Birmingham Summit: Failure of trade talks deprives Major of big prize: Saga of the Gatt negotiations

FRANCE yesterday vehemently denied that it was blocking a Gatt deal, but the absence of an accord denied John Major the only real political prize of the special European summit.

The resolution of stalled trade talks would, government officials have suggested, inject dollars 200bn ( pounds 118bn) into the world economy. In the context of the economic crisis in Britain, even the inkling of a Gatt breakthrough would have given Mr Major something by which to claim that the Birmingham summit had been a success.

'We have been locked in Gatt talks since 1986: there is more at stake than just agriculture and I don't see why it all has suddenly to be decided now,' said Elisabeth Guigou, the French Minister for European Affairs. French officials explained that it was right and proper for France to defend its national interest, given that it is the EC's only competitive cereal producer. 'If the Bundesbank sticks to its high-interest rate policy do we talk about the isolation of Germany?' one asked.

The French position remains that any compromises must encompass more than the agricultural sector and that subsidies awarded as part of the recent reform of EC farm policy are sacrosanct. President George Bush, in a letter on Thursday, ruled out any further concessions in the General Agreement on Tariffs and Trade, saying that 'the US has stretched as far as possible to meet the EC concerns'.

French diplomats suggested that it was paradoxical for Mr Bush to try to force the issue 'when he has no margin of manoeuvre and nothing to offer'. Paris fears that any deal done with a Republican administration might not be honoured by a Democrat presidency. It was indicative of the uncertainty felt by all 12 EC members that no one tried very hard to pressure the French into showing greater flexibility.

British officials repeatedly stressed, as has been the custom for six years, that many of the world's economic problems could only be solved by a successful Gatt round. When pressed as to how the Birmingham summit could help Britain's economy, they emphasised that this above all would raise growth and improve confidence.

The summit was called to address both the political and economic turmoil that has racked Europe over the last two months. But it failed to deal with the reform of the European Monetary System which Britain has suggested was needed. Instead, the meeting reiterated 'its commitment to the European Monetary System as a key factor of economic stability and prosperity in Europe'. There was no discussion of co-ordinated economic action in Europe.

Both subjects are deeply divisive. It was disagreement over these areas which helped to precipitate Black Wednesday, when finance ministers met in Bath last month. The summit expressed concern at rising unemployment, and called for lower inflation, budget deficits and open-market policies. The conclusions of the meeting called for 'reinforcing the convergence process', which means bringing inflation and government debt levels across the EC into line.

But British officials said there was a direct link between the future of the EC as discussed at Birmingham and the British economy. 'British economic prospects are very much at stake here in Birmingham,' said one.

In the conclusions of the meeting, EC leaders 'expressed their strong conviction that the economy of each member state is strengthened by the success of other member states'. Specifically, British officials argued that turmoil on the foreign-exchange markets was partly caused by fears that Europe's voters were turning against the EC. 'We need to get the Community back on track,' they said, and proposals for subsidiarity would help.

They also said that, in any case, many of the problems of international currencies could only be dealt with in international forums such as the Group of Ten following proposals made by the US Treasury Secretary, Nicholas Brady, who suggested that some control might be needed in world financial markets.

European finance ministers meet on Monday in Luxembourg and are expected to discuss taking these proposals further forward.

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