US AND EC ON BRINK OF TRADE WAR OVER OIL SEEDS?

Geneva 5 Nov (Chakravarthi Raghavan) -- The United States and the European Community were teetering Wednesday night on the edge of a trade war over their oilseeds dispute and agricultural farm would sink the Uruguay Round would in fact break out appeared to depend on the outcome of a possible renewal of the US-EC talks -- broken off after the failure of their efforts at Chicago (Nov 1-3) -- after the US announces its retaliatory steps to take effect 30 days later, and whether the announced retaliation would be around the 350 million dollars of trade benefits which the EC concedes the US has lost, or a much higher figure which would force EC to retaliate.

Late night reports Wednesday from Washington said that the Carla Hills, the Trade Representative of the lame-duck Bush administration, would announce in Washington Thursday morning some 300-400 million dollars worth of imports from the EC on which GATT concessions would be withdrawn automatically after 30 days, and making clear that further retaliations up to the one billion figure would follow later.

"Any sanctions would clearly damage the prospects for the Uruguay Round and Dunkel, as GATT Director-General can only say that all parties should observe the rules," GATT spokesman David Woods told newsmen Thursday in responding to questions on how Dunkel viewed the prospect of US imposing sanctions. In the Council, he added, there was a fair amount of support and sympathy to the United States, but a considerable number of countries also said that the only way out of the situation was for the two sides to go back to the negotiations. "These are the views of the contracting parties and these are important."

Washington has already published a list of two billion dollars worth of imports from EC out of which the actual retaliatory products would be chosen.

US action (announcing a 300-400 million dollar retaliation), with a 30-day deadline to EC to negotiate a settlement under the threat of sanctions, would place the EC members and the Commission in a difficult situation and could complicate both its internal and external stances and negotiations.

But short of a EC 'surrender', the final losers would be the US soybean growers who may find themselves losing their EC market to other more 'competitive suppliers'.

EC sources had said Wednesday night that if the US undertakes unilateral retaliation on this issue, the EC Commission would be unable to resist French pressures for counter-retaliation.

The sources said that if the US actual retaliation (when the action takes place 30 days after the notification) is confined to the 300-400 million dollar damage the EC itself has estimated to be the extent of the "impairment" of US GATT rights, it would be difficult for the EC to undertake counter-retaliation.

US Ambassador Rufus Yerxa appeared to be making the same point at his press briefing Wednesday night when, reacting to the reported statement of EC Commissioner Franz Andriessen that the EC would undertake counter retaliation if the US went ahead and did so, he noted that the EC had itself conceded the damage and "I don't see what credible reason they have for taking counter-retaliation".

Some GATT participants noted that like shooting wars that had to end in a peace, trade wars and retaliations were not an end in itself, and both sides at some stage would have to talk and reach a 'peace' and, hopefully, both would do so within the 30-day period.

Both have much more at stake in the GATT and the Uruguay Round (where under the Dunkel text they gain more at the cost of developing countries) than the smaller and weaker trading partners, despite their attempts at unilateralism or bilateral deals, the sources commented. And if the US wants to regain and increase its soybean exports to the EC, it too has to reach an accord with the EC since, retaliation by itself would only reduce the market and not help retain or gain more.

Reports suggest that while the US would attempt to hit France (seen as the country blocking a settlement within the EC) by levying penal duties on french wines, liquors and cheese, some news stories from Brussels (leaked by the EC sources) suggest that the Commission has its own 'game plan' -- imposing counter- retaliation by levying duties on imports of soybeans from the United States, thus depriving the US soybean growers and lobby, who are seen by the EC as preventing an accord, even more of their market in the EC. Such an action would benefit the other oilseeds suppliers, including Argentina, Brazil (soybeans).

Yerxa showed awareness of this, when a newsman asked him how the US soybean producers would gain more access to the EC market (even if the EC does not retaliate against them) at the end of the day. "I am as frustrated as you, and if the Community is not willing to address its subsidy practices, it will be very difficult for the US to attain its full share of the EC market," Yerxa remarked in conceding what is seen as the fundamental weakness of the GATT system and its reliance on enforcement of contractual rights and obligations through 'authorized retaliation' -- a remedy that the weak trading partner cannot use at all and, as this case demonstrate, even the strong cannot use against each other, only against the very weak.

At the GATT Council on Wednesday, the US sought, but failed to get because of the EC blocking the consensus, authority from the GATT Council to retaliate against the EC to the amount of one billion dollars, the impairment of rights claimed by the US over the EC's failure to implement two panel rulings on its domestic support policy in the oilseeds regime. "I put this question -- first to the Community and then to other parties to this dispute: will you support a consensus decision by the Council today authorizing the suspension of concessions by the United States?"

But with the EC neither saying 'yes' nor 'no' to this and many others clearly waffling against such a decision, Council Chairman Balkrishan Zutshi said there was no consensus in the Council either to the US motion or the EC's (for a working party to go into the deadlocked negotiations on modification of the tariff schedules and answering the EC's "questions" to the contracting parties.

To Zutshi's question whether the two items, the US request for authorization under XXIII and the EC request for the views and mm1{Y lWZ)Wy{recommendations of the CPs under XXVIII:4, should still remain on the agenda of the Council, the EC gave an 'yes' answer while the US said it did not know but would report to Washington and await instructions.

Yerxa had earlier indicated in the Council that Washington would be selecting out of an already notified list of two billion dollars worth of products imported from the EC, products on which penal tariffs would be imposed on their imports from the EC, by withdrawing the applicable GATT concessions.

