Some like it — some don't — most don't know. That's the word on the Uruguay Round Agreements (URA) signed by 117 countries in April 1994 -- but yet to be ratified by Congress. Held under the auspices of the General Agreement on Tariffs and Trade (GATT), the URA will phase out quotas and reduce tariffs on most products traded globally.

GATT, the international body that governs approximately 90% of world trade, is responsible for reducing international tariffs from an average of 40% in 1947 to 5% in 1990. These tariff reductions have permitted international trade to expand enormously, national incomes to substantially increase and international competition to flourish resulting in higher quality, lower priced goods.

GATT economists believe that the URA will result in world income gains of $235 billion annually and trade gains of $755 billion annually, by 2002. For the United States it means increased exports by more efficient U.S. industries, an increase in our overall disposable income and improved economic growth. So what's not to like? It depends on your perspective -- or job.

The Agreement also means increased imports of goods for which the United States is not globally competitive and does not have a comparative advantage. On a micro scale this may result in losses for your company -- or the loss of your job. According to critics, the URA subordinates societal values to trade priorities and consequently has upset many labor unions, environmental groups, state and local officials. Additionally, many fear that the United States will surrender too much sovereignty to the World Trade Organization (WTO), the ruling body established by the URA, which is not directly accountable to the U.S. public.

"The Uruguay Round is not necessarily a good agreement for the United States," says Macfarland Cates, president of Arkwright Mills of South Carolina and past president of the American Textile Manufacturing Institute. Mr. Cates' fear that the textile industry will be hurt by the Agreement is not unfounded. According to the U.S. International Trade Commission, the URA will likely cause the U.S. textile trade deficit to increase by over 15%. The projected 5 to 15% increase in imports will offset the smaller 1 to 5% gain in exports resulting in a small but negative impact of 1% or less on production and employment in this sector.

Arkwright Mills is a manufacturer mostly of industrial textiles and garments. The company's annual sales range in the hundreds of millions of dollars, and exports account for about 15% of production. Like many U.S.-based textile mills, Arkwright mills is very competitive. Compared to other global producers, U.S. mills are one of the world’s largest and most efficient producers of textiles, being competitive in quality, innovation, marketing and related services. So why is the industry expected to lose under the URA?

The elimination of protection will expose the competitive weaknesses not of the U.S. textile industry, but of the apparel industry -- the single largest market for U.S.-produced textiles. The U.S. apparel industry is labor intensive and is subject to tremendous foreign competition from developing countries whose wages are a fraction of those in the United States. As a result, the greatest threat to the U.S. textile industry is the growth of imported garments. And increased imports of apparel negatively affect the U.S. demand for textiles. The negative effects on employment will be largely felt in North Carolina, South Carolina and to a lesser extent, Georgia. These three states account for one-half of U.S. textile employment.

Mr. Cates feels that the URA does not give U.S. producers equal access to foreign markets. Additionally, he believes that the United States is giving up too much sovereignty under the URA. Stated by Cates, "If you had reservations about the United Nations -- this is worse -- because we have no veto power."

According to Robert Stevenson, CEO of Eastman Machine Company based in New York State, "We need to produce for global markets in order to succeed. The U.S. market is peanuts compared to world markets." Mr. Stevenson, an ardent supporter of free trade, met with President Clinton last year in support of the North American Free Trade Agreement. Stated by Stevenson, "international competition is not harmful, it is a necessity. It helps you improve your product and manufacturing process."

Stevenson believes that U.S. companies must take advantage of the world economy and the GATT Agreement will help achieve this. Established in 1893, Eastman Machine Co. is a manufacturer of cloth cutting and spreading equipment used in the apparel, auto, furniture and industrial fabric industry. The company's annual sales exceed $25 million -- and 80% of new machines are exported. The success enjoyed by this company will likely improve with the advent of the URA. According to the U.S. International Trade Commission, the impact of the Agreement on the U.S. industrial machinery industry will be positive.

U.S. duties on cloth cutting and spreading equipment are about 10%. Stevenson believes that Eastman Machines' 80% share of the domestic market is not at risk with the reduction or elimination of this protection. He does see large potential export gains to countries like India, where the average current duty on his products is about 50%; and Brazil, where imports of finished machines are currently prohibited -- but will be forced open by the URA. Stated by Stevenson, "We can't support our economy by just selling to ourselves."

