BACKGROUND PAPER

The Effects of the Tokyo Round of

Multilateral Trade Negotiations

on the U.S. Economy:

An Updated View

July 1979

Congress of the United States

Congressional Budget Office
THE EFFECTS OF THE TOKYO ROUND OF MULTILATERAL

TRADE NEGOTIATIONS ON THE U.S. ECONOMY:

AN UPDATED VIEW

The Congress of the United States

Congressional Budget Office

For sale by the Superintendent of Documents, U.S. Government Printing Office

Washington, D.C. 20402

PREFACE

This paper, prepared at the request of the Subcommittee on

International Trade of the Senate Finance Committee, is a companion piece to an earlier Congressional Budget Office report,

U.S. Trade Policy and the Tokyo Round of Multilateral Trade

Negotiations. The earlier report was published before the conclusion of the Tokyo Round negotiations and thus contained no

detailed treatment of the final results of the negotiations. This

report provides such a detailed treatment. For discussions of the

history and purposes of the Tokyo Round negotiations, readers

should consult the earlier report. In keeping with CBO's mandate

to provide objective and nonpartisan analysis of issues before the

Congress, this paper offers no recommendations.

The paper was prepared by C.R. Neu and Emery Simon of the

National Security and International Affairs Division of the

Congressional Budget Office, under the general supervision of

David S.C. Chu. The authors wish to acknowledge the special

assistance of Jerome La Pittus and Barry Goldberg, both staff

members in the Office of the Special Representative for Trade

Negotiations, who provided much of the information necessary for

the timely publication of this report. Also assisting were Donald

Henry, James Verdier, and Nancy Swope, all of the Congressional

Budget Office. Robert E. Baldwin and William R. Cline both

commented on the draft of this paper, and the final product has

benefited greatly from their suggestions. Responsibility for any

errors, of course, remains the authors'. Francis S. Pierce and

Robert L. Faherty edited the manuscript, which was typed for

publication by Janet Stafford.

Alice M. Rivlin

Director

July 1979

iii

CONTENTS

SUMMARY ix

CHAPTER I. INTRODUCTION 1

The Effects of the Tokyo Round Agreements . 3

CHAPTER II. TARIFF REDUCTIONS 5

The Size of the Tariff Reductions 5

The Sectoral Distribution of the

Tariff Reductions 11

The Employment Effects of the

Tariff Reductions 14

The Regional Effects of the

Tariff Reductions 20

CHAPTER III. AGREEMENTS AFFECTING NONTARIFF

MEASURES 23

The Government Procurement Code 25

The Subsidies/Countervailing

Duties Code 29

The Anti-Dumping Code 31

The Customs Valuation Code 32

The Code on Technical Barriers to

Trade (Standards Code) 33

The Import Licensing Code 34

Reform of the GATT Framework 35

Agreements Affecting Agriculture 36

The Agreement on Trade in

Civil Aircraft 39

CHAPTER IV. COMBINED EFFECTS OF AGREEMENTS ON

TARIFFS AND NONTARIFF MEASURES 41

Employment Effects 41

Price and Welfare Effects 42

International Political Effects 45

What the Tokyo Round Did Not Accomplish . . 46

Conclusion 49

v

TABLES

Page

TABLE 1.

TABLE 2.

TABLE 3.

TABLE 4.

TABLE 5.

TABLE 6.

TABLE 7.

TABLE 8.

AVERAGE DEPTHS OF CUT IN TARIFFS

ON DUTIABLE IMPORTS 7

AVERAGE DEPTHS OF CUT IN FOREIGN

TARIFFS ON U.S. PRODUCTS AND IN

U.S. TARIFFS ON PRODUCTS OF

SELECTED INDUSTRIAL COUNTRIES 8

AVERAGE TARIFF RATES ON

DUTIABLE IMPORTS BEFORE AND

AFTER TARIFF REDUCTIONS 9

SHARE OF DUTIABLE IMPORTS IN TOTAL

IMPORTS, AND REDUCTIONS IN

DUTIABLE AND TOTAL MERCHANDISE

IMPORT PRICES 10

AVERAGE DEPTHS OF CUT BY CURRENT

TARIFF RATES 12

DIFFERENCES BETWEEN SWISS FORMULA

TARIFF REDUCTIONS AND FINAL TOKYO

ROUND REDUCTIONS 13

ESTIMATES OF NET EMPLOYMENT EFFECTS

IN THE UNITED STATES OF TOKYO ROUND

TARIFF REDUCTIONS 20

REGIONAL EMPLOYMENT EFFECTS OF THE

TOKYO ROUND TARIFF REDUCTIONS 21

vii

SUMMARY

The formal negotiation phase of the Tokyo Round of Multilateral Trade Negotiations (MTN) was concluded in Geneva on

April 12, 1979, with 23 countries, including the United States,

agreeing to a package of measures designed to reduce obstacles

to international trade. Eighteen other countries endorsed

only parts of the complete package. The agreements reached

in Geneva included a multilateral reduction in tariffs, the

establishment of new codes of conduct for international trade,

some reductions in barriers to trade in specific commodities,

and reforms of the framework of the General Agreement on Tariffs

and Trade (GATT), the general set of principles that has governed

international trade throughout the postwar period.

In accordance with the terms of the Trade Act of 1974, which

gave the U.S. President authority to negotiate changes in U.S.

trade policy, President Carter has submitted to the Congress the

Tokyo Round agreements and the legislation necessary to implement

these agreements. The Trade Act stipulates that the Congress must

approve or reject the agreements and the legislation without

amendment within 90 legislative days. The agreements will enter

into force for the United States when and if the implementing

legislation is approved by both houses of the Congress. The Trade

Act gives the President power to reduce U.S. tariffs without

subsequent Congressional approval. Accordingly, only the nontariff parts of the Tokyo Round agreements require Congressional

action.

THE EFFECTS OF THE TOKYO ROUND AGREEMENTS

The overall effects of the Tokyo Round agreements on the U.S.

economy are likely to be positive but small. By the time the

agreements are fully implemented (as much as ten years in the

future), the principal predictable effects are likely to be the

following. (Excluded from all of these estimates are important

long-term nonestimable effects, which are generally believed to be

highly beneficial to the United States.)

ix

H8-718 0-79- 2
o The Tokyo Round agreements will cause almost no change in

overall employment. Estimates of the effects of tariff

reductions on total employment in the United States range

from a loss of 300 jobs to a gain of 2,300 jobs. The

combined effect of tariff reductions and changes in

nontariff barriers to trade will be, according to one

estimate, a gain of 15,000 jobs.

o The sectoral distribution of employment changes will

favor the U.S. agricultural sector and a number of U.S.

industries employing sophisticated technology and highly

skilled labor. Adversely affected by increased competition from abroad will be some U.S. industries relying

on relatively unskilled labor and older, well-known

technologies. In no industry are decreases in job

opportunities resulting from the Tokyo Round agreements

expected to be large enough to necessitate layoffs;

normal economic growth and voluntary turnover of workers

should be sufficient to absorb whatever reductions

in job opportunities may be caused by the Tokyo Round

agreements.

o The regional distribution of employment gains and losses

will be close to uniform. No region of the United States

will experience other than very small changes in employment as a result of the Tokyo Round agreements. In the

West and the Midwest, job opportunities will increase very

slightly; in the East and the South, they will decline

slightly.

o The Tokyo Round agreements should lower U.S. consumer

prices. Estimates of the reduction in consumer prices

range from 0.4 to 0.6 percent to (probably more realistically) 0.07 percent.

o The evidence on how the agreements will affect the value

of the dollar is mixed, but all studies agree that,

whatever the direction of change, its magnitude will be

very small.

o Estimates of the total net benefit to the U.S. economy

resulting from the agreements are in the range of $1

billion to $1.5 billion per year. Included in these

estimates are only direct, near-term benefits. Some

estimates of longer-term gains have gone as high as $10

billion per year.

x
MAJOR AGREEMENTS REACHED IN THE TOKYO ROUND

Tariff Reductions

The major industrialized trading countries agreed to tariff

reductions on a wide variety of items. With some important

exceptions, these tariff reductions will be phased in over an

eight-year period beginning January 1, 1980. In general, the less

developed countries did not agree to tariff reductions.

Among the industrialized countries the size of tariff

reductions varies—both as a percentage of existing tariffs

and as absolute reductions in tariff rates. Summary Tables 1

and 2 show average depths of cut and average tariff rates prevailing before and after the reductions are fully implemented.

On average, U.S. tariffs will be slightly lower after full

implementation than will those of the other major participants,

even though other countries made larger absolute reductions

in tariff rates than did the United States. In general, reductions in agricultural tariffs were less than reductions in other

tariffs.

U.S. negotiators made special efforts to protect U.S.

industries thought to be especially sensitive to increased

import competition, and available evidence suggests that they

were largely successful. U.S. tariff reductions on the products

of these industries are less than on other products, and for

some items (particularly apparel) applicable nontariff measures

will be made more restrictive. In only a very few U.S. industries will reductions in job opportunities over the entire eightyear period for phasing in tariff reductions amount to more

than one percent of present employment. In all cases where

reductions in job opportunities are expected, normal labor

turnover should allow these work force reductions to take place

without layoffs.

This special protection for vulnerable U.S. industries was

not obtained without cost. In order to protect particular U.S.

industries, U.S. negotiators presumably had to allow other nations

to protect their own vulnerable industries, thus reducing potential export opportunities for some U.S. producers. Further, by

protecting certain U.S. industries from lower-priced foreign

imports, U.S. negotiators have limited the beneficial effect of

the trade agreements on U.S. prices.

xi
SUMMARY TABLE 1. AVERAGE DEPTHS OF CUT IN TARIFFS ON DUTIABLE

IMPORTS: IN PERCENT

Country

United

States

European

Community b/

Japan c/

Canada c/

All

Dutiable

Imports

29.6

29.3

10.7

28.0

Dutiable

Agricultural

Imports

17.2

30.0

3.6

20.0

Dutiable

Manufactured

Imports

30.9

29.0

11.8

28.1

Other

Dutiable

Imports a/

51.2

31.4

5.9

48.8

SOURCE: Office of the Special Representative for Trade Negotiations.

a/ Included in this category are basic minerals and ores, coal

and petroleum, and coal and petroleum products.

b/ Countries of the European Community include: West Germany,

France, Italy, Belgium, the Netherlands, Luxembourg, Denmark,

Ireland, and the United Kingdom.

c_/ For Canada and Japan, the figures shown refer to reductions in

tariff rates actually applied. Both countries agreed to

somewhat larger reductions in their respective "bound" rates—

the maximum tariff rates allowed under the terms of the

General Agreement on Tariffs and Trade.

Agreements on Nontariff Measures

Agreements on nontariff measures were a new feature of the

Tokyo Round negotiations; previous rounds of trade talks had

concentrated on tariff reductions. For this reason, and because

nontariff practices are regarded as the major barriers to trade

today, these nontariff agreements are generally seen as the most

important elements of the Tokyo Round package. The agreements

xii
are of three types: codes of conduct for international trade,

reform of the GATT framework, and reductions in nontariff barriers

affecting particular commodities.

Six major codes for the conduct of international trade were

agreed to.

The Government Procurement Code requires that, in making

decisions on nonmilitary procurement, governments and national

entities under the substantial control of governments will give

foreign producers treatment no less favorable than is given

to domestic producers. This code is expected to result in a

net increase in jobs in the United States.

The Subsidies/Countervailing Duties Code clarifies GATT

policy regarding both government export subsidies and the imposition of countervailing duties. In agreeing to this code, the

United States has undertaken not to impose countervailing duties

without first determining that foreign subsidies are causing; or

threatening to cause injury to domestic U.S. industries. The code

is not expected to have any immediate, direct effects on U.S.

trade. In the longer term, it may serve to prevent the outbreak

of trade wars resulting from increased government involvement in

domestic economic activities.

The Anti-Dumping Code clarifies GATT policy toward dumping,

the selling of goods in foreign markets below the prices at

which similar goods are sold in domestic markets. Current U.S.

practice generally conforms with the new code, and few changes are

expected.

The Customs Valuation Code provides new guidelines for

valuing imports for customs purposes. Its intent is to prohibit

arbitrary escalation of import values for the purpose of increasing tariffs. Under the terms of the code, the United States will

discontinue its use of the American Selling Price (ASP) method of

valuation. For most ASP items, however, tariff rates will be

adjusted to yield roughly the same tariffs under the new valuation

procedures as under the old. The code is thus expected to have

little effect on U.S. trade.

