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The BBC's Justin Webb
"A trade war is looming"
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Tuesday, 30 May, 2000, 15:18 GMT 16:18 UK
Trade disputes mar Clinton visit
US beef: roadblock to good trade relations
US beef: roadblock to good trade relations
As US President Clinton arrives for his last European tour as head of state, BBC News Online looks at the simmering trade disputes that could overshadow his trip.

Despite the rhetoric of global co-operation, the reality is that the economic relationship between the EU and the US is looking increasingly rocky.

The EU and the US represent the world's biggest economies, each with about a quarter of world economic output.

They are also the biggest investors in each other, with trade and investment flows worth hundreds of billions of dollars (or euros) each year.

EU-US trade disputes
Hormone-treated beef
Caribbean bananas
Hushkits on jet engines
Tax breaks for US multinationals
GM foods
However, a failure to resolve a raft of trade disputes has led to a climate of pessimism in which the expansion of free trade itself has come under threat.

There is also the looming problem of the euro, which has fallen sharply against the dollar.

There is little prospect at the moment of co-ordination between the US central bank, the Federal Reserve, and the European Central Bank to stabilise the fledging currency, despite the fervent hopes of some European leaders.

Trade rows escalate

Last year rows between the US and the EU over trade in bananas and beef threatened a full-scale trade war, and contributed to a climate of mistrust that made it difficult to find a new head of the World Trade Organisation and launch a new round of world trade talks.

But even though the WTO eventually ruled in favour of the United States, the row is far from over.

Last week the EU reaffirmed that it would not allow imports of beef treated with growth hormones, which it says could cause cancer.

The decision was "a negative and unfortunate step in the wrong direction," according to Gene Sperling, President Clinton's chief economic adviser.

The US has threatened to retaliate by introducing a new list of products that will be subject to punitive tariff rates of 100%.

The two sides are also deadlocked on the issue of GM foods and grains, which the EU would like to ban too.

The EU has in turn tried to capitalise on the WTO ruling against the US on the issue of foreign sales corporation tax.

It says that US proposals to modifiy this subsidy to US companies do not go far enough.

The EU has also threatened to block US airlines from flying to Europe with hushkits fitted on their engines, claiming they do not meet new environmental standards on noise reduction.

The birth of the WTO was supposed to herald a new era where legal decisions replaced power politics in resolving trade disputes.

Instead, the two biggest trading countries seem to be using the system to escalate their disputes - and neither side shows any sign of yielding.

Currency co-ordination

And there is little sign of co-operation on the most tricky issue of all, the strong dollar.

The 30% fall in the value of the euro since it was launched has seriously embarassed the eurozone countries, whose economies run a big trade surplus.

French Prime Minister Lionel Jospin has called for "better co-ordination between the leading monetary zones," as well as closer links between European central bankers and finance ministers on currency questions.

But the European Central Bank knows it has little chance of stemming the euro's decline unless it acts in tandem with the US Federal Reserve.

The US finds a strong dollar helpful in keeping inflation in check, and is reluctant to take any action that might precipitate a run on its currency.

In any case, the Fed itself is ideologically opposed to intervention.

With the US running a huge trade deficit, it is only a matter of time before the dollar weakens, according to the Organisation for Economic Cooperation and Development.

And a sharp fall could prove more disruptive than the managed decline of the dollar that was negotiated in the l980s in the Plaza and Louvre agreement.

But since the end of the Cold War, the prospects for that kind of economic co-ordination - as well as any sacrifices on the trade agenda - seem to have receded even futher.

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See also:

30 May 00 | Europe
Aids on Clinton summit agenda
25 Feb 00 | Business
WTO slams US trade subsidy
24 Jan 00 | Business
EU and US set for GM food clash
25 Dec 99 | Business
Body blow for free trade
07 Apr 00 | Business
WTO breakdown warning
17 Jan 00 | Business
UK gets 'fair trade' bananas
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