EC threatens reprisal after US trade talks collapse

THE European Community yesterday left open the threat of retaliatory trade measures against the United States following the breakdown of talks between the two sides.

Talks scheduled for today in Brussels were cancelled after the US pulled out late on Friday and renewed a threat of sanctions. Yesterday, Sir Leon Brittan, the EC's external trade commissioner said: 'I regard this as a disappointing development and will reflect on the next step that the Community should take.'

Finance ministers meet in Brussels today and will discuss trade amid growing gloom over transatlantic relations. Commission officials have already discussed possible retaliation against the US. The subject of the row is the ability of US companies to win public contracts in the EC in sectors such as telecommunications, power generation and water supply following a new EC law, the utility directive. The US administration considers this protectionist, and has said it will lock European companies out of part of the US market, affecting contracts worth up to dollars 50m ( pounds 35m), if there is no EC action by 22 March.

Beyond this, there are rumbling disputes over steel, aircraft subsidies and agriculture. All predate the arrival of Bill Clinton in the White House, but the EC believes that the new administration is being deliberately provocative, and Jacques Delors, President of the European Commission, has accused the President Clinton of 'muscle-flexing'.

Mickey Kantor, the US Trade Representative, is fast replacing Margaret Thatcher in the Brussels demonology. Sir Leon has previously accused him of 'unilateral bullying' and their first meeting revealed a personal chemistry that verged on the explosive. Yesterday, Sir Leon said of the US pull- out: 'This is a very negative step which I regard as surprising and completely unnecessary'. He added: 'These issues need to be resolved through negotiation. Nobody can be compelled through negotiations, but that should not stop the two sides from talking.'

A formula was suggested at the last round of talks offering both sides 'comparable, effective and lasting access', but there was no agreement on what this might mean in practice. The irony is that the new EC law on utilities was part of an opening-out of the market - or at least that was how Brussels saw it. Indeed, it was opposed by some EC countries, notably France, for that reason.

It came into effect on 1 January as part of the EC's far-reaching single-market programme. But Washington saw it as part of an attempt to create a 'Fortress Europe' by permitting governments to refuse tenders where the company concerned was not deemed European, and giving a price advantage to EC companies.

For its part, the EC says that there are big problems for European companies trying to gain access to US markets because of 'Buy American' acts and US regulations.

'There are three main types of problems involved,' says a recent report. 'Discrimination in US federal law, the fragmentation of the US market caused by the introduction of unco-ordinated restrictions by individual states of the Union and structural impediments such as those which exist in the telecommunications market,' where regulations and ownership patterns mean few EC firms get a look-in, according to Brussels.