U.S.-EU Trade, Investment Boom Even as Disputes Brew (Update1)
Bloomberg News
June 20, 1999, 7:51 a.m. ET
U.S.-EU Trade, Investment Boom Even as Disputes Brew (Update1)
(Adds Brittan, Santer at meeting.)
Bonn, June 20 (Bloomberg) -- When U.S. President Bill
Clinton and European leaders hold their twice-yearly summit
tomorrow, the room is likely to be filled with talk about beef
hormones, Internet privacy and other simmering trade disputes.
The heat and smoke of all that friction may obscure one
fact: Trans-Atlantic business is booming, with U.S. and European
Union companies buying, selling and investing more in each
other's markets than ever before.
Trade skyrocketed 43 percent to $326 billion from 1994 to
1998, while direct investment soared 45 percent to $846 billion
from 1994 to 1997, according to the U.S. Commerce Department.
The growing commercial links go a long way in explaining why
disagreements over food and other issues -- all of which amount
to less than 2 percent of the total trade between the regions --
keep surfacing, one official said.
''Our economies have gotten so intimate that I sometimes
visualize them as finely meshed gears,'' said Commerce
Undersecretary David Aaron. ''Even little issues, like fine
grains of sand in a gear box, can do a lot of damage.''
Megamergers between EU and U.S. companies have practically
become monthly events, with Daimler-Benz AG and Chrysler Corp.,
and Deutsche Bank AG and Bankers Trust Corp. among the household
names joining forces.
The value of U.S. companies' holdings in Europe ''would
represent the continent's fourth-largest economy,'' Aaron told
the U.S. Congress last week.
'Early Warning'
Clinton, German Chancellor Gerhard Schroeder, EU Trade
Commissioner Sir Leon Brittan and European Commission President
Jacques Santer will try to head off trade disputes by endorsing
an ''early warning system,'' among other measures. That calls for
the two sides to discuss pending regulations that could spark
disagreements before the rules go into effect.
Yet the problems are cropping up mainly in industries like
agriculture and aviation in which governments have the strongest
involvement, as well as where cross-border investment is limited.
In industries where government subsidies are limited and
corporate investment is mutual, the two markets are generally at
peace.
''We don't have any real complaints when it comes to trade
with Europe,'' said William Kelly, director of international
governmental affairs for Ford Motor Co. in Dearborn, Michigan.
''There is plenty of trade going both ways.''
And it's bound to grow even more with Europe's adoption of a
common currency, which will make it that much easier for U.S. and
European companies to do business across borders.
Think Like Europeans
Even some of the U.S. companies embroiled in well-publicized
battles say business in the EU is good.
Dole Food Co.'s bananas are at the heart of a trade fight
that resulted in the U.S. slapping 100 percent duties on EU
products to retaliate against discriminatory import rules.
Yet Dole has been relatively unscathed by the dispute, in
contrast to Chiquita Brands International Inc., which says it has
lost market share because of the EU import rules.
Dole's strategy: It has acquired European distributors and
begun to buy bananas in former European colonies given
preferential treatment under the EU rules.
''When we do business in Europe we look at ourselves as a
European company,'' said John Tate, Dole's chief financial
officer. ''Our management is European. We act, think and are
dealt with as a European company.'' Europe is Dole's second-
largest market, after the U.S.
United Technologies Corp. is another U.S. company in a spat
with the EU. Its Pratt & Whitney division makes the ''hushkits''
that faced a ban this year in the 15-country EU until the
Europeans backed down under pressure.
Fully 20 percent of the Connecticut company's $25 billion in
annual revenue comes from Europe, although largely through the
sale of Otis elevators and Carrier air conditioners, said Ruth
Harkin, senior vice president for international affairs.
Aviation presents a special problem because ''all
governments ... have an interest'' in the field, so they tend to
interfere, Harkin said.
Autos, Pharmaceuticals
Even so, U.S. exports of aircraft and space technology to
the EU rose 32 percent to $16 billion while imports from the EU
rose 38 percent to $6.4 billion.
Trade in other fields is thriving, too. U.S. imports of
pharmaceuticals from the EU rose 40 percent to $6.5 billion last
year while exports to Europe climbed 17 percent to $3.6 billion.
And U.S. auto exports to the EU rose 10 percent to $7.5 billion
while imports to the U.S. gained 18 percent to $22 billion.
A decline in the role of the government in the steel
industry has improved relations.
''Both industries now recognize they are in business to make
money, and that has lessened trade tensions,'' said Nicholas C.
Tolerico, executive vice president of Thyssen Inc. NA, a division
of Germany's Thyssen AG. The U.K., Italy, Spain and other
countries have sold off state-owned mills in the past 15 years.
Significantly, the U.S. and EU are having fewer squabbles
just as the U.S. steel industry is filing a battery of complaints
aimed at restricting imports from Asia, Latin America and Eastern
Europe. Few of the cases target Western Europe.
''We've been getting along well for the last three or four
years,'' Tolerico said. The two regions have ''found other things
to fight about.''
Bigger Clashes
To be certain, there's no shortage of fights, with the
biggest ones involving agriculture, processed food and beverages.
The EU has defied a World Trade Organization order to lift a
decade-old ban on imports of U.S. hormone-injected beef, saying
the meat may be carcinogenic.
The EU is restricting shipments of soybeans and corn grown
in the U.S. with genetically modified seeds. And for its part,
the EU says the U.S. went too far in restricting shipments of
European chicken, eggs and other foods when dioxin was discovered
in Belgian agricultural products.
European consumers are more suspicious about foods modified
by science because of the ''mad cow'' disease scare, which
resulted in 40 deaths and has undermined confidence in food
science, said Tassos Haniotos, the agricultural attache at the EU
mission in Washington.
Not Only Food
Food isn't the only issue. Aaron of the Commerce Department
frequently draws attention to the growing U.S. trade deficit with
the EU, which rose $10 billion to $27 billion last year.
And the two regions are locking horns over guidelines
governing online privacy, increasing the chances that companies
like America Online and Bell Atlantic Corp. could see transfers
of information on their European customers blocked if they don't
meet EU data privacy standards.
''We speak in different wavelengths,'' said Haniotos. ''For
the disputes to come under control, there has to be an
understanding that consumers are different in Europe. U.S.
producers have to adjust to the tastes and preferences of
European consumers.''
Mergers
Yet while U.S. and EU consumers may be far apart in their
tastes and concerns, their companies are becoming increasingly
intertwined.
British Petroleum Co. rang in the new year by completing its
$61.7 billion purchase of U.S. oil company Amoco Corp. Sweden's
Volvo AB sold its car unit to Ford for $6.5 billion and Germany's
Deutsche Bank has moved forward with plans to buy New York-based
Bankers Trust for $9 billion.
''The idea of putting a flag on a company is becoming
irrelevant,'' said Todd Malan, executive director of the
Organization for International Investment, which represents
foreign investors in the U.S., including Nestle SA, the Swiss
packaged-foods company, and Royal Philips Electronics NV of
Holland.
''As the business communities on both sides become more
integrated, it may be a reason for less friction.''
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