European countries include two categories of actors: the countries joined in an economic and, hopefully, political union referred to as the European Union (28 members so far, with Croatia joining in July 2013) and the countries that are not part of this block. The latter include countries such as Norway and Switzerland, part of another economic association, and countries that have expressed their intention to join the EU in the future, candidate countries such as many of those in the Balkans.
While this paper refers to European countries as a whole, it is understandable that the largest bulk of U.S. trade is done with countries that are part of the EU, such as the United Kingdom, Germany, Italy or France, large economies with great export and import capacities. However, with the countries in Central and Eastern Europe joining the EU in the 2000s, new markets and commercial and economic opportunities appeared for the U.S.
Looking over trade information and data, it is interesting to note that none of the first three partners for U.S. trade are European. The first three countries with which the U.S. trades are, in this order, Canada, Mexico and China
. This is understandable: with the first two, the U.S. has concluded a free trade agreement in 1994, referred to as the NAFTA, which eliminated tariff barriers and facilitated trade between the three countries. China’ positioning is also understandable, with the outsourcing flows that characterize the manufacturing and service sectors in the United States.
The first European country in the list of U.S. trade partners is the United Kingdom, on fifth place, with Germany on sixth place. However, it is interesting to point out that these are all individual countries. If we add up all the European countries in the list of top thirty U.S. trade partners, these will come second, above Mexico and just below Canada.
So, the conclusion so far is that European countries remain an essential trade partner for the U.S., with the figures pointing out to a continuous commercial interaction between the parties on the two sides of the Atlantic. This paper will aim to also discuss the fact that this trend is likely to continue in the future and that commercial ties will grow in the short and medium term. There are a lot of premises in this sense, including discussions about a U.S.-EU free trade agreement, which would obviously be fundamental in boosting commercial relations.
This paper will also look at several other aspects and characteristics of U.S. trade with European countries. One aspect of interest is the structure of the U.S. trade with these countries, namely the type of products and services that are part of these commercial flows. This part of the paper is useful in determining the nature of the commercial ties, namely what are the main
At the same time, a separate part of the paper will refer to the areas of disagreement between the U.S. And Europe in the commercial field. Despite the close political and economic relations between the two entities, competition on the two markets occasionally leads to areas of disagreement between the U.S. And Europe. These disagreements are primarily in the area of non-tariff barriers, including things such as licensing, the way genetically modified organisms (GMOs) are regulated etc.
Structure and evolution of U.S. trade with European countries
Peterson had pointed out in an excellent study for the European Commission in the 2000s that the U.S.-EU economic relationship is characterized by dependencies of two different types: mutual penetration of each other’s economy and institutional dependencies
. Each of these two categories is worth a separate discussion so as to better understand the nature and characteristics of the U.S. trade with Europe.
The mutual penetration places trade in the more general context of commercial and economic relations. Trade has fallen to third place when it comes to the components of the U.S.-EU commercial relationship, behind foreign investments. This aspect is relevant to show that, while trade between the two economic blocks remains important, it is no longer the most important element. The two entities have moved from the traditional bilateral trade to more complex economic ties, whereby other means of doing business are preferred.
Second, interdependency is also institutional. Both the U.S. And the EU have dedicated entities that deal with trade issues: the U.S. Trade Representative and the EU Trade Commissioner. The purpose of this paper is not to discuss the nature and strength of these entities, but it is safe to assume that the fact that both the U.S. And the EU have dedicated structures for trade facilitates an institutional dialogue that can only be beneficial to solving disputes and creating premises for improved cooperation in the commercial field.
In terms of structure, the main part of the commercial activities between the U.S. And the EU is represented by manufactured products: 90% of U.S. exports to Europe and 88% of U.S. imports from Europe
. Manufactured products include everything from aircraft to computers and passenger cars, as well as pharmaceutical products and organic chemicals. The structure of the bilateral trade shows the common characteristics of both the U.S. And EU economies, their focus on high-level, highly technological products that drive an intra-industry trade.
