The U.S.-EU Trade Relationship: Partners and Competitors

Steel, bananas, biotechnology, farm subsidies, and accounting standards. A reader of the business pages might think U.S.-EU economic relations are doomed to contention, that Europe's internal development and enlargement are a threat to the U.S.; or that the historic launch of the Euro, the European Union's common currency, is a threat to the integrity and stability of the U.S. dollar.

The reality is that on economic policy as well on foreign policy, we collaborate with the EU on far more than we fight about. And where we do contend with the EU, it is healthy, part of our responsibility to advance the interests of U.S. exporters and the U.S. economy, not a sign of a deteriorating transatlantic political and economic environment.

That said, there are ways to increase the scope for collaborative outcomes with the EU on trade and economic issues; as well, there are similar opportunities across the breadth of the transatlantic relationship. As recent events have demonstrated again clearly, when the U.S. and the European Union agree on an initiative, a policy, a strategy, or even a philosophy, there is a high probability we can advocate it successfully to the rest of the world. I will be concentrating today on trade, investment, finance and regulatory issues in the U.S.-EU relationship.

But I want to begin with a digression on the global war on terrorism and the effort to dismantle the weapons of mass destruction assembled by Iraq -- two current issues that also illustrate the power of U.S.-EU cooperation. Grizzled veterans of transatlantic argument past and present and ordinary Americans alike were astounded by the reaction of our European friends and European governments to the horrific events of September 11 [2001].

As the smoke billowed forth from the catastrophes in New York and Washington, the calls, letters and e-mails of sympathy poured in from European friends and colleagues. Embassies were buried under flowers and notes from ordinary Europeans who mourned with us. But more than that, Europeans swung into action on many fronts.

Europeans were the driving force in invoking Article V -- the mutual defense clause -- of the NATO Treaty, before we even could think to ask. On September 12, the European Union convened a special meeting of foreign ministers to discuss what to do, followed by a Summit ten days later. These meetings galvanized the EU’s own program of action on terrorism. In record time the EU adapted new legislation and froze assets of terrorist groups. The EU established counter-terrorist intelligence cells, arrested and extradited suspects and worked with us to roll up al-Qaida cells in Europe.

Belgian PM Verhofstadt and European Commission President Prodi came to Washington at the end of the month, met with President Bush and asked what else they could do. When we gave them a list, they worked on it systematically.

When we began military operations against al-Qaida and Taliban in Afghanistan, European nations pledged all possible support. In a matter of months, French planes based in Tajikistan were flying close air support for U.S. special forces. Specialized British and Italian troops joined them on the ground, tackling the dangerous job of clearing high mountain caves of Al Qaida remnants.

When President Bush raised our deep concern over deceit and deception -- and development of weapons of mass destruction -- in Iraq, European allies were initially concerned to avoid war, as were many others. But over two months of dialogue in the UN Security Council and bilaterally, our closest European partners came to see the challenge as we did: the urgency of disarmament of Saddam Hussein's WMD arsenal, and its significance for the credibility of the UNSC. Last Friday's vote in the UN Security Council was unanimous, and the core of our support on the Council were our European allies: the great nations of Britain and France, traditionally neutralist Ireland, plucky Bulgaria and stalwart Norway. We do not yet know the end of this story, but as long as Europe and the U.S. remain in sync and insistent that Iraq unconditionally meet the international community’s requirements in this most important of challenges, I know we shall prevail.

Let me now turn to our economic relationship. The conventional wisdom is that economic and trade relations between the U.S. and Europe are naturally competitive, if not conflictual. This, like most of conventional wisdom, is not only half-true, but misleading.

In fact, most of our economic relationship is conflict free. Our two-way trade and investment relationship totals some $2 trillion, the biggest in the world by far. It grows steadily and is usually quite balanced, affected only by business cycle trends on both sides of the Atlantic. Our capital markets are closely linked and increasingly integrated. European companies own firms we consider American icons such as Chrysler, Shell, Brooks Brothers, or Burger King. American firms own and are building viable futures for such European firms as Jaguar and Volvo.

