The war that wasn't: US-Europe farm trade dispute fizzles

History books may call it the war that never was. Only weeks ago, pundits were predicting that an agricultural trade war between the world's two largest agricultural trading blocs - the 10-nation European Community (EC) and the United States - was at hand.

The war, however, has not materialized, even after the US fired what many viewed as the first shot last January: selling 1 million tons of subsidized wheat flour to Egypt and snatching in the process a ''traditional'' EC market for a year.

Few would venture that the EC and the US have laid down their guns for good. There are simply too few buyers in the world for too much food. But analysts point to several developments in recent weeks that make the outbreak of full-fledged hostilities increasingly unlikely in the short to medium term.

These developments include:

* A realization by both sides that the price of a ''subsidies war'' would be unbearable, and not only in monetary terms.

* The success of a Reagan administration plan aimed at reducing US farm surpluses and raising domestic prices closer to those charged by EC producers.

* A growing awareness that certain independent and ''uncontrollable'' factors - such as the world recession - have played a major role in worsening the lot of farmers on both sides of the Atlantic.

* Stepped-up efforts by the EC to cut farm production and reduce financial price supports.

* The emergence of new and seemingly realistic proposals for solving the crisis.

Even US Agriculture Secretary John R. Block - the administration's resident hawk on the issue - has begun to point to the real dangers of a subsidies war in which the EC and the US would attempt to outbid each other with higher subsidies in order to win farm-product sales to foreign countries.

''We don't want any of our actions - whether they be wheat flour to Egypt or others - to be viewed as the first shot in a trade war,'' Mr. Block said. The administration's ''goal,'' he continued, is ''to demonstrate that no one can win in subsidized competition.''

If a trade war broke out, he said, ''we would all be losers, and that is just not necessary.'' Since the Egyptian sale, in fact, the US has done nothing nearly as serious to antagonize policymakers in Western Europe.

For their part, analysts in Brussels have begun to believe that the EC would clearly be the bigger loser in any subsidies war.

''I feel we have to be extremely careful in our attitude towards the Americans,'' EC Budget Commissioner Christopher Tugendhat said in a recent letter to EC Commission President Gaston Thorn. He said the financial burden of a subsidies war would be significant. For example, a 10 percent fall in world farm prices resulting from increased EC-US competition would cost the EC about $ 675 million in additional export subsidies, Mr. Tugendhat said.

''My impression is that the Americans are fortuitously better placed currently to absorb such expenditure,'' he said.

Also helping to ease tension between the two trading partners has been the Reagan administration's payment-in-kind program under which farmers receive cash , crops, or a combination of the two in exchange for idling acreage formerly planted with grain and other produce. A fall in US farm surpluses and a rise in its food prices have resulted in higher world food prices - and a consequent narrowing of the gap between world and EC prices. This has trimmed the need for gap-bridging export subsidies by the EC.

For months, the US has been calling on the EC (to no avail) to dismantle its export subsidies program, which costs European taxpayers about $30 billion a year, arguing that it makes for unfair competition on world markets. The EC contends that the US has its own, just as large price-support and production-encouraging subsidies system.

The EC - not to be outdone - has also been active. Only recently, it has placed a ceiling on price supports for grain production, forced growers to pay for storing excess sugar, and made dairy farmers partly responsible for paying surplus disposal costs. EC experts insist that these measures should go far in cutting production in Western Europe and reducing the level of public financial support.

(However, the EC's allocations for spending on its farms subsidies have soared to $630 million over budget for the first four months of 1983, Reuters reported Monday.)

Both sides, meanwhile, have been working together to resolve the row in a series of meetings since December. Four meetings have been held so far and officials have reported progress. Another meeting is expected to be held later this month. Agriculture Secretary Block - while rejecting EC calls for sharing markets - has hinted recently that one answer may lie in strengthening international arrangements governing agricultural trade, which he calls ''hazy.''

Suggestions for resolving the dispute have also been coming in from ''independent'' sources. In a long and rare public address on March 15, Michel Fribourg, president of Continental Grain Company, outlined a three-point plan for cooling the tension. First, he said, US-EC discussions should be elevated to ''the highest levels of political accomodation and reality,'' as it is ''fundamentally a political problem that we confront.'' Next, the two sides should approve a five-year agreement that would first freeze and then gradually reduce the gap between the respective agricultural support prices. And third, they should make a ''joint effort to stabilize the economies of the developing world'' - specifically, to facilitate bartering of US-EC agricultural products in exchange for metals from developing countries.

If the political will to solve the dispute appears to be increasing, farmers on both sides of the Atlantic continue to have their problems. Farmers in the US saw their earnings last year drop to the lowest level in real terms since the Great Depression. And farmers in the EC - while doing better than in previous years - watched their income in 1982 fall by 8 percent.

''Their leaders may be holding their fire,'' said a US diplomat. ''But can we expect the same from the farmers?''