Global Trade Talks Entering Key Final Year : Economy: Nations meeting at the Uruguay Round are trying to liberalize rules governing world commerce. The biggest overhaul of the system since World War II could be the result.

Paul Tran was smiling broadly as he emerged from a closed-door meeting of the 96-country General Agreement on Tariffs and Trade. As Europe’s top trade negotiator, he had spent the morning lambasting U.S. trade policies, and he was clearly satisfied.

“The U.S. seems to be more protectionist than Europe,” he asserted, replaying part of the speech that he had made inside the chamber. “But then,” he added promptly, “everything here is a matter of negotiation.”

For the past three years, Tran and delegates from more than 100 other countries have been negotiating a global agreement to liberalize the rules governing international trade. The Uruguay Round, as this series of talks is known, is scheduled to be concluded next year.

The talks could yield the most sweeping overhaul of the global trading system since the end of World War II. Besides reducing tariffs, the traditional No. 1 goal in such negotiations, the delegates will try to write rules covering trade in agriculture, services, intellectual property and investment, which until now have been unregulated. The progress so far has been steady but frustratingly slow.

Much is at stake. If the talks go awry, many analysts fear, it could spell the end of today’s free trading system and a turn toward increased protectionism and regional trading blocs.

“We’re really at a crossroads,” asserted U.S. Trade Representative Carla A. Hills. “What we’re doing here is building a trading system for the 21st Century. If we don’t succeed in reaching an agreement, nations will turn inward and trade will contract. It will be a tremendous mistake that historians will mark.”

Some American interests disagree sharply. Industries such as sugar and textiles, which have long enjoyed government protection from foreign competition, have a lot to lose, and they have begun a sometimes nasty campaign at home to sidetrack the talks.

That campaign has already claimed the job of a highly respected lobbyist for the American Soybean Assn. John Baize, the lobbyist, made the mistake of telling a French interviewer that it made “no sense” for the United States to subsidize sugar producers when “we could buy it much cheaper from Brazil or the Caribbean.” When U.S. sugar beet growers howled, Baize was forced to quit.

U.S. officials also say they have evidence that some American farm interests that oppose phasing out sugar quotas and domestic crop subsidies may be working directly with European lobbyists.

Before any accord can have the force of law in the United States, it must win the approval of an increasingly hostile Congress, which will have to be convinced that the country’s economic interests will not be damaged.

As one straw in the wind, Southern senators have held up the nomination of former Commerce Department aide Ronald J. Sorini to be the chief U.S. negotiator in textile trade talks because they fear Sorini may be too “soft.”

All this has led Harald B. Malmgren, a trade consultant in Washington and former government trade negotiator, to conclude that reaching a meaningful accord is going to be “a very difficult job at this point. To bring home a maximum package is impossible. They will have a hard time meeting this timetable unless they go into a very modest, minimalist outcome.”

Next on the schedule is a meeting Wednesday at which representatives of the 100-plus countries that are taking part in the talks will hold a final housekeeping session to set procedures for next year’s climactic talks.

“We are approaching the moment of truth,” intoned Tran, a Vietnamese-born Frenchman who is the European Community’s ambassador to GATT.

For all the obstacles ahead, negotiations have come a long way since 1982, when the United States tried without success to launch the talks. At that time, Brazil and India refused even to discuss trade in services and investment. A proposal to include intellectual property (patents, trademarks and copyrights) was laughed out of the meeting chamber, and the Europeans stomped off in protest over U.S. demands that agriculture be on the agenda.

By contrast, all these items are firmly on the table at the Uruguay Round--so-called because the agreement to hold the talks was finally reached in 1986 in Punta del Este, Uruguay. Ruben Ricupero, Brazil’s chief negotiator, said his country is now negotiating seriously over U.S. demands to set rules for trade in services and intellectual property. But, he admitted, “We are still in a dialogue among deaf people.”

The talks are also reasonably on schedule. “We are on time,” said GATT’s Swiss director-general, Arthur Dunkel.

