By Adrian Croft
LISBON, May 30 (Reuters) - European Union and U.S. leaders will try to contain a flare-up in transatlantic trade tensions -- ranging from U.S. tax breaks for exporters to EU policies on bananas and hormone-treated beef -- at a summit on Wednesday.
President Bill Clinton and EU leaders will discuss the most pressing trade problems at their meeting at the Queluz palace in Lisbon. They will be dealt with in more detail by EU Trade Commissioner Pascal Lamy and U.S. Trade Representative Charlene Barshefsky in separate talks.
Since taking office last September, Lamy has tried to lower the temperature in the trade disputes, saying he wants to move from "megaphone diplomacy to telephone diplomacy."
An EU official said this week that the 15-nation bloc had no wish to escalate its trade rows with the United States. "If we take it forward in a pragmatic way, we hope solutions can be found," he said.
But Lamy's preferred approach has been endangered by a series of recent developments which point to a difficult period ahead for transatlantic trade relations.
Long-simmering trade rows -- over the EU's banana import policy, its ban on the import of hormone-treated beef and a new EU aircraft noise law which the United States says discriminates against U.S. aircraft equipment makers -- refuse to go away.
EU officials have been angered by U.S. plans to pick new targets for the $300 million of sanctions imposed by Washington last year after winning World Trade Organisation (WTO) cases against the EU's banana import policies, which the United States sees as discriminatory, and the hormone beef ban.
EU officials question whether rotating the sanctions to different EU goods is compatible with WTO rules. "How can any company plan its exports for the next six months when at any moment it can get hit by sanctions?" one asked.
The United States has also threatened a WTO complaint over EU investments in the European Airbus consortium's planned new A3XX super-jumbo which it sees as unfair subsidies.
EXPLOSIVE ISSUE
But potentially the most explosive row is over a U.S. export scheme known as the Foreign Sales Corporations (FSC) programme which the WTO ruled this year constituted a prohibited subsidy for U.S. exports.
The FSC scheme provides tax breaks worth billions of dollars a year for major U.S. exporters, including Microsoft, Ford and Exxon Mobil.
On Monday, the EU said U.S. proposals to bring the scheme into line with WTO rules were not good enough, but the United States said it would go ahead with enacting the reforms anyway.
EU officials said the bloc would ask a WTO panel to judge whether the United States had complied with global trade rules if Washington enacted an FSC reform which was not to its liking.
If the United States was found not to have complied, the EU could win the right to trade retaliation.
Maja Wessels, a member of the EU Committee of the American Chamber of Commerce in Belgium, which represents U.S. businesses in Europe, said there was "always a danger" that transatlantic trade friction could degenerate into trade war.
"That's something that business is worried about," she said.
"If there were to be any (EU) sanctions on the FSC issue, you could see things blow out of control," Wessels, a United Technologies Corp executive, told Reuters.
However, Paul Brenton, a trade economist at the Centre for European Policy Studies, a Brussels think tank, played down the importance of rows such as those over bananas and beef which he said affected only a tiny proportion of transatlantic trade.
"As long as large high-profile products are not involved, they will always be irritants at the margins," he said.
Meanwhile, the underlying banana and beef disputes seem no closer to resolution. The EU's executive Commission has so far been unable to find a compromise in the banana dispute that satisfies all concerned.
Armed with a new scientific opinion that cattle growth hormones can cause cancer, the Commission proposed last week making its ban permanent on one hormone and provisional on five others. It said this move would bring it into line with WTO rules. However, a top U.S. Agriculture Department aide dismissed the move as the "same old" trade barrier.:
