U.S. and Common Market Near Trade War Over Farm Products, Key Official Says

WASHINGTON —  The United States and Europe “are dangerously close to kicking off a trade war” over farm products, a senior Administration official warned Wednesday.

The issue revolves around new restrictions on agricultural imports imposed in Europe after Spain and Portugal joined the Common Market earlier this year.

Although the Reagan Administration already has threatened to retaliate by boosting tariffs on some European products--including wine, beer, cheese and Perrier water--it had sought until recently to downplay the dispute by insisting that the U.S. government is “not looking for a trade fight.”

But the Administration, increasingly worried about election-year prospects for Republican candidates in the depressed Farm Belt and brewing protectionist sentiment in Congress, is escalating the rhetoric in the trade dispute.

Secretary of State George P. Shultz, in a Voice of America interview Tuesday, accused the Common Market of “creating havoc” in world markets with its stiff tariffs and heavy subsidies designed to protect European farmers against competition from other countries.

“We have a potentially very serious problem in the field of agriculture,” Shultz said, blaming the European Communities for much of the problem because of its “gigantic system of subsidies.”

‘Politically Intolerable’ Deficit

On Wednesday, the Administration turned up the heat further.

At a background briefing for reporters on the coming economic summit in Tokyo, a senior Administration policy-maker stressed the improved economic climate among the seven leading industrial nations represented at the summit. But, he said, the U.S. trade deficit “continues to be politically intolerable.”

The official, who spoke only on condition that he not be identified, warned that the agricultural dispute “is the biggest threat to the world’s free trading system.”

European trade officials have responded to the Administration with warnings of their own.

“When one side seeks to appease the protectionists in its own camp by paying even lip service to their arguments or by looking for dramatic test cases in the hope of scoring political gains, we move a step closer to a major confrontation,” Peter D. Sutherland, the Common Market’s commissioner for competition, wrote in a statement published Tuesday.

Common Market officials have vowed to respond with new trade sanctions if the Administration goes ahead with retaliatory actions.

The latest flare-up in the long-running argument over agricultural trade practices began after Spain and Portugal joined the 12-nation Common Market, which announced that it would impose quotas on Portugal’s imports of soybeans and vegetable oils, required that 15.5% of Portugal’s grain imports be met by European suppliers and set higher levies on Spanish grain imports.

$1 Billion in Lost Sales

The White House estimated that the new import barriers, which it contends are illegal under international trade laws, would cost U.S. farm exporters as much as $1 billion in sales.

Efforts to resolve the dispute last week at a multinational meeting of finance officials in Paris were unsuccessful. Administration officials promised a “full-fledged discussion” of the issue at the economic summit early next month but said they expect little progress at the high-level meetings. Top officials of the United States, Japan, Great Britain, Canada, France, Italy and West Germany will attend the summit, along with Common Market representatives.

On a related issue, the Administration continued to welcome the decline in the value of the U.S. dollar, which has been falling against many major currencies for more than a year. After four other industrial nations joined the United States last September in a coordinated effort to bring the high-flying dollar down to earth, the decline accelerated further.

Expressing no hesitation about the recent sharp drop in the dollar, which brought it to a record postwar low against the Japanese yen, the senior Administration official said: “Exchange rates have moved into a much more favorable configuration.”