U.S. - EU trading relationships.

• Author: Grimley, John
• Position: International Business - Threat of trade war

The stakes are mounting: As a threat of a European-U.S. trade war looms, Americans must recognize the enormous stakes involved and become more aware of the new and more challenging era for business in Europe.

When the European Union (EU) Commissioners shot down the proposed merger of General Electric Co. and Honeywell International in June 2001, Jack Welch -- then GE's chairman and chief executive -- said of his dealings with the EU regulators, "It's clear that I underestimated the challenge." Welch's statement represents an ominous wake-up call to American business about the potential difficulties of doing business in the EU.

Are we on the verge of a major trade war between the EU and the U.S.? In March, the U.S. imposed tariffs of 30 percent on steel imports from the EU and elsewhere. Condemned by British Prime Minister Tony Blair as "unacceptable and wrong," these sanctions may prove to be the first skirmish or the opening battle of a new major trade conflict between Europe and America. In such a climate, U.S. business must understand both the power of European regulators and the policy context in which they work. The possibility of retaliatory action is strong, with jobs and profits in Europe at stake.

American business has an enormous stake in the trading relationship with the EU. The EU is the U.S.'s largest trading partner, and together they account for almost 40 percent of world trade and 57 percent of the world's gross national product. Importantly, this trade relationship directly supports a total of more than seven million jobs in the U.S. and the 15 EU countries.

Over the last 27 years, as a result of a series of treaties agreed to by the now 15 countries comprising the EU, the EU has won wide and growing powers to regulate business. In every area of economic activity, the EU has used these new powers to push through a determined harmonization program in an effort to unify marketplace standards throughout Europe. Harmonization has made selling to all 350 million western Europeans easier, as opposed to selling to each individual country within the EU.

On the other hand, since 1990 alone this has resulted in over 3,500 new EU "directives" each year, and a mass of regulations that are binding upon any company doing business within the EU. As a result a more uniform, but heavily regulated Europe has emerged. To make the situation worse, EU standards are often much stricter, and more difficult to understand, anticipate and adapt to...