The WTO: A Brave New World?

Often mentioned in my posts is the World Trade Organization, WTO for short. Mostly it is in a complaint about the negative side-effects of its policies and actions. The WTO was established in 1995 as the successor to the GATT-negotiations. Its goal was to realize global free trade. I noticed however that more and more the organization is used as a battleground for the resolution of national interest conflicts. The big trading blocs - United States, European Union and China - are pursuing their economic self-interest, disguising it as concerns of free trade, ecology or fair trade.

One of the first big clashes was between Europe and the Cairns Group. The latter attacked the agricultural policy of the Union. Of course this was a genuine case of protectionism versus free trade. But when Europe masked its subsidies as support for environmental development, things got really nasty. The WTO was expected to decide on the legitimacy of environmental and other 'progressive' arguments, something it had no mandate for. Indeed the WTO assesses mostly in favor of free trade. Two clear-cut cases are the Banana War and the dispute about Europe's unilateral guarantee of free trade to its poorest trading partners. In both cases Europe had nothing to gain financially itself, but the WTO ruled that such practices are 'against the spirit of freeing up world trade'. I wonder what will become of the Union's aircraft carbon tax...

With its one-sided focus on free trade the WTO can
only serve capital. There is no attention for legitimate
concerns regarding the environment or free trade...

The WTO was created in a moment that everyone believed capitalism had triumphed. A brave new world dawned, a world in which free trade was good trade, best trade. In this spirit the rules of good practice were enshrined in legislation that could only be changed by unanimous vote of the WTO members. This gave rise to what political scientist Stephen Gill calls the new constitutionalism of disciplinary neoliberalism: governments across the world have to abide the rules regardless of their orientation, resisting or retreating equals economic suicide. Truly globalization at its best here, or should I perhaps say at its worst?

Nations sometimes win, sometimes they lose. The real winner in this game is capital: it enjoys the freedom to exploit without the hinderance of border, it is free to set up governments against each other. Who gives the biggest tax cut? Who provides the juiciest subsidies? Who doesn't care that the world dies tomorrow if we can feast today? The one-sided stress of free trade is the real tragedy of the WTO. When we have global exchange we need global regulation. Not the kind of night-watchman authority the WTO provides. Perhaps the resolution lies in the blockage the organization is currently in: being stuck halfway between painful fines and equally painful import taxes can only cause irritation with the WTO's members.

Capitalism and the global environment

As I explained at the beginning of my previous post I am spending all my free time on doing research for my paper. It came to me that if I wrote something on that, I would be able to maintain focus and keep you readers well-supplied for the next couple of days. What follows is a slimmed down summary of what I've been reading the past few months. It accounts of the exploitation of the South, its environment and the evil ways of capitalism. Enjoy!

In the West we still are under the impression that we ought to learn people in the South how to live in a sustainable way. This is evident from our leader's attitudes at international conferences and the various 'plant a three in the South'-like campaigns that are put forth as a solution to ecological crisis. As if environmental degradation in the South is the result of ignorance rather than poverty. As if we are setting a good example...

This is exactly the attitude that needs tackling: the whole idea that the North has the most progressive environmental policies is misleading. Sure, such statement holds when we are talking about quality standards of rivers and the like. But what about international trade? "Now what has trade got to do with it", you ask? Economic policy is not isolated from environmental concerns, just like the world economy is not isolated from the global ecosystem. The North consumes a majority of the natural resources that are extracted from this planet, yet most degradation that accompanies this extraction is experienced in the South. Rich countries use their purchasing power to shift the burden to the South. We cut down African rain forests in stead of American temperate woods. Now isn't it strange that third world countries suffer from deforestation while we don't see that many IKEA-closets in Kinshasa?

We can maintain both our welfare and natural richness by externalizing the environmental costs associated with production processes. We are still exploiting the South when enjoying our Starbucks coffee or blogging from our HP laptop. Not that we should be surprised at such a conclusion. Exploitation is the very mechanism that makes money go round. From its very start, the capitalist mode of production was grounded in keeping certain costs external to the one who was producing for the market. The market value in other words should not reflect the full cost of production upon society. An example: Starbucks doesn't make you pay for the biodiversity that got lost while clearing tropical forest for a coffee plantation.

"But doesn't the market tend to evolve toward some kind of balance, a correct price?" If only economists would use a little more of their time researching why the optimum is so hard to achieve, you wouldn't need to ask that question. (Economists tend to chatter along about an optimum hardly ever achieved...). If prices where to reflect the real social and environmental costs inflicted, there wouldn't be any surplus gain. The notion that under perfect competition no surplus profits are made is central to economic theory. Yet a lot of free market champions don't seem to understand that you can't get anything for free.

