The Bargain at Le Bocage

History's most ambitious effort to lower the barriers to international trade finally succeeded last week in Geneva. After four years of bargaining, a month of frenzied horse trading, and some last-minute flirtations with failure, Kennedy Round negotiators from some 50 non-Communist countries agreed to cut their tariffs by an average 35% by 1972.

It was the free world's sixth bout of tariff reductions since World War II--and it far surpassed earlier efforts. The 1962 Dillon Round achieved 8% reductions in customs duties on $5 billion a year of global trade. Last week's accord covered eight times as much: $40 billion in annual trade in 60,000 farm and factory items. Chief U.S. Negotiator William M. Roth called the result "of tremendous world importance."

Reinforcing the Ties. For one thing, it promises to produce a big increase in world trade, just as the late President Kennedy hoped when he initiated the negotiations in 1963 as a way of reinforcing political ties between the U.S. and Europe. As some economists see it, the Kennedy Round also means the virtual demise of tariffs as an important obstacle to trade. On thousands of manufactured goods--including autos, machinery, ceramics, cameras and hats--most industrial countries agreed to slash their tariffs by the full 50% that Kennedy originally sought. As a result, the average tariff wall around U.S., British and Canadian imports will fall from today's 18% to about 10%. Common Market levies will shrink by one-third from their present 13.2%, and those imposed by such countries as Switzerland and Sweden will drop from 8% to the merely nuisance level of 5%.

As those reductions phase in, probably starting the first of next year, U.S. consumers may enjoy slightly lower prices on imports. If history repeats, however, inflation will erase, or middlemen will pocket, much of the savings. In any case, even on a $5,000 Italian sports car, which now carries a $325 duty in the U.S., the anticipated 1968 reduction to importers would amount to only $32.50. The full tariff cut of $162.50 will become effective only after five years.

The Potatoes Group. Racing against a self-imposed negotiating deadline of midnight, May 14 (which they missed by 24 hours), delegates battled through four days and nights of virtually continuous wrangling to compromise their differences.

From Washington, President Johnson kept track of each twist and turn in the haggling through coded cables and scrambler telephone calls, personally ordered the U.S. stand on each sensitive deal. The main thrust of those decisions--forwarded to Geneva through the White House Kennedy Round liaison staff with the secret code name "the potatoes group"--was to swap U.S. industrial concessions for lower European barriers to U.S. farm exports.

Most of the negotiating struggle took place in the 150-year-old Italianate Villa Le Bocage on the west shore of Lake Geneva, once the home of Russian Author Leo Tolstoy and now headquarters of the General Agreement on Tariffs and Trade, the sponsoring agency of the Kennedy Round. While newsmen waited outside in a downpour (or took shelter in the stable), GATT's British director general, Eric Wyndham White, cajoled and goaded the weary negotiators, personally drafted part of the final package of concessions, in which no nation got all that it wanted. "Even the greater economic powers," said Wyndham White, "can no longer pursue their destinies in disregard of others. Still less can they seek solutions to their economic problems by narrow nationalistic policies. Nor can one escape the impact of the economic difficulties of the others." The crucial compromises:

sb AGRICULTURE. After dropping its demand for guaranteed access to Europe's grain markets, the U.S. persuaded reluctant Europeans (and the even more reluctant Japanese) to join in a pioneering food-aid plan for hungry nations. Of 4,500,000 tons of grain a year, the U.S. will contribute 42%, the Common Market 23%, Canada 11%, Britain, Australia and Japan 5% each. Altogether, that aid comes to less than half of the grain the U.S. has been donating annually to such countries as India, Pakistan 'and Brazil. But Europe and Japan will have to buy their share for cash, thus increasing the world commercial market for wheat. Delegates also agreed on a new minimum world price of $1.73 a bushel for hard red winter wheat sold at Gulf Coast ports--23-c- a bushel above the existing floor, but only about 2-c- above today's actual market price. In a move that will help U.S. farmers, the Common Market cut its tariffs by an average 25% on such produce as canned fruits and vegetables, juices, hops, nuts, raisins and tobacco.

sb STEEL. To prevent steel from being dropped from the Round altogether, Britain agreed to shave its regular tariff from 11% to 8% and to trim 20% from its fixed duty of $12.60 a ton on certain steels. With that, the EEC sliced its steel levy from 9% to 5.7%, opening the way for a general world alignment of steel tariffs at around 6%.

sb ALUMINUM. Despite U.S., Canadian and Scandinavian pressure, the Common Market, at French insistence, refused to cut its 9% aluminum duty; but the EEC agreed to allow the import of 130,000 tons a year of the metal at a 5% rate.

sb CHEMICALS. Resolving the major deadlock that threatened to wreck the negotiations, delegates settled on a two-stage tariff cut. In the first step, the U.S. will cut its levies 42%, as against 25% to 30% for the Common Market. In the second stage, both sets of tariffs, with a few exceptions, would drop at least to half their present level. This phase, however, will go into effect only if Congress repeals the controversial system by which duties on organic benzenoid chemicals--notably dyes, sulfa drugs, plastics and pesticides--are based on their American selling price, which results in tariffs as high as 172%. If Congress does so, the Common Market and Austria agreed to trim the carefully contrived taxes which help to keep large-horsepower U.S. autos out of Europe, and Britain promised to ease its Commonwealth preference on tobacco imports.

"A Fair Balance." For textiles, the U.S. granted only 20% reductions, but of the 5,700 dutiable items on the nation's present tariff schedules, only 211 were excluded entirely from the negotiations (among them: petroleum, sheet glass, zinc, lead, safety pins, umbrella frames, briar pipes and baseball gloves). The Common Market kept such items as heavy commercial vehicles and computers (except for those using punch cards) out of the dickering. Jean Rey, the Belgian chief negotiator for the Common Market, called his group "extremely satisfied" with the outcome--a reaction echoed by most governments. Secretary of State Dean Rusk called the results "a fair balance, with some special advantages for the U.S."

American chemical and steel producers, however, angrily denounced the pact. The chemical men promised a fight to prevent Congress from repealing the American Selling Price law--even though the U.S. exports chemicals worth three times its imports. The steelmakers' ire centers on the Kennedy Round's comparative failure to persuade other countries to end nontariff trade barriers, such as quotas, border taxes and import licensing. "We couldn't ship any steel into Japan if we gave it away," complains Chairman Edward J. Hanley of Allegheny Ludlum Steel Corp. "It's embargoed." Similar protectionist obstacles cover hundreds of products, from U.S. coal (barred from Britain and the West German Ruhr) to whisky (which cannot be advertised in France). These problems highlight the fact that nontariff barriers now loom as the foremost remaining obstruction to trade.

Secret Details. Negotiators reached an antidumping agreement to prevent international sales of goods below cost, but its details (like those on most specific tariff cuts) were temporarily kept secret. However disturbing--and confusing--that secrecy is to businessmen, the GATT delegates consider it essential to enable them to codify the Byzantine complexities of their agreements in time for governments to sign them by June 30, when President Johnson's authority to cut tariffs expires.

For all its accomplishment the Kennedy Round disappointed the world's developing countries, which contend that they must have preferential tariffs in order to escape their poverty. Under French pressure on behalf of France's former colonies, the Common Market failed to trim duties at all on tropical foods and fibers, thus stopping the U.S. from doing so. By common consent, devising more tariff help for the world's poor nations will be GATT's next order of business.

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