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EC Change Reduces Risk of Trade Clash

By David R. Francis / November 15, 1991



THE Uruguay Round of world trade talks could succeed."I am much more sanguine as to the prospects," says Jeffrey Schott, a trade expert at the Institute for International Economics in Washington. "What we have seen is finally the start of serious negotiations on agriculture." Mr. Schott was speaking of the meeting last weekend of President Bush with European Community (EC) officials in the Hague, Netherlands. The five-year-old talks between 108 nations under the auspices of the General Agreement on Tariffs and Trade stalled in December 1990 over the farm issue. But now the EC has shown a new willingness to trim its agricultural subsidies, a change crucial to the talks. That's only one of many trade developments around the globe. The United States, Canada, and Mexico are busy negotiating a North American free-trade agreement (NAFTA) that would create a market with 360 million consumers and a total output of $6 trillion. It's hoped to have a pact go into effect at the start of 1993, though there is some suspicion this time-frame might slip. Last month the 12-nation European Community and the seven-nation European Free Trade Association agreed on a free-trade zone that will result in a market of 380 million consumers with a total output slightly less than NAFTA. That European Economic Area treaty must now be ratified by all 19 national parliaments as well as the European Parliament. The goal is to have that wrapped up by 1993. In addition, EC officials have been talking with post-communist democracies of Eastern Europe about "affiliate" memberships. They would be given a seat in EC political councils while shaping up their flabby economies for eventually joining the EC single market. Poland, Hungary, and Czechoslovakia are close to concluding "association agreements" with the EC that give them a 10-year transition toward full free trade. And the EC has started talks with Bulgaria, Romania, and Albania on similar agreements. Then in Seoul, Secretary of State James Baker III and other US officials were meeting earlier this week with their counterparts from 13 other Pacific Rim countries under the aegis of the Asia Pacific Economic Cooperation group to talk about trade liberalization - maybe even another free-trade region. APEC members include beside the US, Canada, Japan, Australia, New Zealand, Singapore, Malaysia, Thailand, Indonesia, the Philippines, Brunei, China, Taiwan, and Hong Kong. Other trade groupings in Latin America and Asia have been in the news. The trade world, in other words, is changing rapidly. "It's keeping me off the streets," jokes Schott, whose job is to analyze trade trends. Up to now there has been considerable fear that failure in the GATT round might prompt a division of the world into three major trade blocs - Europe, NAFTA, and a Japanese-Asian group. However, if the Uruguay multilateral talks do decrease tariffs and quotas around the world by, say, one-third, and expand the international trade regime to services, agriculture, and intellectual property (patents, copyright, trademarks), then the preferential nature of regional trade deals becomes less important. They become complimentary to the GATT deal, notes Schott. At this point, the European trading area is the most exclusive. Some 60 percent of the EC exports are within that bloc, compared to about 40 percent for the three North American nations and even less for the Asian members of APEC. European Community leaders have been reluctant to take the political risk of offending their 10 million farmers by slashing subsidies. But the costs became just too great - $41 billion in fiscal 1991 and growing 30 percent a year, busting the EC budget. So the EC might as well get some trade concessions from its trading partners for farm program reform it must do anyway. EC Commission President Jacques Delors spoke of Europe producing less farm goods, importing more, and exporting less. An outline of a farm deal could emerge in a week or two. Mr. Bush warned that failure to conclude the GATT round would plunge the US and Western Europe into an "impoverishing rivalry. We must guard against the danger that old cold-war allies will become new economic adversaries - cold warriors turned trade warriors."

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