VideoThe GMO Monster Tomato Tour kicked off last November in Brussels, outside the European Council building. During the following month, members of the environmental group Friends of the Earth Europe rolled the giant inflatable fruit around the continent, with stops in Paris, Madrid, and Budapest, among other cities. Problems in Warsaw with the air compressor aside, the tomato's menacing visage helped the environmentalists send a clear message to the world: Keep genetically modified food out of Europe.
That message resonates over there. Europeans, it seems, are far less sanguine than Americans about eating genetically modified organisms (GMOs) — so much so that the European Union banned GMOs until last month. That squeamishness prompted the United States to file suit against the EU in the World Trade Organization last May.
"This is not a classical 20th century trade dispute," argues Maria Aranzazu Gonzalez Laya, trade spokesperson for the European Commission. "It's a 21st century trade issue. It's about values, it's about what is risky and what is not risky."
Indeed, the GMO quarrel may signal a new stage in transatlantic trade relations. As obvious trade barriers such as tariffs, quotas, and subsidies fall, left standing are more complex obstacles — differing regulatory regimes, standards, and values.
Such issues may prove to be much more intractable than tariffs. And that's troubling. With the ebb of Cold War cooperation and the rise of Iraq War fractiousness, trade has been touted as the glue that holds the United States and Europe together.
Indeed, U.S. and EU trade representatives often downplay such trade disputes as representing only a small fraction of the transatlantic total. The bilateral trading relationship between the United States and the EU, which is about to add 10 more nations to the fold, is by far the largest in the world.
But the GMO spat and other disputes — especially ones that reflect a sense of national identity — are political tinder boxes. And they threaten to ignite during election years, like this one. That means they represent a greater threat to business stability than numbers would otherwise suggest.
Conventional Battles
Even on traditional trade issues, relations between the United States and the EU are at an all-time low. "I've been more worried about that relationship [with Europe] than any other one we have," says William A. Reinsch, president of the National Foreign Trade Council, a Washington, D.C.-based lobbying group for U.S. multinationals. "The EU has been very aggressive about complaining — even in situations where they are hard-pressed to demonstrate they have been hurt."
Since the WTO was founded in 1995, the United States has initiated more disputes — 75 — than any other country. And it has won most of them, as plaintiffs generally do. Three years ago, its role as free-trade crusader was epitomized when it won a contentious battle over the EU's banana tariffs. Since then, however, the United States has been uncharacteristically passive about initiating claims. As a result, it has more often been the defendant, and, thus, the loser.
Reinsch is critical of this failure to "assert our rights," which he says creates the impression that the WTO is skewed against the United States. "Now we pay the price in this raft of cases against us," he huffs. The United States has recently lost several cases in which the EU challenged American trade laws, particularly those dealing with dumping (see "Dumping Gets the Byrd," at the end of this article). In two of those cases, the WTO ruled that U.S. law went overboard in punishing foreign companies for trading violations. And in two other notable wins for the EU, the WTO ruled that U.S. laws provided unfair advantages to U.S. corporations.
The most publicized of these was the dispute over steel tariffs, imposed in March 2002 by President Bush, who cited U.S. law giving him power to provide temporary aid to industries suffering from imports. Although WTO rules also allow such actions, most observers agree that the U.S. steel industry's woes were of its own making, and that the tariffs were transparently protectionist. The EU immediately filed a complaint, and the WTO declared the tariffs illegal in March 2003. Facing the threat of $2.2 billion in retaliatory sanctions from the EU — as well as complaints from domestic steel-consuming industries — the Bush Administration withdrew the tariffs at the end of last year.
Two months ago, the EU began imposing trade sanctions as the result of a long-simmering dispute over a tax break for U.S. exporters. The Foreign Sales Corporation (FSC) tax law, passed in 1984, provided a tax exemption for a portion of the income U.S. companies earned from export transactions conducted through foreign subsidiaries. The law was intended to help U.S. companies — which pay taxes on income earned overseas — compete with European businesses, which tend to be taxed only on income earned within their country's borders. But the EU challenged the FSC law in 1998, and in March 2000, the WTO ruled that the FSC amounted to an illegal subsidy. Congress replaced the law with the Extraterritorial Income Exclusion Act of 2000 (ETI Act), but that too failed to pass muster with the WTO. Since then, U.S. lawmakers have been divided over how to remedy the situation (see "A Taxing Dispute," CFO, August 2003).
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