The Breakdown of Trade Talks

By J.F.O. MCALLISTER WASHINGTON

IN A RED TILE VILLA OVERLOOKING Lake Geneva, long-suffering diplomats shuttle in and out of meetings, their faces betraying anxiety that the most ambitious overhaul of international-trade rules since World War II is floundering. In Brussels, European Community officials denounce the hard-nosed obstinacy of their American counterparts. In Washington, George Bush struggles to convey optimism, dropping vague references to "new ideas" that might break the logjam between Washington and the E.C. In Tokyo, ministers try quietly to bridge the gap between Europe and the U.S., lest there be any interruption of the trade machine upon which Japan's now imperiled prosperity depends.

The six-year-old bargaining session known as the Uruguay Round of GATT, the 107-nation General Agreement on Tariffs and Trade, is in trouble. Washington and the E.C. are locked in a quarrel over how much Europe will be allowed to subsidize its farmers and thus give them an advantage over everyone from American wheat growers to Third World farmers trying to produce cash crops for foreign markets. There are fears that unless something is done to break the stalemate, the world will slip into commercial darkness and political tension. Warns GATT's director general Arthur Dunkel: "There will be major negative consequences for social stability and even international peace."

Perhaps so. But it's hard for citizens in the industrialized U.S. -- which is relatively self-sufficient and historically prone to protectionist impulses -- to get a grip on GATT, let alone get very alarmed about its potential failure. Successive rounds of negotiations, diligently conducted since 1947, have pushed down tariffs from 40% to 4% in member countries. Still, people find it difficult to connect the statistical aggregates of GATT-speak with their lives and wallets.

But open international commerce is as vital to American prosperity as it is to any other nation's. Last year the U.S. was the world's largest exporter, selling a record $422 billion worth of goods and $145 billion in services abroad. Each billion dollars of exported merchandise generates 20,000 jobs, and fully one-third of the country's economic growth in the past five years has flowed from the surge in foreign sales. For example, more than $20 billion in revenues made by U.S. airplane manufacturers comes from sales abroad, money that then finds its way into the cash registers of grocery and shoe stores and insurance agencies in the communities where the workers live. Corn growers bring more than $6 billion of cash into the country, scientific-instrument makers more than $12 billion. Contrary to the protectionist shibboleths, imports benefit the country as well: from cars to vcrs, the American consumer saves money because of cheaper products shipped from overseas.

Since the U.S. market is fairly open, a GATT accord is expected to spur new exports for American firms while adding little in the way of foreign competition that U.S. products do not already face. Carla Hills, U.S. Trade ! Representative, estimates that a successful Uruguay Round (so named for the talks' original venue) would generate an additional $5 trillion in world output over the next decade, of which the American share would be a hefty $1.1 trillion. It's "like writing a check," explains Hills, "to every American family of four for $17,000, payable over 10 years."

No one should wait by the mailbox. But American industries and individuals do stand to gain materially from a successful Uruguay Round. The pact, as it stands, contemplates a one-third drop in average tariffs and safeguards against hidden export subsidies. It would also provide a stronger forum for settling trade disputes amicably than unilateral reprisals, such as the $1 billion in new tariffs on European goods that the U.S. threatened last week in retaliation for E.C. subsidies on oilseeds like soybeans.

The Uruguay Round is especially interesting to American business because it tackles whole new areas of commerce, perhaps one-third of the world economy, previously left outside GATT controls: services like banking, insurance and telecommunications; intellectual property such as patents, software and video recordings; and agriculture. These are all areas where U.S. firms could strenuously compete if foreign governments treated them no worse than homegrown firms. For example:

-- Arthur Andersen, the accounting giant, cannot penetrate the carefully designed thicket of regulations that keeps its auditors from practicing in Turkey.

-- U.S. banks are denied access to automated-teller networks in some Asian countries.

-- IBM estimates that software duplication, especially in countries with weak antipiracy laws, causes the company to lose more than $1 billion in sales each year.

