Partial Trade Deal Heads Off Sanctions : Negotiations: Clinton and EC chiefs agree to break down barriers on the sale of American-made electrical equipment but fail to resolve the telecommunications dispute.

Stepping back from the edge of a potential trade war, the United States and Europe agreed Wednesday to break down barriers to government purchases of American-made turbines, generators and other heavy electric equipment.

But the Clinton Administration and the European Community failed to reach agreement after two days of negotiations and transatlantic telephone calls on measures to remove obstacles to European government purchases of U.S. telecommunications equipment, another stumbling block to expanded trade.

U.S. Trade Representative Mickey Kantor said the agreement on electric equipment trade will open a $20-billion market for U.S. products in Europe.

As a result, the Administration will refrain from imposing tough trade sanctions scheduled to take effect today. Instead, in an effort to resolve the telecommunications equipment dispute, Kantor said, the Administration plans to apply reduced but unspecified sanctions at some point in the future.

U.S. and European officials portrayed the latest twist in the U.S.-European trade partnership as a major step forward--based on the removal of barriers to electronic equipment purchases--but also a significant step backward from the goal of open trade relations, because limits on European access to the U.S. government’s telecommunications market will eventually be imposed.

“I think we have achieved a breakthrough, but not a full solution,” said Sir Leon Brittan, commissioner for external affairs of the 12-member European Community. “We have withdrawn from the brink of what could have been a trade war. . . . The sting has gone out of the issue.”

But he made it clear that the Europeans would retaliate for any sanctions finally imposed by the United States. “When they decide how much to put on, we will decide how to react,” he said.

At the heart of the dispute over the electrical equipment was a European Community regulation giving firms from the 12 member nations a 3% price break in bidding for government contracts. It also requires 50% of the content of the equipment to be made in the nations belonging to the European Community.

Brittan said the community agreed to the U.S. demand that the provisions be lifted for the purchase of heavy electrical equipment but it continued to resist the Administration’s demand that they no longer be applied to the purchase of switchboards and other telecommunications products.

In return for the Europeans’ move on the electrical equipment, the United States agreed to remove limits on foreign bidding for contracts with the five federal power administrations in this country, as well as the Tennessee Valley Authority. Beyond that, the Clinton Administration will ask the states, large cities and some major public utilities to withdraw their own “Buy America” provisions, which Brittan called “pernicious and indefensible.”

“The discrimination in the telecommunications area takes away jobs from American workers,” Kantor said at a news conference. “The opening up of the market in heavy electrical equipment promotes high-wage, high-skill jobs for American workers.”

With the goal of negotiating “a significantly expanded” government procurement code, Kantor said, the two sides had agreed to sponsor an independent study of the sales opportunities and values on each side of the Atlantic.

The developments Wednesday were announced by Kantor just minutes after he completed his third telephone conversation of the day with Brittan, who had returned to Europe overnight after two days of meetings with Kantor in Washington.

The dispute broke into the open Feb. 1, when the Clinton Administration, 12 days into office, threatened to bar European firms from bidding on millions of dollars’ worth of U.S. government contracts, effective March 21. But two days before that deadline, Kantor agreed to the first of two postponements.

Trade officials here have said that the sanctions, now delayed, would have cut off European sales in this country valued at $40 million to $50 million.

Randall L. Tobias, vice chairman of American Telephone & Telegraph Co., which is pressing to gain greater access to the lucrative European market, said more than 50% of the large computerized telephone switching systems in the United States are provided by foreign companies but that in France and Germany foreign companies supply less than 10% of such equipment.

“The European market is worth billions of dollars and it is very closed,” he said in a telephone interview. “I’m disappointed the agreement does not encompass both electrical equipment and telecommunications.”

Gerstenzang reported from Washington and Havemann reported from Brussels.