The United States and the European Community halted an escalating trade retaliation war yesterday and reached a tentative agreement to resolve two long-standing disputes involving pasta and citrus.

In return for the suspension of the U.S. threat to impose steep tariffs on EC pasta products, the community agreed to increase access to the European market for U.S. citrus, reduce subsidies on pasta exports by 45 percent and drop a proposed duty on U.S. walnuts and lemons.

U.S. Trade Representative Clayton Yeutter said the citrus and pasta fracus illustrates that the dispute settlement procedures of the General Agreement on Tariffs and Trade are "badly in need of repair." He said that if the EC fails to take "satisfactory action" on citrus import duties by Oct. 31, the United States still may undertake retaliatory trade action against the EC.

Derwent Renshaw, first secretary for agriculture for the EC, said that the tentative agreement is promising. "It defuses a potentially dangerous situation," he said. "The thing could have escalated rather nastily and not just in the agricultural field." He added that the EC traditionally has given lower tariffs to Mediterranean countries to "provide some economic and political benefit."

While American citrus and pasta producers say they are pleased at progress in their disputes, the agreement will hurt the Italian pasta market. A spokesman from the Italian Embassy said that the subsidy already has been reduced twice before in the last few years.

The EC has been paying European producers of pasta a subsidy of about 4.4 cents per pound because they must buy some durum, a type of wheat, from outside the EC. Most of this durum comes from America, according to the Italian embassy. Under the new agreement, the EC will drop the payment to 2.4 cents per pound, according to Joseph M. Lichtenburg, president of this country's National Pasta Association

"It falls short of the pasta industry's goals," Lichtenburg said of the payment reduction, adding that the NPA feels that any EC subsidy is unfair because it allows Italian producers of pasta to sell their product at low prices. According to NPA figures, pasta from the EC holds a little more than 5 percent of the American pasta market, but exports have grown rapidly in recent years.

Meanwhile, U.S. citrus producers long have been angered by the EC preferences to Mediterranean countries. The EC tariff on U.S. citrus ranges seasonally from 8 to 20 percent of the cost of the fruit and transportation, while Mediterranean growers pay about a 2 percent tariff. The U.S. trade representative has estimated that America loses $48 million worth of citrus sales in the EC annually as a result.

"We have lived with the discriminatory tariff treatment from the European Community since 1969, and this is the loudest signal we have received yet that a satisfactory resolution may be possible. We're highly encouraged," said William Quarles, vice president of government affairs at Sunkist Cooperative, a group of about 6,000 U.S. citrus growers that sold 68 million crates of citrus worldwide last year.