Problems With Current U.S. Policy.

The main sites of discord in U.S.-EU trade fall into three categories:

The perennial issue of agriculture and the related reform of the EU'S Common Agricultural Policy (CAP). Reform of CAP has been sluggish, despite the pressing need to do so before enlarging the EU eastwards. The most recent agricultural trade dispute has concerned the EU's preference for importing bananas from former European colonies.

New issues concerning technology. These fall into two broad categories. The first concerns biotechnology, genetically modified organisms (GMOs), and the use of hormones in U.S.-bred beef and milk. These developments raise larger issues regarding the relationship of consumer health and safety to commercially advantageous advances in science. The second category concerns the relation of information technologies to traditional approaches to information. The issues here include the privacy of electronically stored data, intellectual property in cyberspace, and regulation of electronic commerce and telecommunications.

Foreign policy and security issues that have important trade spillover effects, such as America's imposition of economic sanctions on firms that do business with political undesirables, particularly Cuba, Libya, and Iran. These issues raise the question of the relation of economic means to political ends and are thorns in the side of trade ministries, who lack jurisdiction.

The ongoing U.S.-EU dispute about agriculture has tested the WTO'S new dispute settlement system, established in 1996. The WTO ruled that Europe's policy of maintaining quotas for bananas from former (mainly Caribbean) colonies was a barrier to trade and must be abandoned. The EU continues to stall on eliminating banana quotas, and in 1999 Washington retaliated with 100% tariffs on $191 million worth of European luxury goods.

The newer issue of banning hormone-treated beef was also brought before the WTO following the European scare over mad cow disease. The WTO ruled that, without further scientific evidence, the EU could not employ the precautionary principle to bar further importation of U.S. beef. (Precautionary principle holds that lack of scientific certainty should not block cost-effective measures to protect health and environment.) The EU has also decided not to comply with this ruling, and again the U.S. has imposed punitive tariffs of $116.8 million on certain food imports.

The Clinton administration sees these two issues as a test of the WTO's ability to "mandate that nations change their trading practices." The U.S. claims that EU defiance of the dispute settlement rulings scuttles the norms that both sides worked hard to institute. The EU, stung by U.S. retaliation, maintains that the appeals process has not been allowed to run its course and that the U.S. is attempting to commandeer the WTO as a coercive foreign policy tool. In both cases, however, the amount of trade at stake is much smaller than the rhetoric. Together, the tariffs on bananas and beef amount to less than 0.2% of all U.S.-EU trade.

The beef dispute raises a contentious issue: should a country's perceptions of health risks be subordinate to multilateral trading rules? It tests the WTO provision that permits unilateral import restrictions due to scientifically based health or environmental protection concerns. An overly narrow interpretation of this provision requiring scientific proof of harm jeopardizes national laws regarding health, safety, and environmental protection--which may be considered in WTO dispute settlements as barriers to free trade.

As with a global definition of barriers to trade, international standards on personal information--from credit ratings to medical histories--are entering new and uncertain terrain. The U.S. has traditionally adopted a laissez-faire approach to regulating data, allowing consumer information to be bought and sold in the world's largest information economy. The 1998 European Union Data Protection Directive requires a number of potentially time-consuming and expensive actions, from notifying individuals when information is gathered to giving individuals the right to sue data controllers. The most potentially disruptive stipulation is that data cannot be transferred from the EU to countries that lack similar standards, most notably the United States.

These regulations may be too burdensome in the internet age, when the dependence of modern commerce on electronic data makes the stakes in this battle tremendous. Again the crux of the matter lies less in dollar figures than in the underlying difference between U.S. and EU attitudes, pitting self-regulation--the preferred mode of operation in the U.S.--against the EU willingness to regulate industry in the name of the public good.

The third category of foreign policy and security issues revolves around U.S. sanctions against Cuba, Iran, and Libya. These actions hold far-reaching implications for European companies, renewing the specter of a United States unwilling or unable to distinguish between its political interests and the interests or concerns of others.

Regarding Cuba, Washington has mandated that sanctions be imposed against any company whose business involves expropriated U.S. property and, recently, trademarks. The EU charges that this is a barrier to trade, but the U.S. refuses to acknowledge this argument, claiming it is a foreign policy matter rather than a trade issue. Although the Clinton administration has consistently waived the most controversial parts of the sanctions law (known as Helms-Burton), thereby avoiding a showdown, the critical issue remains whether any one country can make a law that binds a third country without its consent. Such extraterritorial sanctions are counterproductive to efforts to build a rules-based system. The U.S. risks being seen as unwilling to play by the rules of the game, itself, while demanding that others tow the line.

Key Problems

* In disputes over bananas and hormone-treated beef, the EU has defied WTO rulings, and the U.S. has retaliated by imposing sanctions.

* U.S. use of extraterritorial unilateral sanctions against Cuba, Libya, and Iran, is straining U.S.-EU relations and undermining the search for a rule-based trading system.

* The U.S. laissez-faire approach to regulation of electronic data conflicts with European privacy restrictions.