Report on United States Barriers

Commission of the European Communities

REPORT ON UNITED STATES

BARRIERS

1997

Forword

Summary

Introduction

The New Trans-Atlantic Agenda

The Economic Relationship

Foreword

The 1997 Report on United States Barriers to Trade and Investment is the thirteenth such annual report. It has been compiled by the Unit for Relations with the United States of America in cooperation with the Market Access Unit, both part of the Directorate General for External Relations: Commercial Policy and Relations with North America, the Far East, Australia and New Zealand, on the basis of material available to the services of the European Commission. Its aim is to provide an inventory of obstacles that EU exporters and investors encounter in the US.

This Report needs to be placed in the context of a Transatlantic economic relationship which has grown particularly strongly over the years, to the benefit of both economies, and which is underpinned by the largest trade and investment links in the world. Moreover, EU-US relations entered an important new phase with the adoption at the EU-US Summit of December 1995 of the New Transatlantic Agenda (NTA) and accompanying EU-US Joint Action Plan. This Report must therefore be seen against the background of the joint commitment, in the NTA, not only to strengthen and consolidate the multilateral trading system, but also to create a New Transatlantic Marketplace, by progressively reducing or eliminating barriers that hinder the flow of goods, services and capital between the EU and the US. As part of this latter initiative a joint EU-US study on ways of facilitating trade and of reducing or eliminating such barriers is being carried out.

The fact remains, however, that a considerable number of impediments, ranging from more traditional tariff and non-tariff barriers, to differences in the legal and regulatory systems, or due to the absence or limitation of internationally agreed rules and disciplines, still need to be tackled. The Commission remains firmly committed to addressing these through the appropriate channels (bilateral, plurilateral and multilateral) particularly as the reinforcement of efforts to resolve bilateral trade issues and disputes is essential to the confidence-building process which is an integral part of the NTA.

More generally, this year’s report should also be seen in the context of a major new policy initiative to improve access to foreign markets for European exports. As part of this, the Commission has set up an extensive electronic Market Access Database available to the public on the Internet (http://mkaccdb.eu.int) (additional material on EU-US relations is available at http://europa.eu.int/en/comm/dg01/eu-us.htm). The Database provides market access information in the broadest sense, including economic and regulatory information, tariff levels as well as analyses of trade issues. The format of the present Report has been partly modified from previous years to correspond as much as possible with the database structure. For readers, this will facilitate access throughout the year to on-line updates of the material contained in the published report as well as to the additional background information which is included in the database.

It is to be hoped that, as a means of identifying problems of access to and of operating in US markets, the Commission services’ Report will continue to play a useful role in focusing dialogue and negotiations - both multilateral and bilateral - on the elimination of obstacles to the free flow of trade and investment. The Report has taken into account developments until the beginning of July 1997. Any comments should be addressed to the Unit for Relations with the United States of America, DG I, European Commission, 200 rue de la Loi, 1049 Brussels.

