Kantor and Brittan try to stave off trade war: Public contracts, Gatt, steel and fresh EC allegations of subsidies to aircraft manufacturers cast shadow over talks

MICKEY KANTOR, the US Special Trade Representative, and Sir Leon Brittan, his EC counterpart, meet for three hours today to try to stave off an all-out trade war, against the background of renewed EC allegations of subsidies for the US aircraft manufacturers Boeing and McDonnell Douglas.

A high-level EC negotiating team sent to Washington last week to prepare the ground for the Kantor- Brittan talks returned with few illusions as to how difficult it will be to resolve one of the thorniest issues - public contracts. Other tricky areas include the General Agreement on Tariffs and Trade, steel imports and aircraft subsidies.

American anger has been triggered by the EC public utilities directive that came into force at the beginning of the year. The EC says the measure is liberal because it forces local authorities to put out to public tender contracts in previously closed areas.

The US, however, believes that its provisions giving price preference to EC companies in the fields of energy and telecommunications are discriminatory. Mr Kantor has threatened measures that would restrict Community access to US public contracts still further in retaliation.

The Community counters that US procurement policy, with its strong incentives to 'buy American,' is still more protectionist than anything proposed by the EC.

Separately, the issue of aircraft subsidies will be raised by EC officials who will present their American counterparts this week with evidence that the US government is exceeding the limits on commercial aircraft aid set down in an agreement signed by both sides last summer.

The claims threaten to re-open a war of words that had only just subsided following comments by President Clinton, blaming 27,000 job losses at Boeing's Seattle plant on the subsidies Europe has pumped into Airbus Industrie.

According to an analysis carried out for the Commission by Arnold and Porter, a firm of Washington lawyers, excessive levels of indirect aid have been channelled into Boeing and McDonnell Douglas through Nasa and US Department of Defense research contracts.

Under the Gatt agreement on trade in civil aircraft, signed last July, direct subsidies for the European Airbus consortium and its US competitors, Boeing and McDonnell Douglas, is limited to 33 per cent of the cost of a new aircraft.

Indirect support through R&D grants and military funding, meanwhile, is restricted to 4 per cent of an individual company's turnover and 3 per cent of industry-wide turnover.

Giving evidence to the Commons Trade and Industry Select Committee last week, Michel Dechelotte, director of international relations for Airbus, said: 'I can tell you that the US government is really at the limit of the 4 per cent and maybe beyond.'

Although the period analysed by Arnold and Porter, 1991, pre-dates the signing of the agreement, the EC is expected to argue that it makes the case all the stronger for tight monitoring of the agreement.

Airbus and its partner governments in Britain, France, Germany and Spain are particularly concerned at the ability of the US to stay within the 4 per cent limit given the planned fivefold increase in Nasa's budget.

There have been some optimistic signals from Washington. Political rhetoric from the President and other senior US officials in recent days has featured statements insisting a trade war is in no one's interests. Mr Kantor has confirmed he will be extending the so-called fast-track legislation to speed through the Gatt talks.

The brightest signal came from the meeting 10 days ago between EC Commission president Jacques Delors and Bill Clinton, as a result of which the US president agreed to suspend sanctions until after today's talks.

The extent to which the President will have brought pressure to bear on Mr Kantor, a relative novice to the art of political negotiation, to adopt a more flexible stance is not yet known.

Leading article, page 19