Taking Trade to the Streets: The Lost History of Public Efforts to Shape Globalization

Chapter 3: How the GATT Came to Intersect with the Regulatory Social Compact

chapter 3 How the GATT Came to Intersect with the Regulatory Social Compact In 1965, attorney Ralph Nader loaded a slingshot and lobbed at General Motors, one of the world’s largest corporations. In a grim, fact-laden book, Unsafe at Any Speed, Nader criticized the design, production , and marketing of an unsafe car, the Corvair.1 With this volley, Nader helped modernize America’s approach to social regulation, calling for government regulation of business as well as public monitoring of such regulation. Nader became a liberal icon, devoting “his life to defending the American public against corporate negligence and government indifference.”2 In the United States and other industrialized nations, activists such as Ralph Nader demanded, obtained, defended, critiqued, and monitored a wide range of regulations to govern discrimination, the environment and public health, and the workplace.3 These “social regulations ” were designed to achieve functional objectives such as ensuring certain workplace conditions or providing labeling or content information to consumers. Moreover, these social regulations were economy wide rather than sector-specific.4 In the 1960s to 1980s, the number and scope of social regulation expanded dramatically. But these regulations were not written in stone; the regulatory system grew and shrunk as markets and public priorities for regulation changed over time. Nonetheless, there was often wide public support for such regulation, especially in the area of environmental protection. Many business leaders, however, understandably saw these regulations as costs to the bottom line instead of investments in the general welfare of their stakeholders. Business executives did not respond uniformly . Some firms quietly accepted such increased regulation; others saw it as an opportunity to gain market share from their competitors because they could more quickly or more easily amortize the costs of regulation. However, most business leaders saw this trend as a major impediment, distracting business from responding to domestic and global market conditions. These business leaders needed to be alert because market conditions were changing rapidly. The Kennedy Round, the sixth round of international tariff negotiations (1962–67), sponsored under the aegis of the GATT, had dramatically lowered tariffs, which helped Americans increase both their exports and their imports. Stores from Saks Fifth Avenue to Sears were bursting with goods from around the globe. The price and availability of these goods kept U.S. companies on their toes and helped dampen American inflation. But some Americans lost jobs as American firms lost market share due to foreign competition. Trade’s costs and benefits were simply not on the agenda of most Americans. However, a small, vocal, and growing minority of Americans joined economic nationalists in questioning the cost of trade and economic interdependence in the 1960s and 1970s. Their voices got louder in the 1970s, as European and Japanese firms captured growing shares of U.S. and global markets for industries as diverse as textiles and steel. Members of Congress and some policymakers grew concerned about the fate of the workers and proprietors in these sectors, but the GATT limited their ability to use traditional protectionist tools such as tariffs. However, Washington is a town of ambitious creative individuals and ever so gradually, some sectors demanded and received other tools of protection such as voluntary restraint agreements or quota “arrangements.” State and local policymakers were also “creative” in their approach to protection. For example, some states and cities passed ordinances requiring retailers to post signs noting, “Japanese Goods Sold Here,” or “Communist (Soviet) Goods Sold Here.”5 Moreover, policymakers became more creative in their use of regulations—for example, procurement regulations—as a tool to discriminate among domestic and foreign producers. At the same time, business leaders began to understand that these regulations gave them a slight market edge over their foreign competitors. These executives had a home court advantage: They found it easier and cheaper to comply with domestic regulations than many of their foreign competitors. The United States was not alone in its growing recourse to such NTBs in the 1960s and 1970s. Trade policymakers, economists, and business leaders around the world were very worried about the proliferation of these “invisible” barriers to trade. In 1939, economist Percy Bidwell wrote that the proliferation of these barriers stemmed from GATT and the Regulatory Social Compact 59 “the steady extension of government regulation of domestic business.”6 Yet not all NTBs are regulations (such as subsidies). Moreover, most regulations were not designed to distort trade. Why did these...