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U.S./EU: Trade Disputes Occurring As Political Rifts Festering

The European Commission says it is considering a fresh economic case against the United States at the World Trade Organization, relating to the way the United States calculates its anti-dumping duties. This would add to a series of disputes on trade and economic issues between the world's most powerful economic entities. They come at a time when there is a general sense of trans-Atlantic coolness resulting from disagreements over the Iraq war. Are such quarrels over trade likely to sharpen the political rift?

Prague, 18 June 2003 (RFE/RL) -- The world may be unipolar in that the United States is indisputably the only military superpower. But in economic terms, the picture is more diffused. The European Union approximately equals the economic weight of the United States, and diversity is added by the emerging giant China, plus established heavyweight Japan.

Strong ties based on common philosophy, culture, and history have long bound the United States to its European partners. But in recent years, a rivalrous tone has been developing in economic matters. Cindy Williams, a Paris-based analyst of the U.S. Marshall Fund in Germany, says the economic relationship between the two sides is vast.

"When you combine the trade relationships plus the foreign direct investments relationships, you come to a number that is something like $2 trillion," Williams says. "If you compare that to the U.S. Gross Domestic Product, it's within the range of 20 percent of U.S. GDP that is represented in this trade and investment relationship. So it strikes me that such a huge and important relationship on both sides is something you don't want to toy with."

Certainly in recent years, there have been a number of high-profile trade disagreements between the EU and the Americans.

The great banana war probably first captured the attention of the broader public. That was a campaign several years ago by U.S.-owned banana producers and exporters to gain access to the European market, which they claimed was being unfairly reserved for producers in former European colonies.

The United States won that battle, and the EU import regime was modified.

Then the EU took the United States to the World Trade Organization over a long-standing U.S. law that provided tax breaks for American exporters. The WTO ruled against the United States, finding that the law violates international trade rules.

The WTO has given the EU permission to put $4,000 million of punitive import tariffs on U.S. goods if Congress fails to repeal the export tax subsidy.

A bill that aims to conform to WTO norms but which would still give some tax advantages to American manufacturers is now before the U.S. House of Representatives.

London-based analyst Katynka Barysch of the Center for European Reform says such cases are a distraction from the big issues facing world trade.

"It's an important time for trade, as we have the Doha round [of world trade talks] going on, and obviously you can interpret the current disagreements as a bad sign for the Doha round because if they can't sort these small issues out, how on earth are they to sort out the big issues that are being negotiated in the WTO?" Barysch says.

In another dispute, the EU has challenged U.S. subsidies on steel, which it says discriminate against imported steel.

In yet another case, the European Commission announced last week that it has requested "consultations" with Washington over the way the United States calculates anti-dumping duties. That's the first stage of possible legal action at the WTO.

In a statement, EU Trade Commissioner Pascal Lamy asserted that the U.S. practice -- called "zeroing" -- results in higher anti-dumping penalties of hundreds of millions of euros on EU exports to the United States. Lamy, a pugnacious Frenchman known for his hard edge, is seen as the driving force behind the EU's tough approach to trade issues in recent years.

In another dispute, U.S. government financial regulators last week rejected EU requests to exempt EU companies from comprehensive new U.S. rules on corporate governance. The U.S. side also said there could be no negotiations on the issue.

The EU is particularly concerned about the burden the rules would place on European auditing firms, and analysts say this could provoke retaliation from the EU in the form of imposition of rules on U.S. companies operating in Europe.

Analyst Williams says all these arguments can worsen the overall atmosphere. "I do worry that [these trade disputes] can add to the problems. If trans-Atlantic relations were better, they would be easier to solve. When trans-Atlantic relations in general deteriorate, then it makes those problems harder to solve," she says.

The biggest of all the disputes must surely be the one over genetically modified organisms (GMOs). The United States last month decided to take the EU to the WTO tribunal over Brussels' de facto moratorium on approving foodstuffs containing GMOs.

The United States is the biggest backer of GMOs, which allow the development of plants that are resistant to certain pests and bacteria.

The EU asserts that these products could have health risks for humans and could also impact the general environment by upsetting the natural plant and insect world. The Commission points out the refusal of many European consumers to buy GMO products, and a European Parliament committee has just demanded laws rather than voluntary measures to control possible GMO contamination of natural crops.

U.S. President George W. Bush, in turn, has accused the EU of contributing to starvation in less-developed nations by making farmers there unsure of whether to plant genetically modified crops.

Thus, the trans-Atlantic trade tensions have a political side to them. For instance, to express their rejection of the French stand against the Iraq war, big U.S. companies and senior military officials have stayed away from the current Paris air show, the biggest trade exhibition of its kind in the world.

And Senior U.S. Trade Representative Robert Zoellick recently spoke of the sense of "betrayal" felt by many Americans at the European opposition to the war.

Still, despite personal emotions and the spate of trade tensions, common sense dictates that the U.S.-EU trade relationship must continue and must thrive. Analyst Barysch cautions against getting things out of perspective.

"Trade tensions between the U.S. and Europe are not anything new. At the moment, [it is only that] they are making the headlines because the overall relationship is worse than it usually is," Barysch says.

As already described, the investment flowing in both directions is staggering. For instance, the American Chamber of Commerce to the European Union is running a full-page advertisement in the European press ("European Voice," 12-18 June ) that says U.S. companies have invested a total of $540,000 million in the EU and have created 4 million jobs.