This is why a fair and sustainable society can never be achieved under capitalism. In a system based on the exploitation of both labor and nature, wealth can only be generated for a few at the expense of the many. If we would force our firms to internalize the full cost, the system would start to sputter. Our mode of production is one of production for sale; market value prevails over use value. Change needs to occur at the most fundamental level. Capitalism, with its insatiable hunger for more, functions as a treadmill of destruction. It must be stopped before it collapses under the gravity of its own consequences.

Congolese elections and European values

A few days before the Congolese were to choose their new president, I blogged about the candidates. Last week the results of those elections were announced: Joseph Kabila succeeds himself as president of the Congo DR. He is believed to be won with little under half of the votes. However, he is not believed to be so by everyone: Supporters of Étienne Tshisekedi, who came in second, called the elections a fraud. They point toward the 'irregularities' that occurred to support their case. While it is true that not everything about the election process was democracy proper, all by all the result is called credible by the authorized commission.

Belgian police forces restraining Congolese protesters in
Matonge - the Congolese district in Brussels, Belgium.

Kabila was not elected by a majority of the people and in a one-to-one race against Tshisekedi he would surely bite the dust. The incumbent president profited from the divided opposition as I predicted in my previous post. Tshisekedi's followers, and indeed the political leader himself, fail to recognize this. While in the urbanized region of the capital opposition against Kabila is strong, the majority of the nation accepts a second term. Riots in Congo or abroad (we had some trouble with protesters in Matonge, the Congolese neighborhood of Brussels) are ungrounded. I do recognize that the grievances held against the Kabila regime are just, but the election outcome is representative.

What I find a real pity is that Europe didn't send a strong signal when tensions rose. A call to 'sit back and stay calm' can hardly be called a signal, can it? I noticed that the Old Continent is no longer as agile in promoting democratic ideals. Congo is just a single dot in a much broader pattern: values are forced to take a back seat more often than should be good for our conscience. Take for instance a bilateral trade agreement between the EU and Columbia: should we really strike a deal with a regime that doesn't take too kindly to human rights? The same goes for a deal in the making with India; the Indian government refuses to accept any trade agreement that holds a clause on human rights - and the EU is actually considering to drop its standard human rights clause!

It can be expected that this tendency will grow stronger in the future, and this for two reasons: First of all, the playing field for international trade is changing drastically. Countries like India, China and Brazil gain prominence and they are not stupid enough to attach value judgements to their contracts. Also, Russia is joining the WTO soon - this nation isn't exactly a staunch defender of personal freedom either. Holding on to its noble ethics would compromise the competitiveness of the EU. A second cause might be the declining power of the Commission and the Parliament. They have lost some of their grip on foreign policy since the creation of the External Action Service. What the future might hold, I can not say, but for sure fragmented and superficial protest wont bend the forces that shape our world.

A dragon and its younglings: State-owned enterprises

Today I finally present the second article in my 'dragon nation' series. As explained in the previous installment, the aim is to tackle some misconceptions surrounding the oft-mystified Chinese policy. This time I investigated the claim that reforms in China have made it a capitalist economy. Hereto I focused on the state-owned enterprises and their role in the Chinese economy. Well-aware that a complete image requires much more, I would still like to draw some conclusions.

Under impulse of Deng Xiaoping, China moved beyond Maoist recipes and reformed its way out of Third World status. I will not discuss the Chinese economic reform into detail. Much more interesting is to see how much 'Chinese characteristics' there really are in Deng's socialist market economy. After all, once reform was initiated, liberal theorists expect(ed) the People's Republic to move ever-closer to the western model of capitalism. The attachment to ideological references they dismissed as futile shadow-discourse; a canalization of Chinese nationalism at most. How solid is this view?

The Chinese government protects the state-owned enterprises. Favored
companies are effectively shielded from competition by perverse policy.

In 2001, China joined the World Trade Organization (WTO). In this the Chinese establishment subjected itself to the liberalization of its international trade relationships. While this surely is a big move, the power of state-owned enterprises within China's domestic market is still overwhelming. Indeed, ten years after the country's admission to the WTO, state-owned enterprises are stronger than ever. The Chinese government ensures a dominant position for its partners; favored companies abide and in return their share in the market is protected. The authorities realize this by applying rules with a double standard and by obstructing the take-over of domestic companies by foreign ones.

For a detailed analysis of how the state shamelessly obstructs market forces I can recommend this article from The Economist. Now our focus shifts again to the WTO: while domestic suppliers have a guaranteed playing field, they have it easier to export their services/products. The WTO strives toward free trade between its member states and, while it is true a foreign company can access the Chinese market, it is shielded from actual demand. Meanwhile Chinese firms, enjoying subsidized/enforced demand at home, can well-compete for the demand in Europe and the United States. China is thus far from a capitalist country. Much more it resembles a covert form of state-capitalism or even modern mercantilism. Regardless of the label, the state and indeed politics are a most determining factor in China's enterprise environment.