The Standards Code outlines procedures for setting and

enforcing national health, safety, performance, quality, and

labeling standards for imports. Its intent is to simplify compliance with such standards and to prevent their use as barriers to

trade. Because standards are of particular importance for highxiii
SUMMARY TABLE 2. AVERAGE TARIFF RATES ON DUTIABLE IMPORTS BEFORE

AND AFTER TARIFF REDUCTIONS: IN PERCENT

All Dutiable Dutiable Other

Dutiable Agricultural Manufactured Dutiable

Country Imports Imports Imports Imports a/

United States

Before 8.1

After 5.6

Difference 2.4

European

Community _b/

Before ~ 9.9

After 7.0

Difference 2.9

Japan cj

Before 14.0

After 12.5

Difference 1.5

8.7

7.2

1.5

7.0

4.9

2.1

14.0

13.5

0.5

8.1

5.6

2.5

10.0

7.1

2.9

15.3

13.4

1.8

4.1

2.0

2.1

10.2

7.0

3.2

1.7

1.6

0.1

Canada c/

Before

After

Difference

12.5

9.0

3.5

6.5

5.2

1.3

12.8

9.1

3.6

4.3

2.2

2.1

SOURCE: Office of the Special Representative for Trade Negotiations.

NOTE: Detail may not add to totals because of rounding.

aj Included in this category are basic minerals and ores, coal

and petroleum, and coal and petroleum products.

_b/ Countries of the European Community include: West Germany,

France, Italy, Belgium, the Netherlands, Luxembourg, Denmark,

Ireland, and the United Kingdom.

_£/ For Canada and Japan, the figures shown refer to reductions

in tariff rates actually applied. Both countries agreed to

somewhat larger reductions in their respective "bound" rates—

the maximum tariff rates allowed under the terms of the General

Agreement on Tariffs and Trade.

xiv
technology products, this code could be especially beneficial for

the United States.

The Import Licensing Code provides some guides for importlicensing practices. It is intended to ensure that these practices are not used to restrict trade in a discriminating way.

Among other provisions, it prohibits the rejection of applications

for import licenses because of minor clerical errors.

The reform of the GATT framework has two basic purposes: to

bring some provisions of the GATT more into line with the needs of

developing countries and to strengthen the GATT mechanism for

settling disputes. With regard to the first purpose, the reforms

allow developed countries to grant special concessions to less

developed countries without making similar concessions to other

developed countries. In return, the less developed countries

agree gradually to accept the trading responsibilities of developed countries as their economic development proceeds. With

regard to the second purpose, the reforms detail and expand GATT

procedures for consultation and dispute settlement.

Agreement was also reached on nontariff barriers affecting

some particular commodities.

Quotas on imports of U.S. agricultural products were liberalized by Japan, Canada, the European Community, and some less

developed countries. The United States has temporarily eased

restrictions on imports of cheese. In the future, however, new

U.S. policies on cheese imports will prove more restrictive than

current policies. On net, these changes in agricultural trade

policies should allow increases in U.S. agricultural exports.

An agreement on trade in civil aircraft eliminates all

tariffs on civil aircraft, aircraft engines, and parts, and binds

all signatory governments to purchase civil aircraft purely on the

basis of price, performance, and delivery times. Because the

United States is the world's leading producer of aircraft, it is

expected to increase its foreign sales as a result of this

agreement.

WHAT THE TOKYO ROUND DID NOT ACCOMPLISH

The successful conclusion of the Tokyo Round negotiations

represents a major accomplishment—particularly in light of the

recent instability of the international economic system. The

xv
negotiations did not, however, accomplish all that some observers

had hoped. Among the disappointments were the failure to agree on

a safeguards code detailing steps to be taken in the face of

sudden increases in imports; a failure to deal with quantitative

trade restrictions; the refusal of all but one less developed

country to endorse the entire package of agreements; the inability

to strengthen appreciably the GATT mechanisms for enforcement and

dispute settlement; and the absence of discussion of large-scale,

long-term bilateral barter arrangements between countries. These

issues stand as the major problems to be faced in future bilateral

or multilateral trade talks.

xv i
CHAPTER I. INTRODUCTION

On April 12, 1979, representatives of the United States and

40 other countries signed a proces-verbal in Geneva, marking the

formal conclusion of the Tokyo Round of Multilateral Trade Negotiations. I/ The proces-verbal, a diplomatic vehicle used to note

formally the results of negotiations, states that negotiations

have been completed and that the signatories will submit the

agreements for approval in accordance with their respective

domestic procedures. Aimed at reducing both tariff and nontariff

barriers to international trade, the Tokyo Round negotiations have

succeeded in bringing about agreement on a significant multilateral reduction in tariffs, on a number of "codes" of conduct

that will govern the use of nontariff trade measures, and on some

reform of the structure of the General Agreement on Tariffs and

Trade (GATT), which has provided the basic framework for international trade throughout the postwar period.

Although 99 countries participated in the Tokyo Round talks,

only 41 signed the final proces-verbal, and of these only 23

subscribed to the full set of agreements. 2_/ The remaining

18 countries entered into various partial and bilateral agreements dealing with particular tariff and nontariff matters.

Included among the 23 countries subscribing to the full set of

agreements were all of the major industrialized trading countries.

Among the less developed countries, only Argentina accepted all

of the negotiated agreements. The other less developed countries,

citing what they considered to be insufficient concessions on

I/ For more on the history and goals of the Tokyo Round, see

~~ Congressional Budget Office, U.S. Trade Policy and the Tokyo

Round of Multilateral Trade Negotiations, Background Paper

(March 1979).

2/ The countries agreeing to the full pact were the United

~~ States, Japan, Canada, the United Kingdom, West Germany,

France, Italy, the Netherlands, Belgium, Denmark, Luxembourg,

Ireland, Switzerland, Sweden, Norway, Finland, Austria,

Hungary, Czechoslovakia, Bulgaria, Australia, New Zealand, and

Argentina.

48-718 0-79- 3
the part of the developed world, signed only some of the agreements or refused to sign at all.

Among the several elements of the Tokyo Round agreements,

most attention has focused on the provisions affecting nontariff

barriers to trade. These nontariff barriers can take a wide

variety of forms, ranging from direct quantitative restrictions to

various procedural and administrative practices that have the

result of hindering the international flow of trade. Generally,

the term "nontariff barriers to trade" is used to denote any

government policy except tariffs that limits international trade.

Designed to clarify, standardize, and "harmonize" the nontariff policies of the signatory nations, the codes on nontariff

measures are a new feature of international trade negotiations.

Previous rounds of trade talks have succeeded in reducing tariffs

but have done little to restrict the use of nontariff barriers to

trade. As a result, the gains to be achieved through further

tariff reductions are less now than they have been in the past.

On the other hand, considerable gains are yet to be made by

regulating the use of nontariff measures. Indeed, with tariffs at

very low rates (by historical standards), many countries have

turned increasingly to nontariff means of protecting their domestic industries from foreign competition. The new trade codes are

widely seen as addressing specifically those practices that now

constitute the most important obstacles to international trade.

On June 19, 1979, President Carter formally submitted the

agreements reached in Geneva and the legislation necessary to

implement these agreements to the Congress for approval. Under

the terms of the Trade Act of 1974 (which gives the U.S. President

authority to negotiate changes in international trade policy),

the Congress will have a maximum of 90 legislative days to approve

or disapprove the agreements. The Trade Act further specifies

that: neither the agreements nor the implementing legislation may

be amended during Congressional consideration; they must be

adopted or rejected in their entirety, as submitted. To eliminate

the need for any changes after formal submission, the Finance

Committee of the Senate and the Ways and Means Committee of the

House have for the past several months conducted extensive reviews

both of the draft agreements and of the implementing legislation.

The Trade Act of 1974 gives the President power to negotiate

reductions in U.S. tariffs (within limits) without subsequent

approval by the Congress. Only the nontariff parts of the Tokyo

Round agreements must be approved by the Congress, and these
agreements will enter into force for the United States when and if

they receive Congressional approval.

THE EFFECTS OF THE TOKYO ROUND AGREEMENTS

While few observers doubt that the Tokyo Round agreements

will bring about significant changes in the rules that govern

international trade, it is impossible to estimate fully the

ultimate effects the Geneva agreements will have on international

trade or on the U.S. economy. The direct, near-term effects of

tariff reductions can be calculated fairly readily. But probably

outweighing these direct effects are the longer-term changes

brought about by freer trade: international specialization,

larger-scale and thus more efficient production, and more rapid

innovation spurred by increased competition. The estimation

of such long-term effects is simply beyond the capabilities of

any economic analysis.

The effects of reductions in nontariff barriers to trade

are even more difficult to predict. All of the problems encountered in estimating the long-term effects of tariff reductions are present in the case of nontariff barriers. In addition,

because the effectiveness of any attempt to reduce nontariff

barriers will depend critically on the specific policies adopted

by particular governments and on the vigor with which the new

codes of conduct are enforced, it is possible in only a very few

cases to estimate even their short-term effects.

By and large, the Tokyo Round agreements will result in

important benefits for the U.S. economy. These benefits, however,

will not be uniformly distributed among all industries or individuals in the United States. Some U.S. industries and the

workers in these industries stand to gain from increased opportunities for exports. Other industries and their workers will

face increased competition from imports. Some may suffer losses

in employment opportunities.

The U.S. negotiators in Geneva have taken great pains to

protect U.S. industries that are most susceptible to injury

from increased foreign competition. The evidence presented in the

following chapters indicates that to a very great extent they have

succeeded. The employment effects of the Geneva agreements are

very small, both for the country as a whole and for particular

industries. In most cases, the reductions in employment opportunities that are occasioned by reduced barriers to trade can be
absorbed by retirement, by voluntary transfers of workers to

other industries, or simply by reducing slightly the number of

workers hired to meet growing demand. It seems unlikely that

more than a very few layoffs will be caused by the Tokyo Round

agreements.

It is impossible, however, to eliminate all the costs associated with freer trade. The gains that arise from freer trade come

about primarily as a result of changes in national economic

structures. Nations produce more of those goods that they can

produce relatively efficiently and less of those that can be

produced abroad more cheaply. The result is a wider variety of

lower-cost goods in all nations. But these gains require reductions in certain economic activities in each country, and with

these reductions come reductions in job opportunities in particular industries. There is no way to receive the benefits of

freer trade without paying some of these costs. It will be one of

the important purposes of this paper to point out what changes in

the U.S. economic structure will be required if the overall net

benefit of the Tokyo Round agreements for the United States

is to be realized.

Where possible, this paper will cite quantitative estimates

of the effects of the Tokyo Round agreements and note the sometimes considerable qualifications that must accompany such

estimates. Where quantitative estimates are impossible, it will

provide a verbal treatment of the expected effects. Chapter II

describes the tariff reductions agreed to and discusses their

likely effects. Chapter III provides a similar, but far less

quantitative, treatment of the codes on nontariff barriers,

changes in the GATT framework, and agreements affecting particular

industries. Chapter IV provides some general conclusions drawing

upon the results of the preceding chapters.
CHAPTER II. TARIFF REDUCTIONS

The major industrialized countries have agreed, as part of

the Tokyo Round accords, to a significant reduction in tariffs.

With a few important exceptions, these tariff reductions will be

phased in over an eight-year period beginning January 1, 1980. _!/

With a few exceptions, the less developed countries will not

reduce tariffs as a result of the Tokyo Round negotiations.

THE SIZE OF THE TARIFF REDUCTIONS

The most often cited measures of the size of the agreed-upon

tariff reductions are so-called "depth of cut" figures, measuring

the percentage decrease in tariffs that will result from the Tokyo

Round agreements. These figures can be useful in conveying a

general impression of the quantitative significance of the Tokyo

Round tariff reductions, but they do not reflect accurately the

relative size of the concessions made by various countries. In

some cases, demand for imported goods is very sensitive to changes

in prices, and even small reductions in tariff rates can bring

about large increases in imports. Conversely, the demand for many

internationally traded commodities is nearly insensitive to

variations in price; even large tariff reductions for these

commodities will have little effect on trade flows. Thus, one

should not place too much emphasis on the relative depths of

tariff cuts made by various countries; these do not serve as

accurate measures of the relative concessions made by each.

The United States has agreed to reduce its tariffs on all

dutiable goods by an average of 29.6 percent. 2/ The European

I/ The most important exceptions for the United States involve

textiles, apparel, and leather products. For these commodities, U.S. tariff reductions will begin in July 1982 and be

completed within eight years.

2J All averages in this paper, unless otherwise noted, are

trade-weighted averages computed on the basis of merchandise

imports for 1976, the latest year for which complete trade

data are available.
Community (EC) will reduce its tariffs by an average of 29.3 percent. _3/ For Canada and Japan, the situation is somewhat more

complex. Since the end of the Kennedy Round of trade negotiations in 1967, both of these countries have made nonbinding

unilateral reductions in the tariffs they apply on certain products. As a result, these two countries (and particularly Japan)

now apply tariffs that are lower than the "bound rates," which,

under the terms of the General Agreement on Tariffs and Trade

(GATT), mark the upward limit on tariffs that each country may

apply. Canada and Japan have agreed to reductions in their bound

rates averaging 39 percent and 23 percent, respectively, but since

the applied rates of these countries are in many cases well below

the relevant bound rates, the actual reductions in tariffs will be

only 28.0 percent for Canada and 10.7 percent for Japan.

