President Reagan is expected to announce Monday that the United States will retaliate against its allies in the European Community if they continue to restrict U.S. corn and soybean sales.
Reagan administration sources yesterday said that the president would give the Common Market until midsummer to resolve the dispute, which could involve as much as $1 billion in U.S. farm sales.
On another trade front, negotiations between the United States and Japan on semiconductor sales recessed yesterday, with American negotiators expressing disappointment that more progress was not made. U.S. Trade Representative Clayton Yeutter has called the dispute the top trade issue between the two nations.
The dispute with the EC is a contentious one between the United States and its closest allies of Western Europe that arose when Spain and Portgual joined the 10-nation Common Market. As a result, the EC's glut of olive oil has increased.
To ease the transition of the two nations into the community, the EC imposed quotas on soybean imports to Portugual and reserved a portion of that country's grain purchases for Common Market products. The Reagan administration said both actions are illegal under international trade laws and should be rescinded. In addition, the EC increased tariffs on sales of corn and other feed grains to Spain.
Last Tuesday, the Cabinet-level Economic Policy Council recommended that the Reagan administration retaliate against the EC if it refuses to lift the quotas on soybeans and either ends the grain tariffs or offers compensation for it.
Reagan is not expected to say how the United States will retaliate against the EC; trade officials here are believed likely to stress a desire to settle the dispute through negotiations, rather than impose trade restrictions.
Sources here said likely targets for retaliation are European sales of wine and dairy products, especially cheese.
Meanwhile, U.S. chip makers continue to charge that a government-nurtured cartel limits their sales in Japan. Recently, preliminary findings in three cases -- including one brought by Reagan's trade strike force -- concluded that Japanese companies dump chips in the United States at prices below their fair market value.