No Trade War With Europe; No Peace Either

“Euro-U.S. Trade War!” was the story the Brussels press corps was itching to write this week. But as economists and business experts predicted, it didn’t happen. Europe and America, they maintained, just couldn’t afford it.

“We are like an old, married couple,” Paul Horne, chief international economist at Smith Barney, an investment bank, said in Paris. “We may squabble, but we need each other too much.”

In the end, after months of white-knuckle suspense and escalating rhetoric, Boeing Co. consented to some concessions that the European Union demanded as a condition for approving its merger plan with McDonnell Douglas Corp.

Americans may have been stunned that European regulators had interfered in a purely U.S. affair. But for Europeans, it was no more outlandish than recent American laws--the D’Amato and Helms-Burton acts--that would punish certain European companies that invest in Iran, Libya or Cuba.

“If the boot is on one foot this time, it’s often been on the other foot,” said Stanley Crossick, chairman of the European Policy Center, a Brussels think tank.

In the future, Americans may have to get used to it. Though European officials have taken on U.S. companies, including United Brands and Continental Can, in trade disputes since the mid-1960s, and were able to force changes in another American merger, between Scott Paper Co. and Kimberly-Clark Corp., the Boeing affair may be a landmark.

In a season when Europeans are just as likely as not to complain about bullying from the Clinton administration, Boeing’s climb-down under duress, whatever its commercial importance, looks to many Europeans like a victory.

But the brouhaha over the U.S. aerospace merger, which the European Commission approved in principle Wednesday, masks a larger truth: For sheer volume, no two-way commercial relationship in the world tops the one between the United States and Europe. In the five months ending in May, according to the U.S. Department of Commerce, America and the 15 nations of the European Union exchanged goods worth $122.3 billion, compared with $77 billion in U.S.-Japanese trade during the same period.

Decades of thriving trade and investment have spawned a complex but mutually profitable entanglement of economies on the two shores of the Atlantic. Take a seemingly apple-pie American corporation like Boeing. The Seattle-based airplane builder now does so much business in Europe that this year it expects to purchase $1.8 billion in supplies from 191 European companies and claims to account directly or indirectly for 60,000 European jobs.

At the recent Paris air show, Boeing executives even boasted that their two-engine 737-700 will create more jobs in France in the coming three years than its European rival, the Airbus A319, the Paris newspaper Le Monde reported.

As for Airbus, a four-nation consortium headquartered in Toulouse, France, roughly 30% of its typical plane is made by U.S. companies or their European subsidiaries--including numerous Southern California firms.

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Depending on the model, the “European” jetliner that will be the only global competitor for the new and bigger Boeing may fly on General Electric engines assembled in a plant near Cincinnati. In its tail, it carries a contraption shaped like a small beer keg, made by a German subsidiary of the U.S. company Allied Signal, that generates electricity for on-board instruments and other uses. In its red-white-and-blue promotional material handed out in the United States, Airbus says it buys from 800 American parts makers and is responsible for 50,000 U.S. jobs.

With such symbiosis, many analysts say a trade war between Europe and the United States has now become too scary and counterproductive to contemplate.

“There is common interest on both sides of the Atlantic in this relationship, and it’s more important than any single issue,” Crossick said. Michael Gallagher, head of the economics section at the U.S. Mission to the European Union in Brussels, said nowadays only “2% to 4%” of U.S.-European trade is really subject to dispute. The remainder flows back and forth across the ocean with no government interference.

In the early 1990s, U.S-European differences over agricultural subsidies were still wide enough to hold up the negotiations that resulted in the 1994 creation of the World Trade Organization for four years.

In past decades, partners on both sides of the Atlantic have haggled over citrus and sugar subsidies, steel dumping and the public money given to European aerospace companies, including Airbus. In comparison, said Greg Mastel, vice president of the Economic Strategy Institute, a Washington think tank, today’s problems are “small but acute.”

That’s the good news in the relationship. The bad is that the European Union still has enough gripes about alleged U.S. protectionism--from federal subsidies to American shipyards to “buy America” clauses in public procurement programs--to fill three pages in a document titled “United States Barriers to Trade and Investment.”

All those complaints reflect European resentment that in a different climate--such as a weak dollar, rather than today’s strong greenback that enhances the Continent’s export machine--could more readily have led to a trade war.

The No. 1 European complaint is American “extraterritoriality”--the application of U.S. law outside the United States.

The Frankfurter Allgemeine Zeitung, in an editorial Tuesday, was only one of the many voices accusing the Americans of having a double standard by criticizing Europe’s review of Boeing’s plans.

“From the other side, the Federal Trade Commission reserves the right to examine the effects of European mergers on the U.S. market and, if necessary, to ask for conditions,” it said. Most recently, it noted, U.S. regulators pushed through changes in the agreement between European pharmaceutical companies Sandoz and Ciba-Geigy that created the Swiss-based drug maker Novaris.

Last spring, the Europeans were particularly infuriated by the passage of the Helms-Burton Act, which threatens fines for foreign companies “trafficking” in U.S. assets confiscated by the Communist regime of Fidel Castro.

The United States, they claimed, was in effect trying to export its long-standing economic blockade of Cuba. Yet for all the shouting, European Union officials say, U.S. and European officials have worked together behind the scenes to avoid a blowup.

“Ten, 20 years ago, Helms-Burton would have run [U.S.-European] relations into the ground,” Crossick said. “There are still real problems, but the ability to handle them has consistently improved.”

For their part, U.S. officials complain the Europeans--who have become hyper-alert to food hygiene issues because of the scandal over “mad cow” disease in Britain--aren’t allowing the imports of genetically modified corn and soybeans, hormone-fed beef and chicken parts that have been given a final wash with chlorine-laced water. The ban on U.S. chicken imports alone costs U.S. farmers an estimated $50 million a year in lost sales.

Pet-food exports to France, worth an estimated $40 million annually, have been halted since last September because the French fear the pet food might contain cow brains and nerves carrying mad cow disease, an ailment found in some British cows that has led to a European Union ban on British beef exports. The Clinton administration has also sided with California peach canners and other U.S. producers in grousing about “huge and excessive subsidies” paid to Greek competitors.

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European and U.S. officials are in the initial stages of consulting on how to regulate the rapid growth of electronic financial transactions, and are trying to get government regulators to set uniform standards in areas from pharmaceuticals to telecommunications, so they could accept each other’s findings rather than duplicating tests.

Karel Van Miert, the European Commission’s point man on the Boeing deal, said Wednesday the acrimonious clash had bared the need for better cooperation between European and U.S. antitrust experts, who in 1991 agreed to consult with each other on disputed mergers. As the world becomes a more unified market, Van Miert predicted, there will be more disputes like the one over Boeing.