Leading Article: How Europe can arrest its decline

THE MESSAGE from both Washington and Seattle is clear: Europe's relative importance, in economic and therefore also political terms, is declining. If the European Union frustrates the successful conclusion of the Gatt trade liberalisation talks, it will, above all, accelerate the process of its own marginalisation.

The first event to drive home that painful message was President Clinton's success in pushing through Congress, by a surprisingly large margin, the controversial North American Free Trade Agreement embracing the US, Canada and Mexico. The second was Mr Clinton's rendezvous yesterday in Seattle with representatives from the 15-nation Asia Pacific Economic Co-operation (Apec) forum, including the leaders of Japan and South Korea, and China's President Jiang Zemin. Collectively these comprise much the most rapidly expanding economic area in the world, while Europe remains in the grips of recession.

The significance of the Nafta agreement to Europe is two-fold. First, it removes any alibi that the treaty's rejection might have provided to the Europeans for failure to conclude the Gatt talks. Had Nafta gone down, the Gatt talks were widely expected to follow suit. As it is, the Clinton administration is cock-a-hoop, warning that if the Europeans expect American concessions to follow, they will be disappointed. The second and parallel effect is greatly to strengthen President Clinton and reinforce his commitment to free trade.

That should be to Europe's benefit, since his eyes do not, like those of his Californian Secretary of State, Warren Christopher, tend to look across the Pacific rather than the Atlantic. But if the Europeans are thought to be showing insufficient flexibility in the last lap of the Gatt negotiations, he could use his new strength to Europe's disadvantage.

The Apec grouping does not as yet constitute even a trading association, let alone a tightly knit bloc like the European Union. Yet already American officials have begun to wave the 'Asia card'. 'The Europeans have to recognise that Apec can be a building bloc,' a senior administration official warned earlier this week. 'If Gatt is a failure, Apec stands there as an alternative way.'

That may seem a hollow threat, since many of the countries concerned show about as much enthusiasm for throwing open their markets for manufactured products as the Japanese themselves. None the less, given their astonishing growth rates, even a modest measure of closer co-operation could bring the US great benefits at the expense of EU-based companies seeking new markets. The Asian boom is no short-lived wonder. Capital and investment are pouring in, especially to parts of China, because that is where markets and profits are expanding fastest - just as they were doing in Europe in the Eighties.

The need for Europe to remain part of the global market and to keep a close watch on its shrinking competitiveness could not be clearer. A World Bank study has shown that Europe stands to gain more from a successful completion of the Gatt round than any other trading area. Yet some European politicians, especially French ones, like to give the impression that the EU can maintain its living standards simply by trading within its own single market, perhaps graciously expanded to include the East Europeans.

Nothing could be further from the truth. If European goods cannot compete with US and Asian goods in third markets, companies that produce them will go to the wall, unemployment will soar still higher, living standards will decline, and European currencies will depreciate relative to the dollar and yen. Europe still has much to offer. But it can afford neither to insulate itself from world markets, nor to alienate investment by adding to the existing burden of labour legislation and non-labour costs - let alone to live on its past.