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Financial Post, Weekly edition, Mon 16 Jul 90, page 6. Editorial.


Light on Houston

The Houston economic summit has been remarkable for its failure to mask disagreements among the participants. The final communique does not look particularly substantive in any of the three main areas of disagreement - farm support, the environment, and aid to the Soviet Union. It reads, instead, like an exercise in papering over the cracks.

Farm support was, if not the most important issue, certainly the one subject to the most pressing deadline. Maybe the leaders have, as is claimed, now opened the door to agricultural negotiations. If so, it is because the U.S. has conceded. To the unwary, the Houston agreement may appear to be a draw, but in substance it is an European Community victory. The communique appears to go no further than the mid-term agreement of last year and, where it differs, adopts language agreeable to the EC.

The negotiations on agriculture have, all along, been blocked on whether the ultimate objective should be complete liberalization; and on whether liberalization should occur through application of an aggregate formula covering all measures (as the EC wishes) or through commitments to limit or eliminate specific measures, particularly export subsidies (as the U.S. desires). The U.S. has obtained no commitment to elimination of trade-distorting measures and it has no agreement to the elimination of export subsidies.

The language on export subsidies is most important. The key sentence reads: ''The framework ]for the negotiations[ should contain specific assurances that, by appropriate use of the common measures ]of support[ as well as other ways, participants would reduce not only internal support but also export subsidies and import protection in a related way.'' This is no great concession by the EC. If internal price levels were lowered in relation to those in the world outside, the margin of export subsidization and import protection would inevitably be lowered pari passu.

The framework for the negotiations has now been agreed - and it is essentially the EC's. This need not be a disaster. Substantive negotiations can now begin; and substantial liberalization (including a reduction in export subsidies) could, in principle, be achieved under the EC's approach.

The question is how enthusiastically the EC will negotiate on the substance, having won its victory on the procedure. Will the EC's approach, in practice, lead to the ''substantial, progressive reductions in agricultural support and protection'' to which the EC has been ostensibly committed since the completion of the mid-term review last year? Unfortunately, nothing said by EC officials in Houston makes for optimism, not least the talk of protecting farmers' ''livelihoods,'' even though those livelihoods are in large measure extracted from EC consumers and taxpayers.

(Ed. note) From an editorial in the Financial Times of London

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