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«by Edward A. Fogarty October 19, 2002 Abstract This paper assesses the past, present, and future of transatlantic commercial relations in terms of EU ...»

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Working Paper PEIF-8

The European Union and North America

by

Edward A. Fogarty

October 19, 2002

Abstract

This paper assesses the past, present, and future of transatlantic commercial relations in

terms of EU trade strategies. After surveying the medium-term trajectories of the

relationships with the United States, Mexico, and Canada—both separately and as a

group—it will consider several possible sources of European Union trade preferences visà-vis NAFTA, including interest groups’ incentives to seek to capture national and European governing institutions, the balance between the European Commission and the Council of Ministers, European leaders’ desire to balance against overweening American power, and possible attempts to construct either a common Western identity or, alternatively, a European identity in contradistinction what the United States seems to represent. The hope is that these different approaches provide a contrasting set of interpretations whose comparison side-by-side allows new insights into the dynamics governing EU-North American trade relations.

Edward A. Fogarty, Department of Political Science, University of California, Berkeley Please do not quote or cite without permission.

THE EUROPEAN UNION AND NORTH AMERICA

Edward A. Fogarty Department of Political Science 210 Barrows Hall, #1950 University of California, Berkeley Berkeley CA 94720-1950 Email: efogarty@uclink.berkeley.edu Paper prepared for the conference “Between Regionalism and Globalism: European Union Transregional and Interregional Trade Strategies.” Brussels, Belgium, 18-19 October 2002.

1. Introduction1 Since the early 1990s, the United States and the European Union (EU) have taken halting steps toward institutionalizing cooperative economic and trade relations in a bilateral framework. EU and U.S. negotiators have come up with several potential frameworks— including the Transatlantic Partnership (TAP), the Transatlantic Business Dialogue (TABD), and the New Transatlantic Agenda (NTA)—in which to cement commercial ties between these two economic giants. Each has hailed the vitality and importance of transatlantic economic relations; yet, each has failed to build momentum toward a larger goal of a Transatlantic Free Trade Area (TAFTA).

While the United States and European Union were launching these serial trial balloons of institutionalized commercial ties, Washington was simultaneously busy establishing the North American Free Trade Agreement (NAFTA), which, by promoting unfettered commerce among the United States, Mexico, and Canada, created a new North American economic bloc that would potentially rival the EU in world markets. While not as institutionally ambitious as the EU, NAFTA became a cornerstone of U.S. trade policy as a gateway to a prospective Free Trade Area of the Americas (FTAA), and a key piece of the evolving patchwork of international economic integration. Thus the establishment of NAFTA—and the prospect of a future FTAA—promised to embed EU-U.S. trade relations in an increasingly complex web of current and future relationships, involving some countries directly (Mexico and Canada) and others indirectly (potential members of NAFTA, FTAA, and the EU). As such, while assessing a potential interregional relationship between the EU and North America as a whole must start with an understanding of the EU-U.S. relationship, it is also essential to consider the EU’s aspirations vis-à-vis Mexico, Canada, and indeed all of the Americas to understand the dynamics of transatlantic relations.

This paper assesses the past, present, and future of transatlantic commercial relations in terms of EU trade strategies. After surveying the medium-term trajectories of the relationships with the United States, Mexico, and Canada—both separately and as a I would like to thank Justin Kolbeck, Matthew Odette, and Daniel Xu for their energetic and insightful research assistance.

group—it will consider several possible sources of European Union trade preferences visà-vis NAFTA, including interest groups’ incentives to seek to capture national and European governing institutions, the balance between the European Commission and the Council of Ministers, European leaders’ desire to balance against overweening American power, and possible attempts to construct either a common Western identity or, alternatively, a European identity in contradistinction what the United States seems to represent. The hope is that these different approaches provide a contrasting set of interpretations whose comparison side-by-side allows new insights into the dynamics governing EU-North American trade relations.

