EU Enlargement and the Transatlantic
Relationship
Ambassador Dr. Günter
Burghardt
Head of the European Commission Delegation to the United States
The Executives’ Club of Chicago
11 March 2004
Introduction
It is a great pleasure to be with you today in Chicago, a
city with longstanding economic and family ties to Europe. Chicago has a
famous history of immigration from all parts of Europe in continuous waves
during the past centuries. Many residents of Chicago have familial bonds
with the
new EU Member States of Central Europe, and
Poland
in particular, where my own ancestry is also based.
The soon to be realized enlargement of the European Union
and its implications for the transatlantic relationship are indeed very
happy reasons to return to the Executives’ Club, following my last visit
in 2001. I wish to thank again Kaarina Koskenalusta for her kind
invitation. Kaarina has already witnessed the accession of her native
Finland to the European Union in 1995, and I know that she has done much
to encourage transatlantic understanding in this important city. She will
now see Hungary, the country she represents, join the EU as well. I am
also grateful to Charles Sheehan, Consul General of
Ireland, which
currently holds the EU Presidency—as capably as before—for his
assistance in coordinating my visit, and to John Estey, President and CEO
of S&C Electric Company, for serving as chair of the international
committee.
We have much to discuss because EU Enlargement is truly a
historic step for Europe, with many benefits for the transatlantic
relationship.
EU Enlargement: State of Play
On May 1, 2004, only a few weeks from today, ten new
countries will join the EU as fully-fledged members. From the Baltics to
the Mediterranean, the eight Central European countries (Estonia, Latvia,
Lithuania, Poland, Czech Republic, Slovakia, Hungary and Slovenia) and
two Mediterranean island states (Cyprus and Malta) will increase the EU’s
population by more than 80 million, from 370 million to over 450 million,
expand its territory to one-and-one-half million square miles and nearly
double its official languages from eleven to twenty. In comparison, the
United States has a population of around 290 million with a territory of
3.7 million square miles and English as its common if not official
language.
To give you some idea of the magnitude of what EU
enlargement means politically, imagine a United States not just of the
current fifty states, but of ten sovereign nation-states stretching from
Canada’s Arctic Circle all the way down to the Panama Canal. I would not
wish to upset our hostess with such a federalist vision, having noted that
the formidable Margaret Thatcher is her heroine. Nor would I presume to
make a direct comparison between the US and the still undetermined outcome
of the EU’s ongoing constitutional process. That process is itself a
consequence of enlargement, addressing the logical concerns that the
political institutions of an EU extended to twenty-five would come to a
grinding halt, and aimed at keeping the process of European unity
resolutely on the path to a "sui generis" federation of nation-states.
Whatever terminology one wishes to use, however, the EU represents much
more than a Free Trade Area à la NAFTA or the recently concluded CAFTA
between the US and Central America.
To be comparable, NAFTA and CAFTA together would have to
require that all members are part of a fully-fledged customs, economic and
monetary union evolving toward political union. They would negotiate all
trade agreements, be they bilateral, regional or in the WTO, as one block.
All members would be subject to the same anti-trust and internal market
rules. And these rules would be administered by a supranational authority,
perhaps in the shape of a Guatemalan anti-trust czar headquartered in
Quebec. All members would also subject themselves to the ultimate
jurisdiction of a Joint North and Central American Court, interpreting
disputes based on a body of supranational law. That Court might still have
headquarters in Washington, but with only one American among the ten
justices, and perhaps a Mexican jurist presiding as Chief Justice. The
North and Central American House of Representatives, naturally based in
Miami, would include three times as many seats for Mexican delegates as
for those from California.
This may seem totally outlandish to most Americans, but
these and many other steps toward a more unified regional political and
economic entity are precisely what the enlargement of the European Union
entails. With entry into the EU, the ten new members will be represented
in all the European institutions through
Commissioners at the European
Commission, directly elected Members of the
European Parliament and their
governments will have seats and votes in the
European Council of
Ministers, the ultimate decision-making body of the EU. They will
immediately be part and parcel of the
decision-making process, enjoying
the same rights and obligations as the existing fifteen.
