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. Last Updated: 07/27/2016

Focus on Services Helped Rewrite the Trade Rules

SEATTLE -- For the first four decades after World War II, trade negotiators concerned themselves mainly with tariffs and quotas on goods like boots and bicycles. But by the 1980s, a changing, increasingly service-oriented economy prompted a change in that strategy - and opened the door to today's trade controversies.

At American Express, executives in search of new markets documented how Japan, Germany, Brazil and other nations effectively blocked American Express cards from access to local banking systems. Sympathetic Reagan administration officials, eager to knock down red tape limiting business overseas, agreed to make financial and other services a new trade priority.

"If Citicorp wants to go over to Malaysia to open a bank or control an insurance company, it should be able to do so," said Harry Freeman, the former executive vice president of American Express, in a recent interview. "It' s different from how you ship English muffins."

At the seaside resort of Punta del Este, Uruguay, in September 1986, officials of 92 countries officially recognized the new realities by launching an effort to make trade rules for such nontraditional areas as copyrights, patents, banking, insurance, telecommunications and other services.

This expansion had a fateful impact on the course of the debate. By attempting to knock down nontariff barriers to trade - such as health and safety regulations that double as ruses to keep out rival products - officials put countries' domestic regulations in the spotlight, setting the stage for a new generation of controversies.

"What we didn't understand was the extent to which [we] had really shifted the focus of trade from the border to domestic policy," recalled Sylvia Ostry, a former Canadian trade negotiator, now a scholar at the University of Toronto.

Reagan administration officials, turning their attention to North America, then reached a deal with Canada that would become a showcase of the new, broader thinking. The negotiations left some Canadians worrying that their powerful southern neighbor might exploit their resources.

Few in the United States, however, were prepared to link trade with broader concerns about national rights or health policy. Ralph Nader, the consumer activist, was one of the exceptions.

Nader recalled how drug prices went up in Canada after Canadian Prime Minister Brian Mulroney restricted generic drugs at the behest of the Reagan White House, which was trying to help big U.S. pharmaceutical companies. The drug issue "was basically a harbinger of things to come," Nader contended in an interview.

What came next was the U.S.-Canadian trade accord in 1988, followed by the more problematic North American Free Trade Agreement, which embraced Mexico as well, and completion of the Uruguay round in 1993.

"It was quite clear," Nader said, "that consumer protections were going to be rolled back and sacrificed on the altar of international commerce."

Unlike the U.S.-Canada deal, which made few waves, NAFTA touched a multitude of raw nerves. Organized labor worried that it would spark an exodus of jobs because American workers could not compete with low-paid Mexicans in work places with weaker safety and environmental standards. Nonetheless, trade policy in the early 1990s still commanded broad political support, and Congress approved the North American pact in November 1993, after a push by the Clinton administration.

Five months later, in the Moroccan town of Marrakech, trade ministers finally completed the sweeping Uruguay round, whose 22,000 pages of accords amounted to a blueprint for the emerging global economy. The Uruguay round established the World Trade Organization, which joined the U.N. Security Council as one of the few global entities empowered to approve monetary penalties against sovereign countries.