Congressional failure to ratify the new General Agreement on Tariffs and Trade - unimaginable until the Nov. 8 elections - would undermine world equity markets.
Especially hard hit would be the emerging markets, some investment analysts say.
Ratification of the trade pact among 123 nations should have been assured; indeed, most international investors still believe Congress will pass it this week. The prospects improved when Sen. Robert Dole, R-Kan., announced he would support passage, though congressional opposition remains.
But early last week, Michael Jones, policy analyst with the G7 Group, an economic consulting firm in Alexandria, Va., put the odds of GATT's passage at 65% -down from "80% plus" two weeks earlier.
"People assume GATT will pass. If it doesn't, we'll have an ugly week in the markets," said David Shulman, chief equities strategist at Salomon Brothers, New York. GATT's rejection, he explained, would "signal a major victory for protectionism" and the possibility that "there were worse things to come."
Said Michael Perelstein, managing director, international investments at MacKay-Shields Financial, New York: "Trade is a smaller part of (America's) economy than the economies of places like Hong Kong and Singapore, which would be back in the wilderness without trade."
He believes last December's accords on the Uruguay Round of Multilateral Trade Negotiations (the most recent trade negotiations under GATT) helped fuel the fourth-quarter rally in emerging markets, including those of Southeast Asia. Because Southeast Asia and New Zealand would be "big beneficiaries of GATT, anything that would cause an unraveling of that pact - after this year's effects of higher interest rates - would be a nail in the coffin of those markets," Mr. Perelstein said.
Iain Clark, chief investment officer with Seligman Henderson Co. in London, said if GATT doesn't pass, "stock markets overall would be the losers. I'd be thinking of raising cash levels."
Conversely, GATT's ratification would have little market impact. Among its attractions, the accord would fuel economic growth - both in the United States and the world - and help create jobs.
In specific terms, every year after the Uruguay Round is fully implemented, world income should increase by an estimated $510 billion annually, according to a recent study sponsored by the GATT Secretariat.
The United States would gain some $122 billion; the European Union, an estimated $164 billion; and Japan, about $27 billion.
While companies may well face tougher competition, consumers would benefit from expanded trade and lowered tariffs. Among the Uruguay Round's chief provisions: slashing tariffs on average by more than one-third; reducing non-tariff barriers (regulations impeding market entrance); better protecting intellectual property rights; removing a significant number of barriers to trade in services; and tightening up methods for settling trade disputes, through the creation of a World Trade Organization.
The pact will take effect Jan. 1, if enough major trading nations ratify it before then; if not, it will become effective in July.
If GATT isn't ratified by the U.S. Congress this year, it's likely to be readdressed early in 1995. But any extended period of negotiations over ratification would begin to take its toll. Delay would "slow the growth of trade a bit," increase friction among trading partners, and could erupt into a trade war in the next recession, said David Wyss, research director for DRI/McGraw-Hill, Lexington, Mass.
Should that evolve, Japan - with its substantial trade surplus - probably would be America's target, he believes.
A trade war also would spill over to other nations. As countries picked sides, the result would be "three hostile trading blocs - North America, Asia and Europe," he said.
Mr. Wyss is among the many who expect Congress to pass GATT. But some close observers see the drama playing out up to the vote.
But the extent of the haggling over the accord illustrated that more was at stake than just GATT's ratification.
In the aftermath of November's elections, it appeared new political battle lines already were being drawn; the showdown over the GATT accord was the opener for two years of political and economic clashes.
To most investors, GATT itself had not seemed particularly controversial.
Only recently have protests become loud, primarily from conservative Republicans who feared some loss in the ability of the United States to pass its own laws and have a strong voice on world trade.
But once support of the Uruguay Round of GATT became shakier, markets became more nervous.
What do investors make of the brouhaha? "Until recently, it's been fair to say that world stock markets have not expected that the U.S. would do anything but ratify the treaty," said Alan McFarlane, managing director and chief investment officer of GAM Institutional, London.
Mr. McFarlane still expects GATT to be ratified. To do otherwise would "send a shock wave" to world markets that a government that campaigned for the North America Free Trade Agreement and has been active in GATT negotiations reneged on ratification, he said.
Ian Harwood, international economist with Kleinwort Benson Securities in London, thinks "it might be a mistake that nobody (in the investment community) seems to have worried much about GATT going wrong in Congress."
He said failure to ratify the treaty "could have a nasty effect on financial markets." If the United States doesn't participate in it, he said, the world trade organization "is essentially dead."