Executive SummaryThe US and the EU have long been leaders in the global economy and have generally developed a strong common interest in working together to strengthen the world trading system. The forming of the Transatlantic Business Dialogue (TABD) and the signing of New Transatlantic Agenda (NTA) in 1995 have added impetus to the developing "transatlantic marketplace" based on the reduction and removal of barriers to the flow of goods, services and capital across the Atlantic. In leading other nations toward liberalization of the world economy within a framework of commonly agreed rules, US-EU leadership is as crucial today as it has been throughout the last five decades.
Continued economic liberalization, rapid growth of multinationals and massive international capital flows amplify the need for continued international leadership to preserve US-EU interests. December's first WTO Ministerial Summit in Singapore further demonstrated the importance of such leadership.
Although the US and EU face common challenges in integrating emerging powers into the world economy and its trading system, there has been some tension in transatlantic relations. However, the significance of these frictions including the "Helms-Burton" and "D'Amato" Acts is limited and focus should instead be placed on the removal of systemic frictions created by non-traditional trade barriers. The recent completion of the The Information Technology Agreement (ITA) demonstrates the WTO's capacity to reduce traditional tariff barriers. US-EU leaders must now take the lead in tackling shared regulatory challenges and other non-tariff barriers.
Can US-EU leadership finally deliver on the liberalization of the telecommunications sector and can the US successfully revisit WTO Financial Services negotiations in 1997? If not, what will be the ramifications for transatlantic leadership in the WTO? On investment, the US and EU ought to continue in their support of the ongoing negotiation of a Multilateral Agreement on Investment (MAI) within the OECD with a view to its ultimate incorporation, along with competition policy, into the WTO.
The EU and the US must be at the forefront in undertaking the difficult reform of technical regulations necessary for the successful reduction of non-tariff barriers. Can ongoing negotiations break the deadlock over completing a mutual recognition of standards agreement (MRA) to harmonize divergent technical regulations that are no longer sustainable in today's global marketplace?
Markets are bigger, businesses are increasingly transnational, and economic centers of power are shifting. As these shifts occur, US and EU leaders must provide the opportunities for transatlantic business to succeed in a competitive global marketplace. These new economic realities demand that the United States and the European Union do not become complacent towards their achievements. The US and the EU must stand together in moving the multilateral trade agenda forward.
The US and the EU have long been leaders in the global economy. Uniquely interdependent, they are one another's largest markets. The US-EU partnership has paved the way for this growing economic interdependence through almost 50 years of sustained efforts to cut tariffs and reduce other barriers to trade and the flow of capital across borders. Moreover, the United States and Europe have generally developed a strong sense of common interest in working together to strengthen the world trading system; they have cooperated closely in a number of international economic institutions, including the GATT, the Organization for Economic Cooperation & Development (OECD), the International Monetary Fund (IMF) and now the World Trade Organization (WTO).
The US and EU must now take the lead in developing and articulating a coherent trade strategy that integrates various bilateral, regional and global agreements to reinforce the multilateral trading system. Although a Transatlantic Free Trade Agreement (TAFTA) would require skilled leadership in managing multilateral/regional syntheses, a TAFTA could solidify US-EU relations, accelerate global trade liberalization and strengthen the multilateral system. More specifically, the US and EU face similar challenges in the removal of non-traditional trade barriers and the development of compatible regulatory regimes. Transatlantic progress in such areas should serve as an impetus to broader international cooperation.
Specific goals have been set for the future: on the private-sector side, business leaders from the US and EU met in Seville last year to form the Transatlantic Business Dialogue (TABD). In December of 1995, The New Transatlantic Agenda (NTA) was signed by Presidents Clinton and Santer, along with Prime Minister Gonzalez, in Madrid. With an emphasis on private-sector leadership, the Agenda contains some 150 proposals for joint action including, significantly, the creation of a "transatlantic marketplace" based on the reduction and removal of barriers to the flow of goods, service and capital across the Atlantic.
In the last five decades, virtually every step towards more open markets and more open economies has been taken by American and European governments acting in concert, leading other nations toward liberalization of the world economy within a framework of commonly agreed rules.
Yet the US-EU relationship has recently exhibited some weakness. Some of this weakness can be attributed to the passing, by the US Congress, of the Cuban Liberty and Democratic Solidarity ("Helms-Burton") law, along with the Iran and Libya ("D'Amato") Sanctions Act of 1996. However, any measure of these recent tensions ought to be made with a view to the historical context of ever-strengthening economic linkages and cooperation across the Atlantic. This interdependence, in both its breadth and depth, ought to lend us some perspective in assessing the real, medium-term significance of these frictions.
