The beGATTs.

AFTER SIX years of negotiations, the U.S., Germany, and Japan seem close to a Uruguay Round trade agreement. Seven earlier rounds of talks under the General Agreement on Tariffs and Trade (GATT) have lowered average tariff rates from 40 per cent in 1947 to (roughly) 5 per cent today; world trade volume increased by a factor of 20 during that time.

Since 1960, U.S. foreign trade (exports plus imports) has grown by 495 per cent, or more than three times as fast as total GDP. From 1988 to 1991, U.S. GDP rose $129.8 billion in constant dollars. Merchandise exports accounted for 70 per cent of that growth. Had exports not grown in 1991, the economy would have shrank by 1.4 per cent, or twice the actual 0.7 per cent decline.

The Council of Economic Advisors estimates that a successful Uruguay Round would add $1.1 trillion (constant 1989 dollars) to U.S. GDP over the next ten years--an additional $1,600 per year for the average U.S. family of four. The world as a whole would gain more than $5 trillion in additional purchasing power.

Why, then, did the Uruguay Round talks flounder for so long? For one thing, protectionist policies today are far more sophisticated and less obvious than the import tariffs that occupied earlier GATT rounds. Domestic agricultural subsidies, for example, enable Europe's small, inefficient farmers to export a wide range of products to Third World nations. The subsidies offer protection equivalent to that of a 60 per cent import tariff.

Japan's protectionist policies include a discriminatory internal distribution system, regulations that limit the size of retail outlets, and fiscal policies that keep the cost of business capital low. These are not addressed by GATT, although they have been the subject of bilateral talks between the U.S. and Japan.

The U.S. cloaks its protectionism under the guise of unfair-practice laws, permitted under a GATT loophole. Since 1980 Washington has investigated more than 750 charges of dumping and unfair subsidization. These cases triggered major policy decisions, including "voluntary" steel import quotas, import restraints on Canadian lumber, and the U.S.-Japan semiconductor accord. Americans pay $75 billion more a year for goods because of these restraints, a sum equal to 13 per cent of total imports.

The most dangerous obstacle to the GATT trading system are the regional trading blocs coalescing in North America, Europe, and the Pacific rim. Regional free-trade agreements invariably discriminate against products produced outside the region. In 1960, for example, more than 60 per cent of the foreign trade of the 12 EC nations was conducted with nations outside the EC. Today 60 per cent of the EC's foreign trade stays within the EC. EC-92, and the possible inclusion of the former Communist bloc nations will undoubtedly accelerate the trend.

                                       Foreign Trade
          GDP      Exports   Imports    as % of GDP
1960    $1,973.2    $88.4     $96.1         9.4
1980     3,776.3    320.5     289.9        16.2
1990     4,884.9    505.7     557.0        21.8
1991     4,849.9    538.9     558.8        22.6