IMPACT OF THE SUMMIT : U.S. Farmers Will Reap Benefits of EC Trade Pact

The United States and the European Community are very near an agreement on agricultural trade, a breakthrough that will lead to progress in other areas and generally set down rules for international commerce over the next 10 years.

Unfortunately, that news will leave many Americans bored or confused. There is not a lot of understanding of foreign trade, despite its growing importance to this country. But the present is a particularly good time to learn.

We should think of the current process as a peace dividend: To prevent another war between France and Germany, the European Common Market three decades ago instituted a Common Agricultural Policy of subsidizing crop prices at a level that made inefficient German farmers solvent and more efficient French farmers prosperous.

Peace was purchased at a price. European consumers paid the bill in food budgets more than double those of the average American household--pork chops at $7 a pound compared with $3.50.

European taxpayers also paid to store tons of surplus wheat and butter, and gallons of surplus wine.

U.S. farmers in Kansas paid, losing about $400 million worth of business as subsidized European wheat ate into the U.S. share of world markets.

And perhaps the greatest costs were in foregone opportunities. The $50 billion or so spent in excess food costs every year may have deprived Europe of higher living standards in other ways. Fewer people own their own homes in Germany and France than in the United States. And European nations lag technologically--the populous Continent has no computer industry of its own, Europe’s efforts in that critical industry having lost out long ago to U.S. and Japanese firms.

Now all that is changing. Europeans, recognizing all those costs, have agreed among themselves to phase out the agricultural policy, cushioning the shift by paying small farmers not to plant. As they reduce output, opportunities for exports to Europe will open up for U.S. farmers and companies such as Archer-Daniels-Midland, ConAgra and Chiquita Brands--which due to other barriers has had difficulty selling bananas in the Common Market.

And even though the Europeans are offering less than the U.S. government is demanding in negotiations to renew the General Agreement on Tariffs and Trade, their offer should not be turned aside, says Robert Paarlberg, professor at Wellesley College and author of “Food Trade and Foreign Policy.”

With agriculture out of the way, GATT talks can move on to newer subjects that are important to U.S. interests--trade in services such as air travel, finance, business and computer software.

That’s a big number for the U.S. economy. While it may come as no surprise that the United States runs a $40-billion annual trade surplus in grains, soybeans and livestock, it’s news that the surplus in services amounts to at least $30 billion a year. And that’s understating the matter because export measurements have yet to catch up to the new age.

Federal Reserve Chairman Alan Greenspan is fond of posing the question: If an 88-cent computer disk is imprinted with schematic drawings for a city or a factory, and the disk is shipped to an overseas customer, should the export be recorded as an 88-cent item or as millions of dollars worth of brainpower?

An advantage of a renewed and expanded GATT--the global agreement to avoid trade wars that dates to 1947--is that it will protect intellectual property, such as computer software, films and videos.

And agreement is very near, says Harald Malmgren, a Washington-based consultant on trade and economics.

“In deference to Bavarian farmers, the agreement probably won’t be announced at this week’s economic summit in Munich,” Malmgren says. “But good news should come shortly after.”

By one estimate, a trade agreement will add $120 billion a year to the world economy, $35 billion a year to the U.S. economy.

Yet there is fear and opposition to a renewal of GATT. Some environmentalists oppose it for spreading industrial growth. Ralph Nader calls the trade pact a tool of multinational corporations. Labor unions question its encouragement of free trade. And many candidates in this election year say the way to go is to produce for ourselves at home, perhaps taking refuge in a Western Hemisphere trading bloc to combat Europe and Asia.

The precedent for such thinking is not reassuring. In 1930, President Herbert Hoover believed that setting a high domestic price for U.S. crops would help farmers, and free them from dependence on skittish international markets. So he supported the Smoot-Hawley Tariff Law.

But setting prices proved disastrous: Higher prices reduced domestic markets and killed foreign ones. Smoot-Hawley hurt farmers, consumers and world trade and is widely cited as a principal cause of the Great Depression.

Today the stakes are higher than in 1930. U.S. exports of $400 billion a year constitute 7% of the U.S. economy, making foreign trade more important than defense or any other single activity in terms of jobs and money. That’s why it’s in the U.S. interest to have as broad a trade agreement as possible--with Europe, with Mexico, with Japan.

“The U.S. should not be passive, but should lead and shape what comes out in GATT,” says former U.S. trade negotiator S. Linn Williams, now a Washington lawyer with Gibson Dunn & Crutcher.

The larger the market, after all, the greater the opportunity.

Food for Thought

Political policies designed to keep peace among nations have forced Europeans to pay much more for food than Americans. But in a giant peace dividend, those policies will now be relaxed, giving European consumers a break and opening markets for America.

U.S.: 9.8%

Belgium: 15.7%

Denmark: 14.7%

France: 15.9%

Germany: 20.2%

Greece: 31.3%

Ireland*: 21.3%

Italy: 18.8%

Luxembourg: 12.5%

Netherlands: 14.2%

Portugal*: 34.1%

Spain*: 21.6%

United Kingdon: 11.6%

* All figures for 1989 except: Ireland, 1988; Portugal, 1986, and Spain, 1987.

Source: Department of Agriculture