The Eu and Us

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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
President Bush in a May 21, 2003 speech blamed the EU ban on new geneticallyengineered products and agricultural export subsidies for hindering the fight against...
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