GATT Brings Threat of New Controversy Over Trade : Foreign relations: Opponents cite loss of billions in tariff collections and pressure on U.S. labor, environmental laws.

The graffiti, freshly scribbled on the concrete wall of the new business school building at the University of Wisconsin in Madison, says bluntly: “Stop GATT.”

In Washington, a rap recording is being circulated among trade specialists, its lyrics hammering away at the agreement that rewrites the rules of international commerce.

What’s going on here?

Last autumn, the North American Free Trade Agreement polarized American political opinion. But NAFTA, in terms of economic impact, involves small change compared to GATT.

Is the new world trade agreement, which negotiators began working on nearly eight years ago, about to roil the nation the way NAFTA did last year, reopening deep and painful divisions and giving President Clinton yet another political headache?

The new pact, about to land on the floors of the U.S. House and Senate, is the broadest, most comprehensive trade agreement ever reached. It would create a new entity called the World Trade Organization to replace the old GATT structure. It would slash tariffs around the world and, its proponents say, give the U.S. economy a shot in the arm worth at least $200 billion by some estimates.

Opponents see a darker side to GATT. It would cut the collection of tariffs by as much as $10 billion, according to an estimate by the Congressional Budget Office. And, opponents say, it would leave the United States at the mercy of an international trade bureaucracy that could override U.S. labor and environmental laws in the name of more open world trade.

Therein lie the two biggest obstacles facing the Clinton Administration as it prepares for the legislative battle to ratify GATT.

Although it is much broader in scope and impact than NAFTA, the new trade plan has attracted little of the angry opposition that almost scuttled the three-way agreement among the United States, Mexico and Canada; there is less hand-wringing in Congress over how to vote, less pressure from special interest groups that weighed in so heavily last year.

But the unresolved questions surrounding the lost tariff revenue and the alleged threat to U.S. sovereignty raise the possibility of serious political consequences and increase the likelihood of another emotional debate.

On Capitol Hill, therefore, anxiety is growing that what appeared to be a relatively smooth path to approval for the new international trade plan will instead be strewn with boulders.

Even so, Administration officials and congressional trade experts--citing the wide impact of the global agreement--are more optimistic about its prospects than they were a year ago about NAFTA, assuming that they can overcome the funding and sovereignty issues.

“This is a tough one, but it looks fine as long as we can work through the process. It needs to be well greased,” said a congressional staff member specializing in trade matters. “People feel more of a responsibility to vote for this than for NAFTA, because the ripple effect isn’t just North America, it is the rest of the world.”

The trade plan was completed last December in Geneva by negotiators from 117 countries, and initialed by their representatives in Marrakech, Morocco, two months ago. Before it can take effect in the United States--scheduled for July 1, 1995--it must be approved by simple majorities of the House and Senate.

It rewrites the rules of global trade, established by the General Agreement on Tariffs and Trade, or GATT, in 1947, and modified in multiple rounds of negotiations since then. This latest series of negotiations, known as the Uruguay Round, would bring into the regime agriculture, the fruits of intellectual endeavors such as the creation of pharmaceuticals and, to a degree, financial services.

By cutting tariffs--the taxes paid on imports--by as much as 100% in some cases and by an average of 40% overall, the agreement sharply reduces some of the most onerous regulations intended to protect domestic industries in countries large and small. It is hoped the pact will increase commerce and domestic economies throughout the world.

Under the most optimistic scenario, the House Ways and Means Committee, the Senate Finance Committee and other panels considering the legislation that would implement the pact will finish their work early enough in July to allow both chambers to vote on it before they begin their extended summer recess. Under a more likely timetable, however, the crucial votes would not occur until shortly before the House and Senate adjourn in October.

Administration officials and congressional sources have come up with a proposed collection of tax increases and spending cuts to replace the lost tariff revenue, and each has prompted a flood of complaints to House and Senate members.

Under deficit reduction rules, known as “pay as you go,” any tax cuts or spending increases must be met with equivalent tax increases or spending cuts. Those rules do not count the anticipated tariff income stemming from increased commerce against the loss caused by reduced tariff rates. By some accounts, the government could end up collecting $3.90 for every $1 lost.

Among the measures being considered are raising $4.8 billion in taxes on radio and TV stations for their use of the public airwaves; collecting $1.5 billion in fees charged to chemical companies for hazardous waste cleanup; $1.3 billion in higher taxes on retailers; $600 million in new gambling taxes, and $500 million in taxes paid on the value of free parking companies provide to their employees.

In addition, consideration has been given to cutting farm subsidies by $3.1 billion and taxing the profits on retirement annuities before they are paid.

Another option would be to ignore the budget rule, opting for a provision that allows for an “emergency waiver”--a course one senior Administration official said is more likely to be used later in the course of the trade agreement once the economic benefits of the pact have become readily apparent.

Whichever course the Administration pursues, a political outcry is likely to follow.

Sen. Max Baucus (D-Mont.), chairman of the Senate Finance Committee subcommittee on trade, has pressed for the waiver.

“Finding budget cuts or tax increases to ‘pay’ for the GATT makes no economic sense,” he said in a recent speech. “Under some (economic) assumptions, the (Uruguay) Round may do more to create economic growth and shrink the budget deficit than another measure this Congress is likely to consider.”

Opponents of this course, however, say it will send an unfortunate signal to Wall Street, suggesting to investors that the Administration is weakening in its resolve to live by the deficit-reducing rules the George Bush Administration worked out with Congress.

The sovereignty issue has the potential to become the most emotional aspect of the debate, akin to the fiery arguments about the impact the North American agreement would have on jobs in the United States.

As happened with NAFTA, it has brought strange pairings to the debate. It puts consumer advocate Ralph Nader andconservative commentator Patrick J. Buchanan on the same team, seeking to defeat the pact. At the same time, the Consumers Union; the Heritage Foundation, a conservative public policy research organization, and Robert H. Bork have spoken out in praise of the plan.

Critics such as Nader have maintained that the World Trade Organization, which would replace the GATT, could cite California food safety laws as an unfair restraint on agricultural exports to the state, or U.S. auto mileage standards as an unfair obstacle to European auto sales in this country. The Clinton Administration has aggressively denied such charges--and has enlisted Bork, a former appeals court judge whose conservative credentials are unquestioned, to help make its case.

The sovereignty issue, Bork said in a letter to U.S. Trade Representative Mickey Kantor, is “a scarecrow.”

“Under our constitutional system, no treaty or international agreement can bind the United States if it does not wish to be bound,” Bork said. “Congress may at any time override such an agreement or any provision of it by statute.”

As for criticism that the agreement will weaken the U.S. position in world trade, allow others to dictate trade rules, and put the United States at a disadvantaged position in the international forum resolving trade disputes, Kantor defended the results of the seven-year negotiation that produced the agreement, telling the House Ways and Means Committee last month:

“We protected U.S. sovereignty; we protected our trade laws; we have a dispute settlement system that works.”