The Misnomer of Free Trade: The Uruguay Round in Ukraine

Introduction

International trade organizations attempt to promote trade between nation states by utilizing mechanisms of the state. Following World War II, the United States and its trading partners engaged in the development of a trade framework designed to liberalize trade and payment systems between countries (Irwin, Mavroidis, and Sykes 2007). The reasons behind this were because Europe needed to be rebuilt following the devastation of World War II and factories needed to be rebuilt (“International Trade Agreements: GATT and NAFTA, Why Are They Important?” 1996). Several institutions were created from these negotiations to include the International Monetary Fund, The International Bank for Reconstruction and Development, and The General Agreements on Tariffs and Trade which set up the International Trade Organization. GATT had its legal origins in the Reciprocal Trade Agreement of 1934 (The Reciprocal Trade Agreement Act of 1934). This trade agreement shifted power from Congress which gave up the ability to legislate duties on specific goods when it delegated tariff negotiating power to the executive (Irwin, Mavroidis, and Sykes 2007). Since these countries also needed to resolve conflict and other non-trade issues the United Nations also came out of these negotiations (Choi 2015). A university of Economics Professor, Dr. Choi noted that, “GATT was the result of an international conference held at Geneva in 1947 to consider a draft charter for the International Trade Organization (ITO). The US initiated negotiations with 22 other countries that led to commitments to regulate 45,000 tariff rates,” (Choi 2015).

Following the signatories of GATT in 1948, 23 member states met in Havana to ratify the agreement creating International Trade Organization. In 1950 the US Congress failed to ratify the treaty and between 1950 and 1995, GATT became the “only multilateral instrument governing international trade,” (“The GATT Years: From Havana to Marrakesh” 2015).

This framework attempted to break down many of the trade barriers that some felt had contributed to the causes of World War I and II and while it focused on many different aspects there were some exceptions. For Americans this was important because of exceptions given to the Agriculture industry (Mangeni 2012). Many saw this portion of GATT as informed from the Agricultural Adjustment Act of 1933 in the Untied States (Mangeni 2012, p. 4) and viewed agriculture as a very sensitive area which involved food security and thus should not have been treated like other areas of trade (Sharma 2015).

This exception created distortions in agriculture markets around the world observed by Dr. Johnson in 1973 (D. G. Johnson 1973). The high level of domestic support to producers – about 60 percent of the value of production in OECD countries in 1986-88 – paid by taxpayers and consumers as a result of both domestic support and border protection led to increasing amounts of surplus production which could be disposed off in world markets only with export subsidies. Dr. Sharma asserted some of these distortions in the following ways:

Where domestic prices were not linked to world prices, the responses to changing international prices in both supply and demand that might have helped to dampen world price fluctuations were absent. As a result, world market prices became more unstable. Examples of such “insulation” policies included the variable import levies of the EU, where duties varied inversely with movements in world market prices in order to maintain a fixed internal price. In some major import markets, state trading enterprises vary the markups on imports to generate similar effects (Sharma 2015).

The large-scale uses of export subsidies, mainly by the US and the EC, in order to dispose of their surpluses tended to depress world market prices and make them more unstable, as subsidies were essentially political decisions and were unpredictable. This practice generated negative effects for rest of the world producers and exporters of these goods. Indeed, during the second half of 1980s, there was a “subsidy’s war” between the two major exporters as they fought to maintain their share in world markets (Sharma 2015).

For non-subsidizing countries (including most developing countries), agricultural protectionism also imposed implicit taxes on farmers. Artificially low world prices created a downward pressure on domestic prices. The resulting price disincentives often compromised agricultural production, threatened the livelihoods of large sectors of the population mainly living on agriculture, and made many developing countries increasingly dependent upon cheap food imports. These effects were frequently accentuated by domestic agricultural policies, which effectively taxed producers(Sharma 2015).

Countries with a comparative advantage in the production and export of tradable agricultural commodities were also unable to produce and export as much as they would have under a more liberal trading regime, and have been deprived of substantial export revenues. At the same time, and with the assistance of substantial levels of government support, many countries with less comparative advantage had been producing at inefficiently high levels (Sharma 2015).
International tension and disputes over agricultural trade arose with increasing frequency. The GATT institutions were often used in an attempt to resolve these disputes, but not with much success as rules were made ineffective due to the various exemptions. In fact, 60 percent of all trade disputes submitted to the GATT dispute settlement process between 1980 and 1990 were concerned with agriculture (Sharma 2015).

