Tough sell to keep doors of world trade open
Geneva — In an elegant gray stone building bordering Lake Geneva, trade representatives from around the world have been trying for weeks to avert a world trade war.
They have been struggling to lay the groundwork for a crucial Nov. 24 international trade summit - the first such meeting since the Tokyo Round of multilateral trade talks in 1973. Next month's meeting is expected to attract ministers from all 87 nation-members of the Geneva-based General Agreement on Tariffs and Trade (GATT).
The purpose: to try to reach agreement on reducing import duties in all nations in order to boost international trade and, thus, the world's economy.
The problem: nations' domestic unemployment and/or trade deficits make it harder to agree on lowering import barriers. But agreement is made even more difficult because the ability and authority of the GATT itself is being questioned.
The global economic crisis was starkly spelled out in the GATT's latest Review of World Trade, which stated that the world economy grew last year at only 10 percent - ''the fourth worst performance since the Second World War.''
But, it said, in contrast to 1958 and 1975 - when production actually declined - the scope of today's crisis is altogether more ominous:
* Unemployment in Western countries has risen past 8 percent.
* Growth in East bloc countries fell to below 2 percent, for the first time since 1945.
* Per capita output in the non-oil-producing third world declined, while the third world's debts soared past $500 billion - a staggering sum given the high interest rates.
Inevitably, such statistics invite comparison with the Great Depression of the 1930s - as do the images on television of glum faces and lengthening unemployment lines, the shock registered to the world banking system by Mexico's near default, and the protectionist measures now before the US Congress. The latter hark back to the highly restrictive Smoot-Hawley Tariff of 1930, which set the highest import duties in US history and exacerbated the worldwide depression.
One casualty from the current crisis, all agree, is the GATT itself. GATT has been the sole multilateral trade body - and hence the linchpin of an open trading system - since its establishment in 1947.
''During the years of affluence the GATT worked well,'' a diplomat said. He referred to the successful ''Kennedy Round'' of tariff-cutting talks in the 1960 s and the equally successful ''Tokyo Round,'' which drew up a series of codes regulating nontariff barriers to trade.
Today, however, all agree the GATT is under enormous strain. One confidential GATT report recently estimated that no less than $23.7 billion worth of trade is currently subjected to special curbs and restraints outside the discipline of the GATT framework. This excludes the textile ''multifiber arrangement,'' which sets strict curbs on billions of dollars of textile imports into Western countries from the third world.
In addition, delegates here agree that the GATT's ability to settle trade disputes - vital in times of stress - is being increasingly scorned. After all attempts at conciliation have failed, an aggrieved trader can call for the establishment of a GATT panel. One such panel found against the United States in 1976 for giving tax breaks to exporters through so-called ''domestic international sales corporations.'' The US then blocked adoption of the panel report by the GATT's policy-making council for five years.
Another panel concluded that the European Community's system of farm subsidies had allowed it to seize an unfair share of world trade in sugar. The Europeans, in effect, ignored the finding. Recently 10 sugar-producing nations again lodged a complaint.
As a result, many delegates here will be happy if the coming trade summit can , as one puts it, ''restore confidence in the GATT itself.'' But all agree that even this may be hard to achieve. Last week trade representatives finished a month of intensive debate over an agenda, which will set the tone for the Nov. 24 meeting. Most agree that their proposed text - which now goes back to the various capitals - is so hedged around with brackets and qualifications as to be almost useless.
Delegates single out two reasons for their lack of success. The first is the essentially political nature of the issues - which can only be solved by senior politicians. The second is the deeply entrenched positions of the leading participants.
In greater detail, these are:
* The third world.
Although they account for two-thirds of the world's population, the non-oil producing developing countries only account for 15 percent of world trade. This weakens their bargaining power in the GATT. It also means that with the exception of a handful of newly industrialized countries (such as Brazil, India, Singapore, and South Korea), they are not economically advanced enough to benefit from GATT's achievements, notably large tariff reductions during the Kennedy and Tokyo Rounds.
One third-world delegate derisively described the GATT as a ''rich man's club.''
In addition to this, third-world delegates are deeply concerned by what they see as a two-pronged attack from the EC and the United States.
The Community is insisting on being able to apply curbs, or ''safeguards,'' against cheap imports that appear to hurt domestic industries. The third world replies that this is discriminatory, and against the principle of the GATT. They fear that it would turn into an attack on efficient, low-cost production, like the ''multifiber arrangement'' - the latest in a series of curbs going back over 20 years.
