U.S.-EU Relations: Drift or Common Destiny?

We are talking today about a global partnership different from any other in history. Together the U.S. and the EU represent 50% of the global economy. Trade and investment flows between us total some $1.4 trillion annually. The relationship between the U.S. and the EU is huge. And it is hugely important, not just economically, which has been true for some time, but increasingly so, politically as well.

I would like to share my thoughts with you on how I see our relationship with the EU, focusing in particular on the following points:

-- The changing nature of the EU;
-- Managing our political differences;
-- The global reach of EU regulation;
-- Working with our global partner.

The Evolving European Union

As the U.S. Ambassador to the EU, I am asked frequently to comment on the state of U.S.-EU relations. My standard response is to note that the relationship is so broad and deep that it is by its very nature solid and stable.

But a fact that we must keep in mind when discussing the U.S.-EU relationship is that the relationship is a changing one. It is changing largely due to changes within the European Union, not the United States. It is the EU that is in the final stages of negotiations to expand its membership from 15 to 25 or 27 or 28 member states. It is the EU that is holding a "Convention on the Future of Europe" that must not only try to figure out what sort of institutional structures will work for a Union of 25, but also to consider some of the fundamental purposes of the Union itself.

Perhaps even more relevant to the state of U.S.-EU relations today are the changes that are already underway, but not yet complete. It is easy to forget sometimes that the Euro as a financial instrument has only been in existence for a few years and as a physical currency has only been in people's pockets for nine months. As recent events related to the Stability and Growth Pact show, the implications for monetary and fiscal policy are still evolving. Similarly, the EU's Common Foreign and Security Policy is still a work in progress.

In any context partnership takes work. And the changes underway in the EU mean that making the partnership successful take more work, not less.

Tactical Differences

In all of the political issues that grab the headlines today, we share common interests and objectives. But just agreeing on the common goal is not enough. We need to explain our positions clearly on both sides and work for common solutions.

Let me mention some specific examples:

• In the fight against terrorism it is obvious that we share the common goal of uprooting terror networks and protecting our societies from attack. We have, through common action, increased the pressure on terrorist networks across the globe -- improving intelligence, freezing assets valued most recently at $112 million, arresting those involved in planning and carrying out attacks. Questions remain on the details of how to handle different approaches to data protection and the issue of the death penalty. Negotiations continue to achieve as close coordination and cooperation in law enforcement efforts as possible.

• Regarding Iraq: we all agree that an Iraq possessing weapons of mass destruction represents a threat to its neighbors and the world. We are committed to seeing Iraq meet its obligations under existing UN Security Council Resolutions. And so we are consulting closely with EU members and other members of the UN Security Council on how best to hold Iraq to account for its continued defiance of UN Security Council Resolutions.

• As a final example, let me mention the International Criminal Court. We agree that war criminals need to be brought to speedy justice. But the ICC, to us, is a flawed mechanism, because it is not accountable to any democratically elected body. While we do not want to undermine the ICC, we also believe we can reach accommodation with our allies and partners around the world on ways to ensure that U.S. citizens and officials are not brought before a body to which we are not a party. Close consultations between U.S. and EU officials have made significant progress.

The Global Reach of EU Regulation

On the economic front, trade disputes like steel tariffs and foreign sales corporations taxation prompted headlines last spring about "trade wars" that never occurred. Again, the mechanisms for dispute resolution -- the WTO process, direct consultations between Ambassador Robert Zoellick and Commissioner Pascal Lamy -- gave both parties a way to move forward.

But the area of greater impact in my opinion, and one that has only just begun to receive wide attention in government and media circles, is the global reach of EU regulation. That is how companies all over the world now produce goods that must conform to EU norms. Regulation is necessary to ensure worker safety, safeguard consumer privacy and protect the environment. But regulations can also stunt growth and cost jobs.

Although the U.S. economy is larger, the EU regulates more often and more rigorously than we do, having written an estimated 80,000 pages of regulation since 1957.

These rules are forcing major strategy and product changes on the part of some very large U.S. companies including McDonald's, United Technologies, Microsoft and GE -- just to name a few.

And because they oversee such a large market, EU authorities are increasingly able to do what the U.S. market alone was able to do before -- turn its own internal standards into de facto standards for the rest of the world. After all, what well-run company is going to intentionally design a product that does not meet the standards of the world's largest single market?

The Case for Smart Regulation

Through the Lisbon Process and concurrent efforts to develop "Better Regulation" at the EU level, Europe is now undertaking an unprecedented effort to put its own regulation under the same broad scrutiny. Because our economies are so closely linked, the answers European leaders develop will affect firms and citizens both in Europe and in the U.S.

In June of 2002, the EU released its Action Plan on Better Regulation, Consultation Guidelines and Criteria for Regulatory Impact Analysis. U.S. comments on the EU plan were submitted in response at the end of July.

In essence what we are recommending are guidelines to smart regulations in the EU:

First, broader and more transparent consultation.

Second, impact assessment.

And third, a central oversight authority: It's interesting to note that 23 of 28 OECD member countries have a centralized unit responsible for quality regulation. I would recommend that the Commission consider doing the same thing.

Next Steps

As holders of the current Presidency, the Danes have proposed discussion of Better Regulation by member state ministers at the September 30 Competitiveness Council. We are encouraging officials in Washington responsible for Better Regulation to visit Brussels and European Member states. We recently hosted Securities and Exchange Commission Chairman Harvey Pitt in Brussels, for example.

The U.S. cannot stand back and merely be an observer to internal processes in the EU that will affect the operations of the global economy and of American business, workers and investors. The U.S. Government and U.S. business interests must be fully engaged in influencing it -- and that is just what our Mission in Brussels is doing.

Chemicals

One case in point: An issue we are following closely is an EU-wide regulatory regime for chemicals. Not only would the proposed chemicals policy impact the chemicals industry, but it could also hurt manufacturers ranging from toys to textiles and autos to computers. Examination of just four commercially important chemicals on the EU authorization list shows that $8.8 billion worth of U.S. exports are at risk.

Biotech

Another costly example: our dispute over the use of genetic modification in foods is a big one right now, and our failure to resolve it has cost U.S. growers hundreds of millions of dollars. The European Parliament ignored our concern that proposals to label biotech food products were unworkable, costly and subject to fraud. But we haven't given up on this issue, and we will be tracking what the member states now do with these proposals.

Global Partners

While there is a challenge to the U.S. in dealing with a changing EU, it is a healthy challenge. We need a Europe that continues to grow into an even more economically dynamic and politically self-confident partner. A partner that assumes a leadership role in making the global economy work for all.

I'd like to close with a quotation from Chris Patten, Commissioner for External Relations, who gave a speech in Chicago recently. He said -- and I agree with him -- "If the U.S. is the 'indispensable nation,' the U.S. and Europe really do constitute the 'indispensable partnership.'"