Beyond Iraq: US power and global poverty

As a senior US Department of Defence official recently put it: “Why shouldn’t we use trade policy to reward our friends and hurt those who don’t support us?”

With the United Nations warming the substitutes bench on Iraq and multilateral trade talks approaching gridlock, the stage is set for a destructive display of US bilateralism across diplomacy, force and trade.

After all, in what other country in the world can the head of state ask for $75 billion in emergency spending to pay for a war and still secure $350 billion in tax cuts for the wealthy over the next ten years? That’s the equivalent of spending the gross domestic product (GDP) of the Philippines on conflict, while foregoing tax receipts the size of Australia’s GDP.

Money talks
The US military budget has been elevated to $400 billion this year, or eight times global aid flows, while last week’s $3.5 billion state bailout for the US airline industry is equivalent to almost 75% of Gordon Brown’s entire war chest.

America’s economic predominance – and the resulting shape of the global economy - has been built on a combination of bullying, threats and inducements - leaving a wake of bloodied trading partners strewn around World Trade Organisation (WTO) summits. Mundane negotiations over intellectual property rights, export subsidies, import tariffs and the divine right of capital flows may not mobilise millions of marchers, but there is no denying these are the true spoils of war in a global economy.

As a senior source at the United Nations Development Programme remarked of the Doha WTO Summit in November 2001, the United States didn’t hesitate to swing its weight about. “When an agreement is said to be multilateral it means its content is the product of acute bilateral arm twisting and intimidation. At the Doha Summit, African country ambassadors were being confined to their hotel rooms as the US applied pressure to their governments to pull them back.”

In 2001, the United States GDP stood at over $10 trillion – over double that of Japan in second place. The world’s largest importer and exporter of merchandise and commercial services is home to 24 of the top 100 non-financial corporations ranked by assets owned abroad. In February this year, US Trade Representative Robert Zoellick told Congress that American exports supported 12 million well-paying jobs.

Hard facts such as these led right-wing US think-tank the Heritage Foundation to conclude in an April 2002 policy paper that: “America needs more trade, not less. With 96% of the world’s consumers living outside of the United States, the US economy depends to a significant extent on international trade”.

If maintaining and extending these indicators of power is the burden of Empire, then the world could be about to experience a new era of US bilateral rule. The likelihood increased when multilateral trade talks stalled after WTO member countries failed to meet a March 31st deadline for a common position on agriculture ahead of September’s WTO Ministerial in Cancun, Mexico.

Other cracks are starting to appear. The EU recently won WTO backing that the US violated international trading rules when it imposed tariffs of up to 30% on steel imports last year. Not that the US pays much heed to such rulings. The US has yet to comply with a 2002 WTO ruling that stated the US was granting illegal tax breaks for its exporters. The European Union, no angel when it comes to subsidies, has now threatened the US with $4 billion worth of sanctions from September unless the US backs down.

Losing the battle
But periodic trade wars are symptomatic of a deeper malaise in American capitalism. The Bush administration is well aware that the country is losing its edge across a number of sectors including technology, electronics, biotechnology and pharmaceuticals. There’s also the spectre of falling energy reserves that of course relates to the current conflict in Iraq.

Robert Wade, professor of political economy at the London School of Economics, believes the Iraq war could be the catalyst for increased bilateralism. “The aftermath of war in Iraq could embolden certain figures in the Bush administration and the US treasury to expand economic ambitions and subvert the process of globalisation still further.”

The debate over intellectual property rights is a clear example. In the 1990s, developed countries such as America, Japan and Western Europe kissed the industrial age goodbye and signed up to the knowledge-based economy. Companies spanning software, entertainment, biotechnology and pharmaceuticals became flag bearers for 21st Century commerce. In turn, these corporations demanded protection for their intellectual property (IP) that they argued cost billions of dollars in research and development.

While the value of goods comprised of IP had been rising rapidly over the last few decades, the pace of innovation has also quickened to unprecedented levels (think about all those Windows upgrades). The implied competition forced the likes of Microsoft, Disney, Sony and IBM to access the widest possible market in order to achieve a return on investment.

In recent years this has led to several high profile controversies such as the rights of pharmaceutical giants to monopoly patents on medicines, versus the rights of developing countries to produce cheaper generic copies to save their populations from diseases such as Aids. A deal to waive patents on legitimate humanitarian grounds collapsed at the eleventh hour in December last year when US drug companies refused to relax patents beyond a subset of developing countries and a narrow list of diseases.

