The Seattle conference of the World Trade Organisation (WTO) turned out to be a complete flop. Not because of Clinton's embarrassment at having to declare a state of emergency against demonstrators on the first day of the conference - after all, the WTO's support for business "freedom" never included the freedom to protest. It was a flop simply because the participants never managed to come anywhere near the beginning of an agreement. In fact, they had not even managed to agree on an agenda for the conference itself, despite a full month of talks in Switzerland. So the outcome of Seattle was probably predictable.
What then were the causes of this failure? Already a myth is being fabricated by the media. According to many commentators, the conference failed because of the solid resistance opposed by Third World countries to the virtuous attempts of the West to "moralise" trade agreements - in particular, by demanding minimum labour standards and restrictions to the use of child labour in poor countries. Yet, if this was such a primary concern for Western leaders, surely there would already be legislation here forcing British multinationals to respect these standards among the millions of workers they employ directly or indirectly in the Third World? But instead, what we see today is a systematic downgrading of labour standards in the rich countries themselves.
Above all, although the overwhelming majority of delegates in Seattle were from Third World countries, they did not have the power to torpedo the proceedings. In theory every country is equal in the WTO. But in practice, some are more equal than others. This is purely a matter of balance of forces. Individually and collectively all poor countries are dependent on the handful of industrialised countries which buy their goods and lend them money. There is no way they can dictate, or even block, the policy of the rich countries, no matter how hard they try - in any case certainly not as long as they abide by the rules defined by imperialism in the framework of international institutions such as the WTO. The poor countries can protest against the way they are plundered by imperialist powers under the cover of the WTO, and they did so vocally in Seattle, but that is all they can do.
In reality, what torpedoed the Seattle conference was yet another tussle between the two main imperialist blocks - the USA and the European Union - with Japan standing somewhere in between, although somewhat closer to the EU on most issues. Clinton demanded that subsidies to the European farming industry should be ended and the European market opened up to US agricultural surpluses, but the European governments would not have that. On the other hand, the European Union wanted the USA to repeal some of their most blatant protectionist laws, and of course the USA did not even want this on the agenda. And these are only two of the most prominent contentious issues at stake. Hence the stalemate.
For British commentators to admit that Clinton and Blair sat on opposite sides of the fence is probably too much to expect. The image of a universal consensus among Western countries in favour of "free trade" must be maintained at all costs. However, this is nothing but a fairy tale. This "free trade" is supposed to mean the rolling back of the state as an actor in the economy - no more tariffs on imports, no more regulations, no more subsidies. Yet state intervention has never been as extensive as it is today. Never have companies enjoyed such a high level of state handouts than over the past two decades in the industrialised countries. As to deregulation and the removal of all obstacles to trade, all Western governments agree that this should be implemented all-round - but only in so far as this benefits their own capitalists, that is necessarily at the expense of their competitors.
In their ecstatic support the advocates of the WTO and similar organisations fail to mention one vital "detail" - that the original reason for setting up these organisations was not to produce an uncontrollable free-for-all for capital and goods like what we see today. On the contrary, they were set up as an attempt to limit the chaos caused on the world market by the rivalries between multinationals and between states bent on defending the interests of their respective capitalists. In their own way, that is within the constraints of a system whose only motive is the search for profits, these organisations were meant to try to introduce a measure of rationality and discipline in a system which is fundamentally irrational and ruled by the law of the jungle. The failure of the Seattle conference is just another illustration of the intractable difficulties involved.
Beyond the hype of events such as the Seattle conference and the solemn statements issued by international bodies such as the WTO, the reality is the on-going trade war between multinationals whose battlefield has long been extended to the entire planet. As to the individual states, their role is merely to strengthen the position of their own capitalist classes in this war.
The lessons of the interwar period
Today's advocates of "globalisation" - that is the instensification of imperialist looting worldwide through the merry-go-round of capital and goods - usually brand communist ideas as being "obsolete", on the grounds that they were formulated by Marx in the middle of the 19th century. Ironically, though, the ideas of these modern "free-traders" can be traced back to the work of an English economist by the name of David Ricardo and, more specifically, to a book entitled "On the Principles of Political Economy and Taxation" published in 1817 - 31 years before Marx's "Communist Manifesto". In fact Marx studied Ricardo, as he did all bourgeois economists, and showed that Ricardo's idealisation of "free trade" was already obsolete - because it failed to take into account the evolution of capitalism. But this does not stop our modern "free traders" from using Ricardo's arguments to claim that their "free trade" can only benefit all countries, rich or poor.
Without going back as far as the 19th century, in order to understand the mechanisms and functions of organisations such as today's WTO it is at least necessary to go back almost to the early years of imperialism, to World War I and its aftermath.
This war was the bloody expression of the rivalries between imperialist powers, against the background of a partition of the world market which gave the lion's share to Britain and France, and to a lesser extent the USA, while leaving no space for the others - mainly Germany and Italy. However, this war also brought about a significant change in the international balance of forces - the USA emerged as a force which could take over Britain's past position as the world's strongest economy. In terms of production, this had been true more or less since the turn of the century. In terms of finance, however, it was the enormous debt accumulated by Britain, and all the main European countries, which changed the balance of forces. The aftermath of the war saw a virtual collapse of the international monetary system, a deep economic recession and the threat of a generalised social crisis. In all this, the monetary crisis and hyper-inflation of the immediate postwar period played a significant role. There was no money for reconstruction in the countries directly affected by the war, nor for the reconversion of the war industries, let alone to alleviate the suffering of the populations in the devastated European countries.
Without properly functioning currencies, international trade could only be crippled. The attempts at sorting out the monetary system first, by returning to currencies that were convertible into a certain amount of gold, as they had been before the war, did not work out too well either. Apart from the USA, no country had enough gold reserves to guarantee the convertibility of a significant proportion of their banknotes.
Above all, the preoccupations of the great powers had more to do with protecting the position of their capitalists than with ensuring real monetary stability. Thus, when Britain restored the convertibility of the pound into gold in 1925, it chose to return it to its pre-war value, which according to most commentators at the time, including in Britain, was far higher than the British economy could really afford. But then for Churchill, who was Chancellor of the Exchequer, the main point was to ensure that British banks (and British imperialism) would be able to stand up to their American rivals by lending as much money as possible across the world - even at the risk of turning the pound into fool's gold in the long term. By contrast, France which was more concerned with facilitating exports, chose to set the gold-value of the French franc at a level which was probably lower than necessary - which amounted to what would be called today a "competitive devaluation", aimed at cutting export prices, thereby forcing the population to subsidise export industries through a lower standard of living.
