Officials Hope to Resolve GATT

European bumper crops could shift stance on farm-subsidies in key round

THE record harvests being pulled into the silos of the European Community may spell trouble - or promise - for the international trade liberalization talks that world leaders still hope to conclude by the end of the year.The negotiations remain extremely susceptible to evolving market influences, especially during the crucial next few weeks. Nine months after multilateral negotiations known as the Uruguay Round collapsed in Brussels over trade-distorting farm subsidies, officials are preparing to return to the negotiating table here for what many observers say will be the make-or-break sessions of the five-year-old round. "There is no doubt that we have a window of opportunity to conclude the negotiations this year," says Arthur Dunkel, director-general of the 108-nation General Agreement on Tariffs and Trade (GATT). "It remains to be seen if," after the Brussels failure, "political rhetoric is to be complemented by political courage." Observers believe Mr. Dunkel, by his remarks, holds the world's wealthy industrialized nations - primarily the US, the EC, and Japan - responsible for the round's success or failure. GATT's Uruguay Round is charged with establishing trade rules for services, intellectual property, and agriculture. It is agriculture that still risks derailing the negotiations many economists consider vital for sustained world economic growth. Observers say only minimal progress has been made on the issue since the US and its food-exporting allies, including both developed and developing countries, locked horns with the European Community in Brussels over farm supports. The US favors a 75 percent cut in agriculture subsidies, while the EC officially favors 30 percent. Its offer, however, is in effect only 15 percent: 15 percent for the past five years, and another 15 for the next five. With European farmers and EC farm ministers already unhappy with the Community's 30 percent proposal, any increase already appeared difficult. But observers now worry that the EC will find any better offer complicated by this year's record European harvests. EC agriculture officials believe stocks of surplus grain across Europe could balloon by 50 percent, to 30 million tons, by the end of the year. Negotiators worry the surpluses, and a need for increased export subsidies to sell them off abroad, will spoil any flexibility among European farm officials. "The EC's export subsidies will be going up at a crucial time because of their overproduction," says Rufus Yerxa, the permanent US representative to GATT and the country's chief negotiator in the Uruguay Round. "That will be a problem at a delicate point in the talks." The EC is the world champion of farm subsidies, last year paying out more than $80 billion in support to farmers. That could jump by more than 10 percent this year, observers say. At the same time, however, Mr. Yerxa says Europe's surpluses could push Community leaders unhappy with rising farm budgets to accept deeper subsidy cuts. "It's the cost they're paying that might convince them," he says. One observer close to the GATT round agreed, saying the record crops should make EC reformers more determined. "[EC agriculture Commissioner Ray] MacSharry should be even more anxious to carry out serious reforms," says the observer, requesting anonymity. "They don't have any place to store the surpluses." EC officials say the their 30 percent offer represents a mandate from the EC's 12 heads of state, and can only be changed by them. Sources in Brussels also insist that the Community's farm budget is set for this year, so any worries about the fall bumper harvest are unfounded. But EC officials express careful optimism that the differences over agriculture can be narrowed and the Uruguay Round concluded by February, if not by the end of the year. "We're still pushing for a December conclusion," says the EC spokesman. On agriculture, the spokesman describes the atmosphere as "more constructive," saying "there's now a better understanding of the different offers." All parties have agreed to reconsider the three main areas of import access, export subsidies, and internal supports, he says. Perhaps most important for the EC, "There are some indications the US is ready to be more realistic in its demands," the spokesman says, adding, "We no longer hear talk of cutting supports 70 to 90 percent." Yerxa says movement in agriculture would allow "rapid progress in the other negotiating areas," reflecting the US view that developing countries, who hold the key to agreement on services regulation and other areas of vital importance to developed countries, will not sign on unless they get a good deal for their farm products and textiles.