WHAT'S AT STAKE IN THE TRADE TALKS Negotiations now nearing their climax could open up world commerce as never before. An agreement would benefit thousands of companies and millions of consumers.
(FORTUNE Magazine) – THEY ARE MOSTLY gray-suited and sober-faced bureaucrats, but they understand magic: If each nation is free to concentrate on doing what it does best, the world will get richer. With that wizardry in mind, negotiators from around the globe are waging the perilous final battles of a four-year campaign to create the most complex, liberating, and beneficial international trade pact ever. The stakes are high. Similar negotiations in the Sixties and Seventies under the General Agreement on Tariffs and Trade lowered barriers on manufactured goods and helped world trade triple over the past two decades. The current Uruguay Round (the first meeting was held in Punta del Este) has a new goal: to abolish many of the barriers that have survived -- the biggest, oldest, toughest trade barriers on earth. Success would open up international commerce as never before and create opportunities for thousands of companies in the fastest-growing parts of the economy: service industries and those areas involving copyrights and trademarks. U.S. Trade Representative Carla Hills says, ''We have the opportunity to start a world economic renaissance.'' Can the negotiators do it? They can, although their chances of finishing an agreement by December, when the world's trade ministers are to gather in Brussels to sign it, look moderately grim. Remember, all those barriers protect somebody somewhere, probably groups with impressive political clout, which is what got the barriers enacted in the first place. President Bush supports freer trade, but many in Congress, which must approve any agreement, lean toward protectionism. The negotiations are complex. Hundreds of delegates from the 97 member nations meet intermittently, often at GATT's four-story headquarters on the shores of Lake Geneva, and divide into 15 committees that debate major issues and minutiae. But the big picture is fairly simple. The developing nations have two principal demands: fair markets for their exports of agricultural goods and for exports of textiles and apparel. The developed nations have two as well: freedom for service industries to operate anywhere and respect for intellectual property. Here's a battlefield guide.
-- AGRICULTURE. If you trace the contentiousness and turmoil of the Uruguay Round back as near to their source as you can, you end up in the wheat fields of Bavaria. Nearly all industrial nations subsidize farmers, but the most lavishly protected tillers of the soil are European, and the protectionism reaches the apex of absurdity in southern Germany. The European Community not only guarantees its farmers' home markets but also underwrites their exports with a $10-billion-a-year slush fund. The system works thus: If the world price of wheat is $100 a ton, say, a grower can sell his crop to a foreign buyer at that price and collect an additional $100 or so a ton from the EC. With incentives like that, it is no wonder that Europe has more than ten million farmers (vs. 2.5 million in the U.S.). In Bavaria, where the land is especially poor for farming and other livelihoods , are available, factory hands earn a second income by pouring fertilizer and pesticides on scrubby pastures to turn them into wheat fields. In a decade the Continent has been transformed from grain buyer to another breadbasket the world doesn't need. That infuriates countries like Argentina, Brazil, Canada, Australia, and Thailand, where land and labor forces are more naturally suited to big-time farming. They and others are likely to walk out of GATT -- and stop the Uruguay Round cold -- unless the EC agrees to cut the subsidies way back. The key is persuading Germans to drop their plows. For Helmut Kohl that will be a difficult sales job, one he would rather not undertake while campaigning to become the first Chancellor of a reunited Germany.
-- TEXTILES AND APPAREL. Now shift from Bavaria to South Carolina. The U.S. is the major obstruction to free trade in fabrics. Although the American textile industry has mechanized in recent years and can sell denim, carpets, and yarns in many markets without government help, it still demands the protection of tariffs and quotas. Aligned with the apparel industry, labor intensive and no match for the garment makers of low-wage countries, the textile industry is a formidable power. Textiles' 900,000 workers and apparel's 1.1 million make up 10% of America's manufacturing work force, enough to demand Congress's attention. The result is an intricate weave of tariffs and quotas. A typical arrangement limits the number of man-made-fiber sweaters that can enter the U.S. from Taiwan (to 48 million) and puts a tariff (34.2%) on those that do. Taipei auctions off the quota to its manufacturers. Adding together all such auction prices and tariffs, William Cline, a senior fellow at the Institute for International Economics in Washington, calculates that protectionism adds 50% to wholesale clothing costs. The burden could get heavier than a lead vest. Imports are growing about 7% a year, but the Senate recently passed a bill that would restrict the annual increase to 1%. Cline figures that the additional cost to consumers over ten years would be $220 billion, an amount that invites a staggering analogy. Says he: ''It's comparable to the S&L bailout.'' President Bush promises to veto the legislation. His Administration proposes instead a substantial reduction of tariffs and quotas by the year 2000. Cline estimates that could eliminate more than 100,000 American jobs. The loss should not be troubling for an economy that faces labor shortages, especially if the U.S. gets growth-inducing concessions from the rest of the world for its service industries.
-- SERVICES. The industrialized nations, particularly the U.S., want their banks, insurance companies, construction firms, and other service providers to be allowed to move people, capital, and technology around the globe unimpeded. Instead they face a bewildering complex of national regulations, most of them designed to guarantee jobs for local competitors. A new Turkish law, for example, forbids international accounting firms to bring in outside capital to set up offices and requires them to use the names of the local partners, rather than the prestigious international ones, in their marketing. To audit the books of a multinational company's branch in Buenos Aires, an accountant must have the equivalent of a high school education in Argentinian geography and history. India is perhaps the most parochial big economy in the world these days, in many important respects more difficult to enter than the Soviet Union or China. New Delhi prevents international insurance companies from selling property and casualty policies to the country's swelling business community or life insurance to its huge middle class.
-- INTELLECTUAL PROPERTY. Many countries have weak laws or none at all protecting creativity. The big offenders: Brazil, Egypt, India, Korea, Malaysia, Nigeria, China, the Philippines, Saudi Arabia, and Taiwan. There and elsewhere counterfeiters and other rip-off artists freely imitate patented drugs, chemicals, and other industrial products, and copy goods from computer software to movies and records. Example: Pfizer needs an average of $230 million and ten years to develop a drug, but a journeyman chemist can crush a new pill and figure out what's in it with surprising ease. In Argentina, Pfizer's antiarthritic Feldene faces 24 local competitors -- none of which pay royalties. U.S. companies are estimated to lose more than $30 billion a year through theft of all kinds of intellectual property. WHAT IF the Uruguay Round fails? Without the virtual worldwide free trade that would result, gravitational forces already in play would be more likely to pull many nations into one of three orbits with internal free trade: the EC expanded to include Eastern Europe; North America with perhaps some of Central America; and a Pacific group centered on Japan. That would not mean disaster, notes Georgetown University economist Gary Hufbauer: ''If they don't put up additional barriers against outsiders but just liberalize within, trade areas are better than nothing.'' But it would mean a momentous lost opportunity. GATT rounds come along no more than once a decade, so most likely it won't be until the next century that the magicians gather again.
CHART: NOT AVAILABLE CREDIT: USTR, GATT, IMF CAPTION: IMPORTANT CARGO STILL ISN'T ON THE FREE-TRADE SHIP Developed nations spend $265 billion a year subsidizing agriculture; the U.S. protects textile makers; developing nations shield service providers. The latest talks aim to remove these obstinate barriers. WORLD TRADE NOT COVERED BY GATT WORLD TRADE COVERED BY GATT
CHART: NOT AVAILABLE CREDIT: USTR, IMF CAPTION: GROSS WORLD PRODUCT WORLD TRADE