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Friday, March 5, 1999 Published at 18:21 GMT

Business: The Economy

Hell-bent on a trade war

The US has threatened to ban all Concorde flights to New York

The trade dispute over bananas looks set to escalate, with aeroplanes and beef as the latest punchbags between the United States and Europe.

Transatlantic relations are becoming ever more brittle as the row over banana import restrictions rages on.

But a dispute over aircraft engine noise, or "hush kits", is not helping matters. This latest flashpoint has been tempered by Europe, which delayed plans on Friday to ban new aircraft fitted with "hush kits".

The ban would hit nearly £1bn of American aircraft and equipment, according to Washington. It was due to be endorsed at EU talks in Brussels next week and introduced from 1 April.

"Hush kit" row

The threat still looms - but Brussels bowed to intense US pressure and will reach a decision during talks next week with senior US commerce and transport officials.

The row itself focused on the best method of reducing aircraft engine noise. The EU says "hush kits", widely used in America, are not the answer and that aircraft using such kits should be banned.

The US has been swift to fight back. It threatened to ban all Concorde flights to New York, hitting Air France and British Airways, if the decision goes through.

This would coincide with the week that the supersonic plane celebrates its 30th anniversary.

But the move would be fully justified, say the Americans, because Concorde has been allowed to bypass international noise standards for two decades.

US stands firm

US Secretary of State Madeleine Albright added her weight to the dispute, and wrote to the German EU presidency about the noise decision. US Transportation Secretary Rodney Slater then wrote to all 15 EU transport ministers.

This would not be the first time the US has retaliated, or at least threatened to. It has already targeted the Scottish cashmere industry over the banana tariffs.

It is hoped the "hush kit" dispute will be settled next week when US Under Secretary of Commerce David Aaron meets European Commission transport experts.

[ image: Beef dispute could escalate]
Beef dispute could escalate
Beef is another bone of contention, with the EU wanting to ban US beef treated with hormones to make the cattle grow fatter more quickly.

It has not so far succeeded, but beef could become as big a problem as bananas if the current crisis escalates further.

The banana row has already been further deepened by Japan's intervention on Friday in support of Europe. Japan described US trade sanctions as deeply regrettable and a flouting of global rules.

Japanese view

The Japanese government said the US decision caused "an equivalent effect to the United States taking a unilateral action, despite the fact that the WTO has not authorised it to suspend concessions."

The Japanese government said it hoped the rift over bananas would be mended.

Japan is locked in a bitter battle with the US over the import of steel, which the US says is being sold too cheaply by Japanese companies.

Trade rules bent

The US and Europe are the two biggest world trade players, but the US has always had an ambiguous relationship with the WTO.

Because of its booming economy, it now feels it is the importer of last resort, helping out other countries in recession by trading with them.

And although strongly in favouor of trade liberalisation, it also has its own trade legislation. Section 301 of the US Trade Act can be used to unilaterally block imports from countries, if it considers their trading practices to be unfair.

This provision has been reactivated as a potential weapon against Europe in the banana crisis. In turn, the EU has asked the WTO to rule this section illegal.

Britain mediates

[ image: Blair and Clinton: Valued relationship]
Blair and Clinton: Valued relationship
But Britain is keen for the situation not to damage relations with the US, its biggest trading partner.

US exports to Britain reached £25bn ($40bn) in 1997, while British exports to the US reached $21.6bn in 1998.

Prime Minister Tony Blair and US President Bill Clinton have a good working relationship.

Britain has already underlined its role as the United States's most dependable European ally, in particular for its support for bombing Iraq.

Both Mr Blair and Mr Clinton have pledged to resolve the dispute as soon as possible.

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