Clinton Trade Plan Falls Flat at G-7 Summit

President Clinton came to the high-profile Group of Seven summit to demonstrate new strength in foreign policy but instead watched his premier initiative sink Saturday under a wave of sharp criticism.

The President’s proposal, on future trade cooperation, was met by such firm objections, according to senior aides to several summit participants, that he was forced to abandon it almost as soon as he presented it.

The plan was offered as a limited next step toward expanding international commerce in the wake of a tariff-reducing global agreement completed in December.

In its most elementary form, it would have set up a one-year examination of impediments to world trade, but it would have also set an agenda for liberalizing trade rules in entirely new areas, such as financial services, telecommunications and investment.

Clinton presented the plan as his partners in the Group of Seven--British Prime Minister John Major, Canadian Prime Minister Jean Chretien, French President Francois Mitterrand, German Chancellor Helmut Kohl and Italian Prime Minister Silvio Berlusconi--sat down in an ornate, red-walled room of the Palazzo Reale overlooking the Bay of Naples. Japanese Prime Minister Tomiichi Murayama, hospitalized Friday night after suffering an intestinal illness at an informal dinner with the other summit leaders, was represented by Foreign Minister Yohei Kono.

Murayama was released from the hospital Saturday evening and planned to rejoin the summit today.

Midway through their two-day annual conference, the seven, whose nations account for 70% of the world’s economy, approved a communique that omitted any mention of the volatility in currency exchange rates. Since Clinton took office, the value of the dollar compared with the Japanese yen has fallen roughly 20%, to a post-World War II low.

Although Administration officials sought to steer clear of the dollar’s woes, those problems continued to dog Clinton in Naples: His statement Friday suggesting that the United States would not intervene to prop it up on currency markets sent the dollar into another sudden tailspin; on Saturday, Treasury Secretary Lloyd Bentsen took pains to diplomatically counter the impression left by the President, saying, “We’re prepared to act when it’s appropriate.”

The G-7 communique saluted the strength of the current economic recovery and called for reductions in unemployment.

“The world is well on the way to a significant economic recovery,” Clinton said at a news conference.

Today, the second and final day of the summit, the group will be joined by Russian President Boris N. Yeltsin, whose role in the meetings is being expanded for the first time.

The leaders will focus on such sensitive issues as the war in Bosnia-Herzegovina, the crisis in Haiti and the progress of Russia’s economic reforms, each holding the potential for further disagreement.

The negative reaction to the President’s trade proposal came as a jolt after Administration officials had built it up under the forward-looking name of “Markets 2000” and had portrayed it as evidence of his interest in leading the other nations to more open trade practices. When the President arose in Naples on Friday morning, he was greeted by a headline in the European edition of the Wall Street Journal reading, “Clinton’s Trade Plan Puts His Leadership to the Test at Summit.”

The President said Saturday evening that all but one participant in the summit “said they affirmatively agreed with my trade proposal.”

But as portrayed by representatives of the others at the meeting, it was at first politely turned aside and then systematically ripped apart.

French presidential spokesman Jean Musitelli called the plan “arrogant and silly” and said Mitterrand had likened its sudden, last-minute appearance to the appearance of “a UFO.” The summit participants themselves--apparently at pains not to embarrass the U.S. President--used more measured language.

The problems Clinton encountered demonstrate in a foreign setting some of the difficulties he has encountered at home: Despite signs of solid economic growth, including the creation of 3.8 million jobs since he took office, and low inflation, Clinton’s standing in opinion polls continues to sag. Similarly, the strength of the U.S. economy has not translated into boosting his standing among the other leading industrialized democracies at the summit.

Ironically, when President George Bush attended his final economic summit conference, in 1992, the United States had led the world into recession--it was about to turn the corner into a then-unseen recovery--but Bush’s leadership was unquestioned.

As portrayed by senior aides, Clinton did not try to press what had been a central element in his program here because he thought it was not worth a serious argument with Mitterrand.

“Mitterrand was being Mitterrand,” a senior White House official said, referring to the French president’s reputation for upholding France’s independent course. The official added, “The President decided, ‘Who cares?’ ”

But others, in Washington, were sharply critical of Clinton’s retreat after he advanced the proposal.

“This was being touted as another indication of Clinton taking charge, and the G-7 responded. This is his breakthrough? What happened?” said a Republican who has been involved in past summits.

Administration officials thought they had done the groundwork for the proposal, sending out a letter 10 days before the summit spelling out the President’s plan to each of the other six participants. But in informal talks among their aides Friday night, there were private hints of trouble, and Saturday the proposal was quickly dismissed.

Germany’s chief government spokesman, Dieter Vogel, painted a scene in which Clinton’s proposal was gradually picked apart, at first cautiously and politely by Kohl and then in more direct, blunt language by Mitterrand and European Union Executive Commission President Jacques Delors.

Collectively, the three are by far the most experienced summit participants and certainly among the most politically savvy.

Berlusconi, the summit host, also came down hard on the Clinton idea at his closing news conference.

All argued that the plan’s ambitious goal, to tackle a whole new set of highly emotive trade issues before the dust had settled from last year’s bruising conclusion to the Uruguay Round of global trade talks, was at best premature.

Of far greater importance to Clinton’s summit partners, however, was their view of his plan as a danger to the delicate and crucial process of ratifying the Uruguay Round accord. Delors and Mitterrand reportedly argued that this danger is especially strong in some southern European and key developing nations, such as India, where approval of the agreement came only after fierce political battles.

Most nations have yet to go through this process, which they hope to complete by January.

The impact of the negative reception was swift and final: Less than an hour after presenting what White House aides had been billing as the major U.S. initiative at the summit, the President was forced to put it back in his pocket.

The final communique contained no mention of either the Clinton plan or the ideas central to it.

“Mr. Clinton was apparently influenced by the discussions and did not insist,” Vogel said.

According to various accounts of the incident, which occurred during the nearly four-hour morning session, only Major gave Clinton enthusiastic support, and Kohl praised some of its ideas before “suggesting” that it was flawed.

During their meeting Saturday, the seven nations did agree on two concrete proposals to help Russia and Ukraine.

Expressing “deep concern” about the economy of Ukraine, they agreed to provide $4 billion in loans over the next two years--on condition that Ukraine “renews its commitment to comprehensive market reform.”

In fact, Ukraine has yet to begin to reform its economy, and its Soviet-style system, based on control by the central government, is on the verge of collapse. Desperate Ukrainian job-seekers have begun to pour over the Russian border, alarming Moscow and the West.

Apart from the summit’s aid plan, Clinton has proposed a separate $5-billion package for Ukraine.

In addition, the summit approved $200 million to help Ukraine close the Chernobyl nuclear power plant. European Union leaders have already promised $600 million to prevent further radiation leakage from the damaged reactor and to bring three other nuclear reactors up to Western standards. The 12-member European group wants Washington and Tokyo to kick in $700 million more, bringing the total to $1.5 billion--enough to start the cleanup job.

Still, the aid package is likely to satisfy neither Kiev nor Moscow. Ukrainian officials have put the cost of a Chernobyl retrofit at up to $8 billion.

The seven nations also approved an expansion of the International Monetary Fund’s lending program, a move that could allow Russia to borrow more than $1 billion more from the IMF.

Times staff writer Sonni Efron contributed to this report.