President Bush has stated that his top priority for the Houston economic summit is the Uruguay Round of trade negotiations under the General Agreement on Tariffs and Trade. This presumably means another exercise in brinksmanship to get European leaders to liberalize their outrageously protectionist agricultural policy.
Obsessive concern with agriculture, however, masks broader obstacles to a successful conclusion of the round at the December ministerial meeting in Brussels.Certainly, substantial liberalization of agricultural trade is essential for a successful Uruguay Round. Subsidized farmers in Europe, Japan and the United States cost consumers and taxpayers over $100 billion a year.
Exports of more efficient producers in Canada, Australia and a number of developing countries are stifled, and the agricultural exporting countries have promised to walk out if a major reduction in protection for farm products is not part of the final agreement.
The U.S. farm community has a more balanced set of interests in the Uruguay Round. Some sectors, particularly feed grains, will benefit from more open trade, while others, such as sugar and dairy products, will face stiffer import competition.
The United States will not lower its support for these latter producers unless the European Community reduces export subsidies and changes its
impenetrable variable levy on imports. So far, the community has refused to do so and this impasse will emerge again in Houston.
A balanced agreement for U.S. farmers will not in itself, however, carry the day for the overall Uruguay Round agreement, which will be subject to congressional approval next year. Far more important are U.S. exports in the manufacturing and service sectors, and this is where the potential balance of U.S. interests needs closer scrutiny.
It is abundantly clear what others want from the United States: A phase- out of textile and steel quotas and severe restrictions on, if not elimination of, Section 301 of the 1988 Trade Act, which permits unilateral U.S. actions against unfair trade practices abroad. Such commitments by the United States will face strong resistance in Congress and need to be offset by benefits to U.S. exporters.
But it is yet unclear what form those corresponding export benefits will take. Draft framework agreements on intellectual property protection and trade in services still lack specific commitments to open markets abroad. Developing countries seek to maintain exemption from GATT obligations, including widespread import restrictions for vaguely defined balance of payments reasons.
At the same time, the European Community is expanding quota restrictions on automobiles, electronics and footwear against Asian countries that could divert Asian exports to the U.S. market.
A particularly threatening recent development is the proliferation of import restrictions based on anti-dumping regulations. The United States and the European Community have been most active, but the practice is spreading elsewhere. Even developing countries such as Mexico and Thailand have expressed interest.
A tangled skein of restrictive unilateral measures is undermining the basis for an open trading system and can only be curtailed by a tightening of the GATT anti-dumping code in the Uruguay Round. Support for such action from the industrialized countries convening in Houston is, at best, tepid.
What this all adds up to is a gathering storm cloud over world trade that goes well beyond the agricultural sector. The final Uruguay Round agreement needs to dispel this cloud through clearly specified commitments on all major issues under negotiation.
Otherwise, the United States may find itself unable to accept a final package proposal, even with significant liberalization of agricultural trade. The worst possible outcome would be to agree to something that receives much resistance and little private sector support, only to be turned down later by the Congress.
This may sound like shortsighted bean counting. The case for a successful Uruguay Round usually is made in more grandiose terms about the consequences of failure, such as the potential collapse of the GATT multilateral trading system, a world of rival trade blocs, and the loss of North Atlantic political cohesion essential for maintaining the U.S. military forces in Europe.
These broader geopolitical considerations have validity, but multinational traders increasingly are skeptical about cataclysmic predictions. Although a strengthened GATT trading system is desirable, many specific trade issues are handled adequately on a bilateral basis. Regional free trade is a practical alternative route to open markets on a balanced basis between like-minded countries.
A successful agreement will have to be judged primarily on the specifics of its impact on trade, rather than preference for a particular conceptual framework. This is the new geoeconomics of international trade negotiations.