Pitfalls lie ahead for trade talks despite tariff deal: 'Great prize' could lead to 400,000 new jobs but Major warns of welfare cuts in Britain

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MINISTERS of the four largest trading blocs yesterday agreed a provisional but sweeping deal on trade in industrial goods, putting the world trade talks back on course for completion by the end of the year.

All sides hailed the outline agreement to drive down tariffs and remove non-tariff barriers as a badly needed breakthrough. Sir Leon Brittan, chief EC trade negotiator, said: 'Prospects for a world trade deal have been greatly brightened.'

John Major exploited the first day of the three-day Group of Seven summit in Tokyo to warn of further public spending curbs. The Prime Minister said the growing number of pensioners, mounting health care costs and financial pressures of an ageing population meant heavy burdens on social security spending. 'We have not yet done enough to bring social security spending back to what we can afford. So all of us have to take unpopular but necessary steps to keep in check our social security budgets.'

A draft report from finance ministers said the recession could not account for all of the rise in unemployment. The key to tackling the deeper-rooted structural joblessness will be to make it easier to hire and fire workers and cut welfare and unemployment payments that discourage people from looking for another job.

Mr Major's spirits, like those of other leaders, were lifted by the trade deal, which he claimed as a 'great prize'. But officials admitted that significant pitfalls lay ahead.

The deal, between the US, Japan, the EC and Canada (representing the Cairns group of agricultural exporters), would cut tariffs on goods suffering the highest duties by up to 50 per cent and chop those on other goods by a third on average.

But it is not a final agreement. It must be negotiated with the other 107 Gatt member countries in Geneva, when Uruguay Round talks resume next Monday.

These must be combined with a US-EC deal cutting farm export subsidies, an issue France is threatening to reopen. But the once significant French threat to the seven-year-long talks could diminish if worldwide support for agreement becomes entrenched.

Together with the still incomplete talks on liberalising trade in services, these packages must be completed by the 15 December deadline set by the US Congress for accepting the trade deal without amendment.

France was the only country not to hail the agreement as a breakthrough, but ministers stopped short of outright criticism.

Yet another obstacle could emerge if the US decides to extract heavy concessions in talks on services to offset the apparently greater benefits to Europe stemming from yesterday's deal.

A completed Uruguay Round would, the summiteers said, create a badly needed new climate of confidence and expand trade. Over the next 13 years, up to 2 million jobs would be created in the US and 400,000 in Britain. At least pounds 10bn would be added to Britain's total trade every year, officials claimed.

Those likely to benefit the most include the Scotch whisky industry, high quality textile and glassware producers, pharmaceutical companies, the financial and insurance industry, and engineering and software.

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