2. EU commercial relations with North America Despite the creation of NAFTA in 1994, the EU has studiously maintained separate bilateral tracks for managing its commercial relations with the three countries of North America. Thus to assess the EU’s trade ties to NAFTA as a whole, we first have to consider those with each North American country individually.

Europe and the United States Commercial relations between Europe and the United States over the last 150 years have been a consistent story—with one big blip—of ever closer union. Trade between the two sides of the Atlantic steadily increased between the latter half of the nineteenth century and the outbreak of war in Europe in 1914, with the United States entering the war for the most part because Germany’s unrestricted naval warfare wreaked intolerable havoc on U.S. trade with the belligerents. Growth in transatlantic trade resumed through the end of the 1920s; the Great Depression that followed was exacerbated by policies that sharply curtailed this trade. The postwar cooperation between Western Europe and the United States in creating the liberal international economic order, with its provisions for facilitating stable and open trade relations between the two, was largely a legacy of shared dissatisfaction with the beggar-thy-neighbor policies of the 1930s—and was not simply a reaction to the threat of the Soviet Union.2 The two sides’ commitment to the General Agreement on Trade and Tariffs (GATT)—which was formally multilateral but Kahler 1996.





whose direction was determined in large part by U.S.-European collaboration—helped to liberalize transatlantic trade relations, to the effect that by the 1970s earlier levels of integration had been reached once again. Agreements in the Kennedy, Tokyo, and ultimately the Uruguay Rounds of multilateral trade negotiations formalized this creeping process of cooperation and liberalization. The point of this dash through the history of transatlantic commercial relations is simply to show that, generally speaking, both Europe and the United States have prospered when transatlantic commerce has bloomed, and both have paid a heavy price—and indeed the international economy as a whole as paid a heavy price—when it wilted.

Today, the Europe-United States commercial relationship remains the cornerstone of the world economy. The EU and United States represent the world’s two largest markets, and each absorbs roughly 20 percent of the other’s exports, with total trade in 1998 worth roughly $400 billion.3 The relationship is similarly intimate with respect to investment: in 1999, European firms accounted for over 60 percent of FDI stock in the United States (roughly $600 billion in total), while American firms owned a similar proportion of investment stock (approximately $500 billion in total) in EU member countries.4 The total amount of trade and investment streaming across the Atlantic comes to $36 billion per day.5 The current level of economic integration is high, and is only getting higher.

Assessments of troubles in EU-U.S. commercial ties tend to suffer from a lack of a sense of proportion. Economic relations remain, despite headline-grabbing disputes about seemingly small issues, almost completely trouble-free. As EU trade commissioner Pascal Lamy has asserted, less than 2 percent of total EU-U.S. trade is involved in some sort of dispute.6 Much of this exchange is intrafirm, which underscores the fact that transatlantic “trade” is very much intertwined with investment and merger and acquisition activities. Given the extensiveness of mutual interests, both with one another and with respect to the global economy, the two have retained a broadly consonant preference for, and agenda in, multilateral liberalization of trade and investment through

Lamy 1999b [check if this is right] Burghardt 2001.

Blinken 2001.

Lamy 2000.

the WTO—despite each’s participation in various regional, transregional, and interregional arrangements.

In the past as now, however, growing integration and interdependence have not been synonymous with unproblematic commercial relations. During the 1940s and 1950s the United States overtly sought to undermine the systems of imperial preference Britain and France had constructed among their respective colonies. During the 1960s the United States and Europe fought the “chicken wars,” and Europe chafed under American benign neglect of its role as international creditor and its export of inflation from the Vietnam War and Great Society programs. In the 1970s the two were buffeted by the collapse of the Bretton Woods system and the oil shocks, and the United States put increasing pressure on Europe (and particularly West Germany) to act as an engine of world growth.

