Emergency Committee For American Trade - Publications

The European Union

Despite the longstanding and deep economic, political and strategic linkages between the United States and the European Union (EU) and their common interests on many trade and investment issues, U.S.-EU relations have been fraught with conflicts through much of the 1990s as several high-profile, politically-sensitive trade disputes have overshadowed these deeper alliances. These trade disputes have involved relatively little of the total trade and investment between the United States and EU, which exceeded one trillion dollars annually in 2000. Yet, these disputes have significantly frustrated improved relations and represent a serious impediment to further trade and investment liberalization in the World Trade Organization (WTO). ECAT strongly supports efforts by the United States and the EU to strengthen their economic relationship, address ongoing trade disputes that have undermined the historically close U.S.-EU relationship, and move forward with mutually supportive trade initiatives in 2001.

U.S. goods exports to the EU have increased by over 60 percent in the last decade, from $103 billion in 1990 to $165 billion in 2000. Total U.S. trade with the EU almost doubled during the same period, from $201 billion in 1990 to $383 billion in 2000.

CHART

Trade disputes make up less than four percent of that figure. U.S.-EU trade supports more than seven million jobs on both sides of the Atlantic, generating a billion U.S. dollars in trade value per day. Bilateral foreign direct investment supports approximately three million jobs alone.

EU Integration Efforts

The EU is already the world’s largest market and it is expected to expand through its continued enlargement negotiations with Eastern Europe. The 15 members of the EU are: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden and the United Kingdom. In 2000, the EU continued the process of deepening integration among member states, broadening its borders to Eastern Europe, and developing deeper trade relations with other countries through trade preferences and free trade agreements.

On January 1, 2001, Sweden assumed the rotating presidency of the EU through June 30, 2001. Belgium will assume the presidency at the beginning of July. Swedish Prime Minister Göran Persson has stated that his first priority will be to accelerate the process of EU enlargement.

Enlargement of the European Union

In March 1998, the EU formally began the accession process for enlargement. The EU is currently negotiating with twelve applicants: Bulgaria, Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, Slovakia and Slovenia. The EU had concluded so-called Europe Agreements with each of these countries earlier in the 1990s, except Malta and Cyprus with which it has Association Agreements. The Europe Agreements cover trade and non-trade issues and seek to work towards the establishment of free-trade areas between the EU and the applicant countries. The Association Agreements with Malta and Cyprus cover similar areas, but do not address political integration issues. The EU is also considering the application of Turkey, with which the EU already has a customs union, but Turkey is still not viewed as ready to begin negotiations, largely over political criteria.

In the November 2000 reports on the progress made on each accession negotiation, the EU found that substantial progress had been made on the negotiations in 2000 and on achieving the criteria laid out in 1993 at the Copenhagen European Council. Two countries, Cyprus and Malta, were found to fulfill the two economic criteria for membership ("the existence of a functioning market economy as well as the capacity to cope with competitive pressure and market forces within the Union"). Five countries, Poland, Hungary, Estonia, the Czech Republic, and Slovenia, were also classified as market economies and found likely to be able to cope with competition "in the near term." Latvia, Lithuania and the Slovak Republic were classified as market economies and found likely to handle competition "in the medium term." Bulgaria was found to have made some progress, but neither it nor Romania has met either criteria. The EU hopes to conclude negotiations with the applicant countries on company law, employment, environment, foreign policy and the EU internal market by the end of the first half of 2001 and on competition policy, transport policy, energy, taxation, customs union and some agricultural issues by the end of 2001.

At its December 2000 meeting in Nice, the European Council reaffirmed the political priority of the enlargement process and reached agreement on the Treaty of Nice, which will amend the Treaty on European Union, the Treaties establishing the European Communities and the Protocol on Enlargement of the European Union. The amendments, which will come into force when the Treaty of Nice has been ratified by all the EU Member States, address changes to EU institutions, voting procedures, and related matters in an enlarged EU.

European Monetary Union and the Euro

Pursuant to the terms of the Maastricht Treaty of 1992, 11 of the 15 EU member countries participating in the European Monetary Union (EMU) adopted a single currency, the euro, on January 1, 2000: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain. On January 1, 2001, Greece joined the so-called Euro Zone. Paperless transactions are now being conducted in euros, but all cash transactions will continue to be in national currencies until 2002. U.S. companies should benefit from the creation of the euro, as it is expected to reduce currency volatility and the need for inter-European currency exchange, thereby lowering transaction costs and facilitating cross-border trade. It should also enable U.S. firms to expand their business in the EU by allowing them to price their products on a euro-basis, rather than on a country-by-country currency basis.

