TIME - Man of the Year/CompactPublishing-TimeMagazine-TimeManOfTheYear-Win31MSDOS.iso/moy/112392/11239932.000

Text File | 1993-04-08 | 6KB | 123 lines

                                                                                TRADE, Page 50

The Grapes of Wrath


Who's right in the squabble over a hill of beans that threatens
to triple the price of Chablis and unleash a global trade war?

By BARBARA RUDOLPH -- With reporting by S.C. Gwynne/Washington
and Adam Zagorin/Brussels


    It looked to U.S. Trade Negotiator Carla Hills as if six
years of tortuous bargaining to reach a global free-trade
agreement were about to collapse over a mere hill of beans.
Frustrated, she decided to risk it all by announcing that the
U.S. would slap 200% tariffs on $300 million worth of European
farm exports, notably white wine, if a deal were not concluded
in a month. Suddenly, an all-out trade war between the U.S. and
Europe seemed imminent.

    Hills' threat was intended as shock therapy -- to force
the European Community to reduce its agricultural subsidies,
the issue that has thwarted all recent attempts to forge a new
global General Agreement on Tariffs and Trade among the U.S. and
107 other trading partners. As Americans fretted about
prohibitively priced Chablis and Europeans contemplated
retaliation, puzzled observers tried to sort out a complex
question: Who's really to blame?

    The Hill of Beans. What Hills and her European
counterparts were specifically wrangling about was oilseeds:
soybean, sunflower and rapeseed used as animal feed and in
cooking oil. The U.S. has long claimed that European farmers
receive excessive government subsidies that make it difficult
for foreign rivals to compete. Washington contends that American
oilseed farmers have lost nearly $1 billion worth of E.C.
business. Though European negotiators made significant
concessions on subsidies, they have refused to sign off on the
long-term guarantees that the U.S. demands.

    Washington officials are quick to point out that the U.S.
twice brought its grievance to GATT panels and won both times.
The first ruling was issued in 1989, and the second, handed
down last March, awarded the U.S. $1 billion in compensation
for 20 years' worth of lost business. That decision set off a
new round of negotiations, but at the last minute a proposed
settlement was scuttled over a plan to cap annual oilseed
production in Europe. The E.C. agreed to reduce the production
limit from 12.5 million tons to 11 million tons but refused to
accede to American requests to slash it again to 8.5 million
tons. It was this standoff that finally drove Hills to take
action.

    The Real Issue. The battle is only incidentally about
oilseeds. "At stake," says Robert Hormats, vice chairman of
Goldman Sachs International, "is the credibility of the
international trading system." At risk too is the
recession-ravaged world economy: an all-out trade war would be
tantamount to mutually assured economic destruction.

    To sew up a comprehensive GATT agreement, expected to
boost global commerce substantially, U.S. and European
negotiators need to settle their long-running dispute over
agricultural subsidies. The U.S. has demanded that European
governments trim their healthy price supports, although they
have shrunk already under a recent reform package. The E.C. has
agreed, but the two sides cannot come to terms on the details.

    Politically powerful Community farmers -- 11 million
strong out of a total population of 340 million -- are fighting
a remarkably effective rearguard action. Nowhere is their clout
more in evidence than in France. With good reason, President
Francois Mitterrand fears that giving in to the U.S. will
inflame the truculent farm lobby and damage his faltering
Socialist Party's prospects in legislative elections next March.
Luc Guyau, president of the French federation of farmers'
unions, warns that the French President had better stay his
course. "We will put ourselves in the front lines," he says.

    But France seems increasingly lonely. Though it claims
support from Italy, Spain and Belgium, its isolation deepened
when the E.C.'s point man in the agriculture negotiations,
commissioner Ray MacSharry of Ireland, resigned, blaming E.C.
Commission President Jacques Delors for excessive sympathy for
his fellow French. The chief farm negotiator eventually resumed
his duties, but only after apparently winning support to conduct
the talks without interference.

    As both sides calm down and return to the negotiating
table, Washington enjoys the upper hand. "On this case the U.S.
is right," says Gary Hufbauer, a trade specialist at the
Brookings Institution in Washington, voicing a widely held
judgment among economists. Still, no one can deny that the U.S.
zealously protects its domestic sugar, peanut and tobacco
industries, among others. U.S. farmers retain considerable
political power themselves: one of their lobbies reportedly
twice foiled a GATT deal just as the two sides had come close
to an agreement.

    Advocates on both sides of the subsidy issue acknowledge
that in the long run, free trade benefits everyone. Seven
successful GATT negotiations since 1947 have helped lift global
commerce from $57 billion to nearly $3.5 trillion. The U.S. and
the E.C. may very well patch together a compromise. "My
prediction is that France will back off just enough to make a
deal possible,'' said Lawrence Veit, international economist at
Brown Bros. Harriman & Co. in New York City.

    It will probably fall to Bill Clinton to work out the
details, since a final resolution is not likely before he takes
office. In Little Rock, Arkansas, a spokesman warned that if
foreign countries failed to open their markets, the U.S. would
"get tough." Like Carla Hills before him, though, Bill Clinton
can only hope that he never has to make good on the threat.