Among the problems during the 1980s were the pasta and citrus wars, as well as European progress toward a single market that made Americans nervous about a new “fortress Europe.” Over the past decade, bananas, genetically-modified organisms, steel, and the tax status of U.S. multinational corporations have all tested the bilateral relationship (as well as the fragile enforcement mechanisms of the WTO). U.S.-European trade relations have always involved complex patterns of economic intercourse as well as political cooperation and contention, and these more recent developments should be seen in this light.

During the 1990s, in the wake of the cold war and in a period of ascendant regionalism (including in both Europe and North America), the United States and Europe struggled to recast their relations in the absence of the Soviet threat. Many analysts predicted the future of international competition to be economic rather than politicalsecurity, and policymakers in the United States and Europe sought ways to retain their role as partners even in the face of a growing sentiment that their relationship would be increasingly defined by commercial competition. Accordingly, the United States and Europe announced a series of agreements during the 1990s that attempted to institutionalize economic cooperation, with varying degrees of significance and success.

Transatlantic Declaration. In 1990, the two sides announced a Transatlantic Declaration that was intended to deepen and institutionalize commercial relations. However, this declaration was more symbolic than substantive. Its main functional purpose was to establish a framework for regular consultation, specifically a regimen of biannual summits at which U.S. and European ministers and heads of state would meet to discuss important issues on the transatlantic and world agendas.

New Transatlantic Agenda (NTA). The New Transatlantic Agenda was unveiled in December 1995 to provide some of the substance that the Transatlantic Declaration lacked. The NTA sought to broaden the scope of EU-U.S. cooperation both on trade and investment matters as well as on transnational issues such as terrorism and the environment. On the economic front, the NTA spawned two further acronyms: the New Transatlantic Marketplace (NTM) and the Transatlantic Business Dialogue (TABD). The NTM, for its part, was to be a framework for dismantling most remaining trade and investment barriers between the two, and a building block toward a possible Transatlantic Free Trade Area. However, the NTM’s broad agenda proved difficult to translate into specific commitments, and the NTM ultimately gave way to a somewhat less ambitious Transatlantic Economic Partnership (TEP) in 1998. The TEP focused on the less sexy but still quite important matters of harmonizing standards and cooperating on other nontariff barriers more generally.

The TABD, for its part, sought to provide a forum for European and U.S. CEOs and trade officials to generate their own agenda and momentum for closer commercial ties across the Atlantic. (The United States specifically sought, and the EU accepted, the exclusion of Canadian businesses from the TABD.) Indeed, the recommendations of those working within the TABD were a major factor in the push to harmonize regulations and standards. A direct result was the set of six Mutual Recognition Agreements (MRAs) signed by the United States and the EU in June 1997, which streamlined testing and approval procedures in the sectors of telecommunications, medical equipment, electromagnetic compatibility, electrical safety, recreational craft, and pharmaceutical manufacturing practices. By some estimates, these agreements save U.S. industries alone $1 billion annually.7

Blackwill and Archick 1998.

Despite this alphabet soup of smaller agreements, no comprehensive meeting-ofthe-minds has been achieved by political leaders on the future shape of transatlantic economic relations, and plenty of disagreement remains between the two on their visions for the broader international economy. Indeed, the failure to launch a new round of multilateral trade negotiations in Seattle in 1999 was more a result of the inability of the United States and Europe to cooperate than any protest activities on the streets.

Subsequent trade spats have clogged both the newspaper headlines and WTO arbitration mechanisms, though nearly all have ended quietly in compromise. More recent ructions in relations resulting from disagreements over Iraq and international security more generally have clouded the very existence of the West as both an emotive [w.c.] and practical entity, making ideas of formal commercial integration—which would be as much a political as an economic process—that much more distant. How the two will manage their relationship—both with one another and with respect to the world economy, in the WTO and bilaterally—has not yet taken firm shape.

The European Union and Mexico For most of the period up to the 1990s, Mexico was but a faint blip on the European trade radar screen, accounting for less than one percent of Europe’s international trade.



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