Other Preferential Trade Arrangements

The EU is also continuing efforts to negotiate free trade agreements and other special arrangements. In February 2000, the EU and the 71 African, Caribbean and Pacific (ACP) countries completed negotiations on the EU-ACP Partnership Agreement (or Cotonou Agreement). This agreement replaces the Lomé conventions that governed trade relations between the EU and ACP countries since 1975 and seeks to replace the unilateral preferences provided under Lomé conventions with FTAs. Preferential treatment for imports from the ACP countries will continue until December 31, 2007, at the latest. During this eight-year period, the parties agreed to conclude new WTO-compatible FTA agreements. These FTAs will likely be negotiated between the EU and regional groups of ACP countries. Negotiations are unlikely to begin until 2002. The EU has sought a waiver of the WTO’s most-favored-nation principle for the Partnership Agreement, which provides preferential access to the EU market for ACP products.

The EU and Switzerland also reached agreement on a set of agreements covering scientific and technological cooperation, agriculture, government procurement, land and air transport and the free movement of people. These agreements were ratified in May 2000. The EU also signed and began implementing its free trade agreement with Mexico in 2000. Its free trade agreement with South Africa went into force on January 1, 2000, and its association agreement with Morocco entered into force on March 1, 2000. In total, the EU has concluded 27 free trade agreements. It is also proceeding with negotiations with MERCOSUR, several Gulf States, Chile, and other countries.

On February 26, 2000, the European Council adopted by a qualified majority, a regulation to extend duty-free and quota-free access to all products (except military weapons) originating in the 48 least-developed countries, the so-called "Everything but Arms" proposal. According to the EU, this proposal would provide duty-free access to an additional $70 million of products each year. The EU proposal came into force for most products on March 5, 2001, but has long phase-out periods for three particularly sensitive products -- bananas, sugar and rice -- that will not enjoy duty-free, quota free access until 2009. The EU has announced that it will monitor imports and apply safeguard measures if necessary to prevent injurious import surges. It remains unclear whether the rules of origin provisions will be modeled after the restrictive Lomé rules of origin. The EU is hopeful that its "Everything but Arms" proposal will be adopted by other developed countries and will help increase developing country support for a new round of WTO negotiations.

U.S.-EU Trade Relations

In recent years, U.S.-EU trade relations have focused to a large degree on several high-profile disputes that continue to cloud the relationship. These disputes have overshadowed the attempts at greater cooperation as part of the Transatlantic Economic Partnership and the efforts of the Transatlantic Business Dialogue.

Agricultural Issues

Agricultural issues remain a major source of contention between the United States and EU. The agricultural issues involve many of the issues already discussed in Section 2: genetically-modified organisms, the EU’s failure to implement the WTO’s ruling in the beef-hormone dispute, and the EU’s challenge of the U.S. wheat gluten safeguard action. In addition, as discussed below, the EU remains unwilling to agree on the elimination of agricultural export subsidies as part of the WTO agricultural negotiations, which is a top priority of the United States.

Despite various proposals and consultations, the EU has also failed to bring its banana import regime into compliance with the WTO’s rulings, prompting the United States to continue application of retaliatory tariffs totaling $191.4 million on EU exports. The failure to resolve this issue after decades of EU preferences remains a politically difficult issue. The EU has indicated that it may implement its latest proposal, a first-come, first-serve system, this spring. U.S. officials believe that this new proposal falls short of the EU’s WTO obligations and have suggested that they may implement the carousel provisions of the Trade and Development Act, which is the subject of a separate EU complaint discussed below, if the EU implements this new system. On March 9th, U.S. Trade Representative Robert Zoellick and EU Trade Commissioner Pascal Lamy indicated that they would conduct further discussions on the banana dispute.

WTO Negotiations and Dispute Settlement Cases

The United States and EU continue to have significant differences on the goals of a new round of WTO negotiations as discussed in Section 2. Among the major stumbling blocks to the launch of a round in Seattle was the EU’s unwillingness to agree to the elimination of agricultural export subsidies as part of the objectives of the agricultural negotiations as sought by the United States and many other WTO member countries. The United States is particularly concerned over the export subsidy issue given that the EU accounts for over 90 percent of global annual spending on agricultural export subsidies.

As well, the EU continues to insist on a broad scope for a new round of trade negotiations, including investment and competition issues, which many countries are not interested in negotiating in the WTO at this time.

