Nothing Short of a Miracle Needed at Trade Talks : Commerce: As the 107-nation conference begins in Paris, election-year politics and a huge gap on farm subsidies are hurdles in revamping longstanding world trade rules.

After a grueling battle to win authorization from Congress to continue global trade negotiations, Bush Administration officials this week turn their attention to what may be an even tougher task: reviving the stalled talks themselves.

If the negotiations are successful in rewriting the rules that govern world trade, their advocates promise, they will yield nothing short of an economic miracle. For the United States, the Bush Administration estimates, an agreement would provide a badly needed $125-billion boost in growth in the first year.

But despite several hopeful signs in recent days, U.S. officials concede that the underlying differences between the various interests are as deep as ever.

Getting them back on track will be atop the agenda for U.S. Trade Representative Carla Anderson Hills and her counterparts at this week’s ministerial-level meeting of the Organization for Economic Cooperation and Development in Paris. The annual gathering brings together many of the world’s leading economic policy-makers and traditionally serves as a prelude to the annual seven-nation economic summit in July.

“There’s a lot of strong feeling on the part of governments and member states that we really have to get the job done,” a senior U.S. negotiator says. “The first testing of this will be in Paris. We’ll see whether we can get something going here or not.” But, he conceded, “it’s hard to find grounds for optimism in the short term.”

And although Congress has given the Administration two years to produce an agreement, “there’s a serious question in my mind as to whether you can keep the negotiations going that long,” the official says, adding that the talks seem destined to “just run out of steam” if they aren’t wrapped up this year.

Further, both sides have an eye to the political calendar. With election campaigns under way in Europe and the United States, it could be politically impossible to make some of the most difficult commitments next year.

The 107-nation trade talks, known as the Uruguay Round, are in their fifth year. After starting on a note of great promise in Punta del Este, Uruguay, they collapsed last December in Brussels, when the 12-nation European Community--the largest force in international trade--rejected a demand by the United States and other agricultural-exporting countries that it slash its farm subsidy program.

It seemed that they had sputtered back to life in February, when the EC announced that it was willing to at least discuss certain types of farm subsidy cuts that it had previously ruled off the negotiating table. However, one senior U.S. trade official concedes that the optimistic rhetoric that both sides were offering then was misleading. In truth, neither had budged an inch.

Although the European Community had officially said it would be willing to discuss lowering its export subsidies and quotas, it blithely attached conditions that the United States had already said it found unacceptable. For example, Brussels insisted that it be allowed to “rebalance” its cuts by imposing tariffs on such items as U.S. feed stuffs and soybeans--goods that had been entering the European market duty-free since 1961.

“Those issues have yet to be confronted, so the breakthrough is less than might seem to be the case,” a U.S. official says. “In the attempt to get the thing going again, there was a certain obscurity that was allowed to remain.”

The negotiations aim to overhaul the world trading system that was established shortly after World War II under the aegis of the General Agreement on Tariffs and Trade, or GATT. Initially its thrust was to lower tariffs on manufactured goods and raw materials, and during its first few decades, GATT worked well. As tariffs fell, international trade grew half-again as fast as world production.

But the system began to fray as the nature of international commerce changed. Services, such as banking and insurance, began to account for an increasing share, but they were not covered by the overall trade arrangement.

Nor are agricultural exports, which are the best hope that many developing countries have for prosperity. With world growth slowing, countries sought to protect their home-grown industries by erecting new protectionist barriers--often circumventing GATT by disguising them as hard-to-get import licenses, impossible-to-meet health standards or bans on foreign investment.

The Uruguay Round seeks to take all these forces into account and more. Negotiators hope to devise rules, for example, that will force countries to honor “intellectual property,” such as patents and copyrights.

U.S. officials insist that an agricultural agreement is the linchpin to making it all work.

Developing nations, they argue, cannot be compelled to open their markets to foreign banks or insurance companies or to respect other countries’ patent and copyright laws unless they also are offered a greater opportunity to sell their agricultural exports.

One of the biggest impediments to free agricultural trade is the $100 billion a year in subsidies that the Europeans offer their farmers. The United States and its allies in the negotiations have asked for a 75% reduction over 10 years and a 90% cut in export subsidies. The EC has offered only 30% and attached conditions even to that.

And while the United States accuses the Europeans of intransigence on agriculture, they argue that the United States has been similarly stubborn in other areas--insisting, for example, that much of the transportation industry be excluded from the services negotiations.

In the past few weeks, the talks have gotten several important boosts.

On April 24, after an intense battle, Congress renewed the Administration’s “fast-track authority” to continue negotiating. That authority, which also covers upcoming free-trade negotiations with Canada and Mexico, is a pledge by lawmakers that they will not amend the ultimate deal but instead will accept or reject it intact.

That was seen as a critical assurance to U.S. trading partners, who might hesitate to strike a deal with Administration negotiators if they feared that Congress could pick it apart with special-interest amendments.

“We’ve been waiting for six months for the U.S. to be able to decide if it’s going to be in a position to negotiate,” says Richard Wright, the EC’s first secretary for trade and commercial affairs in Washington. “For the last three months, all substantial negotiations have been held up because of U.S. internal procedures.”

The same day, the EC’s farm ministers reached agreement on this year’s more austere subsidy program, freezing or cutting most prices.

To be settled, however, are the more far-reaching reforms being advocated by Ray MacSharry, the EC’s agriculture commissioner. The impetus for this change is not the international trade talks but rather that the massive subsidy program has grown out of control. Moreover, 80% of its benefits go to only 20% of the EC’s farmers.

Thus, the 30-year-old subsidy program, known as the Common Agricultural Program, does not live up to its original intention, which was to preserve the continent’s rural environment by making it possible for small farmers to survive.

Although it is not directly linked to the Uruguay Round talks, the EC’s farm reform program will certainly determine how far the Europeans will be willing to go in the negotiations. And it will be months before that becomes clear.

“Twelve sovereign nations are not going to change a 30-year-old policy in five minutes,” the EC’s Wright says.

Also complicating the effort will be the EC’s continuing struggle to fit its 12 nations together into a single market. “Given the nature of the European system, it’s very easy to become distracted,” a U.S. official says. “The EC has very poor decision-making capabilities, because they’re not really a government.” Yet Wright insists that the talks are far from a lost cause. Apart from the big differences on agriculture, he says, the negotiators for all sides share a desire for lower tariffs and other measures that could open up markets worldwide.

“In some areas, it’s not in bad shape at all,” he asserts. “The weight of what has been achieved is far greater than what remains to be done.”