WASHINGTON REPORT

The Federal Budget Ballet Begins

MANUEVERS HAVE ALREADY BEGUN, both within and outside the Reagan administration, for the next round of budgeting.Budget Director James Miller has said said he prefers basing a planned 3 percent real increase in his defense spending request on the level that Congress actually approved for the current budget year, rather than starting with the higher figure in the administration's August mid-year budget review.

Mr. Miller felt that last time around he lost credibility with Congress by using too high a defense number. The difference will mean about $10 billion less than the last figure the Pentagon had available for its own budget planning.

The spending request for defense will decided by the president, probably in about a month.

Meanwhile, some Republicans as well as Democrats are saying the Gramm- Rudman-Hollings deficit targets should be eased, since the White House still opposes a tax increase and wants higher defense spending. Mr. Miller rejects changing the targets and says his next budget will meet the law's $108-billion deficit target for fiscal 1988.

But administration sources indicate that once the budget is unveiled the administration might consider altering the deficit law if faced with a bipartisan consensus.

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THE BIGGEST BILATERAL TRADE PROBLEM facing the United States is not with Japan, Canada or Brazil, but with the European Community, says Michael Smith, deputy U.S. trade representative.

U.S. and EC officials remain at odds over what sort of compensation, if any, the EC owes the United States, because of trade changes stemming from Spain and Portugal's joining the EC last January.

The dispute, says Mr. Smith, is a major negotiation occupying a lot of people. Close to $1 billion a year in U.S. exports are involved. Last spring, the United States and the EC patched together a temporary settlement of the problem. The EC, for instance, assured the United States of continuing grain sales to Spain through the end of this year.

But a Dec. 31 deadline for a resolution of the dispute is approaching. If the EC refuses to compensate in trade concessions satisfactory to the United States, the United States is likely to retaliate against EC farm products.

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THE CHAIRMAN of the British Airports Authority downplays the lingering dispute between the authority and The Flying Tiger Line. The Los Angeles-based all- cargo carrier says its operations at Heathrow Airport, London, are threatened by a pending ban on all-cargo operations during peak travel hours.

Sir Norman Payne claimed here last week he had no differences with Flying Tiger. We've taken steps to assure their operations carry on, he said.

Obviously, Tiger does not feel the same way about the situation because it has yet to drop its complaint against the British government and British Airways. The complaint, filed with the Department of Transportation, seeks retribution against the British carrier at New York's JFK International Airport.

Meanwhile, events within Tiger last week suggest the dispute may be resolved by unrelated factors. Tiger, faced with severe financial problems and an impasse with the Air Line Pilots Association over pay-cuts, said it intends to liquidate its assets and close up shop.

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THE AMERICAN BANKERS ASSOCIATION is trying to make the case that the poor bank profit outlook forecast by its economic advisory committee is reason for Congress to enact legislation allowing banks new securities, insurance and real estate powers.

William E. Gibson, who heads the committee, told reporters last week that commercial banks are experiencing an eroding market share within the nation's

financial services industry.

He pointed to a decline in market share of financial assets held by commercial banks and savings institutions at the expense of insurance companies, mutual funds and securities firms. The data produced to back up this claim showed that financial institutions went from a 37 percent share in 1975 to a 31 percent share in 1985.

He resisted the idea that since smaller banks are the ones with a poor profit forecast, that the new powers should be confined to those institutions, saying he could not see any sense in discriminating between large and small banks.

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WHILE ONE U.S. COMPANY after another withdraws from South Africa, the American Mining Congress is urging caution about U.S. policy with regard to that country.

AMC Chairman Harry Conger, who also is chairman of Homestake Mining Co., San Francisco, said in a speech last week that U.S. policy toward South Africa should be based on the full knowledge that the critical metals and minerals it supplies are essential to national security and industrial needs.

Mr. Conger said that chromium, cobalt, manganese and the platinum group metals, all imported from southern Africa, are identified by the U.S. Bureau of Mines as critical to the national economy and vulnerable to supply interruption.

In my judgment, we are moving down a road that is likely to disenfranchise our ability to get these metals from that part of the world, Mr. Conger warned.

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DAVID J. ALEXANDER of American Management Systems Inc., prepared an industry audience for presentation of a complicated verbal report, on automating tariffs at the Federal Maritime Commission, by alluding to a speech introduction often used by a colleague:

Now, my job is to talk. Yours is to listen.

If you finish before I do, you can leave.

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A VICTORY RALLY has pre-empted a prayer rally.

Communities around the country where Goodyear Tire & Rubber Co. has plants were due to stage a prayer meeting here today. The apparent goal: To ask divine intervention against British financier James Goldsmith's bid to take over Goodyear.

But the meeting was cancelled Friday. Instead, a victory rally was held Saturday at Akron, Ohio. Mr. Goldsmith had suddenly withdrawn his bid.

Moral: You don't have to go to Washington to have your prayers answered.

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