broadest sense, extending from consultation to negotiation, is the only way of avoiding any such shifting. IV. NEGOTIATING PROSPECTS The serious problems that arise in international trade and trade relations are a dangerous source of friction and instability and a realistic, lasting modus vivendi will only be established if they can be successfully dealt with. The principal problems concern non-tariff barriers to trade in industrial products, the most important of which continue to be quantitative restrictions; the industrial import tariffs, which are still at significantly protective levels; and the whole complex of agricultural protection. The work that has been done in the GATT and the amount of data that have been collected would certainly provide the necessary base for a broad negotiation on the principal problems referred to in this paper in which reciprocity for the main participants could be forthcoming. A satisfactory balance of advantage probably cannot be found within any of the above sectors taken separately. As will be apparent from the preceding pages, the technical preparations for negotiations are in their last stages in the GATT. The problems have been identified. Some methods of negotiating on them have been discussed. Many of the elements of possible solutions have been identified. But there is a limit to what can be done at the technical level without committing governments. We are today at-or very close to—that limit. But we must be careful not to be too rigid in our thinking as to what type and style of negotiations might be the most appropriate and productive. We must not think only in terms of the past. In the field of nontariff barriers in particular, the nature of the problems is much different from the situation existing in the tariff sector in the early 1960's. The approach, therefore, might have to be considerably different than in the big GATT tariff conferences of the past. It could well be that what we should envisage should be a continuing process of erosion lasting over a considerable period of time. The actual timing of negotiations in GATT on the principal problems of international trade will, of course, be a matter for political decision by governments. The need is urgent for a major political decision that negotiations, on a broad scale and dealing with the basic problems, should be initiated. To be realistic, however, it has to be accepted that no GATT trade negotiation of any great dimensions can be expected to take place until the outcome of the current negotiations in Brussels for the enlargement of the EEC can be discerned one way or the other and, of course, until the United States in particular has the necessary legislative authority to negotiate. This should not mean, however, that the trading nations should sit back and do nothing in the meantime. It is our view that there are areas-which do not, it is true, involve the major problems of international trade-which governments could consult about, and negotiate upon, in this interim period. The GATT secretariat is in a position to suggest a number of such areas, both in the industrial and in the agricultural sector. Apart from any practical benefits of such action, the maintenance of the dialogue between GATT member governments in this way is of a psychological—and even political-importance. Governments would be in contact, making whatever progress toward further trade liberalization where possible, at the present time, instead of sitting back and doing nothing in the GATT until the Brussels negotiations are completed and thus encouraging the hardening of positions and the taking of defensive, precautionary action. The necessary impetus for all this requires that some major trading countries or group must shoulder the leadership role. It is a role the United States has played, to her great honour and benefit, in the past. It is a role she is not playing today. And even if one or more of the other great trading powers were to be more forthcoming with initatives in this field, they could not succeed unless the United States were to be willing quickly and effectively to respond. It is, in my view, imperative for the United States to assume a major part of the responsibility for determining whether the next few years are to witness a continued liberalization of trade with its known economic benefits or a continuing weakening and eventual break-up of the multilateral trading system with all the unfortunate consequences that this would have for trade expansion and trading relationships. In its own interest, the choice for the United States should be clear. V. SUMMARY In November 1967, a few months after the end of the Kennedy Round, the contracting parties reaffirmed their support for continuing the expansion of international trade in a multilateral framework. In the more than three years since then, extensive preparations have been made in the GATT for a further multilateral attack on trade barriers. The current GATT working programme has three main components: non-tariff barriers to trade in industrial products; tariffs; and barriers to trade in farm goods. With regard to non-tariff barriers, an extensive fact-gathering exercise was first necessary because little was known in a systematic way as to their nature and extent. This was followed by an appraisal, though not in precise quantitative terms, of the significance to trade of these non-tariff barriers. We are just now completing the third step in this work: explorations, on a non-committing basis, of the possibilities for concrete action to remove or reduce the adverse trade effects of such barriers. This last stage has been carried out by five separate working groups, dealing, respectively, with barriers resulting from: government participation in trade; customs and administrative entry procedures; industrial, health, and safety standards and labelling and marketing requirements; quantitative limitations on imports and exports; and trade restrictions resulting from various price mechanisms other than the tariff. In the second area, tariff barriers to trade in industrial products, our first task was to prepare detailed and comprehensive documentation on tariffs in the major industrialized countries as they will exist when all the Kennedy Round cuts have been made. This work permits more meaningful comparisons than have been possible in the past on tariffs between commodities and countries and is designed to permit an analysis which will provide a solid basis for future action. Our work makes clear that, despite the great progress made in tariff reductions since the end of World War II, there remain a good many tariff problems to be dealt with if the full advantages of international trade are to be realized. The situation of world trade in agricultural products is progessively deteriorating and a renewed effort is being made in the GATT to lay the basis