Back to basics as Gatt goes round and round: As another Uruguay deadline looms David Bowen explains the ins and outs of the seven-year trade saga

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The Independent Online
AFTER President Clinton's success in winning the Congress vote on the North American Free Trade Agreement, the omens for that other long-running trade saga, the General Agreement on Tariffs and Trade, suddenly look good again. For those who have not followed every byzantine twist and turn in the seven-year saga of the Uruguay Round - the biggest set of trade-liberalising measures ever attempted - here is a simple guide.

Why is Gatt in the headlines again?

Yet another deadline for agreement is less than a month away. The cut-off for the completion of the Uruguay Round has slipped repeatedly in the past three years. The timetables are set to suit the US Congress: under a special 'fast track' procedure, it agrees to approve the complete package without altering it, as long as it receives the package by a certain date.

The last deadline, 2 March, was missed largely because of dithering and posturing by the new US administration. The process stopped almost dead, and did not start again until the end of June when Congress gave the White House permission to start negotiating, with a new deadline of 15 December.

By then President Clinton had decided free trade was a good thing. And at the Tokyo World Economic Summit in July ministers from the EC, US, Japan and Canada agreed on new targets for tariff reductions vital for the round's completion. The process was also given impetus by the arrival of Peter Sutherland as new Gatt secretary-general. A former EC Commissioner, he has been conducting a high-profile campaign to force the Uruguay Round through.

Even though negotiations have been steaming ahead in Washington, Brussels and at Gatt's Geneva headquarters, an alarming number of loose ends remain. These - combined with increasingly loud noises from anti-Gatt lobbies - have concentrated the minds of politicians and journalists.

Will there be an agreement?

Peter Sutherland says he swings between optimism and pessimism 10 times a day. A Gatt official says that the mood in Geneva is 'determined' and that there are signs that the frantic horse-trading of the last few months is finally producing results. Though nothing has been officially announced, it appears that Japan is prepared to lift its ban on rice imports, while the Americans have withdrawn their insistence on keeping unilateral trade sanctions. These sanctions, such as the punitive tariffs imposed on steel imports this year, counter a fundamental Gatt principle that no country should be able to use its muscle to bully another.

The bulk of the 'market access' tariff-reduction package has been completed, even though detailed negotiations did not begin until after the Tokyo summit. Since then thousands of civil servants have been hammering out agreements on a myriad of duties, bargaining tariff reductions on spridgets in country A for those on widgets in country B. Average duties should fall by 35 per cent as a result.

But a variety of issues are unresolved. Earlier this year US lobby groups were busy hurling spanners into the works, and they are still capable of producing surprises. Recently the Americans suggested they did not want to give all countries equal access to their market in financial services. Even without a formal proposal, the suggestion put a large cat among other countries' pigeons - as was presumably the intention.

But it is the Europeans, and specifically the French, who have regained the title of champion spanner-throwers.

The French film industry recently took full-page advertisements in foreign papers excoriating Gatt's proposed audio-visual agreement. This would stop the French discriminating in favour of their own productions, by reserving peak television hours for example.

More seriously, the French have been trying to backpedal on last November's Blair House agreement, which was designed to cut farm export subsidies. The EC, which negotiates as one bloc in Gatt, has been struggling to keep up a semblance of unity on agriculture. Early this month European ministers side-stepped the problem by agreeing to unite in the face of a common enemy - the US. But their unity remains fragile, and could yet splinter in the face of further claims from Paris.

Won't there just be another deadline if the latest one is missed?

The Americans and Europeans say No. The Uruguay Round would be dead on 16 December and officials fear Gatt would suffer a lingering death thereafter.

Theoretically, all the free trade measures painstakingly assembled in the last 45 years would stay in place; in reality, officials say, governments would know they could ignore Gatt and re-erect trade barriers if they wished.

What is the link between Nafta (the North American Free Trade Agreement) and Gatt?

None formally, but President Clinton always maintained that the Uruguay Round would not be agreed unless Nafta was. Observers also say Nafta's rejection would have created an anti-free trade climate that would have undermined the delicate Gatt negotiations.

What is Apec, and does it have anything to do with Gatt?

APEC is Asia-Pacific Economic Co-operation, an informal association of countries on the Pacific Rim, including the US. Its meeting this weekend puts the spotlight on the fastest-growing region of the world, and raises the prospect of another trading bloc that would certainly outperform Europe economically. If Gatt fails and the Americans look west to Apec, Europe could find itself in something of an economic backwater. Indirectly, therefore, the Apec meeting is likely to persuade the Europeans to complete the Gatt agreement.

Does it matter if Gatt fails?

That depends on your point of view. Conventional economics has it that maximising trade maximises wealth. It has however become fashionable to question this assertion. Sir James Goldsmith, the retired tycoon, argues that free trade will inevitably impoverish developed countries as the Third World, with its low costs, takes over all manufacturing. He believes we should have trading blocs that allow free trade within them, but that restrict imports from outside.

Others accuse Gatt of undermining environmental standards. It has for example ruled that import bans for environmental reasons are illegal.

Gatt economists counter both these arguments. Sir James's claim is not sustained by the evidence, they say: every developing country runs a trade deficit with the West, even though many manufacturing jobs have already 'fled' to the Third World. Trade bans imposed unilaterally for environmental reasons are dangerous, they claim, because they could easily be a front for straight protectionism (but see next answer).

What happens next if the deadline is met?

Congress has to approve the package; so do the governments of the other countries signing the Uruguay Round. It will then come into force, probably at the beginning of 1995, bringing lower tariffs, the first rules on trade in services, protection on intellectual property such as patents, and more teeth for Gatt itself.

Then it will be time to move on to the next round which will, it seems, have a strong environmental flavour. Gatt committees are already studying areas where free trade and high environmental standards conflict. They admit that in retrospect the Uruguay Round should have had an environmental element, but point out that it was developed in the early Eighties - before the politicians who made the decisions had their environmental consciousness raised.

(Photograph omitted)

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