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Tuesday, March 1, 2011

U.S.-EU Trade and Economic Relations: Key Policy Issues for the 112th Congress

Raymond J. Ahearn
Specialist in International Trade and Finance

The 112th Congress, in both its legislative and oversight roles, will confront numerous issues that affect the trade and economic relationship between the United States and the European Union (EU). As U.S.-EU commercial interactions drive significant job creation on both sides of the Atlantic, Congress can be expected to monitor ongoing efforts to deepen transatlantic ties that are already large, dynamic, and mutually beneficial.

U.S. and European private stakeholders, concerned about slow growth, job creation, and increased competition from emerging economies, have urged Brussels and Washington to strengthen transatlantic trade and economic ties by reducing or eliminating remaining trade barriers and by cooperating more closely in addressing global economic challenges. A select group of these issues are examined in this report.

Three proposals for deepening the transatlantic marketplace are the reduction of regulatory barriers, the negotiation of a zero-tariff agreement, and movement towards a barrier-free investment environment. Under the auspices of the Transatlantic Economic Council (TEC), the reduction of regulatory barriers is the approach being most actively pursued by U.S. and European policymakers.

At the last TEC meeting, held in December 2010, the two sides agreed to focus on aligning regulations in emerging technologies, such as nanotechnology or electric cars, before laws or regulations have been promulgated. Previous efforts to harmonize regulations on a sector-bysector basis proved difficult due to bureaucratic resistance. Whether the TEC will realize its potential as a mechanism to accelerate the integration of the U.S.-EU market remains to be seen.

Despite generally low tariff levels on both sides, some in the U.S. and EU business communities support negotiating the elimination of all remaining tariffs imposed on U.S.-EU trade through a bilateral negotiation. Support for a zero-tariff agreement is based on a combination of factors, including the agreement’s ability to generate economic benefits for both sides and the leverage such an agreement could create for pressuring emerging economies to make more concessions in the Doha Round of multilateral trade negotiations.

Greater collaboration and alignment of U.S. and EU approaches towards addressing global economic challenges, such as completing the Doha Round, dealing with China’s trade barriers, and reducing global imbalances, remain a work in progress. Given shared interests in opening emerging markets further to industrial goods and services, business interests have urged U.S. and EU negotiators to work more closely together to press other countries for more concessions. EU negotiators in the past have remained reluctant to move in this direction perhaps out of concern that greater ambition would require further EU concessions on agriculture.

According to some, closer U.S.-EU cooperation in addressing problems posed by China’s interventionist policies could facilitate pragmatic solutions and successful outcomes if China’s leaders understood there was no distance between U.S. and EU positions. In this view, a divided U.S.-EU economic policy approach to China could allow it to play one side off against the other.

On the question of reducing global trade imbalances, the two sides appear far apart. Influenced by German insistence on fiscal austerity, Europe’s trade and current account balance could increase greatly in the coming years, thereby making it much more difficult to reduce global imbalances.

Date of Report: February 17, 2011
Number of Pages: 19
Order Number: R41652
Price: $29.95

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