Whither U.S. Trade Policy Beyond the Uruguay Round?

WHITHER U.S. TRADE POLICY. BEYOND THE URUGUAY ROUND? IsaiahFmnk LJnitedStatestradepolicymakers indieClintonadministration, preoccupied with the daunting problems of obtaining congressional approval of the North American Free Trade Agreement (nafta) and the Uruguay Round and dealing with One "Japan problem," have had little opportunity to consider the longer-term future of U.S. trade policy beyond the Uruguay Round. Yet, it is essential to begin public discussion ofthe new issues that have to be addressed globally as theworld tradingsystem approaches theend of the twentieth century. These issues will have to be faced because the world does not stand still. More than a decade has passed since 1982 when the United States took the initiative to propose the agenda for an eighth round ofdie General Agreement on Tariffs and Trade (gatt) negotiations as a follow-up to the Tokyo Round that concluded in 1979. During that period, the pace ofchange in the nature and composition of international trade has accelerated. International trade no longer conforms to the textbook model of an exchange of British cloth for Portuguese wine. The specialization ofnational firms in particular products is being increasingly replaced by the globalization of production, in which different processes required for the production ofindividual goods and services are performed in different countries. An American automobile may be designed in Japan, assembled in Canada or Mexico, and consist of parts manufactured in Taiwan, Brazil, or just about anywhere. Isaiah Frank is William L Clayton professor ofinternational economics atthe Paul H. Nitze School ofAdvanced International Studies ofJohns Hopkins University. This article is adapted from a longer paper prepared by the author for the Committee for Economic Development 29 30 SAIS Review SUMMER-FALL 1994 Globalization, therefore, means increased trade in parts, components, and semifinished goods. It also implies an increase in intrafirm trade as single global companies move components and partially finished goods from their facilities in one country to those in anoüher. In short, the traditional horizontal pattern oftrade in final products is being overtaken by a form ofvertical trade in which countries specialize in different parts or stages ofthe production chain for individual products. This globalization of production is made possible by two developments: the rapid advances in transportation and communications technology, which have enabled managers to coordinate widely dispersed activities; and ¿He steady reduction oftrade barriers underthe aegis ofGATT, which has made possible the movement of components and semifinished goods across national frontiers with a minimum of penalties in the form of tariffs or other restrictions. Another major development in international trade is the rapid rise in trade in services. In addition to travel and transportation, it includes a wide range of other services, such as advertising, accounting, financial, insurance, architecture, construction and engineering, education, and medical services. Between 1986 and 1992 U.S. exports of services more man doubled to $179 billion, or 41 percent of the value of U.S. merchandise exports in 1992. In contrast to trade in goods, the service sector has been generating sizeable trade surpluses. The U.S. surplus in service trade in 1992 amounted to $56 billion, offsetting 58 percent of the U.S. merchandise trade deficit of $96 billion.1 Many types of service exports cannot be provided effectively through cross-border exports, but only through the establishment ofa local presence in the foreign countries in which the service is provided. In the service sector, therefore, trade policy and investment policy converge. What globalization implies, therefore, is die need to extend the purview of international negotiations from die liberalization of strictly border measures, such as tariffs and quotas, to ¿He coordination ofvarious areas ofdomestic policy that substantially affect the ability of firms to conduct their operations worldwide . For example, it is difficult to conceive ofa company producing parts ofa complex product in different countries ifeach country accorded widely different treatmentto intellectual property rights or mandated sharply divergenttechnical standards. Nor is it conceivable that international trade in a wide variety of specialized services could flourish if firms encountered exclusionary business practices abroad or if firms were subject to limitations on their right of U.S. Department of Commerce, Summary ofU.S. International Transactions, June 15, 1993. WHITHER U.S. TRADE POLICY 31 establishment or...