The Kennedy Round and U.S. Power
Martyn, Howe
THE NAME OF JOHN F. KENNEDY has been attached to a protracted session of bargaining for mutual tariff reductions, conducted in Geneva by the professional negotiators of the GATT countries...
...The reason is that food supplies from overseas are now totally vulnerable to blockade from the air...
...It is illuminating to recall that soybeans, now a major U.S...
...Wasteful costs can be caused by stockpiling among suppliers and distributors as well as in the manufacturer's receiving and shipping departments...
...Benefits created by specialization can also become subject to "unfair" distribution among countries...
...And the Agreements' potential is in speeding-up the spread of , innovations on an international scale—by allowing new products to be market-tested by export, provided these are classified by customs officials as coming under categories covered by the Agreements...
...The theory was that specialization in production would be increased on an international level, that this would be accompanied by increased efficiency, and that therefore more, better, and cheaper goods would result for all...
...Paying for improved employment opportunities directly through high prices for locally-made products may actually be cheaper than having governments collect taxes and then dispense subsidies...
...THE DELUSIONS OF the 1967 Tariff Agreements lie in the claims of practical results as well as in the principle followed...
...Now Britain has a strategic reason to look to the wheatfields of France and accept the planned development of agriculture in the European Economic Community, though this does not seem to have been discussed publicly...
...Agriculture is simply not negotiable by governments...
...This happened to mean free trade, at one time, for one country— namely Britain...
...Hardly the basis for a new era of economic expansion...
...Underdeveloped countries have indeed good economic reasons to seek emancipation from dependence on hewing wood and growing coffee...
...False premises have left an opening for the false rebuttals of old-fashioned protectionism which is now being revived in the United States...
...They have found that their bargaining could not include matters affecting their domestic agriculture...
...The economic theory of the "Kennedy Round," however, was oversimplified, and its information on industrial organization was not up-todate...
...Third, the reductions are only on landed costs, before all the costs and complications of modern internal distribution which include such "unpercentageable" factors as advertising and the influence of salesmen...
...A new consideration in industrial organization is that decentralization may yield substantial savings in cost of distribution which were overlooked in the theory of international specialization (partly because some of them were not knowable with any accuracy in the past...
...this permits the decentralization of assembly plants, and the creation of branches in different countries as well as west and south within the United States...
...The Geneva Tariff Agreements of 1967 were reached by representatives of the various GATT member countries who each were pursuing their own national advantage...
...ADVANTAGES TO BE OBTAINED by the bargaining nations from reducing tariff barriers to international trade were presumed to be mutual...
...That was when the British Navy could assure supplies from overseas...
...There are great gains to be made, most significantly in the welfare of deprived people and in international poli tical stability...
...THE NAME OF JOHN F. KENNEDY has been attached to a protracted session of bargaining for mutual tariff reductions, conducted in Geneva by the professional negotiators of the GATT countries (the adherents to the "General Agreement on Tariff and Trade" of 1947), and intended to promote international trade by progressive, multilateral relaxation of tariffs...
...First, as to their scope: $8 billion of U.S...
...This development is becoming a subject of research in business schools, but it is not yet accommodated in the making of international economic policy...
...THE 1967 GENEVA TARIFF AGREEMENTS would be merely an exercise in futility but for the fact that they have confused a situation that demands forward-looking and -thinking...
...It was agreed that these should be taken up at some time in the future...
...A further and serious objection to the principle of international specialization in production is that people want and need steady jobs, not merely the cheapest possible products...
...What hope of a Churchill in the United States, which abjures both French brandy and Cuban cigars...
...The rising levels NOTEBOOK of processing that characterize modern industry (such as synthetic textiles, convenience foods) increase the advantage of the manufacturing country over the primary producer...
...This theory grew from a view of efficiency focused exclusively on the large factory and plantation...
...But the theory requires so many qualifications in any attempted application to particular countries and particular companies that it is practically useless...
...Secretary of the Interior Stewart Udall refused even to allow foreign bids on Grand Coulee dam turbines on the ground that "it was important that U.S...
...What is this in an $800-billion economy...
...Now the "Kennedy Round" stands in the shadow of President Johnson's 1968 save-thedollar campaign which misplaces its emphasis and gives literal international trade priority over the spread of industrialization...
...but this is to be spread over five years...
...The Kennedy label suggested that a better world was being created, and it made criticism a sacrilege...
...crop and a big export, were once an import—from China...
...The theory that literal international trade is an economic panacea is under criticism among economists themselves, for ignoring the influence of the head start in manufacturing that some countries have obtained, and for the advantage accruing to a company that is located in an industrial community and thus is able to draw on pools of skilled labor, components, and capital...
...Cheap soap gets nowhere against Procter & Gamble...
