Europe Shows Muscle In This Trade Tussle

It may force the U.S. to back off Helms-Burton and its ilk

Frustrated by dealings with a fragmented Continent, former Secretary of State Henry Kissinger once impatiently asked: "When I want to speak to Europe, whom do I call?" Now, at least on trade issues, Washington has a phone number: 32 2 295 2514. That's the office of Sir Leon Brittan, the astute, often abrasive chief trade negotiator for the European Commission.

Talking tough, Brittan has succeeded in shielding Europe from the Helms-Burton and D'Amato Acts, which impose sanctions on non-U.S. companies that invest in Cuba, Iran, or Libya. European Union members gave him a strong mandate on Apr. 18 to negotiate with the U.S. over the next six months to replace the U.S.-imposed measures with broadly agreed-upon investment rules. To do that, the Clinton Administration pledged it would try to persuade Congress to amend the laws. "Trade is the one issue on which Europe can negotiate on a level of balance and parity with the U.S.," says Dominique Moisi, deputy director of the French Institute for International Relations. "Sir Leon has shown that he can negotiate in the name of Europe."

TOUGH POSITION. Admittedly, Washington had dealt itself a weak hand. President Clinton signed the two controversial trade bills for domestic political reasons, putting himself in the tough position of trying to impose the U.S.'s will upon foreigners' investments in third countries. "No one accepts the idea that the U.S. can legislate its foreign policy on the rest of the world," says attorney Anthony Gardner at Brussels law firm Hogan & Hartson. Europeans closed ranks in opposition. With this backing, Brittan raised the ante by taking the dispute to the World Trade Organization--a high-stakes move that Washington hadn't foreseen. That forced the Administration to threaten to reject any WTO ruling on the EU's complaint. It argued, lamely, that the trade sanctions were not a trade issue but a U.S. national security concern outside the WTO's mandate. But such a brush-off would deal a blow to the new Geneva-based trade organization--the culmination of a half-century of U.S.-led efforts to open up global trade and investment. That's why Clinton called for a truce, with the EU agreeing to suspend its WTO action.

Now the two sides have until October to negotiate a peace treaty, or the EU will take its case back to the WTO. Brittan is offering Clinton some political cover: an EU pledge to help nudge Fidel Castro to liberalize his regime; a tougher diplomatic line against Iran and Libya; and curbs on future European investments in properties seized by governments such as Cuba's. But investments already made won't be affected. Meanwhile, some European companies are pushing forward, banking on Clinton's reluctance to derail the talks by wielding Helms-Burton's big stick. In February, Italian telecom giant STET put $300 million into the phone company Cuba expropriated from ITT, more than doubling its previous stake, without any U.S. reprisal so far.

"PARIAH" COUNTRIES. Clinton could feel the heat from Senator Jesse A. Helms (R-N.C.) and other hard-liners if he appears to be too soft on "pariah" countries. But rising U.S. business concern about the costs of unilateral trade actions could help Clinton fend off such pressures. In April, 465 multinational companies and trade groups formed a coalition, USA Engage, to actively oppose such sanctions. "Unilateral sanctions are almost always ineffective--and always end up hurting American business and American workers," says James E. Perella, chairman of the National Foreign Trade Council and CEO of equipment maker Ingersoll-Rand Co.

While the U.S. and EU are at odds on sanctions, together they can achieve significant successes on trade. In February, Brittan worked with Washington to push through a seminal telecommunications deal in the WTO, followed by a breakthrough on semiconductors and computers. Down the road, such cooperation could prepare for China's entry into the WTO and shape agreements on issues from pharmaceutical trade to new rules on bribery.

Unfortunately, the EU's united trade stand contrasts with the miserable failure of its 15 diverse members to agree on and carry out a common foreign policy whenever military force is needed, as in Bosnia. Brittan is just one of five EU commissioners divvying up foreign policy responsibilities. In June, the Europeans will meet in Amsterdam to reform EU institutions. There's even talk of appointing a single Mr. Foreign Policy to speak for Europe. It's a good idea: Sharing fundamental values, the U.S. and Europe should see eye to eye on many basic issues. But to shape common stands, it would help to know whom to call.