The commercial conflicts between the United States
and the European Union

By: Fereydoun A. KHAVAND, Professor at the Paris V University

The United States and the European Union represent among themselves alone, about 50% of the world economy and 40% of international exchanges. Some 20% of the exports of the European Union are to the United States and 19% of its imports come from there. The Europe of the fifteen is the most important host territory in the world for American merchandise, services and capital. The trans-Atlantic exchanges therefore constitute the mai n engine of international trade relations.

This immense transatlantic partnership is, however, regularly shaken by commercial tensions. Everything seems to indicate that these exercise an increasing influence on the evolution of international relations, in particular since the breaking down of the bipolar system and the disappearance of the Soviet threat. In order to face the multiplication of commercial conflicts, the United States and the European Union have put into place appropriat e mechanisms in the context of their own economic diplomacy. Before examining these mechanisms, it is necessary to study the characteristics of the commercial conflicts.

The typology of commercial conflicts
The spectacular proliferation of conflict in international commercial relations is one of the consequences of economic globalisation. Indeed, the explosion of international exchanges can but accentuate the friction between States worrying about protecting their interests in the context of international circulation of material and non-material goods. The causes of the frictions are numerous and their management is one of the major challenges of multilateral commercial diplomacy during the XXIst century?s first decades. Most international commercial conflicts find their origins in problems associated with market access, in the defence of commercial issues and in practices considered anti-competitive.

The conflicts associated with access to the market: The access of foreign products to national markets clashes against obstacles of a tariff and of a non-tariff order. The tariff-related obstacles, founded on the right to appeal to customs rights, are the traditional instruments of protection of national industries. This involves a tax on imported merchandise, during its transit at the frontier. The considerable reduction in customs rights since 1948 has, however, strongly reduced the weight of tariff-type obstacles in international commercial relations. Due to this, these obstacles only occupy, as far as the exchanges go between industrialised countries, a marginal place in the midst of protectionist arsenal.

As for the the non-tariff obstacles (NTO), they are measures of public order, other than customs rights, whose effect is to break the access of products of foreign origin to a national market.

The arsenal of non-tariff protectionist measures is particularly rich and diversified. It is sufficient with a little imagination, to find the most appropriate means destined to restrict imports or to create other disequilibriums in international exchanges. Certain international organisations have identified over 20,000 NTOs.

Amongst the most represented NTOs, one can mention: unilateral quantitative restrictions, voluntary export restrictions (VER), abusive application of technical norms, administrative harassment, etc.

Conflicts tied to commercial defence: Commercial defence measures permit for States (or a grouping of States), to protect themselves against disloyal commercial practices enforced in other countries or to face exceptional situations due to opening of frontiers.

Amongst these commercial measures of defence that trigger the largest number of conflicts, safety clauses, anti-subsidy rights and anti-dumping rights, are represented.

- The safety-clause device constitutes "a safety valve necessary for the viabiliyt of multilateralism", and, it can be found in the midst of the internat ional commercial System. This device reassures trading States, by permitting them to take, under certain conditions, urgent protective measures against importations which disorganise their market and bear or risk bearing serious damage to their national production of similar products. Even so, the safety measures trigger at the same time hostile reactions in those States that have to suffer the consequences.

- Anti-subsidy (compensatory) rights are special rights claimed by an importing State, with a view to neutralising the effects of subsidies granted, according to it, for the fabrication and exportation of a product. In principle, compensatory rights should re-establish conditions closer to normal competition. In practice, they are sometimes used as a particularly strong protectionist weapon. In fact, importing countries have a tendency to systematically apply this measure against the most competitive products coming from the most dynamic countries.

The concept of "anti-subsidy rights" is therefore directly related to that of subsidies. What role can public powers assume in support of investments and of production? This question is not directly a part of international commercial relations. On the other hand, the subsidies that a State grants to exportation - fiscal and tariff advantages, preferential export credits, assistance for commercialisation, reduction in social taxes...
- constitute one of the principal sources of conflict between trading nations.

- Anti-dumping rights: Dumping exists when a product fabricated in one country is introduced on the market of another country at a lesser price than its "normal value". The indicator of "normal value" of the product may be, amongst other things, its price on the domestic market of the exporting country.

In order to neutralise the effects of dumping, the importing country can take recourse to "anti-dumping law". The amount of this right must however not exceed the "dumping margin", that is to say the difference between the price at exportation of the product in question, and its price on the domestic market of the exporting country. The upsurge of conflicts related to dumping and anti-dumping constitutes today one of the characteristics of international commercial relations.