-- The foreign equivalent of "Buy American" laws have barred General Electric from selling a single steam turbine to generate electricity in Europe since 1947.

But getting from here to GATT will require a slog through the farmyards of the world. "The key to the whole GATT equation is agriculture," says a senior U.S. official. "For the Latin Americans and the Asians to make commitments in services and intellectual property, they have to get access to agricultural markets."

Precisely the problem, say farmers in Europe. They like the quotas and tariffs provided by their governments to bolster their incomes. And they fear the monetary loss the Uruguay Round would bring about in order to give foreign products a fair shake. The E.C. doled out $45 billion in subsidies last year, $4,100 a farmer, even though farming generated a tiny 3.5% of European output. Despite seeking their own, albeit smaller, subsidies from Washington, American farmers resent the E.C.'s largesse and threaten to fight any GATT treaty that fails to curb it. But the E.C. has dug in.

Washington, despite its free-market rhetoric, spends about $8 billion a year to underwrite American farmers. Trade barriers further boost farm income. Quotas keep cheaper foreign sugar, for example, out of U.S. supermarkets, which cost American consumers $1.9 billion in 1987. But these programs would continue almost untouched by the Dunkel proposal, which gives credit for existing U.S. efforts to scale back subsidies.

While Americans may sneer at the far more expensive addiction of Europe's farmers to subsidies and trade barriers, some of Uncle Sam's industries cannot live without a stiff fix from Washington. U.S. shipyards enjoy the protection of a 50% tax imposed on nonemergency repairs of U.S.-owned ships in foreign yards. Another boost to maritime interests is a law that prohibits foreign- built vessels from carrying goods from one American port to another. In Geneva, U.S. negotiators say they want to exempt shipping altogether from the new GATT regime. Extensive textile quotas, which the Uruguay Round proposes to bring under GATT for the first time, raise the bills of every American family almost $500 a year, according to a 1987 study. But the beneficiaries of such protection -- politically well organized textile manufacturers and unions -- can exert political leverage, while those who pay for it are widely dispersed.

"The people who will gain jobs in computers and services because of GATT don't know who they are yet," says a congressional aide. "The people who will lose their jobs in textiles know damn well who they are." The Bush Administration welcomes the Uruguay Round precisely because it will strengthen Washington's hand in just saying no to inefficient firms looking for a bailout. "This is a form of deregulation at home," observes a senior official.

If such pocketbook arguments for liberalized trade aren't convincing enough, there are some compelling political ones. The countries in Latin America, Eastern Europe and the former Soviet Union now groping toward economic liberalism covet GATT membership as a way to reinforce market-oriented reforms ) and to win foreign investment. It would be unfortunate for GATT to wither and die just as these countries are joining up.

Moreover, many experts predict that a collapse of the Uruguay Round would shove the world economy into a protectionist spiral, leading to serious political frictions between the U.S. and its major trading partners reminiscent of the Great Depression. "With the collapse of communism," says a White House official, "we're finding that our relations with countries around the world are focused more on economics and that the irritation points are economic too." If these irritations accumulate, huge regional trading blocs under construction in Europe and the Americas could be joined by one in Asia, all of them bristling with trade barriers.

Other analysts doubt that the aftershocks of a GATT failure would be so cataclysmic, and they point out that GATT rules were unable to solve America's trade problems with Japan in the 1980s. Some environmentalists argue that a strong free-trade regime will block individual countries from banning ecologically suspect products or subsidizing conservation, and they dislike GATT's relentless quest for economic growth.

What's next? Washington is promoting the July 6 summit of the leaders of the seven industrialized nations, known as the G-7, as the logical deadline for resolving its impasse with Europe over farm subsidies. "These are very difficult problems," says a senior Administration official, "but at some point everybody has to hold hands and jump into the water." The diplomats in Geneva may find their job easier if they recognize that any lengthy negotiation reaches a point where the best becomes the enemy of the good. But they will also be aided by a broader constituency aware of what it all means for them.

With reporting by Adam Zagorin/Brussels