Business

What GATT does over there, may hurt over here

IAN URQUHART June 12 1978
Business

What GATT does over there, may hurt over here

IAN URQUHART June 12 1978

What GATT does over there, may hurt over here

Business

To some, GATT is the kind of household name that wouldn’t be a name even in its own house. But the General Agreement on Tariffs and Trade is the rule book for international commerce, and the horse-trading and number-crunching that has been under way for five years may hit Canadian workers hard. The gabbers at Geneva may join the gnomes of Zurich as legends to be loathed. For 30 years, GATT agreements have been made and remade but perhaps at no other time have so many Canadians stood to be hurt by the results. From the textile factory hand in Quebec to the woodworker in B.C., from the stove production line in Ontario to the Atlantic stevedore, this 98-country gathering could reach across the ocean and into domestic paypackets.

Initially, GATT was an attempt by trading nations to prevent a return to 1930s protectionism by lowering tariffs and setting down rules for fair trade. Since 1948, the original agreement has been rewritten several times to reflect new realities and maintain the post-war boom. The most recent rewrite came in the 1967 “Kennedy Round” named after the late American president. Then, tariffs were cut again by about one-third. But since 1967, non-tariff barriers to trade have sprouted like weeds, as countries seek to protect struggling industries from foreign competition. These barriers range from government purchasing-policy preference for domestic industries to health/safety standards tailored to discriminate against foreign goods. The current GATT talks—known as the “Tokyo Round” because they began in the Japanese capital before moving to GATT headquarters in Geneva—is focusing on these barriers along with tariffs.

The Tokyo Round began in 1973 and was targeted to wind up by 1975. The OPEC oil-price hike, Watergate, the U.S. presidential election, and a host of other political and economic problems stalled the talks. During a 1977 meeting at 10 Downing Street in London, leaders of the Western world’s seven major countries* pledged “a new impetus” to the talks. “We reject protectionism,” they declared. “It would foster unemployment, increase inflation, and undermine the welfare of our peoples.”

Translating these lofty sentiments into a hard agreement has proved difficult and the GATT talks have progressed slowly in spite of the Downing Street declaration. The Big Three—the U.S., Japan, and the European Common Market—are still far apart on such key issues as agricultural

* Canada, Britain, France, Italy, Japan, the U.S. and West

protection, artificial export subsidies, and non-tariff barriers in general. The Big Seven meet again July 16-17, this time in Bonn—and the assembled presidents and prime ministers, being political animals, want something to announce. A new GATT agreement, however watered down, would be ideal. Thus, the negotiators in Geneva have been told to come up with something, anything, in time.

The danger for Canada is that non-tariff barriers, the most difficult to curb but a real problem for Canadian exporters (try selling telephones to France), could be left out of the new agreement with vague promises to talk about them later. Agreement on tariff cuts will be achieved because the Big Three are close to agreement. That could hurt Canadian industry. The tariff cut tentatively agreed to would be about 40 per cent, more than in the Kennedy Round. Worse, for Canada, is the proposal to cut high tariffs proportionately more than low tariffs to achieve the 40 per cent average. Most of Canada’s exports face relatively low tariffs while its domestic industries are protected by high tariff

IAN URQUHART

walls. Acceptance of this proposal, known as the “Swiss formula,” could result in the loss of jobs in such tariff-protected industries as textiles, clothing, shoes, furniture, plastics, shipbuilding and appliances, without accompanying employment gains in the export-oriented, resource-based industries. No one really knows how many jobs would be lost, but some scare stories predict 350,000 with whole towns crossed off the map by a pen stroke at Geneva.

Trade Minister Jack Horner, a free trader by nature, scoffs at such forecasts. “The GATT agreement might cost us jobs in one or two isolated spots,” he says. “But overall, there should be a net gain in employment.” For industries seriously hurt by GATT changes, he promises aid through grants or loans.

Horner and the government view a new GATT not as a threat but as an opportunity to rationalize Canadian industries, phase out unproductive sectors and gain new markets for the productive, GATT, in this perspective, is a catalyst for long-overdue change in the Canadian economy. “We’ll have to get out of some industries,” says Horner, “GATT puts a greater onus on us to stay in the right ones and get out of the wrong ones ... The mother of invention is necessity, not protection.”