Conflicts related to anti-competitive practices: Monetary "dumping", social "dumping", ecological "dumping", piracy and counterfeiting, corruption and anti-competitive practices of businesses create increasingly important tensions in international commercial relations.

- Monetary "dumping" consists of manipulating the monetary instrument, in order to serve the interests of commercial objectives. This is an ancient practice. The non-existence of an international monetary system worthy of its name favours this practice. The philosophy of the international trading system, from its birth, was closely related to that of Bretton Woods, according to which only one regime of fixed parities can ensure the development of the multilateral exchange system. The abandonment - at the outset of the 1970s - of the system of fixed exchanges, in favour of a flexible flow of the strong currency, had a considerable impact on the m ode of regulation of the world economy. Since the Jamaica Accords (in 1976), the planned management of exchange rates is ensured, before all, by the monetary authorities of the large industrial countries.

- The Plaza Agreements of 22nd September 1985, signed by the finance ministers of the Group of Five (United States, Great Britain, Federal Republic of Germany (FRG), Japan, France), and the Louvre Agreements of 22nd February 1987, adopted by the ministers of the Group of Seven (the Five, plus Italy and Canada) have organised a veritable co-operation between central banks and Treasury managers of the large industrial powers. Even so, this co-operation cannot replace the Bretton Woods system.

- Social "dumping": this concept focuses on competition, judged disloyal, of countries whose participation in international exchanges is not accompan ied by a comparable development in social conditions.

In this perspective, competitivity of products coming from certain emerging countries would only be founded on the very weak level of salary costs, essentially due to non - respect of "social norms" such as: union liberty for employers and their employees, the right to collective negotiation, outlawing of child labour, banning of forced (hard) labour, etc.

During the latest international commercial negotiations, the Americans, supported by certain industrial countries including France, requested the introduction of "a social clause" into the international commercial system. This proposition consists of adopting commercial sanctions punishing violations of employment standards.

- Ecological "dumping": business ventures that do not integrate environmental costs in their production activities can offer much more competitive goods. When arriving on international markets, these goods enter into competition with those produced by businesses that cannot ignore environmental considerations and hence undergo the financial constraints thereof.

Denouncing this "ecological dumping", certain interest groups recommend the introduction of an "environmental clause" into the international commercial system. It is again a question of applying commercial sanctions against States whose environmental costs are not integrated into exportation activities. According to this point of view, only those goods whose production is conformed to certain criteria of an ecological order would be able to see themselves attributed "ecolabels", permitting them to benefit from advantages of the international commercial system.

- Piracy and counterfeiting: These enco mpass offences against intellectual property law (IPL). IPL is a set of rules protecting (new) ideas and creation procedures. They define exclusive rights relative to the diffusion and the commercialisation of (new) techniques and products, and foresee sanctions against their fraudulent utilisation (counterfeiting or piracy). At the same time, offences against IPL have taken on alarming dimensions. Transactions made on counterfeit products are estimated to make up 5% of world trade. The counterfeiting of software costs each year several tens of billions of dollars to the information-technology industry of the world.

- Corruption: Corruption in international transactions is an obstacle to competition, provoking distortions in the exchanges taking place, and harming both consumers and taxpayers.

- Anti-competitive practices of the firms: The domain of intervention of the international commercial system does not stretch to inter-State relations. Hence it does not cover the practices of private businesses that increasingly criticise the liberalisation of commercial exchanges, by establishing private obstacles to substitute for the tariff-type and non tariff obstacles of public order. Successive waves of fusion-acquisition and the acceleration of businesses' concentration procedure, on the universal scale, favouring the return to anti-competitive practices escaping from national and regional disciplinary measures.

Under these conditions, competition becomes restrained, prices are increased and the markets are divided, on the basis of illicit association causing detriment to the consumers. Amongst anti-competitive practices, intra-firm exchanges occupy a coveted space. Despite their increasing importance in international exchanges, multinational businesses escape for the most part, the rules of international commerce.

Actually, an important part (over 30%) of the exchanges is composed of intra-firm flows occurring between the mother company of an FTN and its subsidiaries, or amongst the latter. Submitted to games involving under-billing and over-billing, these "in-FTN" flows obey rules that are strongly different to the normal principles of supply and demand.

Commercial conflicts of geopolitical origin: Several commercial conflicts extend beyond the purely commercial sphere. The "pipeline war" in the Caspian zone or the economic tensions related to the adoption of the American extraterritorial laws, are of geopolitical origin.