Throughout the Tokyo Round negotiations on tariff cuts,

primary emphasis was placed on reductions in industrial tariffs.

In most cases—the EC is an exception—tariffs on agricultural

products were reduced less than were tariffs on industrial products. Table 1 shows the average tariff reductions for all

dutiable imports for the United States, Canada, Japan, and the EC.

(Dutiable imports are all imports on which duties are imposed.)

It also shows average reductions for agricultural, manufactured,

and other imports for each of these countries.

The figures in Table 1 are the depths of cut agreed to

by each country in all its tariffs. As such, they provide a

rough measure of the magnitude of the tariff concessions that

each country made to the rest of the world. They are not,

however, an accurate reflection of the concessions that each

country made to the United States. Neither does the average

depth of cut for the United States accurately reflect U.S.

concessions to specific countries. Table 2 shows the average

depths of cut that the major industrial countries made in the

tariffs they apply to their imports from the United States,

and the average depths of cut made by the United States in its

tariffs on products from those countries.

The bilateral tariff reductions for all dutiable imports

shown in Table 2 are little different from the overall tariff

_3/ The countries of the European Community are West Germany,

France, Italy, Belgium, the Netherlands, Luxembourg, Denmark,

Ireland, and the United Kingdom.
TABLE 1. AVERAGE DEPTHS OF CUT IN TARIFFS ON DUTIABLE IMPORTS:

IN PERCENT

Country

United States

EC

Japan b/

Canada b/

All

Dutiable

Imports

29.6

29.3

10.7

28.0

Dutiable

Agricultural

Imports

17.2

30.0

3.6

20.0

Dutiable

Manufactured

Imports

30.9

29.0

11.8

28.1

Other

Dutiable

Imports a/

51.2

31.4

5.9

48.8

SOURCE: Office of the Special Representative for Trade Negotiations.

£/ Included in this category are basic minerals and ores, coal

and petroleum, and coal and petroleum products.

b/ For Canada and Japan, the figures shown refer to reductions

in applied tariff rates. Reductions in bound rates are

higher.

reductions shown in Table 1. The United States and the EC made

roughly equal cuts on tariffs affecting each other's products.

U.S. reductions on Japanese and Canadian products were substantially larger than the reductions these countries agreed to on

American products.

Table 2 highlights the Tokyo Round emphasis on industrial

tariffs. If only tariffs on nonagricultural products are considered, the Japanese and Canadian reductions on U.S. products are

much higher than if all goods are considered. In fact, Japan made

larger cuts on U.S. nonagricultural products than the United

States made on Japanese nonagricultural products.

The tariff cuts negotiated in Geneva, although large in

percentage terms, will have only a small effect on the overall

price level of dutiable imports. This is because tariff rates

are, on average, fairly low already. The average U.S. tariff rate

for all dutiable imports, for example, is only 8.1 percent. After

all of the agreed-upon tariff reductions have been implemented,
TABLE 2. AVERAGE DEPTHS OF CUT IN FOREIGN TARIFFS ON U.S.

PRODUCTS AND IN U.S. TARIFFS ON PRODUCTS OF SELECTED

INDUSTRIAL COUNTRIES: IN PERCENT

All Dutiable Imports

Country

U.S. Tariffs

on Foreign

Products

Foreign

Tariffs on

U.S. Products

Nonagricultural Imports

U.S. TariffsForeign

on Foreign Tariffs on

Products U.S. Products

EC

Japan a/

Canada a/

34.3

32.4

44.4

35.8

14.1

28.7

35.2

32.4

44.2

33.3

46.7

37.0

SOURCE: Office of the Special Representative for Trade Negotiations.

aj For Canada and Japan, the figures shown refer to reductions

in applied tariff rates. Reductions in bound rates are

higher.

the average U.S. tariff rate will be 5.6 percent. Thus, the

average price of U.S. dutiable imports will be lower by a maximum

of about 2.4 percent as a result of the Tokyo Round tariff reductions, kj Table 3 shows average tariff rates prevailing before

the Tokyo Round and those that will apply after all of the reductions have been implemented.

As Table 3 shows, the United States currently has tariff

rates somewhat lower than the European Community, Japan, or

Canada. Because of this, U.S. tariff rates will still be lower on

The minor inconsistency in these figures is due to rounding.

With lower tariff rates, foreign producers could choose

to raise prices on exported goods, capturing for themselves

part or all of the revenue given up by governments in reducing

tariffs. The figure of 2.4 percent is a maximum in the

sense that it represents the reduction in import prices that

would result if the full tariff reductions were passed on to

consumers.
TABLE 3. AVERAGE TARIFF RATES ON DUTIABLE IMPORTS BEFORE AND

AFTER TARIFF REDUCTIONS: IN PERCENT

Country

United States

Before

After

Difference

All

Dutiable

Imports

8.1

5.6

2.4

Dutiable

Agricultural

Imports

8.7

7.2

1.5

Dutiable

Manufactured

Imports

8.1

5.6

2.5

Other

Dutiable

Imports a/

4.1

2.0

2.1

EC

Before 9.9

After 7.0

Difference 2.9

7.0

4.9

2.1

10.0

7.1

2.9

10.2

7.0

3.2

Japan b/

BefoTe 14.0

After 12.5

Difference 1.5

14.0

13.5

0.5

15.3

13.4

~T78

1.7

1.6

0.1

Canada _b_/

Before 12.5

After 9.0

Difference 3.5

6.5

5.2

1.3

12.8

9.1

3.6

4.3

2.2

2.1

SOURCE: Office of the Special Representative for Trade Negotiations.

NOTE: Detail may not add to totals because of rounding.

aj Included in this category are basic minerals and ores, coal

~ and petroleum, and coal and petroleum products.

b/ For Canada and Japan, the figures shown refer to reductions

in applied tariff ratest Reductions in bound rates are

higher.

H8-718 0-79- 4
average than rates in other countries even though the absolute

reductions in EC and Canadian tariffs will be larger than the

reductions in U.S. rates.

The effects of these tariff reductions on total import prices

will be even less than is suggested by the figures in Table 3.

Dutiable imports account for only a part of total merchandise

imports, and tariff reductions will, of course, have no direct

effect on the prices of nondutiable items. In the case of the

United States, for example, dutiable imports represented only

42 percent of total merchandise imports in 1976. As a result, the

maximum reduction in total U.S. import prices that could be

brought about by the Tokyo Round is only about 1 percent. Table 4

presents comparable figures for the principal industrialized

economies.

TABLE 4. SHARE OF DUTIABLE IMPORTS IN TOTAL IMPORTS, AND REDUCTIONS IN DUTIABLE AND TOTAL MERCHANDISE IMPORT PRICES:

IN PERCENT

Country

Share of

Dutiable

Imports in Total

Merchandise

Imports a/

Average

Reduction

in Tariffs

on Dutiable

Imports

Maximum

Reduction in

Total Merchandise

Import Prices

United States

EC

Japan

Canada

43

41

37

54

2.4

2.9

1.5

3.5

1.0

1.2

0.6

1.9

SOURCES: International Monetary Fund, Direction of Trade; and

Office of the Special Representative for Trade Negotiations.

a/ In 1976.

10
THE SECTORAL DISTRIBUTION OF THE TARIFF REDUCTIONS

At the outset of the Tokyo Round, the United States proposed

that all tariffs be reduced uniformly by 60 percent. (This was

the maximum reduction allowed for U.S. tariffs by the Trade Act

of 1974.) The European Community rejected this proposal, urging

instead that tariffs should be both reduced and "harmonized"—

that is, that higher tariffs should be reduced by a higher

percentage than lower ones. Eventually, it was agreed that

the so-called "Swiss formula" should serve as the basis for

tariff cutting. _5/ Ideally, all tariffs would be cut by the

amounts specified by the formula, with exceptions being made

for particularly sensitive commodities or for commodities for

which the application of the formula would result in a larger

reduction than the negotiators were empowered to agree to. Strict

adherence to the Swiss formula would have led to average tariff

reductions of 42 percent for the United States, 43 percent for the

EC, 68 percent (in applied rates) for Japan, and 39 percent (in

applied rates) for Canada—much larger cuts than were in fact

made.

The decision by the participants in the Tokyo Round to make

smaller average tariff cuts than were called for by the formula

can be explained partly by the fact that the highest tariffs were

reduced by much less than other tariffs. Table 5 shows the

average depths of cut in tariffs of various sizes made by the

major participants. For tariffs less than 20 percent, the United

States and Canada show some evidence of cutting higher tariffs

more than lower tariffs. Japanese and EC cuts are about even

across this interval. For tariffs greater than 20 percent,

however, the cuts were much smaller. (At the level of aggregation

used to compute Table 5, the EC had no tariffs above 20 percent.)

In many cases, high tariff rates mark commodities of particular

political or economic sensitivity to import competition. That

tariffs on such commodities were not reduced greatly is perhaps

not surprising.

5/ Specifically, the Swiss formula called for a tariff rate x

to be reduced to a lower rate, z, according to the formula:

z = I4x J- (x + 14). This formula would result in larger percentage cuts for higher rates. There was no historical or

intellectual reason for the choice of this particular formula,

it was chosen principally because it was simple and implied an

acceptable average depth of cut.

11
TABLE 5. AVERAGE DEPTHS OF CUT BY CURRENT TARIFF RATES:

PERCENT

IN

Current Tariff Rate in Percent

Country

United States

EC

Japan

Canada

0

to

5

32

30

2

27

5

to

10

32

32

21

25

10

to

15

36

28

24

33

15

to

20

38

29

21

34

20

to

25

18

—7

9

Greater

than

25

20

—2

10

SOURCE: Office of the Special Representative for Trade Negotiations.

NOTE: These average depths of cut were computed on the basis of

prevailing tariff rates and negotiated tariff cuts for 169

categories of goods identified at the three-digit Standard

Industrial Classification (SIC) level. Different aggregations of commodities would result in slightly different

figures. For Japan and Canada, depths of cut reflect cuts

in applied tariff rates.

Some indication of which industries were considered particularly sensitive to increased import competition—and therefore deserving of special consideration—by each of the participants can be obtained by comparing the tariff reductions

that actually resulted from the Tokyo Round negotiations with

the reductions that would have resulted from a strict application

of the Swiss formula. Table 6 provides such a comparison for

two-digit Standard Industrial Classification (SIC) categories

of goods. Entries in this table indicate the difference between

tariff rates actually agreed on and the rates called for by

the Swiss formula. A negative entry indicates a tariff cut

smaller than required by the formula. The most striking aspect

of Table 6 is the number of negative entries; at the level of

aggregation represented in the table, very few tariff cuts

are as large as the formula calls for. Indeed, for the EC,

only one category shows a reduction as large as the formula

would have demanded (although greater-than-formula reductions

12
TABLE 6. DIFFERENCES BETWEEN SWISS FORMULA TARIFF REDUCTIONS AND FINAL

TOKYO ROUND REDUCTIONS: IN PERCENT

SIC

Category

01

02

08

09

10

12

14

20

21

22

23

24

25

26

27

28

29

30

31

32

33

34

35

36

37

38

39

99

Agricultural Products (Crops)

Agricultural Products

(Livestock)

Forest Products

Fishing, Hunting, and

Trapping

Basic Metals (Unprocessed)

Bituminous Coal and Lignite

Nonmetallic Minerals,

Except Fuels

Food and Kindred Products

Tobacco Products

Textile Mill Products

Apparel and Other

Textile Products

Lumber and Wood Products

Furniture and Fixtures

Paper and Allied Products

Printing and Publishing

Chemicals and Allied Products

Petroleum and Coal Products

Rubber and Miscellaneous

Plastic Products

Leather and Leather Products

Stone, Clay, and

Glass Products

Primary Metals

Fabricated Metal Products

Machinery, Except Electric

Electric Machinery and

Electronic Equipment

Transportation Equipment

Instruments and

Related Producer

Miscellaneous Manufactured

Products

Miscellaneous Commodities

Not Otherwise Classified

United

States

-4.8

1.3

1.2

0.1

0.2

—

1.4

-0.7

-6.1

-3.6

-10.3

0.2

0.8

1.6

0.6

-0.9

1.4

-0.6

-4.3

-2.1

-0.2

-0.1

0.2

0.1

0,3

0.0

0.7

2.0

-1.9

EC

-0.5

-0.4

-1.3

0.8

-0.1

-0.2

-0.9

-0.9

—

-2.5

-4.7

-1.4

-0.4

-1.8

-0.7

-1.4

-1.3

-2.3

-0.9

-1.7

-0.6

-0.7

-0,4

-2.4

-1.5

-0.5

-0.4

-0.7

-0.9

Japan a/

-14.3

-5.0

-3.1

-1.8

-0.1

-1.9

-2.4

-13.6

-340.8

-3.7

-6.4

-2.3

-0.4

-1.7

0.3

-1.4

-1.6

-2.0

-4.3

-1.0

-0.5

-0.2

0.4

0.3

2.1

0.0

-2.7

-1.8

-1.6

Canada a/

-1.0

-0.3

0.1

-0.7

-0.1

—

-0..5

-0.9

-8.2

-3 ,.6

-8.9

-1.5

-3,1

-0.4

3,. 7

-2,6

-1.6

-3.3

-4 ..3

-0.6

-3.0

-0.5

-0,3

1.7

-0.5

0.3

-0.7

0.4

-0.5

SOURCE: Office of the Special Representative for Trade Negotiations.

