor in the decade of the 1990s. An International Monetary Fund assessment showed that "the relative gap between the richest and the poorest countries has continued to widen." Despite pleas from poor countries, current trade practices show no sign of abating. The election of the Bush administration brought hope to many free trade theorists that the administration would work to severely limit subsidies to local industries and push a free trade agenda on the world. Instead, the administration verbally came out in favor of free trade, while in practice took actions that amounted to monumental violations of the free trade theory.

These actions further show that governments around the world are unwilling to ascribe to global free trade. Instead, developed countries have been able to reap the benefits of free trade, while shielding themselves from its drawbacks. Poor countries, on the other hand, are unable to shield themselves from the drawbacks of free trade and also find it extremely difficult to reap its benefits. >

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