2007 European Union Report 

UNITED STATES BARRIERS TO TRADE AND INVESTMENT FOR 2006

issued February 2007

Traditionally, the focus of trade negotiations has been on reducing tariff barriers. As they have come down, attention has switched increasingly towards non-tariff barriers. These barriers range from regulatory inconsistencies across the Atlantic to complex issues such as sanitary and phytosanitary measures, state-level impediments and import prohibitions amongst others. Reduction of existing regulatory barriers to trade and investment - and preventing new ones emerging - would have a positive impact on the competitiveness of EU and U.S. companies and economies.

Regulatory barriers are increasingly recognised as significant impediments to trade and investment between the EU and the U.S. A particular problem in the U.S. is the relatively low level of use, or even awareness, of standards set by international standardising bodies. EU exporters to the U.S. market face steep regulatory barriers. In the U.S., products are increasingly being required to conform to multiple technical regulations regarding consumer protection (including health and safety) and environmental protection. Although in general not de jure discriminatory, the complexity of U.S. regulatory systems can represent an important structural impediment to market access as in the case of pharmaceutical approval. Other obstacles for European exporters, such as the American Automobile Labelling Act, documentary and labelling requirements for textiles as well as restrictions regarding the distribution and marketing of wines and spirits refer to regulatory barriers in the form of labelling requirements. Concerning pressure equipment, it is not uncommon that equipment for use in the workplace is subject to U.S. Department of Labor certification, a county authority’s electrical equipment standards, specific regulations imposed by large municipalities, and other product safety requirements as determined by insurance companies. Furthermore, conformity assessment procedures and testing requirements have proven to be very burdensome for European companies.

This situation is aggravated by the lack of a clear distinction between essential safety regulations and optional requirements for quality, which is due in part to the role of some private organisations as providers of assessment and certification in both areas. For instance, this is the case for product-safety requirements and other standards for electrical and electronic equipment as well as construction products. Moreover, for products where public standards do not exist, product safety requirements can change overnight when the product liability insurance market makes a new assessment of what will be required for insurance purposes. Furthermore, U.S. Coast Guard Regulations and technical requirements of the Environmental Protection Agency (EPA) for recreational marine pose considerable technical barriers to the European shipbuilding industry. Differences in standards and food safety requirements between the U.S. and the EU are moreover exemplified by the export conditions for Grade A milk products as well as provisions for organic products under the National Organic Program of 2001.

A more integrated and streamlined transatlantic regulatory environment would have a positive impact on the competitive potential of EU and U.S. companies, given the fact that the latter are also highly integrated. Reinforced regulatory cooperation is therefore important to help dismantling existing regulatory barriers and preventing new ones from arising. Recent efforts include the development of the 2002 voluntary EU-U.S. Guidelines for Regulatory Cooperation and Transparency and the recent 2005 Roadmap for EU-U.S. Regulatory Cooperation (also see the latest report). Moreover, the High Level Regulatory Cooperation Forum to facilitate regulatory dialogues established by the Transatlantic Economic Initiative at the June 2005 EU-U.S. Summit met on two occasions in 2006. Although progress is being made by EU-U.S. regulatory cooperation, EU exporters continue to face a number of post-import impediments. The proliferation of regulations at State level presents particular problems for companies without offices in the U.S. Moreover, the EU-U.S. Agreement on Mutual Recognition, in force since 1 December 1998, has not been fully implemented.

There is a lack of recognition of the EU as a customs union; the direct consequence is non-acceptance of EU certificates of origin by U.S. Customs. Serious questions are also raised by the reluctance of the U.S. Bureau of Customs and Border Protection’s of the Department of Homeland Security (CBP) about foreign participation in the Customs-Trade Partnership Against Terrorism (C-TPAT) scheme. The cost burdens and discriminatory effect on European exporters that arise as a consequence shows this is an issue that needs to be addressed within the framework of the Transatlantic Economic Initiative.

