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Europe’s Goal of Economic Unity Stirs ‘Fortress’ Fears

Times Staff Writer

The scenario is nightmarish.

The world’s largest single marketplace, home to more than one-third of a trillion dollars in U.S. overseas assets and America’s biggest trading partner, sheds its age-old internal barriers only to erect walls against the world outside.

Logic dictates it can’t happen.

Outsiders have begun to worry that it might.

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For as the 12-nation European Community moves toward its historic goal of removing frontiers and building the globe’s largest unified market by the end of 1992, a fast-escalating struggle is under way between the Continent’s free-trade advocates and powerful protectionist forces.

As the economic battle unfolds, community outsiders--especially those in the United States and Japan--contemplate an unsettling vision: that of an inward-looking, protectionist “Fortress Europe.”

Together, the United States, the European Community and Japan account for nearly half of all world trade, and any collision involving them would reverberate accordingly.

For Japan, the stakes are high. For the United States--working to contain a massive trade deficit--such a development would be devastating.

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Publicly, those in the engine room of reform at the community’s Brussels headquarters reject the idea of a protectionist community as nonsense and bristle at the description “Fortress Europe.”

“I don’t know who invented that expression, but the man was a genius,” Franz Andriessen, the community’s commissioner for trade and external affairs, said with some sarcasm in an interview. “It is not true. I just don’t like the term.”

"(A single-market) Europe is a gateway to opportunity,” he said.

A carefully worded European Community statement, responding to mounting concern, carried a similar message last October. “As the world’s biggest exporter . . . the community has a fundamental stake in the existence of free and open international trade,” the statement declared.

However compelling, that argument failed to ease outsider fears.

Last month, U.S. Commerce Secretary Robert A. Mosbacher called for American involvement in the drafting of new Common Market-wide product standards to ensure that the standards do not discriminate against outsiders.

“What happens within the EC can have a profound effect on us and on our trade and investment interests,” Mosbacher said.

There is also intense concern in Tokyo, because the 12 nations pledged to a unified marketplace by 1992--Britain, France, West Germany, Italy, Spain, the Netherlands, Belgium, Greece, Ireland, Denmark, Portugal and Luxembourg--have a combined trading volume twice that of Japan.

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European Community trade links with both the United States and Japan have rarely been trouble-free. But the community’s relationship with Japan is more combative.

In part, this attitude reflects vastly differing trade positions. The Common Market ran an $18-billion surplus with the United States in 1987, but a $22-billion deficit with Japan.

“Are we supposed to open the doors to the greatest fortress in the world?” asked former British Cabinet minister Michael Heseltine. “If they want to play by the rules of Fortress Japan, maybe we shall have to level the playing field. That’s fair play.”

Japan’s trade links with Europe have expanded rapidly in recent years. Its $6.2-billion direct investment in Europe for 1987 was nearly double that of the previous year, and partial 1988 figures point to a further sharp rise.

In some ways, this activity corrects a prolonged period of under-investment in a part of the world that Japanese business executives have traditionally found confusing and fractious.

But Europeans are wary.

Many involved in the Common Market’s ambitious internal changes are convinced that Western Europe must learn from American mistakes and shape the rules of its frontier-free market to keep Japanese commerce at bay.

“Americans don’t see what’s going on with the Japanese,” said Edith Cresson, French minister for European affairs. “They are like ants, eating you up. You just don’t notice it. You don’t feel it. You don’t see it.”

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Pausing, she added, “We intend to be firm with the Japanese.”

Japan’s ambassador to the European Community, Muneoki Date, admitted that his country’s trade relations with the organization were now difficult. “There’s a very strong sentiment against us,” he said. “We will be very patient, but there is reason to worry.”

Private assurances to American diplomats and business executives that any Common Market protectionist measures would be aimed only at Japan have failed to ease U.S. concern.

“You can’t discriminate against Japan without doing so against lots of others, including the U.S.,” said Alfred H. Kingon, America’s ambassador to the European Community. “We know that.”

