US, Europe Wrangle Over Business Deals With 'Rogues'

European nations may soon have to decide whether investing in "rogue states" such as Cuba, Libya, and Iran outweighs the risk of reprisals from the United States.

President Clinton's decision to delay enforcement of the Helms-Burton law moves the US and Europe back from the brink of a trade war, but still leaves both sides gearing up to retaliate. New legislation pending in Congress may go a step further and penalize European firms with heavy investments in Libya and Iran. Both countries are on the State Department list of nations that support international terrorism.

The Helms Burton law aims to penalize firms "trafficking" in property in Cuba seized from Americans in 1959 by allowing Americans to sue those firms in US courts. Mr. Clinton has opted to suspend this part of the law for six months. During that time American officials hope to persuade European nations to pressure Cuba into reforming its government.

While European officials welcomed the six-month suspension of sanctions, they say that the law still hurts European companies and violates international law.

The European Commission (EC), the executive arm of the 15-member European Union, said that Europe was unlikely to shift its stance on Cuba because of the American law. Europeans insist that the US Congress does not have the right to make laws for Europe.

For many firms, Helms-Burton could force a choice between doing business in Cuba or in the US. Of some 250 foreign companies potentially vulnerable to Helms-Burton sanctions, more than half are European, according to the EC.

What most troubles European governments and businesses is not simply the Helms-Burton law, but also pending US legislation that would penalize foreign companies investing in Iran and Libya. The US Senate gave the nod on Tuesday to a bill that would impose sanctions on companies with investments greater than $40 million in the energy sectors of those nations. A House version of the bill passed unanimously last month. Clinton has said he approves of the bill.

Europe's current and potential trade with Iran and Libya, including big-ticket oil, gas, weapons, and aviation contracts, dwarfs its trade with Cuba. Trade between the European Union and Cuba amounted to $89 million in 1994 while EU trade with Iran and Libya amounted to $893 million and $810 million, respectively, according to the Paris-based Organization for Economic Cooperation and Development.

Spokesmen for the Spanish hotel chain Soll-Mlia, which manages six hotels in Cuba, have said that the company is prepared to abandon its US operations in favor of maintaining a presence in Cuba. Spanish rivals Occidental Hoteles and Paradores de Turismo, however, have signaled that they are backing out of their Cuban operations.

France's Accor, which operates hotels in 132 countries, has declined comment on reports that its Havana hotel once belonged to American citizens. Spokesmen for French rival Club Med, however, note that they have opted to manage rather than own their Cuban properties, thereby avoiding the charge of "trafficking" in expropriated American property.

Already, US legislation on Libya and Iran is having an effect on European businesses. Italy's Agip recently delayed conclusion of a major gas-development contract with Libya, citing uncertainties over pending American legislation.

However, France's Total insists that current contracts with Iran and Libya will be respected. "Our investments in Iran and Libya are strictly in line with international, European, and French law," says Total spokesman Claire Pedini. "Those are the only laws to which a French company must answer."

Until now, Helms-Burton has been the focus of attention, sparking a war of "watch lists." "We are too civilized to refer to them as 'black lists,' " says a French diplomat. European companies could use such lists to retaliate against US companies that invoke Helms-Burton sanctions.

THIS week, EU foreign ministers unanimously approved a list of options for retaliation, which included restricting visas for US businessmen, passing laws to allow European companies to countersue, and establishing a "watch-list" of US companies filing suits under Helms-Burton.

"We have a breathing space of six months to find a solution, but from our perspective this issue is definitely driven by US domestic politics in an election year," says Franz-Josef Meiers, a research fellow at the Bonn-based German Foreign Policy Institute.

"EU foreign ministers have made clear that they will not compromise at all and are prepared to put US companies on a black list, if sanctions are invoked," he adds. "I expect an escalation of the conflict, not a solution, in the next six months."

For Europeans, the only certainty in the next six months is that the US presidential election in November will determine who makes the next call on whether to suspend Helms-Burton sanctions. That decision must be made by Feb. 1, 1997.