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Tradeoffs on Trade

Spurred by political problems at home, the leaders of the US, Germany, and France have cut some deals that may benefit GATT

WHEN President Bush meets with Jacques Delors, president of the European Community Commission, on April 22, there is a strong possibility that they will announce a historic conclusion to the so-called Uruguay Round of talks on the General Agreement on Tariffs and Trade (GATT). This five-year and often bitter dispute, primarily between the European Community (EC) and the United States, has been deadlocked in large part because of farm-subsidy and tariff issues.

A successful completion of the Uruguay Round has been made possible primarily by the fact that three major participants - the US, Germany, and France, - faced national elections with weakened incumbent leaders. Various domestic issues, ranging from recession to immigration problems, have compelled these vulnerable leaders to seek foreign policy avenues to improve their political images.

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A flurry of diplomatic activity in the last two months has put an equitable GATT solution in reach. The Bush administration kick-started the diplomatic effort with its stated willingness to exempt certain agricultural products (the so-called "green box") from the GATT subsidization rules, with limited direct income support to European farmers being permissible if it encourages lower production. The American offer came not only at the moment when the tortuous Geneva talks were about to collapse, but also when the US economy's continued downturn is blighting George Bush's re-election prospects.

This US concession was understood by the EC, and particularly Germany's Chancellor Helmut Kohl, as a sign that certain tradeoffs in bargaining might be possible. A linkage between agriculture and aircraft was fashioned by the EC and in the Bush-Kohl meetings in March, as the six-year Airbus row was introduced into the bargaining equation.

Bonn convinced its EC partners that when the Americans scaled back their farm demands, it necessitated a solution to the poisonous aircraft-subsidies controversy. The four-nation jet-building consortium (overwhelmingly German and French with 37 percent ownership each) has been the subject of intensive criticism in the US, based on the contention that the EC and its member states unfairly subsidized Airbus. With Washington's demonstration of greater bargaining flexibility in the GATT domain, Europe was re ady to back off from the Airbus subsidies.

What emerged was a German-led EC commitment to salvage the GATT talks, end the Airbus friction and, above all, move beyond these contentious matters. Two major German foreign policy priorities that have become EC objectives have been integrated into the trade negotiations.

FIRST, in its desire to gain American adherence to her post-cold-war ostpolitik, Bonn has pressured Washington to provide more aid for the conversion of the former communist states of the East into market economies and democracies. Mr. Kohl is intent on getting both GATT and aid to the Commonwealth of Independent States resolved before he hosts the Group of Seven leaders in Munich this summer.

The second European motivation stemmed from differences over the June environmental conference in Rio de Janeiro. Kohl and the EC have hoped to utilize a series of interconnected concessions to induce a greater American willingness to address the global-warming issue at Rio.

The German-American diplomacy on GATT and Airbus also necessitated a major policy transformation in France. Bonn, this time with British help, apparently convinced French President Francois Mitterrand to accept large reductions in subsidies in aircraft and farm production. The growing internal political weakness of the French executive pressed him to cave in on these touchy issues. He appears ready to take an enormous political risk, largely because Bonn has put the linchpin Franco-German relationship on

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the line for a favorable conclusion of the Uruguay Round.

The EC, the world's largest trading bloc, wants a GATT agreement in part because liberalizing world trade in services is, more than ever before, central to the 12 nations, where the services sector now represents two-thirds of GNP. The EC has evolved from a collection of states with paramount interest in its agriculture dossier to one with priorities in the industrial/technological and related service sectors. Forging rules that cover the protection of intellectual-property rights and the elimination of trade-distorting measures in the key services sector became a dominant EC goal.

The outcome of GATT talks will turn on Bush, Kohl, and Mr. Mitterand. The last part of a Euro-American tradeoff at this moment appears therefore to involve the Airbus indirect subsidies, how large the "green box" will be to induce France's acceptance, and how extensive the insurance, transport, telecommunications, and banks clauses will be in terms of gaining American approval.

The current optimism about the 108-nation GATT negotiations is no doubt also based on the growing recognition that accommodative diplomacy must be used to end the contentious subsidies and protectionist disputes. The industrialized nations, feeling the economic pinch, believe they have a unique opportunity to rejuvenate the global economy with a powerful growth stimulus. Meanwhile, in the short term they are driven by political expediency.

The GATT negotiations can still stall and even fail in these last days, but there is evidence that the remaining hurdles will be surmounted because there is now the indispensable political will in Brussels and Washington. Led by three leaders - Kohl, Bush, and Mitterrand - who badly need foreign policy victories, GATT may finally be able to shape more up-to-date and workable multilateral trade rules for the world well into the 21st century.

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