U.S., Europe Settle Trade Issues, Shelve Entertainment Dispute : Commerce: Accord paves the way for 117-nation GATT agreement to liberalize world trade. Clinton says a ‘historic victory’ is near, but others are not so sure.

GENEVA — The United States and European Community settled longstanding trade disputes Tuesday, reaching an accord that paves the way for the most sweeping liberalization ever of world commerce. But the U.S. entertainment industry suffered a major setback in its efforts to pry open European markets and win millions of dollars in disputed royalties.

U.S. negotiators were unable to shake European resistance on entertainment issues and withdrew them from the talks, saying they were too contentious to deal with now.

That set the stage, barring a last-minute hitch, for 117 nations taking part in talks under the auspices of the General Agreement on Tariffs and Trade (GATT) to complete the task today of rewriting rules governing international commerce. The world trade talks, begun seven years and three months ago, had been deadlocked since 1990.

The wider agreement would slash tariffs on goods traded between nations and would extend to emerging sectors of the global economy--perhaps most prominent among them financial services such as banking and insurance--a degree of order and regulation once reserved for more traditional forms of international commerce.

Proponents argue that the agreement would open markets around the world through reduced tariffs, quotas and other import barriers, increase demand for newly affordable products and boost employment and prosperity. But whenever the negotiators struck particularly tough obstacles, they opted for solutions that made the fewest cuts in protectionist practices.

Overall, estimates of the lift that the package would give world economic output range upward from $200 billion a year--about 1% of the global economy--once it takes full effect.

In Washington, President Clinton said the United States is “on the verge of an historic victory in our efforts to open foreign markets to American products.”

Not everyone was so pleased. U.S. manufacturers of semiconductors, the tiny electronic circuits crucial to computers, complained vigorously that the accord would weaken their ability to protect their inventions.

The chemical industry, the nation’s top manufacturing exporter, said the agreement would leave tariffs on imported chemicals much lower than levies to which U.S. chemicals are subject overseas.

Banks and other financial institutions did not get the boost they had hoped for. U.S. negotiators stepped back from a broad proposal to throw wide open international financial markets and gain new access to foreign customers for U.S. banks, stockbrokers, insurance companies and leasing firms.

But others’ objections forced a partial retreat, leading to the establishment of a timetable for opening up financial services and the continued threat of denying low-tax privileges for those who do not cooperate.

Barely a sector of the U.S. economy would be untouched, with agriculture, aircraft, shipping and textiles all affected by the agreement making dramatic changes in the 47-year-old GATT. It would be replaced by a new organization, which would be given wider responsibilities and authority than GATT, which has set rules for international commerce since just after World War II.

The target date for putting the GATT agreement into effect is July 1, 1995. In the United States, it must be approved by a simple majority of the House and Senate and signed by the President. A vote would most likely not occur until the second half of next year, placing the issue squarely in the midst of the congressional campaign in the autumn.

The chief negotiators in the dispute between the United States and the EC--U.S. Trade Representative Mickey Kantor and Leon Brittan, the EC’s external affairs commissioner--appeared euphoric at finishing their marathon talks. But they expressed deep disappointment over their inability to reach a compromise on the most contentious issue.

As a result of that failure, the 12 European nations in the EC will be allowed to set their own rules on royalties and limits on the number of foreign shows that their television and movie screens will carry.

“How the hell are you going to have (the required) 51% European content on the Disney Channel?” asked Jack Valenti, president of the Motion Picture Assn. of America.

France, at the center of the dispute, will continue to be able to reserve as a subsidy for its filmmakers the royalties earned by U.S. producers, studios and production companies in that country. George Vradenburg, an executive vice president of Fox Inc., said these royalties totaled $60 million a year.

U.S. negotiators were unable to win any retreat from European rules limiting the time dedicated to televising foreign programs. As a result, France can insist that 60%--not just 51%--of the programs shown on its television screens must originate within the EC.

Because the EC would not budge from its position that this limit must be applied to all channels across the board access to French televisions by such sources as the Disney Channel, HBO and the Discovery Channel would be prohibited.

“We do believe in people having the right, the absolute right, to view what they want, and the freedom to earn what they have worked so hard for,” Kantor said at a news conference with Brittan at his side. “You cannot sustain a functioning democracy, you cannot do it, and control what people see, what they view and what they hear. We will fight that forever, and it’s the core of this disagreement.”

Brittan, his smile disappearing at the mention of the entertainment dispute, said issues greater than economic transactions are at stake. Europe, he said, has “a group of cultures, and it is entitled to support (them) and it has done so.”

The issue, although off the negotiating table now, is clearly not closed. Kantor held out the strong possibility that the United States would impose trade sanctions on the EC in the entertainment arena.

Valenti was seething at the outcome. “The failure of the EC to negotiate seriously, in my judgment, was a deliberate act of protectionism,” he said later in an interview.

While the final U.S.-EC negotiations were under way, sections of the voluminous text on which agreement had been reached were already being printed. As the GATT talks have progressed over the past seven years, the number of participants has grown steadily.

On Monday, Bahrain became the 117th nation to join the regime.

Times staff writer Joel Havemann in Brussels contributed to this report.

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New Rules for Trade

Key features of Tuesday’s U.S.-European Community agreement:

* Tariffs: Duties on manufactured goods to be reduced by an average of 50%. Both sides to eliminate tariffs on forest products, pharmaceuticals, construction equipment, agricultural equipment, medical equipment, distilled spirits, beer, furniture and toys. EC to slash tariffs on U.S. electronics goods by two-thirds.

* Agriculture: Both sides to reduce subsidies to farmers, and Europe to slash its subsidies for exported farm products.

* Financial Services: After six months, both sides may block access to their markets of foreign banks and insurance companies from countries that block access to U.S. and European firms.

* Maritime Services: The United States and the EC will not open their cargo and shipping markets to foreign companies until more foreign countries open their markets.

* Aircraft: The U.S.-EC agreement limiting government subsidies to aircraft manufacturers to remain in place for another year while the two sides keep working toward a tougher agreement.