Europe keeps cool over sanctions

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THE European Commission said yesterday that it was considering 'restrained retaliation' against sanctions imposed by the US on the telecommunications sector.

But with a desire not to re-engage in a trade war that was only narrowly averted last month, the EC measures will be less hard-hitting and will not contravene Gatt, a diplomat said yesterday. The EC's trade committee will meet on Thursday to discuss the issue, which would have to be approved later by ministers. It is not clear whether a majority of states will demand retaliation, although some, including France, have already signalled their support.

The US sanctions that took effect yesterday will hit other sectors apart from telecoms. Under the new rules, the six US federal utilities will not be able to sign service contracts with EC suppliers, nor buy more than dollars 450,000 worth of goods from them.

Other US federal agencies wishing to buy European would not be able to spend more than dollars 176,000 - a constraint that will hit various EC services and suppliers to heavy industry.

A Commission spokesman, while acknowledging that the sanctions were broader in scope than just the telecommunications industry, said yesterday he believed the impact would none the less be limited. Together the sanctions are likely to cost the EC dollars 20m in lost trade.

The agreement struck on public procurement last month went a long way towards defusing the tension between the two trading blocs. In this new atmosphere the EC is clearly wary of doing anything which, as the commissioner responsible for trade, Sir Leon Brittan, put it, 'will delay or frustrate the progress we are making in the Uruguay Round (of the Gatt trade talks) or poison the atmosphere'.

Both sides would like to see a conclusion to the stalled Gatt round. Although there has been little tangible progress in the sectors under dispute, the new Gatt director-general to be appointed on 9 June and a breakthrough on the related issue of oilseeds this week will give the negotiations an important fillip.

Due for official ratification on 8 June, the deal on oilseeds has bought off French opposition and improved the prospects for final settlement of a linked tentative accord on the agricultural chapter of the Uruguay Round concluded at the end of last year.

The French government, answering a strong farming lobby, had threatened to block a deal limiting subsidised oilseed production on the grounds that the production cuts demanded by the Gatt deal cut deeper than those already agreed in the EC's internal reform of farm policy.

But at 5am on Thursday farm ministers finally agreed that extra compensation should be paid to EC farmers required to take land out of production. The extra pounds 770m cost is the price of France waiving its objections when the oilseeds issue is put to the vote. Officials are confident the French can, with time, be similarly wooed into accepting the full agricultural package.