The United States and the 15-nation European Union appear to have averted, at least for now, a new textiles trade dispute.

But the dispute, which involves a controversial set of product labeling rules the United States began applying in July 1996, could erupt again later this year.The rules, EU businessmen and officials say, could sharply curb European textile sales ranging from silk scarves to bed and table linens.

There is no estimate of the potential overall sales loss, but Federtessile, the Italian textile and apparel manufacturers association, says it could affect $60 million in sales of Italian silk apparel alone.


The 1996 rules fundamen- tally alter how imported textile products must be labeled for sale in the United States.

They generally require that imported products bear labels identifying the country where the fabric was formed. Previously, the country where the fabric was cut, shrunk, dyed and printed was labeled as the country of origin.

One upshot of this is that goods once free of U.S. import quotas may be subject to them. European exporters of sheeting, broadcloth, sateen and other goods claim they may be hit especially hard.

Many of their offerings involve fabrics bought from countries whose shipments to the United States are under import quota, raising the prospect that European goods also will be covered by those quotas.

Moreover, European manufacturers say, this could cut back their access to fabric suppliers in Asia and elsewhere.

European textile producers are further upset by what they feel may be a loss of cachet or customer appeal for their more expensive wares. Under the 1996 rules, for example, a high-priced Italian silk scarf must bear a ''made in China'' label, which Italian scarf makers fear will hurt their sales.


Last year, the EU commission, reacting to European business complaints, challenged the U.S. rules at the Geneva-based World Trade Organization, claiming they violated U.S. trade commitments. U.S. officials proposed a compromise, which the EU accepted.

Whether the compromise will stick is not yet a sure bet, however.

The compromise has basically two planks. One deals with silk scarves and finished silk fabrics. The Clinton administration has proposed to add these items to a statutory list of goods that do not require a ''made in China'' or any other country of origin marking.

(Italian silk scarf makers had been the most vigorous in protesting the new U.S. labeling rules.)

For the proposal to take effect, however, Congress must act. Rep. Robert Matsui, D-Calif., at the administration's request, has introduced an implementing bill. The House Ways and Means Committee is taking public comments on it.


Expected to be part of an omnibus tariff and technical corrections measure, the Matsui bill - in its present shape - will not be opposed by the domestic textile industry, says Carlos Moore, executive vice president of the influential American Textile Manufacturers Institute.

''We have no problem with it,'' he said.

Still, cautions Julia Hughes, vice president of the U.S. Association of Importers of Textiles and Apparel, which supports the bill, no action has yet been taken on it. Only about one of every five bills introduced in Congress ever gets enacted, she notes.

The second part of the U.S.-EU compromise essentially involves printed cotton and man-made fiber fabrics. The administration has agreed to exempt from import quotas or visas products that are discharge-printed - simultaneously dyed and printed - in the EU, even if the fabric was formed in countries subject to U.S. quotas.

The exempted products include cotton sheeting, sateen, broadcloth and print cloth.


The quota exemptions, however, are not across the board. They apply to fabrics formed by such countries as Thailand, Indonesia and Malaysia, but not, say, China and Pakistan.

But more important, the administration says it will ask Congress to reinstate the pre-1996 country-of-origin rules for discharge-printed silk, cotton and man-made fiber fabrics. Goods would again be labeled for Customs according to where they are dyed and printed, not where the fabric was formed.

This revision, U.S. officials hope, will be part of a WTO effort to harmonize national rules of origin around the world for textiles, apparel and other products.

But whatever the outcome of the WTO harmonization effort, the administration has assured the EU that it will send the country-of-origin rules revision to Congress by late September.

If Congress fails to act, either on the pending silk scarves and fabrics marking bill or the coming country-of-origin bill, the EU has the right to press its complaint against the United States at the WTO. A WTO panel ruling in the EU's favor could lead to trade reprisals.