November 12, 1992
"Trade Gamble - The Threatened Tariffs are a Wake-up Call to the European
Trade Negotiators That It's Time to Stop Playing Patty-cake, and Start Shoving
the French Farmers Toward Compromise"
San Jose Mercury News
By Timothy Taylor
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BY PROPOSING tariffs on $300 million worth of imported wine, canola oil and
wheat gluten from Europe last week, the Bush administration took a high-stakes
gamble with the global economy.
The tariffs are an attempt to prod Europe toward compromise in the GATT talks.
This goal sounds inscrutable or pointless or both to many Americans, for whom
the GATT sounds like just another acronym-heavy, ponderously dull, occasionally
hostile international bureaucracy. But the General Agreement on Tariffs and Trade
is a true success story, both for international coordination and economic growth.
In rebuilding from the physical wreckage of World War II, government leaders
still had the economic wreckage of the Great Depression very much on their minds.
And one central lesson of the Depression was that beggar-thy-neighbor policies
-- in which every country tries to favor its own industry by refusing to import
products -- led only to a vicious circle of greater poverty for all nations.
Starting in 1947, the reduction of such trade barriers under the GATT took
two steps: encouraging countries to substitute tariffs for quotas -- that is,
to use a tax on imports rather than quantitative limits on imports -- and then
to reduce the level of the tariffs.
Trade barriers have dropped dramatically; the average tariff was more than
40 percent in the late 1940s; for the 100 countries that are now GATT members,
average tariffs are down into the low single digits.
In turn, trade helped the world economy to surge. From 1950 to 1975, world
trade increased 500 percent, helping spur an increase in global economic output
of about 220 percent. But since the mid-1970s, the growth of international trade
and world economic growth have both slowed down. That's not a coincidence; in
a perverse way, it helps to prove the importance of trade for economic growth.
But the current round of GATT negotiations -- named the "Uruguay round"
after the place where the opening talks were held -- started back in 1986 and
has straggled on, without any clear end in sight. The broad outlines of a deal
have been set for a couple of years now: nations with developed economies would
offer less trade protection to their agriculture and textile industries. In exchange,
less-developed countries would allow greater imports of services from developed
economies, along with promising greater respect for intellectual property rights.
Economic studies of the deal estimate that it would create an extra $100 billion
per year in global production. As the largest economy in the world, the United
States stands to gain more than any other country.
But the months have been passing, and one obstacle to the deal has remained
immovable: European farmers, particularly French growers of oil seeds, who do
not want to surrender their government subsidies. If their objections are not
overcome by January, both Europe and the United States will install new teams
of GATT negotiators, who will probably have to spend months figuring out what
has happened in the last seven years before real negotiations even start again.
If the already-sluggish momentum of the GATT negotiations drops any further,
the talks run a real danger of simply freezing in their tracks.
So the Bush trade negotiators decided last week to give the GATT process a
good swift kick. The threatened tariffs, which would take effect in early December,
are a wake-up call to the European trade negotiators that it's time to stop playing
patty-cake, and start shoving the French farmers toward compromise. Europe seems
to have received the message.
Even if this strategy works this time around, threatening tariffs has real
risks. If Europe responds by imposing counter- tariffs on American exports, then
the GATT talks could unravel. If the cycle escalates, the result could be a rerun
of the 1930s, when trade restrictions helped turn a staggering global economy
into a Depression.
Of course, resolving the Uruguay round of GATT talks will still leave many
issues for trade policy. How should regional trade agreements (like the North
American Free Trade Agreement or the European single market) interact with the
GATT? Will a Clinton-style industrial policy create some conflicts with free trade?
How should countries deal with the risks of fluctuating exchange rates? What environmental
or labor standards are reasonable for the United States to require from its poorer
trading partners, like Mexico? Does the process for dealing with "dumping"
But for all trade issues, the GATT is the basic international framework under
which they can be discussed and settled. A breakdown of the GATT could make resolving
any of these issues far more difficult, and wipe out almost 50 years of progress
toward freer trade.
Since World War II, the United States followed the policy of pursuing world
peace by equipping huge armies and building weapons of mass destruction. Now the
United States is trying to save the GATT talks and promote free trade by threatening
to trigger a trade war.
It's a crazy, counterintuitive old world, where nations threaten to ignite
what they most fear, in order to avoid those very same fears coming to pass.
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