These distortions caused member states to reconsider some of the means by which they were doing business. In 1982 members of GATT met in Geneva, Switzerland to explore new frameworks for GATT and by 1986 they were able to begin talks and negotiations which took place in Punta del Este, Uruguay. This seventh round GATT became known as the Uruguay Round and led to the creation of the World Trade Organization. It’s main goals were to reduce agricultural subsidies, lift restrictions on investment and increase collaboration between countries on financial tools like insurance and banking.

Outcomes of the Uruguay Round

James Gerber’s review of the outcomes of the Uruguay Round noted several key metrics associated with the outcomes of this agreement in both subsidies and percent of farm receipts. Gerber’s reflection noted, “In terms of both absolute support and the percentage of its GDP that it transfers to farmers, the EU is the biggest subsidizer. Japan is close in percentage terms but is at about one-half the level in absolute dollar amounts. The United States is also a large subsidizer, and Canada is similar,” (Gerber 2011).

Analysis and Findings

Ukraine Example and Intrigue. The simplicity of Gerber’s nationalistic bias fails to appreciate the largess of the multinational agriculture cartels that operate from the developed world. The frameworks of GATT continue to work through the Westphalian view of functional states while the cartelization model operates through multinational banking and business mechanisms that often supersede the state. A strong example of this is in the recent political turmoil in Ukraine.

In 1992 the Ukraine sent a delegation to the GATT to observe and in December of 1993 the Ukraine passed an official application to GATT (Slepichev 1994). When they applied to GATT there was friction over their agricultural protectionism (“Agricultural Subsidies” 2005). The World Bank Report notes that distortions exist in the Ukrainian market because of subsidies (“Agricultural Subsidies” 2005, p. 20). These controls may have hurt domestic markets in a period of transition that furthered a black market or made an existing one, given the history of the country, worse.

Ukraine remained vexed by a history of interventionism (Salter 2014). Financed by American capitalists, in 1917 the Russian empire collapsed (Sutton 2012). Ukraine shortly after constituted and In 1921 Russia invaded it (Courtois et al. 1999). In 2006 the Ukraine experienced the Orange Revolution which resulted in the intervention of Russia in the elections and the poisoning of Victor Yushchenko with a substance similar to Agent Orange (Wilson 2006). In winter of 2013, Ukrainians rioted over a decision to not join the European Union (Sodel, Kudymets, and Garanich 2014). Roberts believes that the political changes in Ukraine were the result of US intervention (Roberts 2014). This view is furthered by Julian Assange’s allegations of sensitive Ukraine cables via Wikileaks (We Are Anonymous 2015).

Ukrainians have binding controls of Genetically Modified Organisms in their agricultural sector. Vladimir Semenovich, director of Ukrainian Experimental Food Products expressed, “Ukraine in recent years has been actively discouraging GMOs, with as a result that the proportion of such products have been steadily decreasing: in 2007 about 50% of products in the Ukraine market contained a GMO, while in 2008 this number had reduced to 8%. Now in the Ukraine only 5% of all products contain GMOs,” (All About Feed 2012)

The intrigue of this phenomenon comes from the United States investment in Ukrainian Agriculture. Early in 2014 China declared it would double importation of non-genetically modified corn from Ukraine (Vladislav Vorotnikov 2014). Following the recent regime change in Ukraine, China rejected the use of genetically modified corn that was growing in Ukraine and placed a shipment in quarantine (Bi and Miller 2014) while thousands were rioting in protest of the announcement of Ukraine’s rejection of a deal with the European Union. Yanukovych’s government had oversight of an agribusiness deal which included a $200 million investment by US owned Cargill to buy an interest in a Ukrainian organization called, UkrLandFarming (Reuters News 2014). In December of 2013, Cargill invested in terminal operations for a grain port in the Black Sea (The Moscow Times 2013). In May of 2013 Monsanto announced an investment of $140 million in Ukraine to produce non-GMO grains (Reuters News 2013). Morgan Williams, is a U.S. agricultural industry MVP and remains at the nexus of these deals. Williams remained the CEO and president of the joint U.S.-Ukraine Business Council (R. Johnson 2014) and organized joint ventures into the Ukraine since the country gained independence from Russia.

