World Trade Round Is Still in Peril

ECONOMIST Jeffrey Schott's book, "Completing the Uruguay Round," came out in September 1990. He thought it would have a short shelf life since that round of world trade negotiations was scheduled to conclude a few months later. But the talks are still dragging on and the book still sells.

"Unfortunately, it shows how little impact [the book] had on the negotiators," jokes Mr. Schott, a fellow with the Institute for International Economics in Washington.

This week the leaders of the Group of Seven industrial democracies had another crack at settling a dispute over farm trade that has been holding up a broad agreement among the 108 participating nations. Hopes were high enough that United States Secretary of State James Baker III joined in the summit talks in Munich. He usually avoids getting involved personally in international negotiations unless there is a good chance for success, Washington observers note.

But a deal fell victim to the politically frail positions of French President Francois Mitterrand and German Chancellor Helmut Kohl. Neither wanted to further antagonize farm voters by ac-cepting cuts in agriculture subsidies beyond those already ap-proved by the European Community (EC) in an internal reform.

There is still a chance the talks, organized by the Geneva-based General Agreement on Tariffs and Trade (GATT), will succeed. The G-7 communique says Western nations should "strive for agreement before the end of the year," adding that an accord is "within reach."

In Munich there was speculation that once the French have voted in a public referendum Sept. 20 on the Maastricht Treaty, which mandates closer EC integration, Mr. Mitterrand will feel freer to increase farm-trade concessions. The US and the Community are close in economic terms to a deal on farm export subsidies. The hangup is political.

"The problem is, time is getting very short," says Mr. Schott. That's because US legislation granting the administration "fast-track" authority in trade talks expires June 30 next year. Under this law, Congress can only vote a trade package up or down. It cannot hassle over any details. Otherwise it becomes almost impossible to win approval of a complex international agreement because of pressures from domestic special trade interests.

Under this provision, the GATT package would have to reach Congress by March 1, notes Schott. And even if the farm-trade issue is settled, there are four to six months of detailed negotiations yet to go. "The devil is in the detail," he says.

What happens if the Uruguay Round drifts into oblivion?

"It won't be gloom and doom," says Schott. "But we certainly would be worse off." The hope has been that liberalized trade would stimulate economic growth around the world.

Failure of the Uruguay Round could raise the chances of trade wars, which can have long-lasting effects. In 1963, the US retaliated against EC restraints on imports of chickens by imposing a 25 percent tariff on imported light trucks. The impact of that "chicken war" remains today in a dispute over whether imported minivans should be classified as light trucks or cars.

The EC and the US could engage in another trade war over exports of soybeans and steel, Schott warns. In the soybean case, GATT panels have twice ruled that EC subsidies to its soybean farmers violate US trading rights. But under GATT rules, the EC must agree to any US retaliation. Understandably, the EC hasn't.

"It is a crazy situation," says Schott, noting that the Uruguay Round would alter this GATT provision requiring those guilty of trade violations to agree to their own punishment.

If there is no farm agreement in the Uruguay Round, the Bush administration will come under greater pressure to retaliate against the EC in the soybean dispute by imposing penalties on $1 billion of Community imports. And the Community has cautioned that it might well counter-retaliate to such a move.

Another threat to trade peace arises from the formal accusations late last month by 12 US steel companies that steel companies in 20 nations, including the European Community, Japan, and Canada, have been selling steel in the US at unfairly low prices. Further, the steel firms charged 13 foreign governments with unfairly subsidizing steel exports to the US.

Those charges too could set off a trade war.

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