The EU also requested WTO dispute settlement consultations regarding
a Massachusetts law curtailing procurement from companies doing
business in Burma--an action that proved superfluous, for the U.S.
Supreme Court struck down the law. The Court also struck down a
Harbor Maintenance Fee that the EU claimed, in a WTO action, violated
U.S. undertakings under the 1994 GATT agreement. In yet another case
a WTO panel upheld the U.S. contention that Sections 301-310 of the
Trade Act of 1974 were consistent with WTO rules. As in the 1916
case, the EU had argued that the mere existence of these provisions,
rather than any specific U.S. action affecting EU interests, was a
violation.

In what so far is the most significant dispute with the United
States, in 1998 the EU launched a case against the U.S. Foreign Sales
Corporation (FSC) regime, which it charged constituted a violation of
the WTO subsidy agreement by providing tax breaks for export-derived
income. The United States argued that the EU's action contravened a
1981 understanding that permitted FSCs as a way of counterbalancing
favorable tax treatment granted to exporters by EU member states. The
EU prevailed in the panel and the appeals process, prompting the
Clinton Administration and the Congress to amend the offending
legislation. The EU subsequently launched a new challenge to the
amended law and has asked for authorization to impose sanctions on
more than $4 billion worth of U.S. exports if the WTO upholds the EU
complaint.

What is striking about these complaints is that, unlike beef and
bananas, they are not for the most part about particular products
sold by identifiable firms. In most of them, the EU has alleged
little actual harm to European producers. Rather, they reflect an
effort by the Commission, backed with varying degrees of enthusiasm
by the member states, to use the WTO dispute resolution mechanism to
place the United States on the defensive and to gain leverage in more
substantive cases that the EU has lost. They reflect the complex and
politicized internal situation in the Union, as the member states,
industrial lobbying groups, and individual firms pressure the
Commission to lash out against external trading partners and to win
back in the dispute resolution process protections that the EU has
given up in trade negotiations. Legally and technically some of the
EU cases have merit--a fact that has been acknowledged in U.S.
efforts to comply with adverse rulings and in Executive Branch
efforts to blunt the implementation of U.S. laws that may be
problematic from a WTO perspective. Politically, however, the wisdom
of this wide-ranging assault on large swaths of U.S. law is
questionable--especially in view of the EU's large trade surpluses
with the United States, its own failure to comply with WTO rulings,
and the spotty record it brings to market enforcement within the
Union.

A fifth and final aspect of EU behavior that should be of particular
concern to U.S. officials is the emerging European posture on
globalization. Following the Seattle debacle, the Commission and key
member states have called upon the Union to assume a larger role in
"managing globalization." As they seek to sustain European
integration in the face of increased popular skepticism, European
leaders are presenting the EU as the optimum level to which citizens
should look in responding to the challenges of globalization.
Explicitly or implicitly, part of the message is that resisting or
shaping globalization is a task to be undertaken in opposition to the
United States. While few European leaders fall prey to crude
anti-Americanism, their statements reflect a growing temptation to
channel anti-globalization sentiment against the United States. The
tone is generally one of regret that, in a globalized world, America
alone is too big and too undisciplined to play by the rules that
everyone else recognizes must be observed. Meanwhile, Europe itself
is well on its way toward becoming a persistent violator of those
very rules, albeit in the name of such high-sounding principles as
precaution (food safety), multifunctionality (agriculture) and
diversity (culture).

There are, to be sure, countervailing forces that are working to
buffer these problems. Governments on both sides of the Atlantic are
committed in principle to open trade. The United States Trade
Representative and the Commission have pledged to work to resolve
disputes, and the two principals involved, Robert Zoellick and Pascal
Lamy, are said to enjoy a cordial personal and working relationship.
Non-governmental mechanisms, such as the Transatlantic Business
Dialogue and exchanges of legislators, can help to work through
problems. To the extent that standards can be harmonized bilaterally
or in bodies such as the oecd, regulatory clashes can be avoided. And
globalization presents opportunities for U.S.-EU cooperation as well
as temptations to political grandstanding. On balance, however,
guarded pessimism seems in order when it comes to assessing prospects
for U.S.-EU trade relations. Except under the most hopeful of
scenarios, the EU will be too big, too complex, and too conflicted by
soaring ambitions and crippling uncertainties to be other than a
difficult partner for the international community.

In characterizing the EU as a superpower but not a superstate, Tony
Blair was appealing to audiences in Britain by assuring them that
they could have the best of both worlds--retain their sovereignty and
enjoy the advantages of being part of a large and dynamic Union--even
as he sought to convince continental politicians of Britain's
commitment to Europe and its suitability for a leadership role. For
all its studied ambiguities and limited, pragmatic purposes, however,
Blair's phrase captured an important truth about the Union. In trade,
anti-trust, and foreign aid it already acts like a superpower, a role
that it is working to extend to monetary affairs, technology and
other areas. Internally, however, it lacks the strong central
executive and the uniformity with respect to policy and law that
characterize a nation-state.

For the United States and other countries, deciding how to respond to
the emergence of a political, economic and security entity that
exerts enormous external power but that is not organized like a
traditional nation-state will be a major challenge. In Washington,
the question of how to relate to the Union inevitably will be debated
in the context of U.S. support for European integration stretching
back to the Truman Administration. Although such support undoubtedly
has existed, it is important to stress that the United States was
never an uncritical backer of European integration. It came out of
World War II committed to a "universalist" approach to building a new
international order, one that rejected the special economic zones
associated with Imperial Preference and fascist autarky. Universalism
was embodied in the commitment to the most favored nation principle
in the General Agreement on Tariffs and Trade (GATT) and to universal
currency convertibility in the Bretton Woods system. It was only when
universalism failed to work in reviving Europe's economy, raising the
specter of communist takeovers, that the United States abandoned the
universalist approach and began to work with Europe on
region-specific responses to the crisis of that day.

The key point is that the United States was always attentive to the
content of European regional integration and how it related to U.S.
interests in the global system. When told about Robert Schuman's plan
for a coal and steel community, Dean Acheson was alarmed at what he
feared was a cover for "a gigantic European cartel." Only after these
concerns were mitigated did the United States mobilize support for
the community and the GATT waiver that it required. Washington later
backed the creation of the Common Market, but it never endorsed the
extension of trade privileges to overseas colonies and territories.
What the United States did not want were amorphous economic and
political arrangements that would set up difficult-to-combat economic
barriers against outsiders, without creating the core political
strengths that Washington desired out of European integration.

The European order that is emerging today--one that the United States
has been actively promoting--is in some respects the antithesis of
the one that Acheson and his successors worked to foster. With
open-ended enlargement, an increasingly differentiated and uneven
internal decision-making system, and a network of preferential trade
and political relationships that extends in all directions, the EU is
a far cry from the geographically and functionally well-defined
entity of the 1950s and 1960s. It is, as David Calleo and others have
noted, a hybrid confederal model that will take many years to work
out its internal constitutional dilemmas, and that is itself at risk
of becoming overextended to the point of total ineffectiveness.

Beyond how enlargement affects the internal functioning of the Union,
sheer size will at some point start to impinge on the global system
to the detriment of U.S. interests. In the 1950s the United States
sought to ensure that any regional group in Europe fit into a broader
global system governed by the GATT. Today one can hardly speak of the
EU as "fitting into" the WTO. It is, along with the United States,
the co-creator of that system and one of its major arbiters. With
further expansion of EU trade authority--through enlargement and
conclusion of special trade arrangements with other countries--there
is a sense in which the EU all but becomes the international trading
system, leaving the United States the odd country out.