Foreign negotiators say Hills has fielded a strong negotiating team, and Hills herself has drawn kudos for helping to guide the talks toward their goal. “The U.S. team in Geneva is a very strong one,” the EC’s Tran said. “We need some Rambo here, and the United States is playing that role very well.”

A senior GATT official who has been watching the process added, “What we are witnessing is nothing short of a return of U.S. leadership to these talks.”

For Hills and her team, the greatest challenge is to draft a package that they can sell to Congress. Hills says she will not hesitate to walk away from the table without a deal rather than accept one that she is uncertain Congress would accept.

“I have no choice,” she reiterated in an interview just before leaving for a series of conferences in Brussels. “I can’t bring home a package that won’t sell. We cannot put ourselves in a position of unilateral disarmament.”

Hills has already signaled that the United States would be willing to ease its own restrictions against imported textiles, steel, dairy products and sugar if it can get what it wants in agriculture, services, intellectual property and investment.

But the losers--the textile, steel, dairy and sugar lobbies--are already protesting. Organized labor is also likely to oppose such a deal, which might cost jobs in industries that lose protection from imports.

Even American agriculture, which stands to gain from additional world trade, is not necessarily in the bag. “A significant portion of the U.S. agriculture industry has endorsed these trade liberalization proposals on the expectation that they’ll never see the light of day,” one U.S. strategist asserted.

What will make Congress a particularly difficult sell is the spirit of economic nationalism that is sweeping the House and Senate. “All they seem to care about is bashing Japan,” a senior U.S. official lamented. “There no longer are any true believers on Capitol Hill in world trade liberalization.”

Hills and her staff are also battling a widespread perception in Congress that other countries took advantage of the United States in previous international trade negotiations. Some fear that the Administration’s own heady rhetoric about the talks, particularly under President Ronald Reagan, may have bloated congressional expectations.

“There’s a great skepticism on the part of the Congress in trying to find things they think they can count on,” Senate Finance Committee Chairman Lloyd Bentsen (D-Tex.) said.

In their effort to craft a package that they can sell to Congress, U.S. officials hope to open more markets in developing countries to U.S. goods. For example, Hills must bring home a credible package of agreements to reduce agricultural subsidies worldwide, even if only gradually.

That will be a formidable task. Trade consultant Malmgren, a close observer of the talks, said the United States and the European Community “are probably farther apart on agriculture than they were when the negotiations started.”

“The EC view is that between now and the next round of West German elections, the best anyone can hope for is a modest agreement--and even that will come only if the U.S. abandons its demands for a full phase-out of farm subsidies,” Malmgren said. “Closing the gap is going to be extraordinarily difficult.”

U.S. negotiators are also stressing the need to negotiate rules to facilitate trade in such new areas as services and investment. “The absence of any of these could be a deal breaker,” a U.S. negotiator warned.

The business community has formed a group, headed by James A. Robinson III, chairman of American Express, to lobby for such rules. “The idea is to show Congress that industry is really behind this,” a U.S. strategist said.

Unfortunately for the United States, other countries have their own potential “deal breakers”--areas where they must make progress. And their goals are often at odds with sentiment in Congress.

Negotiators for developing countries, for example, say they must win increased access for their textile exports in order to support the measures involving services and intellectual property. And Japan is likely to be loath to ease current restrictions on rice imports.

Perhaps the major factor propelling the talks has been what one key negotiator calls “fear of failure”--the nightmare that if the talks end without an accord then the current trading system will be discredited and countries such as the United States will resort to bilateral agreements with trading partners that will effectively shut out everyone else.

Analysts agree that a worldwide recession could easily follow. “If there is a collapse of the present system, we are lost,” Brazil’s Ricupero conceded.

Keith Broadridge, Hong Kong’s chief trade negotiator here, added: “Devolving to bilateralism is simply unthinkable. We need to give the U.S. what it needs to prevent a return to bilateralism.”

But a GATT official pointed out warily that while fear of failure may be a powerful enough force to keep momentum up in the negotiations, it “does not necessarily tell you how to proceed--and that’s the problem we’re going to confront.”

Most delegations remain optimistic, at least 12 months before the deadline.