A Ticking Time Bomb in Trade

The letter to U.S. Chief Trade Negotiator Robert Strauss carried the strident ring of an ultimatum. Signed by Wilhelm Haferkamp, the German vice president of the European Community, and approved in advance by the Foreign Ministers of the nine member nations, it brusquely warned Washington that the Nine would retaliate if the U.S. began collecting extra import duties on a wide variety of their products. It also intimated that the Community would walk out of the three-year-old Tokyo Round trade talks, thus scuttling any possibility for their successful conclusion. What could follow, Haferkamp wrote, would be "a trade war of considerable dimensions."

The reason for the European threat is a fast approaching deadline, which Haferkamp terms a time bomb. On Jan. 3, 1979, unless Congress passes a special bill delaying action, the U.S. customs service will begin collecting so-called countervailing duties on a long list of imported goods, headed by Danish canned hams and including a variety of European dairy products, such as Dutch Edam and French Camembert. Later the tariffs might be extended to many more items, including steel and perhaps some cars.

The U.S. action is mandatory under an 1897 law that orders levies slapped on imports that benefit from subsidies at home and thus theoretically can undersell U.S.-made products. In 1974, shortly before the onset of the Tokyo Round of talks under the 84-nation General Agreement on Tariffs and Trade (GATT), Congress voted a four-year holiday on the imposition of the countervailing duties. The hope was that in the meantime the Tokyo Round would end and the dispute over subsidized exports be resolved.

Unfortunately, the negotiations, which are being held in Geneva, have dragged on and on. Despite a Dec. 15 deadline for a final pact, many of the thorniest issues still defy solution; they include not only the subsidy question but also such matters as the ground rules for trade between developed and less developed countries. The 500 delegates from 98 nations have been meeting daily at GATT headquarters near the old Palais des Nations, but they are unlikely to reach agreement before time runs out.

Aware of the peril, Robert Strauss last month huddled in Washington with congressional leaders in an effort to get an interim bill that would delay the duties. To his dismay, he found the mood on Capitol Hill running so strong against freer trade that he feared the bill would be either killed or encrusted with various protectionist amendments. He reported this to the Europeans and received the rocket from Haferkamp.

By talking tough to Strauss, the Europeans clearly hope to strengthen his hand with Congress. And perhaps they will. This week congressional leaders will begin considering a stop-gap method that would delay U.S. custom reprisals in return for a preliminary agreement on the subsidy issue at GATT. Still, the letter is not a bluff; if the U.S. does slap on the countervailing duties, the Europeans would have no choice except to retaliate in kind and wreck the Tokyo Round. Since the 1973 oil crisis, protectionist sentiment has been spreading rapidly. A GATT study shows that 40% of world trade is now subjected to some sort of restriction, whereas in 1960 only 25% was. A serious outbreak of tariff raising between the U.S. and its European trading partners could cause chaos in the world market. The best hope for averting the looming trade war is the realization on both sides of the Atlantic that it would harm all and help none. -

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