What you need to know about THE GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT). Mr. Merrifield's Christmas tree seedlings (and other GATT tales)
New York — THE international regulation of trade has a long reach, stretching from pasta served in restaurants to cedar shingles on new houses to stainless steel fittings on boats. Nearly every American is directly or indirectly touched by the General Agreement on Tariffs and Trade (GATT).
The following are stories of GATT's reach.
From his Clifty View Nursery in Bonners Ferry, Idaho, Lonnie Merrifield can look 28 miles across the Kootenai Valley into Canada. Mr. Merrifield has high hopes of selling Christmas trees to residents of Edmonton, Alberta, 450 miles away.
This year, however, cross-border squabbling over trade and actions taken under GATT will likely keep Christmas trees grown in the United States out of Canadian living rooms.
Merrifield's woes began on May 22 when the US decided to protect a cottage industry in the Pacific Northwest that makes cedar shakes and shingles for houses.
In the past six years, employment in the business has declined from 4,000 to 1,650 employees. ``The decline was mainly because of Canadian imports,'' maintains Gus Kuehne, executive vice-president of the Northwest Independent Forest Manufacturers.
Acting under GATT to protect 350 manufacturers in the Pacific Northwest, the US imposed duties spanning the next five years on Canadian shakes and shingles.
Within GATT rules, a nation can then seek compensation for the lost revenues by imposing tariffs on other products.
The Canadians were quick to do so, imposing higher tariffs on Christmas trees, computer parts, novels, cider, and oatmeal.
In Merrifield's case, the tariff jumped from nothing to 30 percent. ``I'm sure that's going to hurt us,'' says Merrifield, who has planted 10,000 trees a year with an eye for selling them in Canada.
The Canadians say this exchange illustrates how damaging protectionism can be.
``With trade restrictive actions you only end up hurting yourself,'' says John Fowell, a Canadian government spokesman in New York.
Merrifield has received a double whammy from GATT; under the agreement, a country can ban an import for health reasons.
The Canadians claim Idaho pine and true fir seedlings might be contaminated by the European pine shoot moth and have stopped the export of seedlings from Idaho.
Merrifield believes the closest pine shoot moth is in British Columbia. And, ironically, he has orders from British Columbian nurseries he can't fill because of the ruling.
``We've got hundreds of thousands of seedlings that should be going out,'' he says, ``and we can't get them across the valley into Canada.''
It's been 10 years since the streets of Brackenridge, Pa., have been repaved. Mayor Don Bloch says it's doubtful that this community of 4,278, located 20 miles north of Pittsburgh, will get new asphalt down soon even though the streets have potholes. The reason: GATT.
Brackenridge is the site of an Alleghany Ludlum steel mill that makes specialty steel products, such as the stainless steel used in the boating industry. In recent years Alleghany Ludlum figures it has lost $100 million in revenues, because many of its export markets have been riveted shut.
Under GATT, a developing country can protect an infant industry from foreign competition.
Brazil and Mexico, after building their own specialty steel mills, closed their borders to US imports. Alleghany Ludlum, which exported $60 million in steel in 1979, this year will export less than $10 million.
At the same time, France's government-owned steel mills have been shipping more steel into the US. This upsets Dick Simmons, the chief executive officer of Alleghany Ludlum.
``We're an efficient company, a high-tech company,'' he explains. ``If efficient companies like us can be driven out of business by nonefficient companies only because they have access to unlimited supplies of capital, it can ultimately damage this country.
``The issue is not free trade but whether or not a company can compete over the long term with companies that don't have to make a profit.''
As Mayor Bloch can attest, if Alleghany Ludlum doesn't make money, the streets don't get paved.
To try to protect specialty steel from imports in 1983, the US imposed tariffs and quotas for four years.
Under GATT rules, the Europeans can retaliate by the amount of money their industry would lose. They quickly slapped higher tariffs on methanol, burglar alarms, gymnastic equipment, and skis. As a result, GATT came to roost in Cedar Rapids, Iowa, where Universal Gymn Equipment manufactures fitness gear.
To compete in Europe, Universal had to move the equivalent of 15 percent of its hourly jobs to a facility outside of London.
At the same time, estimates Gary Robertson, director of marketing, the company lost 15 percent of its sales.
Howard Bruns, president of the Sporting Goods Manufacturers Association, made several trips to Brussels, the home of the European Community, to try to negotiate an end to the tariffs.
``We went round and round,'' he recalls, ``but they were the most unyielding group of negotiators I have ever met. We were just victims standing on the sidelines, hit by a stray bullet.''
This past winter, the Europeans lifted the tariff. Now, Mr. Robertson says, the company has to decide whether to move the jobs back to Cedar Rapids, or keep them in England. ``When the rules keep changing,'' Robertson says, ``it's real difficult to do business.''
Name a pasta and it now is more than Italian in name only.
Pastas made in Italy have captured between 5 percent and 10 percent of the US retail market, and as much as 25 percent in the Northeast. The carbohydrates from Italy have made the inroads despite rulings that they are entering the US in violation of GATT.
In 1981, the US pasta producers complained that the Italians were using subsidized European Community wheat to produce their exported pasta. They complained that this was a violation of the subsidies section of GATT.
After going through a GATT process as twisted as a bowlful of spaghetti, a panel ruled that it was a violation of the rules.
``Everyone was excited by it,'' recalls Paul Rosenthal, a lawyer with Collier, Shannon, Rill & Scott, ``because it ruled it was against the rules to have subsidies on processed-food exports.''
Under GATT rules, however, the EC could and did block the report and its findings.
The GATT nondecision has hit such manufacturers as RHM Pasta in Buffalo, N.Y., below the belt. Tony Gioia, president of RHM, says he has had to cut back his staff as sales have shrunk.
``It's really frustrating,'' Mr. Gioia says. ``I think GATT is fundamentally flawed. We're an efficient industry and if we get hurt, then no industry is safe.''
Gioia says that unless the US acts, domestic producers, who employ 10,000 workers, may have to abandon their plants and begin importing themselves.
``It makes more sense to import their subsidized product if they can sell it cheaper than we can,'' he explains.
The US is still negotiating with the Europeans over the pasta situation and says it hopes to have a resolution by next July. But, to some observers, the five-year-old complaint illustrates that GATT leaves a bad taste.