In December 1994, the United States Congress after eight years of strenuous negotiations ratified the General Agreement on Tariffs and Trade (GATT). Both geographically and functionally, this is a truly global treaty. It is quite complex and touches every corner of the economy. After 47 years, GATT ceased to exist as of the beginning of 1995, and has been supplanted with the World Trade Organization (WTO) headquartered in Geneva.
While this sweeping Treaty has been popularly perceived as a boon to the large transnational corporations, it offers some surprisingly attractive benefits to the smaller business -- even smaller businesses that are not engaged directly in international trade. Let's look at a few of the highlights.
Tariffs. Tariffs are being reduced by all countries by an average of one-third. Inasmuch as US tariffs have been comparatively low, this means that other countries are reducing their import duties much more than the United States. For smaller American businesses dependent upon imports, their cost of goods will be reduced, especially for those products where the US had maintained protective tariffs. More dramatically, no longer having to surmount high tariff hurdles abroad, American products will be much more competitive in the global marketplace. Even the smaller business not directly engaged in transnational trade is often a supplier to larger multinational corporations. Thus, as our major customers prosper, so shall we prosper.
Quotas. All countries are barred from placing limits on the quantity of imports and imposing other nontariff barriers. Quotas may be replaced with transitional tariffs that are then to be reduced and phased-out over a number of years. The agreement also ends the practice of requiring high local content for products -- like automobiles. Scrapping quotas enhances the competitiveness of US companies in the world marketplace; on a more level playing field, almost all US companies should prosper.
Import-licensing rules. Import-licensing rules will be simplified or eliminated totally. Again, this enhances the competitiveness of US companies.
Customs. Customs rules and regulations will be "harmonized" thereby eliminating the provincial and arcane procedures that have characterized the collection of customs duties since ancient times. This will be particularly beneficial to the smaller business with appreciable exports -- and to the US importer who has long battled the vagaries of the United States Customs Service.
Intellectual property. The pact grants seven years of protection for trademarks, 20 years for patents, and up to 50 years for copyrights. This is expected to curb the rampant piracy of prescription drugs, computer software, compact discs, films, and books. One discrepancy is that US patents now run for 17 years once the patent is granted; this can be longer than the 20 years under the WTO standards, which begin as soon as the patent is filed. The Congress is reviewing this patent question.
Services. The Treaty will now bring the service sector under international fair trade rules, an important benefit to the smaller service business. Larger service businesses -- e.g., US banks, financial services firms, and telecommunications firms -- are not fully satisfied with the agreement as it now stands, so negotiations will be continuing.
Winners and Losers. In any realignment of tariffs and trade, there are inevitably some winners and some losers. The consensus is that the United States ends up with many more winners than losers. The electronics and pharmaceutical industries top the winners list, while textiles and apparel are among the losers with the 10-year phase-out of the MultiFiber Agreement (a quota system restricting imports of textiles and apparel) and the substantial reduction of the US protectionist tariffs for these products.
Overall, ratification of this GATT Treaty was very good news for smaller business in the United States. It has been forecast that the benefits of this pact will raise US income by more than $100 billion within the next ten years. Only the chronic pessimist can fail to be elated in a flourishing economy.
Your comments and suggestions for these pages are most welcomed!
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Thomas A. Faulhaber, Editor
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