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                                                                                ECONOMY, Page 51

THE BREAKDOWN OF TRADE TALKS

Who Pays the Price


It is known as the Uruguay Round of the GATT talks, and that
alone can make eyes glaze over. But the current stalemate could
be costly for most Americans, and everyone else.

By J.F.O. MCALLISTER/WASHINGTON -- With reporting by Adam
Zagorin/Brussels


    In a red tile villa overlooking Lake Geneva, long-suffering
diplomats shuttle in and out of meetings, their faces betraying
anxiety that the most ambitious overhaul of international-trade
rules since World War II is floundering. In Brussels, European
Community officials denounce the hard-nosed obstinacy of their
American counIn Washington, George Bush struggles to convey
optimism, dropping vague references to "new ideas" that might
break the logjam between Washington and the E.C. In Tokyo,
ministers try quietly to bridge the gap between Europe and the
U.S., lest there be any interruption of the trade machine upon
which Japan's now imperiled prosperity depends.

    The six-year-old bargaining session known as the Uruguay
Round of GATT, the 107-nation General Agreement on Tariffs and
Trade, is in trouble. Washington and the E.C. are locked in a
quarrel over how much Europe will be allowed to subsidize its
farmers and thus give them an advantage over everyone from
American wheat growers to Third World farmers trying to produce
cash crops for foreign markets. There are fears that unless
something is done to break the stalemate, the world will slip
into commercial darkness and political tension. Warns GATT's
director general Arthur Dunkel: "There will be major negative
consequences for social stability and even international peace."

    Perhaps so. But it's hard for citizens in the
industrialized U.S. -- which is relatively self-sufficient and
historically prone to protectionist impulses -- to get a grip
on GATT, let alone get very alarmed about its potential failure.
Successive rounds of negotiations, diligently conducted since
1947, have pushed down tariffs from 40% to 4% in member
countries. Still, people find it difficult to connect the
statistical aggregates of GATT-speak with their lives and
wallets.

    But open international commerce is as vital to American
prosperity as it is to any other nation's. Last year the U.S.
was the world's largest exporter, selling a record $422 billion
worth of goods and $145 billion in services abroad. Each billion
dollars of exported merchandise generates 20,000 jobs, and fully
one-third of the country's economic growth in the past five
years has flowed from the surge in foreign sales. For example,
more than $20 billion in revenues made by U.S. airplane
manufacturers comes from sales abroad, money that then finds its
way into the cash registers of grocery and shoe stores and
insurance agencies in the communities where the workers live.
Corn growers bring more than $6 billion of cash into the
country, scientific-instrument makers more than $12 billion.
Contrary to the protectionist shibboleths, imports benefit the
country as well: from cars to vcrs, the American consumer saves
money because of cheaper products shipped from overseas.

    Since the U.S. market is fairly open, a GATT accord is
expected to spur new exports for American firms while adding
little in the way of foreign competition that U.S. products do
not already face. Carla Hills, U.S. Trade Representative,
estimates that a successful Uruguay Round (so named for the
talks' original venue) would generate an additional $5 trillion
in world output over the next decade, of which the American
share would be a hefty $1.1 trillion. It's "like writing a
check," explains Hills, "to every American family of four for
$17,000, payable over 10 years."

    No one should wait by the mailbox. But American industries
and individuals do stand to gain materially from a successful
Uruguay Round. The pact, as it stands, contemplates a one-third
drop in average tariffs and safeguards against hidden export
subsidies. It would also provide a stronger forum for settling
trade disputes amicably than unilateral reprisals, such as the
$1 billion in new tariffs on European goods that the U.S.
threatened last week in retaliation for E.C. subsidies on
oilseeds like soybeans.

    The Uruguay Round is especially interesting to American
business because it tackles whole new areas of commerce, perhaps
one-third of the world economy, previously left outside GATT
controls: services like banking, insurance and
telecommunications; intellectual property such as patents,
software and video recordings; and agriculture. These are all
areas where U.S. firms could strenuously compete if foreign
governments treated them no worse than homegrown firms. For
example:

    -- Arthur Andersen, the accounting giant, cannot penetrate
the carefully designed thicket of regulations that keeps its
auditors from practicing in Turkey.

    -- U.S. banks are denied access to automated-teller
networks in some Asian countries.

