The Eu And Us

U.S.-European Union Trade Relations: Issues and Policy Challenges

SUMMARY

The United States and European Union

(EU) share a huge and mutually beneficial

economic partnership. Not only is the U.S.-EU

trade and investment relationship the largest in

the world, it is arguably the most important.

Agreement between the two economic superpowers

has been critical to making the world

trading system more open and efficient. Given

a huge level of commercial interactions, trade

tensions and disputes are not unexpected. In

the past, U.S.-EU trade relations have

witnessed periodic episodes of rising trade

tensions and even threats of a trade war, only

to be followed by successful efforts at dispute

settlement. This ebb and flow of trade tensions

has occurred again last year and this year with

high-profile disputes involving steel, tax

breaks for U.S. exporters, and the EU ban on

approvals of GMO products. Resolution of

U.S.-EU trade disputes has become increasingly

difficult in recent years. Part of the

problem may be due to the fact that the U.S.

and the EU are of roughly equal economic

strength and neither side has the ability to

impose concessions on the other. Another

factor may be that many bilateral disputes now

involve clashes in domestic values, priorities,

and regulatory systems where the international

rules of the road are inadequate to provide a

sound basis for effective and timely dispute

resolution. How foreign policy discord over

the Iraq war may affect economic relations is

a major new unknown. In order to build a

smoother relationship, Brussels and Washington

may have to resolve a number of these

disputes and avoid an outbreak of tit-for-tat

retaliatory actions. The agreement to launch

a new round of multilateral trade negotiations

at the World Trade Organization (WTO) trade

ministerial held November 2001 in Doha,

Qatar has facilitated this effort. But the recent

passage of U.S. legislation increasing farm

subsidies, as well as the continuing EU moratorium

on approval of new genetically modified

crops, could complicate efforts to move

the Doha Round forward and thwart the new

round's potential beneficial impact on resolving

other disputes. Currently, both sides are

seeking to avoid the imposition of retaliatory

duties in response to several disputes. In

reaction to the Bush Administration's March

5, 2002 decision to impose temporary tariffs

of up to 30% on approximately $8 billion in

steel imports, the EU filed a WTO complaint

against the U.S. Section 201 trade action. A

March 26, 2003 interim report of the WTO

found that the U.S. safeguard actions were out

of compliance with WTO rules. If the U.S.

loses an appeal on this case, the EU could win

a second authorization to impose countermeasures

on U.S. exports. The first authorization

was won in conjunction with the failure of the

U.S. to bring its export tax subsidy provision

into conformity with its WTO obligations.

Made final by the WTO in May 7, 2003, this

ruling provides the EU with a legal basis to

retaliate against $4.043 billion of U.S. exports

to Europe. In addition, the Bush Administration

on May 13, 2003 moved the dispute

involving the EU's failure to open its market

to genetically modified food products to the

WTO. The major U.S.-EU trade challenges

can be grouped into five categories: (1) avoiding

a "big ticket" trade dispute associated with

steel or the tax breaks for U.S. exporters; (2)

resolving longstanding trade disputes involving

aerospace production subsidies and beef

hormones; (3) dealing with different public

concerns over new technologies and new

industries (4) fostering a receptive climate for

mergers; and (5) strengthening the multilateral

trading system.

IB10087 06-09-03

CRS-1

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