EC Aims to Clear `Minefield' Facing Transatlantic Trade

THE decision by the United States to hold off on trade sanctions that were set to take effect today against the European Community postpones a battle - but does it cool the risks of transatlantic commercial war?

President Clinton says he thinks so, and European Community leaders are breathing easier now that EC companies do not face immediate barriers on telecommunication and government procurement contracts.

But the road ahead for international trade is still a minefield, observers say, and defusing it will depend on two factors: what many European leaders call Mr. Clinton's mercurial trade stance and protectionist temptations on all sides, particularly France.

The US says it will wait until its trade representative, Mickey Kantor, meets with EC trade officials in Brussels March 29-30 before making a final decision on procurement sanctions. The US delay, announced March 19, followed a two-day Washington visit by EC executive Commission President Jacques Delors.

Despite their relief, EC officials continue to warn that US saber rattling over trade issues will only fan protectionist flames crackling around Europe. Before the procurement dispute, they note, the US was already attacking the EC over subsidies to the aerospace and steel industries.

"We are feeling the same kinds of protectionist pressures that are being felt in the States," says one high-ranking official with the EC Executive Commission in Brussels. "Clearly, it can only become more difficult for us to keep the lid on if the US pursues the kind of action" foreseen in the procurement trade curbs.

EC officials have long held the position that sharp words from the US on trade, and a series of actions including anti-dumping duties against European steelmakers last month, were signs of a new administration "looking to put just the right growl in its voice," as one official says.

They also warn that a trade-disrupting reprisal-for-reprisal pattern may develop. This became especially apparent after Mr. Kantor abruptly canceled talks scheduled earlier this month on the procurement dispute.

The envisioned US sanctions - which would bar European companies from a relatively symbolic $40 million-to-$50 million in government contracts - would be in retaliation for new Community procurement rules that give a 3 percent price preference to European companies bidding on EC government contracts in telecommunications, energy, and water.

EC officials say the US has overlooked the fact that the Community's new Single Market has led to the opening up for the first time to international bidders a wealth of previously closed contracts - more than $15 billion worth so far this year.

Facing a faltering economy and rising unemployment, improving transatlantic trade has become a priority for the EC. Its officials hope that the US economic rebound will send a spark overseas. But divisions within the EC countries over trade policy - what boils down to a debate between free-trade and nationalist-trade philosophies - threaten to limit the Community's hand in negotiations with the US.

France, which slumped into recession this year, presents the major stumbling block. A vociferously protectionist right wing was expected to move, in the second round of legislative elections yesterday, from the political opposition to the government.

Some leaders, like Paris mayor and 1995 presidential hopeful Jacques Chirac, whose Gaullist Rally for the Republic party is popular in rural France, vehemently attack last year's reform of the Community's Common Agriculture Policy.

That reform reduced subsidies to farmers and pays them for taking land out of production, and allowed the EC to break a deadlock with the US on agriculture trade and made possible resumption of the Uruguay Round of international trade negotiations under the General Agreement on Tariffs and Trade (GATT).

EC officials say privately that tough US action against Community trade interests would reinforce France's protectionist tendencies, while compromise at the US-EC level would further isolate France from its European partners, force it to accept compromises on agriculture, and pave the way for conclusion of GATT.

"It's very simple," says one EC source. "If the US takes steps down the protectionist path, it lessens the pressure on the French to step back from a similar direction."

Some observers expect a delicate triangle of talks to develop among the US, France, and Germany. Germany and the US want a successful conclusion of GATT, but cannot get there without France. French monetary stability - and the new government's ability to address a 10 percent unemployment rate - will depend on Germany's interest rate policies.

The united French right campaigned for both a tough, nationalist trade policy, particularly on agriculture, and closer ties with Germany. The two are incompatible. Several German leaders have said the French position on farm trade already stretches cooperation to the limit.