for negotiations directed towards the liberalization of trade in farm goods. In this area, a great amount of time and effort has been spent over the past three years in determining the facts, appraising their significance in trade terms, and in exploring possible mutually acceptable solutions to the principal problems. Here the work has focussed not only on the area of import restraints and export aids, but also on what has become clear to all is probably the most important area: production policies. All of this work to date has been undertaken on the explicit understanding that none of the governments participating are committed to any of the possible solutions being proposed. It has been, then, preparatory work, necessary preparatory work for a negotiation on this great range of problems. Although in some senses preparation is not completed until an actual negotiation is completed, it can be said that most of the preparatory work has now been virtually carried as far as it can be in the absence of decisions actually to negotiate. Most of the necessary facts have been gathered, the The major problems have been identified, and the elements of possible solution have been discussed. We are near the limit as to what can be done at the technical level without committing governments. What will now be required is a political decision by the major trading nations to initiate negotiations on the main problems which presupposes, of course, the existance of the necessary legislative authority. Such negotiations. require that the U.S. assume a role of leadership which has been a familiar one in the past but which she is not now filling. NONTARIFF DISTORTIONS OF By Robert E. Baldwin I. INCREASED INTEREST IN NONTARIFF TRADE DISTORTIONS. II. A I. INCREASED INTEREST IN NONTARIFF TRADE There has been a growing recognition within the last few years that a variety of measures other than tariffs can seriously distort international trade. In broad terms, a nontariff trade distortion is any measure or policy that causes internationally traded goods or productive factors to be allocated in such a way as to reduce potential world income. Examples of such measures are import quotas, export subsidies, restrictive government purchasing policies, controls over foreign investment, restrictive business practices, and various technical and administrative regulations that sometimes hamper trade unnecessarily. Several factors account for the increased interest in nontariff barriers to trade. One has simply been that the significant tariff cuts achieved in the Kennedy Round (they averaged about 35 percent on dutiable nonagricultural goods for the United States, the United Kingdom, the Economic Community, and Japan) have revealed more clearly than before the host of other devices tending to reduce the benefits of international trade. It was recognized at the outset of the Kennedy Round that nontariff as well as tariff barriers needed to be reduced as part of a significant trade liberalization effort. However, it was not possible to undertake extensive negotiations in the nontariff field. The reasons were that the tariff-cutting exercise turned out to be much more complex and time-consuming than initially hoped for and that the problem of collecting and assessing information on nontariff trade distortions proved much more difficult than thought at the outset. Consequently, now that the tariff-reducing part of the negotiations have been brought to a successful conclusion, many people concerned with trade matters want governments to turn their attention to this neglected aspect of the Kennedy Round. Robert E. Baldwin is Professor of Economics at the University of Wisconsin. In the Economic Community (EC) as well as in the European Free Trade Area (EFTA) negotiations have in fact been taking place to eliminate non-tariff impediments within these regional groups. Both organizations have, for example, agreed upon a common code governing certain aspects of government procurement practices. Those in the U.S. and elsewhere who have urged the immediate initiation of negotiations on nontariff trade distortions within the General Agreement on Tariffs and Trade (GATT) point out that decisions are being reached within these important regional organizations which may not be in the interests of the rest of the world and yet many prove very difficult to change once they are made. Fortunately, the members of GATT did agree to a confrontation and justification exercise in the nontariff field, but no decision has been reached with regard to starting a formal, multilateral negotiation concerned with tightening the GATT rules on nontariff trade barriers and reducing existing ones. Another important factor causing greater concern about nontariff trade barriers has been the increased use of such measures in recent years. The United States, for example, over the last several years has introduced formal controls over foreign direct investment, increased the degree of discrimination against foreigners with respect to government purchases of goods and services, moved to a position where almost all foreign aid is tied to domestic production, extended import quotas to beef and tightened those on dairy products, negotiated a voluntary agreement with Japanese and European steel producers to limit steel exports to the U.S., and now seems on the verge of imposing import quotas on woolen products, man-made fibers, and shoes. Similarly, the United Kingdom imposed a prior import deposit requirement, established formal quotas for bacon imports and reached informal marketing agreements concerning other meat products, temporarily introduced an export subsidy scheme supposedly designed to offset certain internal taxes, tightened the discrimination against foreign suppliers in the nationalized and central-government sectors, subsidized wages and investment in manufacturing (the main export sector), and granted such liberal subsidies to industries in so-called "development" areas that they were accused of subsidizing exports and reducing imports. Still another country using nontariff trade-distorting measures more extensively is France. She also recently subsidized all exports and introduced quantitative controls over certain imports for a short period, increased her subsidies to the coal industry (along with other Common Market countries), and expanded subsidies to certain industries subject to international competition, e.g. electronics, steel, and paper and pulp. At the same time, it should also be recognized that in certain fields some progress has been made toward reducing nontariff trade impediments. Some European countries that long have maintained quantitative controls over the imports of many kinds of manufactured goods from Japan have been gradually lifting these controls. Likewise the Japanese who quantitatively restrict many imports have eased their controls. A |