A Good News, Bad News Day for Progress on Global Trade : Commerce: France yields on oil seed dispute, but the European Community imposes sanctions against the U.S.

In a move that could give new momentum to world trade liberalization talks, France finally gave grudging approval Tuesday to last November’s trade agreement between the European Community and the United States on oil seeds.

But at the same time, EC foreign ministers announced retaliatory sanctions in another long-running trade dispute with the United States, this one over government procurement contracts. That dispute could work to block progress toward a global accord designed to remove barriers to trade.

The other 11 EC members were clearly relieved that the French no longer stand in the way of last November’s agreement with the United States over soybeans and other oil seeds.

The United States, complaining that EC oil seed subsidies gave its farmers an unfair competitive advantage in world markets, threatened to retaliate with 200% tariffs on $300 million a year in EC imports. The EC, bowing to the threat, agreed to trim farmland devoted to oil seed production by 15% this year.

Last November’s U.S.-EC accord went well beyond oil seeds. EC negotiators also agreed to reduce their entire program of domestic farm subsidies by 20% and to cut the volume of subsidized farm exports by 21%.

France’s farmers mounted a series of sometimes violent demonstrations against the agricultural trade agreements and the French government threatened to veto them within the EC, calling them damaging to France’s vital national interests.

Only at Tuesday’s meeting of EC foreign ministers did France agree to swallow the formula to reduce oil seed acreage, and only after winning approval from its 11 EC partners for a set of technical qualifications that the other countries generally regarded as meaningless.

“The French are engaged in a major domestic packaging effort aimed at political damage control,” one EC official said.

French Foreign Minister Alain Juppe maintained his opposition to the broader accords aimed at reducing EC subsidies for farm goods produced for domestic consumption and for export.

Clinton Administration officials, awaiting a formal vote and announcement that France had dropped its objections to the agreement, were reluctant to speak on the record. But privately they made clear their satisfaction with the turn of events in Luxembourg, describing them as a significant step forward.

One well-placed Administration official said the U.S. government is pleased with the announcement for several reasons, among them the boost it is certain to give to the trade liberalization talks.

By American government estimates, the oil seeds business is worth at least $500 million, and Europe has been eroding efforts over the last 30 years to open up the business by subsidizing producers of rapeseed and other competing oil seeds.

Sir Leon Brittan, the EC’s chief trade negotiator, called the pact “enormously important.” It could open the way, he said, to an agreement by leaders of the seven biggest industrial nations in Tokyo next month on a package of major global tariff reductions.

Those reductions in turn could be the centerpiece of a worldwide trade liberalization agreement. More than 100 nations are participating in the so-called Uruguay Round of trade talks, which began in 1976 and ground to a halt in 1990 over the U.S.-EC farm trade dispute.

Even as France defused one of the more explosive trade disagreements with the United States, however, EC foreign ministers ratcheted up a separate dispute. They decided to forbid American companies from bidding on $15 million a year in EC government service contracts in such areas as telecommunications, transportation and dredging.

The sanctions are in retaliation to an American decision to bar European bidders on $19 million worth of contracts. The United States had acted in protest of EC rules giving European companies a 3% price advantage over foreign competitors in bidding for government telecommunications contracts.

Times staff writer James Gerstenzang in Washington contributed to this report.