The fact that the new members represent some 20% of the
existing EU population, with only 5% of the actual GDP of those already
there, also indicates the magnitude and challenge of the undertaking. With
enlargement, the gap in income distribution within the EU25 will rise by
about 20%—twice as much as the increase when the EU took in Greece, Spain
and Portugal in the eighties. Much work has been done to prepare the new
members for accession—the EU has already spent the current dollar value
equivalent of two Marshall Plans on the accession process, with more
"structural" funding planned to assist new members to improve their
infrastructure and administrative capacities.
Beyond the 1 May enlargement to twenty-five members, negotiations
are continuing with
Romania and
Bulgaria with a view to these countries
joining in 2007. This year the Commission will also make a recommendation
to the European Council on
Turkey, assessing whether progress made in its
reform process will allow negotiations on accession to start sometime next
year.
These prospective further enlargements raise many
additional challenges. Let me illustrate that in the area of
agriculture. The ten new members joining on May 1 have in total four million farms, as
compared to nearly seven million in the current EU15, for a total of
eleven
million farms in the EU of twenty-five. By comparison, there are only a little more
than two million farms in the US. An EU of twenty-seven, with Romania and
Bulgaria, adds another five million for a total of about sixteen million farms.
Similarly, the numbers of people working in the
agricultural sector will grow considerably, from four percent of total
working population in the EU15, to five-and-one-half percent in the EU25, and seven-and-one-half percent in the EU27, again adding Romania and
Bulgaria. The comparable figure for the US is a little more than two
percent.
In dealing with these challenges, financial support within
the
Common Agricultural Policy in the EU of twenty-five will stay at about today’s
level for the EU15, while structural funding will be devoted to creating
employment and sustainable economic development in rural areas.
The door to eventual membership is also open to the
Balkan
countries. For Croatia, the process has already started, and if Zagreb
manages to meet the political criteria fully, negotiations on accession
may start soon. Macedonia would also have recently presented their
application were it not for the tragic air crash that took the life of
President Trajkovski.
Political Impacts of EU Enlargement
That is a thumbnail overview of the current state of EU
enlargement. What will this mean for the future of Europe and the
transatlantic relationship?
In a political context, EU enlargement is a historic step towards the long
cherished goal, on both sides of the Atlantic, of a Europe "whole, free,
at peace and growing in prosperity," as articulated by successive US
Presidents. After generations in which internal conflict in Europe posed
one of the most serious security threats to the United States, the Western
alliance and world peace, the unification of Europe by consent is a major
strategic prize for the US as well as Europe. EU enlargement ensures that
the democratic transition in Central and Eastern Europe is irreversible.
Projecting security and political stability east and south, the EU serves
not only its own security and geopolitical interests, but those of the
United States too.
The prospect of EU accession for Cyprus and eventually Turkey is also
contributing significantly to the easing and possible resolution of
disputes in the Eastern
Mediterranean, a longstanding security concern for
both Europe and the US. We have indeed seen very hopeful progress recently
in Cyprus, bringing the possibility of a negotiated solution to a
situation that since 1974 has often seemed intractable.
The enlarged EU, in the context of the EU’s developing
Common Foreign and
Security Policy and
European Security Strategy, will enable Europe to
become an even more effective international partner of the US in tackling
regional and global problems of mutual concern, from stabilizing the
Balkans and the Caucasus to dealing with instability in the wider
Middle
East and beyond, and tackling
terrorism,
proliferation of weapons of mass
destruction and
international crime.
As more and more countries seek closer and deeper
relations with the EU, and the question is raised of how far Europe’s
frontiers extend, full membership cannot be the only response on the menu.
That is why we have developed a “European Neighborhood” policy aimed at
creating an area of stability and prosperity—a ring of friendly countries
around the EU—stretching from Morocco all the way along the southern and
eastern Mediterranean up to Russia. With these countries we intend to
share everything except participation in our institutions, basing our
relations on a community of values and interests. The ultimate, long-term
aim is to extend to these countries the four freedoms on which the Union
is based—free movement of goods, services, labor and capital—in giving
tangible form to our commitment not to erect new barriers across Europe.
