(FORTUNE Magazine) – FREE TRADE, despite the considerable odds against it, has just won two of its biggest victories in decades: first the North American Free Trade Agreement, then the successful completion of a new General Agreement on Tariffs and Trade. U.S. Trade Representative Mickey Kantor says that the new GATT measures will expand the U.S. economy by some $1 trillion over the coming decade, creating as many as two million new jobs. Ah, but now the hard work begins. Or should begin. Getting governments to agree to start new GATT rounds has always been difficult. They'd prefer to let sleeping dogs lie. Yet the need to keep advancing trade liberalization couldn't be more pressing. Says C. Fred Bergsten, director of the Institute for International Economics in Washington: ''Any hiatus in GATT talks is dangerous, because protectionism always fills a void.'' Frustrated by the stately pace of the GATT's global talkfest, governments have turned to the quicker job of securing regional and bilateral agreements. Bergsten worries these concordats risk fragmenting the world into rival trade blocs. Even with the new GATT agreements, says William E. Brock, a former U.S. Trade Representative, ''the increasingly rapid integration of the global economy is moving far faster than the rules of the international trading system to keep pace.'' The challenge for future talks will be to lift the many internal national laws that impede further trade expansion. In light of the French government's success at the GATT in limiting imports of U.S. films and TV programs -- for all their huge popularity with French audiences -- the emotion-laden issue of whether a country's defense of its deep-rooted cultural customs is a legitimate national policy or a thinly veiled trade barrier will need to be resolved. Negotiators will also have to take up the increasingly strident complaints by environmentalists that expanded international commerce encourages companies to locate factories in areas of the world where they are freer to pollute. Says Jeffrey E. Garten, the Commerce Department's Undersecretary for International Trade: ''If previous efforts to liberalize trade have seemed tortuous, they've been nothing compared to what's coming.'' Since the latest GATT round began in 1986, epochal new forces have cast the sustainability of an open world trading system into doubt. The Cold War's end has dissolved the glue that bound the major trading nations together against a common enemy. Now stubborn frictions between the U.S., Japan, and the European Community are moving to center stage. While new market-oriented economies in Asia, Latin America, and Eastern Europe will need easier access to the markets of developed countries, slow growth in the rich nations tempts their leaders toward protectionism. Even in the U.S., traditionally the resolute champion of an open global economy, fatigue from a decade of industrial restructuring and frustration over trade deficits has muted enthusiasm for free trade -- or at least for the GATT's plodding methods of achieving it. Truly open trade must be global because corporations are shedding their national identities. Says consultant Julius L. Katz, one of the Bush Administration's chief trade negotiators and now with Hills & Co. in Washington: ''Governments cannot fundamentally alter the inexorable momentum toward the global integration of production, but they sure can screw things up.'' As world-spanning enterprises thicken their networks of ties beyond national borders, they run up against four large obstacles that new trade talks must try to eliminate:

-- Restrictions on foreign direct investment. Breaking down investment barriers was a high priority for the U.S. and Europe in the heady days when the GATT round was launched. But as talks bogged down over tariffs, farm subsidies, and quotas on films, TV shows, and textiles, progress on ''trade- related investment measures'' -- TRIMs, in GATT-speak -- stalled. About all the negotiators achieved was an agreement that, by golly, someday we all ought to do something about this problem. When they get around to it, GATT members should follow the principle of ''national treatment'' -- that is, foreign firms should be free to do what domestic companies may. Negotiators could also fruitfully crib from the breakthrough investment openings achieved by NAFTA. The U.S., Canada, and Mexico have agreed to remove virtually all investment-distorting hurdles imposed by governments on North American businesses over the coming decade. Market opportunities, not the heavy hand of bureaucrats, should dictate where direct investment capital flows because the old saw -- trade follows investment -- has never been truer. As foreign firms gain a toehold in new markets by building or acquiring overseas factories, distribution centers, and retail outlets, they pave the way for their suppliers to do the same. In 1991, for example, some 40% of the $909 billion in total U.S. merchandise trade occurred between parent corporations and their offshore affiliates -- a 10% increase over the previous decade. Keeping the investment spigot open benefits everyone, not least the country into which the capital flows. Direct investment builds the economic infrastructure, stimulates growth of domestic businesses, and creates jobs. Says Paula Stern, a former trade official now at the Progressive Policy Institute in Washington: ''Investors are the battering ram for both expanded trade and economic development.'' Most developing countries claim they want more foreign direct investment -- just not the kind that hurts uncompetitive local industries. Indonesia, for example, protects its inefficient merchants by prohibiting foreign firms from opening their own wholesale or retail distribution channels. Indonesia and others also force foreign firms that want to sell in their markets to invest there on onerous terms. Typical example: In Brazil, foreign-owned manufacturers must buy most of their components from high-cost local suppliers, and the government insists that affiliates of foreign multinationals maintain a trade surplus in Brazil's favor by exporting more than they sell within. About half of all U.S. direct investment in developing countries has been made to satisfy such trade-limiting rules. Investment restrictions also figure prominently in the lopsided trade imbalance between Japan and the U.S. Elaborate cross-ownership ties within families of Japanese companies -- the infamous keiretsu -- effectively block U.S. companies from merging with or acquiring Japanese firms. Similarly, restrictions designed to protect Japan's fragmented and woefully unproductive retail sector discourage U.S. retailers from building a presence in Japan. Result: U.S. direct investment in Japan totaled $26.2 billion in 1992, just 5.4% of all U.S. overseas assets, while Japan's U.S. holdings were $96.7 billion, or 23.1% of its overseas total.

