Officials fear trade talks' failure could result in economic crisis


WASHINGTON -- Unless the collapsed international trade negotiations can be quickly revived, administration officials fear a damaging return to the kinds of trade conflicts that aggravated the economic crisis of the 1930s.

The high tariffs imposed by the United States at that time drew swift retaliation overseas, which constricted world trade and deepened the Great Depression.

While the United States is unlikely to adopt such an extreme trade policy in the immediate future, the administration expects mounting pressure from Congress, which returns this week, to act aggressively on a wide range of trade-related complaints from U.S. industries.

Negotiators from the leading trading nations are scheduled to meet Jan. 15 in Geneva to try to restart the 107-nation trade talks, which fell apart in Brussels, Belgium, early this month. The talks were dubbed the Uruguay Round for the country where they began in 1986.

U.S. officials have expressed hope that a cooling-off period might allow for a new approach to the issue that caused the deadlock, the huge subsidies paid to European farmers.

Administration officials have remained in contact with the chief parties to the negotiations, but they say nothing that could be called a breakthrough has occurred so far.

There has been "lots of motion but not very much direction" on the subsidies issue, said Julius Katz, the deputy U.S. trade negotiator. The January meeting in Geneva will assess the prospects for the talks "but does not necessarily signal resumption," he said.

But if paralysis continues in the trade talks, the Japanese rice market is likely to be an early target for U.S. retaliation.

In 1986 and again in 1988, the Reagan administration rejected petitions from the U.S. rice industry against Japan's blanket prohibition of rice imports, arguing that the issue would be addressed in the Uruguay Round. The industry is preparing to revive its petition and is certain to get a sympathetic ear from Capitol Hill, where early hearings are expected in the Senate and House on the trade outlook in the wake of the impasse at Brussels.

A new dispute is also brewing over Japan's awarding of a big contract in the Kansai airport project to a Japanese bidder over a more experienced team led by Westinghouse Electric Co. and AEG of Germany.

The trade disputes are not just with Japan, however. In mid-January, the administration will be facing a deadline on a formal petition brought by the National Pork Producers Council and the American Meat Institute against a European ban on pork and beef imports from the United States. The Europeans cited health risks posed by unsanitary practices in U.S. packing houses, but U.S. trade officials have consistently denied any danger.

The industry representatives are seeking official retaliation from the U.S. government, which could levy punitive tariffs of 100 percent on goods from violating countries, in accord with the 1974 Trade Act.

Desiring to maintain its allies' support in the Persian Gulf, the administration might attempt to fend off the complaints for a awhile, expressing hope that in coming weeks the trade talks will come alive again.

But there is limited maneuvering room, since Congress has only until March 1 to approve a new international trade pact under its "fast-track" authority, which allows only a single vote on whether to approve or reject the pact. Trade officials consider that approach essential, since it prohibits amendments that could cripple an agreement.

The administration and congressional leaders have opposed seeking an extension of the fast-track approach, in part out of fear that a growing movement in the Senate for an immediate repeal of the authority might succeed on the floor.

But officials at the General Agreement on Tariffs and Trade, which oversees the trade negotiations, say it will be difficult to resolve the farm-subsidy dispute in time to meet the March 1 deadline.

Regardless of the fate of the international negotiations, the United States intends to pursue other avenues to lower trade barriers, trade officials say. The collapse of the Uruguay Round, one official said, "will give new impetus to following these alternatives," which involve bilateral and regional trading arrangements.

The United States, Canada and Mexico concluded important talks in Brussels early this month on forthcoming formal negotiations to draft a North American common market.

President Bush also toured Latin America this month to promote free-trade agreements with countries that pursue market-oriented policies.

"The U.S. always could make regional or other agreements," said Commerce Secretary Robert A. Mosbacher Sr. "In all truth, we're doing this now."

The creation of geographical trading arrangements such as the European Community or the U.S.-Canada free-trade agreement, are allowed under the multilateral trading system of the 43-year-old GATT, provided trade barriers are not erected.

U.S. trade officials argue that the bilateral and regional pacts they seek would serve to open markets.

But there is great concern among free-trade advocates that regional and bilateral pacts will lead to a withering away of the multilateral system, which has seen a 20-fold increase in world trade the past four decades.

Harry Freeman, executive director of the Multilateral Trade Negotiations Coalition, a business group backing the Uruguay Round, bemoaned the possibility of such as drift to trading blocs. "This is Fortress Asia, Fortress America and Fortress Europe. This is not a good path to go down."

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