Threat of trade war recedes: Kantor raises hopes for American agreement with EC on utilities and public procurement contracts

AMERICAN and European Community officials will soon begin fresh talks to avert a transatlantic trade war after the US administration agreed to a breathing space of at least a week before carrying out its threat to ban pounds 30m of federal contracts to EC companies.

The two sides agreed to reconvene in Brussels next Monday after Mickey Kantor, the US trade representative, and Jacques Delors, president of the European Commission, put the public procurement dispute on hold last Friday.

Mr Kantor said in a weekend interview on CNN television that the Clinton administration was determined to open up overseas markets for American goods and was convinced it could do so without provoking hostilities. 'There's going to be no trade war,' he said.

Before the ceasefire, EC officials indicated they might retaliate. Officials of the General Agreement on Tariffs and Trade in Geneva fear that hostility could rise to a point where the Uruguay Round is once again put in danger.

The US action follows a demand made in early February by Mr Kantor, that the EC waive Article 29 of its utilities directive, which came into force at the new year.

The article says that EC utilities such as telecommunications and water companies must give a 3 per cent price advantage to EC-based companies on big purchases, and that they are also free to reject any product with less than 50 per cent EC content.

It is understood that Sir Leon Brittan, EC commissioner for external affairs, has already told the Americans that the Community is prepared to withdraw the 3 per cent advantage, and to negotiate on the content rule, if the administration draws the teeth of its Buy America Act. This long-standing legislation means that US companies are given a 6 per cent price advantage on most public procurement contracts. On transport the advantage is 25 per cent, and on defence 50 per cent. The row blew up during negotiations to extend Gatt's existing public procurement rules, which were established during the Tokyo Round in the 1960s and were signed by 12 parties, including the EC.

They limit non-discrimination to contracts above 130,000 special drawing rights (pounds 118,000) placed by central government departments. The new rules will extend the code to cover services, including construction, and to buying by regional governments and publicly owned utilities.

In 1990, pounds 22bn of contracts were covered by the current code, and the Americans reckon they provided the lion's share of this. They calculated that pounds 11.6bn of US bidding opportunities were offered to EC contractors, while only pounds 5.4bn of EC contracts were open to US firms.

The EC did not dispute this, but said that the number of EC contracts open to US companies had risen sharply between 1985 and 1990, while US opportunities had fallen.