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Congress : After GATT : Today, Congress takes up a proposal that would update how nations trade goods and services. Lower tariffs would mean lower prices, but what would be the impact on American jobs? A look at the basics of one of the biggest trade decisions in the last 50 years.

November 29, 1994|JAMES GERSTENZANG | TIMES STAFF WRITER

WASHINGTON — After seven years of negotiations, more than 120 nations finished the laborious process of rewriting the rules of global trade last December. During a special lame-duck session of Congress that convenes today, the House and Senate are scheduled to vote on legislation that would implement America's participation in the redrawn agreement.

Winning congressional approval of GATT once looked like an easy victory for President Clinton, a logical extension of his efforts--and those of Republican presidents before him--to level the playing field of international commerce and bestow new benefits on the U.S. economy.

But in Washington's superheated, post-election political climate, GATT has become yet another contentious issue at the intersection of international economics, foreign policy and domestic politics. As this week's congressional showdown has neared, a loud and angry debate has ensued over the ultimate impact of the trade pact, and the potential risks it poses for the American economy in general, and the nation's workers in particular. The accord would create a new World Trade Organization to replace the General Agreement on Tariffs and Trade as the regime that goverens global commerce.

Here are some of the key issues that Congress will weigh as it renders a verdict on the trade pact:

Question: What is GATT?

Answer: The General Agreement on Tariffs and Trade, based in Geneva, oversees the conduct of international trade and the application of tariffs, or taxes, imposed on imports. It determines, for example, whether one nation's laws and regulations have been established for the purpose of protecting the environment, or simply as barriers to keep other countries' products from competing with those of domestic industries. GATT was established 47 years ago as one of the central international organizations trying to ensure that the world, in the era after World War II, conducted its economic affairs in an organized and fair manner. The new agreement, negotiated during the so-called Uruguay Round of trade talks (the first sessions were held in that South American nation), is intended to liberalize trade rules and bring them into line with the massive shifts that have taken place in the global economy.

Q: What would the new agreement do?

A: It would cut tariffs and, for the first time, establish rules governing international commerce in such service-oriented activities as banking, accounting, advertising and insurance. It would reduce farm subsidies by an average of 36%, making it easier for U.S. agricultural interests to sell their products in foreign markets.

Q: What impact would the new agreement have on the U.S. economy?

A: By lowering tariffs, the agreement would reduce the costs of products sold around the world, making imported goods cheaper in America and U.S. goods cheaper in other countries. Beyond that generalization, there is wide disagreement on the extent to which the pact would actually expand the U.S. economy.

The White House estimates that the new GATT would increase the nation's gross domestic product--the value of all goods and services produced by the United States--by $100 billion to $200 billion a year over the next decade. The Organization for Economic Cooperation and Development, made up of the world's 24 richest nations, puts the annual figure at $122 billion. The Institute for International Economics, a Washington research organization, estimates the value of the agreement at about $65 billion a year. Another private research group, the Economic Policy Institute, figures it would add no more than $7 billion to the gross domestic product.

Q: How many votes are needed to pass the legislation?

A: A simple majority in both houses. But under Senate rules, 60 votes will be needed to waive deficit-reduction rules so the GATT legislation can be taken up. The reason? Over the next 10 years, the tariff reductions would reduce government revenue by some $40 billion, a shortfall that would widen the federal deficit. Proposed tax increases and spending cuts would offset no more than $13 billion of that amount. The Administration argues that the new agreement would increase total U.S. economic activity, generating enough new tax revenue to offset the balance of the tariff shortfall. But without a waiver, GATT will run afoul of congressional budget rules.

Q: Who wins and who loses under the new agreement?

A: There is general agreement that the movie industry and other entertainment businesses would benefit from expanded copyright protection and greater access to foreign markets, as would the pharmaceutical industry. Other industries likely to benefit include agriculture, aircraft manufacturing, heavy construction equipment, financial services and computer software firms.

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