GATT WARNS U.S. ON FEDERAL BUDGET, PROTECTIONISM
The United States' emphasis on its
foreign trade deficit is misplaced and the country's real
problem lies in its large federal budget deficit, the General
Agreeement on Tariffs and Trade (GATT) said.
     By stressing its record trade deficit of 169.8 billion
dlrs last year, the U.S. Was fuelling protectionist pressure
which threatens the world trading system, it said in an annual
report.
    The fundamental problem, the size of the U.S. Federal
budget deficit, could be remedied only by cutting government
spending or encouraging personal savings to finance the debt,
it said.
    GATT also predicted world trade would grow by only 2.5 pct
in 1987 -- a full percentage point lower than in each of the
previous two years.
    GATT experts urged Washington to resist protectionism and
instead seek macroeconomic changes to reduce the current
account payments deficit -- higher private savings, lower
investment and a smaller federal budget deficit.
    Raising U.S. Trade barriers "would result in little or no
reduction in the current account deficit. It would, however,
increase inflation and reduce world trade," it said.
    "The basic cause -- some combination of insufficient
domestic savings and an excessive budget deficit -- would
remain," the report said.
    GATT economists said trade expansion would slow this year
because of slower growth forecasts in Japan and some West
European nations as they adjust production and workforces to a
low dollar, risk of higher U.S. Inflation, concerns over Third
World debt management and looming protectionism.
    The report also said imbalances in the current accounts of
Japan, West Germany and the U.S. Had increased in 1986.
    The most likely explanation was that exchange rate changes
were not backed by changes in macroeconomic policies, it added.
    "Thus the prediction that these imbalances would be reduced
as a result of the major realignment of exchange rates was not
borne out last year," the report said.
    GATT warned there was a risk of a sizeable increase in the
U.S. Inflation rate under the combined impact of a rapidly
expanding money supply and low dollar.
    "Such a development could worsen the business climate by
increasing uncertainty and pushing up interest rates, which, in
turn, would adversely affect world trade."
    But the report noted a surprising rise in imports to the
United States, despite the dollar's depreciation which makes
foreign products more expensive.
    It suggested that resources idle in the U.S., Both human
and in underutilised factories, were not geared to produce the
goods and services sought from abroad.
    World trade in manufactures grew by only three pct in 1986,
about half of the rate of the previous year.
    Trade in agricultural goods expanded by just one pct,
continuing a stagnant pattern in that sector this decade, GATT
said.
    Developing countries' exports declined significantly, while
their imports increased moderately, although full statistics
are not available yet, GATT said.
    The combined export earnings of 16 major indebted nations
were sharply lower, and only five of them (Chile, Colombia,
Philippines, South Korea, and Thailand) had higher exports.
 REUTER
