BUSINESS

Terror on the agenda

MARK NICHOLS May 5 1986
BUSINESS

Terror on the agenda

MARK NICHOLS May 5 1986

Terror on the agenda

BUSINESS

The four-storey building in a drab northern Tokyo suburb is vividly conspicuous. Painted bright red, it has barred windows, a rooftop lookout tower and a massive front door made of steel plate. Across the street, plainclothes police permanently watch the headquarters of Japan’s far-left Middle Core Faction, whose leaders are openly dedicated to what one spokesman described as “blowing up” next week’s summit meeting of the leaders of the Western world’s top seven industrialized nations. In the aftershock from the United States’ April 14 attack on Libya, Japanese authorities have mounted a massive security operation involving about 30,000 police to guard against attacks by Japanese or foreign terrorists. And at the summit meeting itself, the subject of international terrorism seemed certain to emerge as a major and potentially divisive topic, overshadowing such pressing economic issues as efforts to liberalize world trade and stabilize international exchange rates.

With inflation in the summit nations at the lowest levels since 1967, and international oil prices in sharp decline, the economic outlook for the seven nations is unusually promising. But a growing agricultural trade dispute between the United States and the European Community (EC)

could cause controversy as Japanese Prime Minister Yasuhiro Nakasone plays host to Ronald Reagan, Brian Mulroney, British Prime Minister Margaret Thatcher, West German Chancellor Helmut Kohl and the leaders of France and Italy at the stately Akasaka Palace in central Tokyo.

Observers said that there are several other areas for potential disagreement

at the three-day summit. The U.S. delegation is expected to continue to put pressure on the European nations to accelerate their growth rates in order to be able to buy more U.S. goods. But West Germany, as Europe’s leading exponent of fiscal discipline, has consistently opposed that action. The United States and Canada are also prepared to ask Japan to pass tax measures that would discourage high savings rates and increase consumption of North American goods.

Still, on the eve of the summit, terrorism appeared likely to displace critical discussions on economic matters. Despite objections by French President François Mitterrand and other European nations, Reagan appeared determined to try to persuade U.S. allies to form a more resolute front against terrorism. “A major item on Reagan’s agenda is to get some very strong statement on terrorism at the end of the summit,” said Andrew Lin, an economist with Washington’s influential Data Resources Inc.

But some diplomats said that they feared that any debate on the issue could lead to open divisions among the leaders—particularly because FrancoAmerican relations were badly strained after the French refused to allow U.S. F-lll bombers to use

_ French airspace enroute to

their Libyan targets from Britain two weeks ago.

The mood of the Canadian delegation was more buoyant. The reason: last week’s decision by the U.S. Senate Finance Committee to allow free trade talks between Canada and the United States gave Mulroney a major victory before the summit. U.S. officials said that the close committee vote was evidence of Reagan’s determination to lower global trade barriers. “Reagan’s victory on the free trade with Canada vote shows how hard he is prepared to fight protectionist pressures,” said Edward Hudgins, an economist at Washington’s conservative Heritage Foundation. “The summit will be impressed by that.”

For Mulroney, due to arrive

in Tokyo on Saturday after attending the opening of Vancouver’s Expo 86 world’s fair, the Tokyo meeting will be the beginning of a 12-day trip to the Orient that will include talks with government and business leaders in Japan, China and South Korea. But the summit will clearly be the centrepiece of the tour. There, with Finance Minister Michael Wilson and External Affairs Minister Joe Clark, the Prime Minister plans to argue in favor of a further reduction in interest rates by the industrialized nations in order to increase economic growth. And they are expected to advocate an early start to the next round of multilateral tariff-cutting talks under the General Agreement on Tariffs and Trade (GATT).

Before the summit began, Canadian officials’ long-standing desire to be involved more closely in economic decisions by the key Group of Five nations —the United States, Japan, Britain,

France and West Germany-received strong support. Last week U.S.

Secretary of State George Shultz said that Washington will press for Canada and Italy to become members of an expanded Group of Seven. Officials in Ottawa had expressed disappointment when the G-5 nations emerged from a meeting last fall in New York—to which Canada was not invited—to announce steps by their central banks to lower the value of the U.S. dollar on world exchange markets.

At the same time,

Washington made clear that it favors using economic aid to ease international tensions.

Reagan endorsed a program aimed at providing up to $30 billion (U.S.) in development aid to poorer Middle East nations. But with the United States facing budgetary constraints, Washington planned to ask its Western allies to provide most of the cash.

The most ominous economic issue hovering over the summit will be the trade dispute between Washington and the EC. The current controversy began in March when Spain and Portugal, under the conditions for their entry into the EC last Jan. 1, obtained a prohibition on imports of U.S. cattlefeed,

rice and wheat, worth an estimated $1 billion (U.S.) annually. American and European officials who met in Paris last month during a meeting of the 24nation Organization for Economic Cooperation and Development (OECD) failed to resolve the dispute. As a result, the House of Representatives threatened to retaliate by cutting off European wine, cheese and vegetable imports to the United States.

That issue could affect broader discussions during the next round of GATT talks that Washington wants to start this fall. The European nations are re-

luctant to have the talks begin before the dispute over agricultural trade is resolved. Both Washington and Ottawa are trying to gain approval on ways to end European trading arrangements and EC agricultural subsidies that have contributed to world food surpluses. But the Europeans say that liberalized agricultural trade would mainly benefit the world’s largest food producer— the United States.

European and U.S. diplomats also said that they are concerned that open disagreement over terrorism or agricultural issues could endanger efforts

to stabilize Western currencies. Wide, erratic swings in international exchange rates began more than a year ago when Paul Volcker, chairman of the U.S. Federal Reserve Board, ended a remorseless five-year war on inflation. The centrepiece of his strategy had been high U.S. interest rates, which in part led to the worldwide recession of the early 1980s by tightening credit. It also pushed up the value of the U.S. dollar and helped create a record U.S. trade deficit of $148.5 billion (U.S.) in 1985.

With inflation currently under control, the Fed decided to lower interest rates. Then the Group of Five agreed to lower the value of the U.S. dollar, and as a result the greenback declined by an average of 30 per cent against other major currencies in the past year. In the same period, the Canadian dollar has declined by 2 an average of 35 per I cent against European currencies. To prevent % those steep fluctuations in the future, some I Western officials have 8 considered new arrangements based on the 1944 Bretton Woods agreement that fixed international exchange rates during the 1950s and 1960s. France supports that solution, while the United States and Canada favor the development of a system that would stabilize currencies by co-ordinating key economic policies among the summit nations.

Mulroney is expected to act mainly, as a Cag nadian official noted, in I the role of “an interme§ diary and to promote 1/1 multilateralism.” Canadian officials added that the dramatic improvement over the past year in the international economic outlook improved the likelihood of a successful summit. But one official also said that it would be a mistake to “confuse confidence with complacency,” a signal that, regardless of the outcome, there will still be a need for many tough bargaining sessions when the seven leaders sit down to talk.

-MARK NICHOLS with PAUL GESSELL in Ottawa, WILLIAM LOWTHER in Washington and PETER LEWIS in Paris

PAUL GESSELL

WILLIAM LOWTHER

PETER LEWIS