Court ruling deals a blow to Brussels foreign-policy makers

THE European Union suffered a blow to its foreign policy yesterday, when an important agreement with the United States was struck down by the European Court of Justice.

Although officials in Brussels were relatively confident the US- European Competition Agreement could be resurrected without too much fuss, the case has again underlined the extraordinary lack of clarity over how the EU conducts external relations. Several EU countries, including France and Britain, are involved in a series of battles to ensure Brussels does not take more power than it is allowed.

The EU's Commission, its executive bureaucracy, negotiated and signed the Competition Agreement in 1991. It covers the exchange of information in global mergers and takeovers and is aimed at policing the growing volume of deals that cross borders and jurisdictions, often between Europe and America. The EU has increasingly tried to put together a coherent approach to such cases.

But the court said yesterday that the Commission had exceeded its powers, and member states should have had a vote to agree the deal before it came into practice. France, the Netherlands and Spain had all challenged the pact. Commission officials said they did not think the member states had any objection to the contents of the deal, only to the way it had been concluded. They were looking at alternative legal bases for the agreement, giving member states a veto and allowing the European parliament oversight. US diplomats and EU officials said the problem was 'very fixable'.

But the ruling could have broader consequences. Officials said they were concerned the row could become mixed up with other disputes concerning the Commission's powers, especially over external relations. The EU is also involved in an argument over the Gatt agreement, struck last year, with the same principle at stake: how far can the Commission represent member states, and how far must national capitals be consulted before the EU acts?

Smaller countries want to cede power over foreign policy to the Commission, while larger member states - principally France and Britain - are intent on ensuring national capitals keep their rights.