Bush's First Shot May Avert A Trade War

Call it the "smart bomb" of trade warfare. In vowing to raise tariffs to 200% on $300 million worth of white wine and other exports from France, Germany, and Italy, the Bush Administration precisely targeted the main European Community obstacles to resolving a seemingly endless dispute over agricultural subsidies, specifically production of oilseeds. In doing so, Washington may have helped avert an all-out trade war.

Within days, Bush's laser-guided sanctions were homing in. On Nov. 9, EC foreign ministers rejected French calls for retaliation and got solidly behind the need to negotiate before the Dec. 5 deadline Washington set. And on Nov. 11, the European Commission voted to restart agriculture talks with the U.S. under the General Agreement on Tariffs & Trade as soon as possible. Meetings between EC and U.S. trade officials already are being scheduled. "Getting involved in a trade war would be the most stupid thing we could do at the moment," says German Foreign Minister Klaus Kinkel. Even French President Francois Mitterrand has shifted his tone of late, accenting the need to avoid isolating France within Europe over the trade issue.

What tipped the balance for France, the EC's biggest agricultural exporter and loudest defender of farm subsidies? Apart from Washington's big stick, pressure from within the EC has intensified dramatically. Although Bonn, traditionally an ally of Paris, has not been vocal about France's recalcitrance, other EC members have. And the French don't want to be blamed for a collapse in GATT.

NO CHEWING. Europe's recent disunity is one reason Washington's volley was so deadly. From paralysis over Yugoslavia to fumblings and setbacks over ratification of the Maastricht Treaty, EC members have reverted to covering domestic politics rather than shaping collective positions on key internal and external issues. "The EC is fast becoming an organization that can't walk and chew gum at the same time," says a senior U.S. official in Europe. "And in the last few weeks they haven't even been able to walk unaided."

The turning point may have come when Ray MacSharry, EC farm commissioner, withdrew as a key negotiator, citing interference from EC Commission President Jacques Delors, a potential successor to Mitterrand. The incident served as a public embarrassment to France. The Nov. 10 announcement that MacSharry will return to the talks means France will find it tougher to operate behind the scenes through Delors as talks resume. And since the U.S. and EC are as little as 1 million metric tons apart on where reduced levels of EC oilseed production should lie, there's plenty of room for a pact.

French officials have quietly begun examining whether there's a face-saving way to present lower output levels to farmers as the inevitable result of European agricultural reforms. Another strategy: The EC could sweeten the oilseed pill by securing U.S. concessions on service industries when the stalled GATT talks resume.

STRADDLER. But France's socialists, facing angry farmers in the runup to legislative elections next spring, could yet find a trade deal unpalatable. And they could easily revive the crisis. So far, Paris has been able to count on solid support from agricultural interests inside and outside Bonn. To underline the point, Bush's wine levies are aimed at the Burgundy and Rhineland vineyard regions that are home to France's Agriculture Minister and German Chancellor Helmut Kohl, respectively.

Kohl has so far deftly straddled his allegiance to Paris and Washington, pressuring France only discreetly. Now, the risk of a trade war as a new, less free-trade-minded Administration moves into Washington has mobilized German industry, too. On Nov. 9, two leading German industrial groups that back Kohl lashed out publicly at Delors and demanded that Kohl work to bring France around. They fear that failed trade talks will prompt the collapse of the global trading system on which Germany's export-led economy depends.

Muscling France "is something Germany is always reluctant to do," says Stephen Woolcock, a European trade specialist at Britain's Royal Institute of International Affairs. But with the two sides heading back to the negotiating table, Bush's smart bomb may have nailed even that problem.

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