EC Rejects Retaliation Over U.S. Wine Tariffs : Trade: Fearing economic war, ministers rebuff French and urge talks. But counterattack is not ruled out.

European Community foreign ministers rebuffed French demands for retaliation Monday and instead sought to reopen negotiations with the United States to head off a trade war over agriculture.

While expressing “severe disappointment” over last week’s U.S. announcement of punitive tariffs on EC goods if no agricultural trade agreement is reached by Dec. 5, the ministers decided that a European counterattack could only lead to a “retaliatory spiral, which would damage both sides through a slump in business confidence and lost jobs.”

German Foreign Minister Klaus Kinkel, a leader of the forces seeking further negotiations, told reporters, “Getting involved in a trade war would be the most unpleasant and stupid thing we could do at the moment.”

But the Europeans did not rule out the possibility of preparing a list of U.S. imports marked for retaliatory tariffs if the United States imposes its tariffs Dec. 5. British Foreign Secretary Douglas Hurd, who chaired Monday’s meeting, acknowledged that such a list was discussed.

The General Agreement on Tariffs and Trade, the 105-nation body that supervises world trade, will hold an emergency meeting today in Geneva on the crisis. Arthur Dunkel, GATT’s director-general, is expected to seek authority to shuttle between Washington and Brussels as a mediator.

U.S. officials did not comment immediately on the EC decision. But Carla Anderson Hills, the chief U.S. trade negotiator, said earlier Monday that she would welcome further trade talks.

The current trade crisis developed last week when talks broke down in Chicago over the U.S. demand that the EC reduce its subsidies to growers of soybeans, sunflowers and other oil seeds.

Two committees of GATT members have found that the subsidies effectively block some U.S. oil-seed sales in Europe by giving European growers an unfair price advantage. But GATT can enforce such rulings only if its members are unanimous, and the EC has repeatedly blocked approval of U.S. countermeasures.

So last Thursday, one day after the most recent GATT failure to act, the United States took matters into its own hands. The Bush Administration announced that it will impose 200% tariffs on $300 million worth of annual EC imports--notably French white wine--in 30 days if no settlement is reached.

France, the EC’s biggest agricultural exporter, sent a team of ministers to Monday’s meeting in Brussels to urge a tough response to the U.S. sanctions. “The Community cannot negotiate with an American revolver at its head,” said Foreign Trade Minister Bruno Durieux.

Yet the foreign ministers decided to do exactly that. In their statement of conclusions, they called for “the earliest possible resolution of outstanding difficulties,” not only in the dispute over oil seeds but also in broader, multinational negotiations aimed at liberalizing the rules governing world trade.

Those broader talks, called the Uruguay Round because they were launched in that South American country in 1986, have been deadlocked for two years by a U.S.-EC dispute over agricultural trade. As on the narrower issue of oil seeds, the United States is demanding sharp reductions in EC subsidies to all farmers.

Last May, the EC scaled back its agricultural subsidies as part of a sweeping reform of its farm program, and French Foreign Minister Roland Dumas stressed after Monday’s meeting that the EC must not let the United States force even deeper reductions.

“France cannot go beyond the (agricultural) reform,” added a senior French official who asked not to be named. “The farmers would not understand it.”

Across Europe, but in France in particular, farmers represent a vocal, powerful political force. European governments, especially French officials, have argued that agricultural subsidies are necessary for their farmers to compete globally with producers from countries with lower costs.

The conclusions adopted by the foreign ministers Monday set no limits on the EC officials who are trying to negotiate agricultural trade accords with the United States.

Jacques Delors, the EC Commission president, said he agreed with the foreign ministers’ emphasis on further negotiations. “The most important thing is . . . to avoid a trade war,” Delors said. “There is no point in flexing your muscles if it’s going to make the situation more tense.”

Delors, a former finance minister of France, was accused privately last week by Ray MacSharry, the EC’s agriculture commissioner, of trying to undercut his efforts to reach a deal with the United States on farm trade. MacSharry stepped down as the EC’s chief trade negotiator on agricultural issues.

Delors, who has denied that he has interfered with the farm negotiations, said Monday that the rest of the EC’s trade negotiating team remained intact and prepared to talk with the Americans about all issues, including agriculture.

Hurd, who counseled against retaliation, said the foreign ministers were “determined to do everything we can to avoid” a transatlantic series of tit-for-tat trade sanctions.