Largely as a result of US-EU cooperation, the past fifty years have seen exponential growth in worldwide trade flows. Led by the US-EU partnership, world exports have grown to over $4 trillion annually - 26 times what they were in 1950. European subsidiaries of US firms and US subsidiaries of EU firms are responsible for approximately 35 per cent of US-EU exports. US FDI from Europe totaled $360.7 billion in 1995. Around three million jobs on each side of the Atlantic are dependent upon these investments.
EU and US multinational corporations are at the forefront in straddling national boundaries to forge economic ties and generate economic growth around the world. And it is the US and EU that dominate the global flow of long term infrastructure investment across borders, linking nations together.
But the incredible progress towards liberalization generated by the atlantic relationship has facilitated the emergence of new, powerful players in world economic decision-making that is profoundly altering the global playing field. Simultaneously, the rapid growth of multinationals and massive international capital flows have amplified the need for continued international leadership.
In the light of the foregoing, the following points are suggested as basis for discussion during the panel.
It is in this context that December's first WTO Ministerial Summit in Singapore demonstrated the importance of EU-US leadership to the development of the post-GATT multilateral trading system. A shared, transatlantic commitment to maintaining the momentum of multilateral trade liberalization is not only central to upholding the strength of the WTO, its ongoing work program, and the implementation of its built-in agenda, but is also central to the preservation of US-EU interests in an environment of shifting economic power.
The Information Technology Agreement (ITA)
The Information Technology Agreement (ITA) signed at Singapore's Ministerial Summit in December marked the largest reduction in tariffs since the completion of the Uruguay Round. The EU and US began ITA negotiations in the first quarter of 1996. The EU-US commitment to completing ITA tariff eliminations in the second half of 1997, as articulated by private sector leaders in the TABD's recent Chicago declaration - along with the APEC IT agreement - built the foundation of the accord signed in Singapore. By April, the majority of major IT-trading countries will have committed to the abolition of tariffs on more than ninety per cent of world IT trade.
EU-US disagreements over the ITA's product coverage and classification proved surmountable and hundreds of products will now be covered by the ITA. The successful negotiation of the ITA will directly benefit EU and US industry and consumers by lowering costs and stimulating growth, and the elimination of residual customs tariffs on Information and Communication Technologies is key to the construction of the emerging global information society.
Although the negotiation of the ITA was a considerable achievement, significant challenges remain. International leadership cannot falter at this critical juncture.
As amplified in the December 2 announcement of the EU's common position on Cuba, the Union's goals - with regard to internal political reform and human rights improvements - are shared by the US government. This is a reality that has become clouded by events such as the application of Title IV of the Helms-Burton Act barring European citizens from entering the US. Title IV remains in effect. With regard to the D'Amato Law, the EU's preference for a "critical dialogue" policy with Iran in no way questions the resolve of the EU, or the US, in their fight against international terrorism, in Libya, Iran or anywhere else in the world.
Instead of focusing on lesser points of division, transatlantic leaders need to focus on systemic sources of friction in transatlantic trade relations, including a number of non-traditional barriers to trade such as regulatory and standards issues that must be resolved in order for nations to continue reaping the benefits of increased national competitiveness and global growth.
US-EU difficulties in negotiating agreements in the telecommunications and financial services sectors have demonstrated the challenge of non-tariff trade barriers. Although the Uruguay Round of GATT negotiations included the General Agreement on Trade in Services (GATS), extended negotiations have been required in both Financial Services and Basic Telecomms.
Some EU member state industries must undergo fundamental regulatory reform prior to acceding to any WTO agreement. The EU's commitment to liberalize its telecommunications industry by 1998 remains the top priority in precipitating the opening of markets to foreign investment. Despite the slower rate of industry deregulation, these countries broadly acknowledge that both national competitiveness and global growth will result from increased market access, the removal of limits on foreign ownership, transparent and independent regulation, and the interconnection of international telecommunications networks.
The conclusion of the WTO agreement on basic telecommunications would accelerate the introduction of competition into monopolistic markets and sustain the promotion of procompetitive regulation, thus 'locking in' the gains made to date by the Group on Basic Telecommunications (GBT) and lifting many countries' foreign ownership restrictions.
Improved telecommunications offers from the US and EU succeeded in encouraging fellow quad members Japan and Canada to follow suit. Other key countries (particularly in Asia) that have yet to table a competitive offer, will hopefully now agree to sufficiently open their telecommunications markets, in a non-discriminatory fashion, consistent with most-favored nation principles.
Furthermore, it is important that the negotiating parties take great care in considering any special sector exclusions that might undermine the credibility of a telecomms agreement.
The complexity of national regulatory mechanisms has also been responsible for much of the difficulty in liberalizing the financial services sector. The interim multilateral agreement on financial services that was skillfully salvaged by the EU in 1995 will be revisited later this year. The new round of WTO negotiations will require the guidance of EU and US leaders, private and public sector alike, in ensuring better planning and execution, a longer time line, and clearer channels of communication between parties.
