Europe gambles and wins on US and Japanese cuts

ON TUESDAY morning in Tokyo, the outcome of last week's Gatt talks hung on a knife edge. At around 2am on Wednesday morning, Kabun Muto, the Japanese Foreign Minister, finally caved in to European pressure, writes Peter Torday.

Instead of the dismal offer to cut duties on Scotch whisky by 1 yen per litre, he offered to slash the tariff by 75 per cent. 'Not good enough,' shot back Sir Leon Brittan, the European Community's chief trade negotiator.

In that case, Mr Muto told the weary negotiators assembled around the table, he would have to consult Kiichi Miyazawa, the Prime Minister. He left the meeting on the second floor of Tokyo's Akasaka Prince Hotel, a marble wonder of minimalist design, promising to return with a reply by late morning. The EC, which was participating in the tariff-cutting talks with Japan, the US, and Canada, rushed out the message that 'significant progress' had been made.

By late Wednesday morning, it was all over. Japan had capitulated and offered to cut whisky and brandy tariffs by 100 per cent.

Everyone was jubilant, especially Sir Leon, who had decided in January to press for a market access accord among the world's biggest trading nations, using the summit as a lever that the leaders would find difficult to resist.

Even so, the breakthrough was unexpected. In the run-up to the summit, G7 and trade officials were privately admitting that a failure at Tokyo would doom the Gatt Uruguay Round for good. The trade ministers zig-zagged across the world - from Toronto, to Paris, to Tokyo, back again to Toronto and finally to Tokyo last week - in an attempt to hammer out agreement.

On the weekend before, all was still shrouded in uncertainty. The main players thought an agreement would be in the bag by the summit, because that was the deal the negotiators had agreed to give their bosses a badly needed political victory.

But the uncertainty stemmed from the fact that trade talks are like a game of poker; no one is prepared to show their final hand until the last moment.

Two weeks before the summit, according to senior US officials, President Clinton decided he wanted to achieve two things at the Tokyo meeting - a Russian privatisation fund and a market access agreement.

On the Saturday before the summit, Mr Clinton had a long telephone conversation with John Major, in which he outlined his plans. Mr Major passed the information on to European Gatt negotiators but insisted that Japan, the third largest market for Scotch, should be pushed into deep concessions on whisky.

The atmosphere was taut on Tuesday night when the final round of negotiations began.

Then Mickey Kantor, the US Trade Representative, began suddenly to build on the tiny offers he had made to cut textile tariffs, the highest US levies.

Many of these tariffs are as high as 40 per cent, and Mr Kantor agreed to slice some by half, above a certain price range.

The EC was in a less invidious position. Most tariffs on goods imported into the Community are low, although they are spread across a wide range of imports. The Community's most controversial position was on electronic goods. Sir Leon, mindful of the huge US penetration of the European electronics market, refused to offer more than a one-third cut in tariffs, the smallest category of tariff reductions on the table. It was a gamble, but it paid off. The other participants decided that the talks should not be hostage to the EC's position and pressed on to the final deal.

But there were two considerations that lend weight to suspicions that an agreement was deliberately delayed until the summit. First, there was the need to hand the summit a badly needed success.

Second, it was apparent to other negotiators that Mr Kantor held back many of the American concessions until the final moment. Cynics might think this helped to foster the impression that President Clinton's intervention in Tokyo was crucial, handing him a badly needed boost in the opinion polls back home.