A dragon and its treasure: The Chinese yuan

The title of this post refers to the Chinese People's Republic as a dragon. Chinese economic policy is almost as mythical as the creature often used to portray the nation. Incredible growth, enormous exports, vast amounts of financial reserves and yet lead by a party that calls itself 'communist'. In a series of three posts I would like to examine some of the myths that surround Chinese economic policy. First up is the supposedly undervalued currency and its perverse effects on global trade.

The Chinese leadership is often accused of keeping the yuan, the currency of the China, artificially low. An undervalued currency holds a significant advantage: it suppresses domestic prices of raw materials and labor. In essence you make domestic production artificially cheap, compared to foreign production. This causes  Chinese rubbish to be priced too low and thus to sell better than American, Japanese or European rubbish. The Chinese government rejoices when it checks its export numbers. Other industrialized countries are less happy for they see their trade balance - the worth of export minus import - become less balanced.

The trade balance of countries around the world, based on IMF statistics for 1980-2008. Notice the high deficit for the United States, which is largely benefited Japan in the eighties and China since WTO-admission in 2001.

The question that keeps us busy is twofold: is China keeping its coin artificially cheap and, if so, then how do we deal with it? The grievances of China's trading partners are without a doubt legitimate. It needs however to be said that, ever since 2007, the Chinese government has taken measures to adjust its underpriced coin. Indeed since June 2011 the yuan has appreciated over 7% against the dollar. And considering the spread between China's inflation rate and the much lower one of its trading partners, relative costs in China have risen even more. All this show us that the yuan is not as much undervalued as it used to be.

Myth 1: "The Chinese yuan is kept artificially low
and thus the Chinese policy distorts global trade"

Yet China-bashing is more popular than ever, especially in the United States. On October 11, the US Senate approved a bill that allows its government to take measures against what it deems undervalued currencies. This strategy might be politically successful as it might get one votes from people who lost their manufacturing jobs allegedly due to cheap Chinese imports. Yet from an economic point of view the results would be devastating. A trade war between two economic behemoths, who are also each other's principal foreign debtor/creditor, will disrupt today's fragile economy even further. To ward cheap Chinese products from your market would by the way mostly harm the consumer. And China only needs to challenge such a policy before the WTO to enforce free trade. After all the international economic regime regards undervalued currencies to be a prerogative of the IMF.

Then should we stay inert and leave the matter be? There is something to say for abstaining from action. Though the yuan is far from flee-floating, it is steadily gaining in value. A more 'flexible' yuan offer chances for China to hasten the reorientation of its economy from exports to domestic consumption. This is something the Chinese authorities recognize and seek to achieve, even more so when a global recession might be just around the corner.

Join the Banana War

I have recently joined a fight of a global scale; a war that involves some of the world's major economic powers: the Banana War! To fully understand this trade conflict, it is necessary to take a look at its history first. The European common market may be internally open to competition, it has a firm tradition of protectionism. The common market was born in 1957 when the European Economic Community (EEC) was formally erected. France however feared it couldn't face the German competition. Therefore it demanded that the principle of the common market was applied to the agrarian production too. France after all is one of the most agricultural countries on the continent. To safeguard European domestic food supply, the EEC also decided to pull up barriers against food imports.

Just five companies control 80% of the world wide banana
trade. These are Dole, Del Monte, Chiquita, Fyffes and
Noboa. Don't support their exploitation-based monopoly,
Buy Fair Trade!

Now what could this possibly have to do with bananas? Believe it or not, but Europe is a producer. Spain has a small share in the EU's banana production, but the major source is again France. Easily overlooked are the French overseas territories and they practically live from banana cultivation. A lot of Europe's trading partners don't like the tariffs we handle since they give an unfair advantage to French bananas. Luckily for American multinationals, Europe has a demand for bananas which surpasses the own production capacity. The war only commenced once Europe altered its protectionist policies in favor of fair trade...

In 2001 the EU approved the "Everything But Arms"-ordinance. This nice piece of legislation granted a reduction in trade tariffs for the ACP-countries (former European colonies). For the Least-Developed Countries, trade tariffs were abolished altogether. Europe didn't demand any compensations in return, this action was inspired by ethics only! The Commission wanted to stimulate the position of fair trade products to aid the developing world. And indeed, the competitive advantage greatly reduced the price gap between fair trade bananas and the so-called 'dollar bananas'. The difference in your purse between buying Oxfam or buying Chiquita became marginal.

The big American concerns, who grow their bananas at big plantations in Latin America using cheap labour, were not amused. Like an adult whining over some candy given to children, they demanded tariff reductions for themselves too. The World Trade Organization already ruled that the EU falsifies competition and this doesn't sort with their neoliberal dogma. Only free competition between exploitation and fair trade can lead to a better world, say the big boys. Europe has to give up on its supportive measures for fair trade. In the future the price gap will certainly rise. I urge you all to join this war, you can all help make a difference. Corporate exploiters haven't won yet; please stop buying dollar bananas and give the South a chance! Buy fair trade!