In the middle of this monetary turmoil, international trade resumed slowly. But not only had tariff barriers gone up in many areas, non-tariff barriers had also multiplied - mainly in the form of import quotas and licensing. By 1927, the League of Nations took steps to initiate a general tariff reduction. But it was too little too late. The October 1929 stock market crash and the subsequent collapse of the world banking system, in the summer of 1931, made all these attempts irrelevant.
The year 1929 - trade and currencies in crisis
As soon as the stock market crisis broke out, trade barriers went up. In June 1930, the Smoot-Hawley tariff was introduced in the USA. Although officially meant to protect American farmers, the most drastic increases were aimed at industrial products - up to 90% of their value in some cases. France followed in 1931, by raising tariffs and introducing import quotas for many imported products. Finally Britain, forgot about its alleged "free trade" convictions. The old "imperial preference" system, which had given preferential treatment to goods imported from the empire in the early 19th century, was restored, while tariffs of between 20 and 33% were imposed on all other imports except agricultural products.
But these were not the only protectionist measures adopted. Inter-imperialist rivalries remained as rife as ever, or rather they were exacerbated by the crisis. In 1931, the British government set up the so-called "Sterling Area", with all the countries which were willing to peg the value of their currency to the pound and keep part of their central banks' reserves in pounds rather than gold. Among these countries was most of the empire (except for Canada and British Honduras), but also a host of countries whose trade was mostly with Britain - the Scandinavian and Baltic countries, Portugal, Ireland, Argentina, Iraq, Egypt and today's Thailand. And in September that year, the pound gave up its convertibility into gold, which amounted to a devaluation. How "willing" the countries which joined the Sterling Area were, is another question. To quote a then adviser to the Bank of England, Henry Clay, had these countries refused to devalue their currencies in tune with the pound "not only would they have been faced with a serious loss in the reserves they held in sterling,(..) [but] they could not face the obstruction to their exports (and stimulus to their imports)" which would have resulted. In other words, the members of the Sterling Area had no other choice!
The Sterling Area was not the only currency bloc set up in that period. Another one was formed by the USA with most Central and South American countries, on the basis of a devalued dollar which was still formally pegged to gold at $35 an ounce. There was also the so-called "gold bloc" formed in 1933 by France, Italy, Switzerland, Belgium, Holland and Luxemburg, which was based on a mutually-agreed system of convertibility into gold. However, the "gold bloc" was to collapse in 1936, when most of the participants were forced to devalue their currencies simultaneously. Next to the "gold bloc", was Germany's own bloc with its satellites in Central and Southern Europe, based on drastic trade barriers and capital controls. As to Japan, while trailing at a distance behind the Sterling Area, it increased its sphere of influence in South East Asia by annexing Manchuria in 1931 and invading Northern China in 1933, with the passive acquiescence of the League of Nations.
To all intents and purposes, therefore, the world was thus divided into five main spheres of influence formed around the five main imperialist countries. Four of them were currency blocs, but of course they were not just currency blocs. Due to unpredictable currency movements and shortage of credit, they were also effectively trade blocks, thereby adding to the restriction to international trade caused by the Depression.
The consequences of the Depression of the 30s are well-known, both in human and economic terms. Measured in terms of trade, they were spectacular. By the summer of 1932, world trade had shrunk by one-third in volume and 60% in value compared to 1928. But it was even more spectacular in Europe where, in 1935, despite a partial recovery being under way, the value of European trade was still only 36% of what it had been in 1928.
Faced with the need to kickstart international trade at all costs, the three main imperialist blocs gave up their attempts at going it alone in order to restore some sort of international monetary stability. In September 1936, the USA, France and Britain signed the Tripartite Agreement - the first monetary agreement whereby the participants committed themselves to support each other's currencies through the coordinated intervention of their central banks.
Bretton Woods: the dollar world order
This Tripartite Agreement provided the blueprint for the new economic world order which was to follow the end of World War II.
The leaders of US and British imperialism were determined to avoid at all costs the social and economic disorders which had followed the previous war and to ensure the prompt resumption of international trade without allowing competitive devaluations to disrupt this process. To this end, as early as 1941 - that is even before the USA formally joined Britain's side in the war - talks started between the two governments on how to guarantee postwar monetary stability. Two plans were proposed - one by John Maynard Keynes for Britain and the other by the American Treasury Secretary, Harry Dexter White.
After three years of negotiations, an agreement was reached. In July 1944, even before the war was over, delegates from 44 countries convened in the New Hampshire village of Bretton Woods were presented with a fully-fledged Anglo-American plan. None of the participants were in a position to object. They were either indebted up to their necks to the USA, members of the Sterling Area, or governments in exile whose future power depended almost entirely on the goodwill of US imperialism.
The proposed plan involved a return to a flexible version of the old system of convertibility into gold. All participating governments would have to define an exchange rate for their currency in terms of a certain weight of gold. Each currency would have to be convertible either into gold or into another participating currency which was convertible into gold. Currency exchange rates in gold would be allowed to fluctuate within a narrow 2% band around their official rates. In order to help governments to stabilise their currencies, a fund called the International Monetary Fund (IMF) was to be set up with the power to lend the funds required and a $10bn budget. It would still be possible for a government to change its currency rate, but only provided it had the agreement of the IMF. Finally the IMF budget would be financed by contributions from participating countries. Each country's contributions would be negotiated on the basis of its relative economic weight and would determine its share of voting rights when it came to taking decisions. Of course political considerations also played a role in determining these quotas. Thus the US 36% share of voting rights was probably right in terms of their economic weight, but Britain's 11.5% was a gross overestimation which only reflected the determination of the Anglo-American partners to dominate the new monetary order.
The system had a number of flaws, however. First, under pressure from the world's biggest banks which did not like the idea of the IMF taking business away from them, the process of obtaining interim loans was made extremely difficult. Second, and most importantly, there was only one currency at that point which could afford full convertibility into gold - the US dollar.
To tackle this last problem and share out the burden of the new monetary order with Britain, the US leaders resorted to some arm-twisting. As soon as Japan surrendered, the Lend-Lease arrangement which allowed Britain to buy goods in the USA on credit was cancelled. Keynes had no other choice than to go to Washington cap in hand to beg for a large interim loan, on top of the enormous debt that Britain already had with the US. He was offered $5bn, or the equivalent of half of Britain's debt to the Sterling Area. But in return the US leaders demanded that the pound should be made convertible into gold by 15 July 1947. This proved to be a dreadful miscalculation. The pound held out for exactly 36 days. On 20 August 1947, faced with a furious wave of speculation which was threatening to reduce its gold reserves to nothing, London was forced to suspend the pound's convertibility. And in fact, the assistance of the IMF was to prove totally incapable of countering the pressure caused by Britain's indebtedness. Within two years, in September 1949, London would eventually devalue the pound by 30%, thereby forcing the entire Sterling Area to share the cost of its virtual bankruptcy.