Conflicting aspects of U.S. trade with European countries: areas of disagreement
This paper has already established the fact that the U.S.-EU economic ties are the most important part of the transatlantic relationship. They are, at the same time, the most complex part, which means that disputes occur. As Ahearn pointed out, the causes of these disputes are numerous. They range from pressures from producer interests (which pressure the governments into offering them subsidies and other advantages that improve their competitive position on the market) to the protection of specific markets (agriculture or the steel industry) from foreign competition and from preferential agreements with third parties to regulatory policies
Ahearn divides the sources of U.S.-EU trade conflict into three separate categories: traditional, namely producer protection in key industries such as steel and the aerospace industry; foreign policy conflicts, with diverging state interests; and regulatory policy conflict, when it comes to different regulations for social and environmental policies.
When referring to the latter, the fact is that the European authorities are limiting the access of U.S. agricultural products on the EU market and are conditioning it by the use of a more restrictive regulatory environment than in the U.S. For example, in the case of U.S. beef exports in the U.S. Or of genetically modified organisms (usually in the agriculture), EU regulations require that each hormone be specifically mentioned on the label. In many cases, these are seen, in fact, as non-tariff barriers by the U.S. authorities, aimed at protecting the local agricultural producers rather than a concern for European consumers.
Several studies look at the negative impact that this type of regulations have on U.S.-EU trade relations. According to Weyerbrock and Xia, a 1996 survey done by the USDA showed that there were as many as 57 European regulations that caused a trade impact of $899.55 million
. The authors show that technical barriers such as regulatory instruments are a preferred method of obstructing trade between the EU and the U.S., the main reason being that such barriers are less observed by strict WTO rules in favor of trade liberalization.
In the traditional category, the most interesting example is that of the aerospace industry. The aerospace industry presents several unique characteristics of the bilateral trade between the EU and the U.S. First, it is dominated by two large companies, one in each case (Boeing and Airbus). Second, the U.S. And European governments give, under different forms, huge subsidies to these companies. Certainly, the U.S. authorities blame the European consortium for this situation, but the huge governmental contracts that Boeing has in the U.S. are a good sign that this is not a unilateral approach.
The third category, of foreign policy conflict, presents those situations where commercial agreements with third countries deter the bilateral trade between the U.S. And the EU. On the EU side, sanctions that the U.S. has against third countries (Cuba or Iran) affect its commercial relations with these countries. On the U.S. side, the authorities complain about preferred agreements that the EU has done in the past with countries in Central and Eastern Europe and, in the present, with countries in the Western Balkans or the former Soviet Union.
Given this presentation of negative aspects in the U.S.-EU trade relations, it is interesting to make a point about conflict management when it comes to trade disputes between the two countries. The first element is the maturity of the relationship: for all these disputes, the EU and the U.S. remain fundamental partners on a large range of issues. This implies the second element, namely that the two blocks are generally on the same side of issues: both the EU and the U.S. promote free trade and try to fight against protectionism — this is a given from which any commercial differences between the two starts. Third, the trade relations have produced, over time, several cooperative mechanisms and agreements, both formal and informal, that play a fundamental role in solving potential problems that appear. This type of mechanisms will continue to benefit bilateral trade between the EU and the U.S.
The future U.S.-EU free trade agreement
Peterson had also pointed out that, while the economic relationship remains the most important part of the U.S.-EU relationship, bilateral economic policy had stalled towards the mid-2000s
. It is the argument of this paper here that (1) this trend continued to the present day and that (2) the discussions around a future U.S.-EU free trade agreement is the most concrete and decisive factor that could move the economic relationship forward.
The need to boost the economic and commercial ties that have stalled is not the only reason behind this type of agreement. Both the EU and the U.S. economy have been severely injured because of the economic crisis and there is obvious hope on both sides of the Atlantic that such a free trade agreement would help both economies. Companies also lobby for it because there is hope that such an agreement would remove some of the non-tariff barriers that have been discussed previously, especially by sidelining some of the regulatory instruments in place
A free trade agreement, while the obvious solution for boosting trade relations between the EU and the U.S., is not necessarily something easy to achieve. There are numerous reasons for this and some appeared as soon as the opening of discussions was announced, in June 2013. The President of the European Commission, Jose Manuel Barroso, criticized the French for refusing to open up their film industry and for continuing to offer subsidies for this industry
This type of discussion shows what some of the problems are. First, on the EU side, the authority is always split between the national governments and the central authorities in Brussels. In theory, all authority related to commercial issues has passed to Brussels, but when it comes to a free trade agreement of this nature, the national governments will have an important say. This will likely show a fragmented authority on the EU side that will prolong the decision making mechanisms.
