EU Delegation Head Stresses US-Europe Links
Official downplays FSC flap; outlines expansion plans; and his vision for the future of US-EU relations.
LOS ANGELES - The relationship between the US and the European Union is sound and disputes between the world's two largest trading partners can be remedied "to the world's advantage so long as we play by the rules," says Dr. Guenter Burghardt, head of the European Commission Delegation to the US.
Downplaying the recent transatlantic flap over the US Foreign Sales Corporation (FSC) tax incentive program, Burghardt stressed that the EU's position on the issue is an exercise of its rights under the multilateral rules set out by the World Trade Organization "to retaliate in order to induce" compliance.
"When the [EU] Trade Commissioner [Pascal Lamy] announced the deadline by which we expect Congress to pass [the legislation required to amend the FSC program], it was not an ultimatum, Burghardt told the CalTrade Report in an exclusive interview.
"It was an indication that after waiting three years for the US to comply after a final determination was reached by the WTO, an August deadline established a reasonable timeframe that Congress could work with," he said.
Several weeks ago, Lamy laid out an August deadline for the US to modify or scrap the FSC program or face up to $4 billion in trade sanctions.
The Foreign Sales Corporation scheme was created in 1984 to offset the tax benefits afforded to companies domiciled in other countries by providing US-based companies with the opportunity to form off-shore entities as a means to avoid what was felt to be excessive foreign taxation.
Four years ago, the Geneva-headquartered WTO ruled that FSCs constitute an illegal export subsidy under current WTO agreements. Last month, the WTO gave the EU the go-ahead to set the deadline to force US compliance to the ruling.
"The deadline is not another broadside in the winding up to another potential transatlantic trade war. It is not tit-for-tat. It is part of the normal WTO process for getting issues resolved," Burghardt said.
In Los Angeles recently to address the Los Angeles World Affairs Council and the Council of European-American Chambers of Commerce, Burghardt stressed the importance of efforts to "optimize trade opportunities between the US and the European Union" and "create a positive agenda to open new areas for trade cooperation by crafting a stable framework of trade incentives."
The volume of goods and services moving between the US and the European Union represent more than 40% of the world's total trade with more than 20% of their respective exports crossing the Atlantic, he said. "Our main task should be enhancing our trade relationship and intelligently managing our trade issues."
California is a major receptor of EU investment dollars, according to the US Census Bureau. The most recent figures show that EU-based companies invested an estimated $57.2 billion in the state in 2000, about 47% of total foreign investment in the state that year.? In 2001, California-sourced exports to the European Union totaled $22.8 billion, some 21% of total US exports to the 15-member bloc.
In his remarks to the two groups, Burghardt addressed the issue of EU expansion and the challenges that he feels will result from the plan that will grow the body by ten members by the end of next year with an additional pair - Bulgaria and Romania - joining three years later.
The "first wave" of candidates is comprised of Cyprus, the Czech republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia. Turkey was given candidate status in December, 1999, but, the EU says, the country has failed to meet the bloc's political and human rights membership requirements.
The expansion plan is largely misunderstood in the US, says Burghardt. "Europeans are not creating a United State of Europe," he stressed. "They are building a federation of nation states that are deeply integrated with one another. This may seem an esoteric distinction, but it's an important one for Europeans."
The sheer scope of the expansion, he said, needs to be understood and appreciated.
According to Burghardt, the expansion that will almost double the size of the Union when completed will swell the bloc's population by 20%, from roughly 370 million to more than 450 million with it's physical territory growing by almost 25% to a total of 1.5 million square miles.
However, he added, the EU's total Gross Domestic Product will increase by only about 4% with the new "first wave" member states having an average per capita GDP that is only about 40% of the EU average.
Answering those who would question the EU's efforts to expand itself into a region that some may see as more of a liability than an asset, Burghardt said, "Enlargement represents an extraordinary second chance for a continent that had almost self-destructed and whose eastern half has paid an especially heavy price."
"Clearly," he said, "enlargement is a bold step and it won't be an easy one and it's not hard to overstate the difficulty of joining together societies that have lived separately for almost half a century."
Alluding to the fact that the electricity market in Slovakia is more open than its counterpart in France and that private ownership of banks is more prevalent in Estonia than it is in Germany, Burghardt said that's it's important to understand that, in some areas, the "first wave" countries have already advanced beyond several current EU member states.
But, he stressed, much still needs to be done. "We need to keep in mind what tremendous performance we are asking of these new members, but I'm confident that, given the proper support, it can be done. Societies, like individuals, can rise to the challenges demanded of them."
In the medium-term, he said, the EU can be expected to "reach out, consolidate, and intensify."
The EU will continue to reach out to its eastern and southern neighbors, whose membership "is either not foreseeable - or, at best, very far off - by offering to extend internal market rules and privileges, perhaps with restrictions on the movement of people."
In the enlarged EU, he added, current rules will be consolidated in the regulatory and economic sphere to include competition, environment, energy, and transport. "The EU," he said, "will push forward with macro-economic co-governance, where a special relationship between Euro-zone nations may solidify."
Building on this "base," Bughardt said some countries will want to move "faster and further, taking a more political approach" to common problems.
"I personally don't expect - nor hope for - a very institutional approach, where a fixed group would declare itself to be the avant-garde. I think we're more likely to see a number of concrete actions being proposed by what often will be the same crowd with varying numbers of other countries going along depending on the topic."
This "mechanism of reinforced cooperation in foreign policy matters, for instance, is already foreseen in the Treaty [the Nice Treaty of December, 1999 that outlined the requirements for EU expansion and accession]. In the future, I believe it will be used."
On US relations with the new expanded European Union, Burghardt warned that the current political environment "should not lead us to make the same mistake of the 1990s when many in Washington and Brussels emphasized economic matters above all else and deemed political and government issues less relevant."
But, Burghardt said, "There is no reason to believe that a united Europe would be so foolish as to think that a fundamentally adversarial relationship with the US is to its benefit. We are living in a world where other, non-Western powers are rising, reclaiming their right to equality after a long eclipse in terms of international power and that is only a fair and good thing. But it will change the world."
The day the world "becomes more multifaceted it will be evident that the US and Europe share a common bond equal to no other, economically and politically."
The new, enlarged EU will "present a massive opportunity for US companies, just as the internal market proved not to be some 'Fortress Europe' as many had feared."
The US, he said, "has little to gain from a 19th century-type Europe and the instability it would create.
A more integrated Europe may 'talk back' [to the US] even more than it does today. It might occasionally offer alternative strategies and be even tougher in defending core interests. A stronger Europe, not a weaker US, would ensure that this relationship endures, a relationship of equals built on respect and a shared vision for the future."
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