NOTE: Negative entries denote less-than-formula reductions.

aj For Canada and Japan, these figures represent formula reductions and

~~ actual reductions in applied rates.

13
were agreed to for some specific items within the larger categories shown in the table).

The U.S. Office of the Special Representative for Trade

Negotiations (STR) has identified particular industries in

the United States that were afforded special treatment in the

tariff negotiations. j>/ These include textiles, apparel, leather

products, rubber products (especially footwear), and some stone,

clay, and glass products. For all of these categories, U.S.

tariff reductions were significantly smaller than formula reductions. In a few other categories—notably crops, tobacco

products, and chemicals—U.S. reductions were also smaller

than formula cuts. This may represent retaliation for lessthan-formula cuts in these categories by the other participants.

In many instances, if one of the participants refused to make

formula reductions, all refused. Some notable exceptions to this

are the relatively large U.S. concessions on paper and paper

products and the relatively small EC concessions on electrical

machinery and transport equipment. The general message of Table 5

remains, however, that in most cases tariff reductions were not as

great: as were called for by the agreed-upon formula, primarily

because one country or another found it impossible to make the

reductions mandated by the formula and other countries followed

suit.

THE EMPLOYMENT EFFECTS OF THE TARIFF REDUCTIONS

Throughout the Tokyo Round tariff negotiations, U.S. negotiators sought to avoid tariff reductions that could damage certain

particularly vulnerable U.S. industries. To a large extent,

they have been successful in this effort. Nonetheless, increased import competition resulting from tariff reductions will

force some U.S. industries to reduce production. At the same

time, however, many other U.S. industries will be able to expand

production as foreign markets are opened to their products.

With these changes in production will come changes in employment. In some industries job opportunities will be fewer than

they would have been in the absence of tariff reductions, and in

_6/ U.S. Department of Labor, Trade and Employment Effects of

Tariff Reductions Agreed to in the MTN (June 22, 1979;

processed).

14
other industries job opportunities will be more plentiful. The

changes in employment that are likely to result from the Tokyo

Round tariff cuts, however, are very small. This is true both for

the U.S. economy as a whole and for nearly all particular industries. A number of studies—some completed before the final

Tokyo Round tariff negotiations and some, like those cited below,

based on the final results of these negotiations—have examined

the employment effects of tariff reductions. The principal

findings of all of these studies and indeed the main finding

of this report are the same: Tariff reductions of the sort

negotiated in Geneva will have only very small effects on employment in the United States.

Two recent studies provide detailed information on the

employment effects of the Tokyo Round tariff reductions for

particular U.S. industries. TJ Although the studies differ

in method and level of detail, both come to roughly similar

conclusions about which industries in the United States will gain

TJ The two studies are: U.S. Department of Labor, Bureau of

International Labor Affairs, Trade and Employment Effects of

Tariff Reductions Agreed to in the MTN (June 22, 1979; processed), and Alan V. Deardorff and Robert M. Stern, An Economic Analysis of the Effects of the Tokyo Round of Multilateral Trade Negotiations on the United States and the Other

Major Industrialized Countries, report prepared for the Subcommittee on International Trade, Senate Committee on Finance,

96:1 (June 1979). The method employed in the Labor Department

study is that developed by Professor Robert E. Baldwin of the

University of Wisconsin. The key assumptions on which this

approach is based are that imports are imperfect substitutes

for each other, but that increases in imports replace purchases of domestic substitutes dollar for dollar. All supply

curves are assumed to be infinitely elastic. The Stern and

Deardorff model is a general equilibrium model including both

supply and demand curves of finite elasticity for each industrial nation (and a residual "rest of the world") and for each

commodity. Solution of the model requires all markets to

clear except for the labor market, thus generating employment

changes as a result of tariff reductions. Capital is assumed

to be immobile. Both models allow for intersectoral interactions through an input-output relationship, but neither

includes the macr©economic effects of changes in aggregate

income.

15
and which will lose as a result of tariff reductions. Further,

these results are very similar to what other studies—completed

before the conclusion of the Tokyo Round—have suggested would be

the results of significant multilateral tariff reductions. 8/

(Both the Labor Department study and Deardorff and Stern's

study provide estimates of the effects of tariff reductions

assuming both fixed and flexible exchange rates. While it is

certainly true that national monetary authorities intervene

actively in international currency markets, there is no evidence

that major industrial countries have attempted in recent years to

maintain their currencies at specified values for extended periods

of time. Rather, all evidence indicates that recent official

currency market intervention has been intended only to smooth out

erratic changes in exchange rates. Thus, it would seem that the

flexible exchange rate case is the more accurate representation of

the present international monetary environment. Accordingly,

unless otherwise noted, all estimates of the effects of the

Tokyo Round agreements in this paper are based on an assumption of

flexible exchange rates.)

By far the largest gains (as measured either by new jobs

created or by increased exports) will accrue to the U.S. agricultural sector and to those industries that directly supply the

needs of agriculture. Also gaining will be those industries that

employ relatively sophisticated, modern technologies and highly

skilled workers. Among these industries, those producing aircraft

and aircraft parts, electrical machinery and components, and

chemicals will reap the largest benefits. The U.S. industries

in which output and employment may fall are generally labor

intensive and employ older, well-known technologies. Some prominent examples of U.S. industries likely to be adversely affected

by tariff reductions are the apparel, plastic products, and

pottery, china, and earthenware industries.

Although the actual pattern of gainers and losers is generally what one might have expected to result from across-the-board

tariff cuts, there are some interesting exceptions. For the most

part, these are attributable to the special consideration given

8/ For a discussion of some of these results, see Congressional

~ Budget Office, U.S. Trade Policy and the Tokyo Round of

Multilateral Trade Negotiations, Background Paper (March

1979), particularly pp. 21-32.

16
vulnerable industries. The U.S. textile and apparel industry

was seen as extremely vulnerable to tariff reductions; some

estimates of potential job losses in that industry went as high as

2 percent of the labor force. JJ/ Because tariff reductions for

these commodities were lower than for many other commodities, and

because certain U.S. quantitative restrictions affecting textiles

and apparel are being tightened, job losses in these industries

have been minimized. The Labor Department estimates that these

losses will amount to between three-tenths and one-half of one

percent of present employment in these industries. Deardorff

and Stern's estimates are similar. U.S. tariff reductions on

footwear were also very small, and as a result this industry—

generally considered highly vulnerable to increased import

competition—will suffer job losses of only between two-tenths and

four-tenths of one percent of the total labor force, according to

Labor Department estimates. Deardorff and Stern estimate a small

gain in footwear employment. Similar results can be cited for

each of the commodities identified by SIR as deserving of special

treatment. 10/

One would not expect, however, that the negotiators could

protect particular U.S. industries from increased import competition without making some concessions to foreign interests.

In some cases, these concessions took the form of allowing

other governments to maintain higher tariffs on items of particular sensitivity in their own countries. The figures in

Table 6 indicate that for many items foreign tariff reductions

were not as large as were called for by formula, and these

higher foreign tariffs reduce export opportunities for U.S.

firms. There is, of course, no way of knowing how much larger

the foreign concessions might have been if the United States

had not insisted on special protection for one industry or

another. The presumption must remain, however, that, at least

to a degree, special treatment for particularly sensitive U.S.

_9/ See William R. Cline, Naboro Kawanabe, T.O.M. Kronsjo, and

Thomas Williams, Trade Negotiations in the Tokyo Round; A

Quantitative Assessment (Washington, D.C.: The Brookings

Institution, 1978), p. 136. The study emphasized, however,

that quotas for textiles would probably make tariff reductions ineffective.

10/ For a detailed list of the employment effects of this special

treatment, see the Labor Department study, Table 6.

17
industries was achieved at the cost of potential export sales

by other U.S. industries.

It is important to keep the magnitudes of the gains and

losses described here in perspective: in most cases, they are

very small. The Labor Department study provides estimates of

employment effects for 291 industrial products. Of these, only

7 are found likely to experience job gains amounting to 1 percent

or more of the current labor force, ll/ For only 21 products will

job losses over the entire eight-year period of implementing the

tariff reductions amount to more than 1 percent of the current

labor force. 12/ This does not mean that specific products in

other categories will not show substantial reductions in employment or that no plants or businesses will be forced to close as a

result of tariff reductions. What the figures do suggest, however, is that, at the level of detail afforded by the study, tariff reductions will cause noticeable employment changes in only a

very few industries.

In some industries recent expansion of the labor force has

been sufficiently rapid that tariff-related changes in employment

are not likely to cause any absolute decline in the industry work

force; these industries will simply expand their work forces more

slowly. Much more important, however, is the fact that in all of

the industries represented in the Labor Department study, the

normal rate of labor turnover far exceeds the rate at which jobs

will be lost because of tariff reductions. The necessary labor

force reductions can be accomplished simply by not replacing all

ll/ These seven products are semiconductors (3.2 percent), computing machines (3.0), aircraft equipment (2.5), electronic

components (1.7), x-ray apparatus (1.6), mechanical measuring

devices (1.6), and aircraft engines and parts (1.0).

12/ These 21 products are pottery food utensils (22.7 percent),

other pottery products (12.6), artificial flowers (6.1), lace

goods (5.8), jewelry (4.8), watches and clocks (4.0),

motorcycles (3.2), vegetable oil mills (3.1), scouring

combing plants (2.9), cutlery (2.1), miscellaneous manufactures (1.9), games and toys (1.7), optical instruments

(1.7), other textile goods (1.5), sporting goods (1.5),

buttons, pins, and fasteners (1.4), radio and TV sets (1.4),

other leather products (1.2), ceramic tile (1.2), veneer

and plywood (1.1), and tire cord and fabric (1.1).

18
workers who leave voluntarily; it is unlikely that tariff reductions will cause any industrywide layoffs.

Whatever the ultimate effects of tariff changes on employment

in particular industries, these effects will not be felt at once.

Because tariff reductions will be phased in over a period of eight

to ten years, employment increases and decreases will proceed

only slowly. Unfortunately, the industries that will suffer

because of tariff reductions are in many cases already characterized by very slow growth or even decline in their work forces. 13/

Indeed, the same economic factors that are forcing relative

decline in these industries—low productivity growth, slow

technological progress, relatively high labor costs—also make

them vulnerable to import competition. In a sense, trade liberalization may be seen as simply accelerating the inevitable decline

in such industries.

The total employment effects of the Tokyo Round tariff

changes—that is, the net number of jobs gained or lost in the

U.S. economy—will be very small. The Department of Labor

estimates that the net effect will be a loss of only 300 jobs in

the entire economy, with the net losses in the manufacturing,

mining, and service sectors very slightly exceeding net gains in

agriculture. Estimates by Deardorff and Stern are similar: a net

gain of 2,300 jobs, reflecting a net gain in agriculture and net

losses in other sectors. (Table 7 summarizes these estimates.)

Compared to total U.S. employment of 87 million in 1976 (the year

for which the estimates were made), these overall employment

effects are very small.

Deardorff and Stern also estimate the effects of the Tokyo

Round tariff reductions on employment in other industrialized

countries. While U.S. employment gains will amount to about 0.003

percent of 1976 employment, in Japan the gains will be slightly

smaller (0.002 percent). They will be higher in Canada (0.055

percent) and in the EC (0.121 percent).

13/ Some examples of industries that are likely to suffer employment losses as a result of the Tokyo Round tariff reductions,

and that have had declining work forces in recent years are

pottery food utensils (recent annual decline in employment,

1.65 percent per year), artificial flowers (2.85), lace goods

(5.71), vegetable oils (2.23), and ceramic wall and floor

tile (3.10).

