EU won't challenge Cuba law

By DAVID E. SANGER
New York Times Service

WASHINGTON -- The European Union is dropping its legal challenge to the United States' Helms-Burton Act, which imposes penalties on companies using U.S. properties in Cuba that were seized by the Castro government three decades ago.

The decision to let the case before the World Trade Organization lapse is a major step toward defusing a dispute over sanctions that has troubled trans-Atlantic relations for more than two years.

But European and U.S. officials cautioned that they were still far from a final settlement of the dispute and that if talks should break down, the European Union could file a new action.

``This is certainly a sign that we have not given up on a negotiated solution, that we think a solution is possible,'' Hugo Paemen, the European Union's ambassador to the United States said Monday.

But the chief U.S. negotiator, Stuart Eizenstat, the undersecretary of state for economic and business affairs, said that while the United States welcomed Europe's decision, ``we are a long way from being home.'' Eizenstat insisted that dropping the formal legal action was not part of a quiet deal to defang the law, although President Clinton has regularly waived some of its toughest provisions against offending corporations while the talks continued.

The Helms-Burton Act calls for economic sanctions against foreign companies that invest in or use any of the billions of dollars in U.S. properties -- from phone systems to hotels to mines -- that Fidel Castro seized after the Cuban revolution.

It applies, for example, to the Mexican and Italian corporations that have a stake in the Cuban telephone network, which was built by a U.S. company in the 1950s. And it applies to a Canadian firm, Sherritt International Corp., that has invested in a nickel mine opened by a predecessor to Freeport McMoran, a large U.S. mining firm.

Some Sherritt officials have already been barred from traveling into the United States. One provision of the 1996 law denies entry into the United States to executives of companies that violate the law.

The European Union was outraged by the legislation, claiming that ``secondary boycotts,'' that is, boycotts against foreign companies for business they do outside the United States, violate international trade treaties. They brought the case to press their point.

But almost as soon as the papers were filed, both sides acted to avoid a trial. Some European and U.S. officials were afraid that the case could destroy the authority of the fledgling trade court, forcing it to rule on an issue that the United States insisted had to do with national security, not trade barriers.

But the European Union did not want to drop the action, because the threat of pursuing the case was the best leverage they had with the United States. The case would have been decided by a three-judge panel drawn from countries not involved in the suit. This probably would have played to Europe's advantage because Helms-Burton has almost no international support.

A year ago, the European Union and the United States reached an agreement to suspend the complaint while negotiations proceeded. But this week, under the trade organization's rules, the Europeans had to decide whether to move ahead with formal hearings or drop the action altogether.

``All the choices were bad,'' one official familiar with the European decision said. ``Dropping the case takes the heat off of Washington. But pursuing it would have undermined the chances of a settlement.''

The United States had already threatened, last year, to invoke a ``national security'' exemption before the WTO. But while Washington insisted that this argument would remove the case from the trade organization's docket, European officials insisted that the WTO itself would have to decide whether it was a question of security or trade.

``We have said from the outset that this is a matter that should be handled through diplomatic channels rather than the WTO,'' said Eizenstat.

What Europe sought in the case was a ruling that barred the United States from boycotts of companies beyond its borders. The United States has so far refused to give up the right to invoke such boycotts, but it is negotiating over a set of procedures -- including prior consultations with the countries involved -- in an effort to prevent the sanctions from being carried out.

The United States, in turn, has demanded that some set of economic disincentives be put in place to deter foreign companies from investing in properties that Castro seized from U.S. corporations. That goes to the heart of the Helms-Burton Act's goals. But so far, no such measures have been agreed upon.