Act in GATT -- and avoid global trade wars

No one expects much to happen as trade ministers gather in Geneva under the auspices of the General Agreement on Tariffs and Trade (GATT). The GATT meeting is shaping up to be - like the Versailles summit - long on speeches and short on solutions to the myriad problems that now beset world trade.

The GATT clearly needs more than a rhetorical vote of confidence from the assembly of trade ministers. Yet given the present political climate, and with global recession and unemployment at record high levels, it may be unrealistic to expect governments to do more. Even though the failure to arrest the current drift toward protectionism could have dangerous ramifications for the future of world trade, it is possible that ministers, confronted with the classic trade-off between short-run political costs and long-run economic costs, will sacrifice the latter for the former.

Such an outcome would be both shortsighted and costly. If the trade ministers do not commit themselves to taking the politically painful steps needed to keep their markets open to foreign competition, they run the risk that countries might give up on the GATT as a forum to handle trade problems and seek instead ad hocm bilateral solutions. We could then see the growth of trading within regional blocs (at the expense of the multilateral system) and with it a rash of inter-bloc trade disputes.

This trend is already evident: the United States, Europe, and Japan are carving up important industrial markets for steel, autos, and textiles through restrictive market-sharing arrangements - in seeming disregard of their GATT obligations.

Furthermore, a breakdown of GATT discipline could provoke significant financial as well as trade problems. If developing countries cannot find open markets for their exports, they will find it increasingly difficult to service their massive debts.

To avoid this, the GATT meeting needs to produce agreements that both have an immediate impact on trade and help to bolster the sagging discipline of the world trading system.

First of all, ministers need to bite the bullet and stop cold all recourse to the use of protectionist measures (though some developing countries may have to continue such practices because of severe balance of payments problems). This should include voluntary export restraints and other actions taken outside the scope of the GATT's escape clause (which a GATT study estimates to affect about

The only measures that should be per-mitted are those taken against subsidized or dumped imports. To enforce this agreement, countries should be free to retaliate against offenders and to demand compensation for their exporters. Such an accord would, for example, make it much less likely that import restrictions on steel recently imposed by the US and Europe would be extended on a global basis. It would also provide time for all GATT members to negotiate new and stronger rules to deal with the trade problems of the 1980s.

Ministers also need to look to the future. New GATT rules should be developed inter aliam to discipline trade in services, trade-related investment, and high technology trade. Such rules would make the GATT more relevant by extending its coverage to an important and increasingly large volume of world trade, and thereby help arrest the erosion in GATT influence.

In addition, new talks would act as a buffer against renewed protectionist pressures. Countries would be loath to impose new trade barriers (as they were during the Tokyo Round) if they feared such actions would precipitate the collapse of world trade talks, for which they would be blamed.

Such a result would require a major political commitment to trade liberalization. Ministers need to recognize the costs of inaction in Geneva. While it will be difficult politically to buck the protectionist tide, a failure to produce substantive results at the GATT meeting could generate even greater problems and could well lead to the rapid fragmentation of the world trading system.