The EU's Trade Doctor Is In

New trade czar Peter Mandelson is already getting results

As a sometimes controversial British politician and longtime confidant of Prime Minister Tony Blair, Peter Mandelson is probably the most closely watched of the new crop of European Union commissioners. The question in everyone's mind: Can Mandelson parlay the acumen he has shown in British politics into success in the even more high-stakes arena of international trade and competitiveness?

So far the answer is a strong "yes." Of course, Mandelson, 51, only took office as the European Commissioner for Trade last fall and has a daunting agenda to try to master. But he already looks like a heavy hitter on European Commission President José Manuel Barroso's team. Mandelson, associates say, is proving a skilled diplomat and troubleshooter. His biggest splash so far: reaching an understanding with U.S. Trade Representative Robert B. Zoellick that the two sides will continue to negotiate rather than take the issue of aircraft subsidies to a World Trade Organization court. Prodded by Boeing Co. (BA ), which believes that its profitable rival Airbus has received unfair government aid, the U.S. was on the verge of lodging a formal complaint with the WTO. The EU was prepared to fire back with allegations that Boeing itself has been improperly subsidized.

Instead, the deal, announced on Jan. 11, gives the U.S. and EU three months to try to negotiate a settlement. Aides are already talking and Mandelson and Zoellick are set to meet at the World Economic Forum in Davos, Switzerland. Though reaching an agreement still looks tough, both parties are breathing a sigh of relief -- and not just about airplanes. The rancor of litigation might well have tainted wider U.S.-European economic relations and soured the atmosphere for President George W. Bush's planned trip to Europe in February. "We have enough to worry about without fueling an unnecessary trade war," Mandelson says. "It would have cast a pall over our relations."

Mandelson's quick moves earned the new commissioner a thumbs-up in Washington. "Mandelson dove right in and focused on key elements of the aircraft dispute and quickly went into a problem-solving mode," says John K. Veroneau, general counsel at the Office of the USTR. "He could have put the issue off because he was new to the job, but he didn't."

Boeing executives are skeptical that the ceasefire will prove anything more than a temporary halt. One says that if there is no "meaningful" progress after three months, Boeing will not support an extension. Mandelson says he has no illusions about how tough the dispute will be to resolve. But he hopes all subsidies can be eliminated. Short of that, he wants the two sides to horsetrade their way to a "basis for fair competition," even if some aid is included.


Mandelson, a former television producer, first hit the British national stage as campaigns and communications chief for the Labour Party under then-leader Neil Kinnock, beginning in 1985. He was a key player in the sometimes bitter battle to shift Labour from unelectable left-wing policies to the more middle-of-the-road organization it is now. Political insiders credit Mandelson with pushing both Tony Blair and Chancellor of the Exchequer Gordon Brown to the forefront of party politics.

While few doubt Mandelson's abilities, he has an unfortunate tendency to self-destruct. After Labour finally gained power in 1997, Blair rewarded Mandelson with the important Trade & Industry Dept. portfolio in 1998. He resigned that job after revelations that he had not disclosed that he had taken a large loan from another minister to buy a house. In 1999, Blair made Mandelson Secretary of State for Northern Ireland, where he got good marks for his handling of some of the most infuriating politicians on earth. Yet Mandelson was also forced to resign that job, perhaps unfairly, because of a controversy over helping a businessman to obtain British citizenship.

The EU trade commissioner's slot, though, looks tailor-made for Mandelson. Unlike many British politicians, he has long been pro-European. He blasts "the axis of right-wing anti-Europeans and some neoconservative thinkers in the U.S." as "a baleful influence operating against the overriding interests of both Britain and America." But this is one commissioner who doesn't doubt the need for streamlining the EU's clunky bureaucracy. "Our job is to make what exists work better," he says.

Taking up where his well-regarded predecessor, Pascal Lamy, left off, Mandelson is determined to complete the long-delayed Doha round of world trade negotiations by 2006. Reaching a deal is essential to "make sure that the emerging and fast-growing economies in the world are integrated into the international trading system so that trade, investment, and business opportunities are heightened for European producers and suppliers," he says. He is particularly interested in boosting Europe's dealings with China and India.


To get developing countries on board, the EU made a conditional offer last summer to slash export subsidies on European agricultural products, which give the Continent's farmers a decided edge against grain and soybean producers in Brazil, Egypt, and elsewhere. But first Mandelson must not only get skeptical developing countries on board but also work out a deal with the U.S., which also provides its farmers with subsidies. Neither the EU nor the U.S. relish the idea of being the first to disappoint its powerful farm groups.

Mandelson knows he won't get very far on his agenda if there is excessive friction with the U.S. Aides say he is hoping to bring "fresh thinking" to the world's most important trade relationship. He says that contrary to impressions, almost 98% of U.S.-EU trade is "dispute-free," but he hopes to liberalize transatlantic ties even more by knocking down nontariff barriers in areas such as business and financial services and health care.

The British commissioner certainly knows he has to forge a good relationship with Zoellick's successor, who is yet unnamed. If the top European and American trade officials work well together, then potential disputes between the two behemoths are less likely to rage out of control. While the Boeing-Airbus quarrel deserves top billing now, there are other nagging squabbles out there, including the battle over Europe's refusal to let in genetically modified food from the U.S. One way or the other, Mandelson will be phoning Washington quite often.

By Stanley Reed in London, with Paul Magnusson in Washington, Stanley Holmes in Seattle, and Carol Matlack in Paris

    Before it's here, it's on the Bloomberg Terminal.