US Debates Policy On Europe in 1992. US business concerned free trade will get short shrift. RELATIONS WITH THE EC

THE way Sen. Lloyd Bentsen sees it, the Commerce Department and the State Department are having an old-fashioned turf battle. The Commerce Department would like to send its own representatives to Brussels to watch the European Community (EC) promulgate rules and regulations governing the conduct of business after Europe further integrates in 1992. The State Department wants to maintain the role for its diplomats.

``I'm not too happy about it,'' says Senator Bentsen (D) of Texas and chairman of the Senate Finance Committee.

The disagreement between State and Commerce illustrates an ongoing policy problem: what to do about Europe 1992, and who should do it.

B. Jay Cooper, a White House spokesman, says that President Bush is responsible for the policy. He admits, however, that Mr. Bush has made no speeches on Europe 1992 or chaired any meetings on the subject.

The bulk of the work is now being done by the United States Trade Representative, Carla Hills. Ambassador Hills's office reports that it has a single representative in Brussels following the inner workings of the EC.

Mrs. Hills, appearing before the Senate Finance Committee last week played down the turf battle between the Commerce Department and the State Department. She said officials in Brussels may change since the new US ambassador, Thomas Niles, is reviewing all personnel. The State Department does the bulk of the work in Brussels.

The United States trade representative, however, is responsible for coordinating the activities of a task force that has 11 interagency working groups keeping track of different aspects of European integration.

The purpose of the task force is to identify areas where EC 1992 ``is a threat to US interests,'' says Andrew Stoler, the deputy US trade representative, who keeps track of the activities of all the working groups.

For example, the US was concerned about an EC directive that would give only banks based in Europe the same treatment as European banks receive elsewhere.

The US argued that the EC should open up its banking sector, giving all banks the same treatment as the EC's own national banks. The Europeans listened to the US arguments and redrafted the proposed regulation but did not agree to unconditional national treatment of foreign-owned banks. ``We're not out of the woods yet on reciprocity,'' Mr. Stoler says.

One of the latest battles the task force is fighting is an EC directive that allows each country to reserve a majority of its television transmission time for European-produced TV programs. Hills promises a major effort to remove the discriminatory local content requirement.

The working groups within the task force meet once every two weeks to once every few days depending on deadlines in Europe. Different agencies run different task forces.

For example, the Food and Drug Administration monitors EC standards on health and the environment, the Commerce Department runs the key group watching EC manufacturing standards, and the State Department is in charge of the group responsible for existing US treaty rights. The task force was recently expanded to include 20 agencies and departments such as the Small Business Administration.

In testimony before the Senate Finance Committee last week, Hills said the US gives its ``conditional'' support to EC 1992, provided it meets five basic principles:

Foreign-owned businesses should have the same business opportunities as EC companies in the single market.

The EC should not substitute communitywide restrictions for existing national restrictions.

EC 1992 must conform to agreements reached by the General Agreement on Tariffs and Trade as well as to new agreements reached under the current negotiations.

As the EC seeks to harmonize its standards, it should do it in the most liberal way possible, as opposed to the most restrictive level.

The process should be done in public so the US can be sure no private deals are struck.

Hills's office also spends a fair amount of time and effort meeting with the private sector about 1992. These groups include the National Association of Manufacturers, the US Chamber of Commerce, the US Council for International Business, and the Advisory Committee on Trade Policy and Negotiations. ACTPN plans to issue a report in June on the role of the US government in EC 1992.

Trade expert Clyde Prestowitz, a former Commerce Department official, says he believes the US should begin preparing a response to what he expects will be greater European protectionism.

``We need to plan how to deal with it instead spending a lot of time trying to prevent it,'' he says.

For its part, Congress is trying to figure out what its role should be. At hearings last week, members of the Senate Finance Committee asked business leaders what they wanted Congress and the administration to do.

Matthew Coffey, president of the National Tooling and Machining Association, says he believes the US needs to think more broadly about EC 1992. He says European integration is a good reason to review US policies on antitrust laws, export financing, foreign military sales, foreign subsidies, and consumption taxes. He wonders why the US decided to gut the Export-Import Bank. ``I think the US is poorly positioned to respond,'' he told Congress.

Lionel Olmer, a former senior trade official, wants the administration to more closely monitor progress toward EC 1992 and to develop its own specific objectives and timetable.

Mr. Olmer, who works for the US Chamber of Commerce, encouraged the senators to be skeptical of European promises of open markets. He encouraged them to watch what Europe does about automobiles.

``Europe is not competitive with the US and Japan,'' he told the senators. ``We have to see how they reach out to suppliers to modernize their industry.''