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Steel wars and the WTO

Print edition : Mar 30, 2002 T+T-

With the European Union threatening to take the United States to the WTO disputes system over the latter's imposing tariffs on steel imports, Tony Blair finds himself in a dilemma.

WHEN George Bush senior sent his trade representative Carla Hills off as the United States' Ambassador to the Uruguay Round that led to the setting up of the World Trade Organisation (WTO), he presented her with a crowbar, symbolic of the U.S. determination to prise open foreign markets in the interest of "free trade". It was therefore a mixture of exasperation and embarrassment that greeted President George W. Bush's recent announcement of the imposition of punitive tariffs on steel imports into the U.S. The exasperation came from adherents of the free trade mantra, most vocally the European Union's (E.U.) Trade Commissioner, Pascal Lamy.

The November WTO summit in Doha had seen the E.U. join the U.S. in pressuring developing countries once again to open their markets, particularly in the services sector where the West is strong. For the E.U., this steel dispute is doubly annoying, for it had enforced its own "restructuring" of its domestic steel industry after bitter battles with trade unions in the industry in the early 1980s. The mass production of less specialised varieties of steel is something that the E.U. has let go and developing countries, and more latterly the former state-controlled economies of Eastern Europe, have filled the gap.

Bush at least intends to pay off his domestic political debts. It has not gone unnoticed that some of the unproductive U.S. steel mills are in the State of West Virginia, whose four votes in the presidential electoral college were so vital to Bush in the election that he so narrowly (if at all) won. The coming congressional elections will be vital for the knife-edge situation in both Houses and Bush is shrewd enough to know that the patriotic wave after September 11 is not a guarantee of success in areas of continuing industrial decline.

The embarrassment of Bush's "America first" policy could not be greater than with his most fervent foreign supporter, British Prime Minister Tony Blair. Bush's ruthless pursuit of a unilateral policy in Afghanistan has severely dented the notion propounded by Blair in the immediate aftermath of September 11 that standing shoulder to shoulder with the U.S. was the best way of ensuring some influence. The unilateral abandonment by Bush of free trade to embrace protectionism for U.S. domestic electioneering could not have come in a more embarrassing sector than steel. First of all, Blair has signally failed to show sympathy for calls to aid the British steel industry. On the contrary, he has revelled in continuing Margaret Thatcher's policy of abandoning industrial "lame ducks". Further, Blair has been caught up in yet another scandal about his links with big business.

An Indian businessman, Lakshmi Mittal, has made significant contributions to the Labour Party. Then it transpired that Blair had written a letter of support for Mittal's steel ventures in Romania, financed by an offshore company, on the somewhat tenuous grounds that Mittal's operations were "British". Credulity was stretched when Blair's office denied that there was any link between the two matters. Moreover, it then emerged that Mittal had been campaigning in the U.S. in favour of a U.S. tariff on steel to protect his own interests there.

The latest opinion polls show that New Labour is considered sleazier than the previous Tory regime whose image as "damaged goods" led to its defeat in 1997. The dubious practices of Labour's funding raise serious questions about the probity of the party management itself. The more New Labour jettisons its old political allies and funders, the trade unions, the more it has to have recourse to other, less accountable and more obscure, sources.

The ever opportunistic Liberal Democrat leader, Charles Kennedy, has called for stronger links between his party and the unions and the Trades Union Congress (TUC) was split at its general council by a call to hold talks with the Tory party. It seems everyone wants to talk to the unions other than the leader of the party they founded - Labour's Tony Blair.

Britain will be somewhat embarrassed when (or if) the E.U. does press ahead with its threat to take the U.S. to the WTO disputes system and by any subsequent retaliatory measure taken by the E.U. in compensation for losses suffered by European steel. The problem is not only a cut in direct E.U. steel sales to the U.S. but the indirect losses that will accrue if and when steel from other parts of the world, normally shipped to the U.S., is diverted to the unprotected markets of Europe.

Bush, however, knows that he is in fact in a strong position. The rest of the WTO, particularly the E.U., is terrified that if the U.S. finds the WTO a nuisance for the reason of its continued actions against it, it will simply leave. In fact the U.S. does have such legislation on its books, a kind of "three strikes and you're out" provision, which says that the U.S. will review its membership if the decision goes against it. This would bring about the collapse of the WTO, as surely as the U.S. left the League of Nations doomed to failure in advance by not joining it. So it is not absolutely sure that all the huffing and puffing by Monsieur Lamy will in fact lead to decisive action by the E.U.

Moreover, even if the E.U. goes ahead with its threats, by the time the WTO procedures have cranked into motion, the U.S. elections will be over and Bush can relax the sanctions. More gloomily, also by then the world could be distracted by an even greater and more dangerous episode of American unilateralism - namely an attack on Iraq.

Michael Hindley was a Labour Party member of the European Parliament from 1984 to 1999.