Pact’s Impact a Matter of Hit and Miss : Trade: While some key industries will benefit under GATT, final version fails to lower barriers for others.
The sweeping world free-trade agreement reached Wednesday is widely expected to benefit California farmers, software firms, lawyers, accountants and manufacturers of everything from Barbie dolls to blue jeans.
But the accord--negotiated under the 117-nation General Agreement on Tariffs and Trade--also leaves out key state industries, including banks, Hollywood and the makers of commercial aircraft, at least for now.
And despite predictions that the agreement will result in thousands of new state jobs during the next 10 years, some economists caution that the results will not be immediate.
“It’s not one of those ‘Field of Dreams’ agreements--if you sign it, they will buy,” said Adrian Sanchez, regional economist at First Interstate Bancorp.
Added Larry Kimbell, director of the UCLA Business Forecasting Project: “We should start to pick up trade and advantages, but don’t look for a big overnight change.”
The agreement lowers tariffs, quotas and other trade impediments over the next several years. And companies from toy makers to software writers will finally enjoy stronger international protections of their trademarks and intellectual property.
Over the long term, economists have estimated, GATT could mean an annual increase of as much as $200 billion in world economic output. In California, the governor’s office has estimated that resulting new trade could eventually create as many as 400,000 jobs by 2008, with most of those appearing in the early years of the treaty.
California had $69 billion in exports last year, 15.4% of the U.S. total, and foreign trade accounted for more than half the state’s total economic growth in recent years.
In agriculture, the agreement will remove some quotas for U.S. products and lower foreign subsidies on others. For California--by far the nation’s largest exporter of agricultural products--that could mean the opening of significant markets.
In one of the most dramatic changes, Japan and Korea agreed to open their markets slightly to rice grown in the United States. Japan agreed to allow foreign growers to supply 4% of its annual consumption of rice in 1995, amounting to 400,000 metric tons. California, which exported 105,775 metric tons of rice in 1992 worth $37.4 million, can be expected to supply about half the increase, state agriculture officials said.
For Scott Leathers, a Sutter Basin rice farmer whose family has been in the business since the 1940s, “it gives us an export market that we haven’t had before, and it gives us a little more stability for our export markets, which have been pretty volatile in the last five to 10 years.”
Other high-value agricultural products in which California dominates the market--grapes, almonds, walnuts, tree fruit and some vegetables--should also benefit as farm tariffs fall an average of 50%.
Some state manufacturers could benefit as well. El Segundo-based Mattel, one of the world’s two largest toy makers, expects foreign sales to soar once GATT eliminates all tariffs. Duties now run about 15% in Canada, 8% in Europe and 5% in Japan.
*
About half the company’s $1.85 billion in sales last year occurred overseas, Mattel spokesman Glenn Bozarth said. “We see sales outside the U.S. as being the brightest opportunity for our future.”
Another advantage: Stiffer trademark protections will help shield the toy maker from counterfeiters of its popular Barbie and Hot Wheels toys.
The computer software industry hailed GATT’s reduced trade barriers and enhanced protections for intellectual property, which would make it illegal for other countries to pirate programs.
“The software industry is one of . . . the shining lights of the American economy (because) we have no significant competition in other countries,” said Ken Wasch, the group’s executive director. “Free trade is an enormous benefit for the computer and software industries.”
Chief Executive Philippe Kahn of Borland International, a Scotts Valley, Calif., software company, called GATT a “positive development for high-tech companies that depend on the enforcement of intellectual property laws.” Nearly half the company’s revenue comes from outside the United States.
For California semiconductor manufacturers such as Intel Corp., however, GATT was a lukewarm victory. The chip makers won an important intellectual property protection that prevents foreign governments from compulsory licensing of designs for commercial purposes, said Michael Maibach, Intel’s director of government affairs.
The industry also benefits under provisions against the dumping of foreign-made semiconductors in U.S. markets at costs much lower than those in their home markets.
But foreign tariffs on the importation of U.S.-made chips, as high as 14%, remain in force for five years, dropping gradually only after that period.
GATT will phase out U.S. quotas and tariffs on textiles and apparel, which the industry fears will flood the domestic market with cheap imports and result in the loss of American jobs.
While the bulk of the U.S. apparel and textile industry worries that GATT will remove many of its protections, the world’s largest maker of branded apparel, San Francisco-based Levi Strauss & Co., favors the agreement.