The world market for computers and office equipment reached $220 billion in 1993. Currently, U.S. producers supply 46% of U.S. consumption. The U.S. computer industry is globally competitive and a firm supporter of the URA. Thus, industry representatives believe that the tariff reductions will have a significant beneficial effect on the computer and office machine industry.

Dean Barren, CEO of DSB Computer Applications, provides computer consulting services and systems to customers domestically and overseas. Based in California, Dean Barren expects the growth of his small firm to accelerate with the advent of the URA. Claims Barren, "Some developing countries' high tariff barriers on computers have essentially prohibited sales by U.S. firms. For example, Brazilian tariffs range from 30 to 35% and their customs and other taxes can add an additional 40% on top of that. Some of India's tariffs on computers and office machines are 130%. Under the new GATT agreement, these barriers will come down."

According to the U.S. International Trade Commission, the URA will result in an increase of exported computer products, especially to developing countries such as India, Thailand and Indonesia. Additionally, the U.S. computer industry expects to save hundreds of millions of dollars from duty reductions in Europe.

U.S. firms lead the world in computer technology advances and invest large shares of their revenues in R&D. As a result, Barren believes that improved intellectual property protection under the URA will also benefit U.S. firms, especially in developing countries -- some of which have the fastest growing markets in the world.

The global demand for environmentally friendly products is at an all-time high. Consequently, sales are rapidly increasing for Ecostar International, a fast-growing New York State producer of biodegradable additives for plastics.

Bob Downie, CEO of Ecostar International, is very familiar with the global trading environment and a supporter of free trade. His firm exports about 70% of its production to Japan, South Korea, Taiwan, Denmark, Germany, Scandinavia and most recently to Mexico. Ecostar also has a joint venture production agreement in Changchun, China, located in the north. This facility produces a biodegradable agricultural mulch film which is spread over crops for the purpose of retaining heat and moisture, then degrades in the spring, not requiring the expense and labor to pick it up and discard it.

According to the U.S. International Trade Commission, the URA impact on most U.S. chemical sectors is positive, but small. Stated by Downie, "Global duties on our additives are already minimal." Thus, he believes that the URA will have little impact on his company. The only significant trade barriers to his product are logistical. Because the product is heavy, bulky and expensive to ship, the firm has plans to establish production facilities in strategic regions around the world.

Other issues, however, may be problematic. "I am very concerned about the loss of sovereignty regarding the establishment of the WTO", said Downie. "National sensitivities are definitely on the rise. People are more sensitive about their national identity and national prerogative." Overall, Bob Downie is neutral on the Agreement.

Ed Steger, CEO of Stetron International, relocated the headquarters of his electronic controls manufacturing company from Canada to the United States several years ago. The firm has manufacturing facilities in Japan, South Korea, Taiwan, Germany and China. Stated by Steger, the URA "was negotiated quite well. It does not appear to favor one country over another." This is an important point since the manufacturer custom designs much of its product to client specifications and ships from many countries to numerous others.

"The 90s are different than the 80s. In the 90s you have to be extremely competitive in order to stay in business. Artificial barriers will no longer keep one in the market", said Steger. "The Uruguay Round of the GATT is a good agreement. Any reduction in tariffs is beneficial -- and it should work well for the electronics industry."

The U.S. electronic component industry is the second largest in the world and a leader in the development of new product and process technologies. The industry produces a quarter of the world's total output and competes primarily with Japan, other Asian nations and the European Union. U.S. industry strengths lie in the production of advanced design-intensive electronic components, not in the commodity and labor-intensive products. Representatives of the U.S. electronic components industry support the URA. Although they sought larger tariff reductions and broader government and services agreements, they regard the URA as an opportunity to increase U.S. exports and investment.

This article appeared in World Trade Magazine, 1995
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John Manzella
About The Author John Manzella [Full Bio]
John Manzella is a world-recognized author and speaker on global business, competitive strategies and the latest economic trends. He also is CEO of World Trade Center BN, chair of the Upstate New York District Export Council, and founder of The Manzella Report and Manzella Trade Communications Inc. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.




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