Trade Ministers Meet in Coronado : Putting the Bite Back Into GATT Proving Difficult

In recent years, many trade officials worldwide have viewed the General Agreement on Tariffs and Trade as a toothless tiger: something to be wary of but with little bite.

GATT, created in 1947 to promote free trade and serve as the world’s only impartial arbiter of international trade disputes, has lost much of its clout and is out of step with modern times, experts say.

More than half of world trade, including commerce in such industries as autos, agriculture and services, largely falls outside its jurisdiction. So do many types of non-tariff trade barriers, such as quotas and voluntary export restraints. Many of GATT’s 90 member nations, including the United States, have ignored or blocked GATT rulings against them in trade disputes.

With these weaknesses in mind, trade ministers from the United States, Canada, Japan and the European Community (the Common Market) met informally here last week at the Hotel del Coronado to discuss how to improve GATT--in preparation for a proposed new round of talks involving all GATT members expected to begin this fall.

The new round, only the fourth since 1960 and the first since the so-called Tokyo Round in 1979, would attempt to reform and expand GATT’s rules and processes, thus altering the very nature of international commerce.

The ministers concluded their three-day meeting Saturday by agreeing that the new GATT round should discuss liberalizing trade-related investment as well as trade in services and natural resources.

They also expressed the need for rules governing counterfeiting and non-tariff barriers and the need to make GATT more effective in handling trade disputes.

But the ministers acknowledged that reforming GATT faces a number of key problems and obstacles--including resistance from other nations and rising protectionist sentiment--any one of which could make a new round the most protracted and difficult ever.

If that happens, or if the GATT round is aborted--which officials said is still possible--protectionism worldwide could grow further, and many trading partners, including the United States, could be forced to set up bilateral trade agreements on their own. That, some ministers fear, could throw the already fragile world trading system into further disarray and precipitate a worldwide recession.

A new round of GATT talks is “an absolute necessity. We need it to strengthen the (world trading) system and fight back protectionism,” said Willy deCler, vice president of external relations for the Common Market and head of its delegation at the meeting here.

“We are determined to launch a new round of GATT,” added Michio Watanabe, Japan’s minister of international trade and industry and head of that nation’s delegation.

Many Obstacles

Obstacles facing GATT reform include:

- The difficulty of agreeing on rules liberalizing such complex industries as services and investment. Much of GATT’s trade codes cover manufactured products, which are easy to identify and quantify. But writing rules aimed at liberalizing banking, telecommunications and investment presents a host of new problems.

“We cannot solve all the investment problems in the world within GATT,” said U.S. Trade Representative Clayton Yeutter, adding that the scope of investment issues included under GATT would have to be significantly narrowed.

- The difficulty of agreeing on rules governing non-tariff barriers and other “safeguards” that nations erect to protect domestic industries. One of GATT’s primary functions has been to reduce tariffs, a job at which the organization has been successful, as evidenced by the sharp reduction of tariffs since World War II.

But, unlike tariffs, which are relatively easy to quantify, many non-tariff barriers such as quotas are hard to measure and are sometimes applied in relative secrecy.

- Contending with growing protectionist sentiments. Although the trade ministers attending the meeting here professed a commitment to freer world trade, they also acknowledged that politicians and other domestic constituents don’t always see eye to eye with them.

Farm lobbies in Japan and the Common Market are likely to protest liberalization of their industries under GATT, while Reagan Administration trade officials must contend with growing protectionism in Congress. GATT officials blame worldwide protectionism in part for a slowdown in the growth of world trade last year to an estimated 2% to 3% from about 9% in 1984.

“We would hope Congress would have the good judgment not to pass any more protectionist legislation,” Yeutter said, but he and other U.S. officials have acknowledged that such a threat could undermine the U.S. negotiating position in a new GATT round.

- Convincing other members of GATT, particularly less-developed nations, to agree to new rules liberalizing trade in services and investment. Led by Brazil and India, several less-developed nations have vowed to boycott a new GATT round that would include discussion of services. They fear that major industrialized nations such as the United States could dominate their banking, insurance, shipping, telecommunications and other service industries.

The developed nations hope to entice Third World nations to accept the inclusion of services by offering measures benefiting them, such as including agricultural and tropical products in GATT talks. Developed nations also may agree to roll back or at least halt new protectionist measures that limit Third World exports.

But, if the Third World nations balk, Yeutter suggested that the United States and possibly other developed nations could ratify GATT rules on services without them. That would be a sharp departure from past GATT rounds, in which rules generally were not ratified until all members reached a consensus.

The United States and some developed nations also are at loggerheads with the Third World over textiles. A so-called Multifiber Arrangement, which sets quotas on developed nations’ imports of textiles from Third World nations, is set to expire at the end of July. The developed nations, trying to protect their ailing textile industries, want to renew the agreement in some form, while Third World nations want it abolished or curtailed.

Aggravating the problem of GATT reform further are major trade disagreements between the United States and its major industrialized trading partners. The United States and the Common Market, for example, are likely to differ on how agriculture should be included in any new GATT talks.

Washington wants GATT to limit the subsidies that European and other nations provide for their farmers, while the Common Market contends that much of U.S. agriculture is exempted from GATT jurisdiction and should be included.

The United States also differs with the Common Market over how much to strengthen GATT’s role in arbitrating international trading disputes. Under the current GATT system, disputes between member nations often take years to resolve, and in many cases, offending member nations have chosen to block or ignore the rulings.

Such was the case last year when the Common Market blocked a GATT ruling against its setting of lower duties on Mediterranean nations’ citrus, effectively shutting out U.S. fruit. The United States, frustrated by GATT’s inability to enforce the ruling, retaliated by raising tariffs on European pasta.

The United States, Japan and Canada want a tougher system, possibly by including binding arbitration.

“There should be teeth put into the dispute settlement mechanism,” said James Kelleher, Canada’s minister for international trade and head of its delegation here. But the Europeans said a tougher system would be unenforceable and impractical.

“It’s not possible to change the nature of GATT from a consensus-building organization . . . into a tribunal and court of justice,” the Common Market’s deCler said.

But, despite their differences with each other and with the Third World, trade officials here agreed that, while GATT is not always a knight in shining armor, it nonetheless is worth preserving.

“GATT is not perfect,” said Alan Woods, a deputy U.S. trade representative. “But it works better than whatever is second. Whatever is second is anarchy.”

The crucial process of formally deciding what to include in GATT reform will begin next Monday, when officials will meet in Geneva to launch a preparatory committee to work out a detailed agenda for a new round. The deadline for the committee’s report is July 15.

Trade ministers of all GATT members will then meet in Geneva in September to decide whether to formally approve a new round, which then could take as long as five years. Ministers tentatively approved a new round last fall.