In late 2000 and early 2001, the European Commission circulated a draft paper, State of Play and Strategy for the New WTO Round, which concluded that it would be necessary to accommodate better developing country interests as a prerequisite to launching a new round. The paper continued to insist on the need for addressing, perhaps as plurilateral agreements, investment and competition issues that many developing countries oppose. It also failed to commit to the elimination of agricultural export subsidies, which many developing countries are seeking.

The United States remains clear that agricultural export subsidies must be eliminated. It also remains reluctant to agree to negotiations on investment, after the failure of the Multilateral Agreement on Investment among like-minded countries in the Organization for Economic Development and Cooperation (OECD), and on competition, where little multilateral work has been done. The EU paper also advocated opening negotiations on antidumping and countervailing duty issues, which some U.S. industries strongly oppose. Member state disagreements have continued to hamper the EU’s ability to reach a consensus on this approach. As discussed above, however, the EU did announce on February 26, 2001, a new regulation to provide duty-free and quota-free treatment to almost all products from the 48 least-developed countries by 2009.

With regard to dispute settlement, the United States and EU have widely resorted to the WTO’s system, with each bringing complaints on 19 matters since the WTO was established in 1995. In addition to the beef-hormone, antidumping, countervailing duty, and safeguard cases discussed in Section 2 and the bananas case discussed above, the United States and EU are involved in the following primary disputes:

EU Challenge to U.S. Foreign Sales Corporation Rules

In April 2000, the WTO Appellate Body’s found that the Foreign Sales Corporation (FSC) provisions of U.S. law constituted an illegal export subsidy and agreed with the panel’s decision that the United States had until October 2000 to bring its law into compliance. Legislation was enacted in November 2000, which repealed the FSC provisions and established rules for the treatment of extraterritorial income. The history of the FSC provisions and the new legislation are discussed in detail in Section 11.

In November 2000, the EU challenged the WTO-consistency of the FSC Repeal legislation and has threatened sanctions worth $4.043 billion, on which the United States has requested arbitration. The EU also issued a so-called "indicative" list of selected chapters of the U.S. tariff schedule that would be subject to retaliation, although no individual products were identified. Following consultations with the United States, the EU formally requested a WTO review of the new legislation, which it argues is still inconsistent with the WTO’s rules. The WTO panel reviewing this legislation is expected to issue a decision in summer 2001.

Contrary to its September 2000 agreement with the United States that it would not retaliate until after the panel’s decision, the EU has recently suggested that it would immediately retaliate against the United States with $4 billion in sanctions if the United States implements the carousel retaliation provisions of the Trade and Development Act of 2000 with regard to the bananas and/or beef cases. Bush Administration officials have indicated that they may implement these provisions this spring if the EU implements the first-come, first-served system of banana quota allocation. The threat of retaliation subsided somewhat following a March 9th announcement by U.S. Trade Representative Robert Zoellick and EU Trade Commissioner Pascal Lamy that they would conduct further discussions on the banana dispute.

EU Challenge to "Carousel" Legislation

On June 5, 2000, the EU requested consultations on the so-called "carousel" provision added to section 306 of the Trade Act of 1974 by the Trade and Development Act of 2000. This provision, authored by Senator DeWine (R-OH), aims to increase pressure on the EU to bring its bananas and beef-import regimes into compliance with WTO rulings. The provision amends section 301 of the Trade Act of 1974 to require USTR to review every six months the lists of products subject to retaliatory tariffs in these cases, and revise them to add new products in an effort to increase the leverage on the country or countries subject to the retaliation. This provision provides that the retaliation lists need not be revised if the industry that initiated the trade case agrees that revision is unnecessary. (Prior to the enactment of this provision, USTR had the authority to revise retaliation lists, but it was not required to do so.)

The EU unsuccessfully sought to prohibit this practice as part of the WTO’s review of the Dispute Settlement Understanding during the Seattle Ministerial, arguing that it represents an unreasonable burden on importers, who will not know whether the products that they import will be subject to prohibitive tariffs. U.S.-EU consultations were held on July 5, 2000. As of early March 2001, the United States has not rotated the retaliation list in either case as required by this provision, but indicated that it may do so later this spring as discussed above.

EU Challenge to Section 110(5) of the Copyright Act

On January 26, 1999, the EU requested consultations on a 1998 amendment to the Copyright Act, which permits certain retail establishments to play radio music without paying royalties to songwriters or music publishers. In a report adopted on July 27, 2000, a WTO panel found that this provision violated U.S. WTO commitments and the United States informed the DSB that it would comply with the ruling. An arbitration panel determined that the United States had 12 months, until July 27, 2001, to implement this provision. Congress has not yet acted upon legislation to modify this provision.

