U.S.-EU trade booms even as dispute brew

BONN (Bloomberg): When United States President Bill Clinton and European leaders hold their twice-yearly summit tomorrow, the room is likely to be filled with talk about beef hormones, Internet privacy and other simmering trade disputes.

The heat and smoke of all that friction may obscure one fact: Trans-Atlantic business is booming, with U.S. and European Union companies buying, selling and investing more in each other's markets than ever before.

Trade skyrocketed 43 percent to US$326 billion from 1994 to 1998, while direct investment soared 45 percent to $846 billion from 1994 to 1997, according to the U.S. Commerce Department.

The growing commercial links go a long way in explaining why disagreements over food and other issues -- all of which amount to less than 2 percent of the total trade between the regions -- keep surfacing, one official said.

"Our economies have gotten so intimate that I sometimes visualize them as finely meshed gears," said Commerce Undersecretary David Aaron. "Even little issues, like fine grains of sand in a gear box, can do a lot of damage."

Megamergers between EU and U.S. companies have practically become monthly events, with Daimler-Benz AG and Chrysler Corp., and Deutsche Bank AG and Bankers Trust Corp. among the household names joining forces.

The value of U.S. companies' holdings in Europe "would represent the continent's fourth-largest economy," Aaron told the U.S. Congress last week.

Clinton, German Chancellor Gerhard Schroeder, EU Trade Commissioner Sir Leon Brittan and European Commission President Jacques Santer will try to head off trade disputes by endorsing an "early warning system," among other measures. That calls for the two sides to discuss pending regulations that could spark disagreements before the rules go into effect.

Yet the problems are cropping up mainly in industries like agriculture and aviation in which governments have the strongest involvement, as well as where cross-border investment is limited.

In industries where government subsidies are limited and corporate investment is mutual, the two markets are generally at peace.

"We don't have any real complaints when it comes to trade with Europe," said William Kelly, director of international governmental affairs for Ford Motor Co. in Dearborn, Michigan. "There is plenty of trade going both ways."

And it's bound to grow even more with Europe's adoption of a common currency, which will make it that much easier for U.S. and European companies to do business across borders.

Even some of the U.S. companies embroiled in well-publicized battles say business in the EU is good.

Dole Food Co.'s bananas are at the heart of a trade fight that resulted in the U.S. slapping 100 percent duties on EU products to retaliate against discriminatory import rules.

Yet Dole has been relatively unscathed by the dispute, in contrast to Chiquita Brands International Inc., which says it has lost market share because of the EU import rules.

Dole's strategy: It has acquired European distributors and begun to buy bananas in former European colonies given preferential treatment under the EU rules.

"When we do business in Europe we look at ourselves as a European company," said John Tate, Dole's chief financial officer.

"Our management is European. We act, think and are dealt with as a European company."Europe is Dole's second-largest market, after the U.S.

United Technologies Corp. is another U.S. company in a spat with the EU. Its Pratt & Whitney division makes the "hushkits" that faced a ban this year in the 15-country EU until the Europeans backed down under pressure.

Fully 20 percent of the Connecticut company's $25 billion in annual revenue comes from Europe, although largely through the sale of Otis elevators and Carrier air conditioners, said Ruth Harkin, senior vice president for international affairs.

Aviation presents a special problem because "all governments ... have an interest" in the field, so they tend to interfere, Harkin said.