The convergence of our trade interests at times manifests itself in trade-liberalizing initiatives from the private sectors on both sides of the Atlantic. My favorite is the Information Technology Agreement, which was a joint initiative of the U.S. and European IT sectors together, asking governments to eliminate duties and quotas hampering trade and innovation in this fast growing (or formerly fast growing) sector. The ITA initially took us aback in government, but when we looked at it we said why not? In all nearly 30 countries joined us in 1995 in eliminating duties on IT and networking equipment, and the laptop in your bag was probably more affordable as a result.

The conventional wisdom that U.S.-EU trade relations are inherently competitive also neglects the very real and broad U.S.-EU cooperation on multilateral trade issues. For example, the U.S. and the EU collaborated closely last year in launching the Doha Development Agenda, the important trade negotiating process underway in the WTO. We are both working together to help develop countries make use of the WTO instruments to open markets for their goods, which goes under the rubric of "capacity building." We collaborated intimately on the epochal negotiations with China, setting the terms and conditions for bringing this major exporter, and major importer, into the rules-based international trading system.

Across the Atlantic, there are many ways we collaborate closely with the aim of making it easier for business to trade and invest. A special emphasis these days is upon regulatory issues, since with the reduction of tariffs and quotas, regulatory differences are a main source of obstacles to trade.

I won't kid you, this is hard. Regulatory agencies have their own statutory responsibilities and specific missions. They rarely have a budget for coordinating their actions with other comparable agencies abroad, and in the wonderful diversity of the world's political structures, few regulatory agencies have mandates that match up exactly anyway. But despite these obstacles, we have had noteworthy successes:

• U.S.-EU antitrust cooperation is ongoing, substantive and effective

• Mutual recognition arrangements are in place on electromagnetic emissions, telecommunications equipment, pharmaceutical manufacturing practices, and off-road vehicle emissions.

We are working now on chemicals and cosmetics.

All this talk of cooperation is fine. What about the headlines? Headlines like:

• The EU denounces U.S. imposition of "safeguard" duties on steel imports.

• The EU protests the new U.S. farm bill as "protectionist."

• The EU wins a $4 billion judgment against the U.S. "Foreign Sales Corporation" tax provisions designed to help U.S. exporters.

• The U.S. challenges the EU’s Common Agricultural Policy, denounces Airbus subsidies or calls for the removal of non-scientifically based barriers to U.S. biotech commodity exports.

What are we to make of these? Does the seemingly growing number of transatlantic economic disputes presage retaliation and anti-Americanism in Europe or anti-Europeanism in the U.S. Will these differences undermine the broader sense of the political and cultural enduring ties between our peoples?

Anti-globalization protestors, after all, trashed a McDonald's restaurant in provincial France over U.S. restrictions on Roquefort cheese imposed -- with WTO authorization -- in the banana dispute. Do companies trading and investing in Europe have to worry about collateral damage from the relatively few sectors in contention? Will NGOs building networks of like-minded activists working for democracy and human rights suffer from the consequences of these disputes?

Just these questions were much on the minds of the "Transatlantic Business Dialogue" meeting I attended on Thursday and Friday in Chicago, a meeting of another dialogue parallel to your own. You may be interested to know that CEOs asked for assurances that WTO cases be used as a last -- not a first -- resort when practices of our trading partners pose problems. They asked that the U.S. and the EU move towards common or harmonized regulation approaches. They asked that increased security after 9/11 not come at the expense of legitimate trade and investment. And there are reasons to believe even the contentious aspects of our trade relationship are being better managed.

• The banana dispute, which was all about highly discriminatory quotas, is settled.

• This summer the EU backed off threats of unilateral relationship in the steel case, realizing the bad precedent it would set and recognizing the effort the U.S. Government made to provide exemptions to free tariffs for many products where there was no reasonable domestic supplier.

• President Bush made a firm commitment to get Congressional support to change the Foreign Sales Corporation tax provisions. In light of this commitment, mirrored by key congressional leaders, the EU decided not to use, for now, its WTO authorization to retaliate against us.

Moreover, we have been exploring alternative means of resolving disputes. In one small case involving copyright royalties, we have asked Congress to authorize monetary compensation. Both sides are interested in considering use of an informal mediator when that would be a means of finding an otherwise elusive solution.

We have recognized that trade law alone won't overcome barriers to U.S. biotech food. The rules are important as they serve as a guarantee to food exporters everywhere that trade restrictions will only be based on scientific evidence and a real risk assessment. But we realize that an insistence on adherence to the rules must be supplemented with public diplomacy addressing the fears and misconceptions underlying biotech trade barriers.

This is all the more vital now because non-scientific superstition about biotech foods is not just about market access anymore but about life and death. In Africa, ill-formed anxieties transmitted by European NGO’s about "GM" [genetically modified] foods are leading Southern African nations to reject American and Canadian food aid, even in the midst of a widespread famine. Zambia refuses to release 10,000 metric tons of U.S. corn already in country -- the same corn you’ll find on the menu here in Miami – and turns down other shipments en route. Members of the TIES can help bring some rationality to this debate. Consumers in rich countries can insist on biotech-free or organic commodities as a preference, and the market will oblige. In the developing world, drought or pest resistant biotech commodities may be the long-term guarantee of survival and economic development. This is fast becoming not a trade issue but a moral issue.

One other thing we have learned about transatlantic relations is to ask my mother-in-law's favorite question: "What else is going on in your life?" For the EU, there is quite a lot going on. It has recently successfully introduced the Euro, the first multinational currency of its kind -- on a scale never before seen or attempted. The currency is creating a simple European capital market and intensifying European interest in attendant policies -- such as accounting standards -- with a real transatlantic dimension.

The EU is in the first stages of a major enlargement in its membership, most likely taking in 10 new members next month. The enlargement will have major implications for the U.S. because the new entrants -- countries like Poland, Hungary, the Baltic three -- are countries that have important, established political and economic relationships with the U.S. We support EU enlargement because we believe that, coupled with NATO enlargement, it can ensure the completion of a "Europe Whole, Free, and at Peace" that was our vision upon the fall of the Berlin Wall. However, we do seek to ensure that EU enlargement not come at the expense of U.S. economic ties and trade interests in the region.

The enlargement will require thorough-going changes in the way the EU does business, as the present arrangements designed for a European Community of Six cannot reasonably cope with the stresses and strains of policy making for an EU of 25. The Common Agricultural Policy, the regional funds and the way the EU rotates its "Presidency" among member states every six month will likely have to change. There is a "Constitutional Convention" now attempting to grapple with these changes.

These internal challenges are distractions for our EU partners affecting the time and attention they can devote to transatlantic issues. Moreover, we have come to understand that some of the stances EU partners take with U.S. have their real origins in internal struggles over policy and power. Our challenge is to appreciate these stresses and strains and to maximize our long-term interests in relation to a partner that is steadily more capable of contributing to the international community.

Let me sum up by highlighting a few of the governing principles for ensuring the U.S.-EU economic relationships is characterized less by conflict and contention and more by partnership. My list of principles includes:

• The need for communication early and often.

• The need for understanding of the politics of the other side, in order to find viable solutions to difficult problems.

• The need to involve non-governmental actors, NGOs and businesses to find solutions and to build understanding. That is where the TIES comes in.

• The need to explore alternative methods of dispute resolution, conciliation, arbitration, negotiation, and to reward acts of collaboration. Compromise – for both sides -- is a sign of strength, not weakness.

• For trade problems, WTO cases, merely because they are easy to bring, should not be the first recourse to trade barriers. Retaliation causes wide collateral damage and should be last resort and only with WTO authorization.

• Public diplomacy is essential to creating a political environment for partnership.

• Regulators need to be encouraged to work with their transatlantic counterparts to find common -- or mutual, recognition-based -- solutions to regulatory problems. In a globalized world, meeting regulatory mandates requires a more interactive approach.

• And finally, engagement by governments, by NGOs, by companies, and by citizens is critical. We cannot build a transatlantic community by saying it is so. We must make it so by our actions and our cooperation.

A colleague of mine has captured the whole U.S.-EU relationship in an aphorism: "What divides us makes headlines, what unites us makes progress." Thank you for your attention, and our best wishes for continued success of this important network.