In any case, by 1949, the Bretton Woods system was back where it had started, with the US dollar alone in the driving seat and most of the other currencies subjected to it. Monetary stability was by no means achieved as, apart from the disorders illustrated by the devaluation of the pound, no less than eighteen IMF members used multiple exchange rates in order to by-pass the rigidity of the Bretton Woods system. But at least the world had a universally recognised currency - the dollar - which, for the time being, could take on the role that gold had played up to World War I.
Kickstarting world trade
Together with the IMF, the Bretton Woods conference set up another institution, the International Bank for Reconstruction and Development, commonly known today as the World Bank. Its role, according to its charter, was "to assist in the reconstruction and development of territories of members by facilitating the investment of capital for productive purposes" and "to promote the long-range balanced growth of international trade by encouraging international investment". As opposed to the IMF, which was primarily aimed at providing temporary relief in case of monetary pressures, the World Bank's brief was therefore to provide long-term credit to re-establish and develop world trade.
The World Bank's organisation was similar to that of the IMF, with each members' voting rights proportional to their contributions. Its president was supposed to be elected by its Board of governors - where each country had one representative. However, the World Bank's president has always been, right from the beginning, a US citizen chosen by the American administration - unlike the IMF president who has always been so far a European - a fact which illustrates the importance given by American governments to the potential importance of the World Bank.
In theory, according to its brief, the World Bank should have been the main vehicle for helping with the reconstruction of the devastated countries in Europe. In practice, however, the US administration chose a different route. There were a whole range of reasons for this. Among the Bank's members, only two had large funds to spare, the USA and, to a lesser extent, Switzerland. For the Bank to be able to line up the cash needed would have required a huge increase of the US contribution, which the Republican-dominated US Congress, being hostile to the Bretton Woods institutions in the first place, would probably have refused. But, more importantly, the US leaders had a political agenda which had nothing to do with European reconstruction. By March 1947, the so-called Truman doctrine aimed at containing Soviet political influence, had become official American policy, thereby launching the Cold War. And if American aid was to be dispensed to Europe, it would aim, among other things, at luring those European countries who were within the sphere of influence of the Soviet Union back into the fold of imperialism. For that sort of game, the World Bank was not a pliable enough instrument.
So the Marshall plan which came into force in January 1948 involved much more than the long-term loans that the World Bank might have issued. Of the over $40bn which were channelled to Europe as part of the plan over the following years, one-tenth was made of loans. The rest was unilateral aid. Of course, a sizeable part of it went back one way or another to the US in the form of orders for American companies. But the US government made a point of not even trying to influence how this aid was spent. From their point of view, it was a long-term investment aimed at restoring normal production in Europe and normal trade within Europe and between Europe and the USA. And given the overwhelming economic superiority of the American economy, the main benefits of this would go to American companies anyway.
Oiling trade: GATT
However, for American companies to be in the best possible position to use their economic power to benefit from the resumption of world trade, the protectionist policies inherited from the 30s had to be lifted or at least weakened.
This objective had already been more or less explicitly mentioned in the charters of the Bretton Woods institutions, although they had no direct concern with trade as such. But, in addition, the US leaders had been working on this since the end of 1946, by holding systematic bilateral discussions aimed at reducing import tariffs and encouraging other countries to follow their example.
The results of these talks - a total of 123 bilateral trade agreements - included some substantial tariff reductions. They were eventually consolidated into a unified whole on the basis of a 38-point document which was adopted by 23 countries at a conference in Geneva, in October 1947. This document called the GATT, or General Agreement on Tariffs and Trade, set up the principles that were meant to rule future trade agreements within this same framework.
This framework was very loose, thereby reflecting the difficulties in imposing any kind of discipline in the sphere of trade. Decisions, including the admission of new members, were to be made on the basis of a consensus. Conflicts between GATT members over the implementation of GATT rules were to be arbitrated by panels whose decisions were not binding.
Article 1 of the GATT's rules stated that "any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties". This clause "most-favoured nation" effectively guaranteed the automatic extension of trade agreements between all GATT members. Article 2, on the other hand, committed all GATT members to reducing tariffs and all obstacles on goods imported from other GATT countries.
This, however, did not come without resistance. In theory article 1 banned the possibility for a number of GATT members to set up, for instance, a preferential trade agreement on a regional basis. But European participants in Geneva strongly objected to this. So that a contradictory article was added, article 24, which made provisions for so-called limited Preferential Trade Agreements in which trade concessions would not be extended to all GATT members. The only reservation made by article 24 was that these should be the exception rather than the norm. So, built into the rules of GATT were provisions for breaking these rules. Preferential Trade Agreements were soon used to introduce repackaged protectionist policies and trade blocs. Thus the first major agreement of this kind, the European Coal and Steel Community, which was set up in 1951, was aimed at cutting the cost of coal and steel within Europe and regulating competition in these sectors. But at the same time, it was also unquestionably a protectionist device against non-European producers. In fact, as we will see later, such Preferential Trade Agreements were to take on an increasing importance.
However, not all attempts by US president Truman to expand world trade met with the same, albeit relative, success. The same Geneva conference that endorsed the GATT agreement had also voted in favour of the setting up of an International Trade Organisation, under the auspices of the United Nations. The following year, in March 1948, 53 countries met in Cuba to endorse the so-called La Havana charter for the new trade organisation. However, once amended first in Geneva and then in La Havana, the charter adopted had very little to do with the original free-trade charter proposed by Truman. It was cluttered with so many exceptions and restrictions that it imposed no actual obligations on the participants. But in addition, Truman failed to win the agreement of the US Congress for the USA to join the new organisations. This was the first of a long series of skirmishes between allegedly "free-trade" US presidents and protectionist US Congresses - another obstacle in the way of freeing international trade. As to Truman's attempt at setting up a proper permanent international trade organisation, rather than a loose informal body such as the GATT, it would have to wait another 47 years, until 1995 and the setting up of today's World Trade Organisation.
The US imperialist aims
All the institutions created in the late 1940s as part of the postwar settlement - the Bretton Woods monetary system, IMF, World Bank, United Nations, GATT and a few others not mentioned here - had one thing in common: they put US imperialism in the position of an arbiter over future international developments, whether political, economic or military.
