America's big stick jangles EU nerves; VIEW FROM BRUSSELS

'The EU has chosen multilateralism rather than confrontation, which appears to be the US line'

Press conferences on trade matters in Brussels can sometimes be a little bit, well, boring. Since the Uruguay Round of talks wound up, a lot of the drama has gone out of the topic.

That changed last week when Mickey Kantor, the US Trade Representative, came to Brussels. His performance was enlivened by an unusual public spat with the Japanese ambassador, Tomohiko Kobayashi, who turned up to contest some of Mr Kantor's claims about the Japanese car market.

Mr Kantor, reports one television cameraman, was reduced to screwing up his notes under the lectern as he tried to remain outwardly calm. "You are trying to confuse our friends," he told the ambassador.

The incident shows how the US decision to impose tariffs on luxury cars to protest against obstacles to US exports to Japan of cars and car parts has moved swiftly onto the agenda in Brussels as well as Washington and Tokyo. The European Union is not best pleased with the way that the Americans have handled the issue; and despite parallel European difficulties with the Japanese, the incident has highlighted the differences in the way the US and the EU, under trade commissioner Sir Leon Brittan, choose to handle relations with Japan.

The commission immediately criticised the US moves, saying this was no way to solve trade disputes. "We have worked hard to establish an effective multilateral system. It seems as if what is threatened would be contrary to these rules," Sir Leon said. He argues that the problem should be dealt with multilaterally within the World Trade Organisation.

There are plenty of minor irritants in EU-US trade relations at present. Commissioner Emma Bonino, in charge of humanitarian aid (though better known for her role in the great Canadian fish war earlier this year), criticised the US embargo on Cuba when she was in Washington.

Brussels and Washington are also at odds over EU rules on bananas, which the US says hurt Latin American producers; and over a European ban on imports of fur caught with leg-hold traps.

But none of these is really a showstopper, as diplomats term the irritants that turn into real obstacles to agreement. On substance, Mr Kantor's meetings in Brussels last week seem to have gone rather well, though he cautioned the EU against becoming too inward-looking when it revises its trade rules. Behind the scenes, he and Sir Leon - old protagonists from the final days of the Gatt deal - are cooking up a new trade agreement that would expand commerce between the world's two largest trading partners. Sir Leon has talked cautiously about a free-trade agreement.

So why is the Japanese spat such a problem? First, the EU wants to make sure there is no sweetheart deal between the US and Japan to end the dispute. European carmakers have taken decades to invest in Japan and build up market share, which is five times as big as that of US manufacturers (though still pretty small). They fear that a side-effect of US pressure could be to damage this.

"In practice, it would be the Americans who benefit at the expense of European manufacturers of cars and car parts," Sir Leon said last week. "We would give very serious attention to the possibility of taking any new voluntary plan to the WTO."

There is more than a whiff of hypocrisy about this from the Americans' point of view. They point out that Europe already has a bilateral deal with Japan limiting car imports. The EU defends this by saying it aims at eliminating obstacles in the longer term, creating free trade by the end of 1999.

Second, the EU points out that the new World Trade Organisation is there to pre-empt spats like this. "I am greatly saddened that a partner with whom we have worked so hard to set up the WTO should contemplate such action," Sir Leon said.

Brussels also lobbied hard to get a European - Renato Ruggiero, a former Italian minister - in the top slot at the WTO. It cannot be far from Sir Leon's mind that the US in its present mood might apply aggressive tactics to other trading partners, including Europe.

There is third, longer-term consideration. The EU is attempting to underpin relations with Japan, and the campaign is at an important stage of development. An EU-Japan summit is planned for 19 June in Paris, bringing President Jacques Chirac, commission president Jacques Santer and Japanese prime minister Tomiichi Murayama together just after the Group of Seven industrialised countries meet in Canada. EU foreign ministers met Yohei Kono, their Japanese counterpart, last week in Paris to prepare for the meeting.

The EU likes to think (and likes Japan to think) that it is a more considerate, intelligent and engaged interlocutor than the US. "The European Union has chosen to give priority to multilateralism and to respect WTO rules rather than confrontation, which appears to be the American line," said Herve de Charette, the French foreign inister, after last week's meeting.

It also likes to think that this works. The EU's deficit with Japan was ecu24.5bn (pounds 20bn) last year, down from ecu31bnthe year before. But when Mr Chirac met Mr Kono, he emphasised that this should not be the cause of any confrontation. Rather, the EU will continue with its own track of persuasion.

In an unusual briefing last year, John Richardson, the official in the European Commission in charge of US-Japan trade ties, said the US used "megaphone" diplomacy, which risked provoking "rejectionism" on a much wider front. The Europeans use what they call the trade adjustment mechanism as a framework for talks, and have established a "regulatory dialogue", which is Europe's way of influencing Japan's own internal decisions.

By maintaining its strategy of seeking concessions through negotiation - while the US bangs on the door with the big stick - the EU clearly believes it can maintain closer ties with the Japanese bureaucracy. It also thinks it can get more results.

The next few weeks will determine whether that is really the case - or whether Sir Leon would be better employed finding a stick of his own.

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