Hard Times for Trade Talks

The intensifying trade war between the United States and the European Community, this time triggered by controversy over the use of growth hormones in beef production, raises doubts about the ability of the 95 members of the General Agreement on Tariffs and Trade to negotiate a critically important new agreement. The situation greatly increases the pressure on President-elect George Bush’s newly designated trade representative, Carla Hills, to come up with some quick answers.

In this case American stubbornness created the problem. The European Community offered every opportunity to American meat producers to meet European health standards on beef. Only after an extra year of negotiations failed did the Europeans implement the rule. Beef produced with growth hormones was banned for human consumption effective Jan. 1. American officials insist that there is no health hazard and accuse the Europeans of creating an illegal non-tariff barrier to U.S. imports. The Europeans respond by pointing to consumer demands, fully supported by the European Parliament, for a no-risk approach. It seems clear that this is not a device to bar American meat and that Europeans, and any other consumers, have every right to demand hormone-free beef.

Clayton Yeutter, President Reagan’s trade representative, has chosen the path of confrontation, retaliating with 100% tariffs worth about $100 million a year on seven European Community exports to the United States. Now the Europeans, understandably, are considering counter-retaliation that would almost certainly have a disproportionate effect on California farmers by including walnuts and dried fruit.

A similar breakdown in negotiations marked the midterm ministerial review of the new GATT round last month in Montreal. Member nations agreed on 11 of 15 major expansions of trade, including trade in services, of particular importance to the United States. But they failed to agree on four others. One of those, agriculture, divides the Europeans from the United States. Reagan has insisted that there be a timetable to end agriculture subsidies that distort trade. The Europeans have resisted. Only a major compromise is likely to break the impasse, but compromise is preferable to derailing the new GATT round.

Events in Montreal forced the postponement of decision-making until April, with negotiators continuing to search for solutions at a lower level. That delay need not disrupt the GATT schedule. But it is a risky maneuver. In effect, Hills has just three months to accomplish what Yeutter was unable to do in two years.

Reagan’s commitment to phase out farm subsidies is a constructive proposal at a time when the United States and the European Community have been putting as much as $50 billion a year into farm supports. These subsidies dislocate supply and prices. The European and American export subsidies have made matters worse. But there is room for compromise, as illustrated by the proposals of the Cairns Group--Australia, New Zealand, Argentina, Brazil and Canada--the major farm producers that do not use export subsidies. Their plan would phase out export subsidies, import restrictions and domestic price supports while maintaining domestic production controls. That appears much better than the costly and wasteful European and American programs.

There is some reason for optimism. The importance of the economic relationship is appreciated on both sides of the Atlantic. Last year trade between the United States and the European Community reached $150 billion, and investments totaled $280 billion. As Secretary of State George P. Shultz recently commented, “This is a tremendous relationship of great importance to both the United States and Europe.”

Tariff wars before the beef-hormone dispute were settled because the Europeans understand as well as the Americans the importance of their trading relationship. The prospect for agreement on the new GATT is enhanced by a growing understanding of how much is to be gained by agreement, and how much lost by failure.