Seven Years Later: Deal Is Likely

Although the expected new rules governing world trade are not as comprehensive as hoped, world leaders welcome the GATT agreement as needed economic `salvation'

THE talking is just about over.

After seven years of negotiations, most of the world's trading nations are close to shaking hands on new rules governing international commerce. The handshakes will seal a deal that lowers tariffs on industrial goods, reduces farm export subsidies, sets the minimum ground rules for trade in some services, and reforms the General Agreement on Tariffs and Trade (GATT), the Geneva-based bureaucracy that referees world trade.

The agreement will not be finalized until Dec. 15, or maybe later, by the 112 members of GATT. As of this writing, there are still significant areas being negotiated. However, long-time GATT observers expect a deal will be struck.

The main impetus is a change in the political winds.

``With the end of the cold war, economies have gone into travail,'' explains Clayton Yeutter, who was the United States trade representative under President Reagan when the GATT negotiations began in Punta del Este, Uruguay, in September 1986.

World political leaders ``are looking for political salvation through the economic arena and they see this agreement as a political plus, versus a minus,'' Mr. Yeutter says. The lure is the prospect of greatly increased world trade. With an agreement, GATT estimates that merchandise trade alone will increase 12 percent, or $745 billion, by the year 2005. World income will rise by $230 billion.

The bulk of the gains will come as a result of the reduction in tariffs. At the Group of Seven meeting in Tokyo last July, the major industrial countries agreed to eliminate tariffs on pharmaceuticals, construction, medical and farm equipment, steel, beer and liquor, and furniture. They also agreed to reduce tariffs on textiles, ceramics, glass, and apparel by up to 50 percent. There was a further commitment to cut tariffs on electronics and wood products by as much as 33 percent. The cuts will take place over five to 10 years.

As far as Caterpillar Inc., a maker of construction machinery and tractors, is concerned, these cuts mean ``we're poised to be a big winner,'' says Bill Lane, the Washington manager for international issues. For example, the US has a 2.5 percent tariff on imported construction equipment. The European Union (EU), however, has 4 to 11 percent tariffs, while most developing countries tack on a 15 percent tariff.

Although manufacturers are pleased with the agreement, the agricultural community is not. To mollify the French, the US has agreed to modify the 1992 Blair House Agreement, which would phase out export subsidies. Under the new arrangement, the subsidies will disappear in an equal amount over six years.

Under the old agreement, subsidies would have been mostly phased out in the early years. In addition, the EU will be allowed to provide export subsidies for about 8 million metric tons of existing wheat stocks. ``I'm disappointed that when you apply the agreement, there is more protection and more opportunity, apparently, of export subsidies,'' says Carla Hills, the US trade negotiator under President Bush. Mrs. Hills now runs her own Washington-based consulting firm.

Since the US will be permitted to sell 7.5 million metric tons of subsidized wheat as well, it will add about $1.5 billion in export subsidies to the world markets.

There has been some progress made in bringing services under the GATT - a major aim of the US at the start of the bargaining. ``At best, it's a mixed bag,'' says Margaret Wigglesworth, executive director of the Coalition of Service Industries. There is progress on accounting and advertising.

But the financial services industry is unhappy that negotiators could not reach agreement on when foreign banks will receive national treatment in a foreign country. ``How does the US government act at the end of a negotiation when there is this poor an outcome?'' asks William Hawley, an official at Citicorp in Washington.

The apparent lack of progress is particularly galling because the financial services sector, such as American Express and insurer AIG Inc., invested a lot of money and political capital in the process.

``If the result is disappointing, the administration [will lose] a lot of business support when it takes the results to Congress, which must pass the implementing legislation,'' Yeutter says.

A complex disagreement involving French taxes on US films has yet to be resolved. The French claim the issue involves protecting French culture. At a recent dinner hosted by the United States Council for Internation Business, Hills says, ``That is just a big facade.'' She says she agrees that more needs to be done to open up services and resolve other sticky problems. However, her criteria for reaching an overall agreement is twofold, Hills says. First, she asks, ``Are you better off today than with the status quo?'' Then, ``Have you blessed the world system?''

Although the final agreement will not be reached until next week, Hills says she is ``fairly optimistic'' that the answer will be positive for both questions.

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