At the same time, this type of discourse shows that there is large category of products and services that will make the object of significant discussion and argumentation. The film industry is only the start of a discussion that will move to the agricultural sector, where significant pressures from lobbying groups in both the U.S. And the EU will aim to remove the chances for the elimination of subsidies and other forms of protectionist instruments. The agricultural sector will also see debate about the genetically modified organisms (GMOs) and how these will be treated in the wider framework of the free trade agreement. Many of the other issues that have been previously discussed in this paper, including regulatory aspects and other forms of non-tariff barriers will remain thorny issues in the negotiations.
Conclusions
The trade relations between the EU and the U.S. remain a fundamental aspect of the bilateral relations across the Atlantic. The volume of the bilateral trade makes this the most important commercial relationship on a global level and a generator of global GDP. Not without occasional problems, the trade relation remains solid because of the commitment of decision makers in both the EU and the U.S. towards this, as well as a continuous pressure from the economic actors towards improving the trade environment.
As shown, the trade relations appeared to have stalled during the 2000s, but discussions about a free trade agreement between the U.S. And the EU creates the premises for future developments. It is clear that both entities need this as a way of becoming more competitive in a global environment where strong competition from countries like China and India brings serious challenges. The first step, commitment from political leaders, has already been made this year and it remains to be seen how this political commitment can be translated into concrete result in technical negotiations.
Bibliography
1. Peterson, John; Young, Alasdair. N.a. Trade and Transatlantic Relations. On the Internet at http://www.princeton.edu/~smeunier/Peterson%20Young%20Memo.pdf. Last retrieved on September 23, 2013
2. Ahearn, Raymond, coordinator. 2008. European Union-U.S. Trade and Investment Relations: Key Issues. Congressional Research Service Report.
3. Ahearn, Raymond. 2006. Trade Conflict and the U.S.-European Union Economic Relationship. Congressional Research Service Report.
4. Weyerbrock, Silvia; Xia, Tian. 2000. Technical Trade Barriers In U.S./Europe Agricultural Trade. Agribusiness. Vol. 16, No.2, 235-251
5. Ewing, Jack. 2012. Trade Deal Between U.S. And Europe May Come to the Forefront. The New York Times.
6. Castle, Stephen; Calmes, Jackie. June 2013. U.S. And Europe to Start Ambitious but Delicate Trade Talks. The New York Times.
7. Meunier, Sophie; Nicolaidis, Kalypso. 2006. The European Union as a conficted trade power. Journal of European Public Policy. 906-925
8. Top Trading Partners – December 2011. On the Internet at http://www.census.gov/foreign-trade/statistics/highlights/top/top1112yr.html. Last retrieved on September 23, 2013
Top Trading Partners – December 2011. On the Internet at http://www.census.gov/foreign-trade/statistics/highlights/top/top1112yr.html. Last retrieved on September 23, 2013
Peterson, John; Young, Alasdair. N.a. Trade and Transatlantic Relations. On the Internet at http://www.princeton.edu/~smeunier/Peterson%20Young%20Memo.pdf. Last retrieved on September 23, 2013
Ahearn, Raymond, coordinator. 2008. European Union-U.S. Trade and Investment Relations: Key Issues. Congressional Research Service Report.
Ahearn, Raymond. 2006. Trade Conflict and the U.S.-European Union Economic Relationship. Congressional Research Service Report.
Weyerbrock, Silvia; Xia, Tian. 2000. Technical Trade Barriers In U.S./Europe Agricultural Trade. Agribusiness. Vol. 16, No.2, 235-251
Peterson, John; Young, Alasdair. N.a. Trade and Transatlantic Relations. On the Internet at http://www.princeton.edu/~smeunier/Peterson%20Young%20Memo.pdf. Last retrieved on September 23, 2013
Ewing, Jack. 2012. Trade Deal Between U.S. And Europe May Come to the Forefront. The New York Times.
Castle, Stephen; Calmes, Jackie. June 2013. U.S. And Europe to Start Ambitious but Delicate Trade Talks. The New York Times.
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