BUSINESS

THE GREAT GLOBAL TRADE-OFF

GETTING TO GATT TOOK COMPROMISES AU AROUND

December 27 1993
BUSINESS

THE GREAT GLOBAL TRADE-OFF

GETTING TO GATT TOOK COMPROMISES AU AROUND

December 27 1993

THE GREAT GLOBAL TRADE-OFF

GETTING TO GATT TOOK COMPROMISES AU AROUND

BUSINESS

The late-aftemoon light was already fading outside Prime Minister Jean Chrétien’s third-floor office when the call from Geneva finally came through. Sitting with his senior adviser, Eddie Goldenberg, and Agriculture Minister Ralph Goodale, Chrétien was briefed over the speakerphone by Trade Minister Roy MacLaren on the historic 400-page trade deal that Canada and 116 other nations had just concluded. After seven years of increasingly edgy negotiations, the Uruguay Round of the General Agreement on Tariffs and Trade (GATT)—designed to liberalize world trade by reducing tariffs and opening markets—was finally in place. “Prime Minister, this is a big, big deal and Canada has done very weU,” said MacLaren, as he outlined its key provisions. “We have got a lot to celebrate.” Chrétien, however, had his attention focused closer to home. “Yeah, but farmers are not celebrating,” he noted.

That exchange between the two veteran politicians captured the essence of the intense final hours of the Uruguay Round. Simmering just beneath the familiar platitudes about the collective advantages of improved global trade was the harder reality of political posturing and tough trade-offs: for every point gained at the negotiating table, another was sacrificed. In the end, Canada managed to preserve provincial funding for agricultural and industrial incentive programs. But without the support of any allies, it was forced to abandon the rigid quota system for agricultural imports for a more flexible tariff system. Still, those tariffs, which will be reduced by only 15 per cent over six years starting in July, 1995, are high enough to preserve existing price levels for eggs, milk and poultry products. The tariffs, which range from 351 per cent for butter to 192 per cent for eggs, will also lock in the significant price differential between Canadian and U.S. prices for food. According to an Emst & Young study commissioned by the Grocery Product Manufacturers of Canada, Canadian shoppers already pay 112 per cent more for eggs, 147 per cent more for chicken and 133 per cent more for milk than their U.S. counterparts. Still, at week’s end Goodale was already attempting to soothe farmers by meeting with provincial agriculture ministers in Ottawa to discuss the adjustments required under the new regime.

Despite the vocal objections of farm lobbyists—and the more muted disappointment expressed by food processors and consumer advocates who had pushed for less agricultural protection—Canadian busi-

ness greeted the GATT agreement enthusiastically. Over the next five years, GATT members have pledged to cut tariffs on a wide range of products by at least one-third. Canada, the United States, Japan and the European Community (EC) will drop tariffs to three per cent or less for such key sectors as paper, pharmaceuticals, chemicals and steel. According to trade officials, the deal ultimately translates into open access to a $ 167-billion market for goods and services for Canada and it is expected to add about $266 billion to the world economy by 2005. Said Jayson Myers, an economist with the Canadian Manufacturing Association: “With persistently weak domestic demand in Canada, the ability to export and to have guaranteed access to an orderly global market is absolutely essential.”

At a time when international trade is increasingly characterized by strong, regional trade blocs, the success of the Uruguay Round is especially critical. Daniel Schwanen, a policy analyst with the C. D. Howe Institute in Toronto noted: “The strengthening of regional trade blocs without a GATT deal are a real concern. A supra-structure like GATT is needed to ensure that they don’t erect new barriers to those outside their walls.” But Schwanen also said that the regional blocs were a “laboratory for GATT” and that their formation had helped Uruguay Round participants to craft a more comprehensive accord. Specifically, he said that the North American Free Trade Agreement (NAFTA) demonstrated that a trade deal between lesser and more developed countries could be negotiated. “It’s less important how long the accord takes and more important to get it right,” he added.

Despite the precedent of NAFTA, however, a strengthened GATT agreement has special strategic significance for Canada. About 80 per cent of Canada’s trade is with the United States, and the new rules provide some multilateral balance to that historically uneven relationship. The GATT, which will now evolve into the World Trade Organization (WTO), is charged with consistently enforcing the agreed-upon rules for international trade. That means that before any unilateral trade action is taken, the dispute must first be referred to the organization. That means that if the United States follows through on its veiled threat to challenge the level of Canada’s new agricultural tariffs, it would have to take its case to the WTO, rather than relying on the rules set out under NAFTA. Ottawa is already prepared for that event Declared MacLaren: “Our position is based on good legal advice. It is up to each country to set its tariff equivalents. That’s what we did.”

Still, trade experts say that they are reserving judgment about the WTO’s ability to act as a global trade enforcer. The United States, despite its aggressive push to conclude the Uruguay Round, refused to relinquish its freedom to exercise unilateral anti-dumping measures. Under the existing system, the United States can claim that foreign entities are selling in its market for less than their cost of production and can inflict onerous penalties until the claim is resolved. Earlier

this year, the complaint of 12 U.S. steel producers led to the sudden imposition of special duties, as high as 109 per cent, against Canada and 19 other countries. And even MacLaren admitted that “Congress is very leery of diluting its anti-dumping authority.” Ottawa-based trade consultant Peter Clark also warned: “The U.S. is a litigious society. They find it difficult to accept that an international body could overrule their laws.” Despite the heightened emphasis on the new, multilateral agreement, Canada plans to proceed in 1994 with the establishment of special NAFTA panels to address both anti-dumping and subsidy rules. MacLaren also insists, “The code set out in the Uruguay Round provides a good base for the NAFTA working groups.” But future wrangling—and the possibility of a U.S. backlash against Canada’s high agricultural tariffs—were on the back burner at the end of last week. At a stopover in London, MacLaren escaped to the theatre to see a current production of The Two Gentlemen of Verona—a far less complicated drama than the one enacted by the cast of 117 in Geneva.

DEIRDRE McMURDY with ANTHONY WILSON-SMITH and NANCY WOOD in Ottawa