War talk no one can afford

IN HER book The Guns of August, Barbara Tuchman quotes extensively from a 1910 bestseller which stated that a war in the 20th century was impossible. Given the economic interdependence of nations, the victor would suffer equally with the vanquished, it said. Therefore, war had become unprofitable and no country would be foolish enough to start one. So wrote Wayne Angell in The Great Illusion, which became a cult of its time - published in 11 languages.

Similar reasoning is advanced today to explain why countries will not again engage in a bitter trade war on the scale of the one in the 1930s that prolonged the misery of the Great Depression. However, just as Angell was proved wrong by the First World War, so might the pro-Gatt free-traders be proved wrong by the US and the EC, as they edge ever closer to an unresolvable trade dispute in the 1990s. At this stage in the world trade game, even a relatively small spark could light a big fire.

The past week was a case in point. There were more fierce words from Mickey Kantor, the US Trade Representative, on EC procurement practices, following his abrupt cancellation of talks on the dispute. The cancellation caused last-minute changes in a long-scheduled meeting between the EC President, Jacques Delors, and President Bill Clinton. Easing the mounting trade tensions became the predominant theme as Mr Delors sought to build a working relationship with the new US administration. EC officials said he wanted Mr Clinton to forget the trade bullying and engage instead in a new partnership with the EC on a growth initiative to revive the world economy.

US officials denied bullying. 'Our goals have not changed,' said a senior US trade official. 'We seek comparably open markets, and we are always willing to listen to reason.'

What is really going on here? Are the escalating tensions the result of too many ill-conceived statements by inexperienced US officials? Do they reflect leadership exhaustion in Europe among officials clinging to worn- out positions? Has there really been a sea-change in US thinking, as many Europeans claim, and as reflected in aggressive new US competition policies?

One fact is clear; there is mistrust on both sides. Clinton administration officials and key members of Congress blame Europeans for blocking completion of the seven-year Uruguay Round of trade liberalisation talks. The Clinton team is open in its criticism of European subsidies and of EC practices that restrict imports from Eastern and Central Europe, Japan, the US and elsewhere.

'We may not be totally free-traders but we are a lot freer than they are,' said an aide to Mr Kantor.

European officials, who had grown comfortable with the style and rhetoric of the Reagan and Bush administrations, mistrust the motives of the Clinton team and fear that it is anti- Europe. One EC official noted that he had searched in vain for a mention of Europe in Mr Clinton's State of the Union message to Congress; and at recent conferences in Britain and Italy, much has been made of a lack of gestures of solidarity towards Europe by the US administration. 'We are getting our signals from steel, Airbus, government procurement and other disputes, not from any articulated policy,' said an EC official.

Adding to the confusion are the tough statements by Mr Clinton, Mr Kantor and other senior officials, and the new emphasis on US competition policy. Some Europeans are predicting an outbreak of commercial warfare, with the main protagonists the US and the EC. It is true the Clinton Administration has yet to articulate a policy toward Europe, but this appears to result from a crowded agenda and the slowness of its own internal staffing rather than an anti- European attitude.

Indeed, Clinton officials were surprised to hear they are regarded as anti-European. 'Many of us are still filling out conflict of interest forms or crashing around the clock on Bosnia. We have not had time to work on an administration-wide policy,' said a senior State Department official. However, the Clinton team has had the time to articulate domestic policy on jobs, the reclaiming of dominance in high technology, and US economic revival overall.

Included in this effort is a determination to open markets for US goods and to fight foreign subsidies - even if this means working with whole US industries, as the President promised to do for the aircraft industry.

'I am not going to roll over and play dead,' he told workers at a Boeing plant in Seattle, Washington. Between such promises and his avowed commitment to open and free trade, and to completion of the Uruguay Round and a North American Free Trade Agreement, there is ample room for misunderstanding.

He would do well to negotiate immediately an overarching political framework with the EC that would allow both sides to better manage their sector-specific trade disputes, as well as any broader challenges. Without one, there is real danger that threats and counter-threats could erupt into a trade war.

Mr Kantor is undoubtedly aware that bluff is part of the game. If the objective is to expand trade, then it may paradoxically be necessary to threaten to restrict trade. But these are tactics that can be taken too far.