A moment of truth is nearing for the world's trading system, which has been credited with expanding global commerce more than fiftyfold since its rules were written after World War II but now finds itself under strain, struggling to keep up with the times.
Political leaders from 97 of the world's leading trading nations, who have been playing a game of brinksmanship during 3 1/2 years of the Uruguay Round of global free-trade talks, now face a December deadline to expand and strengthen the internationalrules of commerce. That deadline requires them to begin making hard decisions at a negotiating session beginning tomorrow in Geneva that will affect jobs, entrenched farm and industrial interests and future prosperity in their countries.
But the decisions also will have an impact on the future of the trading system itself, which is at risk of backsliding toward the economic chaos that prevailed during the decades before World War II.
At that time, international trade was inhibited by high tariff walls, special deals between countries and other barriers to the free movement of goods that, taken together, were major contributors to the Great Depression of the 1930s.
While President Bush has made the successful conclusion of talks his top trade priority, he has served notice that the United States will not cave in on its aim to fundamentally reform the rules of world trade as embodied in the General Agreement on Tariffs and Trade (GATT).
"To the United States, no agreement is better than a bad agreement," the president has said.
U.S. Trade Representative Carla Hills has painted a grim picture of the consequences if the trade talks fail. She sees a world full of trade wars, increased protectionism, economic contraction and job losses. Others see the global rules of GATT falling prey to an expansion of regional blocs that already are springing up in Europe, Asia and the Americas.
These are the stakes as a world trading system designed in the 1950s struggles to adapt itself to meet the challenges of the 1990s.
The post-war trading world of the late 1940s and 1950s was one mostly of manufactured goods and a few basic farm products. And it was a world dominated by the few economies that emerged unscathed from the chaos of world war.
Now, many dynamic economies are striving for a place in the trading system, and many items are traded that did not even exist four decades ago.
Hills estimated that more than $1 trillion in trade -- one-third of the $3 trillion in goods and services moved around the world last year -- is not covered by existing GATT rules.
Entire industries in the field of services, such as banking, engineering and insurance, fall in this category. Computer programs and related technologies -- essential to an industry that barely existed when GATT began -- are the subject of demands for protection against piracy. And there are demands for new freedoms for overseas investment and agriculture, which were too politically sensitive to be tackled successfully in earlier GATT rounds.
Many of these new areas are ones in which the United States believes its companies are among the most competitive in the world and are being hampered by the lack of free-trade rules.
"World trade has outgrown the rules that have served so well for so long," said Hills. "There is simply no question about it. This round of GATT talks ... may be the last best chance this century to create the trading rules we need for the next century."
She said the Bush administration believes that a strengthened and expanded GATT will benefit all nations, from the richest industrialized ones to Third World countries struggling to escape from crippling poverty.
Although the trade talks began before last's year's revolutionary upheavals in the communist world, economists are pointing to the need to set a free market example for Eastern Europe's emerging democracies as a new reason the Uruguay Round must succeed. And C. Fred Bergsten, head of the Institute for International Economics here, has pointed to the talks as a barometer of relations between the United States and Europe in the post-Cold War world.
"Agriculture and trade are linked to troops and security," said Bergsten. He called the Uruguay Round "the very first test of whether the United States ... and the newly confident, unified Europe can work together" without the Soviet threat.
The stakes clearly are high, and as the negotiators get down to specifics in Geneva tomorrow, the views from New Delhi, Warsaw, Tokyo and Washington diverge on what constitutes a successful GATT round.
"It's a pretty tense and tough situation. Everybody's hardening their positions," said an administration official familiar with the Geneva talks. But he noted that this is a familiar pattern in all negotiations -- labor talks, White House and congressional efforts to forge a budget compromise and House-Senate conferences on legislation -- before sides begin to make deals.
The most divisive issue pits the United States against its allies in Western Europe over agricultural trade subsidies, which Hills said cost each American farmer $3,400 a year in earnings.
The United States is seeking fundamental reforms in farm trade, including an end to subsidies paid farmers to capture foreign markets, internal support payments that encourage excess production and barriers to agricultural imports -- all of which strike at the heart of the 12-nation European Community's common agricultural policy.
Bush shocked European leaders at the economic summit in Houston this month by forcefully insisting on a commitment to serious negotiations on farm trade. But U.S. and GATT officials said they have seen no sign that the EC negotiating stance has changed and they noted that the summit agreement may have widened splits within the EC.
"There was little sign of the Houston spirit" in meetings in Brussels last week with EC officials, said Neal Blewett, Australian minister for trade negotiations.
The overall success of the Uruguay Round, named after the country where the talks began, depends on countries sitting around a table and making trade-offs.
Industrialized countries want the freedom to invest overseas, but developing nations, fearful of being taken over by economic giants, want to be able to restrict foreign investment.
The United States, Japan and European nations favor strict rules against trade in piratedproducts, but countries like India and Thailand have major industries devoted to making pirated products and fear that having to pay royalties on patented products will impede their development.
The developing nations, which are efficient producers of textiles and clothing, want an end to restrictions on their exports imposed by industrialized countries such as the United States, Japan and the European Community and their politically potent textile industries. GATT negotiators got a taste of the clout of the U.S. textile industry last week when the Senate overwhelmingly passed a textile quota bill that the White House said dims chances for a successful conclusion of the Uruguay Round.
And virtually all the other nations are taking aim at U.S. laws against what Congress sees as unfair trade practices that hurt American industries. These countries say those laws amount to Washington unilaterally ordering trade sanctions instead of relying on the multinational GATT system.
These divergent objectives will have to be reconciled before Christmas, a daunting task. While the final months of each of the previous seven rounds of GATT negotiations has taken on the drama of the old "Perils of Pauline" movies, with the heroine tied to the railroad tracks as the train speeds around the curve, the Uruguay Round appears to be more serious.
"The stakes are high, the outlook is dubious," said Bergsten. "The round could fail. We could have a breakdown in negotiations."