Talk of new trade barriers could erode GATT success
Recent barely veiled threats by the United States to negotiate more bilateral -- country-to-country -- trade deals make Arthur Dunkel nervous. He is the director-general of the international organization that administers the treaty promoting multilateral trade agreements -- that is, deals between the bulk of the world's trading nations as a group.
``The best approach is a multilateral one,'' says Mr. Dunkel, chief of the General Agreement on Tariffs and Trade (GATT). ``If I think back at what has happened since World War II, United States interests, as well as those of all trading nations, have been very well served by the multilateral system.''
The GATT, a contract first concluded by 23 countries in 1948, aims at reducing barriers to freer trade.
Today, with 90 members, world trade has grown eightfold to a volume of some $2 trillion -- equivalent to a little more than half of the annual total output of goods and services in the United States.
That trade enriches the lives of citizens around the globe by providing them with cheaper and/or more varied goods and services. Despite some problems with protectionist measures that violate GATT, many economists regard the trade agreement as one of the most successful of all deals in international economic affairs.
Interviewed in his office overlooking Lake Geneva, Mr. Dunkel compared today's relatively free trade situation with the 1930s, when bilateralism and beggar-thy-neighbor protectionism were rampant.
``You know what the end result was,'' he says, referring to the depression of the 1930s.
Under bilateralism, he says, a nation concludes a trade deal with one other country and makes a friend. It can conclude another bilateral deal and make a second friend. But when the country signs a third bilateral agreement, it may find it has won a third friend but has made enemies of the first two nations. They are annoyed at having lost their trade advantage.
Seven rounds of trade negotiations have been concluded under GATT, each gradually reducing trade barriers. Under the most-favored-nation provision of GATT, each negotiated trade concession is automatically granted to all members of GATT. The point of that provision is both fairness and a desire to avoid dividing the world into trading blocs.
Under the Tokyo round, the latest round of trade negotiations concluded in 1979, tariffs and other barriers are dropping further. By 1988, for example, US tariffs will have been cut in half by the Tokyo round to an average 4 percent.
Indeed, tariffs are no longer very important on average. What counts, notes Mr. Dunkel, are exchange rates for national currencies. ``It's through the exchange rate that the relative competitive position of the different countries is established,'' he says.
At the moment, for instance, a strong US dollar has made it more difficult for American manufacturers and farmers to sell their products abroad. Foreigners can sell their goods in the US with relative ease. This led to a massive American trade deficit last year.
``In economic theory, this [a flexible exchange rate] means that protectionism doesn't help,'' says the director general.
Indeed, he admits, the floating exchange-rate system has ``devalued'' GATT itself in theory since trade barriers are less effective. If a country raises trade barriers, it may find its currency appreciating in value, making imports cheaper and more voluminous.
In fact, however, the forces in favor of protectionism are still very strong, Mr. Dunkel asserts. And they often take a form, such as quotas, that may be more effective in blocking imports of specific products.
``But the realization of the need to resist is greater now than it was some years ago,'' he says.
The GATT is a nonbinding contract. Nations adhere to it because its rules have been enshrined in domestic laws or because of what Dunkel has termed ``a kind of balance of terror.''
If one nation violates the terms of the agreement with some new trade barrier, it can expect its damaged trading partner to put new obstacles against an equivalent amount of exports from that nation.
This retaliation is permitted by the GATT rules. But if a nation disregards the rules or ignores GATT arbitration procedures, there is nothing much GATT itself can do about it.
For a few years now, GATT has been engaged in preliminary negotiations aimed at an eighth round of multilateral trade negotiations. At a November meeting of the GATT contracting parties (member nations), the participants agreed to study the possibility of reducing trade barriers in services -- that is, such activities as banking, insurance, engineering, consulting, transport services, and so on. This is a new area for such talks.
Three weeks earlier GATT negotiators agreed to look at protection in agriculture -- another significiant breakthrough in world trade. Farmers are a highly protected group in most nations.
These two sectors were the final elements for a ``package'' of more than a dozen negotiating areas that will be involved in the next trade round when and if a final political decision to go ahead is made. That could be this year or 1986, Dunkel guesses.
Mr. Dunkel sees the agreement on what is termed a ``program of work'' as important because it will give a signal to traders, the financial community, and industrialists that governments ``are really committed to resisting protectionism.'' Speaking of the hard bargaining and various crises involved in the latest talks, Dunkel comments: ``The more the process looks painful, the more it is serious.''
The French-speaking Swiss international civil servant concludes that ``the chances of seeing the contracting parties of GATT entering into a new phase of very concentrated and active negotiations are much more real.''
Asked what he regards as the most important developments in world trade in the past decade, Dunkel speaks first of the growing number of countries participating more actively in trade. The developing world offers ``extraordinary potential'' for more trade.
Nations have greatly liberalized their markets for imports, he continues. They also have specialized their manufacturing to a greater degree.
The European Community has developed as a common market, he said. Japan has seen enormous growth in its more sophisticated exports.
GATT itself remains a relatively small organization. It has some 330 employees here at its lakeside headquarters, a somber stone-faced building with wide green lawns and trimmed yews. The building belonged to the International Labor Organization until that body outgrew it and moved into a steel-and-glass structure farther up the hillside.
Because of the slack in the world economy, trade disputes have become more numerous and, Dunkel notes, nations and businessmen more often talk of the rules of GATT. ``Five or 10 years ago when you said to somebody, `I am working for GATT,'. . . people said, `What is GATT?'' says Dunkel. ``Now they know.''