In May, the Commission will present a set of practical proposals to
further develop the substance of the European Neighborhood Policy, also
building on already longstanding policies to consolidate what is nowadays
referred to as the "Greater" or "Wider" Middle East.
Economic Impacts of EU Enlargement
That is the political side; what of the economic impacts?
As I have already noted, the GDP per capita of the ten new member states
on average is only about 35% that of the current fifteen. Looking to the
future, however, one can see the new members as potential engines of
growth. The accession countries have growth rates of between 5% to 8% of
GDP, far outstripping those of the current EU15, and are likely to do so
for the next decade. The new member states have also enjoyed an “accession
premium” with bonds trading at tighter spreads than equally rated
countries from other parts of the world. All of this has been well
understood by European, but also American, investors who have
significantly increased their presence in these countries anticipating
their accession, correctly evaluating the economic opportunities that
exist for these countries in an enlarged internal market.
By joining the European Union, the acceding countries also
become members of
Economic and Monetary Union. They are committed to
adopting the
Euro eventually, and steps are being taken in that direction.
But accession to the EU does not mean automatic adoption of the Euro.
Specific criteria must be met first, as laid out in the
Maastricht Treaty.
The new members will continue on a path of economic restructuring and
economic and policy convergence as part of the process of getting in shape
for the Euro—a process that is guided and encouraged by the Commission
and other EU institutions. It is likely that, by the end of the decade, in
a number of them the Euro will have replaced the national currency.
So what else does the EU enlargement imply for US
industries and business trading with the new Member States?
First – A larger and more open market: The EU represents the largest
single market in the world. Despite fears of our trading partners that the
creation of the EU Single Market in 1992 would lead to some kind of
"fortress Europe," the EU is now one of the most open trade areas in the
world. There are no more internal borders between the Member States and
goods imported into the EU at a customs office of any of the Member States
will be able to circulate freely throughout twenty-five countries. Equally,
companies producing in any of the new Member States can serve customers in
the entire EU without any impediments. The extension to the new Member
States of the EU’s external tariff alone will lead to a decrease of their
current average tariff of 9% to an average of 4%. In most cases, US
exporters will consequently enjoy lower tariff in their trade with the new
Member states.
Second – A single set of rules: Enlargement will extend the EU’s trade
policy regime to the new Member States. Thus, the present system whereby
US exporters are faced with various import regimes will disappear. The
enlarged EU will have a single set of trade rules, a single tariff system
and a single set of administrative and customs procedures.
Third – A more trade friendly regulatory environment with high standards:
The gradual adoption by the new Member States of norms and standards
developed in the EU started already a long time ago and should roughly be
completed by May 1. Higher standards in technical regulations and the
principle of "one standard for all," the highest protection of
intellectual property rights or strict subsidy disciplines are just a few
examples of the obvious advantages for US companies doing business with
the new Member States. Thus, they will be able to operate in the new
Member States under the same high level regulatory environment they are
already accustomed to when doing business in the current EU.
Fourth – A single voice: The enlarged EU will speak with one voice in its
bilateral and multilateral trade relations. The new Member States will
apply the commitments undertaken by the EU in its trade relations with
third countries in international fora, such as the WTO, or with its
partner countries, such as the US. This applies notably to a number of
bilateral EU-US agreements, such as on mutual recognition of standards and
conformity assessment procedures, on co-operation on Customs and
competition issues and the arrangement of regulatory co-operation. As of
May 1, US industry, investors and exporters will benefit from these
agreements also in their trade relations with partners in the new Member
States.
As a consequence, some technical adjustments in the existing framework for
bilateral and multilateral trade relations were necessary:
-
The bilateral investment treaties concluded between some
new Member States and the US were modified in order to ensure that US
investors enjoy a similar investment environment but no premium on EU
investors in all Member States.
-
Existing import quotas maintained by the EU, notably in
the agricultural sector, are adjusted to take into account trade flows
between the new Member States and third countries.
-
The present EU tariffs levels will apply also in the new
Member States. In areas where such alignment could result in higher
tariffs applicable to imports into the new Member States, the EU, fully
respecting its WTO obligations, is already engaged in discussions with its
main trading partners to determine the level of possible compensation. As
these areas are, however, very limited, the EU expects that trade partners
will quickly realize that the positive consequences of enlargement will by
far exceed any negative impact.
