Deals on beef and bananas in sight as US averts ‘mother of all trade wars’

Date: 23/11/00

By Craig Winneker

AMERICANS may have had a confusing couple of weeks waiting to find out who would be their next president, but one thing was never in doubt: the prospect of potentially explosive trade disputes with the EU heading into next year.

Ongoing disagreements and potential sanctions over beef, bananas and tax breaks for multinational corporations will keep Union and US trade negotiators busy in 2001. But if the last few weeks are any indication of how those battles will play out, the chances of a full-blown transatlantic trade war are slim.

For one thing, uncertainty over the presidential election demonstrated that the legislative branch is more important than the executive when it comes to resolving bilateral trade fights.

As the world focused on Florida's ballot-counting methods, Congress quietly averted what one committee chairman called the "mother of all trade wars" by voting to amend the Foreign Sales Corporation scheme, which provided billions of euro in tax breaks to US multinationals.

The US had already missed two deadlines for eliminating the scheme, which the World Trade Organisation ruled was an illegal export subsidy. "Everybody agreed we had to pass FSC," said one US official. "It just got caught up in the pre-election political wrangling."

But in the days following the election, leaders from both parties eager to project an image of political stability moved quickly to repeal the measure and introduced a new system. Despite the action by Congress, the EU sought WTO permission to impose 4 billion euro in sanctions on the US, insisting the new regime was not satisfactory.

But this was merely a formality, and the WTO is unlikely to deliver a verdict until mid-2001, putting off possible sanctions for now. Diplomats on both parties say that with the FSC dispute on the sidelines, progress can now be made in other areas.

Months of effort to resolve a row over the EU's ban on hormone-treated US beef have also moved the two sides closer to a resolution. The US has offered to reduce sanctions on 130 million euro of EU imports if the Union agrees to allow more access for hormone-free American beef.

The two sides are also nearing a deal on the EU's quota system for banana imports, which the WTO ruled discriminated in favour of former European colonies. French President Jacques Chirac and outgoing President Bill Clinton are said to be anxious to end the seven-year fight at the EU-US summit in Washington next month.

Governments and MEPs remain divided over the Commission's proposal for a 'first-come, first-served' quota system through 2006 followed by a tariff-only regime. But if member states hold firm and if US officials can convince Chiquita Brands to follow Dole Foods' example and approve the deal, an end to the conflict may be at hand.

Nevertheless, many of the political obstacles to resolving these disputes - and others, such as the continuing row over the EU's ban on US-made aircraft engine 'hush kits' - will remain. On the European side, a tough-as-nails Trade Commissioner and 15 opinionated member states will hold their ground. In the US, members of Congress will be as keen as ever to fight for their interests.

But the quick action on FSCs was a positive sign. Razor-thin Republican majorities in the House and Senate will force party chiefs to work together if they are to meet any legislative goals at all.

Union leaders have taken notice. "We see continuity and further improvement in relations between the EU and US," said one Commission official. "There is no reason to think the close results of the elections will lead to paralysis. We in Europe know about tight election results and coalition governments."

Article forms part of a survey on trade.