Just what industries are right or wrong for Canada, Horner is reluctant to say. But his argument is supported, at least in theory, by the economists, most of whom are textbook free traders; by the West and Atlantic Canada, traditionally free trade supporters; and by consumers, at least those who would keep their jobs and enjoy lower import prices if tariffs are cut.

There is, however, no consensus in Canada on the best approach toward GATT. Indeed, Canada is perhaps more divided on the issue than any other country involved. Central Canada manufacturers, for example, are horrified at the prospect of sweeping tariff cuts. Unions, once free traders, are becoming more protectionist. Says Don Montgomery, secretary-treasurer of the Canadian Labour Congress: “We support free trade as long as it’s fair,

not some corrupt government in South Korea paying 12-year-old girls to run sewing machines 10 hours a day.”

The task of reconciling differences and bargaining for everyone’s best possible deal has been handed to Rodney de Charmoy Grey, 57, a career civil servant with a PhD in political economy, Canada’s chief negotiator in Geneva. Though Grey is often characterized as rude and arrogant,

his negotiating skills are universally respected. In Geneva, he is pressing for two main concessions in any tariff-cut package:

• The elimination of tariffs 5 per cent or lower. These cover most of Canada’s exports. The “Swiss formula” would lower such tariffs by only one or two percentage points. Not much help because the paperwork and bother would remain an effective export deterrent.

• Substantial tariff cuts on processed resources from Canadian forests and mines. Most Canadian resources exported now face no tariff as raw materials, but are hit with duties if processed in any way, such as converting lumber to plywood. If duties were lowered, or even removed, more processing might occur in Canada.

The initial response to this position from

the U.S., Canada’s major trading partner, was encouraging. The U.S. reportedly offered to meet most of Canada’s demands in a package with tariff cuts averaging 60 per cent, well above the Swiss formula’s 40 per cent. But Canada won’t get something for nothing. Now it is Canada’s turn to give up something to get what it wants.

Grey is not saying what that might be but a government background paper leaked recently gives some indication. “Some industries will remain the focus for industrial adjustment,” says the paper in bureaucratese. “These include the traditional sectors of textiles, some clothing, footwear and furniture, and some electronics industries. For these industries, the policy objective should be to reduce progressively the employment base through increased rationalization behind a necessary minimum of transitional protection.”

The government says the paper was meant simply to stimulate discussion and it has no intention of writing off any industry. But industry representatives, perhaps doubting Canada’s ability to get what it wants, are near panic as the deadline nears for a GATT settlement. They have been trooping to Geneva to press their views on Grey as well as lobbying furiously in Ottawa. Says J. Taylor Kennedy, the new president of the Canadian Manufacturers’ Association: “Canada can’t suddenly

abandon thousands of workers and millions of dollars of investments.”

To a large extent, however, Canada has no choice but to go along with any agreement worked out by the Big Three at Geneva. Canada could decide to stay out of a new GATT, but with trade a quarter of Canada’s gross national product, that would be disastrous. Canada can use its leverage as a supplier of raw materials, but that leverage is declining as the Third World begins producing the same materials.

If the GATT talks turn out badly for Canada, the government might have to consider free trade with the U.S. With the talks still under way, the “third option,” de-emphasizing trade with the U.S. in favor of Europe and Japan, remains official government policy. But the government may decide after GATT that it must align itself directly with one of the Big Three to get a fair deal. The U.S. is the only logical partner. When the Economic Council of Canada floated this idea three years ago, it quickly sank, but the country may be more receptive now. Already there are pressures outside the government to move in this direction. Former Conservative leader Robert Stanfield favors it, as does Duncan Edmonds, chief policy adviser to the current leader, Joe Clark. B.C. Premier Bill Bennett is said to endorse it, and the Ontario government has begun studying it. But opposition to economic union with the U.S remains strong, and the apprehension is real. Says free trader Horner: “I don’t think you can just open the borders and say we’re all one economy. Canada would get raped if you did that.”