The Bretton Woods system meant that the American capitalist class had the unique advantage of being able to pay for its imports and its debts with its own currency - something that only colonial countries such as Britain and France could still do with their own colonies, and to a certain extent Britain with Sterling Area countries. As long as this system worked, the dollar was the only currency in the world whose value would not be put into question, no matter how many dollars were printed by the US. On the other hand, since most currencies were pegged directly or indirectly to the dollar and guaranteed by currency reserves which were mostly in dollars as well, the USA was even in a position to export its inflation, or rather to share it out with the entire world - at least within certain limits, since it was precisely excessive inflation in the US which was to bring about the downfall of the Bretton Woods system, in 1971.
The privileged position of the dollar together with the superiority of US industry gave the American economy the upper hand on the world market. If prohibition of imports was lifted, it could buy its way into all previously existing spheres of influence and colonial empires. And this was precisely the purpose of the GATT agreement - not so much to introduce free-trade as such, as to remove the main barriers surrounding protected markets.
The IMF provided a means of blackmailing unruly countries into paying for the stabilisation of their own currencies. Its built-in powers to have a say in the way its emergency loans were being used, gave the IMF and the US leaders who controlled it, a powerful means of putting pressure on countries experiencing difficulties. As to the Word Bank, although its role was only limited until the 1960s, it gave the US state an instrument to drive a wedge into the spheres of influence of rival imperialist powers, despite possible resistance on their part, by directing investment into these spheres in the name of aiding development.
Overall, these international institutions were perfectly suited to allow US imperialism to break open the spheres of influence of its older rival imperialisms. This does not mean to say that the lesser imperialisms - Britain and France, and later on Germany and Japan - did not benefit from the postwar institutions. They did, but only in proportion to their relative strength and within the limits tolerated by Washington. What they definitely lost was their past monopoly over large areas of the world - whether it be the British Commonwealth or France's colonial empire - without which they would never have survived as significant imperialist powers between the two world wars.
The end of Bretton Woods
The year 1971 marked a turning point for the world economy. The period between the mid-50s to the late 60s had been one of relative expansion - what economists call with some exaggeration, the "postwar boom". This expansion had been made possible by the enormous destruction of World War II and increased plunder of Third World resources. But this expansion also relied on the relative stability of the Bretton Woods monetary system.
Already by 1960, the total stock of dollars held outside the USA exceeded the value of the USA's gold reserves. That year, the USA and the seven richest countries agreed to set up a "gold pool", whereby their central banks would use their gold reserves to keep the price of gold on the London market at its official level of $35 an ounce. By the mid-60s, however, monetary disorders began to emerge. The pound was devalued by 14% in 1967. Meanwhile the US deficit was beginning to take on enormous proportions mostly due to the rising cost of the Vietnam war. For a whole period this deficit was financed by the US printing more and more money and foreign banks stockpiling dollars. US inflation was thereby exported causing worldwide inflation to double in 1968-69. At the same time a shortage of investment in the US resulted in a trade deficit which reduced confidence in the dollar, increased the outflow capital from the USA and sparked off speculation against the dollar. Then, in 1968, as a result of a sudden wave of speculation on gold, the "gold pool" countries lost over 12% of their gold reserves. Unwilling to pay such a price they decided to disband the "gold pool". Speculation against the dollar did not stop. In 1971 alone, world dollar reserves held in central banks outside the USA increased by 43% as speculators switched to other currencies or to gold.
It must be said at this point that over the five years or so of on-going battles to defend the Bretton Woods system the main protagonists of this system did not display much solidarity. On the one hand, of course, the governments did nothing to stop their own capitalists from speculating against the dollar, but then the US government did not do very much itself - profits had to come first. On the other hand, on a number of occasions, some of the protagonists took actions which benefited their own currency at the expense of the entire system. Thus, for instance, De Gaulle's 1967 announcement that the French central bank would convert its dollar reserves into gold was probably a significant factor in the subsequent wave of speculation on gold. The same year, Britain's decision to devalue the pound was primarily a damage limitation exercise to avoid a movement of panic in the Sterling Area. But at the same time this devaluation undermined significantly the shrinking credibility of the Bretton Woods system, although in fact, it only postponed the breakup of the Sterling Area by a few years.
Finally in August 1971, the US authorities suspended the convertibility of the dollar into gold. However, they made a last desperate attempt to salvage what was left of the Bretton Woods system. A watered down version of the original system came into operation in December 1971 on the basis of a devalued dollar. But world inflation kept increasing as is shown by the growth of the total amount of money in circulation worldwide: from an average annual increase of 7% between 1963 and 70, it went up by 14% in 1971, 18% in 1972 and 20% in 1973. And speculation against the dollar followed the same trend. The revised version of Bretton Woods lasted only 14 months. By March 1973 all major currencies, including the dollar, were floating after an acute crisis and a 19-day shutdown of currency markets. The Bretton Woods system was dead.
Not so free trade
The collapse of the Bretton Woods system coincided with the end of the period of economic expansion and in fact a recession in which it was a significant factor, if not the only one. In the summer of 1974, industrial production started to decline for the first time since World War II - by 10% over the following 10 months - while trade between the rich countries declined by 13%. In the OECD countries, private investment dropped by 13% in 1973-75. By the end of 1975, 11% of all industrial facilities were out of use and OECD unemployment had nearly doubled (to 15 million, not counting one million immigrant workers who left Europe).
With world trade slowing down, protectionism raised its head again. The GATT countries went on to hold their usual rounds of talks, featuring endless discussions about the theoretical common will of the participants to reduce obstacles to trade and, in particular, tariff barriers. But this was mostly hot air. Because at the same time non-tariff barriers multiplied: administrative costs imposed on imports, changing minimum standards, increased government intervention to subsidise particular sectors, quotas on certain imported products, etc.. All the tricks in the book were used.
Even within the GATT, the most successful agreements which were negotiated had a protectionist content - for instance the Multi-Fibre agreement which included voluntary quotas for cotton exports from Third World countries to industrialised countries. A new version of this agreement was signed in 1973, which promised that these quotas would be increased by 6% a year. In fact this was rarely the case. But anyway, the 1978 version of the Multi-Fibre agreement cancelled this commitment by making provisions which allowed industrialised countries to initiate bilateral talks with Third World producers in order to reduce the promised 6%.
