Back to business after US poll

Date: 29/10/1998

EU insiders attribute the fiery language coming out of Washington in recent weeks to pre-election tub-thumping. Simon Taylor examines the prospects for the transatlantic relationship once congressional polling fever abates

NEXT week's US congressional elections come at a crucial time for transatlantic relations, as Washington faces up to the challenge of an EU poised to make a quantum leap in economic power and possibly in diplomatic standing.

While the minds of the US political élite and the mainstream media will be focused on measuring the damage to the Democratic Party caused by President Bill Clinton's affair with Monica Lewinsky, the Union will also be watching closely to see how the balance of power changes - but for entirely different reasons.

At stake in Tuesday's (3 November) elections are all 435 seats in the House of Representatives, where the Republicans currently have 227 members and the Democrats 205. In the Senate, 34 seats are being contested, with the Republicans trying to increase their tally of 55 compared to the Democrats' 45.

In the run-up to the poll, political analysts in Washington were suggesting that the Lewinsky affair had damaged the Democrats far less than their Republican opponents had hoped.

The recent turmoil on international financial markets has refocused attention on management of the economy, an area where Clinton is seen to be doing a good job, delivering high growth and low inflation.

"The US economy has done very well and people in the US feel upbeat about their financial situation," says Tom Mann, director of government studies at the Brookings Institute in Washington.

The worsening US trade deficit, predicted in some quarters to soar to 250 billion ecu next year, has so far failed to have an impact on voters' minds. Clinton has also managed to outsmart the Republicans on domestic issues, winning a battle with the Congress to increase spending on teachers for public schools.

The president has also boosted Democratic hopes by notching up a major foreign policy success in the last week before polling, by persuading Israeli Prime Minister Benjamin Netanyahu and Palestinian Authority President Yasser Arafat to sign up to a new peace accord.

Analysts therefore predict that this weekend's election will produce a result very close to the status quo, with gains for the Republicans limited to single figures in both the House of Representatives and the Senate.

That will come as a great relief to policy-makers in the EU. The imminent elections have forced the Clinton administration, under pressure from sitting Republicans, to take a more hawkish stance in recent weeks on international trade disputes such as the US' outstanding cases against the Union at the World Trade Organisation.

Clinton's chief of staff Erskine Bowles promised Congress that the US was ready to take retaliatory action against the EU in two cases where it believed the Union had failed to comply with WTO rulings. The administration has drawn up a list of European products which it would hit with additional duties if the EU were to maintain its refusal to drop the ban on hormone-treated beef and to end favourable arrangements for banana imports for former colonies.

The EU argues that it needs another seven months to complete new scientific studies on the health risks of growth hormones and claims that it has changed its banana import regime sufficiently to meet US demands.

The strident rhetoric from the Americans is not causing alarm bells to ring in Union circles, yet. It is being seen rather as a typical example of tough-talking designed to appeal to the voters at election time.

Trade Commissioner Sir Leon Brittan last week clearly attributed US Trade Representative Charlene Barshefsky's aggressive comments about the EU not taking its fair share of Asian imports to the impending American polls. He has also warned Washington strongly against taking unilateral action in WTO disputes.

Trade officials believe the fiery language in which EU-US trade disputes are currently being conducted is likely to be tempered when the elections are over and the need for tub-thumping has died down.

They hope that this will create an environment which will be far more conducive to settling bilateral trade rows and improve the chances of both sides agreeing on target areas for liberalisation under the Transatlantic Economic Partnership. Brussels and Washington have set themselves a December deadline for agreeing an agenda for the TEP talks, hoping to have a deal ready in time for the EU-US summit due to be held on 15 December.

THE balance of power in the newly elected Congress will be particularly important for the EU in one crucial area: enforcing changes to the Helms-Burton measures penalising foreign companies doing business in Cuba.

Under the terms of the compromise agreed by Clinton in May to end a bitter dispute over the act, the Congress has to endorse the suspension of Article III of the original package, which allowed US companies and nationals to file law suits against foreigners accused of dealing in property confiscated by the Cuban revolution.

According to Mann, even a Congress with an increased Republican majority is unlikely to scupper the agreement struck by Clinton. "There is a growing recognition that unilateral sanctions have their limits as effective political instruments," he says.

But there is growing concern that Clinton's position has already been weakened - whatever the outcome of the elections - in trade negotiations, with the president losing support from both the Republicans and his own party for the 'fast-track' authority he needs to agree trade deals without them being unpicked later by a hostile Congress.

Mann predicts that Clinton is unlikely to get the necessary authority during his term of office, and that his successor will have to wait until after the next presidential elections in 2000, given that opposition to further liberalisation is an easy rallying call for populists on the left and right of the House, particularly if the trade deficit mushrooms to the extent some analysts are predicting.

This would not, as Brittan has pointed out, create any immediate problems because Clinton does not need fast-track authority to open the next round of WTO negotiations. But his successor will need it to conclude the round, probably around the middle of the next decade.

Perhaps the biggest challenge for the new Congress will be to decide on its approach to the EU's new role on the world stage.

With the launch of the euro on 1 January next year, the US will be faced for the first time with a reserve currency to rival the dollar.

This could cause tension between the two giant trading powers if the US loses the influence over global exchange rates which has in the past allowed it to favour its own trade situation by, for example, pursuing a policy of benign neglect of the dollar.

However, the launch of the euro could have a positive impact on transatlantic relations, providing the US with an equal partner and thereby offering new possibilities for the two blocs to coordinate their actions to deal with the world's financial problems.

Which way the pendulum swings will depend on the euro-11's success in speaking with a united voice in international financial fora, and whether the more interventionist EU finance ministers like France's Dominique Strauss-Kahn and Germany's Oskar Lafontaine succeed in persuading their colleagues to take an active role in taming currency flows and exchange rate fluctuations.

It may also be influenced by the Union's success or failure in fulfilling its ambitions to boost its diplomatic and military presence to match its global economic weight, by appointing a single figure to represent the EU in international crises such as Kosovo and Albania and contemplating greater coordination on military action.

Unlikely as it may seem, given the Union's recent failures to act decisively, the US might have to deal with a more assertive EU in international arenas in the months and years to come.

That would not cause any dismay in Washington - far from it. For years, the message from the US administration has been that it would welcome a European Union which was better placed to defend its own security and foreign policy interests without constantly picking up the telephone to call the White House.

Major feature on EU-US relations.