For a part of the world that annually exports nearly a quarter of its gross national product, taking a protectionist stance would seem ludicrous. But those who closely monitor Common Market actions maintain that the community’s eventual relationship with the outside world is far from settled.

“The jury is still out and will be out for a long time,” said Stanley Crossick, chairman of the Brussels-based business consultancy C & L Belmont. “There is no doubt that those at the top are trying to keep Europe open. But there are big industrial players, and they have their own interests.”

Privately, few dispute that protectionist pressures exist in the European Community.

“It wouldn’t be possible to have a movement like this without them,” said a senior community official.

Some Europeans worry that the sheer weight of U.S. and Japanese industry could overwhelm them in their own expanded market.

These concerns have not been allayed by the platoons of American and Japanese business executives visible in the corridors of the community’s headquarters building, apparently quicker off the mark than their European counterparts in clarifying the new rules.

Few outsiders who worry about a possible Fortress Europe believe it would come in the form of hefty quotas and high tariffs. Existing Common Market international commitments virtually preclude that. Instead, the potential for protectionism lurks in more subtle non-tariff barriers.

Constraints, for example, could be erected during the arcane process of setting the new technical standards, certification procedures and content requirements needed for a unified market.

“There is concern about the unknown, about what is going on in a process that doesn’t operate as openly as ours does,” noted David Diebold, who, as counselor for commercial affairs at the U.S. Embassy in London, fields questions from anxious American business executives. “There is the potential for mischief in it.”

So far, experience in this layman’s morass has varied widely.

For world-wise companies like Caterpillar Inc., which produces in Europe and knows its way around, the people developing European Community-wide construction equipment standards are accessible and receptive to outside ideas. “We don’t feel shut out,” commented David Henson, Brussels-based spokesman for Caterpillar.

But Bill Taylor does.

Taylor is chairman of a small, family-run forklift truck producer in Louisville, Miss., which over the years has sold about 5% of its production to Common Market countries. For him, new EC standards arrived out of the blue.

“It’s jumped us in the last few months,” Taylor said. “It’ll mean changing a lot of engineering, and we don’t know whether we want to be involved.”

In some ways, both American and Japanese companies do have an important head start in a single-market Europe.

Large multinationals like IBM have long approached Europe as a single business opportunity. Many European companies are only just beginning to do that.

A small box of Kellogg’s Rice Krispies purchased in Brussels, for example, sports consumer information in 12 European languages, while Ford Motor Co.'s Fiesta zips along European roads with an engine built in Spain, a transmission produced in Bordeaux and a carburetor from Belfast.

Japanese auto makers, long hesitant to produce in Europe, now sense the lure of its huge market.

Nissan, Honda and Suzuki have all established a production presence in the community, while last January, Toyota, the largest Japanese producer, unveiled plans to build 200,000 cars per year in Europe, an announcement that sent a shiver through the likes of Fiat, Volkswagen and Peugeot.

At some point, a common European Community stance on imported cars must also be forged, somewhere between Bonn’s call for free trade and the existing tight quotas of Italy and France.

Some European auto executives have called for open trade with Japan.

They also want a more balanced trade. The European auto industry has struggled against 8 million Japanese imported cars over the last 10 years but has managed to sell only 560,000 vehicles to Japan.

The clash with Japan comes in highly visible sectors--autos and electronic goods. The community has launched anti-dumping actions against Japanese producers of electronic typewriters, photocopiers and other electronic equipment. Japan is fighting the action on grounds that the moves contravene international agreements.

Whatever questions outsiders have about Europe’s single market, however, there is a strong sense that being involved is important.

Both U.S. and Japanese corporate investment activity in the European Community is up, and a recent survey of small- and medium-size U.S. high-technology companies conducted by the Bank of Boston found that 53% of the approximately 1,500 firms responding were considering investing in Europe, either directly or indirectly, before the end of 1992.

Times researcher Christine Courtney contributed to this story.

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