Major players in the GATT followed this example by initiating bilateral talks with producing countries in order to get them to reduce their exports "voluntarily". The USA blackmailed Japan, for instance, into agreeing to voluntary quotas on colour TV sets and cars while South Korea and Taiwan were "convinced" into agreeing to quotas on footwear. Similar initiatives were taken by European countries, with Britain and France being the worst culprits in this field. In their case quotas affected imported footwear, leather goods, TVS, cars, ball bearings, pottery, tableware, among other goods, and the exporters targeted were Japan, Taiwan, South Korea, Hong Kong, Singapore, India and Pakistan. To add insult to injury, the Europeans even invented a system of so-called "transferable quotas". For instance, a country or a company which had been granted a licence to import a quota of 200 cars into Britain could sell it to another country or company - which immediately generated an import quota market and speculation on import quotas. Whether workers might be losing their jobs in some unknown Third World factory as a result of these sophisticated poker games, was nobody's concern.
Other protectionist devices were put in place in the rich countries, such as so-called anti-dumping mechanisms: officials worked out what they considered a "normal" price for a given product imported from a given country; if that product was imported at a lower price, they imposed a tax equal to the difference between the two prices. In general, it so happened, totally by chance of course, that the so-called "normal" price was higher than the price of the same product as sold by domestic companies.
But none of this prevented the same governments from signing with both hands the codes of conduct against non-tariff barriers included in the Tokyo round of the GATT, agreed in 1979 after six years of protracted negotiations. But codes of conduct were only codes of conduct. Policy was meant to "tend" towards their implementation and there was no timescale.
The turn of the screw on the poor
The recession of the 1970s had other even more vicious consequences. It did not only hit the industrialised countries. It hit, even more heavily, the poor countries, both by causing a drop in the price of raw materials and by reducing their exports towards the industrialised world. In addition, this was the worst possible time for many Third World countries for another reason.
Since the late 60s and Robert McNamara's appointment as president of the World Bank, this institution had developed a new strategy. This was summarised by McNamara in the following terms: "Too little, too late, is history's most fitting epitaph for regimes that have fallen in the face of the cries of the landless, unemployed, marginalised and oppressed, pushed to despair. As such, there must be policies designed specifically to reduce the poverty of the poorest 40 per cent of the population in developing countries. This is not just the principled thing to do, it is also the prudent thing to do. Social justice is not only a moral obligation, it is also a political imperative".
The World Bank's brief, therefore, was to contain social unrest by injecting funds in the Third World, but in its own way. First it built up a large network of regional and national so-called "development" bodies whose role was to implement the bank's policies in the poor countries. Then it began to promote what came to be known as the "Green Revolution", that is a policy aimed at increasing agricultural exports to the benefit of Western agro-business. Productivity was to be boosted through rationalising land ownership (which resulted in the expropriation of millions of small farmers) and making systematic use of all sorts of expensive chemicals (which often exhausted the land before being able to generate any improvement in productivity). In the process, rural indebtedness increased massively while Western chemical companies found profitable new markets. As to the exports of the Third World, if they increased as a result of the "Green Revolution", their imports increased even more and, as a result, also their need for more funds, which the World Bank was not willing to provide.
But others were. Enormous amounts of dollars had left the productive sphere to take shelter in financial activities as a result of the recession of the early 70s. Some of these funds went into the eurodollar business, that is they were deposited with banks outside the USA and therefore outside the control of both the US Federal Reserve Bank and the American tax man. Then these funds were lent again by the banks to whoever was looking for money. This eurodollar market was the source of the City of London's enormous development in that period - because the owners of these dollars had no tax to pay on the interest received - and the cause of Gordon Brown's present tussle with the European Commission over the taxation of foreign-owned bonds. To be accurate, it was not just dollars but all the rich countries' currencies which got involved in this kind of offshore lending business - the trick was simply to put the currency in a bank which was outside the jurisdiction of the currency's country. Thus there were euro-deutschmarks, euro-francs, euro-pounds, etc.. Only there were a lot more dollars.
The seventies was a period of very high inflation and with such enormous amounts of cash floating around, interest rates were low - in fact they did not even cover inflation. So the banks' game was to make what they called "risky loans", that is mainly loans to Third World countries, in order to have a pretext to demand much higher interest rates. The combined result of this overflow of funds and the crisis situation in the Third World, was that between 1972 and 1980, the total debt of the Third World increased fivefold.
Then came the final turn of the screw. In response to the second wave of oil price increases in 1978-79, US president Carter responded with a sharp increase in interest rates to finance growing public deficits. By 1980, interest rates were at 20% and the rise continued with the increase in public deficits under Reagan. The first victims were indebted Third World countries. From 1980 they began to reduce their imports. And in 1982 the debt crisis came to a head when Mexico declared a 90-day moratorium on interest payments in August, followed by Brazil in November. This triggered a movement of panic among the hundreds of banks which had made loans to both countries. It was at that point that the IMF and the World Bank stepped in, not to help out the defaulting debtors, as they were officially meant to do, but to bail out the troubled imperialist banks.
The IMF steps in
The bailing out of the banks involved in the 1982 Mexico crisis is a typical example of similar subsequent operations. The IMF, which had had a very low key role over the previous years, was suddenly reactivated for the occasion. It came up with a $3bn emergency package, most of which was designed to cover the losses of the smaller banks, which were invited to withdraw from Mexico while the largest banks were presented with an attractive offer: in exchange for rescheduling their loans to Mexico and taking over the debts previously owed to the smaller banks they were offered significantly higher interest rates which, of course, would have to be paid by the Mexican population. In addition they were provided with the IMF's guarantee for the new money they were asked to put on the table. All in all, it was calculated that the extra profits made by the largest banks out of the Mexico crisis amounted to half-a-billion dollars and $1bn in the case of the Brazilian crisis.
From this point on a new division of labour was established between the IMF and the World Bank. The former intervened whenever a poor country found itself in difficulties. It defined the "medicine" needed in terms of what it called "structural adjustment". Poor countries' state expenditure had to be reduced in order to increase the share of public finance devoted to debt servicing, so as to meet the profit requirements of Western banks. Export revenue had to be increased in order to increase imports so as to satisfy the Western multinationals' need for markets. And if all this resulted in the impoverishment of the population, tough! As to the World Bank, its role became one of implementing these structural adjustments on the ground, always under the pretext of helping with the country's development, using its network of local agencies.
Western banks had been frightened off by the Mexico crisis and proved reluctant to provide new loans to poor countries, so other devices were invented by the IMF to "reschedule" these countries' debts. Among these devices were the so-called "Brady bonds" named after the US Treasury secretary who invented them. The country's debt was turned into bonds which were then sold on the financial markets across the world. Since in and of themselves, such bonds were not very attractive, US Treasury bonds held by the IMF were used as a guarantee of their repayment. In most cases these bonds were in dollars, and so was the interest to be paid on them. The magic about these Brady bonds was that they made the country's debt look smaller! Except that of course its government still had to pay the interest on the bonds to their owners and to reimburse the bonds themselves at some point. More importantly the real cost of the bonds depended on factors over which the country had no control whatsoever: the exchange rate of the dollar when the bonds were labelled in dollars, the ups and downs of the bond market, the willingness of the IMF to provide its promised guarantee in case of default, etc...
