On the brink of a trade war: A meeting today will decide whether Europe and the US put up the barriers. David Bowen reports

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The Independent Online
THIS IS a crucial week for the trade war that has been rumbling between the US and the European Community. Today Mickey Kantor, the US trade representative, meets the EC's Sir Leon Brittan in Washington and will hear whether Brussels intends to make it easier for US companies to sell to government bodies in Europe.

If Mr Kantor does not like what he hears, he will slash the US public contracts available to European companies. If that happens, the EC will probably retaliate and tit-for-tat measures could soon build protectionist walls on both sides of the Atlantic. Even if it does not, the chances of successfully completing the Uruguay round of Gatt, the biggest set of trade- liberalising measures yet proposed, will be much reduced.

This meeting is a re-run of one at the end of March. Then Mr Kantor stepped back from the brink, giving the EC a month to mend its ways. Officials have been negotiating in the last week, but there is no clue as to whether agreement is close.

It has been a war of attrition. Since November, when the US and EC came to an agreement on agriculture and everyone said the Uruguay round was as good as signed, there has been a series of trade-related disputes that have pushed its completion ever further over the horizon. At Gatt's headquarters in Geneva, weariness has set in. 'Everyone is sick to death of the Uruguay round,' one official said.

All through last year, it was assumed that the only big sticking point in the completion of the round was agriculture. If the French could be brought into line on oilseeds and grain export subsidies, all would be sweetness and light. They were, at the Blair House agreement in November, and the way was apparently clear for a ready-wrapped package, based on the so-called Dunkel text, to be handed to the incoming Clinton administration in the new year.

The deal would then be presented to Congress by the end of February and, assuming it was ratified elswhere, the Uruguay round would come into force at the beginning of 1994. In simple terms, industrialised countries would agree to open up markets to food and textile imports and would be allowed to sell services freely to the Third World.

But it soon became apparent that the Americans had had reservations about non-farm issues all along. In December they brought them into the open.

Most of the dozen or so objections seemed arcane. With some, the Americans said the Uruguay proposals did not go far enough: French television was still allowed to restrict Rambo to the 4am slot in the interests of cultural purity, US telephone companies could not sell their services on European lines.

In others, the US decided the round was too liberal: the insistence that foreign shipping be allowed to trade in American coastal waters was more than Washington could bear. However obscure, each issue was dear to the heart of a powerful lobby group that could muster potentially damaging support in Congress.

Officials at Gatt were surprised that so many objections had popped out of the woodwork. 'If they knew they were going to raise them all all along, they did themselves a disfavour,' one said. 'It raises questions about bad faith.'

As the original timetable became more untenable, new problems rose up to sour the atmosphere further. First the Americans said they would be putting levies on a range of steel imports. Then the Clinton administration started to act on electoral promises to ensure 'fair trade', complaining about alleged subsidies to Airbus and threatening to retaliate against the Europeans over public procurement rules.

The procurement row, which is not technically linked to Gatt, arose in part through bad timing: it was triggered by the introduction of the EC's Utilities Directive on 1 January. Although designed to give all EC companies an equal chance of winning orders from government-owned utilities, the directive has a section, Article 29, that says non-EC companies have to be at least 3 per cent cheaper to win bids, and that products with an EC content of less than 50 per cent can be rejected.

The Americans reacted with fury and said they would retaliate unless Article 29 was struck out. EC and Gatt officials say, however, that they have missed the point. Article 29 was deliberately inserted as a bargaining chip to pressure the Americans into scrapping their own Buy America Act, which says foreign bids must be lower than US ones by between 6 and 50 per cent, although there is no local content rule.

Despite European attempts to deal Article 29 away, the Americans have so far shown no sign of modifying their own legislation.

Mr Kantor and Sir Leon have failed to hit it off in past talks, and there must be a danger that tensions will escalate. However, optimists point to the positive noises President Clinton has made about free trade.

Gatt officials believe that the key to the succesful competion of the round will be to play one dispute off against another: restrictions on US shipping and EC telecommunications access could, for example, be lifted in parallel. Governments would have to accept a degree of abuse. 'Most players know how to solve the problem in the context of the whole package, but they will be unwilling to take on their lobbies until the end is in sight,' one official said.

Despite the current casting of the Americans as the baddies, it could in the end be the Europeans - or rather the French - who cause most damage to the Uruguay round.

The Socialist government came close to vetoing the November agreement last month; the new right wing government was making hardline noises before the election, but has since softened its stance.

Nevertheless, Edouard Balladur, the Prime Minister, will have to perform a delicate balancing act if he is to keep his important farming constituency under control. The feeling in Geneva is that France is the only country where it is still intellectually respectable to attack the principle of free trade - and that could yet spell trouble for Gatt.

(Photograph omitted)

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