EU contenders caught in the crossfire as US trade row looms

Date: 01/08/02

By Peter Chapman

COUNTRIES hoping to join the European Union risk being caught in the diplomatic crossfire as a new transatlantic dispute threatens to explode.

Washington has stepped up its battle to prevent the EU from forcing applicant states to ditch or substantially alter bilateral trade agreements with the US.

The would-be member states have been told such accords are incompatible with membership of the Union and current EU-US trade agreements.

But US government trade officials say the so-called 'bilateral investment treaties' (BITs) are vital for American businesses investing in central and Eastern Europe and that moves to tear them up will be counter-productive.

Nevertheless, the Commission has confirmed that it will argue at talks in September that the bilateral treaties must, at the very least, be watered down. Officials from candidate countries fear that such a move could badly affect their US trade links.

Krzysztof Trepczynski, deputy director of the Polish economy ministry, said: 'The problem is not only legal, it's political. We would like to avoid a situation where enlargement means that we are changing relations towards third countries - and the US is one of the biggest trade partners.' Poland was trying to convince the Commission to let it keep part, if not all, of its US accord, he added.

If it is forced to give ground, he said Poland wanted 'confirmation from the US that they are not offended and they accept the situation'.

Czech external relations diplomat Ivo Gombala said the transatlantic disputes over steel and farm subsidies had made the US 'sensitive to all signals that the EU is trying to punish them'.

'That is why they are making this huge pressure. They are saying 'in the past we had good relations and at the moment you are preferring the European Union'...it is more political than rational.'

US trade sources admit the issue could develop into a serious transatlantic trade row if a solution cannot be found before the first round of enlargement nears completion.

'We are concerned. [BITs] send an important message to investors - so we certainly would not wish for them to be abrogated,' said a US official in Brussels.

Four presidents from leading American industry lobby groups recently upped the stakes when they wrote to US Trade Representative Robert Zoellick, urging him to act over the looming threat to trade. The four, including Thomas Niles of the influential US Council for International Business, said the deals protect US company interests and stop errant governments from expropriating assets.

Scrapping the accords would 'sow doubt among foreign policies and protection of investor rights at precisely the wrong moment. This, in turn, could have a significant impact on future investment decisions'.

However an aide to Enlargement Commissioner Günter Verheugen dismissed that view, insisting that EU membership would be in the interests of companies investing in candidate countries. Moreover, he said there was no evidence that the lack of BITs had stopped US firms investing in the 15 current member states.

Substantial changes to the bilateral treaties were necessary, said the aide, because there were often clear conflicts with the EU body of law known as the acquis communautaire.

For example, the EU's television without frontiers directive limits imports of films and programmes from the US. If the BITs are allowed to stay in force, this would enable American investors 'to circumvent this legislation and gain access to the EU through the back door', added the official.

Countries hoping to join the European Union risk being caught in the diplomatic crossfire as a new transatlantic dispute threatens to explode. The would-be Member States have been told bilateral trade agreements with the US are incompatible with membership of the Union and current EU-US trade agreements.