New Snags Pose Threat to Global Trade Accord

U.S. trade negotiators hurried to Brussels on Sunday night, hoping to unsnarl new threats to the agreement worked out last week that would scale back European farm exports.

With the world’s biggest trade pact hanging in the balance, negotiators from Washington and the European Community are trying to salvage a plan to rewrite the rules of the General Agreement on Tariffs and Trade and provide a multibillion-dollar boost to the global economy.

But on the eve of today’s talks, officials in Brussels were reported to have indicated that snags had developed not only in the long-running controversy over agricultural subsidies, but also on issues involving economic sectors such as financial services and entertainment as well as limits on the dumping of cheaply priced products on foreign markets.

The talks have been on a roller coaster in recent weeks, with officials alternately expressing optimism and then plunging into pessimistic predictions of potential failure as new obstacles were raised.

By the end of last week, agreement had seemingly been reached on the agricultural questions, in which the 12 nations of the European Community would be granted their goal of slower implementation of cuts in export subsidies. In exchange, U.S. farmers would be given greater access to European markets to sell grain, meat, milk and other products.

U.S. officials “are beginning to understand that we cannot brutally force open Europe’s door to their products . . . to sell at dumping prices,” said the French trade minister, Gerard Longuet, on a French television program Sunday evening.

At issue is much more than a dispute between farmers in a few highly developed nations, or even just farm products.

The agreement on which the negotiators are working will touch things as big as a Hollywood blockbuster and as small as a microchip. The banker in Moorpark will feel its punch; so too will the Japanese rice farmer in the paddy outside Morioka.

If the negotiators from 116 countries finally succeed in their seven-year campaign to rewrite the rules governing world trade, commerce between nations will never be the same.

They are aiming for no less of an upheaval in international commerce than the revolution in military and diplomatic relations that followed the tearing down of the Berlin Wall.

It is the financial equivalent of nuclear arms control, with the world’s commercial superpowers on the verge either of giving up some of their greatest economic weapons--or of retreating into protectionism.

Which course is chosen will depend on the outcome of the closed-door negotiations taking place against a deadline of Dec. 15.

The deadline is not the first that negotiators have faced, but it is probably the last. All recognize that, whether they end in agreement--as had appeared likely until this weekend, and may still come about--or in deadlock, the next 10 days of bargaining will bring an end to the Uruguay Round of trade talks.

The negotiations began in Punta del Este, Uruguay, in September, 1986, with the ambitious intention of modernizing the General Agreement on Tariffs and Trade.

The organization that supervises world trade, known by the acronym GATT, emerged four decades ago from the financial wreckage of the Depression and World War II.

It operates in an arcane world of tariffs, quotas, licenses, anti-dumping rules and countervailing duties.

But there is nothing mysterious about the potential reach of its impact if the negotiators manage to liberalize those rules.

Banks, insurance companies and others engaged in financial services in California, for example, could begin operating in Calcutta if they choose. Subsidies that might make it possible for wheat farmers in France to undersell competitors in Fargo, N.D., would be reduced. Steel manufacturers in southwestern Pennsylvania would have a tougher time fighting below-cost dumping of I-beams rolled out of South Korean factories.

The goal is to reduce by an average of one-third the tariffs on thousands of items of merchandise--consumer goods such as clothing, for example, but also such tiny items as semiconductors and such giants as jumbo jet aircraft.

Some tariffs would be eliminated, others would barely be touched. (The North American Free Trade Agreement, which takes effect Jan. 1, goes much further, eliminating all tariffs, but only between three countries--the United States, Mexico and Canada.)

The global cuts, advocates argue, would mean lower prices for consumers worldwide, greater demand for products and greater employment opportunities for those who manufacture them.

To be sure, an agreement would yield some losers: the American steelworkers, European textile workers and Japanese rice growers who owe their jobs to protection from more efficient competitors abroad, for example.

Some analysts remain skeptical of the overall benefits, although most argue that the net effect would be strongly positive.

The tearing down of barriers to trade, according to the Organization for Economic Cooperation and Development, would allow nations more freedom to produce what they can make most efficiently and import what they make less efficiently.

The OECD, whose members are the world’s 24 leading industrial nations, estimates that world economic output in the year 2002 would be $270 billion more with an agreement than without one.

In the United States alone, said U.S. Trade Representative Mickey Kantor, “we’ll grow about 2 million jobs net over the next 13 years; we’ll increase cumulatively the U.S. gross product over 10 years by a trillion dollars.”

But, said Peter Sutherland, whose position as executive director of GATT makes him the head referee of the global trade talks, “if the Round fails, the multilateral (trading) system will have suffered a mortal blow (that) will inevitably result in a serious lack of confidence in the world economy. . . . It would be a miscalculation of the gravest kind.”

Perhaps the predictions of healthy growth will be accurate. But, said Roger Schagrin, an international trade lawyer, until the fine print of the agreement is revealed, it is impossible to say.

He said his clients include several Los Angeles-area steel tube and pipe manufacturers whose business requires the protection offered by U.S. trade laws against unfair competition from foreign countries. If such protection is eliminated, or if the global agreement limits U.S. ability to use sanctions to force open potentially lucrative markets in foreign countries, the balance could be quite different.

“We could have a net loss of jobs because we have problems with import-sensitive industries,” he said. “A bad agreement could have a very negative impact on the United States.”

Of course, if the results would be a clear victory for all sides, it would not have taken seven years to reach this point.