19
TABLE 7. ESTIMATES OF NET EMPLOYMENT EFFECTS IN THE UNITED STATES

OF TOKYO ROUND TARIFF REDUCTIONS

Source of Estimate Total Agriculture All Other Sectors

Department of Labor

Deardorff and Stern

-300

+2,300

+3,300

+13,000

-3,600

-10,700

THE REGIONAL EFFECTS OF THE TARIFF REDUCTIONS

Just as the effects of the Tokyo Round tariff reductions

will differ from one sector of the U.S. economy to another,

they will also differ from one region of the United States to

another. Some regions may be expected to gain employment as a

result of these tariff reductions; in other regions job opportunities may be fewer than they would have been without the tariff

reductions.

While it is impossible to calculate exactly what the regional

effects of tariff reductions will be, some rough estimates

are possible. These estimates and all other evidence strongly

suggest that, as was the case with particular industries, the

regional employment effects of the Tokyo Round tariff reductions

will be very small. Indeed, the estimates of regional gains

and losses in employment are all smaller than the errors generally

associated with such estimates. Thus the proper conclusion to

draw from such figures is that, on a regional basis, the Tokyo

Round tariff reductions will have no significant impact on

employment.

Table 8 gives estimates for the employment changes resulting

from the Tokyo Round tariff reductions in the nine U.S. census

regions. These estimates are based on the detailed estimates

compiled by the Department of Labor of increases or decreases of

job opportunities in individual sectors. These gains and losses

are allocated among regions on a strictly proportional basis: if

half of the employment in a particular industry is located in a

given region, then half of the gains or losses in employment in

the industry in question are associated with that region. No

account is taken of the fact that plants in some regions are more

20
TABLE 8. REGIONAL EMPLOYMENT EFFECTS OF THE TOKYO ROUND TARIFF

REDUCTIONS: IN NUMBER OF JOB OPPORTUNITIES GAINED OR

LOST

Region States

Change

in Job

Opportunities

Pacific

Mountain

West North Central

East North Central

West South Central

East South Central

South Atlantic

Middle Atlantic

New England

Washington, Oregon,

California, Hawaii, Alaska +500

Montana, Idaho, Wyoming,

Nevada, Utah, Colorado

Arizona, New Mexico +200

North Dakota, South Dakota,

Minnesota, Nebraska, Iowa,

Kansas, Missouri +1,700

Wisconsin, Michigan,

Illinois, Indiana, Ohio +6,100

Texas, Oklahoma, Arkansas,

Louisana +1,300

Kentucky, Tennessee,

Mississippi, Alabama -900

West Virginia, Maryland,

Delaware, Virginia, North

Carolina, South Carolina,

Georgia, Florida, District

of Columbia -3,400

New York, Pennsylvania,

New Jersey -5,300

Maine, Vermont, New

Hampshire, Massachusetts,

Connecticut, Rhode Island -500

21
modern or efficient—and thus less likely to reduce production—

than plants in other regions. Also, data on the regional distribution of employment by industry are from the 1970 census. This

distribution has undoubtedly changed somewhat since then, but

until the 1980 census is completed, it will be impossible to

update this information.

The increased job opportunities in the Midwest and West

are reflective of the general gains that tariff reductions are

expected to bring to agriculture and to high-technology industries. The estimates of decreases in job opportunities in the

East and South are the result of expected increased import competition in older, traditional manufacturing industries.

22
CHAPTER III. AGREEMENTS AFFECTING NONTARIFF MEASURES

The agreements reached in Geneva affecting nontariff measures are of three major types: codes for the conduct of international trade, reform of the GATT framework, and reductions

of nontariff barriers to trade in specific products. While

agreements of the last two types are likely to be quite important for the less developed countries and for agricultural

trade, respectively, the codes governing the conduct of international trade have the potential for reshaping the way trade is

carried on and for controlling the use of a wide variety of

nontariff measures in the future. For this reason, these codes

are widely viewed as the most important products of the Tokyo

Round.

Agreement was reached in Geneva on six major codes. These

codes address trade problems inherent in government procurement,

the use of subsidies and the imposition of countervailing duties,

"dumping" of goods in foreign markets, customs valuation, the

setting of standards for imports, and the issuance of import

licenses. Of these, only the government procurement code will

have predictable near-term effects on the U.S. economy. The

direct effects of the other codes are likely to be small.

These codes do, however, address a series of difficult problems

for the international trading system, and most observers agree

that they constitute an important first step toward the control of

nontariff barriers to trade.

The codes address a diverse set of concerns, but they

have in common that each of them establishes mechanisms for

the monitoring of its own operation and for settling disputes

concerning its proper application. These mechanisms vary somewhat

from one code to the next, but in all cases they involve the

establishment of a special committee of signatories to the code to

consider contested issues. These dispute settlement procedures

are generally seen as an improvement over current GATT procedures.

How much of an improvement the new procedures will be, however,

and whether they will in fact allow effective enforcement of the

new codes remain to be seen. Indeed, much of the uncertainty

23
about the effects of the codes arises from questions about their

detailed implementation and enforcement. _!/

In addition to the six codes that were settled on in Geneva,

negotiators considered, but could not agree upon, two other codes.

One of these, the so-called "safeguards" code, was to have detailed what actions are available to countries faced with sudden

increases in imports of a particular product. The GATT currently

allows countries to take action against such import surges in

order to safeguard threatened domestic producers. In recent

years, however, the major industrial nations have increasingly

ignored the GATT mechanisms in such circumstances, preferring

instead bilaterally negotiated arrangements by which other countries have agreed "voluntarily" to limit their exports of the

product in question. The code was to have brought safeguard

actions back into the GATT framework.

The main obstacle to agreement on this code has been the

issue of selective safeguard actions. The European nations have

insisted on the right to apply safeguard actions against imports

from specific countries. Although they have not taken clear

stands on this issue, the United States and Japan are reported to

be willing to accept the EC position. Less developed countries,

however, fearing that they would become the chief targets of such

selective safeguards, have insisted on the maintenance of the

current GATT requirement that safeguard actions be applied

equally against imports from all sources. To date, no way around

this impasse has been found.

The other uncompleted code deals with commercial counterfeiting. Negotiations on this code began much later than on the

other codes, and negotiators are hopeful that some agreement will

eventually be reached.

This chapter will outline briefly the provisions of the major

codes and discuss their likely effects. It will also provide

brief discussions of the negotiated changes in the GATT framework

and of the changes in nontariff barriers affecting agricultural

trade and trade in civil aircraft.

I/ For a particularly good discussion of the problems of enforcing trade rules, see Robert E. Baldwin, The Multilateral Trade

Negotiations: Toward Greater Liberalization? (Washington,

B.C.: American Enterprise Institute, 1979).

24
THE GOVERNMENT PROCUREMENT CODE

Article III of the GATT specifically exempts government

procurement from the general provisions of that agreement.

This exemption has left governments free to discriminate against

foreign products in their procurement decisions, and most governments—including the U.S. government—have done so for many years.

This discrimination has been accomplished through simple price

preferences for domestic goods (as established, for example, in

the United States by the Buy American Act of 1933), through a

variety of less explicit barriers to foreign bidding for government contracts, and in some cases through outright exclusion of

foreigners from bidding for government procurement contracts. 2/

The growth of government spending and the proliferation

of partially or wholly owned government enterprises in recent

years have sharply increased the share of total sales—and thus,

potentially, the share of international trade—accounted for by

government procurement. Many industries have been quick to

recognize the opportunities for increased sales if they could

compete on a more equal footing for foreign government contracts.

The result has been growing pressure to negotiate international

agreements making the government procurement process in all

countries more open to foreign producers.

Sentiment in favor of such agreements has been particularly strong in the United States. This is so in part because

governments purchase large quantities of the sort of highly

sophisticated electronic, communications, and transportation

equipment in the production of which U.S. producers often enjoy

important competitive advantages over foreign producers. Further,

because most foreign governments control relatively more of their

respective economies than does the U.S. government, there is a

widespread belief—unfortunately very difficult to establish

quantitatively—that the opportunities for discrimination by

foreign governments are much greater than the opportunities for

such discrimination by the U.S. government. Whatever their

opportunities, foreign governments are widely seen as discriminating more aggressively in favor of domestic products than does

2/ For a discussion of the practices of various countries, see

William R. Cline and others, Trade Negotiations in the Tokyo

Round: A Quantitative Assessment (Washington, B.C., The

Brookings Institution, 1978), pp. 189-94.

25
the U.S. government. If this were in fact the case, then a

multilateral opening of government procurement to international

competition would clearly be in the U.S. interest.

The proposed code on government procurement calls upon all

signatory governments, in making procurement decisions, to grant

products originating in any other signatory country treatment "no

less favorable" than that afforded to domestic products or to the

products of any other country. Procurement by governments and by

national entities under the "substantial control" of the government also comes under the provisions of the code. In addition,

governments are required to make more open the process by which

specifications are set, bids accepted, and contracts awarded.

Governments accepting the code will be required to publish winning

bids for procurement contracts and to review complaints of unfair

treatment from foreign producers.

Excluded from the provisions of the code are contracts valued

at less than 150,000 Special Drawing Rights (about $190,000).

This exclusion allows the continuation of U.S. programs granting

special preferences in U.S. government procurement to small and

minority-owned businesses and to businesses in depressed areas.

Also excluded is all government procurement of military arms or of

other goods essential to the maintenance of national security or

"public morals, order and safety."

Intense negotiation has gone on over the national entities

that are to be considered under the "substantial control" of the

signatory governments, and thus subject to the provisions of the

code. Each party to the agreement offered a list of its own

national entities to which the code would apply, but the status

of a few is still in question. The most important unresolved

issue at present concerns the status of Nippon Telephone and

Telegraph (NTT), the state-owned Japanese telephone company, which

is a large purchaser of the sort of sophisticated electronic

equipment that the United States excels in producing. U.S.

negotiators have insisted that NTT procurement be covered by the

code, but so far Japanese representatives have refused to open

this potential market sufficiently to satisfy the United States.

Talks on the subject are continuing. Perhaps the most significant

U.S. exclusion from the proposed code is the Tennessee Valley

Authority.

The code also calls for the establishment of a committee

composed of representatives of each of the parties to the agreement to monitor compliance with the code. In cases of disputes

26
that cannot be settled by consultation among the parties involved,

the committee can appoint a panel to examine the dispute and can

issue whatever rulings it deems appropriate. No enforcement power

beyond the issuing of a ruling is available to the committee.

The government procurement code is the only code the direct

effects of which can even partially be estimated. Even so, the

uncertainties inherent in the estimates are so large that little

faith should be placed in their accuracy. They are, nonetheless,

useful in illustrating the general nature of the code's effects.

All attempts at estimating the effects of the procurement

code are based on the assumption that, if special preferences for

domestic products were eliminated, imports would account for

roughly the same share of government procurement of a given class

of goods as they do of private procurement of that same class of

goods. If one knew the shares of imports in government procurement and in the total economy, one could then estimate the

potential market for new imports after implementation of the code.

Unfortunately, available information about the sectoral composition and country of origin of government purchases is not

sufficiently detailed to allow a direct application of this

approach. A number of important simplifications and assumptions

need to be made, and, because there is considerable latitude in

making these assumptions, estimates can vary widely.

The U.S. Office of the Special Representative for Trade

Negotiations (STR) has "conservatively" estimated that implementation of the government procurement code will result in a

net increase of between 50,000 and 100,000 jobs in the United

States. 3J On the other hand, Deardorff and Stern estimate that

the net employment gain in the United States resulting from

implementation of the code will be 2,600 jobs, kj Further, if the

effects of likely changes in exchange rates are included in the

analysis, the net gain drops to 1,600 jobs.

3/ Office of the Special Representative for Trade Negotiations,

Government Procurement Code; Impact on U.S. Trade and Employment (June 15, 1979; processed).

4/ Alan V. Deardorff and Robert M. Stern, An Economic Analysis

~ of the Effects of the Tokyo Round of Multilateral Trade

Negotiations on the United States and on Other Major Industrialized Countries, report prepared for the Subcommittee on

27
Part of the difference between these estimates is apparently

due to the use of different techniques in assessing the likely

level of government imports in the absence of preferential treatment for domestic goods. The SIR estimate assumes that the

average share of imports in government procurement (excluding

petroleum and agricultural products) would be the same as the

share of imports in all purchases (again excluding petroleum and

agricultural products). Deardorff and Stern, on the other hand,

disaggregate government procurement into its major components and

perform a similar analysis for each component separately, adding

the gains in each sector to arrive at a total figure. Their

results suffer somewhat because the information on the product

classification of government procurement dates from the period

1967-1971 and is perhaps somewhat out of date. It is likely,

nonetheless, that the composition of government procurement today

is more like it was in 1967-1971 than it is like the composition

of total purchases. On this basis, one might prefer the Deardorff

and Stern estimate.

