Beggar Thy Neighbor

November 04, 1990|By William Pfaff

PARIS — Paris. THE BRINK is being walked at places other than the Persian Gulf. The world trading system is in jeopardy today because its principal members, the United States, the European Community and Japan, are marching closer and closer to a fiasco at the world trade-reform talks set for Brussels next month. If that GATT meeting fails, the prospect before us is a redivided world economy, with three large rival trading blocs.

The primary problem is reform of agricultural trade. Other contentious issues -- textiles, intellectual property (meaning developing-country disregard of patents, copyrights, etc.), trade in services -- could probably be settled if farm subsidies and food-trade barriers were reduced.

If not, the road from Brussels, as 1991 begins, may be a downward plunge. President Bush's mandate from Congress to negotiate tariff reductions runs out March 1 (if the Senate does not terminate it even before).

If the administration's mandate ends without result, the U.S. could become an even bigger obstacle to trade reform than the European Community is now. The only way really controversial U.S. concessions were going to get through Congress was as part of a negotiated package that also produced big rewards for politically powerful U.S. farm interests and manufacturers.

Without that package, opposition will be mobilized against every individual concession. Congressional anarchy and nihilism in economic matters, which the budget debate so amply demonstrated, would probably preclude any new general effort on tariff reform during the Bush administration. Congress now is in a mood to defend each state and district interest and damn the national interest. As for foreign competitors -- zap them! The U.S. already provokes bitter resentment abroad because of the powerful retaliatory provisions already part of U.S. trade law, requiring the U.S. government unilaterally to decide what's fair and what's unfair.

GATT -- the General Agreement on Trade and Tariffs -- is 42 years old. It governs world trade, promoting the principle that trade concessions made by any one member to any other should be extended to all. It was responsible for the highly successful general liberalization of trade throughout the 1950s and 1960s, when trade expanded even more rapidly than GATT's economic output itself, thus driving economic growth.

Since then, protectionism has slowly come back, produced by sectoral interests, politically motivated domestic subsidies as well as those resulting from national and European Community industrial policies, and by retaliation against Japanese trade practices (those Japan's critics describe as ''predatory'').

The United States was the main force behind GATT in 1948, and in 1986 inspired the latest program to negotiate tariff reductions -- the one now being debated, the so-called Uruguay Round, which was supposed to crown its successes in Brussels in December, with 105 countries present.

The Uruguay Round talks started well but now are foundering. None of those making trouble are backing down, despite today's uncertainties produced by the Gulf crisis, rising oil prices and inflation, and impending recession in the U.S.

The key issue, agriculture, is peculiarly difficult to solve because social values and priorities confront conflicts of economic interest. The essential dispute sets primary-product producers, mostly in the Third World, against industrial agricultural interests -- the factory farmers who dominate North American farm production; and both of them against Europe's small-scale family farmers.

German and French farmers are politically influential, particularly the German ones, who supply a sometimes decisive margin of voters for Chancellor Helmut Kohl's Christian Democratic Party. However the Europeans also value small-scale farming for social reasons and because of their traditional emphasis on quality food. But small-scale farming is relatively inefficient and currently is subsidized in the European Community by nearly $100 million a year (higher consumer prices and actual subsidies combined). Yet agriculture amounts to only 3.1 percent of total European Community GNP.

At its Rome Summit last weekend, the Community again failed to find an agreement on cutting those subsidies. Without such an agreement, GATT reform next month is impossible. And without that, our new, post-Cold War ''new world order'' risks becoming one where Americans and Canadians trade with one another and with Latin America, and Japan dominates Asian trade and continues to attack American markets.

The Europeans would meanwhile trade with one another inside their new 12-nation single-market, and incorporate Scandinavia and the new markets of Eastern Europe and the Soviet Union, while continuing to dominate Mediterranean trade. This means that Europe ends up with what looks very much like the best outcome in this worst-case scenario. Hence pressure on the Europeans to back down on their farm subsidies is not as strong as it should be.

There is a history of hairbreadth escapes in recent international economic and trade disputes, and there could be still another in Brussels in December. On the other hand, this might be the time when we all go off the cliff together.

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