France seeks high price for Gatt deal: Gap with US narrows as talks hinge on film and jet subsidies

HOLLYWOOD and the European Airbus were last night the final obstacles barring the way to a Gatt agreement between the European Union and the United States.

But as negotiators flew to Geneva to resolve those issues and sell the General Agreement on Tariffs and Trade accord to the other 114 countries involved, a row broke out in Brussels with ministers making crippling financial conditions for showing European solidarity. An agreement now turns on the question: what price a deal?

France has her partners, particularly Germany, over a barrel. The government continues to link support for Gatt to a guarantee that any financial losses - especially in agriculture - will be covered by extra EU funds. Some of the southern European countries are also making similar demands.

But Germany, Britain, the Netherlands and Denmark insist the budget is set in stone: there is no more money. It will be up to heads of government at Friday's summit to approve a draft Gatt deal, but the principle of compensation will not be conceded without a bitter fight.

Commenting on the prospects of a Gatt agreement, Douglas Hurd, the Foreign Secretary, said: 'This is the most sweeping, complex, difficult, sensitive trade deal in the history of the world. The very complexity of the negotiations is as big a danger as the demands of one particular player. I would not put a lot of money on the outcome, but if you ask would I take a small bet on our reaching agreement before next Wednesday's deadline, I would say, yes.'

The US special trade representative, Mickey Kantor, and his European counterpart, Sir Leon Brittan, emerged from their all-night negotiating session cautiously optimistic of a deal by next Wednesday. 'Having come so far, we must not let this opportunity slip from our grasp,' urged Mr Kantor.

Sir Leon said: 'We have made so much progress, there is so much at stake, it simply cannot be possible to believe an accord of this magnitude is not going to be reached, but I am not taking anything for granted.'

The gap between the two sides is very narrow. Most significantly, there is a new accord on agriculture which goes a long way towards answering the objections of France which wanted the US to show greater flexibility in reducing subsidised farm exports.

Its Foreign Minister, Alain Juppe, having complained on Monday that the reworked deal still did not go far enough, was talking yesterday of 'decisive progress'.

Only the audiovisual and aeronautic sectors block a global deal and of those, it is only the former that is causing real problems. The Europeans, led by France, have argued for subsidies for European films and quota restrictions for US television imports. Washington has insisted films should be part of any Gatt agreement so that its second-biggest export industry would maintain market share.

As a compromise, officials said the sector could be included within Gatt but with a 'cultural specificity' clause that would keep the subsidy tap open for European films and the door open to the US.

Washington wants a proportion of the tax levied in many EU countries on the sale of blank video and cassette tapes - arguing they are used to record US

performers.

Mr Kantor said that the EU also refused to give ground on subsidies to the civilian aircraft industry. The US has sought to place a cap at 20 per cent of a plane's development cost, compared with 33 per cent agreed by the EC and US in 1992.

The Gatt debate has now moved to Geneva, where Sir Leon and Mr Kantor will try to persuade the other parties of the wisdom of the deal they are putting together. As others shape it further, US and EU experts will add the finishing touches to that final blueprint, bringing it back to Brussels for ministerial approval.

There can be no final accord without that and the bargaining in Brussels will be about extracting concessions to compensate for anything negotiated away in Gatt.

Matthew Symonds, page 16