In March of 2011, the British Broadcasting Corporation named bribery as a leading socio-political issue in Ukraine (Young 2011). Ukraine joined an international anti-corruption group following the revolution (The Kiev Post 2011). These endeavors remain subverted. The World Bank lent the Ukraine $7 billion in 2007 and in 2010 found wide spread evidence of corruption (Piontkivsky et al. 2010). In 2011, Transparency International noted that one in three had paid a bribe to public officials (“Corruption by Country: Ukraine” 2014). Reuters reported that Ukraine owed Russia $29 billion in arrears for gas supplied to the country (Sekularac 2015). Bloomberg reported that Ukraine received $18 billion from the International Monetary Fund to help them restructure debt (Rastello 2014). Freelance reporter for the Ecologist, Nelson alleged that this opened Ukraine up to non-GMO interests from the agri-cartels invested in Ukraine (Nelson 2014). In March of 2015 the Ukrainian finance minister stated that the IMF funds were not going into the economy as promised (Shalimova 2015). Instead the short debt-leash enabled Monsanto to buy the land they’re leasing and to introduce GMO’s into their country (Kelly 2015). With tensions between Russia and Ukraine it is likely these funds will also support the US military-industrial complex in some capacity with a weapons purchase.

In 2005, the US Government fined Monsanto $1.5 million for bribing some senior officials in Indonesia (BBC News 2005). In 2004 The Wall Street Journal reported that the US Department of Justice accused Cargill of bribery in Thailand over a $1.5 million bribe to Suchart Tanjaroen over an agricultural deal (Kilman and Barta 2005). In 1998, the US Department of Justice accused Monsanto of pressuring Canadian authorities to approve a hormone that increased milk production in what could only be determined as a bribe (Baxter 1998). The President of Argentina alleged that Cargill and Monsanto have offered bribes to officials in Argentina (Fassbinder 2012). The United Nations publicized a 2011report which detailed forced labor of children by Cargill in Uzbekistan, another former Soviet Satellite Country (Benschoten and Moreno 2011). Archer Daniels Midland, another big-ag company was prosecuted for its actions in Ukraine in 2013 for bribing officials (Brady, Roberts, and Bandy 2013).

Gerber’s measurements in this capacity fail to address the full complexity of the international agriculture exceptions and why the US lobbied for them so prominently in the rebuilding of Europe following World War II. When countries subsidize these industries heavily it may not be for nationalist protectionism as advocated but through coercive economic means by multinationals as appears to be the case in Ukraine. It may be done through domestic firms acting on behalf of these multinationals. Furthermore, given the black market economies that operate outside what Gerber measured, the allegations above give credence that protective decisions may be the result of political corruption and rather than a need to protect an industry due to an inefficiency in the market and that normalization may represent something else entirely. The people behind the policy and dollars must also be given a closer look.

Conclusion

When looking at the policy of free trade and the removal of tariffs through a nationalistic lens, it seems that sometimes that free trade is a misnomer for allowing multinationals to enter a market via economic debt instruments of bigger states so that the debt becomes a form of monetary colonialism. A free market really would allow normalization to occur but this freedom is an illusion when the state is involved or partnered with corporate sponsors who have hired the best Washington lobbyists. Free trade as a policy should be a spot where individual farms would be allowed to compete on world markets with existing distribution systems and technologies that bring the world together rather than monopolized or cartel-ized agriculture interests that get by via bribery in places like Ukraine.

The career grain-man who helped to negotiate these agricultural exceptions was named Daniel Amstutz. He was a subject matter expert and led the American Grain Export Association and was responsible for drafting the policy that became the World Trade Organization’s bridge on these agricultural exceptions in the original GATT. This draft didn’t represent the interests of a farmer or the state but multinationals. Daniel Amstutz furthered US interests in 2003 when the US invaded Iraq and instead of helping the Iraqi’s rebuild their once strong agricultural sector, Iraq served as a primary recipient of US grain exports. A free and strong Iraq – with food security–was not as important as dumping US-led multinational big-ag on a war-torn country that needed vital Ag-infrastructure rebuilt.

In this perspective the Uruguay Round really seemed to be an economic tool of developed nations like the US and EU in their dealings with the developed world. It seems that issues like seed-dependency were not addressed in this context in respect to intellectual property. When countries borrow money to subsidize their farmers, they are transferring the cost at interest via debt to protect and inhibit the fair competition of a market where the US’s new Stealth bomber program—and the multibillion overrun costs associated with it (Pianin 2015) — could feed the entire world’s food crisis for $30 billion annually (Rosenthal and Martin 2008). On this issue alone then the politics of food are used inappropriately as an economic weapon and this is a better place to start than a tariff– since corruption of the state is at the heart of this coercion and not trade or its equality.

References

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