U.S.-EU Trade Issues.

Investment and trade between the U.S. and the European Union (EU) have expanded exponentially since Europe first began to integrate its market in the 1950s. Currently the U.S. and EU account for more than one trillion dollars in two-way trade and investment flows, directly supporting a total of more than six million jobs in the U.S. and the 15 EU countries and resulting in a degree of economic integration higher than that between the U.S. and Asia. The EU and U.S. now exchange roughly 19% of each other's exports and imports.

The foundations of U.S.-EU relations lie in close post - World War II cooperation in economic, security, and political spheres. The U.S. and Europe quickly intertwined their trade and investment flows within an overarching consensus about the structure of the global economy. Yet as trade grew, so did the number of disputes, with tariffs and market access emerging as the main contentions in U.S.-EU economic relations since the 1960s. Today the major trade disputes between these two economic rivals revolve around bananas, hormone-injected beef, biotechnology, information technology, and the use of economic sanctions for political purposes.

The EU has gained new vitality since the end of the cold war. It is developing an independent political capacity to supplement its economic might and is seeking to become more of a global player. With economic interests in emerging markets such as Latin America, the EU is the only world region that rivals U.S. economic might and can compete on a par with it. The advent of the European Monetary Union (EMU) in 1999 and the introduction of a common European currency, the euro, underscore this new power by creating a future reserve currency with the potential to rival the dollar and expand the EU's international economic presence.

At the same time, both the U.S. and the EU are confronting the contradictions of economic globalization, where the push for ever-more-mobile capital and increased global trade liberalization raise difficult questions about the role of the social welfare state in the emerging global economy. Less regulation increases profits from new markets, yet concern over the domestic impact of globalization has led to calls for more. The U.S. and EU react differently to the problem of those left behind by globalization, creating friction in their common quest to liberalize the world trading system.

As the cold war wound down in 1990, the U.S. rebuffed EU calls for a formalization of relations through a transatlantic treaty, preferring a network of informal relations. The decade since the cold war has thus seen a number of Smaller, vaguer agreements, starting with the Transatlantic Declaration in 1990. This highly rhetorical document was quickly overshadowed by the temporary collapse of the 1990 Uruguay Round due to U.S.-European differences. The EU, concerned about the effect of the North American Free Trade Agreement (NAFTA), then proposed a Transatlantic Free Trade Agreement (TAFTA) in 1994, and the U.S.--somewhat reluctantly--went along.

There was to be no TAFTA to complement NAFTA, however: only a renewed political gesture in the form of the 1995 New Transatlantic Agenda (NTA). Its main lasting effect was the Transatlantic Business Dialogue (TABD), the first transatlantic lobby, which brought about agreements on testing and certification as a step toward defining a new trade agenda. It also envisioned the creation of a New Transatlantic Marketplace (NTM) within which trade barriers between the U.S. and EU would be largely dismantled. Continuously diluted, in 1998 the NTM became today's Transatlantic Economic Partnership (TEP), a limited agreement slighting key issues, particularly agriculture, audiovisual services, and culture.

This failure to develop substantive transatlantic regulations means reliance on the World Trade Organization's (WTO) dispute settlement process for airing differences. This use of the WTO, while clearly envisioned by the U.S. and EU during the Uruguay Round, has turned U.S.-EU disputes into tests for trade rules and access to new markets in developed and undeveloped countries around the globe. Thus, the post-cold war era seems less a ready-born system of neoliberal economics and democratic politics moving seamlessly into place than a time of reformulating the structures of the international trading system.

Key Points

* U.S.-EU trade and investment--based on transatlantic cooperation in economic, political, and security spheres--have grown exponentially since the 1950s, gaining new vitality since the end of the cold war.

* The EU and U.S. have reacted differently to the problem of those left behind by globalization, boding ill for the current WTO round.

* The WTO plays a significant role in resolving U.S.-EU disputes but is ill-equipped to handle new issues such as biotechnology.

Jonathan P.G. Bach, Saltzman Center for the Study of Constitutional Democracies