Europeans Not Cowed by US Threat. EC officials say economic sovereignty is at stake in right to set Community-wide standards. BEEF TRADE DISPUTE

THE ``hormone war'' of 1989 is more than just a trade dispute. By banning imports of beef fattened with growth hormones, the 12-member Economic Community (EC) intends to show that it won't bend to United States pressure when it comes to setting standards.

The US contends that hormones are entirely safe if used properly, and that the Europeans are trying to put up an unfair trade barrier. The US response - stiff tariffs on certain EC products - is turning this into a major test of trans-Atlantic economic relations.

``The precedent is just too big to let it go by,'' says one US official based in Europe.

Washington is worried that restrictions on hormone-treated beef may be a foretaste of things to come as the EC heads toward a single internal market after 1992. US officials are concerned that EC-wide standards - even those attributed to health concerns - could be used to block imported goods, creating a trading ``fortress'' in Europe.

But the conflict also underscores the deep sensitivity Europeans have to the hormone issue - something usually lost on Washington policymakers.

Eight years ago, a scandal erupted after veal-flavored baby food containing large amounts of a hormone called DES caused Italian infants to begin developing breasts. Use of DES is now banned, but the episode sparked a huge consumer crusade across Europe against the use of natural and artificial hormones.

The uproar was especially strong in West Germany - where health and environmental issues are a national passion.

The campaign was led by a loose coalition of consumer advocates and environmentalists usually associated with the Greens. West Germany banned domestic use of hormone technology in the late 1950s. So the activists focused their efforts on creating an EC-wide ban.

In 1985, the EC Council of Ministers adopted a rule prohibiting use of hormones as well as the sale of imported meat treated with hormones.

But, as the Europeans moved to implement the rule in 1987, the US issued an ultimatum: Any ban would be viewed as an unfair trade practice and retaliation would follow.

The EC held off implementation for a year. Europe's other foreign suppliers, including Australia and Argentina, agreed to designate hormone-free beef for that market. On Jan. 1 the rule finally took effect.

The ban covers about $100 million worth of beef imports. As expected, Washington responded with 100 percent duties on an equal amount of EC imports, including canned tomatoes and fruit juices.

As it stands, both sides share some of the blame for the conflict.

US officials point out that there is no scientific evidence that hormones - when used properly - endanger human health.

But Europeans contend that their economic sovereignty is at stake. Any country, EC officials say, should have the right to ban imports based on health concerns, even if those concerns seem excessive to outsiders. Plus, there's no discrimination in the rule, since it applies equally to domestic and foreign beef suppliers.

It's now up to the Europeans to decide whether they want to turn up the temperature of the conflict another notch.

At a meeting last week, the EC's executive commission recommended imposing new tariffs on imports of walnuts and dried fruit from the US. No final decision will be taken, however, until a meeting of EC foreign ministers planned for later this month.

In the meantime, both sides appear eager to iron out a peaceful settlement. Much is at stake.

Trade between the US and EC is worth over $160 billion, and the measures taken so far impact only a tiny fraction of that total. The Spanish foreign minister, Francisco Fern'andez Ord'onez, said last week that a full-fledged trade war would only hurt both sides in the end.

There's also concern that this dispute could block efforts at dealing with more serious trade issues. The US and EC are at loggerheads over the much broader question of agricultural subsidies - one of the major stumbling blocks in the on-going GATT negotiations in Montreal.