World Economic News
WTO, EU Threaten Retaliation vs. U.S. Steel Tariffs
The United States will keep steel tariffs in effect, despite a decision by the World Trade Organization calling them illegal, and European Union threats of retaliation, news reports said July 11. "The steel safeguard measures will remain in place" while the WTO ruling is being appealed, U.S. Trade Representative spokesman Richard Mills said in a statement after the World Trade Organization decision was announced in Geneva. The WTO ruled that the U.S. steel tariffs, imposed in March 2002, violated global "free trade" rules. A WTO panel said that the U.S. had failed to prove that the safeguard measures were necessary to protect against "serious injury" to domestic producers due to increased imports.
The European Union and seven other countries who had filed the complaint with the WTO, called on the U.S. to remove the steel tariffs "without delay." Moreover, the EU cautioned, it was ready to impose $2.2 billion in retaliatory duties on U.S. imports.
Bank of England Lowers Benchmark Rate by Quarter-Point
The Bank of England cut its benchmark interest rate by 0.25%, to 3.5%, the lowest level since January 1955. Matching the U.S. Federal Reserve's cut in the Federal funds rate on June 25, the Bank of England trimmed its base rate (what it charges on loans to commercial lenders) from 3.75% to 3.5%, saying "the global economic recovery has remained hesitant."
On the other hand, the European Central Bank announced, hours later, that it was leaving its base rate unchanged at 2%, as Chairman William Duisenberg implied that the worst of the economic "slump" could be over.
IMF Policy Continues To Push Brazil Over the Edge
Thanks to IMF policy, Brazil's economy continues to decline, with GDP having dropped 0.5% for the second quarter, after a 0.1% drop for the first quarter. The Lula da Silva government has had to revise downward, from 2.2 to 1.5%, its annual growth forecast for the remainder of this year. Industrial production also shrank in May by 0.3%, compared to the same month of 2002, following April's 3.7% decline. Production of pharmaceutical goods dropped by a dramatic 18%, and clothing and shoe production by 16% in May. Auto production plunged a whopping 14% in June, and automakers General Motors and Fiat have announced plans to lay off workers.
The government had forecast a 2.5% increase in industrial production for this year, but it's now estimated that that figure will be no more than 0.7%. Astronomically high interest rates have created an untenable situation for industrialists, causing the Brazil-based Moinho Pacifico, Ibero-America's largest flourmill, to recently cut factory capacity to 75%, for example. Capacity had stood at 80% in early 2003.
There is speculation that when the Central Bank's Monetary Policy Committee meets again on July 23, it may reduce interest rates further, but no one is expecting anything dramatic. Further reflecting the economic depression, is the 5% drop in retail sales for May, and the record unemployment rate, now at a 14-month high. Lula's insistence on continuing with IMF policyspecifically its "pension reform"has provoked a nationwide strike of civil servants, which began July 8 (see this week's IBERO-AMERICA DIGEST).
Argentines Recognize Brazil Is Heading 'Down Argentine Way'
Brazil is at exactly the same point that Argentina found itself throughout the year 2000, Daniel Muchnik, the economics editor of Argentine daily Clarin, warned July 6. At that time, Argentina had a low "country-risk" rate, and the IMF was so pleased with the austerity policies of the Argentine government that it rewarded it with more "financial armor," in the amount of $8 billion. The low country-risk rate was supposed to have attracted foreign capital, which is also the thinking of the Lula da Silva government in Brazilbut things soon fell apart. Lula today is as effusively praised by the IMF and Wall Street, as the "Menem model" was in the late 1990s, Muchnik wrote. It was that "model," named after former President Carlos Menem, which blew apart in December 2001, bringing down the government, and necessitating a debt moratoria.
Iran-Malaysia Trade Increases Dramatically
Trade between Iran and Malaysia has increased substantially since the 1997 economic crisis, from $99.5 million to $360 million in 2002, according to a press statement released by the Iranian embassy in Kuala Lumpur on July 7. Two-way trade between the two countries has turned Iran into Malaysia's fourth-largest trading partner in West Asia, after the United Arab Emirates, Saudi Arabia, and Turkey. However, the volume is small compared with Malaysia's overall global trade.
There is room for further expansion and opportunities, the statement said. Malaysia's state-owned oil company, Petronas, has moved to further engage with Iran, taking a 30% stake, via Petronas subsidiary Carigali, in Iran's Sirri A and E offshore oil fields. France's Total replaced U.S. Conoco in the project due to pressure for the U.S. boycott of Iran.
Iran and Malaysia are founding members of the D-8 (eight developing countries), which aims to form an Islamic common market, including a common currency, and fostering of cooperation in resources and industrial potentials. Founded in Istanbul in 1997, D-8 members are Iran, Malaysia, Indonesia, Pakistan, Egypt, Turkey, Nigeria, and Bangladesh.
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