Britain, Argentina Break the Chill

SEVEN years after the bitter war between Britain and Argentina over possession of the remote Falkland Islands in the south Atlantic, the two countries have agreed to hold talks aimed at restoring relations. But they are eyeing each other like wary gladiators, lest war wounds be reopened by a blundering phrase or clumsy diplomatic gesture.

Officials in London and Buenos Aires say the initial contacts will be held at the United Nations in New York before the end of August. If the discussions between diplomats go well, ministerial talks on neutral ground will follow.

The note being struck, particularly on the British side, is ultra-cautious. Five years ago, talks aimed at normalizing relations between Britain and Argentina opened in Berne, Switzerland, but they swiftly broke down when the Argentines tried to insist on discussing the red-hot issue which had triggered the Falklands fighting in 1982: sovereignty over the islands and the 1,800 British subjects who live there.

But Argentina's new President, Carlos Sa'ul Menem, has signaled to London that the Falklands sovereignty question can be ``placed under an umbrella'' while other issues are addressed. In other words, the two sides plan to agree to disagree about the islands for the time being and concentrate on other bilateral issues. Above all, they want to focus on diplomatic relations which were severed when Argentina invaded the Falklands.

No one is pretending that the dispute over who should rule the cluster of windswept rocks that Argentina knows as the Malvinas has lost its emotional force.

Prime Minister Margaret Thatcher, whose fame as a resolute politician rests heavily on her successful waging of the war in the south Atlantic, has sworn never to surrender the islands.

The Argentine President, during his election campaign, swore that he would work ceaselessly for their recovery. But now both sides have come to realize that they are losing a lot by letting the sovereignty dispute freeze the broader relationship between London and Buenos Aires.

President Menem broke the ice early in August by announcing that he would like diplomatic contacts to take place. As a sign of Argentine goodwill he announced that his government was ending its seven-year ban on the import of British goods (Britain ended its ban four years ago). He also hinted that Argentina's ritual claim that the Falklands belonged to the Argentines, made annually in the United Nations General Assembly, in future would be toned down.

Items on the agenda at the coming New York talks include:

Allowing airlines of the two countries to run services between their respective capitals.

Modifying the 150-mile naval exclusion zone that Britain enforces around the Falklands, in return for a formal Argentine declaration that hostilities with Britain have ceased.

Discussion of Argentina's future trade with Britain and other members of the 12-nation European Community.

The European dimension of the coming talks is seen by British diplomatic sources as crucial to the Argentines. In 1992 the EC plans to eliminate all internal trade barriers, and Argentina would like to regularize its trade relations with Britain before that date. It fears that the EC may become a ``closed shop'' to outside traders.

Because Argentina has maintained a formal state of war with Britain, the Europeans have been less than sympathetic to Argentine calls for closer trade links with the EC and for much-needed development funds.

Mr. Menem appears to appreciate that if this obstacle is removed, a more profitable relationship with the EC could result.

From the British standpoint, better relations with Argentina could be helpful. It costs some $800 million a year to maintain a military garrison to defend the Falklands, 8,000 miles away from London, against another possible surprise attack.

Mrs. Thatcher has undertaken to ensure that the interests of the Falklanders will remain paramount in any future diplomatic moves. At the same time, Britain has been providing economic assistance to the islands aimed at building up a major fishing industry in the south Atlantic.

This effort has paid off. The hardy Falklanders are currently enjoying an economic boom.

In the longer term, many of Thatcher's supporters predict that the issue of sovereignty will have to be tackled. Cyril Townsend, a leading Conservative backbencher and House of Commons supporter of the Falklanders' interests, says: ``I have no doubt that the present situation is artificial and does cause problems in the longer run for Britain, particularly over defense. In due course the whole issue of sovereignty will be discussed.''