NEWS ANALYSIS : Domino-Effect Pact Will Affect Almost Every American : Impact: Even beyond the immediate consumer savings from tariff cuts, the far-reaching accord should boost U.S. exports and therefore jobs.
They may not know it yet and they may not recognize it when it happens. But just about every person and every enterprise in the United States will be touched by the international trade agreement reached here Wednesday.
Take the Spaghetti Warehouse, a restaurant down the road from the Illinois headquarters of Nalco Chemical Co., which makes chemicals for treating industrial waste. Because of the trade agreement, Nalco expects a big boost in sales abroad--and therefore more jobs (and more people who go out for lunch) at its Naperville offices.
The trade agreement can also sting, and Unifi Inc., a yarn-making company in Greensboro, N.C., expects to be on this receiving end. The U.S. textile companies that are Unifi’s customers are likely to be hurt as the agreement opens the American market to more foreign competition, and that will mean fewer buyers for Unifi’s yarn.
U.S. consumers, by contrast, should just about all profit from a greater variety of imports at lower prices.
From Bordeaux wine to Sony videocassette recorders, most imports should be cheaper as tariffs and other barriers to trade come down--which, in turn, will put pressure on U.S. producers to bring their own prices down.
“It is by far the largest trade agreement ever in the history of the world,” said Peter Sutherland, director general of the Geneva-based General Agreement on Tariffs and Trade, which supervised the negotiations that ended here Wednesday.
The accord, if it wins approval by the U.S. Congress and takes effect as scheduled July 1, 1995, will slash by an average of 40% the tariffs that countries put on each other’s manufactured goods. The tariff reductions alone, according to some estimates, could add upward of $200 billion a year to global economic output by they time they take full effect 10 years from now.
More importantly, the agreement will extend rules of cross-border commerce, which now cover mostly manufactured goods, to a host of new areas: services, such as banking and insurance; textiles, now covered mostly by agreements between pairs of countries; intellectual property, including movies, books and inventions, and agriculture, where rich countries distort trade by subsidizing their farmers.
And enormous though its economic impact will be, the GATT accord does much more than merely spell out commercial relations among the 117 nations that participated in the trade talks. It also intrudes deeply into the social and cultural identities of nations.
Stuart E. Eizenstat, the U.S. ambassador to the European Community, puts the agreement in the same exalted category as the treaties ending World War II and establishing the United Nations.
“Not only is this the most important trade agreement by light years,” he said, “but it is one of the most impressive international agreements of any kind ever reached. It will profoundly change the way societies are organized and the way they do business.”
Some of the most divisive issues in the seven long years of negotiations were as much cultural as economic. The dispute over movie and television exports reflected the determination of Europe (particularly France) not to let its producers be driven out of business by Americans.
“The defense of our civilization is at stake--the Americans have to understand that,” asserted Belgian Foreign Minister Willy Claes. The United States ultimately abandoned its proposal for reduced national barriers to its exports in this field.
Likewise, the agricultural trade negotiations were about whether to preserve the European way of farming: the small farmer who tends the land and maintains a picturesque countryside for the enjoyment of city dwellers as well as country folk.
Nigel Gault, a senior economist with the London office of the consulting firm DRI-McGraw Hill, says the global economy is driving national cultures together faster than they want to go. But with multinational companies able to quickly invest vast sums of money almost anywhere in the world, more collisions are inevitable.
In some ways, the trade talks that concluded here Wednesday represent a halting effort to come to grips with economic-generated culture clashes.
No wonder that the accord that finally emerged from the last frantic days of negotiations proved substantially less ambitious than some participants had hoped. Although the scope of the final agreement is vast, negotiators took the path of least resistance and finessed several of the talks’ thorniest issues.
Not only did France stymie the American movie proposal, but negotiators also watered down market-opening initiatives on maritime services (where U.S. negotiators were on the defensive) and financial services (where the Americans were the aggressors).
The United States managed to keep its authority to impose anti-dumping duties on imports deemed to be unfairly underpriced and to retaliate against products from countries that are found to close their markets to U.S. goods.
“What’s missing is a sense that we’re significantly freeing up the system rather than closing it up,” said Alan Stoga, an international economist with the consulting firm Kissinger & Associates in New York.
Yet Stoga conceded that the agreement--by subjecting trade in agriculture, textiles and services to international discipline for the first time--could lead to more significant market-opening steps in the future.
“This is the first time services and agriculture have been dealt with in any meaningful way,” said Brian Mullaney, senior economist with the brokerage house Morgan Stanley International in London.
It is also impressive, Mullaney said, that the new agreement comes at a time when stagnant economies and growing joblessness in much of the industrial world might be expected to make countries throw up protective barriers around their economies rather than open them to more foreign competition. “This is the first major trade agreement to come in the midst of an economic downturn,” Eizenstat said.
Some economists believe that the accord, although it will not begin to take effect until mid-1995, might help pull the world economy out of its slump.
The measures of its impact range into the trillions of dollars; U.S. Trade Representative Mickey Kantor asserted that it could boost world economic output by a staggering $6 trillion in the next 10 years. That would be growth of $600 billion a year, or about 3% of the $20-trillion world economy.
A more conservative but still sensational estimate comes from the Development Center of the Organization for Economic Cooperation and Development, whose members are the world’s 24 biggest industrial nations.
The center estimated that tariffs alone rob the world economy of $450 billion a year in annual output. The reason: Tariffs protect domestic, inefficient industries that would lose out in fair competition with foreigners. As tariffs fall and inefficient industries make way for more productive ones, the world makes better use of its resources and is able to produce more goods.
Dominique van der Mensbrugghe of the center said the average tariff reductions of 33% initially contemplated by the agreement would slash the tariffs’ drain on world economic output by $210 billion, or nearly half.
The 24 OECD member countries, whose tariffs on each other’s products now typically range from 4% to 10% (although some are already zero), would reap $130 billion of the benefits. The other $80 billion would go to the Third World and the former Soviet Union and its East European allies.
Trade negotiators ultimately boosted the tariff reductions to an average of 40%. Van der Mensbrugghe said that would generate even greater economic gains, although he was unable quickly to produce a number.
Organized labor, focusing on U.S. industries that figure to lose jobs rather than those that expect to gain, was unimpressed with such numbers. “We certainly don’t think the Uruguay Round is going to cure the common cold,” said Mark Anderson, director of the AFL-CIO task force on trade. “The economic model gobbledygook has little bearing on commercial reality. I don’t see anything in it for American workers.”
Anderson complained that the Clinton Administration, like Republican administrations that preceded it, was ignoring workers and looking only at “financial, commercial interests.”
“The United States seems to be approaching this exercise as if all the world believed in Adam Smith and neoclassical economics,” he said. “It’s not accepting the notion that other countries form their economic policies to serve their own advantage.”
