The original list of six members has grown to 15, with 13 new candidates for membership.[2] One of the most notable achievements of the European Union is the creation of the Economic and Monetary Union and the launch of a single currency, the euro.
It is difficult to make generalizations about the EU economy because of the heterogeneity of its member states’ economies. However, a few observations can be made. In recent years the EU has experienced slower growth and higher unemployment than the United States. In 2001, real GDP grew 1.6 percent and the unemployment rate dropped from 8.8 percent to 8.3 percent. [3]
The aggregate GDP of the EU economies amounted to $7.9 trillion in 2001, making the EU the second-largest economy in the world.
California Exports to the EU
In 1990, 28 percent of all California exports headed for the EU. By 2001, this share declined to 21 percent. Despite this relative decline, the EU remains an important market for California exports.
During the 1997-2001 period, exports to the EU grew an average of 4 percent per year. Although this growth rate was below the growth exhibited by exports to NAFTA countries (6.5 percent), it was much higher than the negative growth in exports to APEC countries (not including Mexico and Canada).
The vision of the EU as a single market, and its planned eastward expansion, represent an opportunity for California exporters. Sectors with the greatest potential include aerospace and defense, automotive, energy, environmental, information and communications technologies, medical and pharmaceutical, and travel and tourism.[4]
In 2001, California exported $22.8 billion in merchandise to the EU, an 11.4 percent decline from the previous year.
Direct Investment from the European Union in California
The 15 members of the European Union include some of California’s largest investors, such as the United Kingdom, Germany, France, and the Netherlands. As a group, investors from the 15 EU countries employed 277,900 workers in California in 1999, well above the trough of 224,300 in 1994.[5]
This increase is also slightly above the proportional increase of employment in all foreign-invested firms in California. Within the group of EU investors, the top three – the United Kingdom, Germany, and France – account for about 75 percent of total employment in EU-invested firms. In addition, employment in EU-invested firms accounted for almost 83 percent of all employment in firms with investment from all of Europe.
The industrial distribution of EU investment is not available. However, because EU investment accounts for the vast majority of European investment, its industrial distribution is probably similar to that of Europe’s as a whole, described in the paper that this appendix accompanies.Between 1999 and 2001, EU direct investment in the United States grew from a $582 billion to $808 billion. Some of this growth came from investments in technology industries, and some may have been helped by lower financing costs brought about by the introduction of the euro, the EU’s common currency. Given this growth, employment in EU-invested companies in California is estimated to have risen to more than 350,000 in 2001.
Barriers to U.S. Exports
Not surprisingly, many of the disagreements between the EU and the United States involve agriculture; both economies are major agricultural producers and have complex agricultural support programs and trade policies. Following negotiations to establish ceilings on grain duties, the EU established a reference price system that affects U.S. exporters of high-value grains, such as barley and packaged rice. The reference price system works against U.S. exporters by depriving them of the benefits they expected to receive from the ceilings on duties. Exports of U.S. agricultural products have been further affected by the breakdown in the EU’s approval process for new varieties of genetically modified commodities. Corn exporters have been hit particularly hard by the EU’s biotechnology policy, which effectively ban corn exports.
Although U.S. wines are currently allowed into the EU by a series of annual extensions and temporary exemptions, there is concern by U.S. producers about EU’s import requirements and regulations and current EU subsidies to grape growers and wine producers.[6]
The cattle and poultry industry have also been affected by EU regulations. Beef from cattle treated with hormonal growth promoters has been banned for more than 10 years in the EU.[7] U.S. exports of poultry have also been banned because of the prohibition on the use of antimicrobial treatments in poultry production.
One of the more unusual – and long-running – trade disputes involved bananas, which neither the EU nor the United States actually grow. The EU’s preferential treatment of bananas produced by former colonies of EU members resulted in several dispute actions by the United States before being settled in 2001 through personal diplomacy between U.S. Trade Representative Robert Zoellick and EU Trade Commissioner Pascal Lamy. This agreement increased the quotas faced by U.S. exporters – who ship bananas from Latin America – and provided for the eventual move to a tariff-only system by 2006. This agreement also lifted the WTO authorization for the United States to place sanctions on EU products.