A more problematic difference between the two studies

arises from differing assumptions about the present share of

foreign products in government procurement. Reliable data on

this share are not available, and therefore some assumption is

necessary.

Deardorff and Stern assume that at present governments

purchase no foreign goods. The effect of this assumption is

to overstate the increase in each country's imports that will

result from implementation of the government procurement code.

New U.S. exports will be overstated, but so will new U.S. imports. The effect of this assumption on the net U.S. trade

position is not clear. The STR study, on the other hand, assumes

that U.S. price preferences for domestic products (ranging

from 6 to 12 percent) have the same average effect as a 10

percent tariff on all U.S. government purchases of foreign

products. The study assumes—without any supporting evidence—

that foreign preferences are the equivalent of a 50 percent price

preference.

International Trade, Senate Committee on Finance, 96:1 (June

1979), pp. 80-85. Their estimate is of changes in employment attributable only to the proposed government procurement

code. In combination with the tariff reductions, the effects

of the code would probably be somewhat greater.

28
There is no way of knowing which of these approaches is

closer to the truth. The simplification that Deardorff and

Stern use, while certainly not exactly correct, may be a fair

representation of the present situation. Much hinges on whether

the 6 to 12 percent price preferences now given by the U.S.

government are sufficient to eliminate nearly all U.S. government

procurement of foreign goods. If so, their estimate would be the

more reliable. Unfortunately, since there is no evidence on this

matter, one can conclude only that the true value lies somewhere

between the two estimates.

Also of some interest are the sectoral and international

distributions of gains and losses resulting from implementation of

the government procurement code. Deardorff and Stern's estimates

suggest that the sectors of the U.S. economy standing to gain the

most from the code are those producing nonelectrical machinery,

textiles, industrial chemicals, and agricultural products, while

the sectors most likely to lose employment are those producing

electrical machinery and plastic products. Interestingly, Deardorff and Stern's estimates cast some doubt on the conventional

wisdom that the United States will be the largest beneficiary

of more open government procurement. In the case of flexible

exchange rates, both the European Community and Japan gain marginally more jobs than does the United States. In the fixed-rate

case, Japanese and EC gains are both nearly nine times the U.S.

gain.

THE SUBSIDIES/COUNTERVAILING DUTIES CODE

The GATT has always prohibited the payment of government

subsidies designed to promote exports at the expense of other

signatories to the agreement. It has also, however, specifically

allowed the payment of government subsidies "exclusively to

domestic producers." The dividing line between purely domestic

subsidies and subsidies for export items is necessarily vague; all

subsidies affect the costs of production and could therefore

influence the level of imports or exports of specific products.

When a subsidy is determined to cause or threaten injury to the

interests of another country, the country granting the subsidy is

required to "discuss the possibility of limiting the subsidy."

Injured countries are also permitted to impose countervailing

duties—duties intended to remove the advantage bestowed by

a subsidy—on imports of subsidized products, but only after

determining that the subsidy is causing or threatening to cause

material injury to industries in the importing country.

29
In recent years, the GATT provisions governing subsidies have

been widely believed to be inadequate. This belief arose in part

because of increased government involvement in economic matters; a

variety of programs to increase employment, encourage regional

development, promote research and development, and provide increased job security have greatly increased the opportunity for

both direct and indirect subsidization. With the expansion of

world trade, moreover, the effects of these subsidies on international trade have been more keenly felt. Because subsidization

is in many cases quite subtle and indirect, many governments have

been loath to seek corrective measures through GATT mechanisms.

Indeed, since its establishment in 1948, only 35 petitions alleging injury from any cause have been reviewed by the contracting

parties to the GATT. Finally, although the GATT provides some

recourse for nations importing subsidized goods, it contains no

provisions for dealing with domestic subsidization of importcompeting products.

The new subsidies/countervailing duties code seeks to

strengthen and clarify international policy toward subsidies. It

recognizes that governments may provide subsidies for legitimate

purposes. In general, subsidies can be used to "promote social

and economic policy objectives," such as aid for depressed regions

of a country, the maintenance of employment, and the promotion

of research and development. The signatories to the code, however, undertake to avoid subsidies that would cause injury to

domestic industries of other signatories or displace their products in the markets of the subsidizing country, nullify the

benefits granted by tariff concessions, or prejudice the interests

of other suppliers to third-country markets. To aid in identifying such subsidies, the code contains an "Illustrative List of

Export Subsidies" that are to be avoided.

The code also reaffirms the GATT principle that countervailing duties be imposed only when subsidies threaten injury to

domestic industries. The United States, alone among the major

industrial countries, now imposes countervailing duties without

requiring a determination of injury. In agreeing to the new code,

the United States has agreed henceforth to require such an "injury

test" before imposing countervailing duties.

The code outlines the considerations that should enter

into a finding of injury and provides guidelines for the size

and duration of countervailing duties. Exactly what should

constitute injury, however, has been the subject of extensive

debate and discussion both among the negotiators in Geneva and

30
between the U.S. Congress and the Administration. Both the code

and the relevant U.S. implementing legislation require that

"material" injury be determined before countervailing duties

are imposed. U.S. implementing legislation further defines

"material injury" as "harm which is not inconsequential, immaterial, or unimportant." Such definitions will acquire meaning

only as a body of precedent is built up over a period of years.

The code provides special treatment for less developed

countries, specifically exempting them from the prohibition

against export subsidies. In return, they are called upon

to enter into "commitments" to eliminate these subsidies as their

economic development allows. The code also establishes a committee of signatories to consider complaints about compliance

with the terms of the code.

The subsidies/countervailing duties code is not expected to

have an immediate effect on U.S. imports or exports. Exercising

powers granted to it by the Trade Act of 1974, the U.S. Treasury

has waived most countervailing duties for the past few years, so

the institution of an injury test should not lead to any widespread elimination of countervailing duties. Much will depend on

how the injury test is applied in the future. In the longer

run, the code could help to prevent the outbreak of trade wars

resulting from increasing government involvement in domestic

economic affairs. It could also serve to limit the loss of U.S.

export markets as a result of subsidized foreign (particularly

EC) exports of surplus agricultural commodities.

THE ANTI-DUMPING CODE

A problem closely related to the treatment of export subsidies is that of dumping—the sale of products in foreign markets

for less than they are sold in domestic markets. Such dumping can

often be accomplished without any direct or demonstrable government subsidy. The effects of such practices on producers of

similar products in importing countries are much the same as the

effects of a straightforward government subsidy. Most countries

now impose special duties on items that are dumped in their

domestic markets, and Article VI of the GATT allows such duties in

cases in which the dumping causes or threatens to cause material

injury to a domestic industry.

The anti-dumping code agreed to in the Tokyo Round is for

the most part a clarification of existing GATT anti-dumping rules.

31
It lays out in more detail the definition of dumping, the nature

of the injury that must be shown before anti-dumping duties can

be imposed, the types of action that governments may take to

prevent dumping, and the procedures that should be followed before

any action is taken. In addition, the code establishes a committee of signatories to the code to facilitate the settlement of

disputes and to monitor the operation of the code.

The implementation of the anti-dumping code should have

little immediate effect on the United States. Current U.S.

practice is generally in conformance with the provisions of the

code,, and no major changes in U.S. laws are anticipated. Similarly, few U.S. products are subject to anti-dumping duties

in other countries, so that the new code should not significantly

affect U.S. export prospects. The principal value of the code

will lie in providing clearer guidelines for the handling of

future cases of alleged dumping.

THE CUSTOMS VALUATION CODE

Tariff rate reductions alone do not always lead to reductions in duties charged on imported goods. By adjusting the

method for determining the value of imported goods, customs

officials can increase duties independently of tariff rates.

U.S. exporters have often complained that foreign customs officials arbitrarily inflate the value of U.S. products, thus requiring higher duties, and that uncertainties over foreign customs

valuation procedures complicate the transaction of international

business. _5/

Foreign exporters have in turn criticized U.S. customs

valuation methods. The United States, they point out, uses

nine different methods of customs valuation, which, they allege,

are not applied uniformly. One of these nine methods, the socalled American Selling Price (ASP) method of customs valuation,

has been singled out as particularly unfair. Under this method,

a few commodities—benzenoid chemicals, rubber-soled footwear,

canned clams, and certain knit gloves—are valued for customs

purposes not, as is usually the case, on the basis of their

export value, but on the basis of the price of similar goods

produced in the United States. The use of ASP valuations has

5/ Ibid., pp. 85-89.

32
increased duties on these products well above the levels implied

by current nominal tariff rates.

The customs valuation code is intended to reduce the arbitrariness of various national methods of customs valuation. To

this end, it establishes the "transaction value" of a product—

"the price actually paid or payable for the goods when sold

for export" plus certain other costs and expenses associated

with the transaction—as the primary method for valuing imports.

The code also identifies four alternative methods for valuation that are to be used in a specified order of preference

when for some reason the primary method is not applicable.

In agreeing to this code, the United States has agreed to abandon

its use of the ASP method of customs valuation. This code, like

the other codes, also establishes a committee of signatories to

facilitate the settlement of disputes concerning the code's

provisions.

The code, if vigorously enforced, should simplify and clarify

customs valuation procedures. It is unlikely, however, to

bring about any near-term changes in trade flows, since most

duties affected by the code will be replaced with equivalent

tariffs computed on new bases. The United States, for example,

will increase the nominal tariff rates on nearly all ASP items, so

that the duties actually charged will be about the same as before.

The few reductions have been included in the estimates of the

effects of tariff changes detailed in Chapter II.

THE CODE ON TECHNICAL BARRIERS TO TRADE (STANDARDS CODE)

Among the national trade policies that are most vexatious

to foreign producers are those setting standards for the quality,

performance, safety, or labeling of imported products. More

than half of the complaints of unfair treatment filed with the

Office of the Special Representative for Trade Negotiations by

U.S. exporters have concerned matters of standards. 6J While few

would deny the right of governments to apply reasonable standards

to protect their domestic consumers from foreign products of

inadequate quality, there has been an increasing sense that standards are often applied in ways that seriously disrupt trade. In

some cases, exporters see the standards as frivolous, restricting

_6/ Ibid., pp. 69-72.

33
imports with no clear benefit to consumers. In other cases,

goods thought by exporters to be in compliance with the relevant

standards have been denied entry because they infringed details of

standards that had not been completely understood. In still

other cases, goods are required to undergo expensive certification procedures, sometimes duplicative of procedures already

satisfied in other countries. The possibilities for restricting

trade through the use of technical barriers are obviously quite

various.

The most important aspect of the standards code is the

recognition that national standards should not be allowed to

disrupt trade unnecessarily. The code calls on all its adherents

to ensure that standards are not adopted or applied with a view to

creating obstacles to trade. It states, further, that whatever

standards are adopted must be applied without discrimination:

imported goods are to be subject to the same standards as domestic

goods, and imports from all sources are to be treated similarly.

Parties to the agreement are required to adopt international

standards whenever possible, to publish details of their own

standards whenever these standards are different from international norms, and to provide a point of enquiry where questions

regarding standards can be handled expeditiously. Whenever

possible, signatories will accept certification of products issued

by other parties to the agreement. The code also establishes a

committee of signatories to monitor compliance with its provisions

and to aid in settlement of disputes.

This code is not expected to bring about any direct near-term

changes in trade flows. In the longer run, however, it should

allow trade to expand as technical obstacles are gradually reduced. Obstacles of this sort are particularly important for

trade in technologically sophisticated items. Because the United

States is a major producer and exporter of such items, it may be

expected to reap particular advantages from the implementation of

the code. Much of the code's effectiveness will depend on just

how the provisions are implemented and enforced. At present,

there is no way of estimating its specific effects.

THE IMPORT LICENSING CODE

A final code agreed to in Geneva deals with import licensing.

The licensing of imports is used by many countries, particularly

less developed countries, to control the use of scarce foreign

exchange. In the past, licensing has sometimes been seen as a

34
means of discriminating against imports from particular countries.

Such practices as rejecting applications for import licenses

because of minor clerical errors or simply delaying unreasonably

the granting of licenses have also been the subject of widespread

criticism.

The import licensing code requires that procedures be as

simple, open, and "transparent" as possible, and applied in a

nondiscriminatory manner to products from all signatory countries. It also prohibits the rejection of applications for import

licenses because of minor errors in documentation, and the refusal

of imports because of minor variations in quantity or weight from

amounts designated in the license. This code, too, establishes a

committee of signatories to facilitate consultation and dispute

settlement.

The import licensing code is not expected to have a major

impact on U.S. trade in the near term.