And these Brady bonds were only one of the many devices invented by imperialism to squeeze even more money out of the poor countries' indebtedness.
This debt business was indeed very profitable for the rich countries. On this account, we should trust someone like Jacques de Groote, who represented Belgium on the executive body of both the IMF and the World Bank in the 1980s. Speaking to a sceptical audience of Belgian bosses in 1986, he explained candidly: "The advantages that Belgium, like all World Bank member countries, acquires through its participation in the group's institutions can be measured by looking at the flowback. (..) The flowback is the relationship between what companies obtain through the sale of equipment and consulting services, and what Belgium contributes to the World Bank (..). The flowback from the World Bank to the industrialised countries is significant and continues to rise; from late 1980 to late 1984, (..) for every dollar put into the system, industrialised countries got back seven in 1980 and 10.5 now".
In fact the debt business is so profitable that even the World Bank, an institution which is so often portrayed as a sort of charitable body or a kind of "last resort of the poor", makes also huge profits out of implementing the policies formulated by the IMF in the Third World. Between 1988 and 1991, for instance, its annual operating surplus systematically hit the $1bn dollar mark.
"Free trade" and the poor
There was an increasingly close link between the role of the GATT and the plundering of the poor countries by imperialism. Up until the Tokyo round which was concluded in 1979, Third World countries were only concerned by GATT agreements in the sphere of tariff barriers. Although, as mentioned before, in the 1980s, many Third World countries were forced into bilateral agreements whereby they gave up some of the rights that they would normally have had under the GATT in terms of access to the rich countries' markets. Moreover the reduction in tariffs agreed by the rich countries was larger for goods imported from rich countries than for goods imported from poor countries.
However, with the Uruguay round of the GATT, which lasted from 1986 till 1994, the situation changed significantly.
This round of negotiations was meant to be concluded in 1990. If it took so long, it was primarily due to an endless guerilla war between the rich countries, each defending the particular corner of their own companies against their foreign rivals, and more specifically between the European Union which intervened as one bloc and the USA. The fact that this round was inconclusive was illustrated by its final document adopted at the Marrakech conference in April 1994. It included very few commitments collectively agreed by the 120 participating countries, although it did contain the decision to launch the World Trade Organisation the following year. The bulk of the document was just a list - admittely a long one, with 22,500 pages - of all the commitments made unilaterally by each country. Issues which remained unresolved and were still up for discussion for the so-called Millennium round (which was to be launched at Seattle), included that of state subsidies and government procurement, agriculture and service trade. These were issues over which differences had emerged mostly between the rich countries.
On the other hand a number of agreements were made in areas that directly affected the poor countries. Intellectual property is an example. Most poor countries do not have a system for patenting a process or a discovery, specially if this process has been used for centuries. Yet methods for growing certain plant varieties and food making processes are patentable according to the GATT and once a patent had been granted by one GATT member it should enforced by any other GATT members.
Therefore the Texas-based company RiceTec which patented its own version of basmati rice, after having borrowed samples from Pakistan and India, has every right to do so. Indian and Pakistani farmers who have been producing basmati rice for generations cannot object, nor can they claim any royalties from RiceTec since they have no patent. On the other hand, RiceTec could sue these farmers to get them to pay royalties on their basmati rice and it would be up to the farmers to prove that their rice is not identical to that patented by RiceTec!
Some cases can even verge on the side of farce. For instance a Japanese company called "The House Foods" claims to have "invented" curry sauce and has lodged a patent on that account. In this case the patent, which is still being considered by the Japanese authorities, would even cover the whole of Asia. And theoretically every Indian housewife who cooks a curry dish could be liable to pay royalties on it - which turns the whole patenting system into a farce.
On the other hand, the case of the writ lodged against South Africa by US pharmaceutical companies is no joke. This is aimed against this country's efforts to manufacture low-cost generic versions of anti-Aids medicines. But the pharmaceutical giants won't have that, despite the fact that this is clearly a matter of life and death for the millions of South Africans who have caught the disease.
"Free trade", the IMF way
Some of the requirements agreed at the Uruguay round do not apply to the poorest countries. For instance state subsidies aimed at helping a fledgling local industry are banned only for countries whose GNP per head is more than $1,000. Other demands have been put on the table for discussion without any agreement being reached within GATT - for instance the privatisation of health care and education or ending all state control over foreign investment.
Yet some of these non-GATT requirements can be found in the structural adjustment programmes imposed by the IMF on poor countries since the beginning of the 90s, together with GATT-style demands.
For instance the IMF demands the privatisation of public services in order to boost revenue, regardless of the fact that this generally means a drastic reduction in the populations' living standards. To quote the World Bank, "the fact that even the poor are entirely prepared to pay for most infrastructural services, makes it all the more possible to charge fees. Private-sector participation in management, financing and ownership will, in most cases, be necessary to give a commercial edge to infrastructure use".
Of course, the IMF also demands the removal of tariff and non-tariff barriers under the pretext of "forcing" the country to increase productivity so as to meet foreign competition - never mind the fact that this often means ruin for a whole section of the population.
The privatisation of banks and deregulation of financial services, which is not yet a GATT requirement in the poor countries, is also a normal ingredient of the IMF's medicine. So is the establishment of a system of private ownership of the land in countries which do not have one, as in many African countries, and this despite the fact that it is certain to drive large sections of the rural population, who lived off the common land so far, into the urban slums and extreme deprivation.
Labour market deregulation is another integral part of the IMF's programmes. To quote again a 1995 World Bank report, "The quest for greater worker mobility will often mean implementing measures that allow the process of job destruction - which will include dismissals in the public sector - to follow its course (..) The establishment of a minimum wage may be of some use in industrialised countries, but it is difficult to justify in low and middle-income countries".
Finally, of course, all structural adjustment programmes contain measures aimed at opening up the country to foreign capital, without restriction. IMF funding is not for countries which want to be choosy about these foreign investments, and scrutinise their origin or their activity. This is all the more shocking given the big show that US and British authorities make around their alleged fight against drug barons and laundered drug money. Because wherever the IMF has its way, it certainly creates an ideal haven for the drug barons!