    -- IBM estimates that software duplication, especially in
countries with weak antipiracy laws, causes the company to lose
more than $1 billion in sales each year.

    -- The foreign equivalent of "Buy American" laws have
barred General Electric from selling a single steam turbine to
generate electricity in Europe since 1947.

    But getting from here to GATT will require a slog through
the farmyards of the world. "The key to the whole GATT equation
is agriculture," says a senior U.S. official. "For the Latin
Americans and the Asians to make commitments in services and
intellectual property, they have to get access to agricultural
markets."

    Precisely the problem, say farmers in Europe. They like
the quotas and tariffs provided by their governments to bolster
their incomes. And they fear the monetary loss the Uruguay
Round would bring about in order to give foreign products a fair
shake. The E.C. doled out $45 billion in subsidies last year,
$4,100 a farmer, even though farming generated a tiny 3.5% of
European output. Despite seeking their own, albeit smaller,
subsidies from Washington, American farmers resent the E.C.'s
largesse and threaten to fight any GATT treaty that fails to
curb it. But the E.C. has dug in.

    Washington, despite its free-market rhetoric, spends about
$8 billion a year to underwrite American farmers. Trade
barriers further boost farm income. Quotas keep cheaper foreign
sugar, for example, out of U.S. supermarkets, which cost
American consumers $1.9 billion in 1987. But these programs
would continue almost untouched by the Dunkel proposal, which
gives credit for existing U.S. efforts to scale back subsidies.

    While Americans may sneer at the far more expensive
addiction of Europe's farmers to subsidies and trade barriers,
some of Uncle Sam's industries cannot live without a stiff fix
from Washington. U.S. shipyards enjoy the protection of a 50%
tax imposed on nonemergency repairs of U.S.-owned ships in
foreign yards. Another boost to maritime interests is a law that
prohibits foreign-built vessels from carrying goods from one
American port to another. In Geneva, U.S. negotiators say they
want to exempt shipping altogether from the new GATT regime.
Extensive textile quotas, which the Uruguay Round proposes to
bring under GATT for the first time, raise the bills of every
American family almost $500 a year, according to a 1987 study.
But the beneficiaries of such protection -- politically well
organized textile manufacturers and unions -- can exert
political leverage, while those who pay for it are widely
dispersed.

    "The people who will gain jobs in computers and services
because of GATT don't know who they are yet," says a
congressional aide. "The people who will lose their jobs in
textiles know damn well who they are." The Bush Administration
welcomes the Uruguay Round precisely because it will strengthen
Washington's hand in just saying no to inefficient firms looking
for a bailout. "This is a form of deregulation at home,"
observes a senior official.

    If such pocketbook arguments for liberalized trade aren't
convincing enough, there are some compelling political ones. The
countries in Latin America, Eastern Europe and the former Soviet
Union now groping toward economic liberalism covet GATT
membership as a way to reinforce market-oriented reforms and to
win foreign investment. It would be unfortunate for GATT to
wither and die just as these countries are joining up.

    Moreover, many experts predict that a collapse of the
Uruguay Round would shove the world economy into a protectionist
spiral, leading to serious political frictions between the U.S.
and its major trading partners reminiscent of the Great
Depression. "With the collapse of communism," says a White House
official, "we're finding that our relations with countries
around the world are focused more on economics and that the
irritation points are economic too." If these irritations
accumulate, huge regional trading blocs under construction in
Europe and the Americas could be joined by one in Asia, all of
them bristling with trade barriers.

    Other analysts doubt that the aftershocks of a GATT
failure would be so cataclysmic, and they point out that GATT
rules were unable to solve America's trade problems with Japan
in the 1980s. Some environmentalists argue that a strong
free-trade regime will block individual countries from banning
ecologically suspect products or subsidizing conservation, and
they dislike GATT's relentless quest for economic growth.

    What's next? Washington is promoting the July 6 summit of
the leaders of the seven industrialized nations, known as the
G-7, as the logical deadline for resolving its impasse with
Europe over farm subsidies. "These are very difficult problems,"
says a senior Administration official, "but at some point
everybody has to hold hands and jump into the water." The
diplomats in Geneva may find their job easier if they recognize
that any lengthy negotiation reaches a point where the best
becomes the enemy of the good. But they will also be aided by
a broader constituency aware of what it all means for them.