GATT Is Dead; the World Economy as We Know It Is Coming to an End, Taking the General Agreements on Tariffs and Trade with It
Since 1945 the world has been moving slowly but persistently toward an ever more open, integrated world economy. The very success of this trend, however, has undermined its continuation and led to an important shift in power: A single polar world economy centered around the United States has been replaced with a multipolar economic world in which Europe, Japan and the United States are nearly economic peers. But many of the current institutions and practices will not work in a multipolar world. The most important of these institutions are known as the GATT-Bretton Woods Institutions. They include the world's trading rules, known as GATT (General Agreement on Tariffs and Trade), and the major financial institutions set up at the Bretton Woods Conference in 1944, or the IMF (the International Monetary Fund) to manage balance of payments problems and the World Bank to finance infrastructure projects. To make an open, integrated multipolar world bank, the United States, Germany and Japan would have to tightly coordinate their monetary and fiscal policies. Each country also would have to believe it had an equal chance to win -- a level playing field. This would mean harmonizing tax and regulatory policies and broadly similar operations for households and businesses. But no country is prepared to make the necessary changes or yield economic sovereignty. As a result, the world economy probably will move toward "quasitrading blocs." Trade will be freer within the blocs but managed between the blocs. This is going to have a major impact on how service industries such as accounting function in the world economy of the 1990s and the early 21st century. THE SHIFT FROM WIN-WIN TO LOSE-LOSE In the first three decades after World War II, everyone played a win-win economic game. Imports that looked small to the United States (3% to 5% of the gross national product) provided large markets to the rest of the world. From the American perspective, these imports were not threatening since they came in what were in American terms labor-intensive, low-wage industries that were being phased out anyway. Balancing America's trading accounts was not a problem. America could grow farm products the rest of the world could not grow, supply raw materials such as oil that the rest of the world did not have and manufacture unique products the rest of the world did not have the technology to build. Everyone won. In the jargon of today's strategic planners, each country had a noncompetitive niche where it could be a winner. With success, however, came an American locomotive that gradually grew too small to pull the rest of the world. In 1983-84, the United States pulled the world out of the 1981-82 recession, but in doing so created a huge trade deficit. This deficit cannot be solved without throwing the world back into a sharp recession or without levels of macroeconomics cooperation that are beyond what anyone is prepared to do. Without a solution, the United States will have to go ever deeper into international debt and its assets will become ever cheaper when priced in foreign currencies. A successful noncompetitive niche export environment has evolved gradually into an intensely competitive, head-to-head export environment. Ask Germany, Japan and the United States to make a list of those industries they think are vital to their success in the 1990s, and all three countries will create the same list--microelectronics, biotechnology and the new materials industries. The nature of the problem can be seen in the current maneuvering over high definition television (HDTV). Europe, Japan and the United States are all deliberately setting different technical standards for HDTV to ensure that producers from other regions cannot dominate their market. The spirit of GATT would call for common standards to set a level playing field. But no one wants a level playing field; everyone wants an edge. …