Other EU Challenges to U.S. Law and Decisions

The EU has also requested consultations in the following matters:

Section 211 of the Omnibus Appropriations Act for FY 1999 (the so-called Cuba trademark provision), which, the EU alleges, prevents the registration or enforcement of rights of certain trademarks confiscated under Cuban law. A panel was established on September 26, 2000.
Section 337 of the Tariff Act of 1930, which the EU is challenging on national treatment and TRIPs grounds. Section 337 permits U.S. companies to seek exclusion orders or other orders permitting seizure of goods found to infringe on U.S. intellectual property rights or otherwise involved in unfair methods of competition.
U.S. imposition of a harbor maintenance fee of 0.125 percent, which the Supreme Court later struck down as a violation of the "export clause" of the Constitution. (Article I, section 9 prohibits taxes and duties from being imposed on the export of any article.) Legislation to replace this provision with a tonnage-based fee was submitted to Congress in February 1999, but Congress has not acted upon it.

Other U.S. Challenges to EU Law and Decisions

In addition to the high-profile beef and bananas cases and the United States’ challenge to the EU’s imposition of retaliatory tariffs on corn gluten feed (in retaliation for the U.S. safeguard on wheat gluten), the United States has brought several challenges to EU law and decisions, including:

Belgium’s failure to use actual transaction values in computing customs duties on rice. On January 19, 2001, the United States requested that a panel be established.
EU Regulation 2081/92, which the United States alleges does not provide national treatment with respect to geographical indications for agricultural products and foodstuffs and does not provide adequate protection to pre-existing trademarks. Consultations were held in November 2000.

Aircraft Issues

The United States and EU also remain engaged in serious disputes over aircraft subsidies and the EU’s implementation of noise-reduction standards.

Aircraft subsidy issues remerged following pledges by Britain and Germany to provide financing support to the European Airbus Consortium to develop the new Airbus Industries A380 (A3XX) superjumbo jetliner. This issue was discussed at the U.S.-EU summit in December. The United States and EU held consultations on this issue on January 11, 2001, where the United States explained to EU officials that any support must be provided on commercial terms in order to comply with WTO Agreement on Subsidies and Countervailing Measures. EU officials have argued that that earlier 1992 Civil Aircraft Agreement (which sets limits on government subsidies to manufacturers of large civil aircraft of 100 seats or more) should control the issue despite the fact that aircraft subsidies were not generally exempted from the WTO Subsidies Agreement, as the EU had sought during the Uruguay Round negotiations. The United States may consider bringing a WTO challenge against any EU subsidies to Airbus to develop the superjumbo jet as an illegal export subsidy.

In March 2000, the United States filed a formal complaint against the EU in the International Civil Aviation Organization (ICAO) over the EU’s discriminatory aviation noise standards. The United States is challenging the EU aircraft noise regulation, which would prohibit flights of aircraft in Europe equipped with noise-muffling hush kits after April 1, 2002. The hush kits are manufactured primarily by U.S. companies. The United States contends that the EU regulation violates the EU’s obligations under the ICAO, on the ground that it is based on an arbitrary design and not a performance standard.

Privacy

Progress was made on the very important issue of data privacy in 2000. On March 14, 2000, the EU and the United States finalized a data privacy agreement intended to resolve issues over how U.S. companies would be able to comply with the European Commission Directive on Data Privacy, which went into effect in October 1998. The EU Directive prohibits the transfer of personal data to non-EU nations that fail to meet the EU’s "adequacy" standard for privacy protection. The U.S. Government and U.S. companies have been concerned over the implementation of this provision since, unlike the comprehensive legislative approach adopted by the EU, the United States has taken a largely "self-regulatory" approach to data privacy, combined with some legislation and regulation.

This agreement, which the EU approved in July 2000, establishes a "safe harbor" framework under which U.S. companies would be able to comply with the EU directive by signing contracts with EU member state data authorities which commit them to meet EU data directive standards, showing that they are already covered by U.S. privacy laws, signing up with a self-regulatory privacy organization in the United States, or agreeing to refer privacy-related disputes to a panel of EU data privacy protection authorities. Companies that join self-regulatory bodies with safe harbor codes of conduct would face false advertising penalties if they violate the standards. The Commerce Department issued revised safe harbor privacy principles in July 21, 2000.

