Collapse of GATT Talks Signals Trade Troubles Ahead

A SLIDE into international trade warfare following the collapse of global trade talks here last week will not take place overnight. Yet with negotiations suspended indefinitely for what were to be the most ambitious and far-reaching accords ever of the 107-nation General Agreement on Tariffs and Trade (GATT), world trade officials say such a slide could begin and build momentum soon.

``If [this] round of trade negotiations failed, there would be no immediate repercussions, but it would be a green light to creeping forms of protectionism,'' says Australian Trade Minister Neal Blewett. ``We're seeing the beginning of that battle'' between the United States and the European Community (EC), he adds.

Others point to a list of bad harbingers for multilateral world trade that a GATT failure could intensify:

President Bush's swing through South America last week to promote a free-trade area from Canada to Chile.

Malaysia's announcement last week that it would discuss creation of a regional trade bloc with East Asian countries if the GATT talks fail.

Simmering differences between the United States and Japan over rice.

US and EC disagreement about meat trade and subsidies for passenger-jet construction.

The breakdown in international talks comes at a particularly bad time, US and EC officials agree. The US has worked hard to forge an international alliance against Iraq, following that country's invasion of Kuwait, and the United Nations was beginning to provide a valid and believable context for the operation of international law, these officials add.

Economically, world trade has flourished and the promise of the four-year ``Uruguay Round'' of GATT talks has kept protectionism at bay, trade officials say, despite the slowdown of key world economies like the US.

Mr. Bush made it clear to EC Commission President Jacques Delors and other European leaders that he did not want ``any transatlantic discord'' at such a sensitive time, EC sources say.

Yet, perhaps to the EC's surprise, the US nevertheless remained unwilling to capitulate on the one issue that it maintains is the key to eventual success of the round - Europe's high farm-trade subsidies.

Attempting to lower the heat that seared the week-long talks, US Trade Representative Carla Hills said, ``I don't think any of us should be threatening trade wars after Brussels.''

But, she added, ``our trading system is broken in agriculture'' and without a shift in position by the EC, negotiations will remain difficult.

Europe's bountiful harvests this fall are likely to exacerbate the dumping of EC farm products on world markets at subsidized prices, the very problem that led to the talks' collapse.

US Agriculture Secretary Clayton Yeutter qualified as ``a significant step forward'' toward the EC's commitment to putting ``specific numbers'' on cuts in export subsidies.

But, he added, the commitment had yet to translate into ``one ton, or even one pound'' on paper.

The US, backed by most of the world's farm-product exporters, has called for a 75 percent reduction in farm subsidies over 10 years, while the EC had proposed a vague plan for 30 percent cuts - dating from 1986, when its subsidies were at their peak.

Canadian Trade Minister John Crosbie lashed out at the EC, saying its ``lack of political will to deal with agriculture'' was the key to the talks' suspension. Singling out France and Germany, he said they would have to alter their position or face responsibility for the round's failure.

At the same time, Mr. Crosbie said ``others will have to take a serious look at lowering their expectations'' of how far the EC can go.

Aware that the EC is in the midst of a review of its common agriculture policy, the US may have held tight in the hopes of influencing that reform to its satisfaction.

Yet that could be a wishful approach, some observers here say.

The EC is unlikely to take major steps that would infuriate many of the Community's 10 million farmers, they say.

In addition, they point out that it was largely US pressure tactics that helped the EC's 12 members to overcome deep internal differences over agriculture. Just as the EC was caught off guard by US resolve, the US was stunned by the unity the British delegation displayed toward its EC partners. Britain is normally a US ally on agriculture.

``The US is going to have to learn that it cannot treat the world's largest trading community in this condescending way,'' said British Agriculture Minister John Gummer.

``Their `take-it-or-leave-it' approach cannot be called negotiating.''

The British evolution is likely linked to the stance the new Prime Minister John Major wishes to signal before this week's EC summit in Rome, British observers here say.

According to Mr. Gummer, the US focus on agriculture, which makes up less than 5 percent of either US or EC trade, is a smoke screen to cover US intransigence in other sectors.

But the US insists that the developing world, whose participation is needed for any meaningful global agreement to work, won't go along without agriculture reform.

Clear support for that position was given here by Brazil.

``Brazil undertook its difficult economic reform in the hopes of international trade providing us with the means to fight inflation, address our debt, and improve our economic growth,'' says Rubens Ricupero, the Brazilian ambassador to GATT.

But he said that without ``international assistance and cooperation,'' including a deal on agriculture, developing countries that had recently opened their economies might be discouraged and ``turn back.''

Although they were not the negotiation's most visible players, a number of developing countries displayed a suspicion of the developed nations' row that could harm the talks if they resume next month.

India's delegation says it considers the EC-US dispute a ``charade'' to extract the highest concessions possible from a developing world that craves an accord.

That may seem far-fetched, but it indicates the mistrust that fills the gulf between developed and developing world on economic matters.

``When the elephants make war, we suffer,'' said Indian Minister of Commerce Subramaniam Swamy, according to Indian delegation sources. ``But when the elephants make love, we also suffer.''