GATT Bridges the Gap

By Howard, Kim | Business Credit, March 1994 | Go to article overview

GATT Bridges the Gap


Howard, Kim, Business Credit


It's August 1947. Harry Truman is in the White House. Big band swing shares radio space with pre rock-n-roll. Baby boomers, who would later have a tremendous impact on statistics and Gallup Polls, are just entering the world. Meeting in Geneva, Switzerland, 23 nations finalize the General Agreement on Tariffs and Trade (GATT) which will go into effect on Jan. 1, 1948. Forty-six years have gone by since these trade pioneers began cutting tariffs. Seven rounds later, multilateral trade negotiations which began in a country that has always been known for its neutrality, are sometimes not as impartial as their birthplace.

Round Eight

The latest round of negotiations began seven years ago (September 1986) in Punta del Este, Uruguay. The original goals were to reduce barriers to trade in goods, including tariffs and non-tariff barriers such as quotas, export subsidies, and anti-import regulations. This round was also supposed to extend the 46-year-old GATT which is the rule book for international trade, including agriculture, financial and other services, and the protection of intellectual property such as patents.

The Uruguay round's predecessors have had a profound effect on the world economy. Between 1950 and 1975, the volume of world trade expanded five-fold and the world economy more than doubled in size. What effects will this round have? Only time will tell, but here's what 117 nations agreed would impact the fate of global economics.

Tariffs

The major industrial powers agreed to eliminate tariffs on pharmaceuticals, construction equipment, medical equipment, paper, and steel. Overall, the share of goods imported by developed countries without tariffs will more than double to 43 percent from 20 percent; for developing countries, it will rise to 45 percent from 22 percent. Tariffs will also be cut substantially on chemicals, wood, and aluminum. Most tariffs on microprocessors will remain at zero, but those on memory chips and others would drop to 7 percent from 14 percent. Industrial tariffs, which now average 4.7 percent of the value of the product traded, will be reduced to an average of 3 percent.

Textiles and Apparel

Textiles and clothing are the most important export for many developing countries, accounting for nearly one quarter of their industrial exports. The Multi-Fiber Arrangement, a system of quotas that limits imports of textiles and apparel to the U.S. and other developed countries, will be phased out over 10 years. Most U.S. textile tariffs would be reduced by about 25 percent.

Agriculture

Countries that export farm goods will reduce the volume of subsidized exports by 21 percent over six years. Bans on rice imports in Japan and South Korea will be lifted. Quotas for imports of sugar, dairy, and peanuts in the U.S. will be phased out and replaced by tariffs. Initial access to previously closed markets would equal at least 3 percent of domestic consumption; Japan agreed to allow the share of imported rice to increase to 4 percent in 1994 and to 8 percent over six years. The largest tariff cuts are for cut flowers, the smallest for dairy products.

Dumping

The agreement provides for tougher and quicker GATT actions to resolve disputes over use of antidumping laws invoked by the U.S. and Europe to impose penalties on foreign producers that sell goods abroad below cost. Developing nations, often the subject of such antidumping laws, sought to curtail their use. But the final compromise is closer to the U.S. and European position.

Services

Trade in services among GATT members amounts to more than $900 billion a year, but hasn't previously been covered by GATT rules. Developing countries agreed to open their markets to legal services, accounting, and software. However, U.S. negotiators failed to secure access to foreign markets that are largely closed to U.S. banks and securities firms such as Japan, several Southeast Asian nations, and many developing countries. …

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