European allies try to avert battle with US over trade

Suppressing their anger at President Reagan's embargo on the gas pipeline project with the Soviet Union, the European allies are seeking to avert an open trade conflict with the United States.

The President's embargo, combined with duties on European steel imports, came as a severe shock for the allies, especially since they had been lulled into believing that unilateral US actions were a thing of the past.

Less than two weeks earlier Mr. Reagan himself had agreed with Western leaders to consult closely on all matters of common concern. He committed himself to a compromise on East-West trade that - the Europeans were assured - settled the controversial question once and for all.

The embargo has raised a number of serious complaints and concerns that Europe's officials are raising with Washington.

By forbidding US overseas subsidiaries and foreign holders of US licenses to deliver parts for the pipeline, Europeans say Mr. Reagan is seeking to impose his policy decisions in territories outside his jurisdiction.

This alleged breach of international law is compounded by the threat of nonlegal measures, in the form of business sanctions, against firms that do not comply.

The ban, which is retroactive and seeks to prevent firms from fulfilling legal and existing trade contracts, can do serious damage to these firms. This rankles, since Mr. Reagan decided against a US grain embargo largely for the sake of US farmers.

Reagan failed to honor his commitment to consult with his allies. At one blow he has destroyed the atmosphere of trust he built during his European tour, especially in West Germany. The embargo and the steel duties could lead to a US-Europe trade war.

The move could undermine the system of free international trade and division of labor. One West German industrial leader warns that firms will think twice in the future before taking out foreign licenses for fear they, too, could fall victim to political interference.

A tough confrontation with the US has been averted for the time-being largely by the moderating influence of British Prime Minister Margaret Thatcher and West German Chancellor Helmut Schmidt.

Mrs. Thatcher intervened to tone down the statement drawn up in Brussels last week by European Community leaders in response to Reagan's actions. The statement delivered clear warning that these ''seriously jeopardized'' world trade, but also called for genuine and efficient dialogue.

The next day, however, her government moved to protect British firms by issuing an order that would enable them to defy the ban.

And Mrs. Thatcher subsequently stated: ''I think it is wrong (for the US to try to prevent existing contracts being met).''

Chancellor Schmidt and his economics minister, Count Otto Lambsdorff, will try to convince the administration to soften up the embargo during a late-July visit to the US.

The chancellor is convinced that only political persuasion - and not countermeasures, recriminations, or even lawsuits - will get the alliance out of this latest crisis.

The chancellor is understood to be trying to restrain retaliatory instincts in the French. President Francois Mitterrand grumbled recently that transatlantic dialogue had developed into ''too much of a monologue from the side of the United States.''

Officials here hope the US may back down on the pipeline embargo if Europeans tighten up credit conditions for the Soviet Union.

Many hopes are also being pinned on George Shultz, President Reagan's choice to succeed Alexander M. Haig Jr. as secretary of state. Although Haig's resignation was a shock to Europeans, the announcement that Shultz was to succeed him came as a relief; he knows Europe and is trusted here.

Beneath the immediate problems raised by Reagan's action lie the seemingly irreconcilable disagreement between the present administration and the Europeans over the role of East-West trade.

The Europeans see trade as a stabilizing factor in East-West relations and say it is useless as an instrument to force the Soviets to change their policies. Western trade corresponds to an infinitesimal part of the Soviet gross national product, Mr. Schmidt says.

The chancellor told a high-level US-West German security conference recently, ''It will take some time to realize you cannot change their strategy, but you Americans will eventually come to see it.''