US and Europe avert costly trade war

An agreement yesterday between the European Community and the United States has averted a food fight that could have turned into an all out trade war. The agreement compensates American farmers for grain markets lost when Spain and Portugal joined the European Community (EC) last year. And it stops the Reagan administration from going ahead with its threat to slap whopping 200 percent tariffs on some European wines and liquors, cheese, dark olives, and other edibles.

Michel Noir, France's trade minister, criticized the Reagan administration for its ``aggressive'' trade tactics. Both European and United States officials suggested that tensions soon could rise again over subsidies of airline industries.

Since the beginning of the 1980s, Washington and its allies have gone through one trade dispute after another. They have squabbled over everything from oranges and lemons to steel subsidies and semiconductor sales. The current trade dispute arose out of American alarm at losing an estimated $400 million of feed-grain sales to Spain and Portugal, because of tariff increases arising out of entry into the EC.

Most of these issues have been solved because not solving them would have been more expensive. According to the International Monetary Fund, US exports to Europe totalled $53 billion last year. The $400 million at stake in the present dispute was hardly worth jeopardizing these billions in a war full of spiraling retaliations by each side.

Negotiators worked nonstop most of this week to reach a last-minute agreement yesterday. Although details remained unconfirmed at press time, officials in Brussels said the Europeans had backed down from their previous hard-line position refusing any long term agricultural compensation. US farmers reportedly will be allowed to sell between 2 and 2 million metric tons of corn and about 200,000 metric tons of sorghum to Spain and Portugal under reduced tariffs.

Many Europeans believe these concessions will not be sufficient. As they view America, they see a mounting trade deficit, a hostile Democratic congress, a weakened President, and troubled farmers all rushing headlong into protectionism.

What annoyed these Europeans in the present dispute was not so much the American call for compensation of its Iberian losses, but the timing and nature of the demand. The US knew for a long time that the admission of Spain and Portugal would bring a hike in tariff barriers, but did not press the issue until last month by threatening to impose exorbitant tariffs.

``We were negotiating and all of sudden the Americans came and set a unilateral deadline,'' explains Mario Kakabadse at the Atlantic Institute. ``That approach is resented.''

The resentment is sure to spill over into other trade issues. Already, a new round of the General Agreement of Tariffs and Trade (GATT) in Geneva has been stymied by Washington's attempts to put discussions of agricultural subsidies on a ``fast track.'' After the agreement over Spain and Portugal was hammered out, the EC negotiator Van-Tinh Tran was quoted as saying that the Europeans have made ``more than enough concessions'' in trade talks with the US.

Agriculture is a particularly sensitive issue, because markets are vanishing. World grain stocks have risen by 50 percent in the past three years while trading volumes have stagnated as buyers in the developing world and Eastern Europe meet more of their own needs.

Other looming trade disputes may not be as politically sensitive as agriculture, but they carry more economic weight. The present farm dispute concerned millions of dollars. Discussions of subsidies to the airline industryare couched in terms of billions. A US trade expert here said he expected the US administration now to step up pressure on European governments to block subsidies used by Airbus Industrie to build and market a long-range, wide-body plane which would compete with the MD-11 model planned by McDonnell Douglas Corporation.

American officials say Airbus, which is funded by European governments, has been offering to sell planes below cost in an attempt to woo customers away from McDonnell Douglas. The Europeans respond that the US aerospace industry also is government subsidized because it benefits from military contracts which finance technological developments used in civilian aircraft.