European Affairs

European Affairs

Spring 2000

 

The Need for a Transatlantic Early Warning System
by David L. Aaron

At the beginning of the 21st century, the United States and Europe share an unprecedented relationship. During the latter half of the 20th century we successfully defeated the Soviet threat through the collective security efforts of NATO.

We led in the creation of today's global economic prosperity that has seen average per capita income around the world double, production quadruple and international trade grow by 15-fold since the early 1950s.

But as the media have copiously documented, economic and trade relations between the United States and Europe have become increasingly acrimonious. We are at odds over everything, from bananas to beef, from aircraft engines to data privacy.

For many decades, security cooperation was seen as the bedrock of the US relationship with Europe. Our economic ties, however, were no less fundamental. Not only did our economic relationship buttress NATO, but it led to the multilateral institutions we have built together since World War Two.

The World Bank, the IMF, and GATT - now the WTO - are overwhelmingly US and European creations. Tariffs between the US and Europe have fallen by 90 percent over the past half-century. Together, we have set standards of market access, intellectual property rights and dispute resolution that have spread around the world, and formed the basis for today's bounty of international commerce.

But today, the transatlantic relationship is at a difficult time. The unity forged in a common struggle against the Soviet Union is fading. Worse, deepening economic conflict, combined with stresses arising from Europe's continued transformation, has reached the point where our traditional political and security bonds could be adversely affected.

The US record on political and security cooperation with Europe, partly through the EU but primarily through NATO, speaks for itself. But today our transatlantic relationship is being tested by continuing, accelerating, and deepening economic disagreements that range from the ridiculous to the dangerous.

It is easy to draw up a list of almost 30 issues between us. Among the most prominent are bananas; aircraft noise; genetically modified foods and biotechnology; beef hormones; data privacy; dumping; airbus subsidies; US sanctions policies; discrimination against US businesses as the EU enlarges; EU standards and regulatory barriers; the EU attack on our Foreign Sales Corporation program; and a plethora of differences over launching a new trade round in the WTO.

The list is longer this year than it was last year, and last year's list was longer than the year before. The institutions that we have created to deal with these issues - both the transatlantic institutions and the WTO - have somehow been incapable of containing our growing conflicts.

When we analyze our economic problems, it is important to keep two points in mind. First, the economic arena is the only one in which the United States and Europe openly compete. This inevitably produces clashes, while it also brings the benefits of competition.

Second, our economic ties with Europe are broad and deep. Our economies, in fact, are so closely bound together that they can be visualized as finely meshed gears. Even small difficulties, like grains of sand in a gearbox, can cause terrible noise and even wreck the machinery.

More and more, these issues are technical, regulatory, tax-related or an escalation of a smaller dispute. Just as often, the motivation on both sides can be positive: to protect the environment, or human health or even individual liberties.

Unfortunately, this does not keep conflicts from doing damage to our economies, our relations, or the international institutions we have created. What can be done? Two recent conflicts hold lessons for reducing our differences: aircraft noise and the regulation of the emerging digital economy.

Europe is crowded with airports. Its skies are full of aircraft until all hours of the night. It has a serious aircraft noise problem just as we do in many cities in the United States. Unfortunately, the EU's answer was to adopt regulations that did nothing to curb noise, but did discriminate against US equipment.

In April 1999, the EU Council adopted a regulation that would ban the use in Europe of replacement engines and "hushkits" - essentially jet engine mufflers - that reduce aircraft noise. This equipment would enable older planes to meet new international noise limits.

As it turned out this rule did nothing to reduce noise - noisier equipment could grow without limit. And, interestingly, the ban on "hushkits" affected only US products. Orders for US equipment dried up; the value of US fleets dropped.

The overall cost to the US aviation industry has been estimated at $2 billion. Moreover, the ban was a unilateral act that undermined the principle of international civil aviation rules, which are crucial to a global industry like aviation. For these reasons, we fought hard against this rule.

As of this writing, it is possible that we can soon resolve this issue. But if not, we will pursue our case at the International Civil Aviation Organization (ICAO) under Article 84 of the Chicago Convention on Civil Aviation.1

In 1998, the EU's Directive on Personal Data Protection went into effect with very little consultation outside the EU. This directive requires the EU to determine the adequacy of data protection in other countries and to shut off data transfers to countries whose practices are not deemed adequate.

One can imagine the implications of such a cutoff for transatlantic commerce, which depends on hundreds of thousands, if not millions, of data transfers each day. It would certainly jeopardize at least a portion of the hundreds of billions of dollars in trade and investment between us each year.

Evidently the authors of the directive shared the insularity of the 19th Century English newspaper that headlined, "Fog in the Channel, Continent Isolated." Today it would be "Fog in the Atlantic, America cut off."

In order to avoid this cutoff, we have initiated a high level dialogue with the goal of ensuring the free flow of data between the United States and the EU. After two years of negotiations, we have achieved tentative agreement that will protect European data without crippling the transatlantic economy, in particular electronic commerce. The question is whether the EU member states and their independent privacy czars will accept it.

No system of data protection will be perfect, including the one the Europeans have now. Rapidly changing technology and consumer protection will require constant improvements. But we have to start somewhere. If we do not succeed now, it could be years before the issue is solved. In the meantime, European data would have less protection and Europe's effort to encourage the information economy would be undermined.

What lessons can we draw from these examples? First, that we often get into difficulty because by the time we are aware of these problems, the train has left the station. EU legislation on both hushkits and data privacy was passed before we had any chance to discuss the possible effects on our trade relations. There was little outside input or transparency.

Both US and EU officials agree that it is necessary and desirable to have some procedure, an "early warning system" to head off disputes before they become intractable. But we have not made much progress on defining a process for resolving the disputes. We need now to take the next step. We should seek a US-EU agreement on an effective early warning system that would include the following four elements:

It is important to develop this system soon. For the second lesson is that we can no longer assume that economic issues are so secondary that they are of little consequence to our political and security relationship.

With the end of the Cold War and the rise of globalization, trade and commercial issues matter. We have to accord them the priority, and to apply the creativity that formerly was given to political and military challenges so that our future will be even more secure and prosperous than the past.