May 6, 2009 / 10:07 PM / 8 years ago

Beef deal a gleam of hope for US-EU trade tensions

WASHINGTON (Reuters) - The United States and European Union have agreed to temporarily put aside a 20-year fight over beef and do some business -- a new pragmatic stage in a testy trade relationship that experts say could bode well for other bilateral fights.

The four-year provisional deal on beef does not solve the fundamental divide over food safety regulations that has kept most U.S. beef out of the EU market since the late 1980s.

But it shows a willingness on both sides to try to start to find ways to work through thorny food issues, observers said.

"The significance of this deal is the fact that it is an attempt by both sides to see if we can overcome the lack of trust," said Gregg Doud, chief economist of the U.S. National Cattlemen's Beef Association, in an interview.

"There is such a low level of trust between the two sides on trade issues at the moment, in particular on agriculture."

The battle began when Brussels, citing cancer fears, banned beef from cattle raised with growth hormones, widely used in U.S. cattle feed rations.

It is the oldest of several food science debates. The EU also bans genetically modified grain crops, commonly grown in U.S. fields, and meat treated with chlorine washes, a routine practice U.S. processors use to kill pathogens.

In the beef fight, the World Trade Organization ruled the ban was unjustified, and allowed the United States to apply steep tariffs on European goods.

But cattle producers did not directly benefit from the tariffs, which went into U.S. Treasury coffers.

Several years ago, the beef industry started exploring a different idea: converting the sanctions into more market access for high-end beef raised without hormones, currently a tiny niche in the $3.6 billion of U.S. beef exports.

In 2008, the United States shipped a total of almost 5,000 tonnes of the niche beef to the EU, worth about $51.5 million -- more than double the previous year's volume, but less than half of an existing quota, which has a 20 percent duty.

Only four U.S. plants are currently certified to ship beef to the European Union, including one owned by Tyson Foods Inc (TSN.N), which sends a "limited" amount of beef to the EU, a spokesman said.

The deal will allow an additional 20,000 tonnes of U.S. beef to enter the European Union duty-free for three years, followed by 45,000 tonnes for the fourth year of the deal.

"In no way, shape or form would I characterize this as some sort of revelation or breakthrough," Doud said. "I would characterize it more as a good first step, an ability for the EU and the U.S. on agricultural trade issues to make progress."

How much of the quota will be filled depends on prices. Producers face added costs producing beef without hormones.

It's unlikely the U.S. industry would be able to ship the full 45,000-tonne quota unless the EU changed its policy on antimicrobial washes, an industry source said.

And while the two sides said they would seek a longer-term agreement, the deal leaves open what happens after four years.

"There's no commitment on the part of the EU to eliminate the ban," a trade source said.

Still, finding a path to boost trade in the meantime shows "a degree of maturity" in the U.S-EU trade relationship, said Kathryn Hauser, the U.S. executive director of the Transatlantic Business Dialogue.

"We finally have to get to the point where we can resolve things and move on," Hauser said, noting bilateral acrimony over farm trade has spilled over into other industrial and service-related disputes.

"If we can't solve things that seem so simple, like beef, how can we resolve more complicated technology related issues?" Hauser said.

The deal shows Brussels wants to encourage the Obama administration on trade issues, said Mickey Kantor, who held trade cabinet positions under former President Bill Clinton.

The deal could even lead to progress on other trade irritants, Kantor allowed.

"I wouldn't line up the band and the caterers yet, but the fact is, it is a step forward, and it indicates both sides are willing to try to make progress.

"I think that's enough for right now, to indicate that there is a better spirit, a better sense of connection," Kantor said.

Reporting by Roberta Rampton; Editing by David Gregorio

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