The GATT, the IMF and the World Bank work hand in hand in forcing Third World countries to open themselves as widely as possible to imperialist looting, be it commercial or financial. The only difference is that whereas the GATT claims to operate through agreements, by consensus, the IMF and the World Bank put the knife of bankruptcy to the poor countries' throats - which enables them to go much faster than the GATT in achieving the same aims.
An era of trade blocks
The most striking development over the past two decades has been the increasing partition of the world between trade blocks.
US imperialism formed NAFTA in 1992, a free-trade zone which includes Mexico and Canada and could soon include Chile. But the leaders of US imperialism have an even more ambitious programme called AFTA - or American Free Trade Association - which includes 34 countries from North, Central and South America and aims at setting up a free-trade zone from Alaska to Southern Argentina.
The European Union is the oldest and most advanced free-trade zone. It includes three of the five main imperialist powers but does not have an economic weight comparable to that of the USA - partly because its economy is inferior, but mainly because it does not have the international leverage that the USA has built over the past 50 years, nor a currency comparable to the dollar internationally. And this was precisely one of the purposes behind the launch of the euro - the hope that at some point the single currency would be able to be a real match for the US dollar.
Japan, the world's second imperialist power, is not part of a trade block as such, but the evolution of South East Asia over the past decades shows that it has been more or less able to retain its old sphere of influence in the region, even if it has to share it to some extent with the USA.
As to the poor countries, they have made attempts too at developing trade blocks and custom unions. But in most cases it is under the very relative protection of one imperialism or another, usually the former colonial power. And this does not give these poor countries any more clout.
Technically all these trade blocs are in breach of the basic principles of GATT, and therefore the WTO. Of course, they can always come under the so-called Preferential Trade Agreements for which GATT made provisions in article 24 of its charter. But these were meant to be temporary and clearly this is not the case for the EU or NAFTA. But then what is within the rules and what is not within the WTO is a matter of balance of forces.
So, the world economic scene becomes increasingly marked by the conflicts and rivalries between three players - the two main trading blocks and Japan. This is illustrated by the disputes which remain pending within the GATT, or rather the organisation which oversees the implementation of GATT since the end of the Uruguay Round in 1995, the Word Trade Organisation.
Some of these disputes are clearly between two of these three protagonists, like that between the EU and the USA over export-subsidies to farmers or over hormone beef. Following an American writ against the EU for its ban on hormone-treated meat, the WTO ruled that the precautionary principle was not a valid basis for restricting markets because it was "non-scientific." When the EU refused to abide, the WTO panel authorised the US and Canada to impose $150m worth of sanctions each year in the form of 100% on selected imports from the EU - among them were Roquefort cheese from France and truffles from Italy. Ironically, when the dispute started in 1988, beef trade from the US to EU was worth only $100m, a mere pittance compared to US-EU trade.
In other disputes the role of the trade blocs is more hidden: for instance the so-called "Banana war" started as a complaint lodged by some banana-producing Central American countries who complained about the fact that the EU was giving preferential treatment to bananas grown in the ACP countries - the African, Caribbean and Pacific group which includes most of the former European colonies from these regions. In reality, behind the move of the Central American countries were three multinationals (two US and one Chilean) which have built a monopoly over banana production in the US Central American backyard. Needless to say, the US government strongly supported their manoeuvre, as a means of challenging the privileged relationship which still exists between their European imperialist rivals and the ACP countries.
The fact that the world market is thus divided into blocs centred around the main imperialist countries is not new, of course. But what is significant is the fact that even when imperialism tries to put some order in its house through the setting up of the WTO so as to remove obstacles to trade, the same pattern of conflicting blocs soon reappears, just as before.
Who is afraid of the WTO?
Some of the demonstrators in Seattle carried placards saying "WTO, no: we are not for sale". They were certainly right to be outraged by what the WTO and the various related international institutions really represent - these are merely instruments for the multinationals to shape the world according to their needs, that is their profits.
But if the WTO, the IMF, the World Bank did not exist, the multinationals would still have the same policies and the same objectives. Multinationals have been dominating the world market for a century now and they did not always have such international bodies at hand to serve their interests. They "only" had governments and state machineries which were entirely at their service, to the point of being prepared to force tens of millions of people into two world wars. And there is no doubt that given the right conditions, today's multinationals would still find politicians prepared to turn the planet into a killing field in order to defend what they call "national interest", that is the interest of their national companies.
Nor is the so-called "free trade" advocated by the WTO, a new plague that threatens mankind. Because if indeed free trade existed on earth, that is if no obstacles of any sort existed to the circulation of goods and people, which is what free-trade is theoretically about, it would be a significant improvement on the present situation. It would mean that the planet was really united into a single entity, without artificial or obsolete borders left over from a distant past. It would also mean that the material conditions for the existence of a society based on the rational organisation of production according to the needs of all would be there, almost without the need for a revolution.
Unfortunately there can be no such thing as "free trade" as long as there are rival capitalists fighting one another for the same share of the cake and using rival state machineries in order to promote their own specific interests. The example of the past fifty years of efforts by the capitalists of the rich countries to remove the most obvious and basic obstacles to trade says it all. What is the balance sheet of this half-century of convoluted negotiations? In terms of free-trade, very little outside the trading blocks which have been set up. All the agreements which have been reached can be reversed overnight. Even the European Union itself could be split again into as many different and mutually hostile countries in no time. Think of the ludicrous stupidity of the beef war between Britain and France!
Among those protesting against the role of the WTO, some go one step further by arguing that today's relative absence of control over the circulation of goods and capital is, in and of itself, creating an entirely new threat for mankind. But they should go back to their history books. Did the so-called controls of the pre-war decades prevent entire populations from being decimated by colonial wars in the Third World? Did they prevent the 1929 crash from happening? Let alone two world wars? And for a very good reason - these controls were always in the hands of governments who were in power to serve the interests of the system. And if there more control on the circulation of goods and capital was imposed tomorrow, it would change nothing because these controls would be in the same hands, defending the same interests.
This is why it is futile to demand that the WTO should be submitted to "democratic control", when it is run by representatives of governments which are in no way democratic or accountable to populations.
Just as it is futile to demand that the WTO should impose "social clauses" in trade agreements. Take Bill Jordan, the former AEEU general secretary and now president of the International Confederation of Free Trade Unions. He says in an interview published in a French newspaper that "The process of economic liberalisation, free circulation of goods and capital, progressive dismantling of tax borders (..) gives you a feeling of freedom and includes a high potential of economic growth." But, he adds, "in this process social protections are cruelly missing. And one cannot fail to ask: what sort of freedom is this and for whom?" Good question! But why didn't Jordan raise it when he was at the head of the AEEU and his members were under attack from the bosses in the 80s, in the name of the need to improve competitiveness? Why did he, at the time, support the idea that "British industry" had to be defended against foreign competitors, without demanding any social protection and in fact without even objecting to tens of thousands of his members being thrown onto the dole? There is likewise a heavy dose of hypocrisy in the statements of many US union bureaucrats present at Seattle, who have long given up defending the most basic interests of the working class in their countries, when they are not, in addition, prone to the occasional spell of nationalist demagogy.