This list (not exhaustive) of sources of international commercial conflicts does not reflect the complete span of tensions that shake transatlantic relations. In certain domains (Laws of intellectual property, "social dumping", ...), Europe and the United States have identical positions, in particular when it comes to facing the "developing countries". On the other hand, commercial defence and conflicts of geopolitical origin seriously divide these two superpowers.

European Union and the United States: Resources of commercial diplomacy
The commercial diplomacy of a State is one of the most important areas of its economic diplomacy, the latter b eing "the search for economic objectives by diplomatic means, whether or not they lean on economic instruments in order to get there."(1)

The United States, during these last decades, have thrown away the foundations of a real offensive commercial policy. The European Union, tu put into place instruments capable of defending her commercial interests.

The United States; an offensive commercial diplomacy: American commercial diplomacy is manifested with four aspects:

Multilateralism: The Americans remain very attached to the maintenance of the international commercial System. As a major commercial power, America certainly has an interest in constructing efficient barriers against the reinforcement of protectionism. The United States have been the veritable instigators of the Uruguay Round, although they opposed, right up until the last weeks of negotiations, the creation of the World Trade Organisation (WTO), which they considered a "useless burden". When the establishme nt of the new organisation became inevitable, they put pressure to call the organisation the "World Trade Organisation" instead of the "Multilateral Trade Organisation" which is the title currently used in Geneva, during the preparatory works, but that the Americans were rejecting because it was directed too conspicuously against their bilateral or rather unilateral tendencies.(2)

- Bilateralism: The success of the Uruguay Round and the birth of the WTO did not calm down the 'bilateralist' temptations of the United States. The latter apply the policy qualified as "managed commercial flows", founded on the conclusion of the bilateral agreements fixing quantitative objectives in the commercial exchanges between two countries (for example the bilateral negotiations with Japan or China).

- Unilateralism: This in p articular involves the excessive recourse by the American Administration towards the procedures of Section 301 of the legislation on the external trade of the United States. This mechanism authorises the White House to bring to bear retaliation measures against the countries whose commercial practices, judged "disloyal", would break American exportation. This "aggressive unilateralism" has led certain countries - South Korea, Brazil,... - to increase importation of American products to the detriment of other suppliers. This procedure "is the brutal translation, in the sphere of international trade, of the law of the strongest. By excluding all attempts at conciliation of interests present in order to resolve a commercial conflict, Section 301 has for vocation to impose commercial retaliations beyond all mul tilateral control. This procedure hence contributes to the destabilisation of the multilateral trade system by working around the procedure for dispute settlement and the research for solutions negotiated between commercial partners that are equal in right." (3)

- Regionalism: The North American Free Trade Agreement (NAFTA), entered into effect in January 1995, is considered as the United States' riposte to the shifting power positions on the international ladder, notably those related to the progress of the European construction and to the integration of the Asian economies.

European commercial diplomacy: European construction undoubtably constitutes one of the important tendances in the world economy. The extent and the power of the European market, the quality of its active population, its scientific and technological vitality, the influence of its cultures, its casting place in international exchanges, the attraction it exercises on neighbouring zones..., so many elements that explain the important imposing of the European Union (EU) in the economic fate of our planet. Certain "soothsayers" notably in the United States and Japan - even consider that the European Union will be the dominant economic power of the XXIst Century. This enthusiasm contrasts strangely with the many incertitudes weighing on the European construction in the current phase of its evolution. Actually, the EU appears to have a difficult time adapting itself to great turbulences of the post-cold-war period. Its internal balances, heavily founded on the Bonn-Paris axis, are beginning to suffer due to the effects of the German reunification. The conflict between the federal and confederate logic appears to be eternal. Its inescapable enlargement risks accentuating its destabilisation. The new relations that it wants to establish with the Third World are far from founded on precise orientations.

During the Uruguay negotiations, European trade diplomacy often seemed to be drifting. The world's number one export power, the European community certainly had interest in the correct unfolding of the cycle whose official objective was the reinforcement of international commercial regulations. However, the principal themes of the negotiations - agriculture, services, intellectual property - were defined from the very beginning by the Americans. The agricultural file, in particular, aimed to emphasize the problem of community grants. In th is important field, the American crusade against the Common Agricultural Policy (CAP) has progressively pushed Europe into position of defence. Community diplomacy often gave an impression of being weak, and appeared to be leading a rearguard combat in order to refuse any reform of the CAP, which was thirty years old. This reform finally came on the 21st May 1992, interpreted, by a large part of international public opinion, as a "retreat" caused by international pressure. During the larger international trade reunions which took place later (in particular the different ministerial conferences of the WTO, especially the one in Seattle in 1999), Europe did not succeed in retaking the initiative.

