GRAINS DEAL HELD KEY TO WORLD TRADE TALKS

GRAINS DEAL HELD KEY TO WORLD TRADE TALKS

As grains go, so goes the Uruguay Round.

How - or whether - the United States and the European Community finally seal their Uruguay Round grains deal will largely determine the outcome of seven years of international efforts to reduce, and in some instances end, world trade barriers.Those efforts, under way at the General Agreement on Tariffs and Trade in Geneva, cut across agricultural, manufactured goods and services trade, addressing not only tariffs and import quotas but such other trade-related factors as government investment policy and intellectual property rights protection.

GATT is the international body that governs trade throughout much of the world.

But without a deal on agriculture - and grains is the most important farm commodity of all - the Uruguay Round trade negotiation will fail, according to Peter Sutherland, GATT's general director, and virtually every other official concerned with it.

To complete the round, U.S. and other negotiators have plenty of other issues also to resolve, witness a recent U.S. Chamber of Commerce letter to the Clinton administration. The chamber said that, among other things, progress toward opening world markets to financial, telecommunications and other services has been "disappointing." It cited "major deficiencies" in the handling of rules for patent and other intellectual property rights protection.

But even if these issues are settled, it probably won't mean a thing unless the United States, the EC and other nations taking part in the Uruguay Round strike a meaningful accord to reduce farm trade subsidies and open agricultural markets.

Whether this can be achieved remains in doubt despite the so-called Blair House agreement reached here last November by the United States and the EC. The agreement, trade negotiators then believed, was the long sought ''breakthrough" finally leading to an overall Uruguay Round agreement.

A comprehensive Uruguay Round accord, it was felt, was only a few months away.

Since then, however, the Blair House agreement has come under increasing attack by one of the EC's key members - France. French President Francois Mitterrand and other senior French officials have called for its ''renegotiation." The agreement, the French maintain, goes beyond what French farmers can accept.

Adding to the uncertainty are mixed signals from Germany. Though some top German officials rule out reopening the Blair House agreement, German Chancellor Helmut Kohl says that he appreciates France's problems with the Blair House accord. The Uruguay Round, he acknowledges, can be concluded only if France is "ready to compromise."

Under the Blair House agreement, farm export subsidies would be dealt a double blow. Subsidy expenditures would be cut by 36 percent over six years, while the volume of subsidized exports would be reduced by 21 percent. This could pare U.S. export subsidies by a few hundred million dollars a year and, more significantly, slash EC export subsidies by billions of dollars.

The EC is by far the world's biggest farm subsidizer, its export subsidies running about $10 billion annually. For decades, U.S. farmers have complained of lost sales because of those subsidies.

Also under the agreement, domestic farm subsidies such as price supports would be lowered by 20 percent over six years. This commitment, however, apparently would have little, if any, practical impact, since both the United States and the EC would get credit for past domestic subsidy cutbacks.

And in a related accord last November, the United States withdrew its threat to retaliate against EC oilseed subsidies in return for an EC commitment to set aside oilseeds farmland.

Still, these agreements fall far short of original U.S. demands, either by the U.S. government or U.S. farm groups. But, as Paul Drazek, an American Farm Bureau Federation official, said, "We swallowed them. They are better than risking a trade war."

The agreements, said the National Grange's Bob Frederick, represent "the absolute last bottom line" that the Grange could support, although the National Farmers Union, another major organization, opposes at least a part of the Blair House accord.

Nonetheless, it is widely believed the Blair House agreement will win Congress' assent.

The question is whether Congress will ever get a chance to vote on it. France says it wants to alter the accord in a number of ways, including removing the limit on the volume of subsidized exports. Moreover, it says, subsidy cutbacks should be done in the aggregate, not product-by-product, and it wants more than six years to phase in the cuts. It further contends that subsidy reductions should be relaxed if world farm markets expand.

It objects to the land set-asides required by the oilseeds pact and it wants the power to boost corn-gluten tariffs to ward off import surges from the United States.

"What are the French up to?" asked Julius Katz, the former deputy U.S. trade representative and one of the chief architects of the Blair House agreement. "They've become increasingly strident." One possibility suggested is that France is seeking more financial compensation for its farmers. The EC

Commission recently agreed to give EC farmers more money for land set-asides, which might be a first step toward trying to appease the French.

The Clinton administration has warned the EC that "reopening" the Blair House agreement "poses the serious risk of unraveling the Uruguay Round and reviving the oilseeds dispute." Such U.S. groups as the American Farm Bureau Federation and the National Grange call a reopening unacceptable. "There's no other middle ground," says the Farm Bureau's Mr. Drazek.

And yet the Blair House agreement and oilseeds accord do not resolve all of the Uruguay Round's key farm issues.

For example, the United States and the EC remain at odds over proposals to convert variable import levies, import quotas and other nontariff barriers to their tariff equivalents and then reduce them over six years.

The EC, said U.S. farm spokesmen, appears to be using these proposals to tighten, rather than relax, import curbs on products such as corn, wheat, rice, pork and poultry meat.

And then there's the question of Japan's opening its rice market to imports. Unless Japan does this - and so far it is resisting - other countries might similarly withhold concessions on politically "sensitive" farm commodities, again threatening the entire negotiation.

Yet, U.S. and other negotiators hope, and perhaps sincerely believe, all this and more will be resolved by Dec. 15 and that by January 1995 the world will start reaping the first fruits of a completed Uruguay Round.