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U.S. Representative to EU Morningstar on U.S.-EU Relations

U.S. Representative to EU Morningstar on U.S.-EU Relations

Richard Morningstar, U.S. representative to the European Union, spoke January 23 in Brussels to the EU Committee of the American Chamber of Commerce Plenary Session on the current state of U.S.-EU relations and the main challenges in the years ahead. Source: Washington File (EUR 104), U.S. Department of State, Brussels, Belgium January 29, 2001.

Political and security cooperation between the United States and the European Union is strong, Morningstar said, and the Bush administration will, like the Clinton administration, support the European Security and Defense Policy (ESDP) "as long as it is developed in a way that strengthens NATO."

"The critical question on ESDP is whether the EU will be able to deliver on its commitment to building improved capabilities," he said. "The fear that the Clinton administration had, and the fear that the new National Security Adviser to the Bush administration [Condoleezza Rice] shares, is not that Europe will do too much, but that it will do too little."

On the issue of national missile defense, Morningstar said he hoped friends and allies in Europe will listen to the "strong case" the United States has to make.

Beyond these issues, he said, the United States and the European Union have had "excellent" cooperation in several areas of common concern, such as "our approach to Russia and the Ukraine... our joint efforts at peacekeeping and economic development in Southeast Europe, and... our agreement to re-start our dialogue on global energy concerns."

While trade relations between the United States and Europe are "sound," Morningstar said, the growing number and severity of disputes are "beginning to overshadow the rest of the relationship" and have the potential to harm the multilateral trading system.

He focused at length on U.S. concerns about Europe's proposed support for the new Airbus A380 aircraft. There is "a real opportunity for us to take a more constructive approach to settling our [trade] disagreements," Morningstar said.

"The WTO Dispute Settlement Mechanism should be used only as a last resort," he said, urging bilateral and multilateral negotiations and consultations in order to "avoid a confrontation that would cause serious problems" in the U.S.-EU relationship.

"If the EU will agree to discuss the terms with us, we can work together to find a way to finance this project that does not run afoul of the EU's international obligations and does not throw us into another major trade dispute."

Following is the text of his remarks: (begin text)

Ambassador Richard Morningstar's Remarks to the EU Committee of the American Chamber of Commerce Plenary Session, Brussels, January 23, 2001.

Thank you, it is good to be at another EU Committee event. I first want to take this opportunity to congratulate Maja Wessels on her election as the new EU Chairperson and to thank Keith Chapple for all the work he has done to make the EU Committee one of the most influential groups in Brussels.

I also want to thank the entire EU Committee for keeping me and the Mission up-to-speed on all of the important developments within the EU. We have formed a very close and productive relationship. The work you do is extremely valuable and your organization does a superb job of representing the interests of your members here in Europe.

Today I want to talk a little bit about the current state of the US-EU relationship and look ahead to some of the main challenges we will face in the future. Our relationship has been through a lot during the short time I have been here. The nature of our relationship and the nature of my job has changed dramatically. Before I took this job the US Ambassador to the EU dealt almost exclusively with trade issues. But that has changed - I now spend half of my time on political and security issues. The USEU mission now works with our NATO mission on a daily basis.

The EU is trying to evolve into a global political actor and our relationship is evolving to reflect this. With Javier Solana and Chris Patten, the US now has people we can call upon when we want to engage the EU on political and security issues. This should eventually allow the US and the EU to present a more unified and coherent approach to foreign policy.

Of course, the EU's internal evolution is not complete -- getting 15 Member States to speak with one voice is not easy, and it will only get more difficult with enlargement. And as you would expect, US and EU objectives and interests don't always align themselves perfectly. Nevertheless, the political and security cooperation between the US and the EU is strong and we hope to make it even stronger in the future.

A big part of the EU's evolution into a global player depends upon the successful development of the European Security and Defense Policy, or ESDP. The Clinton Administration supported Europe's efforts to develop the military capabilities needed to undertake limited peacekeeping and crisis management tasks. We saw it as a way to strengthen NATO and bring about a more balanced and effective partnership. The Bush administration will support it as well, as long as it is developed in a way that strengthens NATO. As former Secretary of Defense Cohen said, if ESDP is not done right, it threatens to make NATO a relic of the past. I don't think anybody in the Bush administration wants that to happen.

