Europe and US avert trade war: Negotiators fail to agree on issue of telecommunications market

ACCOMPLISHING over the telephone what they could not do in face-to-face talks, the US trade negotiator Mickey Kantor and the EC trade commissioner Sir Leon Brittan averted a trade war between the world's two largest trading blocs yesterday.

Despite the electronic brinkmanship between Strasbourg and Washington, the two negotiators could not agree on opening up their public markets to each other's telecommunications companies, with the result that the US is expected to slap sanctions on European firms from today.

That action is much less aggressive than the moves that Mr Kantor had earlier threatened, and is not expected to lead to an escalating tit-for-tat trade war.

Sir Leon said the Community reserved the right to respond to US sanctions as it saw fit, but diplomats said it would come under intense pressure from the US and the Netherlands not to respond in kind.

There were earlier fears that Mr Kantor's insistence on equal access for US corporations to Europe's public procurement markets, including water supply systems, telecommunications, transport and energy, without concessions on the US side, would trigger an all-out trade war.

This would have jeopardised dollars 4,000bn (pounds 2,600bn) of trade in services and manufactured goods covered by the Uruguay Round of the General Agreement on Tariffs and Trade.

But after several days of talks in Washington followed by yesterday's lengthy telephone negotiations, the EC and the US compromised on granting access to public markets for everything except telecommunications.

The US refused to include companies such as AT&T and the 'Baby Bells' in the deal, saying they were private entities. The Europeans argued that, since these companies had de facto monopolies on voice telephony and AT&T was a manufacturer and supplier as well as a carrier, the US telephone market should be opened to European competition.

In Washington Mr Kantor did not provide an estimate for the sanctions but said that it would be about half the dollars 50m originally contemplated. He claimed that it would be a rough equivalent of the amount of business American companies were losing because of the restrictions they faced in securing government telecommunications contracts in Europe.

AT&T is seeking rights to be a carrier in the UK and has called for British Telecom to be excluded from the US market unless it is given access in Britain.

Washington and Brussels portrayed yesterday's deals as a partial victory, with the US saying it hoped that the sanctions would not prevent negotiations with the EC in a number of other trade areas.

In return for dropping European restrictions against American companies seeking government contracts for power-generating equipment, the EC won similar concessions from the US. EC firms will be able to bid for public contracts for five utilities, including the Tennessee Valley Authority.

President Clinton is expected to issue an executive order removing existing 'Buy American' preferences governing purchases by these utilities. In return the EC has agreed to open its dollars 20bn market for power-generating equipment to US companies.

The EC and US also agreed to remove trade barriers for government contracts for various services and manufactured goods.

The EC-US dispute centred on article 29 of the new EC directive on public utilities, which was designed to liberalise trade by opening up previously closed markets to international competition. The US objected to a clause giving EC firms a 3 per cent price advantage on all bids and an additional provision giving preference for bids with more than 50 per cent EC content.

Despite US objections, the EC said its restrictions were far less than the provisions of the US 'Buy American' legislation, which effectively excluded most foreign competitors.