By December we will know if the General Agreement on Tariffs and Trade -- better known as GATT -- will enter middle age gracefully or go into a slow and bitter decline.
After four years of long, often-tedious negotiations, the latest round of GATT talks, known as the Uruguay round, is scheduled to conclude in December with an agreement that will shape the future of international trade in the next century.
In the last 40 years, international trade has expanded from $60 billion to $3 trillion, with approximately a third of that trade not governed by any international trade agreements. In the last decade -- because of GATT's weak enforcement mechanism and its failure to cover major trade areas such as agriculture, services and intellectual property -- GATT has lost much of its stature. It is the goal of the Uruguay round of negotiations to change that by expanding GATT's coverage and developing a strong dispute-resolution mechanism.
Since its inception in 1948, GATT has formed the foundation for international trade relations. Originally created to reduce trade barriers and open up trade, GATT -- often referred to as the "Constitution of World Trade" -- has been highly successful in reducing the industrial world's tariffs from a high of 40 percent following the war to a current average of 5 percent.
But times have changed. Issues that dominated international trade in the late 1940s and 1950s -- reducing tariffs and removing non-tariff restrictions -- have given way to new, more sophisticated concerns.
This eighth round of GATT negotiations represents a turning point for GATT. If the agreement that emerges in December fails to expand GATT's coverage or beef up its dispute process, GATT could cease to be a stabilizing factor in world trade and we will see a growing reliance on bilateral and unilateral actions.
History shows that a trade policy that relies on unilateral actions such as high tariffs and protectionist measures is a trade policy headed for disaster. The 1930 Smoot-Hawley Tariff Act -- which featured strong protectionist measures -- is credited with severely hindering international trade and contributing to a worsening of the Great Depression.
GATT was formed with these lessons firmly in mind. Created along with the World Bank and the International Monetary Fund following World War II, GATT was originally envisioned only as a specialized trade agency within the International Trade Organization. The failure of the U.S. Senate to ratify the more comprehensive ITO left GATT to fill the void.
Despite its less than auspicious beginning, GATT has produced. The original 23 contracting parties have expanded to 100, including all the industrialized Western nations. The Soviet Union and People's Republic of China have expressed interest in joining, and GATT is likely to play a large role in expanding trade opportunities to Eastern Europe and a unified European Community.
Developed countries view bringing services and "intellectual property" under GATT as vital to any successful agreement. Intellectual property is the generation of new ideas. A 1988 report by the U.S. International Trade Commission estimates that the United States faces yearly losses of up to $61 billion because of inadequate foreign protection of intellectual property.
The United States is clearly the biggest loser in such a situation. Despite all the talk about the declining state of global competitiveness, the United States remains the world's inventor the center of innovation and catalyst for research and development the world over. In the competition for Nobel Prizes, the United States has garnered 196, compared to Japan's seven, and West Germany's eight.
Without question, we lead the world in telecommunication, super-computer, satellite, high-definition TV and fiber optic technologies. Our leadership in these fields has economic value, however, only if we can can protect and control our advances. If other nations move without consequence to copy our technologies and mass produce them for the world market, our time and investment in such research is of little value.
In the service sector, many countries limit our ability to compete by placing strong restrictions in areas that we excel, such as telecommunications, insurance, and banking. An example of this a recent directive by the European Community recommending that a majority of European TV programming be reserved for European-originated programs. This one restriction -- if it goes into effect -- could cost the American film industry billions.
Where countries do agree that patents, trademarks and copyrights need protection, there is often little agreement on how to define patents, trademarks and copyrights, how they should be enforced, and how to deal with the ever-growing number of new technologies.
Without a revitalized GATT that covers intellectual property rights and services, we will become increasingly reliant on bilateral or unilateral trade initiatives.