Summary

Extraterritoriality	The EU strongly opposes the extraterritorial provisions of certain US legislation which hamper international trade and investment by seeking to regulate EU trade with third countries conducted by companies outside the US. Of particular concern at the present time are recent US legislative initiatives concerning Cuba, Iran and Libya.
Unilateralism	Unilateralism in US trade legislation also remains a matter of concern. While the US has in practice made extensive use of the new WTO dispute settlement system, it retains the possibility to take its unilateral trade measures which would be inconsistent with the internationally-agreed system of trade rules embodied in the WTO.
Tariff barriers	Tariffs have been substantially reduced in successive GATT rounds. As a result, the EU’s concern is now focused on a relatively limited number of US ‘peak’ and other significant tariffs where less progress has been made.
Other customs barriers	EU exports also face a number of additional customs impediments, such as the customs user fees and the excessive invoicing requirements on importers, which add to costs in a similar way to tariffs. The US also recently changed its origin rules giving rise to specific problems for various EU textile and clothing products which are no longer able to claim their national origin.
Technical barriers to trade	EU exporters continue to face a number of behind-the-border impediments. The proliferation of regulation at State level presents particular problems for companies without offices in the US. In addition, some federal standards differ from international norms meaning that manufacturers cannot directly export to the US products made to EU standards (normally based on international ones). Other related difficulties concern labelling requirements and excessive reliance on third-party certification. The FDA drug approval procedures continue to give non-US based firms difficulties. In the agricultural area, a number of sanitary and phytosanitary issues remain a significant source of difficulty for the EU, although some of these may be solved by the recent negotiations for a Veterinary Equivalence Agreement.
Government procurement	Even before the Uruguay Round was ratified, the EU and US had concluded negotiations on a further bilateral procurement agreement that improves on the provisions of the WTO Government Procurement Agreement. These two agreements increase substantially the bidding opportunities for the two sides. However, the EU remains concerned about the wide variety of Buy America provisions which persist, and to which are being added others for federally funded infrastructure programmes. An unwelcome new development is the introduction of several sub-federal selective purchasing laws restricting the ability of EU and other companies doing business with specific countries to bid for contracts in various States and cities.
Aeronautics industry	Despite the existence of the 1992 EC-US Large Civil Aircraft agreement the EU remains concerned about the level of indirect support to US aircraft manufacturers. This is also an area for multilateral action, and progress needs to be made on the Civil Aircraft Agreement which remains stalled in the WTO.
Shipbuilding	The 1994 OECD Shipbuilding Agreement would go a long way towards regulating unfair practices in this industry. The US failure to ratify the Agreement so far, as well as a number of US subsidies and tax policies, remains a matter of concern.
National security restrictions	Although the principle of national security has a long tradition in trade policy, the EU has repeatedly expressed concern about its excessive use by the US as a disguised form of protectionism, particularly in relation to the application of import, procurement and investment restrictions, as well as the extraterritorial application of export restrictions.
Conditional national treatment	Furthermore, the provision of conditional national treatment in various US legislation, and notably in the area of science and technology research, remains troublesome.
Tax measures	Concerns about federal tax measures focus on the nature of reporting requirements and the specific manner for calculating what is due. More significantly, however, State "world-wide" unitary taxes are inconsistent with US obligations under its tax treaties with third countries. Foreign Sales Corporations legislation remains a matter of concern.
Intellectual property	Following the implementation of the Uruguay Round commitments a number of positive changes have been introduced into - and are proposed to - the relevant US legislation. Nonetheless at present, some problems remain including that of informing right-holders of government use of patents as well as that of geographical designations.
Professional services	The implementation of the GATS schedules for professional services has resulted in some improvement in market access. However, a number of problems, especially due to regulation at the State level, remain to be tackled in order to secure more transparent and open access to the US.
Telecommunication services	The recently concluded GATS Basic Telecommunications Agreement has led to significant commitments on market access. Nonetheless, the EU remains concerned about the considerable hurdles that the US legislation presents for non-US and foreign-owned firms wishing to invest in radio telecommunications infrastructure and to provide mobile and satellite services. In addition, the Federal Communications Commission exercises a high degree of autonomy and discretion in regulating this sector, including reciprocity-based licensing procedures for foreign-owned firms.
Air transport services	A number of issues continue to create problems including computer reservation system preferences for US carriers and foreign ownership restrictions.
Maritime services	The EU was disappointed that the extended WTO GATS negotiations on maritime transport, during which the US never tabled an offer, could not be brought to a successful conclusion. In addition, there has been no progress on the elimination of requirements that cargoes generated by US Federal programmes be shipped on US-flagged ships; on the contrary, this requirement has been extended to cover Alaskan oil exports.

