US Pressures Europe With Grain Subsidies

THE United States is not backing down from its farm subsidy battle with the European Community. Events of the past few weeks suggest that it intends to fight fire with ... EEP. The EEP, or Export Enhancement Program, is a controversial system of agricultural subsidies. When it began four years ago, it was hailed as a way of regaining US markets overseas and getting rid of surplus grain.

But last year's drought and dwindling grain surpluses have stripped the program of any economic pretensions. Its real purpose is political, agricultural officials say. By using export subsidies, the US hopes to force the EC to cut back its own extensive export subsidies.

``The administration is hemming and hawing,'' says one congressional staff source, who requested anonymity. ``They won't ever come out and say it because ... you try to obscure the obvious.''

Since the EEP began in May 1985, the US has spent the equivalent of $2.5 billion to subsidize $8.3 billion worth of farm exports. That's roughly 10 percent of all US farm export sales, according to the US Department of Agriculture (USDA). Most of the subsidies have been used for wheat. In fact, about two-thirds of US wheat sold abroad has been subsidized by EEP. Just over 28 percent of it has gone to the Soviet Union. China has been the other big beneficiary of the program.

During the mid-1980s, the policy made economic sense. The US was eager to get grain exports moving and reduce its burgeoning surpluses. EEP, which subsidized export sales with excess grain, accomplished both goals. But the tables turned this year, when drought and increasing foreign demand carved out big chunks of US wheat reserves. Critics wondered whether the US would drop the program. This spring, retiring USDA official Thomas Kay indicated that EEP sales had been suspended pending review.

But after an internal battle between budget cutters and agricultural interests, the outlook for the EEP seems positive. President Bush himself announced in early May a subsidized sale of 1.5 million metric tons of wheat to the Soviets. It was the first EEP initiative since February and was followed last week by an offering to sell an added 100,000 tons of wheat flour to Egypt.

``The program is not as active,'' says USDA spokeswoman Gerry Schumacher. But ``there is not a change in policy.''

Many political observers in and out of Congress expect the EEP to continue. It could have important leverage in the ongoing struggle with the EC over export subsidies.

``I think it is still viewed as an important bargaining chip and something they don't want to lose,'' says Lynn Daft, an agricultural consultant in Washington.

Even some of the program's critics concede that it may have positive political benefits under special circumstances.

``It has been a contributing factor in letting the Europeans and the rest of the world know that we are serious'' about trade reform, says Bernard Steinweg, senior vice-president of Continental Grain Company. ``I just don't want to see it institutionalized. That's my big anxiety.''