The critical question on ESDP is whether the EU will be able to deliver on its commitment to building improved capabilities. The fear that the Clinton administration had, and the fear that the new National Security Adviser to the Bush administration shares, is not that Europe will do too much, but that it will do too little.

National Missile Defense will be another important issue the EU and the US will have to address together in the near future. President Bush has said that he plans to move ahead on NMD. The US must be prepared to lay out in a clear and convincing way that the threats from weapons of mass destruction are real, that this system will work, and that it can be cost effective. I know Secretary Powell has said he is prepared to discuss this with our allies and with other non-proliferating countries. I hope our friends and allies in Europe will listen. We have a strong case to make.

Beyond these two issues, we will continue to have many opportunities to cooperate with each other on areas of common political concern: our approach to Russia and the Ukraine, for example; and our joint efforts at peacekeeping and economic development in Southeast Europe, and more recently, our agreement to re-start our dialogue on global energy concerns. Our cooperation on all of these issues has been excellent.

We will continue to work together to address global concerns such as terrorism, drug trafficking, cyber crime, AIDS and the environment. It is becoming increasingly clear that on these kinds of global issues, progress can only be made when the US and the EU find ways to work together. US-EU agreement may not be sufficient in every case, but it is almost always necessary.

Before moving into the economic and trade side, I again want to stress that the US genuinely wants the EU to be a strategic global partner - one we can work closely with to address political, security and economic issues of common concern around the world. But being a global player means the EU will have to take on global responsibilities - this requires financial resources and political will. We hope they can deliver on both.

Now to the economic side of our relationship. I will, as I always do, start with the rather saccharine remark that despite our trade disputes the US-EU trade relationship is sound. The vast majority of our $1 Trillion two way trade and investment is unaffected by disputes. And it is quite natural for us to have disputes in a commercial relationship this vast.

That said, we have to recognize that the stakes are rising. Our inability to resolve our list of disputes, which are growing in both number and severity, is beginning to overshadow the rest of the relationship and has the potential to harm to multilateral trading system we both support. And, unfortunately, in the view of the public, these disputes have come to define the relationship.

It is imperative upon us, as the two largest economies in the world and the largest trading partners in the world, to do a better job of managing our trade relationship. We have to understand that what we do together has implications far beyond just our own relationship. The US and the EU must provide leadership in maintaining and strengthening the multilateral system. We have to set a positive example for the rest of the world to follow. I think we can do that by working to improve the WTO and, at the same time, exercising caution in the way we use the WTO dispute settlement mechanisms.

The US and the EU are strong supporters of the WTO and the rules based trading system it represents. But trade disputes, now more than ever, involve sensitive political issues such as food safety, environmental protection, and tax policy. Every country has its own political issues and this makes resolution of our disputes increasingly difficult. We have to make every effort to resolve these kinds of disputes through bi-lateral and multilateral negotiation and consultation mechanisms that take into account political, as well as legal, economic and scientific considerations. The WTO Dispute Settlement Mechanism should be used only as a last resort.

I think there is a growing consensus among business and government leaders on this point. We attended the TABD in Cincinnati recently and we heard this message loud and clear from the business community. We understand that you are the ones that get caught in the middle of our retaliations and counter retaliations and that you want us to find a better way to solve our disagreements. It is important that you continue to send that message, if this is what you believe.

I think the US and the EU have a shot at doing a better job right now. The issue of Europe's proposed support for the new Airbus A380 aircraft presents a real opportunity for us to take a more constructive approach to settling our disagreements. The Airbus controversy has been the front-page story for several weeks now. The disagreement centers around the terms of the government financing for the A380.

I want to make a couple of important points: First, the US government is not trying to stop production of the A380. If Airbus makes a better plane than Boeing then Boeing will have to respond to that -- the market will make the choice and reward the winner. Neither are we saying that European governments, and especially those in the Airbus consortium, can't support Airbus. We recognize that Airbus is a European symbol and that Europe wants to support it. Our main concern is that the terms of that support comply with the EU's international obligations.

During the Uruguay round the US and the EU negotiated excruciatingly- detailed agreements covering government subsidies. The underlying rationale for those negotiations was that governments should not be allowed to provide unfair advantages to their companies through the use of subsidies. This agreement, the 1994 Subsidies Code, as it is now called, applies in full to the civil aviation industry. The EU itself has explicitly agreed that it does.

