Paradoxes of free trade

Kelly, Kevin

1 hile arguments about the pros and cons of the North American Free Trade Agreement (NAFTA) filled the airwaves last fall, a far more muscular trade accord was being hammered out by the...

...Now, suddenly, the agreement reached on December 15, 1993, by the 117 countries party to the Uruguay round of the General Agreement on Tariffs and Trade (GATT) has set the stage for the most expansive free-trade regime the modern world has ever known...
...Tariffs will also vanish in the construction equipment, furniture, whiskey, pharmaceutical, paper, and steel industries...
...Many U.S...
...permanently limited the role of the traditionally interventionist Mexican government...
...The U.S...
...Under this regime, the current European effort to have American clean air standards labeled an unfair trade practice is more likely to succeed...
...It may also end up stunting economic and technological progress...
...regulations, such as the Clean Air Act...
...Drug companies failed to gain protection for their intellectual property rights in the third world for another ten years, which heightens worries that new products might be hijacked...
...The new deal will slash tariffs blocking the free flow of manufactured goods, rewarding U.S...
...At least in principle, the new body stands as a threat to national sovereignty and could permit governments to challenge other countries' protections of the environment, 6 REPORT ON GATT PARADOXES OF FREE TRADE READ THE FINE PRINT workplace health and safety, and social programs on the grounds they constitute restraint of trade...
...The current agreement proposes the creation of a new United Nations-like organization called the Multilateral Trading Organization (MTO) that would settle commercial disputes between countries...
...and medical device makers like Medtronic, Inc., tariffs in the industrial world, where 75 percent of world trade is concentrated, will disappear...
...In one landmark case, GATT administrators determined that the U.S...
...But if it undermines local political institutions and fails to produce the stimulus the world economy so desperately needs, it may be time for the world leaders to say goodbye to the process and figure out a new strategy for the twenty-first century...
...Indeed, if any nation wants to impose standards above an international minimum, it would have to meet tough requirements...
...If this scenario plays out, GATT may end up undermining local democratic institutions at the behest of free trade...
...Not that the present GATT system doesn't already interfere in local decision making...
...Certainly the Uruguay Round will produce some new business for many companies...
...France, particularly, argued that nations needed some control over popular media to preserve indigenous culture...
...But a larger customer base will produce higher sales only if governments learn to coordinate monetary, fiscal, and spending policies to promote growth...
...The agreement will also limit the money governments can spend on basic research, a favorite tactic in Japan, forcing private industry to foot the bill...
...movie industry wanted GATT to ban European quotas on U.S...
...programming...
...Corporations like Caterpillar are petrified that slower growth will mean dwindling profits...
...It has attempted to enshire free trade as the defining principle in the international economic system, by making any quotas, perceived barriers, or tariffs, for whatever purpose, illegal...
...This is hardly an understatement...
...NAFTA, in part, was about imposing a particular social and economic system on Mexico so that corporations could feel secure investing there over the long term...
...By codifying in a treaty certain practicesólike the free flow of goods across bordersóthe U.S...
...If those measures can be challenged in the MTO, important innovations, that not only make a profit but improve the environment, might be lost...
...The resulting upsurge in demand for U.S...
...He lives in Chicago...
...And U.S...
...products, says the Clinton administration, will produce 1.2 million new jobs by the year 2000...
...By the year 2002, the Organization for Economic Cooperation and Development predicts, the pact could boost worldwide merchandise trade by up to 10 percent annually, or $270 billion...
...The Uruguay Round of GATT does basically the same thing for the rest of the world...
...Agricultural subsidies in industrial countries will be cut 21 percent over six years, giving a boost to lower-cost U.S...
...1 hile arguments about the pros and cons of the North American Free Trade Agreement (NAFTA) filled the airwaves last fall, a far more muscular trade accord was being hammered out by the world's major economic powers with scant attention paid the proceedings...
...Says Donald Fites, chairman of construction equipment manufacturer Caterpillar, Inc.: "The GATT agreement creates a tariffless world economy fourteen times the size of NAFTA...
...But this, the seventh round, has gone one step further...
...farm products...
...Most troubling are the limits GATT will place on domestic social policies...
...But not everyone is overjoyed...
...industries, like the heavy-duty truck engine business, have become world beaters because they' ve had to develop new products to meet tough U.S...
...KEVIN KELLY Kevin Kelly writes for Business Week...
...textile manufacturers worry that cheap imports could wipe out over 1 million jobs once tariffs are removed ten years hence...
...The biggest victors are a broad range of industries where tariffs will plummet to near zero...
...Undoubtedly GATT, initiated in 1948 to remove barriers to the trade of manufactured goods, has helped fuel economic growth...
...That didn't happen...
...GATT doesn't nearly address that problem...
...For big manufacturers like Deere & Co...
...Governments worry about the job loss...
...The impact...
...companies like Caterpillar with open access to once shuttered markets in Europe and Asia...
...can't restrict imports of tuna caught by methods that needlessly kill dolphins...
...More than anything, the recent rush to free trade reflects growing concern on behalf of world business and political leaders that slower economic growth can be sidestepped only by creating bigger markets...
...It's likely such cases will multiply, since the new deal seeks to harmonize environmental and health regulations between countries...

Vol. 121 • January 1994 • No. 1


 
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