“We are in a slightly different position than other apparel makers in the sense that we produce in many parts of the world and because we market in other parts of the world,” spokesman John Pachtner said, adding that the company generates half its $5.6 billion in annual sales outside the United States.
*
But Pachtner said it is unclear whether the treaty will mean more state jobs. Of Levi Strauss’ 34,000 worldwide employees, fewer than 2,500 are in California.
For Hollywood, GATT proved to be a major disappointment. Failure to get the entertainment industry included in this round of talks means the “European Community is still girdled round with trade walls,” Jack Valenti, president of the Motion Picture Assn. of America, said in a telephone interview from Geneva.
The industry reaps about $7 billion to $8 billion a year in foreign revenues, with Western Europe accounting for more than half that, he said. “In the next decade, the growth of our business in California will be in the international marketplace. And if a huge market like the EC . . . is still heavily barriered and full of trade land mines, then we’ll have problems.”
Still, it’s unclear how immediate the effects will be. Failure to reach agreement will have “no short-term effects with regard to the economy or employment in the state,” Glenn J. Gumpel, executive director of the Directors Guild of America, said from Geneva.
Another key state industry--aerospace--may change little under the treaty in the short term, analysts said. A U.S.-European agreement limiting government subsidies to aircraft manufacturers remains in place for another year while talks continue.
Times staff writer Martha Groves in San Francisco contributed to this report.
THE GATT AND CALIFORNIA California will be among the biggest winners from the seven-year horsetrading marathon that produced the new General Agreement on Tariffs and Trade. Experts estimate that GATT will boost world trade by as much as $275 billion a year in the next decade, and international trade has been one of the few bright spots in the California economy during the last few years. Here is how the new agreement shakes out:
Agriculture--Although the European Community will reap the most benefits from this one, California’s large agriculture industry will also gain. Worldwide tariffs will be cut by an average of about 50%. And California will benefit from the new access to foreign markets the United States gained for its products such as rice, beef and dairy. Aircraft--California’s suffering aerospace industry did not get all that it had hoped for from GATT. Although the United States won the dogfight to get civilian aircraft into GATT for the first time, it was not able to get the EC to agree on new limits on subsidies to Airbus Industrie, the European consortium that is a major rival to U.S. manufacturers. Apparel & Textiles--Apparel, a large industry in Southern California, will see the price of its raw products fall. Over 10 years, quotas on apparel and textile imports would gradually be replaced by tariffs, which then would slowly shrink. Alcohol--The California wine industry gains from provisions to reduce tariffs on wine worldwide and subsidies to foreign winemakers. Tariffs on beer and whiskey would be eliminated.
Autos--Detroit is worried that the voluntary export limits on Japanese auto makers could cruise into the sunset. GATT would eliminate all but one such voluntary export limit per country, and the United States has not yet determined which industry will get the exemption. Changes in “anti-dumping” rules were not as drastic as originally proposed, but could still make it more difficult to demonstrate if foreign cars are being sold at unfairly low prices.
Chemicals--Tariffs would be cut substantially. But the U.S. chemical industry said its products will still face higher tariffs overseas than will chemicals imported into the United States. Chemical manufacturers are a big employer in Southern California.
Entertainment--Hollywood will sit out this wrap party. Negotiators could not agree on reducing Europe’s long-time subsidies of its film industry or on slashing European quotas on entertainment programs produced in the United States. So they left entertainment out of the agreement.
Financial Services--U.S. negotiators dropped a broad proposal to throw open international financial markets and let U.S. banks, stock brokers, insurance companies and leasing firms take a crack at foreign consumers. But GATT does establish a timetable for opening up financial services and maintains the threat of denying low-tariff privileges against those who won’t cooperate. This is a biggie for California, home to many large financial services firms.
Pharmaceuticals--Tariffs would end. But GATT was a mixed blessing for U.S. drug manufacturers, who wanted patent protections to prevent rip-offs by developing countries. They got them, but the protections will not be phased in for at least 10 years. Not much California impact.
Semiconductors & Software--Computer semiconductor manufacturers and software developers--a big business in California--got new protections for patents, copyrights trademarks and trade secrets as part of a broader agreement to protect intellectual property rights. Licensing rules that could have forced them to share their know-how were toned down. Tariffs on some high-tech items will shrink, but the industry had wanted them eliminated.