-
The new Member States will automatically be
part of the WTO Government Procurement Agreement through the existing EU
membership in this important agreement, opening up further government
procurement markets.
Enlargement will thus further strengthen the crucial
nature of the overall transatlantic economic relationship. The combined EU
and US GDP is around 60% of the world total on a market exchange rate
basis, while we constitute only around 10% of the world’s population.
Together, we command 40% of world trade, and our bilateral economic
relationship is worth just short of $3 billion per day in trade of goods,
services and foreign direct investment. Even more important is our
cumulative mutual investment stake in each other’s economy. In 2000,
Europe’s investment stake in the US represented 75% of all European
investment abroad and roughly 60% of all foreign direct investment in the
United States. Meanwhile, the US investment stake in Europe grew to
roughly half of all US investment abroad. In 2001, this investment yielded
half of all foreign earnings for US companies.
The totally interdependent nature of our economies
requires that we work closely together in dealing with a variety of
regulatory issues, including those related to the financial securities
industry so important to Chicago. Particularly in those areas where we may
be competitors, it is vital to establish common rules of the road to bring
down regulatory or other hurdles that prevent valid competition. While I
realize it was not without controversy, the agreement on the entry of
Eurex into the US will foster greater efficiency in the marketplace.
The benefits of the transatlantic relationship most
definitely extend to
Illinois, squarely focused on the greater Chicago
area. Illinois exported six billion dollars in goods to the EU in 2002,
representing 23% of your total exports, and making the EU your largest
export market beyond North America. Europe is also by far your largest
source of foreign direct investment. As of 2001, European investment
amounted to more than 26 billion dollars or 54% of total direct investment
in Illinois. Taken together, the US Department of Commerce estimates that
European trade and investment supports nearly 250,000 jobs in Illinois,
largely in highly skilled and well-paid sectors.
Conclusion: Win-Win for the EU and the Transatlantic
Relationship
To conclude, I should not hide the fact that EU-US
relations have navigated a particularly difficult period. However, that
should not obscure the larger truths of our common future, based on common
interests, common goals and all that we have accomplished together in the
last fifty years.
Put simply, EU enlargement to Central Europe would not have been possible
without the longstanding support of the United States for European
integration. In fact, it represents a substantial dividend on that
support, with the EU now taking responsibility for peace and stability in
its own neighborhood and increasingly beyond.
Some have expressed concern that the new member states
might be tempted to curry favor with the US at the expense of their
allegiance to the EU—this modified version of a
"Trojan horse" strategy
was en vogue at many think tank discussions in Washington during the
Iraq
war. And, prompted by the rather rash statements of some officials, it was
also linked to a kind of new division in Europe, not between the East and
West, but between the "old" and "new." Such thinking is based on an
entirely false assumption. It is rather like being forced to choose
between being a fan of either baseball or football, a choice that I am
sure would not be popular in the land of the Chicago Cubs and the Chicago
Bears.
It discounts formal obligations all member states have
towards each other under the European Common Foreign and Security Policy,
and it ignores the impact of participation within the EU institutions and
EU policies upon new member states. It also ignores the obvious point
that, despite occasional policy differences, the EU as a whole is
committed to the transatlantic relationship and furthering our global
partnership with the US. EU membership and Atlanticism are fully
compatible.
I hope, in turn, that our US partners will seek to engage more effectively an enlarged and even more capable European Union in addressing the many
regional and global challenges that we face today. That said, I also
recognize that this is a transition year both in Europe and in the US,
with much focus on elections here and there and, in Europe, the
appointment of a new European Commission. While we can do much good work
together this year, as in
Afghanistan and hopefully Iraq, as well as in
the ongoing fight against terrorism elsewhere, just to name a few
examples, we may have to wait until 2005 before attempting a strategic
review of our relationship. When that review takes place, however, I
firmly believe we must base our cooperation on a partnership of equals,
with full consultation and mutual respect. This would constitute yet
another welcome enlargement—that of the transatlantic partnership—and
provide the basis for a second half-century of great accomplishment.
Thank you very much.
