US DEFICIT WITH UK MAY SHRINK EVEN MORE

US DEFICIT WITH UK MAY SHRINK EVEN MORE

The U.S. trade deficit with the United Kingdom shrunk in 1987 for the first time in years and should narrow even more in 1988 in the wake of a weakening

dollar, trade officials predict.

The United States posted a $3.9 billion trade shortfall with Great Britain in 1987 vs. a $4.7 billion deficit in 1986. For the prior three years, the British surplus had been building even as the value of oil, the biggest U.K. export to the United States, declined.But the pattern reversed last year. The deficit fell because U.S. exports rose to $14.1 billion against $11.1 billion in 1986. That was more than enough to offset an increase in imports of Britain, reaching $17.997 billion in 1987 vs. $16 billion the previous year.

The United States halted the growth in its deficit thanks largely to sharp increases in aircraft and computer sales. Exports of U.S. aircraft and related components more than doubled during the first seven months of 1987, year-over- year. U.S. sales of computers and data processing equipment also surged 25 percent during the same time frame.

There's is no question we are selling a lot more goods in the United Kingdom than in 1986, said Robert McLaughlin, who heads the U.K. desk at the Commerce Department.

Shrinking Imbalance Seen

Mr. McLaughlin forecasts a shrinking 1988 trade imbalance with Britain, based on last year's trends. He did not give a particular dollar amount.

At least one British commodity should enjoy another booming year in 1988, according to private forecasters.

British car sales in the United States raced ahead 57 percent last year

from 1986 levels, due partly to the introduction of the $33,000 Range Rover and the $18,000 Sterling automobiles.

With the exception of the Sterling, British manufacturers export only luxury models like Rolls Royce, Bentley and Jaguar to the United States.

UK Car Sales Up in US

Overall, British carmakers sold 50,000 vehicles in the United States last year, up from 26,200 a year earlier. Graham W. Whitehead, president of the British Automobile Manufacturers Association, predicts a further 20 percent sales boost in 1988.

Some economists had expected last year's stock market crash to shrink the demand for high-ticket items like luxury automobiles.

But none of them has felt the effect of it so far, said Ian Kerr, a spokesman for British car manufacturers. In fact, Rolls Royce said sales the last two months of 1987 were better than the same period the year before.

The United States and Great Britain enjoy generally cordial trade relations, with little of the tension surrounding U.S. dealings with Asian trading partners.

We have a lot of difficulties with the European Community but, on the whole, we don't have that much of a problem with the U.K., a U.S. trade official said.

Controversy Over Airbus

The best-known conflict surrounds Airbus Industrie, a consortium of British, French, West German and Spanish aircraft manufacturers.

The United States insists government subsidies allow Airbus to sell its planes at an artificially low price that hurts U.S. manufacturers like Boeing and McDonnell Douglas. The European consortium, anxious to keep Airbus competitive, says it will not agree to changes that hurt the company.

Lord David Young, Britain's secretary of state for trade and industry, says his government expects Airbus to pay back British subsidies in the form of corporate profits, a prediction U.S. trade negotiators doubt.

There was some optimism (on reaching a compromise on Airbus), said a U.S. trade official, but that has faltered a bit recently. We're not saying it's impossible to resolve, but it's extremely difficult.

U.S. Trade Representative Clayton Yeutter and European Community External Trade Minister Willy de Clercq deadlocked on Airbus negotiations earlier this month. Mr. de Clercq said the two sides are headed toward a confrontation in March.

Differences on Agriculture

Agricultural production and export subsidies, which account for more than half of this country's disputes with the European Community, also remain a serious problem. But U.S. officials said the British, more than other members of the EC, see a need for changing the community's agricultural policies.

Last month, Lord Young told the U.S. Chamber of Commerce that reforming the EC's system of agricultural support is the largest single contribution Europe can make to promote open trade.

Overall, the United States receives about 14 percent of Britain's exports; the U.K. buy about 11 percent of U.S. worldwide exports.

As recently as two to three years ago, oil was a major part of the U.K.'s export figures, says Colin Bright, an official in the commercial section of Britain's New York embassy.

We're now doing progressively better with aero engines, cars and computers, he adds. British export figures have been going up steadily.

Boom in UK Industry

British industry, in general, has been booming recently. Over the last three years, Britain has grown as fast as Japan and faster than West Germany and France. The nation's manufacturing output has been growing at about 6 percent a year and U.K. venture capital expanded fortyfold between 1979 and 1985.

Despite mounting protectionist sentiment in Congress, British officials in Washington say U.K. manufacturers have not soured on the American market.

How can you not be here? Mr. Bright asked.

Restrictive trade proposals worry many British exporters, Mr. Bright said, but product liability laws have become an equally serious concern.

Derek Plumbly, the first secretary for trade policy in the British Embassy, said he believes the investment relationship between the two nations shows how much things have changed.

UK Investment in US Up

British investment in the United States soared from about $10 billion when the Thatcher government first came to power to more than $70 billion today.

Investment spurs trade, and when that happens, you get new customers, Mr. Plumbly said.

Clouding the the generally cordial relations, however, is the prospect of a restrictive U.S. trade bill.

There's a lot in that bill which would be very disruptive to the trading system and that conflicts with the GATT, Mr. Plumbly said, referring to the General Agreement on Tariffs and Trade, the pact that regulates most world trade.

Trade bill language on dumping and countervailing duties goes beyond the GATT, as does the legislation's procurement provisions, Mr. Plumbly said. Britain also objects to trade bill provisos that it says usurp GATT dispute resolution procedures and it opposes trade adjustment assistance financed through unilaterally imposed import fees.

Market Protection Move?

Britain also worries that more U.S. companies will try to protect their markets from imports by claiming national security considerations.

Some industries see this as a flexible statute they can exploit, Mr. Plumbly said.

Britain negotiates in the GATT as part of the European Community. But one of the nation's individual goals is an improvement in dispute settlement procedures.

Focusing on the United States, Mr. Plumbly said farm support is as big an issue as we are addressing, adding, We need to attack this problem in this round.

He said Britain believes newly industrialized nations can afford to play a full and equal part in the GATT negotiations.

If they don't, there won't be as much of a political constituency in my country for the GATT, Mr. Plumbly said.

During his U.S. visit last month, Lord Young also warned the United States against forging bilateral deals that could undermine the GATT.

Better to stick to the basic multilateral principle of GATT, that trade concessions offered to one partner are available to all . . . , Lord Young said.