Subsidized Grain Issue Pits Farmers Against U.S. Allies

Canada filed a formal diplomatic protest and Australia dispatched a cabinet-level delegation to Washington Thursday as the two nations stepped up their campaign against U.S. election-year legislation to dispose of surplus American wheat by selling it to the Soviet Union and some other countries at taxpayer-subsidized bargain prices.

Caught in the middle of the escalating brouhaha--which involves two of the United States’ oldest and closest allies--is President Reagan, who soon must choose between the political concerns of farm-state lawmakers such as Senate Majority Leader Bob Dole (R-Kan.) and foreign policy considerations stretching from Moscow to U.S. military bases in Australia.

Reagan’s decision is expected next week. Congress is likely to approve the legislation but probably not by a margin big enough to overturn a veto.

Both Canada and Australia, which do not now subsidize grain exports, threatened to match the U.S. subsidies to protect their share of the markets.

Canadian Ambassador Allan E. Gotlieb, noting that more than one-fifth of all U.S. exports go to Canada, warned: “If we get into a trade war, boy, are we both going to lose.”

Australia sent a five-member delegation representing all of that nation’s political parties on a weeklong lobbying trip. Primary Industry Minister John C. Kerin, the delegation’s leader, said it was the first time that his government has ever sent such an all-party group to Washington.

“The United States has been our closest ally and friend at least since the last world war,” Kerin said. “But the United States can’t expect us to support them in their larger strategic goals if we are going to be dumped.”

At Dole’s urging, the Senate last week attached to a routine House-passed bill a rider requiring the Administration to sell wheat and other grain to the Soviet Union, China and probably Japan at subsidized prices.

Dole, who is running for reelection in Kansas and hopes to kick off his presidential candidacy in Iowa--both major grain states--has told the White House that the grain sale bill is vital to Republican hopes of maintaining control of the Senate.

The Democratic-controlled House Agriculture Committee has approved a similar measure.

The measure has split the Reagan Cabinet. Secretary of State George P. Shultz and Defense Secretary Caspar W. Weinberger oppose it, but Treasury Secretary James A. Baker III, Commerce Secretary Malcolm Baldrige and Agriculture Secretary Richard E. Lyng support it.

European Subsidies

Baldrige said Thursday that the European Economic Community is already subsidizing grain sales to the Soviets “so we can say no, we won’t equal the price of the Europeans . . . or we can say yes, we will, because it’s one of the world’s largest markets.”

Under legislation passed last year, the Administration is authorized to sell surplus U.S. grain at artificially low prices in markets where other countries are selling subsidized agricultural exports. Reagan used the measure to combat European subsidized sales in the Middle East, primarily Egypt.

The Administration did not apply the subsidies to the Soviet Union and China even though the Europeans were active there because other non-Communist countries were not providing subsidies to those nations and because of Reagan’s normal reluctance to require the U.S. taxpayer to pay to put bread on Soviet tables.

The Dole legislation would require the Administration to offer subsidized grain to any nation with which the United States traditionally trades.

Soviets Reduce Purchases

Gotlieb said that Moscow, like a canny shopper who has heard rumors that the shirt he wants will go on sale next week, is waiting for the price to drop. The Soviets have reduced their total grain purchases by about 50% this year and have cut back their purchases from the United States by about 95%.

“Protectionism is not cost-free, and the rest of the world is not going to be passive in the face of unjustified action,” Gotlieb told a group of reporters over breakfast. “There are some people (in Congress) who believe, and I have heard them say it, that other countries won’t retaliate . . . . That’s not the way the world works.”

The Australians said their government was not considering closing U.S. military bases in retaliation. But Kerin said that “a head of steam” demanding action against the bases was building up among farmers, who have even more political clout in Australia than American farmers have in this country.