WITH THE TRANSATLANTIC alliance still strained by differences over Iraq, the United States and Europe are grappling with a serious new disagreement, this time over European policy toward China. The European Union, which expanded in May to encompass 25 member states, is considering lifting the embargo on arms sales to China that it imposed in response to the Tiananmen massacre 15 years ago. The EU-China relationship is today flourishing and European backers of ending the embargo argue that, in the words of the EU's top foreign policy official, Javier Solana, "time has passed" since the massacre and "a new generation of leaders is running the country." In that light, as French President Jacques Chirac put it in December, the embargo "no longer corresponds to the political reality of the contemporary world."

The U.S., which unlike its European counterparts has troops stationed in Asia, military alliances in the region, and a legal obligation to help Taiwan defend itself against Chinese attack, has waged a quiet diplomatic battle to dissuade the EU from taking the step. Nonetheless, Washington fears that the arms embargo could be scrapped as soon as December 8 when the EU and China meet in The Hague for their annual summit, and so American officials are raising the volume and urgency of their protests.

The stakes are high. American officials are convinced that a lifting of the embargo could result in a Chinese People's Liberation Army equipped with advanced military systems from Europe. If U.S. forces and Asian allies are called on to intervene militarily in a crisis in the Taiwan Strait, their safety would obviously be imperilled to a greater extent.

More fundamentally, officials warn, the future shape of the transatlantic alliance could be on the line. The U.S. is in the midst of an ambitious effort to make its forces "inter-operable" with the forces of its key European allies through the sharing of defence technologies. If the EU were to lift the embargo, says a senior State Department official, "it would, I think, clearly complicate the political atmosphere in Washington for the sort of alliance policies that we are thinking about." Specifically, if the embargo goes, he says, it will be hard to assure the U.S. government and the Congress that advanced military technology shared with Europe will be "absolutely safe," and will not be passed on to China.

For Europe, the move to reconsider the arms embargo is a product of the rapid development of overall EU-China relations. The EU and China are expected to emerge this year as each others' largest trading partners, and Chinese President Hu Jintao's trip to Europe earlier this year only helped to cement the partnership. The two sides are also embracing a strategic relationship, pledging to cooperate on a range of global issues from protecting the environment to stemming illegal migration.

As ties have deepened, China has relentlessly lobbied the EU to change its policy on two highly symbolic issues. Beijing wants Europe to overturn China's designation as a non-market economy, which makes China vulnerable to anti-dumping trade cases. And it wants the EU to lift its arms embargo, which Beijing sees as a symbol of China's post-Tiananmen-massacre status as an international pariah. The EU's recent decision to rebuff China on market-economy status has only intensified pressure from Beijing to re-examine the arms embargo.

European officials have made a point of trying to reassure Washington that lifting the embargo would not lead to a free-for-all in arms sales to China. David Shambaugh, a China expert at George Washington University in Washington, who recently met with officials at the EU's headquarters in Brussels to discuss EU-China ties, says that the EU is considering three steps that would be adopted simultaneously as soon as member countries vote to lift the embargo. They include a political statement that Europe does not desire to sell arms to China, a strengthened EU Code of Conduct that would continue to proscribe sales of lethal weapons, and strengthened export controls on such items as dual-use technologies.

"If the arms embargo is lifted, which we can see taking place, we will of course have the code of conduct," Finnish Foreign Minister Erkki Tuomioja said after discussing the issue with visiting Chinese Foreign Minister Li Zhaoxing in April. At the same event, Li offered assurances that ending the embargo "would not result in a sudden hike in Chinese imports of advanced weapons."

Shambaugh, for one, is convinced. He says that in light of the safeguards that the EU is prepared to put in place, "I start from the premise that lifting the embargo does not mean that Europe is about to sell weapons or transfer defence technologies to China." Shambaugh notes, too, that doing away with the arms ban will require the approval of all 25 EU nations. However, at least four members continue to argue that the embargo was imposed on human rights grounds and shouldn't be lifted until China significantly improves its human rights record. Shambaugh says he rates the chance that the embargo will be lifted as "less than a 50-50 proposition" because of that opposition.

Eager to push whatever buttons might give European nations pause as they consider the arms embargo, Washington is highlighting the human rights issue, in addition to security concerns, in its presentations to European audiences. In a joint press conference with EU representatives in Washington in March, U.S. Secretary of State Colin Powell said, "We and the European Union imposed prohibitions for the same reasons, most especially China's serious human rights abuses, and we believe those reasons remain valid today."

Nonetheless, U.S. officials say they are worried that the embargo could be lifted this year. U.S. concern stems from communication with the current occupant of the rotating EU presidency, the Netherlands, which has told Washington privately that while it is sympathetic to retaining the embargo, it is unsure of its ability to prevent powerful EU nations, led by France, from forcing a change. The Netherlands is the EU president this year.

As for the safeguard measures that Shambaugh says the EU is proposing to put in place, a second U.S. official, not from the State Department, says that Washington has been telling European defence establishments that while, "we appreciate the assurances that you would make . . . we're concerned that once competitive commercial pressures enter the fray, such assurances could well get eroded." This official notes, "You're talking multi-hundred-million-dollar contracts, potentially."

The official adds that even technically non-lethal technologies that might be approved for export after the embargo is lifted could significantly boost the fighting ability of China's army. "No bullets come out of the end of a system that allows you to communicate better . . . , or to organize and sortie aircraft, or to direct the movement of ships and submarines," he notes.

Even with the embargo in place, European countries have sold some non-lethal defence items to China. Britain, for example, sold China dozens of Spey jet engines for the country's JH-7 fighter bombers. But, says the U.S. official, the embargo has meant that "the scale is not so great and the types of systems are not of such concern at this point." Washington believes that lifting the embargo could dramatically change that, he says.

As big a concern for Washington as the potential boost to the PLA's capabilities is what the whole affair says about the state of European-U.S. relations. Talk of lifting the embargo "puts our allies in a very awkward light," says the senior State Department official. Even taking at face value European assurances that the embargo would be only symbolic, says the official, "why would the EU see benefit in the symbolic change of policy . . . when it would cause such anxiety at the heart of arguably their most significant true partner in the national security arena?"

Michael Yahuda, an emeritus professor at the London School of Economics who is currently a visiting scholar in the U.S., blames the tensions in part on poor communication between the U.S. and the EU about their respective interests in Asia. The Americans have not held consistent discussions on this issue with the Europeans, he says, and not at "any significant level." Meanwhile, "the Europeans have obviously been very busy in all sorts of relations with the Chinese, which they also don't discuss very much with the Americans."

Now, after months of American "threat briefings" for European governments, aimed at conveying exactly what the U.S. considers to be at stake in the arms embargo decision, and after months of European explanations to Washington about how the embargo inhibits the burgeoning EU-China relationship, Asia is, at least, firmly part of the transatlantic dialogue.