GATT: Wait ‘til Next Year
Jude Wanniski
October 4, 1994


The Clinton Administration now believes it has saved the GATT (General Agreement on Tariffs and Trade) treaty by postponing a Senate vote into an early December lame-duck session of the 103rd Congress. The White House reasoning is that while Senators might balk at the treaty prior to the mid-term elections on November 8, fearing reprisals from the voters, they will dutifully ink the accord once the threat of democracy has been removed. Our support for GATT's enabling legislation has been dwindling all year, as the administration has been turning it into a protectionist pork barrel. There is now absolutely no reason why it should be rammed through at the last minute. It took international bureaucrats nine years to negotiate this latest round of trade liberalization. The argument from our free-trade friends that the implementing legislation should be hustled through Congress with only a few hours of debate and a take-it-or-leave-it up or down vote at this point does not impress us. We were delighted to see Senate Minority Leader Bob Dole abstain on the 19-to-0 committee vote for a lame-duck session, after the Democrats refused his plea for hearings on the grotesque package that has emerged. We hope he can be encouraged to lead a fight to postpone all consideration into the 104th Congress, even if it means voting it down in December.

The House of Representatives will vote tomorrow in this fashion, unable to amend the bloated package because of a previous "fast-track" agreement. Its backers reckon they have 130 Republicans and 130 Democrats lined up for an easy win. There are, though, concerns that an anti-GATT coalition led by Ross Perot, Ralph Nader and Pat Buchanan is still chipping away at this base and the vote could be closer. This coalition for the most part is glued together by opposition to the new World Trade Organization (WTO) that would be set up to replace existing GATT arbitration mechanisms. Their argument is that U.S. sovereignty would be unduly compromised, a not unreasonable position that deserves respectful consideration -- especially when made against a backdrop of a President who sought UN approval for an invasion of Haiti while rejecting the idea that the U.S. Congress should be consulted. Paul Craig Roberts, a Reaganaut economist with impeccable free-trade credentials, has argued persuasively against the need for another international bureaucracy, while also embracing the lower global tariffs that emerged out of GATT's nine-year Uruguay Round.

We decided to join this unusual coalition out of general disgust with the whole process and with the expectation that the new Congress would do a better job of writing the enabling legislation -- which is now four inches thick and loaded with the kind of hidden giveaways that populated the so-called "crime bill." Ralph Nader has offered $10,000 to any member of Congress who signs an affidavit swearing to have read the bill and answering ten simple questions about what's in it. President Clinton yesterday announced he will spread around another $600 million in farm subsidies to win support for GATT in farm states. Last Friday's New York Times reported on the many items that crept into the legislation as the administration rounded up support for it:

Buried in President Clinton's four-inch-thick proposal to Congress for putting the pact into effect are deals that include a $65 million reduction in Government fees on a new cellular telephone technology; higher effective tariffs on wheat imports; new labeling rules aimed at reducing Chinese apparel shipments to the United States, and changes in Government regulations that will make it easier for steel, cement, ball bearing and civil aircraft producers to win steep Commerce Department tariffs on foreign competitors.

The fact is that even if the GATT treaty were shelved indefinitely as a result of its defeat in this Congress, its loss would not mean a great deal to the U.S. economy. Most of the protectionism that we had built into our tariff walls with the Smoot-Hawley Tariff Act of 1930 has been stripped away by 60 years of bilateral treaties, by the Kennedy and Nixon Rounds of GATT negotiations, and by the practice of granting Most-Favored-Nation tariff treatment to practically every country on earth. It would be nice to have another round of reductions, but tariffs at these low levels are not what ails the U.S. or the other western economies. Those who benefit most by GATT's liberalizations are not entrepreneurial capitalists, but mature industries. When National Widget Corp. has saturated the domestic market, it looks overseas for expansion opportunities. If GATT could help in that expansion, that's all well and good, but why do there have to be side deals to protect textiles, steel, ball bearings, etc., in order to sell widgets? The game does not seem to be worth the candle. 

At our Polyconomics conference in Boca Raton, Florida last February, we had an interesting exchange between David Gergen, the Presidential counselor, and Senator Dole. Gergen had just finished a pitch on behalf of GATT, during which he appealed to the audience for support of the position that the tariff reductions should not have to be "paid for" by cutting spending somewhere, in accord with the budget rules of Congress. Gergen essentially made the Laffer Curve argument, that the lower tariffs would increase tax revenues by causing expanded economic growth. In the Q&A, Dole asked Gergen if he would be open to a deal: Insofar as the Republicans argue that a cut in the capital gains tax would produce more, not less revenue, and the Clinton Administration says that's what GATT would do, why not swap one for the other? That is, the GOP will waive the budget point of order on GATT if the President would do so on capital gains. Gergen mumbled some pleasantries and that was that.

To be sure, this was a perfect example of the tension across the Democratic and Republican lines. The Democratic Party has become the party of Big Capital, which is interested primarily in security, and happily employs the dynamic arguments of the Laffer Curve on behalf of its constituents; it denies those dynamics to the GOP, which represents the interests of Small Capital, which is primarily interested in risk-taking and enterprise. When the Senate returns for the lame-duck session after Thanksgiving, there is every possibility that Bob Dole will be entertaining a Republican majority after New Year's Day. If he wants to postpone GATT into 1995, he could probably do so, by raising precisely the point of order that he suggested to David Gergen last February in Boca Raton. As far as I can tell, the administration still has not solved its GATT problem in the budget. It can get away with smoke and mirrors in the House, where the rules favor the majority. In the Senate, where the rules tilt toward the minority, a point of order can block GATT with only 40 votes.

This does not now seem like a practical reality, but it might look better and better two months from now. It requires that free traders swallow their fear that if GATT is not hustled through at the 11th hour, protected from the protectionists, it will be dead forever. The Republican leadership could give assurances that the GATT enabling legislation will only be subject to free and open discussion, and there might even be time for some on Capitol Hill to peruse the 22,000 pages of the treaty itself, let alone the four-inch thick document that Congress now has before it. Some of my friends who are most eager to give the President a line-item veto over the budget process are now objecting to a full and free debate over GATT, on the grounds that the Perot coalition might kill it.

The sovereignty issue that has been raised should be dealt with in such a debate. The administration now insists that the legislation is replete with protections against abuse by the WTO bureaucracy. An examination of those protections reveal that they would be placed in the hands of domestic bureaucrats, instead of a mechanism that makes elected officials accountable for the behavior of the international bureaucracy. This is serious stuff. In a chat with the dreaded Pat Buchanan yesterday afternoon, we recalled losing fights in the past against the encroachment of bureaucrats on democracy. Wherein, we the people elect our representatives in Washington, and they in turn hand over power to an "independent" regulatory agency, which they hide behind. I mentioned the Consumer Product Safety Commission as one of our losing fights. He mentioned the spotted owl. When you complain to your Congresspersons, they will demur: "I'm sorry, I have no power over that independent regulator." Hey, at least our bureaucrats are American.

The good guys of both political parties finally beat back the Clinton health care extravaganza, which would have transformed one-seventh of our economy for all time. The 104th Congress will take up health care again, starting from scratch, with a fresh eye, and the result will be better. Guaranteed. There is no reason to rush ahead with GATT, which could transform a seventh of the world economy. Yes, democracy moves more slowly than dictatorship, but we have time. What's the rush? Wait 'til next year.