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EUROPEAN REVIEW

ISSUE 15 - Page 5

Trade niggles, environment bust-up; are EU-US relations on the rocks ?

Recent events in Gothenburg and elsewhere have shown that disputes about bananas and beef may be symptomatic of a wider divergence of view between the United States and the European Union. Here we examine whether the two blocs can ever see eye to eye.

RELATIONS BETWEEN THE European Union and the United States have been characterised in recent years by minor disagreements over trade which the parties seem unable to prevent escalating into sanctions and court cases. With the election of President George W. Bush the magnitude of the problem appears to have increased to involve the future of the planet (Kyoto agreement) and the future existence of the planet (son of Star Wars). Is this a practical malaise due to the policies of one particular US or EU administration or are there more deep-seated reasons why the powers find themselves opposed ?

Trade war combatants: Romano Prodi, President of the European Commission, George W. Bush, President of the United States, Pascal Lamy EU Trade Commissioner and Robert Zoellick, US Trade Representative

As we have reported in previous issues dispute between America and Europe started in the relatively mundane area of the trade in bananas. The U.S. objected to a system which the EU had long operated whereby preference was given to imports from small Caribbean nations. This was maintained on the grounds that 1) they had links with the EU, primarily as ex-colonies of Britain and France and 2) they had a large number of independent producers who made these countries highly dependent on banana exports. Despite this regime most EU bananas came from Latin American sources controlled by U.S. companies, three of whom had 64% of world trade between them. Following this, and another disagreement on hormone-treated American beef, the U.S.A. imposed crippling import duties on a range of EU products which, in turn, led to fears of job losses in the U.K. Although the banana dispute was recently settled, it seemed to illustrate the differences in approach between the parties. The Americans would not accept anything less than totally unrestricted trade whatever the consequences while the Europeans evaluated the policy in terms of the fairness of the result to all parties, being prepared to use regulation to achieve the desired ends.

These differences began to be played out on bigger and bigger stages. First of all there was a divergence of opinion on the massive merger proposed between two American companies: General Electric and Honeywell. The two giant firms wanted to merge to give them more power in the aviation market but the EU took the view that the combined company would be too dominant. 'The merger between GE and Honeywell, as it was notified, would have severely reduced competition in the aerospace industry and resulted ultimately in higher prices for customers, particularly airlines' said Competition Commissioner Mario Monti. The U.S. regulatory authorities took a different tack, approving the deal after assurances from the companies about their future behaviour. However, due to the size of their European assets, the merger could not go ahead without EU approval. This was the first time that the EU had single-handedly stopped the merger of two American firms.

As this would have been the biggest corporate takeover ever, the effects of the EU-US contretemps could hardly have been wider. But the stakes went even higher when the new American President George W. Bush let it be known in March that the U.S. would not be ratifying the Kyoto protocol on global warming. Signed in 1997, after four years of negotiation, the treaty made the industrialised nations cut their total emissions of greenhouse gases to 5.2% below 1990 levels over the next decade. It seemed that the U.S.A. would not accept restriction on its industry any more than on its trade. Whilst conciliatory noises have been made by both sides on both trade and environment issues with Pascal Lamy, EU Trade Commissioner, commenting on the resolution of the banana dispute 'we showed that we can work together to manage trade disputes in a business-like manner', unless the U.S. position changes it is difficult to see the future harmony predicted actually coming to pass. Constructing a new framework for world trade and emission reduction will be much more difficult if the deeper differences remain.

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