U.S., Europe Slip Toward a Trade War

An improbable U.S.-European scuffle over the banana business escalated toward a trade war Wednesday as the Clinton administration moved a major step closer to punitive 100% tariffs on an array of European imports from cashmere sweaters to prosciutto.

In an action that drew angry protests by European officials, the U.S. ordered importers of selected European goods in this country to immediately begin posting bonds to cover burdensome new tariffs that could be imposed as early as mid-March.

Consumers would see the prices of targeted goods double. More importantly, new obstacles to trade could quickly lead to retaliation and a broad economic slowdown, economists warn.

While the U.S. move stopped short of all-out trade sanctions, it could have a swift, chilling effect on trade of the targeted products. Other affected goods include certain handbags, tea, sweet biscuits, candles and batteries, although U.S. officials are continuing to fine-tune the list.

Wednesday’s flare-up comes at a time of growing protectionist sentiment throughout the global trading system and particularly between the United States and Europe, the world’s economic superpowers and remaining bastions of financial stability.

On Wednesday, for example, the House of Representatives passed a bill that would prohibit Europe’s Concorde jetliner from flying in this country if the European Union moves ahead with plans to ban certain U.S. planes they claim pollute the air.

Congress is increasingly unhappy with a U.S. trade deficit that soared to a record of nearly $170 billion last year, and the Clinton administration has prodded European leaders to stimulate economic growth on their continent.

U.S. trade officials took a hard line Wednesday on bananas even as they declared that they were “prepared to negotiate” to avoid a much larger trade battle with Europe.

“We have an obligation to our industries and the Congress to protect our rights, and that is exactly what we are doing,” special U.S. trade negotiator Peter L. Scher told reporters.

Sir Leon Brittan, the European Union’s chief trade official, described Wednesday’s action as “unacceptable and unlawful.”

“Just at the time when we should both be working toward a settlement,” Brittan charged, “the United States is fanning the flames of this dispute.”

A panel of the Geneva-based World Trade Organization, which oversees international commerce, is already studying U.S. claims that protectionist European policies cost American firms such as Chiquita and Dole $520 million a year in lost banana sales.

The United States is awaiting the findings of the panel--expected sometime after March 15--before imposing the threatened sanctions and collecting the higher duties retroactive to Wednesday.

American officials have complained for years that European policies improperly favor bananas from former colonies in the Caribbean and Africa, giving European marketers an unfair advantage over their American rivals.

Despite the peculiarity of the dispute--the United States grows virtually no bananas and Europe is protecting fruit that its own officials concede is generally inferior--it has become an increasingly volatile issue between the world’s largest economies.

Last month, the WTO arbitration panel began analyzing the U.S. claim of damages, and administration officials had prepared to impose sanctions Wednesday. But Tuesday the arbitrators said they needed more time to analyze the U.S. claim of $520 million in annual damages and asked negotiators on both sides to provide additional information by March 15. The trade panel’s finding could come shortly afterward.

“We had hoped that the arbitrators would complete their work within the 30-day time schedule called for by WTO rules,” Scher said Wednesday. “Today we are taking steps to protect our interests while the arbitrators complete their deliberations,” he added.

For their part, European officials maintain that they have modified their banana import system in response to U.S. complaints and previous findings. They say the United States has embarked on an inappropriate, unilateral effort outside the bounds of the WTO.

They have also complained that the administration is excessively motivated by political pressure from Chiquita, whose chairman, Carl H. Lindner, has been a big donor to the Republican and Democratic parties.

Brittan, seeking to isolate the United States, charged Wednesday that it had acted arbitrarily and outside the rubric of the WTO.

“The [WTO] arbitrators yesterday made it clear that they were in no way authorizing such action by stating expressly that they were not ready for the moment to take a decision on the American request,” Brittan said.

U.S. officials contend that Europe has repeatedly flouted trade findings on bananas. They insist that America’s hard line is in defense of the global trading system, where other pending major issues include access to Europe for U.S. beef treated with growth hormones. A European negotiating team arrived in Washington this week to take on that issue.

The action Wednesday is an unusual one, though not unprecedented. In late May and June of 1995, U.S. officials required importers of Japanese luxury cars to post bond to cover threatened tariffs. The issue was settled before the United States collected the punitive tariffs.