Friday :: Nov 26, 2004

The Revenge of the Economic Frankenstein's Monster Rides Again!

by pessimist

One of the major selling points offered up for the General Agreement on Tariffs and Trade - the international agreement which created and empowered the World Trade Organization and the secret tribunal whose decisions are final and unappealable - was that international trade would become more open and less costly. Considering the latest decision from Geneva, might not the conservatives who so loudly promoted the advantages of having a powerful antidote to national defenses against multinational predations (tariffs and import duties) be rethinking their positions?

We've been reading lately about how the dollar continues to fall in value against most of the world's currencies, which is supposed to make our goods cheaper in foreign markets and thus more likely for the foreign consumers to purchase instead of the local varieties.

But as the old adage goes, the best laid plans of mice and oilmen gang aft agley!

US fail to prevent WTO sanctions

US products ranging from fashion to food could become more expensive in Europe next year after efforts to prevent planned sanctions imposed by the European Union against certain US products failed on Friday.

According to news agency, the World Trade Organization (WTO) authorised the sanctions as a punishment against the Byrd Amendment, an US anti-dumping law considered illicit by the WTO two years ago. The law allows US companies unhappy with foreign rivals to receive payments from anti-dumping duties collected by the US.

The WTO decision follows a complaint by the EU, which was joined by Brazil, Australia, Chile, India, Japan, South Korea, Thailand and Indonesia, which demanded sanctions against the US in January 2004.

A complete list of US products, which will see penalty duties, does not exist yet. Sanctions could cost the US up to $150 million a year, experts believe.

$150 million a year? GIs in Baghdad throw away MRE's worth more than that daily! Is there another reason that this action has been taken?

India, six others get go-ahead for sanctions against US

The United States came under pressure on Friday to repeal key anti-dumping legislation after the World Trade Organisation gave seven trading powers including India final clearance to levy multi-million dollar sanctions against US imports.

The move by the EU, Brazil, Canada, India, Japan, Mexico and South Korea -- which had already been authorised in principle in August -- was given the ultimate green light by a meeting of the WTO's disputes' settlement body in Geneva, a trade official said.

But the countries involved indicated today that they would not enforce sanctions -- often additional duties on specific imported US products -- immediately. Washington was targeted by the sanctions request because the US Congress had not repealed the legislation -- which the WTO had earlier condemned as incompatible with its rules -- before a deadline of December 27, 2003.

I still don't see the reason that this action was taken. $150 million divided among the six countries works out to an average of $25 million each, which even Mexico can afford, so this still isn't the issue that makes this a big deal to someone.

Maybe this article will shed some light on the topic:

US faces record sanctions

The EU had complained that Washington had ignored a WTO ruling against the tax breaks which were said to amount to an illegal export subsidy.

US companies such as Boeing and Microsoft have benefited from the tax break system which allows firms carrying out business through subsidiaries in offshore tax havens to benefit from reduced export taxes.

Ah! NOW we're gettin' right down to the REAL nitty gritty! Boeing has challenged the EU aircraft industry to a trade war, and Microsoft is not off the hook for anti-trust actions. In fact, Microsoft is losing large shares of market to the Linux operating system. Rome, Munich, and the Finnish city Turku, along with the Finnish telephone system have all abandoned the expensive Windows operating system in favor of Open Source GPL-licenced Linux.

It's my read that this WTO action is intended to twist a few arms to make them more cooperative to EU plans.

But these two companies aren't alone, by any means!

The EU has listed 95 categories of US products on which it could impose additional duties of up to 100%, including:

* Dairy products, cereal, meat and vegetables

* Wood, leather, fur and textiles

* Glass and ceramic products, iron and steel

* Copper and aluminium nuclear reactors, boilers and machinery

The WTO confirmed in January 2002 that the system flouted global trade rules, and arbitrators agreed with the EU that $4bn would constitute "appropriate countermeasures" based on the trade impact of the US policy.

Washington had contested the level, arguing sanctions should be not more than $956 million.

As the late, great Senator Everett Dirksen used to say, "A billion here, and a billion there, and soon you're talking real money."

The "appropriate countermeasure" may only be just under 1% of the current federal deficit, but that kind of money is a large enough sum to notice even in good times. But as large as this sanction is, there is still something bigger in the wind:

Steel dispute

At present, there is a WTO case about US tariffs on steel imports, imposed last year. The WTO decision has not been published yet, but it is reported to find against the US.

NOW it's getting serious!

China considers counter-measures to US steel tariffs

China, along with the European Union, Japan, the Republic of Korea, Switzerland, Norway, New Zealand and Brazil, complained to the Geneva-based WTO over the steel duties. The duties were initially levied at up to 30 per cent from March 2002 but subsequently reduced slightly.

Australian steel has been affected as well. [pdf]

BHP Steel's lost sales are estimated at A$62 million in total.

Get enough of these countries together behind China, and things start to get very interesting!

The conditions created by the weaker US dollar resemble those of an industry 'dumping' their product - something which brought about the complaint:

WTO approves sanctions over U.S. anti-dumping law

The contested law allows American companies to receive proceeds from duties levied on foreign rivals for alleged "dumping" selling goods at below-market prices, making it impossible for American producers to compete.

The weaker US dollar thus creates the very similar condition of US goods becoming so cheap that foreign rivals can no longer compete profitably. This is the real motivator behind the WTO actions, and Bu$h knows that he's run into something he can't bully. He's very flustered, as this verbal gaffe illustrates:

Bush also said, "We expect the WTO, as well, to trade our trading partners as they treat us."

I think we all know what he meant, but suppose this is read by someone who doesn't fully understand American idiom? They have to be REALLY confused, wondering just how a nation trades trading partners - and with whom. And just how is the US treated by this?

So here we are, with the Crawford Kid standing on the scaffold, economic noose around his neck, and the sheriff is reading the provisional sentence - to be carried out should the Kid not see the error of his economic ways (yes - I remember that Congress pased this bill) and get the Congress to reverse their course on trade sanctions lest their corporate compaign contributions go to pay for these sanctions instead. In short, he's expected to be the leader he likes to brag he is.

In the poker variant known as Texas Hold'em, that's known as calling the bluff. Put up or shut up time. Show 'em or fold 'em.

The Kid doesn't have a good hand, or the sweat on his brow wouldn't be showing. In the poker variant known as Texas Hold'em, that's known as a tell - and the EU knows how to read it.

You're running out of chips, Kid - and your credit is no good.

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pessimist :: 6:24 PM :: Comments (7) :: Digg It!