Crafted benevolence
Instead, the United States passed a bill this month pledging £10 billion over five years to combat Aids, Malaria and Tuberculosis in Africa. While the commitment has been broadly welcomed by the NGO community, there is no denying that the Bush administration prefers to spend taxpayers’ money on bilateral terms rather than risk the profits of the pharmaceutical lobby by signing up to multilateral deal on patent waiving.

The threat to US drug profits is just one example of the battle preserve IP. For example, Professor Wade points to the way in which the United States has started inserting IP clauses into bilateral trade deals with countries such as Chile that go beyond WTO provisions. “This is a blatant example of US protectionism committed in the name of liberalisation. The US is using WTO agreements as a minimum benchmark to extract even greater protection for US patent holders.”

At the University of Columbia in New York, professor of economics, Jagdish Bhagwati, also sees a more sinister trade agenda emerging. “The United States is using clever tactics. In addition to aggressive safeguards to its IP, US negotiators are starting to impose strict financial conditions upon trading partners.”

Bhagwati refers to the recent agreement with Chile as well as a second US agreement with Singapore, that actually ban the use of capital controls. In financial terms, this is like dropping a 20,000lb bomb on the recipient party since capital controls are the last line of defence a country has for regulating volatile flows of money leaving their economy.

The divine right of capital flows
Sudden outflows of capital have consistently laid waste to developing economies across Asia and Latin America since 1997, when countries such as Thailand, Indonesia, Malaysia and South Korea were plunged into financial chaos as investors took fright and withdrew funds. Governments were then forced to devalue their currencies in return for an International Monetary Fund (IMF) bailout causing the price of imports to soar and the standard of living to plummet.

If bilateral trade deals banning capital controls become de rigeur it means a country using them to defend its economy will end up compensating American investors for the inconvenience.

“This is astonishing given the lessons we have learned from previous financial crises,” says Bhagwati. “The Wall Street-Treasury Complex is trading market access to the United States in return for guaranteed patent protection and financial liberalisation from trading partners. This has everything to do with collecting royalties for US corporations and securing capital mobility for Wall Street. It has nothing to do with trade.”

Bhagwati goes on to explain that so-called privileged access to the US market is in fact illusionary. His argues that WTO agreements of the next decade will finally supersede today’s US offers of market access as trade barriers are slowly dismantled worldwide. But as the casing of market access falls away it will leave in place bilateral clauses on patent protection and financial openness.

The policy even runs counter to the IMF’s latest thinking on financial liberalisation that says developing countries with small financial sectors derive no benefit from surrendering themselves to the whims of global financial flows.

Now that’s not the kind of common sense the Bush administration wants to hear. It’s comes as no surprise, therefore, that the IMF was recently stopped in its tracks by its largest shareholder (the United States) from using a bankruptcy-style mechanism to stop middle income countries, such as former casualties Argentina and Brazil, from suffering the acute pain of capital flight.

That the Unites States is again linking trade with capital movement should set the alarm bells ringing. In 1998, a dedicated band of activists helped scotch plans for a Multilateral Agreement on Investment (MAI). Throwing the entire world open to the unchecked flows of American investment may be a second term dream for Bush and his corporate backers, but the project itself contains some clues for US containment.

Reigning in a superpower
Empires of old were traditionally the world’s largest creditors ruling their vast lands through the simple means of debt bondage. Not so with the United States. The 21st century hegemon is actually the world’s largest debtor with a massive trade deficit predicted to rise to unprecedented levels as Bush hands out billions in tax cuts to the wealthy few. The United States is only able to sustain this fiscal balancing act because it hoovers up so much of the world’s savings.

Global demand for the dollar, as the world’s safest currency, drives up its value allowing American consumers to binge on cheap imports from all over the world. The exporters, meanwhile, have to store billions of dollars in their central banks to guard against attacks on their weaker currencies. These are usually converted into US Treasury Bonds paying a meagre two to three percent rate of interest.

Now what would happen if anti American sentiment reached such heights that the world’s investors converted their savings into Euros and their governments decided to cash in those US Treasury Bonds? Of course, no one wants to precipitate a financial meltdown but the threat of one might be all that is left to bring an unruly Empire to heel.

Marc Lopatin is media officer for War on Want