As GATT Talks Flounder, US Experts Say Deal Is Possible

But the farm groups say EC must cut its subsidies a lot now

AT a time of great flux in the world order, trade-liberalizing talks appear on the brink of collapse. The problem is agriculture. The European Community is unwilling to make the big cuts in its generous farm subsidies that the United States and other nations want. The talk is tough and uncompromising in Brussels, the site of the final week of negotiations by the 107-nation GATT - the General Agreement on Tariffs and Trade. (GATT talks falter, Page 4.)

Here in the US, left- and right-wing groups have taken a hard-line, no-compromise stance on GATT. But a third group of US agricultural observers are quietly supporting a modest compromise in Brussels.

``I think some progress is better than none,'' says Ron Knutson, director of the Agricultural and Food Policy Center at Texas A&M University.

``I have already written off the chance of major, meaningful reform,'' says John Marten, a staff economist with the Farm Journal. But ``I would still prefer even some minor directional progress over nothing.''

The reason is that the failure of these GATT talks - the so-called Uruguay Round - would set back the US and the world economy. Besides agriculture, this GATT round aims to liberalize trade in several industries, including financial services and textiles, which should expand world trade.

Despite all the hard-line rhetoric from farm groups, even a modest reform in EC farm policy could benefit US agriculture, according to a new study at Iowa State University. If the EC agreed to cut supports by one-third and export subsidies by one-half, US net farm income could rise $4 billion by 1996, says Patrick Westhoff, analysis coordinator for the university's Center for Agricultural and Rural Development.

The most likely scenario, according to several of these observers, is that the US and EC find some kind of face-saving compromise that will allow both to declare victory. Under this scenario, the EC would sacrifice its ``rebalancing'' scheme, which would impose new tariffs on soybeans, corn gluten, and other products imported from the US. In return, the US and other world exporters would drop demands for cuts of 75 percent or more and agree to something closer to the EC's proposed 15 percent cuts in subsidies. The EC and US would also have to reign in export subsidies, which have severely hurt trade-dependent developing nations.

``The best bet is that there will be some movement toward an agreement that would lower the barriers to some extent,'' says Bob Spitze, a professor of agricultural economics at the University of Illinois at Urbana. But ``I wouldn't bet my dinner on it.''

Indeed, signs of compromise have been few and far between in Brussels this week. Deputy US Trade Representative Rufus Yerxa told reporters the talks were ``very close to collapse.''

US farm groups on both sides of the political spectrum oppose any compromise.

``If we don't get this, we are better off without any GATT agreement,'' says Terry Francl, an economist with the conservative American Farm Bureau Federation. ``This is probably agriculture's only real chance for significant reform in world trade rules.'' A caving in would mean the US is sanctioning the EC's farm-subsidy program, he says.

Meanwhile, several small-farm groups on the political left have sent representatives to Brussels to try to stop a GATT deal. ``To salvage the Uruguay Round, the Bush administration will have to give up its radical and counterproductive proposals on agriculture,'' the National Family Farm Coalition said in a Dec. 3 statement. Instead of liberalizing trade, the coalition wants GATT to allow countries to regulate trade and increase subsidies to small farmers.

When some 30,000 EC farmers marched in Brussels to protest subsidy cuts this week, at least 50 American farmers and farm representatives marched with them. Local police used water cannon and tear gas to disperse the crowd when it threatened to charge the European Parliament building.

The general mood of farmers on this side of the Atlantic is sour, too.

``This is the first time I can remember that everyone's been mad at the same time,'' says DeVon R. Woodland, national president of the National Farmers Organization, which is holding its convention this week. ``They're so mad they're fighting each other.''

A major reason for this grim mood is that US grain and dairy farmers face some difficult times ahead as prices weaken. The new 1990 farm legislation does little to help them. In fact, it cuts price supports by some 25 percent, Mr. Knutson says.

By making those cuts unilaterally, the US in effect has disarmed itself and given the EC even less incentive to make cuts, several agricultural policy observers suggest.

``The US is in part disarming itself even more than the law requires,'' says Richard Pottorff, director of agribusiness consulting for the WEFA Group, an econometric forecasting firm outside Philadelphia. Not only did the US cut its own price supports unilaterally, Agriculture Secretary Clayton Yeutter cut wheat acreage for the coming year by a large 15 percent. Making a smaller cut would have signaled that the US would fight aggressively for a bigger share in the world wheat market.

To be sure, the new US farm legislation includes snap-back provisions for 1992 and 1993 should GATT fail. Under these provisions, the agriculture secretary would have the authority to do away with the subsidy cuts, increase export subsidies by $1 billion, and change some programs so grain farmers could counter EC dumping.

Would the free-trade administration and a budget-tied Congress support such anti-GATT legislation? Most observers say no.

``They are not likely to carry out those threats if they cost more money,'' says Lynn Daft, an agricultural consultant in suburban Washington, D.C.

Either way, a failure of trade liberalization on the world scene could cause a domestic backlash against market-oriented farm policies in the US, these analysts suggest.

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