Trade war with US takes to the air

The food fight may be over. But the air war is just beginning. Trade troubles continue to simmer between the United States and the European Community (EC) despite the recent success of averting an all-out commercial conflict over US agricultural exports to Spain and Portugal. US negotiators, who visited London, Paris, and Bonn this past week to complain about alleged unfair competition from the European Airbus consortium, failed to bridge their sharp differences with the Europeans before talks ended Feb. 4.

``While we have solved one problem, an important problem,'' explained one Western diplomat involved in the negotiations, ``the trade temperature between the Community and Washington is rising.''

Since the beginning of the 1980s, Washington and its allies have gone stumbled through one trade dispute after another. They have squabbled over everything from oranges and lemons to steel subsidies and semiconductor sales. In the end, all these issues have been solved because it would have been more expensive not to solve them.

Take the latest agricultural dispute. It centered on US alarm at losing an estimated $400 million of feed-grain sales to Spain and Portugal, which as new EC members must raise their tariffs on agricultural imports from outside EC. In retaliation, the Reagan administration threatened to slap 200 percent tariffs on $400 million of European imports, including French cognac, British gin, Dutch cheese, Greek olives and other edibles.

According to the International Monetary Fund, US exports to Europe totalled $53 billion last year. The $400 million at stake in the dispute was hardly worth jeopardizing these billions in a war full of spiraling retaliations by each side.

These figures explain why the Europeans backed down from their original bargaining position of refusing any long-term agricultural compensation. Under the Jan. 29 accord, Spain and Portugal will ease some tariffs on non-European grain imports for four years. The EC also promised to lower tariffs on 24 manufactured products and packaged foods.

The concessions may not be sufficient. As Europeans view America, they see a mounting trade deficit, a hostile Democratic Congress, a weakened Ronald Reagan, ailing farmers and manufacturers all rushing headlong into protectionism.

``The American position is hardening,'' says Mario Kakabadse, a trade expert at the Paris-based Atlantic Institute, ``and I fear that the agricultural dispute over Spain and Portugal represents only a portent of worse to come.''

European resentment over what they consider bullying treatment by Washington is sure to spill over into other trade issues. Already, it has clouded a new round of General Agreement on Tariffs and Trade (GATT) negotiations in Geneva. Washington wants to put agricultural subsidies on a so-called ``fast track,'' meaning that this issue would be negotiated at a faster pace than other types of trade. After the agreement over Spain and Portugal was hammered out, EC negotiator Van-Tinh Tran was quoted as saying that the Europeans have made ``more than enough concessions'' in trade talks with the US.

Industrial disputes may not be as politically sensitive as agriculture, but they are economically more important. While the farm dispute involved millions of dollars, commercial aircraft sales are worth billions of dollars. That is why the Reagan administration singled out Airbus Industrie, the European consortium that has been challenging US dominance in the field.

Washington complains that Airbus trading practices include government subsidies, prices below production cost, and political concessions to win contracts. One US trade expert claims that European subsidies have cost the US aircraft industry as much as $3 billion in potential trade.

Airbus officials deny that they are offering to sell their competing A-340 model below cost. They add that the US aerospace industry also is government subsidized because it benefits from military contracts that finance technological developments used in civilian aircraft.

A compromise still can be averted, observers say, because a trade war would again prove much more costly. But the stakes are growing and already the two sides are skirmishing.

``Airplanes are our single largest industrial export,'' warned the US trade official.

``Don't expect the Europeans to give in as easily next time,'' responded the Atlantic Institute's Kakabadse.