Why Americans Can't Afford To Pull Back Now on GATT
Voting `yes' on the Uruguay Round of GATT will mean an expanded US economy with more jobs
CONGRESS is readying itself to vote up or down on a bill to implement a new trade pact called the Uruguay Round of the General Agreement on Tariffs and Trade. The agreement is the culmination of efforts of three United States administrations and the continuation of four and a half decades of US leadership. The benefits of the agreement are so clear and the costs of losing it so profound, one would hardly expect debate, much less serious doubt, about the outcome of the pending vote.
Welcome to Washington 1994, city of agendas, where one is constantly reminded that anything is possible, including the worst mistakes.
If the new GATT is approved, it will boost US exports, expand the US economy, and create jobs. It has been estimated that in 10 years, the economy will be $100 billion to $200 billion richer, with 500,000 more Americans employed than without GATT.
Those estimates are both optimistic and understated. They are optimistic because the comparison is between today's system, projected out to 2004, and a system with the agreed improvements. In fact, if we reject these improvements, we will be delivering a crippling - if not fatal - blow to the existing system.
The estimates are understated because they take into account only the tariff cuts and other relatively easily quantifiable changes associated with the Uruguay Round. The benefits of stronger rules, including protection for US patents, have not been estimated. We do know, however, that US companies lose tens of billions of dollars each year to patent violations and copyright piracy.
Comparisons with the North American Free Trade Agreement can be overdrawn. NAFTA was a preferential agreement with two other countries. GATT is a nonpreferential agreement with 123 countries. What the two agreements have in common is job-generating trade liberalization. Those who doubt that trade liberalization can create jobs should take note of the fact that the US has added 140,000 manufacturing jobs in the last 11 months.
Tariff cuts are the hallmark of liberalization. The Uruguay Round represents the biggest tariff and tax cut in history - $750 billion. To a large extent, these are reductions in the foreign taxes on US products. In a number of sectors where the US has especially strong industries, tariffs will fall to zero. These include the pharmaceutical, earth moving equipment, farm equipment, medical equipment, and paper sectors.
But we are talking about more than money. We are talking about America's place in the world.
The US pushed for almost every major change in the world trading rules that the Uruguay Round embodies. Since 1947, we have been the driving force behind GATT, and we deserve the lion's share of the credit for a system that has enabled world trade to expand dramatically and helped foster decent living standards for more people than ever before. Several countries experienced riots and political distress as they struggled to meet US demands in GATT. To a significant degree, they have met those demands. If we abandon the system now, they won't follow us again. A US failure to approve GATT would signal the loss of US leadership.
The idea that the GATT vote can be put off is a fiction. Delay means death for the Uruguay Round. After seven years of negotiating, the world is expecting us to approve the agreement this year. If Congress ducks now, or fails to approve the agreement, the world will give up on us.
It has been suggested that GATT is somehow a threat to US sovereignty. Nonsense. GATT is not like the United Nations. To begin, GATT, or the World Trade Organization (WTO), is purely an economic arrangement. It has no blue helmets. In that sense, it is more like a Greek chorus, commenting, but not acting against any country. The general rule in the GATT is that decisions, other than dispute settlements, are made by consensus. That means that on big issues, such as changes in the GATT rules and the admission of new members, the US in effect has a veto.
In fact, though, it is the dispute-settlement process that critics are referring to when they say that the Uruguay Round poses a threat to US sovereignty. Their arguments are ironic and dangerous. The charge is that pressure might be put on the US to change a health and safety standard if GATT found the standard to be just a trade barrier in disguise. That's true, but what does it mean? In fact, the US does not use standards as trade barriers, but many of our trading partners do. Japan's old claim that it could not accept US skis because Japanese snow was different is one of the more infamous examples.
But let's take a hypothetical example from another perspective: Norway complains to the WTO that a US food standard has nothing to do with protecting US consumers and a lot to do with protecting US industry. A WTO panel agrees. At that point, the WTO says to Norway, ``You have our permission to raise Norway's tariffs against some of your imports from the United States ... if you want to.''
The WTO itself takes no action, and what it authorizes is only a fraction of what Norway has the sovereign right to do anyway. Norway can block any imports it wishes. So can the US. Both countries, though, would prefer to work within a set of world trading rules.
THE first thing to note about this example is that a case brought against the US under the GATT does not affect the sovereignty of this country at all. The second thing to note is that GATT disputes - including the remedies, such as higher tariffs - are, in final analysis, between the parties to the dispute. The GATT court can give its blessing, but each country has to be its own policeman. In such a setting, the market power of the US will always be an important factor.
Looked at in the terms of everyday life, ``the sovereignty argument'' would have us believe that a sovereign, free person would make no promises, enter no contracts, and have no relationships. That's not freedom; that's isolation. It's foolish for individuals and for countries.
The US is the world's largest exporter and largest importer. We are a global trading country, and we need a global trading system. We have spent half a century building that system. We cannot afford to abandon it now. Congress should say ``yes'' to GATT.