-- Incompatible national technology policies. Expect more trade frictions on the high-tech frontier as governments, hungry for the exports and good-paying jobs that leadership in high-technology industries generates, grow more inclined to support their domestic champions. What to do? The new GATT agreement restricts R&D subsidies: no more than half the cost of applied research, 75% for basic research. With national technology policies spreading fast, negotiating comprehensive global rules may be too ambitious for the slow-moving GATT. It will fall mainly to the U.S., the EC, Japan, and other devotees of government-led technological growth, like Singapore and Taiwan, to work out guidelines. The objective, says trade specialist Ernest H. Preeg, a senior fellow at the Center for Strategic and International Studies, should be to concentrate on areas in which consensus is easiest to reach and build on it. He would start by having countries agree to make it easier for foreign firms to bid on government contracts, offer access to one another's research universities and national labs, and adopt common rules for patent issuance. Trade economist Jagdish Bhagwati of Columbia University worries that in trying to incubate their high-tech infants, governments may impose incompatible technical standards or raise other nontariff barriers to keep foreign rivals from robbing the cradle. Such an application of technology policy, he fears, could devolve into a new form of mercantilism as governments try to manage competition in high-tech sectors.

-- Antidumping laws. As tariffs and other border barriers fall, exposing domestic firms to new competitors, governments are arming themselves to prevent cut-rate imports from flooding the home market. Antidumping laws that permit them to levy punitive tariffs against offending foreign manufacturers have become the weapons of choice. Since the GATT failed to make major progress toward mutual disarmament, the job of sheathing the weapons may best be negotiated at the regional level. The Europeans have largely ended dumping cases within the EC by harmonizing national antitrust laws. Companies that are not judged to be practicing monopolistic price discrimination in their home market are presumed innocent when they engage in the same practices throughout the EC. Now that NAFTA has been ratified, trade expert Gary C. Hufbauer of the Institute for International Economics suggests that a similar approach could work in North America, where dumping complaints have long been a major irritant between the U.S. and Canada and are becoming so with Mexico. Curbing the back-door protectionism of antidumping laws globally will be harder because governments use them as the principal tool to enforce their notions of ''fair'' trade -- free trade's reasonable-sounding evil cousin. Yet the way antidumping laws are administered makes a travesty of fairness. In the U.S., a world champion prosecutor of dumping cases, virtually any foreign-made product priced below what a domestic competitor charges, and cheaper in the U.S. than in its home market, is ripe for a successful dumping complaint. That's because the Commerce Department is bound by a 1974 law written specifically to help U.S. pleaders win. It's no wonder Commerce finds dumping in well over 90% of all cases it investigates. Relying mostly on data supplied by the U.S. companies bringing the action, Commerce officials first compute the offending goods' average direct production cost. To this they arbitrarily add 10% to cover presumed overhead and tack on a healthy 8% minimum profit margin for good measure. Using Commerce's findings, the International Trade Commission (ITC), a six- member independent government panel, then determines whether the domestic industry has been ''materially injured'' by having to compete against the cheaper foreign product. If injury is found, Commerce then levies a punitive tariff against the dumper's goods to ''level the playing field.'' Even some ITC members shake their heads at the Solomonic decisions they must reach to settle the cases. Commissioner Anne E. Brunsdale cites a 1989 action brought by Hyster Corp., an Oregon manufacturer of forklifts, against a Japanese rival. The ITC was unclear about what constituted an ''American- made'' forklift since both companies sourced many of their components from factories around the world. The Japanese firm even used U.S. suppliers. The ITC ultimately defined the forklift's nationality by the country where the frame -- about 25% of the product's total value -- is built and decided for Hyster.