Despite efforts to create a uniform foreign trade policy in the EU, differences in standards and in testing and certification procedures across countries continue to affect some U.S. exports. The EU has committed to the harmonization of standards and testing and certification procedures, but the U.S. remains concerned about the lack of transparency in the standardization process. The pharmaceutical industry has been particularly affected by differing approval processes and strict price, volume, and access controls placed by national governments. Austria, Belgium, France, Italy, and the Netherlands are a few of the countries identified by the U.S. government in which significant barriers exist in this sector.
There are proposals that could potentially affect exports of electric and electronic products. For example, the European Commission (EC), the key governing institution of the EU, is currently considering a proposal to restrict the use of hazardous substances in electrical and electronic equipment.
The list of substances considered includes lead, mercury, cadmium, and certain flame retardants. There is concern that such ban would affect products where substitutes may not exist.[8]
The EC is also considering regulating product design of electrical and electronic equipment. This regulation is aimed at harmonizing European standards, but there is concern that it may negatively affect exports in that sector by diminishing design flexibility and increasing administrative burdens. Moreover, the EU approved new limits in 2001 on low frequency emissions from electrical and electronic equipment.[9] The new limits translate into billions of dollars in redesign costs for U.S. products.
Other barriers affecting U.S. exports include restrictions in government procurement (particularly in the utilities sector), EU subsidies to domestic aircraft manufacturers and suppliers, and shipbuilding industry support (including direct and indirect subsidies and home credit schemes).
Trade Agreements
Despite disagreements on a few trade issues, the United States and the EU remain committed in their efforts to reduce or eliminate barriers to trade and investment. The Transatlantic Economic Partnership, signed in 1998, seeks to eliminate technical barriers to trade in goods and services. This agreement also covers government procurement and intellectual property. The current Doha Round negotiations regarding WTO agreements will put this relationship to the test, especially regarding agricultural subsidies and protection.
The EU has bilateral free-trade agreements with Bulgaria, Czech Republic, Denmark, Estonia, Hungary, Iceland, Israel, Jordan, Latvia, Mexico, Morocco, Norway, the Palestine Liberation Organization, Poland, Romania, Slovak Republic, Slovenia, Switzerland, South Africa, and Tunisia, among others. It is also negotiating FTAs with Chile and MERCOSUR (Argentina, Brazil, Paraguay, and Uruguay). Other trade and cooperation agreements include those with Algeria, Cyprus, Egypt, Malta, Turkey, and Syria.[10]
Source: Occasional Report of the Public Policy Institute of California, “California and the World Economy: Exports, Foreign Direct Investment and US Trade Policy”, December 2002.
[1] The stated goals of the European Union are: 1) to establish European citizenship, 2) ensure freedom, security and justice, 3) promote economic and social progress, and 4) assert Europe’s role in the world. “The European Union at a Glance,” European Union website, http://europa.eu.int/abc-en.htm[2] Members include Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, and the United Kingdom. Candidate members include Bulgaria, Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Romania, Slovenia, Slovakia, and Turkey, though negotiations are not proceeding with Turkey and those with Bulgaria and Romania are on a slower track than those with the others.[3] The growth rate of the EU economy is expected to decline during 2002, but is projected to increase to 2.9 percent in 2003. The unemployment rate is expected to remain high (European Commission, 2002).[4] U.S. Commercial Service (2001).[5] These totals exclude investors from Greece and Portugal, for whom no data are available. However, investments from these two countries are probably small.[6] EU regulations require imported wines to comply with EU-authorized wine making practices. The United States and the EU are currently working on a bilateral agreement that will give U.S. producers equitable access to the EU market.[7] The WTO through its dispute settlement procedure has found against Europe in this matter and set a value of $116.8 million per year for U.S. retaliation.[8] The EC is also considering two waste management programs that could affect trade of electric and electronic products. The first deals with the recycling and discarding of such products by forcing producers to pay for reuse or recycling of their products at the end of the product’s life. The second deals with the ban of nickel-cadmium batteries and products powered by them.[9] U.S. authorities believe this new requirement is not scientifically justified.[10] “EC Regional Trade Agreements.” Di Trade, 9/2/02 http://europa.eu.int/comm/trade/pdf/ecrtagr.pdf
