GATT/Capgains: Still in the Works
Jude Wanniski
November 28, 1994


There is no doubt in my mind that the global financial markets want GATT to pass in the lame-duck session of Congress which opens this week. The tariff reductions will increase the efficiency of world commerce at a time when national economies almost everywhere are struggling under the weight of welfare-state public policies. If the GATT treaty were to be "killed" outright in the next two weeks, the equity markets in the United States and North America would surely suffer. The only positive, if it could be called that, would be the accidental side effects of a declining Wall Street stock market on the Federal Reserve's misguided credit tightening. Sen. Jesse Helms might suggest that Fed Chairman Alan Greenspan would need a bodyguard to get to and from work if he were to push rates up again with the stock market signaling recession ahead.

Now that Senate Minority Leader Bob Dole has wrung several concessions from the White House, including a tacit agreement from Treasury Secretary Lloyd Bentsen to cut the capital gains tax next year, GATT's chances of passing have improved significantly. If it is blocked by the anti-GATT coalition, though, it would be nice to see the week ahead unfold in a way that would bring about postponement of a GATT vote into the 104th Congress and not cause economic distress on Wall Street. I'm sure the GATT treaty will pass one way or another, this year or next, because there is wide and broad agreement in both parties on GATT, if not the enabling legislation itself. The worm in the apple is the treaty provision creating a World Trade Organization (WTO), a new supranational bureaucracy that would take its place alongside the International Monetary Fund and World Bank, the two bureaucratic worms in the Bretton Woods apple of 1944. If November 8 means anything, it is that the people of the United States wish to move accountability closer to the individual and local government and away from the collective in Washington. It should be no surprise, therefore, that there is anger at the grass roots with the transparent duplicity of the elites in sneaking the WTO into law in this lame-duck session. 

After all, the lame-duck session was specifically designed by the Beltway boys to avoid having to vote on GATT prior to the November 8 election. The Senate has slightly cleaner hands because it was pushed into the lame-duck session by Sen. Ernest Hollings [D-SC], who used his committee chairmanship to block it under the time constraints the Senate faced in September. Hollings was publicly denounced by the Establishment forces of the right and left, as evidenced by scathing editorials in both The Wall Street Journal and The New York Times. On the other hand, practically every Democratic and Republican Senator privately exulted at being able to avoid a pre-election GATT vote and blew silent kisses to Hollings. In the House, Minority Whip Newt Gingrich understood that few members on either side of the aisle relished the idea of a pre-election vote, which would only anger that agitated fraction of each district which opposes the WTO -- the odd populist coalition led by Ross Perot, Pat Buchanan, and Ralph Nader. By arranging to join the Senate in a post-election lame-duck session, Gingrich saved GATT from certain defeat, for which we are all grateful. Gingrich is now eager to see GATT disposed of this week in order to clear the decks for his "Contract With America" in January.

Now, a lame-duck session to complete unfinished business is one thing. A session scheduled to sidestep the voters is quite another. I have to agree with Pat Buchanan and Larry Kudlow that this special session is a prime example of the creeping anti-democratic political corruption in Washington that has so disgusted the citizenry and invited the Perot third-party movement. If a way could be found to defer GATT into the new Congress without causing panic on Wall Street, it would be a good thing for the country to experience. The markets, after all, are not in the least bit interested in the WTO or the pork-barrel provisions of the GATT enabling legislation. They need assurance, though, that the tariff schedules will be approved, and this is not as hard to provide as the we-must-do-it-now crowd insists it would be. 

There isn't a single Republican I know of who would not love to wave a magic wand and remove the WTO dispute mechanism from the GATT agreement. The concession Dole won from the administration on this sovereignty issue -- a congressional panel of retired appellate judges -- is useful, but it creates yet another federal bureaucracy to watchdog a new international bureaucracy. How should trade disputes be settled, if not by the WTO? The way they always have, with private lawsuits in the courts, or with one country's trade attache working things out with another's, or with the current GATT mechanism. It may well be that the WTO plus the Dole fix is just what the world needs. But this is not self-evident. Sen. Robert Byrd [D-WV], the most senior Senate Democrat, is correct in arguing that at least the Senate should be able to debate the issue, which is why he will attempt to defer it to the new Congress. Indeed, Byrd argues that the GATT agreement is in fact a trade treaty and should be debated at length, with a two-thirds vote required for ratification. If Byrd can pull this off with a parliamentary maneuver, it is highly unlikely GATT will pass this session.

To strip the WTO out of GATT would not, of course, kill GATT. The rest of the world could approve the agreement with a WTO, but as it would have to finance it without the help of U.S. taxpayers, we would soon see the world follow the U.S. lead. Indeed, WTO almost certainly was a U.S. initiative that appeared very late in the Uruguay Round of tariff talks. The other 123 countries would tear from the treaty's 4,004 pages the few relating to the WTO, and that would be that. 

What are the chances this will happen? How may it come about? First, it depends on how much effort Bob Dole will put into pushing GATT through in this lame-duck session and how much of his personal prestige he will put on the line. Had he gotten a clear commitment from the White House to waive the budget rule on capital gains in exchange for waiving the rule on GATT, I wouldn't bother to write this missive. GATT would be a done deal. The stock market would be on a tear and any residual concerns about the WTO would be lost in these celebrations. The White House, though, refused to give Dole anything of the kind, instead permitting a vague letter from Lloyd Bentsen to Dole that, in the coin of the realm, can only be taken as a tacit agreement to do something minimal on capgains -- prospective indexation, perhaps. In his "Face the Nation" appearance yesterday, Bentsen made some conciliatory noises, but we have to assume the administration will play hardball on this tacit agreement. 

The key will be the position of Sen. Trent Lott [R-MS], who is auditioning to be Senate Majority Leader when Dole gives up the job to run for President. To that end, Lott is challenging Sen. Alan Simpson [R-WY] for the job of Majority Whip in the new Congress. Inasmuch as he backed Dole's initiative to tie GATT to capgains via the budget waivers, Lott remains in a position to negotiate clearer concessions from the administration on this account. The anti-GATT coalition, furious at Dole for his Rose Garden appearance with the President, also looks to Lott as their last hope for a deferment of GATT into 1995. A Southerner from a low-wage state, Lott is not insensitive to the arguments that GATT primarily benefits export-oriented Big Business and exposes American labor to intense competition from low-wage foreign labor. Lott thoroughly understands why a capgains rate cut and retroactive indexation is essential as a balance to GATT, by making all American labor more productive and competitive. Dole supports Simpson for Minority Whip, which leaves Lott free to maneuver on GATT among the Southern Republicans, more conservative northerners and the activist freshmen class. To overtake Simpson, it is practically imperative for Lott to distinguish himself in the lame-duck session on GATT. On "Meet the Press" yesterday, Dole said he would vote for the GATT budget waiver and would expect the White House to remember this when the issue of the dynamic scoring on capgains comes up next year. Conservatives will be rooting for Lott to squeeze something more out of the White House this week.

With all this going on, I'm tempted to say this lame-duck session could be a pivot of history -- the last gasp of the New Deal coalition that really died on November 8. Either the Democrats will give birth to the WTO after the fact or the new Republican majority will be able to project power backward to abort it. If I were in the Senate, I'd vote against the budget waiver unless I got a clearer commitment from the President on capgains, and if I didn't get that commitment, I'd prefer to defer GATT into January. Alas, this would slow down Newt Gingrich and his agenda, but if we can't get a clearer concession from the administration now, it won't be any easier next year. In any event, the forward momentum is with the GOP, tariff cuts, and the real progress on capital gains achieved last week by Bob Dole's first supply-side initiative.