Yes, it is futile to expect Blair, Clinton and the like to defend "social clauses" at the WTO, for the benefit of workers anywhere in the world, given their record in attacking the working class here.
If they did, it would be on a very selective basis, as a protectionist device to crush the local competitors of Western multinationals in Third World markets, not to force the same multinationals to respect minimum labour standards in their own factories there.
As to those union leaders (or employers) who tell workers that such "social clauses" would protect their jobs in Britain by preventing companies from outsourcing more work to cheap-labour countries, they are only trying to divert attention from the real issues. First because only a very small proportion of the jobs lost in Britain over the past decades were outsourced to the Third World. And second because there is more than enough work for all workers in the rich and in the poor countries and enough resources to pay decent wages for all. Contrary to what so many people would have them believe, workers from the rich countries are not in competition with those in the poor countries. They have the same interests, because they are confronted with the same exploitation and, in most cases, the same exploiters. The problem of the British working class is not that they are "undercut" by cheap Third World labour but rather that they are not strong enough yet to force capitalists here to use the enormous wealth they have accumulated to create useful production and jobs instead of speculating with it on financial markets. It is above all a matter of balance of forces that needs to be changed here, in the imperialist heartlands.
So to those who are genuinely revolted by the present state of the world, the increasing poverty gap in the rich as well as in the poor countries, or to use today's fashionable language, by the impact of "globalisation" - to all those people we say: if they want to be effective, the enemy to fight is not in Seattle nor in Geneva, it is the capitalist class here, right in front of us. And it is its system as a whole that must be overthrown.
Annex (1): War and trade
Trade war is as old as capital itself. In the early days of capitalism, when merchant capital dominated, competition for the trade in spices, precious metals and slaves often took the form of piracy or even open warfare.
In the first half of the 17th century, Holland (the "United Provinces") was the leading maritime power in Europe. The English traders, operating under the English East India Company, were in direct competition with the Dutch for the enormously profitable spice trade.
Cromwell's Parliament, brought to power by the English revolution in 1640, threw its weight behind the English merchants in their competitive struggle against the Dutch, by passing the Navigation Acts in 1650-51. These Acts gave English and Irish ships exclusive access to British ports for the purposes of import or re-export of colonial goods, banning foreign vessels. The aim of these Acts was to help English traders to take over a large part of the Dutch merchants' trade with the Far East.
As a result three separate wars were conducted over the next twenty years to achieve English trade dominance over the Dutch. English victory after the first war, in 1654 transferred the monopoly of trade with the Portuguese empire, including Brazil, Bengal and West Africa, from Dutch to English merchants. The English also won equal status with the Dutch in their trade with the Baltic states. The second Anglo-Dutch war of 1665-67 was deliberately provoked by English slave traders who had seized a Dutch slave trading station on the West African coast. This allowed English slave traders to break the Dutch slave-trade monopoly and assured the future wealth of the Liverpool and Bristol merchants. New Amsterdam - renamed New York - was taken in 1664, and although the Dutch managed to retake it, this effectively excluded the Dutch from trade with the North American colonies thereafter. A third war against the Dutch, ten years later, after an alliance with France left the French fighting the Dutch on their own. And as it happened, an Anglo-French maritime treaty in the meanwhile allowed English ships to cut in on Dutch trade in the Mediterranean. British commerce prospered while its main rivals fought each other.
The Navigation Acts marked a decisive turning point in England's economic history. While cloth had been England's main export up to 1640, by the end of the century more than 40% of exports were now re-exports of colonial products, such as tobacco, sugar and calico, or exports to India or America. As to the merchant companies, they did very well out of these wars. Between 1660 and 1688, the East India Company doubled its profits. The African Company quadrupled its nominal capital. The Hudson's Bay Company tripled its capital between 1670 and 1688.
By the time of the so-called "glorious revolution", in 1688, however, the monopoly of trade held by so few companies became a point of conflict within the growing bourgeois class, who argued that this monopoly was a fetter on the expansion of English commerce. They appealed to Parliament to intervene in their favour, which it did, thus ending the monopoly of the existing companies and opening the door to new ones under the slogan of "free competition". But of course this was only "free" within the zone protected from foreign penetration by the might of the English navy.
Annex (2): Free trade versus protectionism
Protectionist barriers were reinforced with the beginnings of the industrial revolution, to allow fledging industry to develop. However, the new industries were soon unable to survive on the demand from their domestic markets. The existence of national borders and protectionism became an obstacle to their development.
By the time Britain achieved a dominant position in Europe, in the second decade of the 19th century, the dismantling of the old protectionist apparatus became a vital issue for British industrial capitalists. The Corn Laws, which restricted imports of cheap foreign wheat, prevented employers from reducing wages. And the Navigation Acts and the preferential treatment of imperial products kept the cost of raw materials high. It took two decades of confrontation against the landed capitalists, for these protectionist barriers to be removed eventually, between 1842 and 1849.
The middle of the 19th century was a period of strong economic expansion across Europe. New industries were developing fast but new markets, too. The trade wars of the past were replaced with trade alliances.
Already 1834 had seen the birth of the first "common market" in history - the Zollverein - which brought around Prussia some of the independent states which existed on the territory of today's Germany.
Subsequently, a series of bilateral treaties were signed to allow industries to break out of the straightjacket of their national borders by mutual agreement. A blueprint for such treaties was provided by the 1862 Anglo-French treaty. Britain withdrew all restrictions to the import of French wine and luxury goods and lowered its tariffs. In exchange, France reduced its tariffs on British steel and manufactured goods. And a series of similar treaties were signed in the 1860s, involving the Zollverein, Belgium, Italy, Switzerland, Austria, and others.
This period of relatively "free" trade did not last long, however. As a result of the major economic crisis of 1873-79, tariff barriers were restored across Europe. Among the great powers, only Britain did not return to protectionism, due to its overwhelming economic superiority. The consequence of this crisis was to dampen the enthusiasm of free-traders in most of Europe for decades.
In other words, trade liberalisation had failed to stand up to the first serious economic crisis. At the first sign of danger, the capitalist classes had reacted by getting their states ro raise trade barriers. This was going to be a recurring pattern.