World trade deal in jeopardy: US stand on financial services angers EU and Japan

THE GATT world trade talks were in danger of breakdown last night after the United States refused to budge on liberating financial services, casting a pall over today's European summit, which was to concentrate on creating jobs.

The European Union's senior Geneva negotiator emerged from the meeting grim-faced and angry, saying the situation was 'very serious'.

The EU is one of the biggest exporters in services. If the French government has come round to a politically sensitive deal on agriculture it is largely because France stands to gain so much more out of freeing financial services - an expanding market.

It is theoretically possible to take the contentious items out of the final package and try to solve them later, but any deal that did not include financial services worth at least dollars 1,000bn a year would be virtually meaningless.

Washington has said that though it is prepared to open its banking and insurance markets to some countries, it is not prepared to do so for Japan and other South-east Asian nations without reciprocal treatment. It has apparently rowed back on agreement to open the American shipping market to all comers and is insisting on taxing foreign and US firms differently.

This 'two-tier' approach is rejected by Tokyo and the Japanese have carried with them a raft of other Pacific rim nations which argue that their financial markets are still developing and would be unfairly challenged by open competition with the US. They argue that while they have had to give way in politically sensitive areas such as rice imports they will have little they can sell to their voters as a legitimate trade-off.

Add these new problems to the EU-US dispute on liberalising audiovisual and aeronautic sectors and Washington's hardline approach risks testing everyone's patience to breaking point.

There are six days before the deadline for a Gatt deal. The Gatt director general, Peter Sutherland, has asked for a draft text to be ready by Sunday. This deadline now looks impossible.

The risk is that the goodwill of the 115 other parties to the Gatt deal will be lost in the face of seeming US intransigence, and compromises they were prepared to make will be harder to extract.

To have come so close to a Gatt accord that has been seven years in the making and all but torn up once and then to fail again would kill the political will keeping the current round alive.

More seriously still, the trade-off between closer economic ties and political integration in international security matters would begin to unravel.

The stakes are so high that Gatt optimists - noticeably fewer in Geneva yesterday - hope Washington will begin to deal at the last moment.

The European Union, which was determined to keep Gatt off the main summit agenda, may find the programme derailed this morning.

Meanwhile, Britain has scaled down opposition to Jacques Delors's New Deal package for the EU, making it possible that elements can be agreed in Brussels today. The plan aims to create 15 million jobs by 2000. Although sceptical about that target, Britain could join other governments in agreeing limited increases in EU-funded transport, communication and energy links.

While still strongly criticising new borrowing proposals, British sources said last night the jobs and competitiveness plan was an 'interesting mixture'.

Kenneth Clarke, the Chancellor, also modified his denunciation of the document by welcoming its anti-protectionist tone and said that he agreed with a 'very great deal' of the plan.

The softening of opposition appeared to follow signals that other EU countries will back the idea and also a more thorough look at the document by Downing Street and Treasury officials.

Delors New Deal, page 13

Leading article, page 17