REFORM OF THE GATT FRAMEWORK

The framework agreement is actually a set of five separate

agreements. Three of these are aimed at making the GATT better

meet the needs of the less developed countries (LDCs). The

fourth is an Understanding Regarding Notification, Consultation,

Dispute Settlement, and Surveillance. The fifth is an agreement

to review the role of export controls after the conclusion of the

Tokyo Round negotiations.

While the GATT currently makes some provision for the special

needs of LDCs, it is primarily an agreement regulating trade among

developed countries. The reforms of the GATT framework agreed

to in Geneva enable governments to provide special and preferential treatment to LDCs without having to make the same concessions to developed countries. This is a deviation from the

general GATT principle of nondiscrimination, which requires that a

concession granted by one contracting party to another should also

automatically be granted to all contracting parties. These

reforms also reaffirm the principle that LDCs are not expected to

make fully reciprocal concessions to the developed countries. In

return, the less developed countries have agreed to a "graduation

principle." This means that, as economic development progresses,

LDCs agree gradually to take on more of the obligations and

responsibilities set out under the GATT. The reforms also make

available to LDCs a variety of trade measures (other than the

35
quantitative restrictions now allowed by the GATT) that can be

used to correct balance-of-payments problems. The less developed

countries, however, are expected to use whatever measures are

least disruptive to international trade. Another agreement

will allow LDCs to take restrictive measures against imports in

order to promote the development of their infant industries.

LDCs will no longer have to give prior notification of such

measures, but they will still be required to provide compensation

to the affected countries if injury results from the use of these

measures.

Also contained in the agreement to reform the framework

is an Understanding Regarding Notification, Consultation, Dispute

Settlement, and Surveillance. This understanding is designed

to make clearer and more stringent the rules for notifying

the contracting parties of the adoption of restrictive trade

measures. Further, it details the procedures for consultation

concerning the operation of the GATT and outlines the surveillance

role and the technical cooperation services that are to be

provided by the GATT Secretariat in matters over which disagreements arise among contracting parties. This agreement

also states more clearly the role that special panels and working

groups are to play in dispute settlement. It suggests time

limits within which the panels are to render their recommendations and sets the criteria that are to be used in selecting

panel members.

The framework reforms should not have a major effect on U.S.

trade.

AGREEMENTS AFFECTING AGRICULTURE

The United States is a major exporter of agricultural

goods and would stand to benefit greatly from significant reductions in barriers to trade in agricultural products. In

both the Kennedy and the Tokyo Rounds, the United States made

clear to its trading partners that liberalizing trade in agricultural goods was an important element of the U.S. negotiating strategy. Ambassador Strauss, along with other U.S.

negotiators, repeatedly stressed that whether the current round

would be judged a success or failure by the United States and

whether the United States would ultimately agree to the entire

package of trade measures would depend in large part on how much

progress could be made on liberalizing trade in agricultural

commodities.

36
Tariff changes negotiated in Geneva cover a wide variety of

agricultural items. Most important for the United States are

reductions in EC, Canadian, and Japanese tariffs on meats, Korean

tariffs on oilseeds, and Japanese tariffs on fruits and vegetables. The largest U.S. tariff concessions are on imports

of live cattle and pork from Canada and of fresh fruits and

vegetables from Mexico.

But more important for agriculture than tariff reductions are

a number of nontariff barrier concessions that were negotiated as

part of the Tokyo Round. Fully 80 percent of the total increase

in U.S. agricultural exports that will result from the Tokyo Round

agreements will arise from relaxed nontariff restrictions.

Similarly, nontariff measures account for 70 percent of the

increase in agricultural imports the United States has agreed to

accept.

The major nontariff concessions granted to the United States

were made by the EC, Japan, and Canada, while some smaller

but important concessions were also granted by Mexico and several

non-EC European countries. The EC, Japan, Switzerland, and

Austria have all agreed to expand their quotas for U.S. exports

of high-quality beef. The EC has also agreed to allow increased

imports of high-quality, flue-cured American tobaccos, as have

Australia, New Zealand, and Canada. Japan has also agreed to

allow increased imports of fresh oranges and concentrated orange

and grapefruit juices from the United States. Finally, Mexico

has agreed to expand its imports of U.S. soybean meal by lifting

all quantitative restrictions.

The major nontariff concession made by the United States is

a relaxation of restrictions on cheese imports. Under current

arrangements, the United States maintains a very restrictive quota

for most kinds of imported cheese. Unlimited amounts of cheese in

excess of this quota can, however, be imported, but only at prices

well above the prevailing support price for cheese maintained

by the U.S. Commodity Credit Corporation. The new arrangement

will eliminate completely the import of extra-quota cheese, making

all cheese imports (with the exception of some specialty cheeses)

subject to an expanded quota.

The net result of this change will be an increase in U.S.

cheese imports—at least in the short run. In recent years, the

amount of cheese entering the United States in excess of the

current quotas has been growing rapidly and presumably would

continue to do so if such extra-quota imports were allowed. The

37
new quota, although it allows a higher level of imports in the

short term, will effectively place a ceiling on future cheese

imports. Thus, it appears that U.S. actions will allow more

cheese imports in the short term, but the new arrangements will

prove more restrictive in the future than the current system would

have been.

The U.S. Department of Agriculture (USDA) has prepared

estimates of the effect of the trade agreements on U.S. imports

and exports of agricultural goods. ]_/ USDA estimates that primary

agricultural exports will increase by about $510 million (measured

in 1976 dollars) by 1987, when all the agreements will be fully

implemented. Approximately $406 million of this total stems from

nontariff concessions granted to the United States and $104

million from tariff reductions. U.S. concessions, the USDA

estimates, will result in $175 million in increased U.S. agricultural imports. Of this total, the expansion of quotas on

cheese will account for $121 million, or about 70 percent. _8/

In a study prepared for the Senate Finance Committee, James

P. Houck of the University of Minnesota arrives at similar

conclusions. _9/ He estimates that U.S. agricultural exports will

increase by $462 million and imports by $106 million. The basic

1J U.S. Department of Agriculture, Foreign Agricultural Service,

The MTN and American Agriculture, revised (June 6, 1979;

processed) and The MTN and American Agriculture (Concessions

Provided) (undated; processed). These estimates are based on

an assumption of fixed exchange rates and reflect the gains

to agriculture from agricultural concessions only.

J3/ This total is calculated by taking the difference in the

amount of cheese imports that will be allowed by the new quota

and the level of imports that prevailed in 1976. If, however,

1978 were to be used as a base year instead of 1976, the

effect would appear much smaller—only $56 million—because of

the large increase in cheese imports in the intervening years.

Net U.S. exports should increase by about $336 million.

_9_/ James P. Houck, Tokyo-Geneva Round; Its Relation to U.S.

Agriculture, report prepared for the Subcommittee on International Trade, Senate Committee on Finance, 96:1 (June 1979).

Houck's estimates also are based on an assumption of fixed

exchange rates.

38
reason why Houck's import figures are lower than those presented

by USDA is that he uses 1978 trade volumes to calculate the

increase in cheese imports that will result from U.S. concessions.

He estimates that cheese imports will increase by $66 million,

while USDA, using 1976 trade volumes, estimates this increase to

be about twice as high.

Deardorff and Stern have estimated that, assuming flexible

exchange rates, agricultural employment will increase by a net

42,000 jobs as a consequence of changes in agricultural nontariff

barriers. Total employment in the United States, however, will

increase by only 11,000 jobs, since some of the new job opportunities in the agricultural sector will be filled by workers

leaving jobs in other sectors. These estimates are roughly

consistent with those made by Houck.

Two additional agreements reached in Geneva deal specifically

with bovine meat and dairy products. These agreements established

an International Meat Council and an International Dairy Products

Council to facilitate the exchange of information and to promote

consultation on matters of international concern. No mechanisms

are provided, however, for implementing any decisions taken by

these councils. The agreements also set minimum prices at which

particular meat and dairy products may be traded, but these

are far below current world prices and thus are expected to

have no real effect.

THE AGREEMENT ON TRADE IN CIVIL AIRCRAFT

One other agreement affecting specific products was reached

in Geneva—concerning trade in civil aircraft. In most respects,

the agreement on trade in civil aircraft is simply an elaboration

of other codes agreed to in Geneva, noting specifically how each

applies to civil aircraft.

The agreement eliminates all tariffs on nonmilitary aircraft,

engines, aircraft parts, and flight simulators. The parties to

the agreement also undertake to purchase aircraft for their

national airlines purely on the basis of competitive price,

quality, and delivery time. Further, the signatories note

that governments are often necessarily deeply involved in national

aircraft industries, and they therefore agree to use care in

avoiding export subsidies or other practices that could hamper

competitive trade.

39
Because the United States is the world's primary producer

of civil aircraft, it can be expected to gain from freer trade

in civil aircraft. How large the gain will be is impossible to

estimate at this time. The elimination of tariffs on aircraft and

parts required by the agreement is not fully reflected in the

tariff computations cited earlier. Much will also depend on the

future growth of the market for civil aircraft and on the rate at

which aircraft industries in other countries develop.

40
CHAPTER IV. COMBINED EFFECTS OF AGREEMENTS ON TARIFFS AND

NONTARIFF MEASURES

The agreements negotiated in the Tokyo Round are diverse, and

their effects will be felt in a variety of ways. Some of the

effects are amenable to economic analysis, and some are not. Some

will flow directly from the tariff reductions that have been

negotiated, and some will depend on decisions yet to be made

concerning the manner in which the new codes are to be implemented

and enforced. Some of the effects of the Tokyo Round agreements

will be observable almost immediately as the codes are implemented; some will be felt over the next eight or ten years as

tariffs are reduced; and some will be felt only as the longerterm processes of economic growth are changed by changing trade

patterns. What follows is an attempt to sum up what can be ;said

now about the ultimate effects of the entire package of Tokyo

Round agreements.

EMPLOYMENT EFFECTS

Because the effects of changes in tariffs and nontariff

measures interact with each other, the overall employment effects

of these changes in the United States will be somewhat different

than the sum of the individual changes considered separately.

The principal finding of studies of the effects of individual

elements of the Tokyo Round package, however, remains unchanged:

The employment effects of the entire Tokyo Round package of

agreements are very small.

Only Deardorff and Stern have calculated the combined employment effects of the various parts of the Tokyo Round agreements.

Their estimates include the effects of tariff reductions and

changes in two types of nontariff measures—those affecting

agriculture and government procurement. _!/ They estimate a net

I/ Alan V. Deardorff and Robert M. Stern, An Economic Analysis of

~ the Effects of the Tokyo Round of Multilateral Trade Negotiations on the United States and the Other Major Industrialized

41
increase in U.S. employment of about 15,000 jobs. This overall

net increase in jobs will result from an increase in agricultural

employment of 55,000, offsetting a net loss of 40,000 jobs

in other sectors of the economy. Although these numbers may

seem large in absolute terms, they represent only small fractions of the entire U.S. labor force. The net gain amounts

to only about 0.02 percent of total U.S. employment in 1976,

the year that serves as the base for these estimates. Agricultural employment will increase by about 1.7 percent, and

nonagricultural employment will decline by less than 0.05 percent.

Within the nonagricultural sector, the distribution of gains

and losses among various industries is roughly the same as

that resulting from tariff reductions alone: The industries

enjoying increased employment opportunities will be those employing sophisticated, modern technologies and highly skilled

workers, while those experiencing reduced employment opportunities

will be labor-intensive industries and those with less sophisticated technologies.

PRICE AND WELFARE EFFECTS

Among the benefits claimed for the Tokyo Round agreements is

that the prices paid for imported commodities will fall and

with them the overall price level. Further, lower prices for

imported goods will increase competitive pressure on domestic

producers of similar goods, limiting their ability to raise

prices.

As Table 4 shows, tariff reductions could bring about a

maximum reduction in U.S. import prices of about 1 percent. Such

a reduction in import prices might be expected to lower U.S.

consumer prices by about 0.2 percent. This would come about,

however, only if the full amount of tariff reductions were passed

along to U.S. consumers. It is entirely possible that the export

prices of some foreign goods will rise by part (and in some cases

all) of the amount of tariff reductions. If these increases are

less than the amount of the tariff reductions, the foreign goods

will still sell for less in U.S. markets than they did before the

tariff reductions. Foreign producers will, however, be able to

Countries, study prepared for the Subcommittee on International Trade, Senate Committee on Finance, 96:1 (June 1979),

pp. 92-108.

42
keep for themselves part of the benefit arising from the tariff

reductions. (It is, of course, possible that export prices of

U.S. products will also rise as a result of foreign tariff reductions. In this way, U.S. producers will keep for themselves part

of the benefits that may accrue to foreign consumers.)