Furthermore, it is clear from recent WTO decisions, dealing with very similar civil aviation issues, that the subsidies code prohibits the granting of financial support on terms that do not provide for a commercial rate of return. If Airbus receives government financing on terms more favorable than it could have negotiated in the private capital market, it has received a prohibited subsidy.

We have long believed that Airbus was a fully mature and competitive company that no longer needs preferential government financing. In 1999 Airbus surpassed Boeing in the number of new plane orders for the first time. This is hardly the performance of an infant in need of special help. Airbus should now operate in the same commercial marketplace that Boeing has operated in for years.

The US and the EU have held consultations recently to discuss this. We have requested information from the EU on the terms of the financing of the A380. This request is not meant to interfere with the EU's right to determine the method of financing for the A380. Our intention is simply to try to avoid a major blow-up in our relationship. We are concerned that once the terms of the financing have been decided upon it will be too late to discuss them - they will be set in stone. And if the EU does as it has in the past, and provides financing to Airbus at below-market rates of return, we could be facing a very large and highly contentious fight in the WTO.

However, that doesn't have to be the path we take. If the EU will agree to discuss the terms with us, we can work together to find a way to finance this project that does not run afoul of the EU's international obligations and does not throw us into another major trade dispute.

So far the EU's only real response has been to threaten a counter-claim in the WTO alleging that we grant indirect subsidies to Boeing through Defense Department and NASA contracts and R&D work.

That is going to be a difficult argument to win. The nature of the defense and civil aerospace industries has changed dramatically. BAe Systems, the British aerospace company and Airbus shareholder, is one of the Pentagon's largest customers. In fact, BAe has more defense sales than Boeing and it sells more to the US Defense Department than it sells to the UK Ministry of Defense. And if you combine BAe systems with EADS, the French, German and Spanish aerospace consortium, their total defense business exceeds Boeing's.

Furthermore, in order to gain approval from the EU for its merger with McDonnell-Douglas, Boeing has agreed to license all US Government funded patents which could be used in commercial aircraft -- thereby allowing any competitor to use those patented products. And in fact, some products that have resulted from US funded R&D work have ended up on Airbus planes before they got onto Boeing planes.

What all of this means is that if Boeing has benefited from government spending, so has Airbus. The difference is that on top of this, Airbus has received billions [thousands of millions] of dollars in direct, production based, low-cost government financing and Boeing has not received a penny.

Now, you will hear EU officials make repeated reference to the 1992 US-EU Agreement on Civil Aircraft. This 1992 agreement is applicable and it does provide part of the US and the European Union's international obligations when it comes to civil aviation. But the 1992 agreement does not take precedence over the 1994 Subsidies Code -- they both apply.

Our question is why can't we at least try to sit down and talk about ways we might be able to resolve this issue and avoid a confrontation that would cause serious problems in our relationship. We may not be able to avoid it, but we should at least make the effort to try. The political and economic stakes involved in this case are simply too great not to.

Before I take questions, I know that you are interested in how the new Administration is going to address some of these issues. I think it is too soon to tell. But I will say that I don't anticipate significant changes. Our international political, security and economic interests and objectives will remain largely unchanged. We may, however, see some differences in approach to tackling some of these issues.

Obviously, the Bush administration will inherit a long list of US-EU trade issues. Bob Zoellick, the new US Trade Representative, knows Pascal Lamy well. Personal relationships can certainly help, but both sides will have to show flexibility. Some of our issues are close to being resolved but there are serious hurdles to overcome and negotiations could derail again, as they have in the past.

On issues such as biotechnology and climate change we will have to keep working together to resolve our differences. And on the FSC, we will soon know whether the replacement legislation is WTO compliant -- if it isn't we will have a major item to deal with this spring or summer. And as I mentioned, charges and counter charges over civil aircraft issues could develop into an even bigger challenge for the transatlantic relationship.

On the political and security side, NMD and ESDP will certainly be matters that will require careful consultation and dialogue. Certainly, Colin Powell and Donald Rumsfeld are up to the job. There will be no change in our position that Europe is, and always will be, our strongest ally. We will continue to work closely together to address political and security issues of common concern in Europe and around the world.

I think I will leave it there and take some questions. Thank you.

(end text)

 

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