At least three deadlines have come and gone. And just last week, Secretary of State Warren Christopher warned that a failure this time could sour U.S. relations with Europe well beyond the commercial sphere.

The General Agreement on Tariffs and Trade was established in 1947 when the world was a different place. The goal of the negotiators, when they began their first meeting, was to rewrite GATT’s 39-year-old rules to reflect the changes that had occurred in the global economy.

International trade in agriculture. International banking. The massive contribution that Hollywood makes to television programs around the world. The flourishing black market in computer software: None was a factor in the esoteric world of regulating international commerce back then.

But problems linked to each are now a powerful element in trying to prepare the trading regime for the 21st Century.

Take, for instance, the question of meshing the subsidy-dependent world of agriculture with the free-traders’ vision of a world in which quotas, subsidies and tariffs are eliminated and producers--whether farmers growing peanuts or manufacturers turning out the blue jeans farmers wear--can compete fairly. It is a mesh that has not yet been accomplished.

“The reason it’s so difficult to do is that for 40 years it’s been outside of the GATT system,” said Carol Brookins, president of World Perspectives Inc., an international agricultural consulting company.

Over that period, farmers have come to rely on a host of non-traditional means of protection to fight imports of cheaper-priced competing crops. From this maze of quotas, import license requirements, other import controls and government payments that support minimum prices has come a barrier as obstinate as any traditional import tax.

“There are now close to $300 billion in agriculture subsidies provided in the industrial countries alone,” Brookins said. “It’s a huge distortion of agricultural trade around the world.”

The efforts being made in the current round of negotiations, she said, represented “the first time people are serious about bringing them into the GATT like the other (economic) sectors.”

To get an idea of how complicated the global talks are, add to the effort to undo the barriers to free agricultural trade the political clout that farmers bring to the equation. Multiply that by the broad range of commercial activities that have entered the international arena in years since World War II. Then, bring to the bargaining table an ever-growing mix of countries--74 took part when the talks began, while 116, with the entry of Fiji just last month, are there today.

The result, Sutherland said, is that even after seven years of negotiations, “intractable issues” remain.

Before entering these final days of talks, Kantor put at the top of his end-game goals the objective of reaching an agreement that would make it easier for U.S. farmers to sell their crops in foreign markets.

He followed with several other key targets:

* Opening markets for a wide range of U.S. business, including manufactured goods, banks and insurance companies.

* Protecting the fruits of artistic creativity, including recordings and movies that are subject to pirating or to limits placed on their use by foreign broadcasters.

* Making sure that the agreement does not force the United States to give up trade laws used as a wedge to open foreign markets while protecting U.S. companies from the “dumping” of products sold at prices below those in their countries of origin or at prices below the cost of production.

The deadline against which the negotiators are working was set, in effect, by Congress when it granted the White House special negotiating authority similar to that used in completing NAFTA. That authority, known as “fast track,” expires on Dec. 15.

Under the fast-track procedures, Congress may not amend the legislation designed to put the negotiated agreement into effect--a necessary limitation, in the view of the negotiators, because foreign countries would be reluctant to hammer out an agreement with the representatives of the White House if those nations believed that the House and Senate would later try to change the pact.

With trade issues receiving greater scrutiny in Congress than at any point in the past, and emotions running high after the fight over NAFTA, there is widespread agreement that an extension of the deadline by the House and Senate is almost certainly out of the question.

The skepticism with which the Congress is considering trade matters reflects the shifts that have occurred in the world since the end of the Cold War.

“With the Cold War over, economics and trade now are becoming among members of Congress the primary foreign policy interest,” said Sen. Max Baucus (D-Mont.), chairman of the Senate Finance Committee’s subcommittee on international trade. “When push comes to shove, and because American voters are primarily interested in pocketbook issues, trade is becoming more and more important.

“International trade is becoming the paramount foreign policy question on the minds of most members of Congress,” he said.

A skeptical eye is also being cast by much the same coalition that came close to turning back NAFTA.

One day after Kantor and Sir Leon Brittan, the European Community’s commissioner for external affairs, said in Brussels that they had overcome some of the most difficult obstacles to an agriculture agreement, giving the talks their most upbeat tenor in seven years, environmental groups expressed wariness.

“It doesn’t even contain the same levels of environmental protection that the NAFTA did,” said Alex Hittle, international coordinator of the environmental group Friends of the Earth. “We’re trying to get the message loud and clear to the U.S. negotiators and to the Europeans that these need to be addressed or there will be problems.”

Organized labor has grown similarly doubtful about the impact of a global agreement.

“We don’t see a lot in the current negotiations that would be of immediate benefit to workers in the United States,” said Mark Anderson, the director of the AFL-CIO task force on trade.

Of pressing concern to labor, he said, is the fear that the agreement will curtail U.S. remedies for what it considers unfair trade practices, turning them over to “an arbitration panel in Geneva, which doesn’t exist now.”

Baucus raised that point Thursday in a letter to President Clinton, saying that any agreement that would scuttle the section in U.S. trade law used to fight discrimination against U.S. exports “would be dead on arrival in Congress.”

But a mainstay of American business, the U.S. Chamber of Commerce, said it is also wary about any agreement that would make it tougher for key segments of the U.S. economy to compete against foreign companies.

“We and labor both have an interest in maintaining the effectiveness of U.S. trade law,” said Wolf Brueckmann, the Chamber’s director of international investment policy.

On the other hand, he said, an agreement “could offer enough benefits to have a tangible impact on exports and jobs in the United States. If that can be done, it’s a real plus for the U.S. economy and U.S. business.”