New EU-US plan to nip trade wars in the bud

Date: 17/06/1999

By Simon Taylor

THE EU and the US are to set up an 'early warning system' to stem the tide of costly and politically damaging trade disputes between the world's two largest economic powers.

The new strategy, to be unveiled by German Chancellor Gerhard Schröder and President Bill Clinton at an EU-US summit in Cologne next Monday (21 June), is designed to prevent minor spats escalating into trade wars and undermining the transatlantic alliance.

Clinton is particularly anxious to counter anti-Union sentiments in Congress which have been stirred up by disputes over bananas, beef and aircraft. Otherwise, he fears, politicians on Capitol Hill will not support further market liberalisation in the forthcoming Millennium Round of global trade talks.

Both sides want to avoid a repetition of the recent row over EU plans to outlaw aircraft rigged with 'hush-kits'. Officials had been working on the noise-reduction legislation for years before either side saw its potential to threaten €1-billion worth of potential sales by American companies.

"That was a classic case which could have been avoided," said one US official. "This was environmental legislation which toddled through the Commission and people outside the environment area did not focus on what it could mean. The next thing we knew, it had blown up into a major dispute."

Irish aircraft leasing company Omega Air, which owns the EU's largest fleet of hush-kitted Boeing 707 planes, welcomed the early warning initiative. "It shows the inexperience of Commission civil servants that they have got themselves into three trade wars," said chief executive Ulick McEvaddy. "French or British civil servants anticipate problems before they arise."

Mechanisms for dialogue on trade questions have already been put in place as part of the recently formed Transatlantic Economic Partnership (TEP), but the new system will go much further. Both sides will give a commitment to supply each other with information on policy initiatives within a set deadline and promise to respond to inquiries about planned legislation.

In Washington and Brussels, environment, health, standards, transport, agriculture and audio-visual policy proposals will be vetted for trade spat potential; a process to be overseen by joint groups of top officials. These are likely to include the 'senior-level group' chaired by Commission Director-General for external relations Hans-Friedrich Beseler, and the TEP's steering committee.

Officials on both sides hope and believe that potential conflicts will be anticipated long before they reach the attention of top functionaries.

"It is vital that there is as much cooperation as possible at the early stages of preparing legislation," said Monique Julien, trade affairs chief at the Union of European Industrial and Employers' Confederations (UNICE).

However, the agreement will spell out that neither side will have the right to 'veto' the other's health and safety legislation.

In two other disputes with the US, the Union is facing penalty sanctions worth nearly €half a billion after Washington successfully challenged its banana regime and a ban on hormone-treated beef at the World Trade Organisation.

The two sides admit that the new system will not be able to prevent arguments over long-running issues, or those where the EU and the US fundamentally disagree over trade policy. "This would not have prevented problems like bananas or hormones which go back up to ten years," said one European Commission official.

Next week's summit will, however, be dominated not by trade issues but by the post-conflict arrangements for Kosovo. Clinton and Schröder are expected to focus on the planned stability pact which aims to anchor western democratic and human rights norms in the countries of the Balkan region.

The two men will also announce plans for the EU and US to cooperate on moves to encourage economic reform in Ukraine, better anti-drugs coordination and an initiative to combat trafficking in women.