December 13, 1990
"Troubled Trade"
San Jose Mercury News
By Timothy Taylor
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THE GATT went into intensive care last week, which means that the world economy might be about to become very sick indeed.

True success stories are often anonymous, and a lot of people have barely heard of the GATT. Since just after World War II, international negotiations under the General Agreement on Tariffs and Trade have been reducing tariffs, encouraging foreign trade, and stimulating global economic growth.

The growing interconnectedness of the world economy; the ability of American consumers to get the best value for their hard-earned money by buying from anywhere in the world; the fact that American firms are pressured to be the best by the world's strongest competitors; all these are a legacy from the GATT.

But the GATT needs to be updated every few years, and the current round of negotiations started four years ago. Although international trade negotiations are a fog of fine print, three main issues for this round were clearly discernible from the start.

The developed countries would be pressured to back off on their subsidies for agriculture and textiles, two of the industries most heavily protected against foreign imports. Subsidies for farmers in developed countries are now costing consumers about $250 billion a year in higher food prices, while textile protectionism costs tens of billions of dollars more.

Moreover, protectionism in agriculture and textiles are denying less-developed countries an opportunity to compete in areas where they have a chance of doing well. The GATT talks are far more important to the economic future of the world's poor nations than any amount of foreign aid or debt relief they are likely to receive.

Less-developed countries, in turn, would be pressured to follow international standards aimed at protecting intellectual property rights, by preventing counterfeiting of high- technology products and theft of technological secrets. In addition, they would be pressured to lift their trade barriers to service industries, like banking and finance.

The greater legal protection for high technology, combined with new markets for service industries, would offer a lucrative gains for developed countries. The third important issue in this round of the GATT was to curb some innovative modern methods of protectionism. Too many countries have been using threats of harsh protectionism to negotiate "voluntary" import quotas. Too many are using laws intended to prevent unfair competition, like the laws against selling below cost, to try to shut down any foreign competition which offers a cheaper price than domestic firms.

An updated trade agreement along these lines could benefit all 107 nations that participate in GATT. By some estimates, a new trade treaty could mean several trillion dollars of increased growth to the world economy over the next decade, or $125 billion in extra growth for the United States in the next year alone.

The negotiations wouldn't have been easy under any circumstances. After all, along with the overall gains from free trade, every nation has special interests with something to fear.

The talks came completely unraveled, however, when the nations of Europe refused to make any significant concessions on their subsidies to agriculture. The target date for new settlement came and went last Friday, and the negotiators from 107 nations packed up and went home.

It is tremendously ironic that Europe should be driving a knife through the GATT's heart. The economic recovery of Europe after World War II was built on the GATT-induced openness of the world economy. Eastern Europe has been awakening to the fact that being closed off to the world economy behind an iron curtain leads to economic weakness, while openness to competition produces economic strength. Western Europe is touting the virtues of eliminating trade barriers within Europe by 1992.

But in a triumph of narrow-interest politics, western Europe's over-subsidized farmers are blocking a trade agreement that could enrich the entire world.

There was a temptation, of course, to declare victory in these GATT talks and come home with a signed agreement, even if that agreement didn't say much. But as Jeffrey Schott of the Institute for International Economics explained in a recent monograph:

"A small package that merely supplements existing GATT rules would likely paper over major ongoing trade disputes, exacerbating the restiveness of key trading nations with the multilateral process. The result could be a Pyrrhic victory for the GATT system and actually undermine its future prospects. Therefore, a successful round requires a big package of agreements."

It is widely recognized that no nation really wins an arms race: Both sides sacrifice the standard of living of ordinary citizens just to stay caught up, and everyone wins when the arms race ends.

No nation wins when trade is restricted, either. When countries focus on avoiding the pain of foreign competition, rather than embracing its gains, they make themselves poorer. The GATT is the world's trade disarmament pact.

Fortunately, international talks like GATT never really die; the volume of negotiation just gets turned down for awhile. The negotiators can meet again in January, or whenever the prospects improve for agreement.

For the sake of the world economy, a resurrection of the GATT early in 1991 is devoutly to be wished.

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