U.S., Europe Edging to Brink of a Trade War

A late-winter squall has blown up in transatlantic relations, one that could escalate into a springtime hurricane.

It seems downright paradoxical, but even as the United States and many countries of Western Europe cooperate on seeking an end to ethnic bloodletting in the Balkans and on charting a new course for the North Atlantic Treaty Organization, differences over trade are the most damaging in years.

“Some people believe this is the new conflict after the Soviets have gone,” observed U.S. Agriculture Secretary Dan Glickman. Under that thesis, increasing globalization of markets and of competition, combined with the absence of a common and unifying threat like the Communist bloc, makes clashes over business interests more, and not less, likely.

This month, the United States and Western Europe have squared off over banana sales and half a billion dollars’ worth of punitive tariffs imposed conditionally by the Americans. And more unpleasantness between the world’s largest trading partners lies ahead: over hormone-fed beef, genetically modified strains of corn and other crops, and noise from aging U.S. aircraft.

“It’s a straight rattling of swords back and forth,” Rep. Porter J. Goss, a Florida Republican involved in the airplane dispute, has said.

Steeling Washington’s determination to batter down any remaining barriers to U.S. exports is a domestic trade deficit that totaled almost $170 billion in 1998 and could balloon to $300 billion this year.

“One mustn’t underestimate the seriousness of the dangers the transatlantic relationship is going through at the moment,” said Guillaume McLaughlin, analyst at the European Policy Center, a Brussels think tank. “The bottom line is that the banana issue is just a precursor to much more vitally important issues.”

Roderick Abbott, head of the European Union’s trade delegation in Geneva, has accused the United States of “declaring war” on commercial competitors. This time, some experts believe, Europe’s resolve to fight back is stiffened by the existence of the euro, a common currency adopted by 11 of the 15 EU member countries in January.

“The arrival of a single, unified money means Europe can punch harder on the world stage, and make its mark in terms of trade, economics and politics,” an official of the EU’s executive contended.

At the same time, a series of simultaneous but unrelated news events has sown doubts in the minds of some Europeans about the Clinton administration’s avowed desire for closer partnership and America’s ability to deal with European countries as equals.

Italy, for example, reacted with bewildered anger when the Marine pilot whose plane clipped a cable car wire last year in that country’s Alpine region, sending 20 people plunging to their deaths, was acquitted at a court-martial in North Carolina.

And over protests from Germany, which claimed that international covenants had been flouted, two German-born brothers who had been convicted of murdering a bank manager were recently put to death in Arizona--one in a gas chamber and the other by lethal injection.

These incidents had no connection to the squabbles over trade, but Le Figaro, a conservative Paris newspaper, claimed the events all “serve as confirmation that America doesn’t consider the rest of the world as much to bother about.”

Cost of Imports Would Skyrocket

On March 3, the United States announced that it will require 100% customs bonds on $520 million worth of annual imports from the EU, from Scottish cashmere sweaters to Italian prosciutto. The cost of the goods will in effect double, making them harder to sell.

The U.S. decision, which won’t become final until April 12, is meant to punish the Europeans for what the Americans view as the flouting of three rulings from the World Trade Organization demanding liberalization of the EU’s banana import rules. The case is also viewed as the first major test of the 143-nation WTO’s ability to live up to its mandate as rule-maker and referee of international commerce.

For seven years, Americans and Europeans have been fighting over bananas, and U.S. officials are exasperated by what they see as the Europeans’ bad faith in not applying decisions by the WTO that have gone against them. In a recent speech to the Geneva-based organization, U.S. Ambassador Rita D. Hayes dropped diplomatic niceties and compared European officials to a celebrated Dr. Seuss character, the Cat in the Hat.

Like the fictional feline from children’s literature, Hayes said, the Europeans have “delighted in leading others into mischief.”

The EU modified its banana rules Jan. 1. But through a web of tariffs, licenses and quotas, it continues to reserve a share of its market for Europe’s former colonies in the Caribbean and Africa. The Europeans say they’re acting out of a sense of social responsibility to ease poverty in their former colonies, but U.S. officials denounce the scheme as anti-free trade. EU quotas, they estimate, cost Chiquita Brands International and Dole Food Co., two American companies, about $520 million in lost European sales.

The Danes, Dutch and many British opinion-makers have been sympathetic to the complaints from Washington. But in most of Europe, this month’s U.S. action--immediate imposition of 100% tariffs in everything but name--has been decried as bullying and unilateral short-circuiting of the 4-year-old WTO.

“If you have a case, prove it in a proper way,” Leon Brittan, the EU’s commissioner for trade, admonished the Americans at one point. “You cannot enter the courtroom pointing a pistol at the other side.”

In Britain and Spain, the U.S. ambassadors have been called in over the banana issue, a rare occurrence between friendly nations. British officials claim the threatened U.S. tariffs put 2,400 jobs at risk in this country, and the matter was serious enough for Prime Minister Tony Blair to discuss with President Clinton by phone.

Conflict Over Jet Noise

Additional pitched conflicts seem just weeks away. On March 29, EU transport ministers are supposed to decide whether to ban older U.S.-made jetliners, including DC-9s and Boeing 727s and 737s, that have been equipped with engine mufflers to make them less noisy.

Last month, the EU parliament voted in favor of such a ban, which would take effect April 1, 2002, contending that the modified planes are still too noisy and that their mufflers, called “hush kits,” increase fuel consumption by 50% on takeoff and landing.

U.S. officials denounced the EU’s plan as arbitrary and say that, if implemented, it will ground 1,600 American airliners and deal a $1-billion blow to the U.S. economy by devaluing the resale value of older planes and harming the manufacturers of hush kits, all of whom are American.

In response, the House of Representatives voted to outlaw flights in U.S. airspace by the Concorde, the Franco-British supersonic jetliner, if the European plan is enacted. That tit-for-tat measure still must be passed by the Senate and signed by Clinton to become law, but some on Capitol Hill have been talking as though the first volleys in a trade war have been exchanged.

However, the greatest frictions are likely to come over agriculture and food products.

U.S. officials say they are sensitive to the concerns of European consumers, who three years ago experienced the scare of “mad cow” disease, which caused a 25% drop in red meat consumption. But they accuse EU leaders and officials of ignoring scientific evidence to keep European markets in the hands of local producers.

Because American cattle are fed hormones to make them grow faster, a practice found safe by the Food and Drug Administration, American beef imports have been banned by the European Union for the last 10 years. That means $200 million to $300 million annually in lost sales for U.S ranchers and meatpackers, Agriculture Department officials in Washington say.

Europeans are also unenthusiastic about another creation of agribusiness on the other side of the Atlantic: vegetables that are genetically modified to make them resistant to weedkillers or pests. Because of the use of genetically altered hybrids in the U.S. corn crop, American sales of that vegetable are banned by the EU. The estimated yearly loss to U.S. farmers exceeds $200 million.

America and Japan are also currently at loggerheads over the safety of genetically modified organisms.

“[EU] consumers, like ours, deserve choices,” Glickman said. “But the fact is, if you don’t go on the basis of reasonably clear science--and in this case, it’s absolutely clear science--then you can’t have trade in anything. It’s all dead.”

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London Bureau Chief Marjorie Miller and Sarah White and Christine Winner of The Times’ Paris Bureau contributed to this report.