If free-trade agreements really did free up all trade among nations, they would have to be only one sentence long. But the new global trade deal popularly known as GATT runs to roughly 22,000 pages -- and the legislation that Congress is expected to adopt this week to put the deal into effect is another 650 pages long. That's because the agreement and accompanying legislation are more like a tortuous road to freer trade pockmarked with protectionist potholes along the way. And the sad truth is that some of these potholes could outlast portions of the new road itself.
A prime example is the section of the agreement that deals with textiles and apparel, one of the most heavily protected areas of global trade. For decades, rich countries like the United States and Germany have placed intricate quotas on textiles and clothing imported from poorer nations. Tariffs, or duties on imports, are also high in this trade sector; whereas the average U.S. tariff on goods is now 2 percent, America's tariffs on apparel average 20 to 30 percent. This web of protection boosts the prices that American shoppers pay for imported clothing and textiles by an estimated $9 billion a year; that's $30 on a $60 imported men's sweater. George Washington University economist Joseph Pelzman calculates that U.S. consumers collectively pay about $50,000 annually to preserve each of roughly 47,000 domestic apparel-producing jobs paying around $20,000.
Day of reckoning. The new trade pact takes aim at the barriers, committing rich countries to dismantle quotas and convert them to tariffs by 2005, and then to negotiate these tariffs downward. Yet underlying this long-term commitment is a rich tapestry of protection. In fact, the countries that signed the trade accord put off dismantling most of their quotas until 2004; that means that almost half of all the clothing imported into the United States will still be brought in under costly quotas for 10 more years. But 2004 now looms as an especially painful day of reckoning for rich countries -- and some analysts worry that domestic apparel manufacturers will lobby to push back the deadline even further as it approaches. Moreover, under the deal, wealthy nations can actually impose new quotas if imports surge unexpectedly over the next 10 years. And even the agreement's tariff cuts fall short of freeing up trade. When all the scheduled cuts are completed, U.S. consumers still will pay an average 18 percent tax on clothing imports and more than 15 percent on imported textiles like wool.
Much of the fine print in the "implementing" legislation that Congress is expected to adopt this week also has a protectionist cast. Retailers like Dayton Hudson Corp. and clothing manufacturers like Liz Claiborne Inc. are up in arms about a provision that would change "rules of origin" applying to apparel imports. Under current rules, for instance, a shirt or dress is considered to be from Hong Kong if the fabric is cut there in high-tech plants but is then shipped to China to be sewn together by low-wage workers. The new rules would reclassify such a garment as coming from China -- in other words, from the country where it is sewn.
Proponents argue that this is far more sensible, since most of the value of the garment is added in the sewing process and since other countries have similar rules. Opponents hotly dispute both points for complex reasons that could take infinite reader patience to spell out. Suffice it to say that the effect of the rule change will be to wreak havoc for many U.S. retailers and clothing manufacturers with overseas operations. They will now have to shop around for new countries to sew their garments in -- places like Bangladesh and India that depend heavily on child labor. And the retailers estimate that making such moves will raise clothing costs for the average U.S. family by $200 a year.
Not surprisingly, the key backers of the rule change were U.S. apparel manufacturers like Fruit of the Loom Inc., which produces much of its clothing domestically, as well as lawmakers like Democratic Rep. Benjamin Cardin, whose Maryland district includes several large apparel plants. It also was pushed by the Clinton administration, which hoped the rule change would help to buy support for the trade deal from legislators like Democratic Sen. Fritz Hollings from the textile-producing state of South Carolina. But Hollings later renounced the trade pact and tried to scuttle a congressional vote on it by urging a delay. So much for trying to curry favor with protectionists.
The ultimate lesson of this yarn may be that protectionism is like kudzu, sprouting up even in nooks and crannies of a free- trade deal. Assuming GATT passes this week, we should congratulate U.S. policy makers for beating much of this thicket back -- but also ask why they didn't do even better.
