Sorting Out GATT Jude Wanniski October 07, 1994

On Tuesday morning, we sent out our "GATT: Wait 'Til Next Year" report and on Tuesday afternoon the stock market cratered with news that House Minority Whip Newt Gingrich would try to block GATT on a procedural vote Wednesday. Clearly the market interpreted from Gingrich's announcement that GATT was being threatened on protectionist grounds, with a chance it would be killed outright. In our Tuesday report, we assumed GATT would be in no trouble this week, as the vote counters were reporting 130 Republicans and 130 Democrats lined up for it, though I wrote of "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." 

Indeed, some 70 of the votes the Democrats were claiming on their side of the aisle suddenly disappeared, "vanished," one House staffer told us. Democrats already scared to death by the mid-term elections were not going to add to their burdens by defying the Perot voters -- who have become fanatical in opposing the GATT treaty's establishment of a World Trade Organization (WTO). If Gingrich had not intervened, I'm told, GATT would have been defeated, with little chance of being saved in the kind of scenario we suggested on Tuesday. When GOP and Democratic leaders agreed to push the vote into the lame-duck session, a positive outcome was secured. The nine years invested in the treaty's tariff cuts will not go down the drain. The financial markets calmed down immediately when this became clear Wednesday afternoon. With the facts as we now know them, this was the best possible outcome -- a view shared by Rep. Dick Armey, the devoted free-trader who chairs the House Republican Conference. 

The nervous rumblings in the financial markets around the world this week remind us that the GATT treaty's indirect benefits to the U.S. economy are far more important than the direct gains from our lower tariff walls. Of the treaty's 22,000 pages, we now learn that 21,000 are the tariff schedules of more than 125 countries which expect to be participants. Once the U.S. agrees, the others will follow, and tariff walls will come down everywhere. When tariffs fall between Belgium and Brazil, for example, both economies will expand as the risk to their international capital falls. Their demands for U.S. exports of high value-added goods and services increase on the margin, and it is easier for them to pay for those U.S. goods because our tariff walls have been lowered as well. In this sense, GATT's importance can't be exaggerated.

Now what? The highest probability is that GATT will pass the House and Senate in the lame-duck session after Thanksgiving -- November 29 in the House, December 1 in the Senate. By then, not only will the midterm elections be safely behind the 103rd Congress, but the issues that have been raised by the anti-GATT coalition will also have been thoroughly ventilated. In this scenario, the protectionist measures that have been larded into the bill by the administration in order to win support from Democratic members would be swallowed by free-traders as the price that has to be paid to get the tariff cuts everyone wants. Our free-trade friends argue that these measures can be stripped out in next year's trade bill, on the assumption that a more free-trade Republican Congress will be dominant. Our assumption is that if the GATT treaty passes in the lame-duck session, we will be stuck with all the protectionist garbage in it, and only a clean bill passed in the 104th Congress could avoid this outcome.

What are the possibilities that GATT could be pushed into '95? Bill Kristol, with whom I spoke about this last weekend, issued a statement Wednesday that argued: "Any chance that this treaty's implementing legislation could be improved seems to us far outweighed by the risk that further delay might imperil the treaty itself. Pandering to protectionism -- and to Ross Perot -- is bad for the Republican Party and for the United States." The risks, though, depend upon what happens on November 8. If the GOP wins control of the Senate and at least effective control of the House, as we expect, there would be a new chemistry inside the Beltway that would alter the GATT calculus. It should be clear that the new Congress would be far more supportive of the free-trade provisions of the GATT and that there would be little risk in pushing it into '95. As it now stands, when the House votes November 29, the scenario we suggested Tuesday could again unfold, with an easy win for GATT after four hours of debate. In the Senate, the votes are also there for GATT, unless a point of order is raised about the budget rules, which require that the revenues lost by the tariff cuts be offset by spending cuts or higher taxes elsewhere. Someone will raise the point of order -- we can imagine Sen. Phil Gramm of Texas doing so -- and 60 votes will be required to waive it. It is not at all hard to imagine Dole and Gingrich, dealing from great strength, sitting down with the Democrats and agreeing to waive a point of order on the GATT revenue losses in exchange for waiving the revenue losses on a capital gains tax cut. Dole has had that thought in the back of his mind for most of this year. Gingrich, who promised to bring up the capgains tax in the first hundred days of the new Congress, would also see the symmetry. Senate Majority Leader George Mitchell, who blocked President Bush's capgains tax cut in 1991 on a point of order, could find himself spending his last moments in Congress swallowing this bitter pill. Of course, the combination of the GATT tariff cuts and a capgains tax cut would put the U.S. and the world economy on a fast track.

A growth strategy is the only alternative scenario that gets us into '95 with a clean bill. The anti-GATT coalition has rested their case on the sovereignty issue, which by itself is not strong enough to force delay. The sovereignty issue obviously touches the concerns of the ordinary Americans who have been energized by Perot's United We Stand Movement -- with help from Pat Buchanan and Ralph Nader. The argument is that the U.S. was not founded upon a revolution fought against the crowned heads of Europe in order to turn power over to their crowned bureaucrats. Is the WTO that bad? In yesterday's Washington Times, Paul Craig Roberts, a free-trade ally, writes: "Republican free traders are in for rude shocks, as are the special interests who have been bought off with heaps of protection from competition, to say nothing of the hapless taxpayers who have been left holding a bag of unknown proportions. Even Congress will find its powers diminished, not just at the hands of international bureaucrats, but also by the executive branch." Hmmm.

On the other hand, Senator Dole's trade specialist assures me that all the sovereignty problems first encountered in the legislation have been ironed out. Early this year, Gingrich himself raised the sovereignty issue, but dropped it when language he sought was added to the enabling legislation. He now says the delay to a lame-duck session will permit another scrupulous examination that could satisfy all genuine concerns. It could be that Perot has already been satisfied. On Tuesday night's Larry King Live, he told the audience that they should throw out the Democrats and vote Republican on November 8. This immediately spawned rumors from the Democrats that Perot had cut a deal with Newt Gingrich on GATT, which is nonsense. The only realistic scenario left is one that makes the enabling legislation less protectionist! Remember, when Perot led the fight against NAFTA, it was Gingrich who delivered the GOP votes to defeat him. On NAFTA, Perot's arguments did not hold water. On the WTO, they did, and where Perot could not even get a hearing from the Democrats, he found Gingrich and Dole willing to listen. They are not pandering to Perot's protectionism any more than I am. They have, though, correctly adjusted their positions in a principled way, and Perot seems to have responded. He at least had a hearing with the GOP, as he has not with the Clinton Administration. In a republican democracy, if a large swatch of voters can't find anyone who will listen to them in the two major parties, they can always found a third party. Perot was off the beam on NAFTA and he still may want more than is reasonable on GATT, but Gingrich and Dole should be praised, not vilified, for their political cherry-picking on issues with Perot.

Even in a worst-case scenario, it is a practical certainty that GATT will survive all this democracy. The pro-GATT forces have argued that unless it passes this year it will be doomed in '95, because it will lose the fast-track authority that enables it to avoid being nibbled to death by endless amendments. Joe Cobb, the resident expert at the Heritage Foundation and an ardent GATT supporter, tells us this is not so. In the 104th Congress, the rewritten treaty legislation could be introduced as H.R.1 and sent to the floor with a closed rule, passed, and sent to the Senate, where 60 Senators could then, as now, vote cloture to end a filibuster against it. This is just as good as fast track, he says. If the 104th Congress is indeed more Republican and more disposed to free trade, GATT is as good as gotten under any scenario.