1. INTRODUCTION

1.1 The New Transatlantic Agenda

	The New Transatlantic Agenda (NTA) and the accompanying Joint EU-US Action Plan, adopted at the EU-US Summit in Madrid on 3 December 1995, provide a new basis for transatlantic relations by moving the relationship from one of consultation to one of joint action. The NTA contains a range of commitments in areas such as foreign and security policy, international crime, drug trafficking, migration, environment and health, as well as with regard to increasing transatlantic contacts at the level of the citizen ("Building bridges across the Atlantic"). There is also a substantial chapter on economic and trade issues ("Contributing to the expansion of world trade and closer economic relations"). In agreeing the very substantive provisions of this chapter, the EU and US were able to draw on the recommendations of the business communities on both sides of the Atlantic, through the auspices of the Transatlantic Business Dialogue (TABD), which has also provided guidance and support in the subsequent implementation of the NTA. The economic chapter is divided into two sections, dealing with multilateral and bilateral issues respectively.
Strengthening the Multilateral Trading System	In line with the recommendations of the TABD, the main focus of the NTA provisions relating to trade and economic relations is on strengthening the multilateral trading system. In the World Trade Organisation (WTO), the EU and the US have worked together to conclude the Information Technology Agreement and the Basic Telecommunication Services Agreement, which together liberalise approximately US$ 1 trillion in trade in goods and services, and are currently cooperating to reach an ambitious and Most Favoured Nation (MFN)-based Financial Services Agreement. In the Organisation for Economic Co-operation and Development (OECD), the EU and the US have contributed to the adoption of important decisions on combating bribery in international business transactions and are actively working to finalise the Multilateral Agreement on Investment by 1998.
New Transatlantic Marketplace	Without detracting from EU-US cooperation in multilateral fora, the NTA foresees the creation of the "New Transatlantic Marketplace" by progressively reducing or eliminating barriers to the flow of goods, services and capital between the EU and the US. In this context the EU and the US are carrying out a Joint Study which is expected to produce by the end of 1997 recommendations on "ways of facilitating trade in goods and services and further reducing or eliminating tariff and non-tariff barriers". The TABD has highlighted the importance of tackling standards, certification and regulatory issues in the New Transatlantic Marketplace, calling in particular for cooperation in the international standard setting process, the conclusion of a Mutual Recognition Agreement for testing and certification and enhanced regulatory cooperation. In addition it has provided recommendation for action on government procurement, intellectual property rights, veterinary issues, customs cooperation and a series of other issues. The progressive elimination of identified trade barriers will not only directly benefit EU-US trade, but is expected to be conducive to further multilateral trade liberalisation. There are various specific initiatives which are already contributing to the construction of the New Transatlantic Marketplace. They include:
	The signature at the EU-US Summit of May 1997 in the Hague of the Agreement on Customs Cooperation and Mutual Assistance in Customs Matters covering, inter alia, simplification of customs procedures, data and personnel exchanges and increased investigative co-operation;
	The initialling of a Mutual Recognition Agreement covering various areas (telecom equipment, pharmaceuticals, medical devices, electromagnetic compatibility, electric safety and recreational craft). This will allow EU bodies to carry out conformity assessments to US requirements, and vice versa, thus eliminating some of the considerable costs involved for manufacturers on either side of the Atlantic; The negotiation at technical level of a Veterinary Equivalence Agreement aimed at facilitating trade in live animals and animal products;
	The negotiation of a new agreement in the area of enforcement of competition laws which is intended improve co-operation by complementing the 1991 Agreement between the US and the EC regarding the application of their competition laws, without replacing it. The agreement is expected to be approved in the not too distant future;
	Regulatory co-operation seeking to make regulators more aware of the trade and investment consequences of their decisions and to discourage the development of divergent regulations, so that issues which might otherwise become the source of a future trade dispute may be addressed at an early stage. Several pilot projects are already ongoing, including in the field of agri-food biotechnology;
	The Transatlantic Small Business Initiative (TASBI), which aims at assisting small and medium-sized enterprises from both sides of the Atlantic to form business alliances and partnerships;
	Joint efforts to establish a Global Navigation Satellite System, aimed at ensuring reliable, efficient and highly accurate navigation and position-fixing services for transatlantic users;
	The examination of key issues raised by the rapid growth of electronic commerce;
	Finally, negotiations for a Science and Technology Agreement with a view to expanding significantly co-operative activities between the two sides in the fields of science and technology research .

1.2 The Economic Relationship

	Transatlantic economic relations are underpinned by the most important trade and investment links in the world. Such links have grown particularly strongly over the last few years, to the benefit of both economies. Taking goods and services together, the EU and the US are each other’s largest single trading partner, with a two-way flow of more than 370 billion ECU. Similarly, the two sides remain each other’s most important source and destination for foreign direct investment with a combined stock of over US$ 600 billion. This section briefly reviews the data on EU-US trade and investment and places it in a global context (all EU data include the three new member states unless otherwise indicated).
Trade in goods	Trade in goods (exports plus imports) between the 15 Member States of the European Union (EU) and the US reached nearly 227 billion ECU in 1996, an increase of 11.8% for exports and 8.7% for imports over the previous year. After the EU registered a substantial trade deficit with the US for three consecutive years from 1990 to 1992, between 1993 and 1996 bilateral trade was almost in equilibrium. The EU recorded a surplus of 0.8 billion ECU in 1993, 2.5 billion ECU in 1994 and a deficit of 2.6 billion ECU in 1995 respectively. EU trade data for 1996 point to a small EU surplus of about 1.5 billion ECU.
	The US is the EU’s single largest trading partner, accounting for 19% in total EU-imports and 17.8% in total EU-exports in 1995. Likewise, the EU is one of the two top markets for the US, accounting for 21.2% of US exports and 17.7% of US imports in 1995.
	The EU and the US are the world’s most important traders. The EU’s share in total world trade (excluding intra-EU trade) amounted to 19.3% in 1995 (20.2% for exports and 18.5% for imports); while, the share of the US amounted to 18% (15.9% for exports and 20% for imports). Taking only bilateral EU-US trade, it represents almost 7% of total world trade. This was only marginally less compared to US-Canada trade which was 7.4%. Trade between the US and Japan represented 5% of total world trade.