Any move towards a more lasting WTO financial services regime demands that the US commit to higher levels of liberalization, as an example to others in delivering improved market access. Otherwise, few participating countries will agree to a more substantial and permanent liberalization of foreign banking, insurance and equity markets.
Only with joint US-EU leadership can the WTO agree on a global system that will equip financial institutions with a written, enforceable set of rules for international trade in financial services. In ensuring unprecedented certainty and predictability in planning foreign investment and operations, a new WTO accord on financial services will lower the cost and improve the quality of capital for companies and consumers.
Given the narrowness of the Uruguay Round's agreement on Trade Related Investment Measures (TRIMS), a further round of post-GATT negotiations is clearly overdue. However, the sensitivity of this topic among many developing countries implies that the WTO should address investment liberalization (as currently proposed) in a largely analytical, "confidence-building" capacity. Meanwhile, the EU and the US ought to push for the completion of a "high-grade" Multilateral Agreement on Investment (MAI) within the Organization for Economic Cooperation and Development (OECD) with a view to its ultimate incorporation into future WTO negotiations. The WTO Working Group on Investment, announced in Singapore, is a likely precursor to such negotiations. The equivalent Working Group on Competition Policy will explore anti-competitive practices that are also likely to be considered within the WTO framework.
The successful development of the New Transatlantic Marketplace now demands that greater attention be paid to the removal of internal market barriers to investment, i.e. government regulation and private business behavior. A negotiated agreement on some form of competition policy is needed to regulate the anti-competitive activities of firms that would otherwise limit market access to foreign investment. Regulatory reform is central to the establishment of non-discriminatory and contestable markets. The afore-mentioned difficulties in liberalizing the telecommunications sector demonstrate the centrality of regulatory reform in the creation of a contestable market.
Regardless of the fora in which investment liberalization is negotiated, the EU and the US must be at the forefront in establishing a set of rules for foreign investment that will be applicable to the widest range of countries.
Such a set of rules must address:
It is in this context that the TABD has called for increased cooperation from the European
Commission and US government in delivering on their pledge to reduce technical, non-tariff barriers to trade and investment.
Technical Barriers to Trade
Regulatory requirements such as certification procedures, duplicative testing and divergent technical regulations are no longer sustainable, considering the realities of today's global marketplace. By way of the Transatlantic Business Dialogue, private sector leaders initially made a number of specific cross-sectoral recommendations to be addressed by joint EU-US government action. Along with the efforts of the Transatlantic Advisory Committee on Standards (TACS), these recommendations have contributed to the ongoing negotiation of Mutual Recognition Agreements (MRAs).
The role of private sector leadership from EU and US industry was critical in establishing such accord. At times when political leadership has appeared increasingly lacking, negotiations among business leaders have often facilitated more conclusive results. MRA agreeements would enable US suppliers to demonstrate the conformity of their products with EU requirements, and vice versa, saving US and EU firms over $40 billion dollars in the reinspection and recertification of drugs, medical devices, telecomms equipment, electrical safety standards and medical devices.
International standards remain under-utilized in the face of growing divergence of technical regulations both globally and across the Atlantic. Governments must strengthen international voluntary consensus standards and wherever possible, facilitate the adoption of a Supplier's Declaration of Conformity (SdoC) as evidence of compliance with existing technical regulations and standards in certifying products in most sectors. The establishment of long-term international regulatory harmonization is particularly important in sectors such as automotives.
Once completed, MRAs should be used to spur the broader harmonization of international technical standards and certification, to include the elimination of duplicative testing, establishment of de facto industry standards, and greater transparency in standards-setting processes.
The US-EU Agenda
As we approach the fiftieth anniversary of the first trade negotiations held under the GATT negotiations, it is imperative that the US and EU stay the course in furthering the multilateral liberalization of trade and investment.
In today's global marketplace, trade and investment flows are enormous. Markets are bigger, businesses are increasingly transnational, and economic centers of power are shifting. As these shifts occur, we must take the lead in providing the opportunity for transatlantic business to succeed in a competitive global marketplace. These new economic realities demand that the United States and European Union do not become complacent towards their achievements thus far. Trade liberalizing measures such as the recently signed information technology agreement (ITA) will lead to a substantial drop in trade barriers, the benefits of which should not be underestimated.
Even more critical to success in today's global marketplace, however, is the elimination of non-tariff barriers. Clearly, these involve sensitive regulatory issues that have domestic economic and political implications, and it is these new stumbling blocks that pose complex challenges to transatlantic leaders in moving the multilateral agenda forward.
We must move forward together, drawing upon the full strength of our economic partnership, to reap the benefits of increased national competitiveness and the growth of the global economy.