“Trade And Investment: An American Perspective” By G. Hufbauer And F. Neumann

DEPARTMENT OF ECONOMICS JOHANNES KEPLER UNIVERSITY OF LINZ

Issues of US-EU Trade Policy
by

Wilhelm Kohler*) Working Paper No. 0203 May 2002

Johannes Kepler University of Linz Department of Economics Altenberger Strasse 69 A-4040 Linz - Auhof, Austria

*)

corresponding author: wilhelm.kohler@jku.at

phone +43 (0)70 2468 -8239

Issues of US-EU Trade Policy
by Wilhelm Kohler (#)Department of Economics Johannes Kepler University Linz May 2002

Comment on

“Trade and Investment: An American Perspective” by G. Hufbauer and F. Neumann “Old and New Issues in EC-US Trade Disputes” by André Sapir Transatlantic Perspectives on the US and European Economies: Convergence, Conflict and Cooperation
CBG, Kennedy School of Government, Harvard University Conference, April 11-12,2002

(#) Address: Altenberger Strasse 69, A-4040 LINZ-AUHOF Phone: 0043-732-2468-8239, FAX: — 8238, E-mail: wilhelm.kohler@jku.at Web: http://www.economics.uni-linz.ac.at/members/kohler This note is based in part on research conducted under a research grant by the Austrian Science Fund: "Public Finance, Unemployment and Growth", grant no. P14702.

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Introduction

A critical look athistory is an important, if not indispensable element of any attempt to evaluate future risks and opportunities. This also holds true for policies aimed at trade and investment relations between the US and Europe. The two papers by Hufbauer/Neumann and Sapir provide differently focused accounts of the history and significance of EU/US trade disputes, juxtaposed with some empirics of trade and foreigninvestment. I find them very illuminating, interesting to read, and thought-provoking. I see no immediate policy proposal on US-EU trade and investment issues that can be drawn from their analyses, but in my view that is a virtue: They make us think further, instead of jumping to quick conclusions and swift action. I start off with a brief interpretation of what I see as the main messages of the twopapers, before presenting some complementary evidence, as well as critical remarks and developing a few ideas of my own. Hufbauer/Neumann portray an empirical picture according to which US/EU trade flows and foreign investment show signs of mature stability. In the 1990s, cross-atlantic trade and investment have been rising in line with general economic globalization, but there is little indicationof dramatic change. This is not to say there are no opportunities to miss. Indeed, Hufbauer/Neumann stress that there is significant scope for mutual gains from further liberalization. Moreover, even though there was no landslide-type change in the 90s, I will show below that a closer inspection of their data does reveal a few interesting developments that are worth pointing out. As regards tradeconflicts, a principal message is that they generally affect only a relatively small portion of existing impediments. But again, this does not say that such conflicts are inconsequential. For various reasons — some of which are also stressed by Sapir — bilateral EUUS conflicts are important much beyond their quantitative significance. In particular, they are instrumental in propelling or impedingcooperation between the two Unions, and they are of vital importance also through their signaling effect to third countries, and to the world-tradingsystem as a whole. In their analysis, Hufbauer/Neumann propose a categorization which distinguishes market access disputes from industrial policy conflicts, and sets these two apart from a third category of dissent which lies in the realm of ideology. Marketaccess disputes are characterized by a relatively low policy-profile, and by direct reliance on the WTO-DSM (dispute settlement mechanism). According to Hufbauer/Neumann, they have little potential to disrupt trade in any fundamental way. Trade disputes may, however, also extend into the realm of industrial policy which gives them a higher policy profile, while at the same time making them less...