Five days of blunt trade talks between officials of 103 nations ended in disappointment last week when the U.S. and the 12-nation European Community couldn't agree on terms for eliminating government subsidies of farm exports.

The meetings were held in Montreal in an effort to strengthen the international treaty dealing with world trade policies - the General Agreement on Tariffs and Trade, better known as GATT.While the inability to come up with a deal on farm subsidies caused the talks to end inconclusively, some ministers tried to paper over the differences by saying the session was not a failure and that a package would be approved at a meeting scheduled for next April in Geneva, Switzerland.

Others were less sanguine, raising the prospect of an all-out trade war in subsidized agriculture between the U.S. and the E.C. Such an outcome would be a disaster, not only for America and Europe, but for many innocent bystanders in the poverty-striken Third World as well.

Any such trade war could force heavy U.S. tax support of farm exports, something the federal budget cannot stand. European budgets are not much better off. A trade war could also see the raising of tariffs that would hurt everybody.

Delegates at Montreal complained that both the U.S. and the E.C. were too inflexible in their stands, acting as if their positions were "set in stone" and not open for negotiation.

Over the years, the E.C. has struggled to eliminate all tariffs and border restrictions between the 12 European nations. But agriculture is heavily subsidized, both in crop production and in underwriting exports.

Price supports also subsidize U.S. farmers, but until recently, exports did not get government help. In 1985, in a fight for world markets against the E.C., the U.S. began to subsidize some of its own exports. It's not fair to expect American farmers to compete against farmers who are supported by the treasuries of their governments.

The basic problem is that European farmers and American farmers both grow far more food than can be consumed at home and both need exports to survive.

Neither side will unilaterally give up the subsidies, although they are costly for taxpayers. Both sides fear the impact of runaway government spending, yet fear the consequences of stopping. Some way must be found to disarm the subsidies in tandem.

In the long run, both Europe and America will be better served by letting the free market function and eliminating export subsidies.

When the next round of talks is held in four months, let's hope the bitter tone of self-protection that dominated in Montreal will have given way to a more reasonable willingness to negotiate.