The US for its part has unveiled a proposal to impose a new tariff rate on products entering the US from newly industrialized countries. The new rate would be less generous than the one they currently enjoy under the generalized system of preferences (GSP). But US delegates warn that if the developing countries do not accept the proposal, the US Congress will not renew the GSP when it runs out at the end of 1983.
In addition, the US is insisting that Brazil, India, Singapore, and South Korea start acting like mature economic powers, instead of hiding among the ranks of the less-industrialized third world. This means lowering their import tariffs.
Third-world representatives reply angrily that with debts of over $80 billion Brazil cannot be expected to lower tariffs on imports. They also argue that the global economic system is heavily weighted in favor of the West, which enjoys a massive balance of trade surplus in manufactures with the third world ($168 billion in 1980). In addition, Western nations impose highly protectionist measures against the third world's most competitive products like textiles and agricultural produce.
''The West is trying to solve its economic crisis at the third world's expense,'' warns Felipe Jaramillo, the Colombian spokesman for the third world in GATT meetings.
* The European Community.
Faced with rising unemployment and having to negotiate on behalf of 10 sovereign governments, European spokesman appear to see their main task as a holding operation - against cheap imports from the third world, and on behalf of the EC's elaborate system of farm protection. Secondary aims are to pressure Japan to open its market to European products and to improve trade relations with the US.
Seen from this perspective, the Europeans face pressure on two fronts. The first comes from developing countries over ''safeguards.'' The second from virtually the rest of the world over agriculture.
''We've no problem with a country that subsidizes its agriculture,'' says one American delegate, pointing out that many governments support their farmers - often against all economic logic -so as to ensure food self-sufficiency. But, he continued, creating food surpluses through subsidies and then exporting them - as the EC does - is unacceptable.
Faced with this, the European negotiators have agreed to a GATT study of agricultural support, but made it clear there can be no question of modifying the controversial Common Agricultural Policy.
* The Unitted States.
The main American objective for the Nov. 24 meeting is to extend GATT's concern from trade in goods to trade in services such as insurance, banking, shipping, and tourism.
One senior US trade negotiator describes this as ''the gut issue.'' In 1947, he says, when the GATT was created, services accounted for only 5 percent of world trade. In 1981 the figure was nearer 30 percent. US exports of services rose during the same period to $88 billion.
US delegates will press developing countries to open up markets to foreign investors. But third-world delegates fear this will lead to inroads by foreign multinationals into sensitive sectors like banking and shipping, thus turning back the clock on several years of progress in curbing foreign investment.
Like the EC, the US will also use the Nov. 24 meeting to warn Japan about its restrictive policies toward Western imports. One US delegate cited the fact that Dunlop tennis balls can be used in the Japanese Open tennis tournment, but are forbidden for sale in Japanese shops on grounds that they are ''dangerous.''
* Canada, Australia, and New Zealand.
Because these middle-sized countries do not belong to major trading blocs, they are particularly vulnerable.
Australia and New Zealand have suffered heavily from the incursion of the EC into their traditional markets - sugar, wheat, mutton, and dairy products.
Canada is particularly vulnerable to protectionist measures of its largest trading partner, the US. It also lacks the muscle to retaliate. When the Japanese agreed under pressure to limit automobile exports to the US two years ago, some of the cars were diverted to Canada.
''We asked for similar restraint,'' recalls one Canadian diplomat. ''We were told to get lost.''
The problem was only resolved when the Canadian minister of trade told Canadian customs officials to inspect each and every Japanese car on the dock in Vancouver. ''A heck of a way to negotiate,'' the diplomat muses.
So entrenched are these positions that diplomats here feel major political concessions must be made if the Nov. 24 trade summit is to yield even modest results. There is relief at last week's news that the EC has agreed to limit its exports of steel to the US. Diplomats now hope for a breakthrough in the fratricidal transatlantic dispute over the Russian pipeline.
But this will at best only improve the negotiating climate for Nov. 24. They will not get at the heart of the key issues underlying the meeting - the West's lack of understanding of the third world, protectionism and unemployment, agricultural subsidies, the role of the GATT, and Japan's increasingly awkward place in the world trading system,.
''It's hard to have vision when millions of your people are out of work'' admits one diplomat. ''But,'' he goes on, ''without vision there will be no breakthroughs on Nov. 24.''
And all agree that without a breakthrough, the world economy will be that much nearer the brink, the safety net that much weaker.