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Food Fight

April 08, 1986

The April 18 meeting between American and European trade and farm officials may be the last opportunity to head off a new escalation of the already ugly trade war that can serve only to set back needed reforms. But the prospects for peace are not good. And neither side is blameless.

Europeans cannot conceal their embarrassment over their Common Agricultural Policy that is creating an almost unbearable economic burden, inspiring disruptive trade practices and building mountains and lakes of surplus commodities to prop up the incomes of their farmers. New efforts to foster efficiency have run into strong opposition from the farmers. The program symbolizes the extraordinary political power of the European farmers, and their shortsightedness as well. No nation can afford to protect its farmers forever from the realities of the competitive world market.

The U.S. Congress, panicked by the crisis of the American farm, has also embraced a quick-fix approach to agriculture that postpones the adjustments necessary to meet global competition. Some reduction in loan rates has been permitted, but the 1985 farm legislation includes a massive export subsidy program that invites retaliation.

This particular piece of mischief is the export enhancement program, begun last year on an experimental basis, that Congress has now mandated at a level of at least $1 billion over the next three years. Under the program, exporters are given free bonuses of a commodity, enabling them to cut export prices. For the moment it is being used exclusively for bashing the European Community in such markets as Algeria, Egypt and Morocco, fighting fire with fire--that is, export subsidies with export subsidies. U.S. government officials say that they may next target Canadian competition because they regard Canadian transportation rates as a form of subsidy.

Care is being taken not to hurt the free-trade competition from nations such as Australia and Argentina that do not subsidize farm exports, according to the U.S. Department of Agriculture, but some damage to these nations seems inevitable. Furthermore, many experts feel that the program will also serve to drive down the already depressed world prices of such commodities as wheat at a time when prices already are close to actual production costs.

President Reagan has now announced a more direct assault on European practices, threatening restrictions on cheese, wine and other imports from Europe in retaliation for new restrictions on American imports imposed by Spain and Portugal when they joined the European Community on Jan. 1. The Europeans have cried "foul," and have threatened their own retaliation--setting the stage for a repetition of the counter-productive pasta war of last year.

The bitterness created by the rampant export subsidies of the Europeans and the confrontational response of the American Congress and the Reagan Administration may please for the moment farmers on both sides of the Atlantic. In the long term, however, the policies invite an escalation of the trade war in a way that will be damaging to all concerned, making more difficult the crucial next round for the General Agreement on Tariffs and Trade. That is why the April 18 meeting is of such consequence.

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