ECAT POSITION: ECAT supports efforts by the United States and the EU to strengthen their economic relationship, address ongoing trade disputes that have undermined the historically close U.S.-EU relationship, and move forward with mutually supportive trade initiatives in 2001.

Trans-Atlantic Economic Partnership

Under the Trans-Atlantic Economic Partnership (TEP), launched at the May 1998 U.S.-EU Summit, the United States and the EU agreed to work together to increase trade and avoid disputes on a number of issues, including technical barriers to trade, agriculture, intellectual property, government procurement, services, electronic commerce, environment, and labor. The United States and the EU also agreed to involve citizens more fully in the TEP process. The TEP also serves as a vehicle for consideration and implementation of recommendations from the Trans-Atlantic Business Dialogue discussed below.

The United States and the EU continued their efforts in 2000 to enhance regulatory cooperation through the implementation of the U.S.-EU MRA initiated in 1998, which aims to reduce duplicative product testing, while respecting domestic health, safety, and environmental standards. The MRA currently includes six annexes, covering health safety issues, industry measurement standards, and other issues. The combined U.S.-EU trade activity in the MRA sectors are worth more than $50 billion in annual two-way trade.

In December 2000, the United States and EU concluded the implementation of the telecommunications and information technology equipment MRA that covers $30 billion dollars in U.S.-EU trade per year. The United States and EU also completed work on the marine safety equipment annex at the December 2000 U.S.-EU Summit. The United States and EU completed a framework, but not an MRA, on Metrology, finalized work plans on architectural and engineering services, and made progress on regulatory cooperation issues in the fields of cosmetics, elevators, insurance, and consumer product safety.

Negotiations have not been completed on other sectoral issues, including electrical safety, pharmaceuticals and medical devices. With regard to pharmaceuticals, the U.S. Food and Drug Administration is conducting a country-specific equivalence assessment that it hopes to complete in March 2001, after which it will schedule additional country assessments. Progress in this area has been hampered by the lack of availability and translation of documents. It is hoped that negotiations in these areas will conclude in 2001.

The TEP Working Group on biotechnology has also continued its efforts in 2000 to address biotechnology disagreements between the United States and EU, particularly with respect to U.S. corn exports to Spain and Portugal.

The United States and EU also worked to refine further the procedures for addressing disputes under the early warning system created through the TEP in June 1999.

Trans-Atlantic Business Dialogue

Since the TABD’s establishment in 1995, business leaders have sought alternatives to existing bilateral trade disputes by holding annual conferences to facilitate discussions with U.S. and EU government officials. Last November marked the 6th Annual TABD CEO conference, held in Cincinnati, Ohio, which aimed to promote transatlantic trade and investment opportunities through the removal of costly inefficiencies in excessive and duplicative regulations and regulatory differences between the United States and EU. The five TABD working groups issued strong recommendations on: (1) the development of an early warning system in order to prevent the escalation of bilateral disputes; (2) finalizing Regulatory Guidelines for Cooperation that focus on operational transparency; (3) advancing the WTO’s built-in agenda negotiations and the launch of a new round of multilateral trade negotiations, and (4) the incorporation of agriculture, services and small and medium-sized enterprises (SMEs) into the TABD policy-making process.

The fifth TABD recommendation addresses the new economy. Most of the current Internet growth has occurred in the United States and EU, but the majority future growth is expected in the developing countries; within three years, the developing world is anticipated to carry 50 percent of online users. In order to sustain and drive the Internet to a higher technological level, it will be necessary for the United States and EU to push for greater liberalization in the telecommunications sector. To this end, the TABD has advocated the creation of a uniform transatlantic e-commerce marketplace by increasing dialogue between public and private sectors across the Atlantic in order to maximize investment in each other’s economy.

The 7th Annual 2001 conference will be held in Stockholm, Sweden in November. The TABD is currently Co-Chaired by James J. Shapiro, Chief Executive Officer of PricewaterhouseCoopers, and Michael Treschow, President and CEO of Electrolux.

ECAT POSITION: ECAT supports continuing U.S.-EU efforts to promote a positive agenda as part of the Trans-Atlantic Economic Partnership (TEP), to reach additional Mutual Recognition Agreements (MRAs) in the goods and services sectors, and to develop further an early warning system to identify and resolve potential areas of dispute. ECAT also endorses the highly productive efforts of the Trans-Atlantic Business Dialogue (TABD) and the TABD recommendations that have helped to lay the foundation for greater regulatory cooperation and harmonization under the TEP.