Also complicating the estimation of the price effects of

trade liberalization are the effects that liberalization may have

on exchange rates. If trade liberalization increases a country's

imports more than its exports, one would expect the value of its

currency to fall. This devaluation of the currency will increase the price of imports and erode somewhat the price reductions brought about by lowered tariffs. If liberalization

increases exports more than imports, the process will yield the

opposite result.

Deardorff and Stern estimate that the combination of tariff

reductions and changes in agricultural and government procurement

nontariff measures will result in a depreciation of the dollar of

some 0.2 percent. This depreciation, and export price increases

on the part of foreign producers, combine to eliminate about

two-thirds of the maximum potential reduction in U.S. prices

resulting from the Tokyo Round agreements. They estimate the

remaining price reduction to be only 0.07 percent.

The Office of the Special Representative for Trade Negotiations is somewhat more optimistic about the price effects of the

Tokyo Round agreements. STR estimates that the entire package

should reduce consumer prices in the United States by 0.4 to 0.6

percent. _2/ The method by which this estimate is arrived at

is not spelled out in great detail, although a small part of the

improvement may arise from an estimated 0.4 percent appreciation

of the dollar resulting from the Tokyo Round agreements. The

figures presented in Table 4 of this paper and the estimates

derived by Deardorff and Stern suggest, however, that STR's

estimates may be too high.

The success of U.S. negotiators in protecting particularly

vulnerable U.S. industries from import competition has come partly

at the expense of U.S. consumers. The industries given special

treatment are vulnerable precisely because foreigners are able to

2J Office of the Special Trade Representative, "Impact of the MTN

on Inflation," Press Release (May 11, 1979).

43
produce similar products at lower cost than domestic firms can.

By maintaining barriers to the import of foreign goods, the United

States is foregoing the opportunity to replace higher-priced,

domestically produced goods with cheaper foreign ones. Had less

strenuous efforts been made to protect vulnerable U.S. industries,

the favorable price effects of the Tokyo Round agreements would

have been greater.

The total gain to the United States of the Tokyo Round

agreements is a combination of the gains accruing to consumers

through lower prices and the gains accruing to producers through

increased export sales. Offsetting these gains are the losses

suffered by particular industries forced to reduce output.

Deardorff and Stern have made some estimates of the net welfare

gain to the United States resulting from the combination of

Tokyo Round tariff reductions, reductions of agricultural nontariff barriers, and implementation of the government procurement code. They estimate that these gains would amount to

between $1 billion and $1.5 billion per year in 1976 dollars.

These estimates do not include the one-time costs of moving

workers or capital out of declining industries and into growing

industries. Other authors also have estimated these costs

to be in the neighborhood of $1 billion. 3_/ Thus one year

of full implementation of the Tokyo Round agreements should

suffice to pay the costs of the adjustments necessitated by trade

liberalization.

These estimates of net welfare gain include only the direct,

near-term effects of the Tokyo Round agreements. The agreements

are likely to have longer-term effects—expansion of trade,

increased competition and therefore more rapid innovation,

larger-scale, more-efficient production, increased international specialization—that will far outweigh these direct

effects. Such long-term effects are necessarily excluded from

most estimates of net benefits. Some observers have suggested

that, if these long-term effects are included, the total welfare

_3/ See William R. Cline and others, Trade Negotiations in the

Tokyo Round: A Quantitative Assessment (Washington, D.C.: The

Brookings Institution, 1978), p. 130; and Robert E. Baldwin,

John H. Mutti, and J. David Richardson, "Welfare Effects on

the United States of a Significant Multilateral Tariff Reduction" (University of Wisconsin, Madison: April 1978; processed), pp. 21-22.

44
gain to the United States could be as high as $10 billion per

year. 4/

INTERNATIONAL POLITICAL EFFECTS

As is the case with any major multilateral undertaking,

the Tokyo Round negotiations have had an important political

dimension, and it may be that the most important results of the

Tokyo Round agreements will lie in their effect on the political

climate that produces national trade policies.

For a variety of reasons--disappointing economic growth

in the industrialized world, structural changes in the world

economy, and increased government involvement in heretofore

private commercial activities—sentiment for protectionism has

been rising throughout the developed world. There seems little

reason to expect that its underlying causes will weaken significantly in the near future. Many observers fear that, without some

formal steps toward liberalized trade, these sentiments will

continue to grow stronger, leading to a proliferation of new trade

barriers and a subsequent decline in world trade. In a sense, the

Tokyo Round agreements may be important not so much for what they

will accomplish as for what they will prevent.

The Tokyo Round agreements may also have implications for

future international cooperation on a number of economic and

political issues. The trade talks provided only one of many

settings in which the United States could seek economic and

political cooperation with the other developed countries. Continued cooperation with these countries is essential for the furtherance of many U.S. aims. The success of this round—extremely

complex and involving many competing national objectives—should

provide an impetus to further cooperative enterprises.

Similarly, the trade talks have served as an important link

between the industrialized and the less developed countries—and

particularly between the industrialized countries and the more

advanced LDCs, which have the most to gain from increased access

kj See, for example, William R. Cline, statement before the

Subcommittee on International Finance, Senate Committee on

Banking, Housing, and Urban Affairs, 96:1 (April 5, 1979;

processed).

45
to markets in the industrialized world. For these countries, the

new role of international trader brings with it new opportunities

for economic growth, new domestic political and economic problems,

and new responsibilities. The United States and its industrialized allies have a strong interest in how the rapidly developing

countries meet these opportunities, problems, and responsibilities. They also have, therefore, a strong interest in maintaining close contact with these countries through such channels as

the trade negotiations. That full agreement could not be reached

in the Tokyo Round between developed and less developed countries

must: stand as a disappointment, though there is hope that at least

some of the LDCs will eventually subscribe to the entire package

of Tokyo Round agreements.

WHAT THE TOKYO ROUND DID NOT ACCOMPLISH

As the preceding sections have illustrated, the Tokyo Round

agreements constitute major progress toward reducing at least

some barriers to international trade. Of particular importance is

the progress that has been made concerning nontariff barriers—

progress unprecedented in earlier rounds of trade negotiations.

The accomplishments of the negotiators in Geneva are all the more

impressive because they have come during a period of international

economic uncertainty and structural change that has placed strains

on all economies. The pressures for protectionism arising from

such uncertainty and change are strong, and to an important

degree the participants in the Tokyo Round have withstood them.

But the Tokyo Round did not accomplish all that some observers had hoped for. This is not surprising, of course, in

negotiations of such size and complexity. Nonetheless, an appropriate way to conclude a discussion of the accomplishments of the

Tokyo Round may be to consider briefly what the negotiators did

not accomplish.

Some of the failings seem relatively minor and can easily

be set aside. Tariff reductions fell short of the 60 percent

across-the-board cut originally proposed by the United States, but

tariffs were already very low by historical standards; the gains

from further reductions do not appear to be great. The codes for

the conduct of international trade might have been more specific

in detailing acceptable and nonacceptable practices, but few would

argue that they are not important first steps or that they will

not provide some new grounds for resisting unfair trade practices.

The inability to reach agreement on a commercial counterfeiting

46
code has been disappointing, particularly to U.S. producers of

widely known and copied designs, but there appear to be no serious

obstacles to the conclusion of such an agreement and it seems

likely that one will come in time.

Much more disappointing has been the failure to reach agreement on a safeguards code. In the absence of effective safeguard

procedures, most industrial countries have turned in recent years

to bilaterally negotiated "orderly marketing arrangements"

and "voluntary" export restraints. Many have criticized such

arrangements because they violate the general GATT principle of

nondiscrimination; these arrangements restrict the exports of some

countries but not of others. Nor are these arrangements subject

to even the current highly imperfect procedures for international

review provided by the GATT; an often-heard complaint is that

large, powerful nations can too easily dictate the terms of such

agreements to smaller, weaker nations.

The failure to achieve agreement on a safeguards code is in

some respects only one aspect of a more general failure of the

Tokyo Round participants to make any systematic progress on the

general issue of quantitative restrictions. A number of specific

quotas were removed or expanded, but no attempt was made to draw

up guidelines for the use of quantitative restrictions or to

negotiate their eventual elimination. Indeed, the Trade Act of

1974 prohibited U.S. negotiators from agreeing even to tariff

reductions on items now subject to orderly marketing arrangements,

a particular form of quantitative restriction.

This failure in the area of quantitative restrictions is a

particular disappointment to the less developed countries. The

products now subject to such restrictions—textiles, footwear, and

television sets are the most important—are in many cases exclusively exports of less developed countries. The removal of these

barriers would be the most important trade concession that the

developed countries could make to the LDCs. That no progress was

made in this area must be seen as contributing to the dissatisfaction that led most LDCs, at least for the present, to reject

the Tokyo Round package.

From the point of view of the developed countries, the

failure to reach agreement with the LDCs must be viewed as

a disappointment. In 1978, the latter accounted for 37 percent

of U.S. merchandise exports, and they constitute the most rapidly

growing markets for U.S. products. The problems associated with

development have, however, forced these countries to adopt a

47
wide variety of policies that affect their international trade;

many of these practices are seen as inimical to the interests of

other trading countries. Further, a number of the most advanced

LDCs are emerging as major exporters. Their output is already

threatening some established industries in the industrialized

world, and they have frequently been accused of unfair trade

practices. Without the accession of the LDCs, the Tokyo Round

agreements offer little opportunity for bringing new trading

countries into the world trading system or for assuring that they

bear the responsibilities of that system.

The talks also failed to strengthen significantly the GATT

dispute settlement mechanism. Some creditable first steps have

been taken, and perhaps it is unrealistic to expect sovereign

states to subject themselves to a supranational entity even in

very narrowly defined areas. Nonetheless, few observers expect

the Tokyo Round to bring about any major improvement in what are

generally regarded as inadequate GATT procedures for enforcement

of the provisions of trade agreements and for the settling of

disputes arising over these provisions.

Not on the agenda for the Tokyo Round, but of increasing

concern, is the recent proliferation of large-scale, long-term

bilateral trade arrangements. Often negotiated between an oilproducing country and an industrialized consumer of oil, these

arrangements have the nature of barter: the industrialized

country agrees to buy specified amounts of oil over an extended

period (in some cases as long as ten years), and the oil-producing

country agrees to buy the products of the industrialized country

in sufficient quantity to pay for its oil exports. Such arrangements can be seriously at variance with the nondiscrimination

principle in that they can close off important export markets to

countries not party to the arrangements. This issue has yet to be

discussed in a multilateral forum.

The Tokyo Round agreements represent an opportunity to reduce

the distortions of trade flows created by government policies.

But some critics complain that the concessions that governments

have had to make to various domestic interest groups in order to

assure acceptance of the agreements have introduced important new

distortions. Supporters of the new government policies argue that

in an imperfect trading system such concessions are necessary to

protect the legitimate interests of domestic producers. In either

view, however, these new trade-limiting policies mark a failure of

the Tokyo Round negotiations. In one view, they represent backsliding from the goal of freer trade; in the other, they are

48
necessary patches to a trading environment insufficiently mended

by the Tokyo Round. The new practices have led some observers to

warn that the entire process of negotiating and approving the

Tokyo Round agreements may not in fact lead to greater trade

liberalization. _5/

In the United States, the list of such new government

policies includes the Multifiber Arrangement limiting the imports

of textiles into the United States. The agreement entered into

force in 1974 and has been seen by some as required for approval

of the Trade Act of 1974, which gave the President the authority

to participate in the Tokyo Round talks. More recent examples

include the tightening, as part of the Administration's Textile

Program, of quantitative restrictions on textile imports (first

established in the Multifiber Arrangement) and the institution of

a "trigger price" mechanism to set a minimum price for imported

steel. Other trade-restricting actions taken by the United States

during the past year include the continuation of orderly marketing

arrangements on specialty steel, the extension of an orderly

marketing arrangement for color television sets to Taiwan and

South Korea in addition to Japan, and Presidential approval of new

restrictions on the importation of industrial fasteners, highcarbon ferrochromium, and clothespins.

Perhaps of greatest importance is the Administration's

agreement to submit to the Congress a plan to reorganize the

federal government's handling of trade matters. Critics of the

present arrangement cite what they see as laxness on the part of

the Treasury Department in imposing duties on subsidized imports

and on foreign products allegedly being dumped in U.S. markets.

The removal from Treasury jurisdiction of responsibility for such

matters (an important element of a number of reorganization plans)

is generally seen as a step toward a more restrictive U.S. trade

stance.

CONCLUSION

The foregoing is not intended as criticism of the Tokyo Round

agreements. It is clear both that much has been accomplished and

See, for example, Robert E. Baldwin, The Multilateral Trade

Negotiations: Toward Greater Liberalization? (Washington,

B.C.: American Enterprise Institute, 1979).

49
that those things left undone present very serious difficulties

for international negotiation. This list of disappointments

should serve as an indication of the issues that remain for

further negotiations.

50

o