US accused of Cold War stance in trade battle: EC complains of unfair American power play

THE UNITED STATES is using Cold War rules to protect its industry by re-defining national security as national economic security, according to a European Community report. Hitting out at US unilateralism, the report accuses Washington of trying to make its own rules and forcing others to follow them.

The argument is a novel variant on the theme of 'beating swords into ploughshares'. It shows that as the military and political role of the US in Europe declines, the EC is becoming restive with the way that Washington exercises economic hegemony. National-security rules limit imports to the US and purchases by the Pentagon, and apply restrictions on what companies can export, even if they are outside the US, according to the annual report on US- EC trade barriers.

The extra-territorial use of US legislation - making companies outside the US comply with US law, even if they are incorporated in another country - has long been a cause of argument between Brussels and Washington. It provoked the row in the early 1980s over European participation in a Soviet gas pipeline. But friction has been exacerbated by the end of the Cold War and a perception that the US is simply using security measures to protect industry. The EC report notes that 'the national security of the US is bound up with economic strength at home'. But it complains that 'such justifications will be employed in areas where there is no significant threat to national security but where employment or industrial objectives are implemented to the detriment of free trade objectives'.

The argument goes beyond restrictions on trade. Earlier this year, commission officials claimed that the US was using 'black' Pentagon funds - closed to public scrutiny - to subsidise its aircraft construction industry. There is concern about the extra-territorial reach of US law linked to embargoes and sanctions, such as last year's Cuban Democracy Act. And national security is used to justify blocking overseas investment in the US.

The report comes ahead of a crunch meeting between Sir Leon Brittan, the EC's external trade commissioner, and Mickey Kantor, US Trade representative, on Monday. The US is threatening sanctions against the EC for allegedly blocking access by American companies to EC government contracts. These will be applied on Tuesday if the talks fail to reach agreement.

Miyazawa fights back, page 17