Keith B. Anderson, a former senior economist at the ITC, reports in a recent study that the number of successful antidumping actions brought by U.S. industries more than doubled in the 1980s, to 197 cases against companies from 42 nations in 1990. Penalties are assessed on fully 10% of all American imports, a threefold increase over the period. American consumers pay a stiff price for their government's notion of ''fair'' trade. Citing one admittedly egregious example, Anderson calculates that consumers paid $723,000 for each of the 32 U.S. jobs saved by slapping a 139.5% duty on the import of silicon from China in 1990. U.S. negotiators in Geneva balked at efforts to bring dumping disputes under GATT control, but the U.S. now has the biggest stake in reform. A decade ago only the U.S., the EC, and a handful of other peevish, mature industrial economies unilaterally imposed antidumping laws on trading partners. Since the mid-1980s some 40 other nations -- many basing their statutes on the U.S. model -- have joined the party, raising the number of dumping complaints worldwide to about 2,000 in the past decade. Says Gary N. Horlick, a trade attorney with the O'Melveny & Myers law firm in Washington: ''Antidumping laws have become one of America's leading exports.''

-- Environmentalists' opposition to increased trade. Can there be two more disparate world views than those held by free-traders and environmentalists? Where trade promoters see expanding international commerce as a powerful engine for increasing human wealth, greens see industrial exploitation despoiling a fragile global ecosystem. NAFTA set a promising precedent for reconciliation in its side agreement to finance the cleanup of the U.S.-Mexico border and to begin a dialogue to raise environmental standards throughout the region. Yet as increased trade spreads economic development, consuming more of the earth's nonrenewable treasure and increasing pollution, environmental concerns transcend national and even regional boundaries. A promising idea to bring environmentalism into the global discussion of trade comes from economist Daniel C. Esty, a former official with the Environmental Protection Agency now at the Institute for International Economics. Esty recommends that the trading nations create a permanent separate body he calls the International Environmental Organization. It would establish a body of sound science to evaluate environmental risks, an essential prerequisite to reducing them. It would promote sustainable economic development by attempting to measure the cost of damage to the environment by manufacturing processes, and finding sensible ways to reflect that cost in the products' prices. The organization would also provide a forum to arbitrate trade disputes arising from conflicts between national environmental regulations. Environmentalists and free-traders share important common ground on which such an institution could be built. As World Bank economist Patrick Low points out, ''The world's worst environmental problem is poverty.'' Suppressing trade that would raise living standards deprives poor nations of the wealth they need to invest in a cleaner environment. Furthermore, free trade encourages the most efficient use of resources by removing the tariffs and other barriers that distort prices. Visit any of the poisoned industrial wastelands of Eastern Europe or the former Soviet republics and you'll see the environmental degradation that results from markets closed to the competition that enforces the wise husbanding of raw materials. The most persuasive case for making the world trading system greener is that there is no alternative. Says Bill Brock, the former U.S. Trade Representative: ''If we don't bring environmentalists into the conversation about trade, they'll beat at the door until they knock it down.'' Better catch some sleep, you tired trade negotiators. Tomorrow it's time to get back to work.

BOX: WHO GETS WHAT FROM GATT

AGRICULTURE Europe will gradually reduce farm subsidies, opening new opportunities for such U.S. farm exports as wheat and corn. Japan and Korea will begin to import rice. But growers of U.S. sugar, citrus fruit, and peanuts will have their subsidies trimmed.

AUTOMOTIVE PRODUCTS The U.S. will be permitted to protect just one industry with a ''voluntary'' restraint agreement that limits imports. Detroit fears it will not be that one industry and will lose its ability to restrict Japanese exporters' share of U.S. car sales.

ENTERTAINMENT, PHARMACEUTICALS, AND SOFTWARE New rules will protect patents, copyrights, and trademarks. But many developing nations will have a decade to phase in patent protection for drugs, and France refused to liberalize market access for the U.S. entertainment industry.

FINANCIAL, LEGAL, AND ACCOUNTING SYSTEMS Freer trade in services comes under international trading rules for the first time, potentially creating a vast opportunity for these competitive U.S. industries. but specific terms of market access remain to be worked out, mainly with developing countries

TEXTILES AND APPAREL Strict quotas limiting imports from developing countries will be phased out over ten years, causing further job loss in the rag trade. But U.S. retailers and consumers will be big winners, since quotas add $15 billion a year to clothing prices.

CHART: NOT AVAILABLE CREDIT: FORTUNE CHARTS/SOURCES: U.S. DEPT. OF COMMERCE, BUREAU OF ECONOMIC ANALYSIS CAPTION: WORLD TRADE U.S. TRADE