BUSINESS

D-day for trading

The economy is at stake in the GATT talks

PATRICIA CHISHOLM October 15 1990
BUSINESS

D-day for trading

The economy is at stake in the GATT talks

PATRICIA CHISHOLM October 15 1990

D-day for trading

BUSINESS

The economy is at stake in the GATT talks

At his home in Hull, Que., Germain Denis usually skips breakfast. But when Canada's chief negotiator to the General

Agreement on Tariffs and Trade (GATT) is in

Geneva, he begins each day at about 7 a.m. with coffee and croissants. Denis,

49, says that the morning meals help to maintain his “balance” during the meetings that fill his days. Often, he is joined at the breakfast table by negotiators from other countries. After that,

Denis consults his colleagues at the Canadian mission, a 10-minute walk from the elegant downtown hotel where he often stays. By 10 a.m., he is at work in the GATT’s four-storey headquarters on the shores of Lake Geneva, where hours of informal talks sometimes culminate in high-pressured bargaining sessions in the organization’s smoky, overcrowded main meeting room. Said Denis: “At times, it gets quite miserable in there, but some fine horse-trading goes on.”

The pressures on Denis, a veteran

of the free trade talks with the United States and the earlier Tokyo round of the GATT talks, and his fellow negotiators are likely to escalate sharply in the weeks ahead. Four years after

the beginning of the so-called Uruguay round, the delegates in Geneva have failed to reach agreement in most of the 15 key areas under discussion. Now, with less than two months until the talks are officially scheduled to end in early December, the GATT’s 99 member countries are making one last push to resolve their differences. By Oct. 15, the delegates in Geneva have to table new negotiating positions. The final round of talks will then begin in Brussels on Dec. 3. If they are successful, GATT delegates say, the world can look forward to a new era of liberalized trade and prosperity. But if

they fail, the world’s trading nations could be swept up in a damaging protectionist war. Declared Robert Lawrence, senior fellow at the Brookings Institution, a liberal-orieñted thinktank in Washington: “If the talks fail, people will declare the multilateral trading system dead and begin to look for alternatives.”

The lack of agreement has raised serious doubts that GATT members will resolve their differences before the December deadline. The most serious problem is the battle between the EC and other grain-producing countries to eliminate, or substantially reduce, the over $250 billion that is spent worldwide on farm export subsidies. Progress has also stalled because of disputes about opening markets for textiles and service industries, as well

as protection for intellectual property such as computer programs and prescription drugs.

For many countries, the stakes are high. Since the GATT began in 1948, the annual value of global trade has increased dramatically from about $60 billion to its current level of about

$3.6 trillion. GATT agreements stimulated that growth by steadily reducing tariffs on manufactured goods and energy products. But many non-tariff barriers remain, including subsidies, marketing boards and ownership restrictions in politically sensitive sectors like agriculture and banking. Experts say that eliminating those barriers would dramatically increase trade and provide critical export markets for developing countries.

As a result, the final eight weeks of the current round will be the most ambitious—and the most difficult—in GATT history. In an effort to break the logjam, Trade Minister John Crosbie will meet his counterparts from the so-called quad countries—the United States, Japan and the European Community, as well as Canada—in St.

John’s, Nfld., on Oct. 11 to 13 to discuss the pressing issues facing the GATT. The group, which has met regularly since the early 1980s, accounts for about 80 per cent of world trade.

Still, the obstacles to an agreement are large. Acknowledged deputy U.S. trade representative Julius Katz: “Everything has yet to be

resolved. I am not pessimistic, but I am a little disheartened and frustrated.” Katz added, however, that a new deal is still possible. “The profile of an agreement is clear,” he says. “It would not take any time to put one together— but what is required is the political will.”

The key to ending the GATT’s paralysis is an agreement on agricultural subsidies. Over the past 20 years, EC members have steadily increased the subsidies they pay to their 11 million farmers, most of whom run small and relatively inefficient operations. And as subsidies rise, world prices for agricultural products

plummet, placing increasing financial pressure on farmers who receive relatively low subsidies. Currently, EC wheat farmers receive a guaranteed price of $256 per ton and U.S. farmers receive $170, while beleaguered Canadian grain growers receive $135, about the

same as their cost of production.

Canada, which provides about $3.3 billion a year in financial aid to farmers, faces a thorny dilemma on the issue of farm supports. While Crosbie has promised to push hard to “get governments out of the business of subsidizing agricultural products,” farm sectors that are protected by internal supports like egg, milk and chicken marketing boards could become more vulnerable to cheap foreign imports. Other sectors, such as grain, hog and cattle producers, however, would benefit from a worldwide reduction in export subsidies. In an attempt to reflect the interests of both groups, Agriculture Minister Donald Mazankowski confirmed last week that Canada has tabled a new series of GATT proposals with a “balanced posi-

tion” for the reduction of all farm supports. Such a proposal is possible because GATT members last summer agreed to maintain some form of internal farm supports.

As the negotiations approach their climax, relations among GATT members have become increasingly strained. Last month, EC Agricul-

ture Commissioner Ray MacSharry of Ireland angrily accused the United States of using “intimidation and threats” in an attempt to influence the community’s bargaining position. He was responding to U.S. Trade Representative Carla Hills’s comment that her country will abandon the talks if the EC approves a plan to cut farm subsidies by only 30 per cent by 1996. Hills has proposed a 70-per-cent cut by the year 2000, which is less than the original U.S. negotiating position calling for the total elimination of subsidies by the year 2000.

At the same time, EC officials have accused the United States of waging a propaganda war to focus attention on the current round of negotiations on farm supports. But according to Jacques LeComte, the EC’s representative in Ottawa, several other issues are equally important, including the battle to expand markets for financial services and textiles.

Publicly, most GATT negotiators say that they are optimistic that the current round will succeed. But they caution that, if it fails, an important opportunity will be lost. Said Katz: “The world will not tilt off its axis, but it will be less well off. Trade disputes will increase, and the multilateral system will be threatened.”

A breakdown of multilateral negotiations would also accelerate the current trend towards regional trading blocs. Dominated by the United States in North America, Germany in Europe and Japan in Asia, those blocs are already a significant factor in global trade. Last June, Bush declared his intention to seek a free trade agreement with the whole of Latin America, provoking speculation that Washington had given up on the GATT. Katz, however, said that the announcement was not intended to pressure GATT delegates into reaching an agreement, but merely to promote world trade. For his part, Paris-based economist Robert York, on leave from Toronto’s C. D. Howe Institute, says that regional blocs are compatible with multilateral trade as long as they do not erect barriers to imports from outside the regions. But York added that a GATT failure would hurt many developing countries because they would likely be shut out of regional blocs.

If the talks in Geneva remain at an impasse, some GATT members may be willing to accept a less comprehensive settlement. Instead of a sweeping pact to liberalize global trade, they could devise a series of more narrow agreements that bind only those countries that are able to agree on a limited number of issues. But according to York, Canada prefers not to go that route. In any case, Katz says that there is no point in extending the December deadline. He added, “Ultimately, you have to bear down on the details and on making the hard political decisions.” A firm deadline, said Katz, is the only way to put pressure on delegates to reach an agreement. Indeed, there is little doubt that the atmosphere in Geneva will be intense. In the few remaining weeks of the Uruguay round, delegates will be keenly aware that the outcome of their discussions will shape world trading patterns well into the next century.

PATRICIA CHISHOLM