...The delusion that tariff-cutting "liberalization" of international trade is either an economic panacea or a political possibility is exposed completely by the case of agriculture...
...Larger shares are obtained by countries capable of developing improvements in products and processes...
...The deliberate kind of nontariff barrier was NOTEBOOK demonstrated two weeks after the fanfare concluding the Geneva negotiations, when U.S...
...The latter include the power of advertising and salesmen to harness the de sire of people to buy a product they trust from people they know despite price differentials...
...The "Kennedy Round" of bargaining followed after the U.S...
...Agriculture is a nationally-planned industry, wherever there is a capability to plan—including the United States...
...This theory seemed to provide a formula for policy, like the "containment" theory of defense...
...Increased costs will occur because the path of distribution may be long (it might be from Cleveland to Calcutta), or because movement of a product may be sluggish, obstructed by lack of product-knowledge given by poor advertising, or by the red tape of customs declarations and currency controls...
...And this is already working miracles in national income figures and in the lives of ordinary people, in countries as diverse as Australia, Israel, Mexico, Japan, and the Philippines...
...And profit-earning innovations are more common in manufacturing than in the cultivation or extraction of traditional primary commodities...
...Some of these savings (or sales gains) accrue by making a product suit local markets as by special sizes and label language...
...Even here it was short-sighted: it assumed that Ford's assembly line could be extended to infinity, whereas there comes a point when enlargement increases costs...
...cheap tools are not wanted by indus trial purchasing agents, after they have experi enced the reliability of Black & Decker...
...factory-farms have increased their productivity faster than any of the "free" segments of the economy...
...Economic growth makes these countries good customers for the United States—and not free trade, which would swamp them...
...they have a primary responsibility to assure food supply...
...firms develop the competence to produce such units" (Washington Post, July 15, 1967...
...The Geneva Tariff Agreements extend theoretical advantages to strong companies, in strong industries and in strong countries...
...Such jobs are created by diversified manufacturing: much commodity production is seasonal and fails to provide occupation for higher and more varied talents and skills...
...A dim consciousness of the limited effects on trade obtainable by tariff reductions was shown at Geneva by references to "nontariff barriers...
...trade is said to be affected...
...This example obviously influences the agricultural program of the European Economic Community...
...So far, the tariff deals affect mainly trade in manufacture among the industrialized countries— though these countries were already importing commodities they need without penalizing themselves with duties...
...The spread of manufacturing, in turn, has motivated and facilitated greater knowledge and skill as to the processes and cost of marketing, training of personnel for industry, and the managing of complex and widespread operations...
...Duplication of productive facilities among many nations has been a phenomenon of world industrial organization from the 1950's up to the diversionary and repressive govern mental interventions of the Kennedy Round and the Johnson save-the-dollar program (and the similar and abortive efforts of Harold Wil son to strengthen sterling...
...The transformation of the basis of economic efficiency which results is exemplified by the progress of the multinational corporation, sometimes operating a chain of parallel businesses in as many as 50 countries...
...In Ford's classic mass production, furthermore, interchangeable parts were fully as important as the assembly line...
...And incidentally, governmentsubsidized, government-researched, and governmentcontrolled U.S...
...People with liberal hopes for the world have been drawn into an irrelevant argument...
...Such pursuit of short-run national advantage in trade and payments destroys the hope for the growth of the less-developed countries...
...They are of two kinds—those created by deliberate policy and those inherent in the nature of modern business...
...Thus, on duties that were 15 per cent, the cut is 1 per cent per annum...
...Congress had passed the Trade Agreements Act of 1962...
...Agriculture produced great arguments in the Geneva tariff negotiations, including the undignified "chicken war" in which the United States fought European tariff protection of an industry starting to mass-produce poultry with retaliatory taxes on Volkswagen buses and on cognac...
...The cost of distribution has increased in the importance it is now given in practical business, since the computer has begun to measure expenses and to show how much money can be tied up in inventories...
...Op portunity and need lie in the spread of in dustrialization...
...It often pays to buy components from independent plants...
...Public attention needs to be redirected, away from the old tariff question, toward finding methods that will encourage the spread of in tegrated industrialization...
...However, a resolution in favor of more food aid from more of the advanced countries to those in need of it was passed at Geneva, but without the binding commitment on tariff deals...
...Second, as to the possible effect on prices: an average reduction of one-third in rates of duty is to be made...
...But the harm the Agreements do is in purporting to offer worldwide economic progress...
...The bulk of the equivalent concessions has also been made by the larger, more advanced countries, as the EEC group, whose leverage of foreign trade has been weakened by internal industrial integration...
...No government will allow the disruption of its planned resource allocations, especially the labor and income of voting farmers, by some other country's bargain surplus...
Vol. 15 • May 1968 • No. 3
