Summer 1994 GATT and the Uruguay Round The principles of free trade are paramount to America's continued economic growth in the global marketplace. Free trade means less government intervention and influence in the marketplace. It places decision making in the hands of individual entrepreneurs and consumers. America's economic potential is contingent upon the opening of world markets to our goods and services. The new agreement produced in the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) will remove many forms of global trade barriers. With 123 participating nations, the completion of the Uruguay Round is an historic accomplishment. It promotes global free trade that will lead to international economic stability and expanded markets, thus providing greater opportunities for the American people. As barriers to international competition fall, the playing field will be "leveled" and American corporations and consumers will benefit tremendously. The agreement will profoundly change the rules and procedures governing world trade, especially on trade in services and intellectual property, which are vital to American business interests. The new GATT agreement represents the largest tariff cut in world history -- and tariff cuts are, in reality, the equivalent of a pro-growth tax cut for American workers, consumers and businesses. Since the original GATT agreement was enacted in 1948, U.S. exports have increased from $13.3 billion to nearly $450 billion as of 1992. Today, one in six American manufacturing jobs is tied to exports. The new GATT agreement will accelerate this trend, contributing $130 billion in additional U.S. economic growth by the end of the 1990s, according to one study. A Brief History of GATT The General Agreement on Tariffs and Trade (GATT) was signed at Bretton Woods, New Hampshire in 1947. The agreement committed the Western democracies to the liberalization of international trade. GATT was part of several post-war international trade, developmental and financial reforms. Since its inception, there have been eight rounds of trade negotiations under the auspices of the GATT, including the recently completed Uruguay Round. A notable element of the GATT is the concept of "most favored nation." This term does not imply that "most favored" nations are granted special treatment. Rather, member nations of the GATT are guaranteed the same trade treatment that is given to the "most favored" nation. Thus, if a member nation lowers its barriers with one member country, other member nations automatically receive the same benefit. THE URUGUAY ROUND The Uruguay Round began in Punta del Este, Uruguay in 1986 and is designed to be comprehensive, covering more product categories than previous rounds, including agriculture and intellectual property (computer software and movies, for example). The primary goal of the Uruguay Round, as with past negotiations, has been to improve market access for industrial goods by eliminating tariffs and non tariff barriers (NTB's). The U.S. Treasury Department estimates that the new GATT will increase international trade by nearly $750 billion over the next decade. Through broad cuts in tariffs, this increased access to world markets will contribute an estimated $130 billion in additional U.S. economic growth by the end of the 1990s. The new GATT dispute settlement procedures will make it more difficult for countries to impose trade barriers on American goods and services. Its arbitration process will force countries to the negotiating table, discouraging potentially devastating trade wars. The following are some of the major accomplishments of the Uruguay Round: * Establishes the World Trade Organization * The GATT was originally intended to be a conduit to a permanent institution for world wide trade negotiations. This organization has finally come into being as a result of the Uruguay Round of GATT negotiations. * In the interest of expanding the coverage and influence of the GATT, the member nations have agreed to establish the World Trade Organization. * The goal of the WTO is to bring negotiations on goods, services and intellectual property under one institutional umbrella. * Critics have proposed that the WTO will have the power to supercede U.S. law. This is not true -- the WTO is not sovereign over U.S. law. The World Trade Organization will have absolutely no legislative, executive or judicial authority. Nothing it proposes can change U.S. laws. Only Congress has that power. * Reduces Tariffs * Overall tariffs are reduced by roughly one-third over ten years. * Tariffs are completely eliminated in several sectors, such as, agriculture and construction equipment, beer, distilled spirits, furniture, paper, pharmaceuticals, medical equipment, steel and many others. * Opens Trade in Agriculture * Agriculture accounts for 13 percent of world trade -- this will dramatically expand market opportunities for enterprizing U.S. agriculture producers. * The three main agricultural goals of the current round are: end internal supports (i.e. agricultural subsidies), increase market access by converting NTBs into tariffs and reduce tariffs by an average of 36 percent. * Lowers Trade Restrictions in Textiles, Clothing and the Multifibres * Agreement was reached on a gradual phase-out of the quotas over a ten-year transition period when textiles and clothing will be fully integrated into GATT negotiations. * All nations have pledged to improve domestic market access through the reduction of NTBs. * Breaks Down Barriers to Trade in Services * The Uruguay Round of GATT negotiations extends trade negotiations to cover trade in services as well as trade in industrial products. * This provision requires a country to ensure that their laws do not bias the domestic service market against foreign firms. * The new GATT gaurantees national treatment and market access via scheduled tariff reductions in service industries such as, professional services (accounting and engineering), communications (courier services, audio-visual services), construction, educational services, and financial services (banking, securities and insurance) and many more. * Exceptions to the the Agreement on Trade in Services are provided for national security, safety, health, privacy protection and measures taken pursuant to national tax laws. * The service sector agreement is a new breakthrough in international trade negotiations and offers a tremendous opportunity to America's highly competitive service industries. * Preserves Intellectual Property Rights * Standards have been established for the protection of copyrights, patents and trademarks, both domestically and internationally, while improving the dispute settlement procedures that exist under the GATT. THE CLINTON ADMINISTRATION AND THE GATT Empower America strongly supports free trade and the spirit of the GATT accord. Reducing tariffs and trade barriers on a multilateral basis help to level the playing field for all producers and benefits all consumers through increased competition. However, concerns have been raised over the direction in which the Clinton Administration is taking United States trade policy. It is becoming increasingly clear that President Clinton is promoting an industrial policy where the government regulates trade and chooses which industries and firms receive preferential treatment. The recent developments under the administration's stance on subsidies and anti-dumping laws in the GATT threaten to undermine the purpose of the accord. These new initiatives may isolate the support of many free trade advocates who are concerned with these recent changes in trade policy. Furthermore, this new tolerance of industrial subsidization and restrictive anti- dumping laws undermine the progress toward free and open trade that has been achieved with earlier rounds of the GATT. This change of direction in U.S. trade policy is a dangerous one; it perpetuates a global trading system where governmental and political favoritism replace free market competition. In addition, the administration has damaged the chances for GATT's passage by proposing a $12 billion tax increase to "finance the loss in tariff revenue." Empower America opposes any a tax increase to finance a cut in tariffs, yet Congress should not allow the $12 billion financing issue to kill GATT. Tariff cuts will expand trade and increase government revenue. Free trade advocates must argue the dynamic effects of expanded trade and seek a budget waiver or spending cuts to offset the static revenue loss erroneously predicted by the Clinton Administration. Empower America remains a steadfast supporter of the new GATT agreement. The achievements gained in the Uruguay Round will significantly increase the prospects for global economic growth through expanded international trade. Although these new threats pose challenges that must be amended in future trade negotiations within the GATT, they should in no way derail the passage of the Uruguay Round, which is overwhelmingly good for our country.