GATT Reality Check Is Drawn on Strong Reserves

It’s now likely that Congress will approve U.S. participation in an expanded General Agreement on Tariffs and Trade this week, backing developments in international law and commercial practice that the United States has fought long and hard to achieve.

By their actions, the House and Senate will boost international trade in services--law, finance, engineering, education--in which the United States leads the world. The trade vote also will protect intellectual property--computer software, copyrights on films, videos and music--in which, again, the United States leads the world.

And by its vote, Congress will ensure a widening and growing world economy and give a boost to the U.S. economy too.

Yet from all the misleading opposition to GATT by politicians and commentators, you’d think Congress was voting for bubonic plague.

Critics have depicted America in GATT as Gulliver among the Lilliputians, a pitiful helpless giant stung by darts from pygmies. Far from prospering, GATT opponents have said, Americans would be impoverished and turned into minions of a menacing world state.

It is a defeatist, sour vision of the world stemming either from lack of confidence in U.S. economic vitality or a misguided but historic feeling that Americans do better without foreign entanglements.

So it’s time for a reality check. In fact, the United States now depends on international transactions for 25% of its annual economic activity, including $750 billion worth of exports of goods and services and income from overseas investments.

Trade is not a zero-sum game but a giant swap meet in which jobs at ports and airlines, stock exchanges, movie lots and Disneyland depend on America’s interactions with other nations. The country cannot do without foreign entanglements.

But that’s a fact to be celebrated, not feared. This is the world America has made over the 48 years since World War II, as its soldiers stood guard over countries trying to rebuild their economies and confronted states hostile to the world trading system.

It has been a time of historic growth in international commerce, with merchandise trade multiplying tenfold to more than $7 trillion. That doesn’t include trillions more in undercounted services and the products of modern entertainment, TV programs and movies.

The GATT, which began in 1947 with 23 nations pledging not to raise tariffs or keep out each other’s goods, has been a foundation of that growth. Average tariffs have come down from 40% to 5% as the agreement itself has expanded to 123 nations.

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It hasn’t always been smooth sailing. Disputes in the GATT have been frequent--nations used to fight wars over trade, after all--with the United States complaining most often that poorer countries were taking advantage of Uncle Sam’s big market but not opening up to U.S. goods.

So U.S. administrations for more than a decade have demanded a tough judicial body like the World Trade Organization that’s created in the new GATT agreement. Ironically, critics have falsely charged WTO with undermining U.S. sovereignty, rousing constitutional scholar Robert Bork to restate publicly that “no international agreement” can override U.S. laws and causing the Clinton Administration to create a panel of U.S. judges to monitor WTO decisions.

Still, why are Americans so uneasy? Partly it’s that the world is shifting. The most dynamic market today is in East Asia, not America (although the two fastest growing economies, Brazil and Peru, are in Latin America).

The East Asian economies (Japan, China, Taiwan, South and North Korea, Singapore, Malaysia, Indonesia, the Philippines and Vietnam) now account for 25% of the world’s total economic output--on a par with the United States--and by the year 2000, Asia will account for one-third.

U.S. merchandise trade across the Pacific, at $361 billion, is 50% larger than its transatlantic trade. For Europe, business with Asia is now larger than trade with America. And trade among the Asian nations themselves counts for more than trade with the United States.

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But that’s a dawn of opportunity, not grounds for regret. Just consider the prospects in China, a nation that needs almost everything. Zhou Wenzhong, the new, 49-year old Chinese consul general in Los Angeles, cites some figures: “The World Bank will lend China $15 billion in the next five years for investments in infrastructure projects, in energy and communications,” says Zhou. “And China’s government will invest 500 billion renminbi (U.S. $57 billion) in infrastructure between now and the end of the century.”

China won’t develop without bumps along the way, but it’s on the move. Modernization of agriculture has sent 60 million people--more than the whole population of Britain or Italy--off the land and into the cities looking for work. Even if it grows 7% a year--as opposed to more than 10% today--China’s economy by 2010 will be 82% the size of the U.S. economy, which will itself continue growing in the meantime.

The challenge for the United States and other countries will be to bring China into the GATT next year so that its potential to export surges of low-priced goods can be controlled and its enormous market will remain open, explains S. Linn Williams, a former U.S. trade representative who is now general counsel to Mission Energy, a subsidiary of Southern California Edison that builds and operates power plants in Asia.

Americans have a big stake in China’s development. U.S. firms will build many of its power plants and large parts of the communications and transportation systems, with every dollar of work over there creating several dollars worth of work back in the United States.

Trade often defies expectations. The U.S. telecommunications industry, for example, grew and prospered because the U.S. government broke up the telephone company and, in a move unlike that of any other country, opened the market to global suppliers. The resulting competition produced an industry that employs more people than ever and exports the latest in communications know-how all over the world--notably to China.

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Can the United States turn its back on the world? It did before, in 1930 when Congress raised tariffs and crop supports to protect U.S. farmers from cheap foreign crops. But the Smoot-Hawley tariff and foreign retaliation destroyed export markets for U.S. farmers while high prices hurt home markets and helped bring on the Great Depression. We can be thankful that probably won’t happen again this week.