Administration Signals Flexibility on Trade Bill

The Reagan Administration, shifting away from its threat to veto any trade bill that emerges from Congress next year, Thursday signaled a willingness to work with lawmakers to draft comprehensive trade legislation that might be acceptable to President Reagan.

Treasury Secretary James A. Baker III, speaking here at a conference on debt and trade, offered to bargain “in good faith and in a bipartisan way with the new leaders of the 100th Congress” to “craft reasonable legislation that will enhance America’s international competitiveness without resorting to protectionism.”

Baker’s comments come in the wake of signs that Democrats are backing away from the wholesale protectionist legislation approved earlier this year by the House. That legislation would have imposed stiff new tariffs on any nation that runs a large trade surplus with the United States. The Senate did not act on the measure.

The White House, which has maintained that wide-scale tariffs and quotas on imports only invite retaliation by other countries, has been drafting its own measures aimed at improving U.S. competitiveness in world markets. Officials said this plan could be a possible centerpiece of Reagan’s State of the Union address in January, but they stressed that the Administration has not decided whether it will submit its own trade bill to Congress next year.

Administration officials continued to warn that Reagan would veto any overtly protectionist trade bill.

“There’s still a lot of protectionist sentiment on the Hill and we are opposed to legislation of that ilk,” Reagan’s chief trade negotiator, Clayton K. Yeutter, told reporters at the congressionally sponsored conference. “But we are reasonably encouraged by signs in the House that they are backing off from that approach, and if that continues I think we would be pleased to work with the leadership of Congress on a trade bill.”

Key lawmakers welcomed the hints of a new Administration strategy toward trade legislation. Baker’s statement is the first indication that Reagan “might be willing to work with us,” said Sen. John C. Danforth (R-Mo.). “Trade legislation is now inevitable; last year it wasn’t . . . and the Administration has to have an offense because they can’t win a totally defensive battle.”

But Danforth, who will relinquish the chairmanship of the chief Senate trade subcommittee next month when Democrats take control of the Senate, also warned that Congress still is moving toward approving a bill that would be unacceptable to the White House.

“A protectionist bill is more likely than not,” he said, “and the President will veto that. But if the Administration will work with us, there’s a better chance we can get a bill out of the Senate Finance Committee and into a conference with the House that is tough but isn’t protectionist.”

The Administration’s bargaining position with Congress could be strengthened somewhat if the nation’s previously ballooning trade deficit continues to shrink next year as it has over the last three months.

Treasury Secretary Baker--who earlier had avoided two similar trade conferences in Washington and Zurich, appeared eager this time to take on critics of his international economic policies directly. Baker challenged the proposals of those who he said promise “one all-embracing solution” to the U.S. trade imbalance and the problems of debt-ravaged Third World nations.

He argued that a number of Administration trade initiatives are just beginning to bear fruit. They include an agreement reached in September, 1985, among major industrialized nations to help drive down the value of the dollar, which has the effect of making U.S. goods cheaper in foreign markets, and the “Baker Plan,” aimed at fostering greater economic growth among debtor countries.

By contrast, he insisted, competing proposals to offer debt relief across the board to developing nations or to require Japan and other nations with big trade surpluses to make large capital infusions to debtor countries are inappropriate responses to current world economic dilemmas.

Baker promised further Administration actions to help U.S. firms to compete in world markets, including pursuing changes in currency policy by Asian countries like Taiwan and South Korea that keep their exchange rates artificially low against the dollar in order to gain trade advantages.