Here’s the Upshot on the GATT Flu
If world trade is so good for us, why do we treat it like a new strain of the flu? After dragging on for eight years, the talks on renewing and expanding the General Agreement on Tariffs and Trade reach a final, critical juncture in the next week.
And success is still not assured despite the fact that world trade has expanded to almost $4 trillion, as average tariffs have come down from 40% to 5% and the world has enjoyed unprecedented prosperity in the 46 years since the first General Agreement was signed.
GATT, under which 116 nations pledge not to raise tariffs or otherwise keep out each other’s goods, has been renewed six times since 1947. And it will probably be renewed again before the Dec. 15 deadline, but that the issue is in doubt at all begs for explanation and understanding.
The problem is that the richer countries--the United States, Japan and those in Western Europe--see the trade agreement as creating competitors and threatening jobs. And that’s partly true--but not the whole story by any means. What is not stressed enough is that GATT also creates customers--for U.S. goods and services and, perhaps most of all, for U.S. technology and hallmarks of the American way of life, from Barbie dolls to Hollywood films.
To explain: The real significance of this renewal of GATT is that it would formally reduce barriers to “north-south” trade between the richer countries and the developing nations of Asia and Latin America, the Middle East and Africa. Until now the poorer countries have shared in only 20% of global trade, but that is changing.
The renewed GATT would also set rules for modern industries, such as computer hardware and software, telecommunications products and services, movies and videos and agriculture, which have not been included in previous treaties.
They’re included now because developing nation no longer means a backwater. Thanks to computerized machinery, it no longer takes generations of development for many countries to produce automobiles and parts, computer hardware and software. Bangalore in southern India has become a center for low-cost software development; Taiwan is a big computer producer.
The revolution in computing and telecommunications--allowing precise commands and controls to be sent instantly across oceans and boundaries--has brought standardization. For example, northern Italy is a production center for stylish clothing. But now the Italian firm Bennetton is able to produce apparel anywhere in the world because it can control the color quality of local manufacturers. The upshot is that workers in Italy, elsewhere in Europe, in the United States and even Japan, fear for their jobs. “And their fears are reasonable: 20% of job displacement these days is due to globalization of trade,” says international economist Edward Leamer of UCLA. Thus, opposition arises to trade agreements.
But expansion of other markets--not closing off the United States--is the answer, Leamer says.
The fact that developing nations have been advancing in technology is making them customers for many things they couldn’t think of buying a few years ago, such as computers. U.S. sales of computers and parts, telecommunications and business equipment now total almost $60 billion a year, a few billion more than U.S. imports of the same products.
Similarly, as other economies develop, the market for U.S. business services grows dramatically. Overseas sales of the services--banking and finance, legal, engineering and consulting--last year rang up a trade surplus of more than $25 billion.
What is happening, says Prof. Peter Cowhey of UC San Diego, co-author of “Managing the World Economy,” is that the United States is selling its lifestyle in the broad sense of that term--which includes lawyers and advertising, computers and business management consultants.
*
The success of the Barbie doll is noteworthy. Mattel Inc.’s familiar doll is designed in El Segundo but produced in five countries: China, Malaysia, Indonesia, Italy and Mexico. But it is sold in 144 countries--$965 million worth of Barbie and related products sold worldwide last year. So Barbie is more than a toy; it’s a product of U.S. brainpower and culture that creates jobs in Malaysia, China, Mexico and other places while also supporting 15,000 Mattel jobs in the United States.
And the same goes for the products of Hollywood--the films and television shows and music videos that produce a trade surplus approaching $1 billion. The world market is growing for U.S. films and entertainment as other economies develop and people have more leisure.
What does all that have to do with GATT? Plenty. It’s in the United States’ interest to have orderly, honest markets that prevent counterfeiting and unauthorized dealing in videos and films, computer software and look-alike Barbies.
The GATT agreement promises to do that. That’s why we should stop treating it like the plague.