	Transatlantic trade is increasingly characterised by high intra-industry trade intensities, especially for manufactured goods, and high levels of intra-firm trade. WTO estimates show that US-EU intra-industry trade intensities grew from a value of 39% in 1980, to 57% in 1995, an indication of an increasing specialisation within product categories to capture economies of scale. Intra-firm trade accounted for more than 45% of US merchandise imports from the EU and 37% of EU imports from the US in 1993, demonstrating the important "pull" effect on trade from foreign direct investment by US and EU affiliates in each others markets.
	Transatlantic trade is also heavily concentrated in sophisticated high technology products and, increasingly, in services. It is estimated that trade in high-technology products accounts for 20% of total EU/US merchandise trade. For both partners, Transatlantic trade accounts for a large share of their total trade in high tech goods (34% for the EU and 25% for the US).
Trade in services	Trade in services between the EU and the US is gaining growing importance both in absolute terms and relative to merchandise trade. Estimates for 1995 indicate that EU-US total turnover in services reached 142.5 billion ECU (74.5 billion ECU for EU’s exports and 68 billion ECU for its imports) equal to 64 % of total turnover in merchandise trade with the US. Surplus on trade in services accounted for 6.6 billion ECU in 1995

The rapid change taking place can be appreciated using historical figures for the EU excluding Austria, Finland and Sweden (EU(12)) for which longer statistical time series are available. In 1985, EU(12)-US bilateral trade in services accounted for 82 billion ECU, 54% of bilateral trade in goods. By 1994, this figure had risen to more than 125 billion ECU, 64% of bilateral merchandise trade, with a growth of 10%. While the EU accounted for 19% of US merchandise trade in 1995, more than 33% of US trade in services was with the EU. Similarly, for the EU in 1995 the US accounted for 18.5% of the extra-EU trade in goods, but for 39% of extra-EU trade in services. These trends compare with much lower values for trade in services with other major trade partners.

Investment links

The EU and the US have by far the world’s most important bilateral investment relationship and are each other’s largest investment partner. The US market remained the main destination of EU foreign direct investment (FDI) with an average share of 41% between 1992 and 1996. Outflows from the EU to the US accounted for 13.7 billion ECU in 1996 or 30% of total EU outward flows. The US attracted 52% (18.6 billion ECU) of EU outward FDI flows in 1995, 30% (6.4 billion ECU) in 1994, 57% (13.8 billion ECU) in 1993 and 39% (6.9 billion ECU) in 1992.

The strong FDI links between the EU and the US are confirmed by the amount of US investment into the EU. Over the period 1992-1996, the US was the first contributor to extra-EU inflows with an average share of 59%. In 1996, 74% (19.2 billion ECU) of extra-EU inflows came from the US, against 63% (23.7 billion ECU) in 1995, 43% (8.5 billion ECU) in 1994, 53% (11.3 billion ECU) in 1993 and 54% (12.3 billion ECU) in 1992.

Looking at FDI stocks in the EU and the US, the importance of the Transatlantic investment relationship is also evident. By 1995, cross investment stocks between the EU and the US on a historical-cost basis reached US$ 636 billion, by far the world’s largest investment relationship. EU investment in the US was valued at US$ 323 billion, while the US investment in the EU was estimated at US$ 313 billion. As with the bilateral trade relationship, investment stocks are both balanced and substantial. They have also been growing very quickly over the past few years, doubling between 1989 and 1995.

Once again, the EU and the US are each other’s largest partner. The EU is by far the biggest investor in the US accounting for 57% of total FDI stock by 1995. The EU share has also been steadily increasing over the past decade. Likewise, the most important FDI market for the US is the EU. In 1995, 44% of US FDI stock was located in the EU.

This report is online: http://www.europa.eu.int

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