Trade Spats: Rougher Sailing Across The Atlantic

A U.S.-European trade dispute is turning nastier

With Japan in recession, growth slowing in China, and Southeast Asia in financial meltdown, many U.S. exporters have been banking on Europe for salvation. Export growth to the European Union was up a robust 7.5% through April. More than $1 trillion in trade and investment already moves across the Atlantic each year. Some 24% of U.S. goods exports go to Europe--more than to Asia (23%) or South America (9%). Now, with President Clinton's prodding, the U.S. and EU will explore a "transatlantic economic partnership" for even more trade.

So it's more than a little troubling for business leaders to see a transatlantic trade spat brewing. Disputes are erupting over long festering problems, such as European restrictions on bananas, beef, and corn, while new feuds arise over E-commerce and tax policy. Relations are souring at a time when the trade partners need each other more than usual. "All these difficult problems," worries Willard Berry, European-American Business Council president, "can have the wrong effect on trade."

The latest flare-up came on July 7, when Sir Leon Brittan, the EU's acerbic trade negotiator, delivered a list of complaints to Washington. Chief among them: U.S. sanctions that would penalize foreign corporations for investing in Iran, Iraq, Libya, Cuba, or Burma. Angry because Congress shows no signs of lifting the penalties, Brittan even threatened to challenge a Massachusetts law forbidding contracts with companies that do business with Burma.

Brittan also filed a complaint with the World Trade Organization over a U.S. tax loophole that allows more than 3,000 American companies to escape some income taxes on export earnings. American officials shot back that the U.S. tax law was changed in 1984 at Europe's request. "The European plan is to demonstrate muscle-flexing, no matter how irrational," says U.S. Trade Representative Charlene Barshefsky.

Indeed, with anxiety over globalization running high in Europe, Brittan is under pressure to bash Washington. For example, the French have blocked U.S. imports of genetically engineered corn to protect French farmers. Animal rights groups are furious with Brittan over an agreement last December relaxing European restrictions on furs from the U.S. obtained by use of leg-hold traps. And Brittan and the EU are still fuming over two recent WTO rulings that European quotas on bananas from U.S. exporters and a ban on U.S. hormone-treated beef imports are discriminatory. The Europeans have so far dragged their feet on compliance with the two rulings--costing U.S. beef producers more than $100 million a year, according to the National Cattlemen's Beef Assn. "The EU is blatantly stonewalling the WTO," says Kansas cattleman Dana Hauck, an association official.

"FEVER PITCH." Even small disputes could seriously disrupt the world's largest bilateral trade relationship. Washington hopes to reduce European farm subsidies--which underwrite exports of European crops--in trade talks set for 1999. But Europe sees U.S. farm imports as a threat to its picturesque countryside and its mom-and-pop distribution system. "This has reached a fever pitch in Europe, and the situation is getting worse, not better," warns Jeffrey Lang, a former Clinton Administration negotiator in charge of European trade relations. At stake is nearly $9 billion in yearly U.S. exports. More problems loom with the growth of E-commerce. The EU has proposed banning electronic transmission of any information about its citizens--such as credit-card numbers, sales orders, and credit reports--unless countries provide "adequate" privacy protections. That could mean EU officials blocking sales over the Internet.

Europe and the U.S. may choose not to escalate further given the stakes. But if next year's trade talks are to succeed, the two sides will have to start lowering the temperature now.