He told the Council; "Moreover, we would delay the suspension until 30 days after our announcement. Our hope is that before the suspension goes into effect, the Community will agree to a mutually satisfactory resolution of this dispute. We hold open our September offer of binding arbitration on the amount of damages on the condition that the arbitration be concluded within this 30-day period."

The implication was that while the initial retaliation announcement would be in the range of the 'impairment' amount conceded by the EC, but the higher one billion figure would follow in the absence of a settlement or arbitration on the value of impairment within that period.

The EC's foreign relations Commissioner Franz Andriessen told newsmen in Brussels that the EC would impose counter-retaliation if the US went ahead, while the EC's GATT negotiator, Amb. Tran Van-Thinh, told newsmen in Geneva that if the US "takes retaliation" the Uruguay Round would be "dead".

In the Council, after the US had presented its motion seeking authorization retaliate, and the EC had pressed its call for the GATT contracting parties to make their pronouncements and recommendations through a working party (as already sought by the EC) over the deadlock in the negotiation for modification of its tariff schedules for bound zero-tariff on imports of concessions on oilseeds under Art. XXVIII:4 (d), the debate showed an unwillingness of other contracting parties to authorize retaliation and precipitate a crisis between the two major trading partners.

The US received full support from Canada and Australia, and some cautious endorsement from Argentina and Brazil, no 'explicit opposition' from any one but with others sympathizing with the US and critical of the EC but not committing themselves to authorizing the retaliation.

As Tran put it later to newsmen, "there sere many 'yes' to the US, many more 'ambiguities', but no 'no' even from us. We were unable to give an answer (to the US) right away, since our people (who had been in Chicago for the talks) have to come back and report before we can get instructions here."

Tran said that the EC did not question the US right under GATT to seek authorization under Art XXIII:2, except in the EC view the two sides were close and negotiations were still going on, and the Council was still to pronounce itself on the EC's request under Art. XXVIII:4 (d) for their recommendations over the deadlocked talks on the modification of the EC tariff concession on oilseeds.

The Asean, three of whose members are also in the Cairns group, sympathized with the United States and appealed to the EC not to push the US to the position of thinking that it could have no relief through bilateral talks or the multilateral system.

Yerxa said some participants had raised questions whether the bilateral process had exhausted itself or whether there was an opportunity for further negotiations, and 'implored' the EC to find a solution. But in the US view, what the EC was willing to accept fell far short and did not provide an answer to the US.

While Tran later claimed that the gap between the two sides was very small, Yerxa said there was a "substantial gap" over the means that the Community would use to achieve the goal of reducing its subsidized oilseed production which had impaired the US GATT rights.

It was nearly five years since US soybean growers had sought relief and after two panel rulings and 'extraordinary efforts' of the US to obtain an appropriate solution through the GATT system, all the US efforts had been merely rewarded by a series of 'non- solutions' which had left the EC's pernicious policies in place, Yerxa told the Council, "All that the Community has done (at the Chicago talks)," Yerxa told the Council was to propose to implement some CAP reform measures that could slightly reduce their oilseeds production, but they were unwilling to guarantee that result.

All that the US was told was that if these steps proved inadequate, the US "could always request further consultations or go back to the GATT".

Tran said that the EC had requested the contracting parties to help the EC "exhaust" the negotiating process for modification of schedules, but the cps had failed to give the answers. So far in the GATT there was only one precedence for authorized withdrawal of concessions - in 1952 when Netherlands was allowed to withdraw concessions from the US, but after a working party had evaluated the amount. Japan, he noted, had raised this point (as a necessary preliminary to acting on the US request). This, he conceded, could be perceived by the US as a delaying tactic.

"But this is a very serious decision to be taken by the CPs...if there had been permission to the US to withdraw the concessions, it meant ipso facto the death of the Uruguay Round," Tran remarked. "I cannot imagine we can go ahead with that type of measure. It will have serious repercussions."

Asked whether the end to the Round applied also to retaliations that could be taken by the US (in the absence of the authorization from the CPs), Tran said: "If the US takes retaliation, the round is still dead"

The latest round of US-EC talks on the issue, between US Agriculture Secretary Ed Madigan and EC Agriculture Commissioner, Ray MacSharry in Chicago since Sunday ended in failure. MacSharry returned Tuesday night to Brussels and reported to the Commission and the council of trade ministers.

But John Gunmer, the UK Agriculture Minister who (contrary to normal EC practice where the Commission alone negotiates on basis of the mandate from the ministers) had made a secret trip to Chicago in an effort to influence the negotiations and 'ease' the EC stands, told the BBC on return that the talks had failed, but that the responsibility lay with the American side.

"If the Americans had shown a little more flexibility, the negotiations would have been a success," Gunmer was quoted as saying. "I had said the Community should go halfway to reach a compromise. But in fact they had gone more than half-way. But the US negotiators had no flexibility and did not move an inch."

Tran told newsmen that at Chicago, the EC had offered under its CAP reforms and acreage setaside program, to cut back acreage under oilseeds by 25 percent, but that the US wanted volume reduction commitments which the EC could not guarantee.

"Depending on the weather, the production can go up one year and go down in another," one aide remarked.

However, the US from its own experience knows that 'set-asides', while taking acreage out of crop, does not reduce production. On the other hand, it encourages more capital intensive methods and chemical inputs to increase productivity and gradually results in taking individual farmers out of business in favor of large commercial farms. This trend in the US resulted in reducing the domestic farm prices (at which the one or two monopolistic exporters like Cargills bought) and enabled them to export.

While the Reagan-Bush administrations had pushed this trend even further, it has created what is called 'family farm' lobbies in the US, many of whom have united behind Clinton, and pressing for change of US agriculture domestic support and trade policies which are seen as favoring the traders and not farmers.