Gatt breakthrough in prospect: Economic and political factors could produce a trade deal, writes Sarah Lambert

THE DEADLOCK between the US and Europe over the General Agreement on Tariffs and Trade could be broken this weekend, when trade representatives meet in a mood of conciliation.

With the recession biting deep, the advantages of settling once and for all the five-year- old trade dispute that has blocked the liberalisation of world commerce suddenly look more attractive.

The political omens are also good. The Bush administration, trailing Bill Clinton in the polls, desperately needs a fillip. Europe would welcome an accord that boosted the trade balance and offered a promise of employment opportunities. John Major needs to restore confidence at home and abroad in his powers of leadership.

For all, the successful negotiation of some sort of compromise would be a useful prize, and this weekend's meeting of US and EC trade representatives is viewed as a now-or-never opportunity.

If the details are not agreed soon, it will be impossible for legislation to reach Congress by 1 March 1993. After that, the US is not bound by the so-called fast-track procedure by which it must approve the deal as it stands.

The current round of Gatt talks on trade liberalisation has all but broken down. The main sticking point is the US insistence that EC farm policy, despite the recent radical reform, is still too heavily subsidised.

The Community argues that the overhaul of the Common Agricultural Policy (CAP) - achieved at political cost, particularly in France - represents a considerable concession. It points out that a Gatt deal would cover sectors such as financial services and intellectual property and liberalise far more than agricultural trade.

In recognition of this, the EC has demanded that any agreement must be 'complete, global and balanced' - a veiled warning to the Americans not to use agriculture to deflect attention from services and market access.

The US and EC are not the only protagonists, but they are the main players. Developing countries, particularly Asian textile producers, that are counting on trade liberalisation to blast them out of poverty and arguably have most to benefit from a Gatt deal, can do little but watch from the sidelines.

This morning will see the clash of the Gatt titans, as Carla Hills, the formidable US trade representative, and Ed Madigan, the US agriculture secretary, meet their EC counterparts, Frans Andriessen and the outgoing commissioner, Ray MacSharry.

Commission sources are optimistic that the Americans would not have bothered to come if they did not have something to offer.

The EC is for the most part keen to do business. None more so than Mr Major, who has pushed Gatt to the forefront of the EC agenda and for whom a deal, which would have to be approved by heads of government, would be the crowning glory of the Birmingham summit.

The big problem is France, which fears that the price of a deal will be further EC concessions on agriculture and worries that any agreement made with the Republicans might be less valid if it is left to victorious Democrats to dot the 'i's and cross the 't's.

President Francois Mitterrand's Socialist government is very weak and feels it can ill afford to upset further the powerful agricultural lobby, most of which voted 'no' in the Maastricht referendum. The French minister for external trade, Dominique Strauss- Kahn, said at a meeting on Monday that France was not isolated, it was merely that the other less-enthusiastic EC countries hid behind it.

He came under strong pressure, however, from the German economics minister, who said the French referendum should have cleared the way for Mr Andriessen, negotiating on behalf of the 12, to 'take more risks'.

The talks will be tough: the EC demands are in three main areas. On agriculture, the Community wants the US to recognise CAP reform for the concession it believes it to be, and insists the remaining subsidies to farmers cannot be whittled down. It is only prepared to concede a reduction in the level of protection for cereal production if protection can be extended to other products.

It is prepared to offer something in terms of market access and lower customs duties, however, but only if its trading partners, including the US, reciprocate.

(Photograph omitted)