Unbeknownst to Section 301 of the exterior trade legislation of the United States, the European Community had put into place in 1984 the "New Instrument of Commercial Policy" (NICP). This instrument was conceived to permit the Community to struggle against illicit commercial practices of other countries. It was little used, most of all due to disagreements in the midst of the European Community. The NICP was replaced, in 1994, by the ROC (Regulations concerning Obstacles to Commerce). It gives to the Commission "inquisitorial powers of control over and of inquiry into obstacles against commerce, including those finding their source in other countries". It is necessary to specify that the ROC "distinguishes itself radically from those instruments of commercial policy permitting to impose unilaterally commercial retaliation measures beyond the WTO's own multilateral procedures"; (4)

The main fields of conflict
The failure of the WTO's third mini sterial conference at Seattle (30th November till 3rd December 1999) was essentially due to misunderstandings between the Americans and the Europeans, in particular in the agriculture sector: the Europeans want to preserve agricultural "specificity", whereas the Americans consider agriculture as "a sector amongst others". Certainly, the European Union in 1992 accepted the CAP (Common Agricultural Policy) and the progressive reductions in exportation subsidies. Even so, it refuses the total elimination of these subsidies. The Europeans are not hostile to the liberalisation of the commerce in agricultural products, based on one condition, that this liberalisation will not threaten the "multifunctionality" of agriculture (its function of protecting the environment, preservation of rural employment and producti on of high quality food products).

The "banana war", it too, has seriously poisoned Euro-American commercial relations. In 1997, the WTO dispute settlement office condemned the European Union to modify the organisation of its banana market, which was privileging banana importation from its former colonies, to the detriment of American firms implanted in five countries of Latin America. Faced with prevarication in Brussels, the Americans took severe sanctions against European imports.

The ORD equally condemned measures taken by the European Union forbidding importation of "hormone-fed" beef coming from the United States. In order to "punish" the European attitude concerning this file (as with that of the banana) the Americans installed a mechanism of "revolving commercial sanctions" which consisted in renewing every six months the list of sanctio ned products. This system, baptised the "carrousel", leads to exercising a more important pressure on the whole of the European economy.

As for the European Union, it threatened, in September 2000, to seek recourse before the WTO dispute settlement office, if the United States would not suppress the fiscal advantages that they have granted to their export enterprises. This is the Foreign Sales Corporation (FSC) program that allows American businesses to reduce their fiscal charge, by installing phantom agencies in fiscal paradises (Barbados, the Virgin Islands,...). This involves, according to the European Union, of exportation subsidies offered to American companies. The European Union estimates that in 1999, the amount of these disguised subsidies amounted to four billion dollars. The European Union condemns just as vigorously the American extraterritorial laws: this means the Helms-Burton Law of 12th March 1996 (which applies to enterprises investing in Cuba), and the Amato-Kennedy Law of 5th August 1996 (concerning businesses investing in the gas and petrol sectors in Iran and Libya). These laws "impose on the States, legislation that they have neither chosen nor accepted...." They ignore the dispositions of international public law, but they "also contravene the WTO's multilateral regulations, which condemn restrictions of all sorts on the liberty of exchange". In the complaint that it has deposited before the WTO, the European Union "estimates notably that all of these measures are in conflict with the GATT of 1994". (5)

These conflicts and many more have poisoned commercial relations between the United States and the European Union. They have also been very tough with the WTO?s dispute settlement system.

It is necessary to specify that this system has not succeeded in putting an end to the unilateral commercial practices of the States. The dispute settlement mechanism is an essential element for ensuring the security and the foreseeable planning of the multilateral commercial system. The members of the WTO engaged themselves to not act in any unilateral manner when that would mean that commercial regulations would be broken. This engagement was aiming at limiting the use of unilateral measures, especially on the part of the United States across section 301 of the 1974 Trade Act. The United States consider that the application of unilateral measures by means of section 301 st ill remains possible in a number of sectors which are not at all or very little affected by the obligations created by the WTO. This position can only weaken the system. American unilateralism, one already knows, manifests itself also in the United States' laws of an extraterritorial quality. In these two domains, the WTO still has not taken any sanctions against the United States and hence clearly manifests the weakness and ineffciency of the organisation.