Similarly, the Container Security Initiative (CSI), launched to counter potential terrorist threats to the international maritime container trade system, is causing additional costs and delays in shipments from the EU to the U.S. Further similar burdens are to be expected from the implementation of the 2006 Security and Accountability For Every (SAFE) Port Act, and in particular the Secure Freight Initiative. The implementation of the food-related provisions of the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (Bioterrorism Act) puts severe burdens on trade in food and feed products to the U.S. The U.S. Code, Title 46, Section 12108 and the American Fisheries Act of 1998 represent considerable shipping restrictions for fishermen as foreign-built vessels are not eligible to receive a fishing licence. U.S. rules of origin for textiles continue to affect European exports of fabrics, scarves, bed linen, table linen, bedspreads as well as quilts containing cotton and wool.

There are more than 2,700 State and municipal authorities in the U.S. that require particular safety certifications for products sold or installed within their jurisdictions. These requirements are neither transparent, nor uniform or consistent with each other. Individual States also sometimes set subfederal procurement rules going far beyond what is provided for at federal level. Agricultural and food imports, such as restrictions regarding the distribution and marketing of wines and spirits, product-safety requirements and other standards for electrical and electronic equipment, are also often confronted with additional state-level requirements.

EU exports face a number of additional customs impediments, such as import user fees and excessive invoicing requirements on importers, which add to costs in a similar way to tariffs. The most significant user fee is the Merchandise Processing Fee, which is levied on all imported merchandise except for products from the least developed countries, from eligible countries under the Caribbean Basin Recovery Act, the Andean Trade Preference Act, U.S. FTA partners, or from U.S. Offshore possessions. Another significant user fee has been created under the Medical Device User Fee and Modernization Act of 2002. Contrary to their U.S. counterparts, Small and Medium-sized Enterprises (SMEs) from the EU are unable to apply for reductions and reimbursement of the fees charged. In a similar way, the Harbour Maintenance Tax is levied in all U.S. ports on waterborne imports at an ad valorem rate of 0.125%. In the area of textiles, a specific “cotton fee” is charged to provide money to raw cotton producers (for advertisement purposes). In the area of shipbuilding, the U.S. applies a 50% ad valorem tax on non-emergency repairs of U.S.-owned ships outside the U.S. (Section 466 of the Tariff Act of 1930). The U.S. levies two taxes/charges in particular on the sale of cars in the U.S. Both the Corporate Average Fuel Economy (CAFE) payment and the so-called Gas Guzzler Tax – which place the tax primarily on imported cars – are of concern to European automakers.

The right of sovereign nations to take measures to protect their essential national security interests has been widely recognised by multilateral and bilateral trade agreements and, of course, particularly since the events of 9/11. However, it is in the interest of all trade partners that such measures are prudently and sparingly applied. Restrictions to trade and investment cannot be justified on national security grounds if they are, in reality, essentially protectionist in nature and serve other purposes. Under Section 232 of the Trade Expansion Act of 1962, U.S. industry can petition for the restriction of imports from third countries on the grounds of national security. The application of Section 232 is however not dependent on proof from industry. Consequently, the law provides U.S. manufacturers with the opportunity to seek protection on the grounds of national security, when in reality the aim can be simply to curb foreign competition. In addition, the chemicals sector is affected by import restrictions for certain drug precursor chemicals. Similarly, the Jones Act uses national security reasons to prohibit the use of foreign vessels.

In the area of fisheries, the Marine Mammal Protection Act of 1972 establishes significant import prohibitions. While the EU wholeheartedly supports the protection of marine mammals, particularly dolphins; it rejects certain provisions – not directly related to animal protection –which may impede trade.

In the agricultural area, a number of sanitary and phytosanitary (SPS) issues remain a significant source of difficulty for the EU. Most notable amongst these are the problems encountered in trading animal products. For example, U.S. measures are prohibiting imports from the EU of bovine animals (based on BSE concerns) and beef. The Veterinary Equivalence Agreement, signed on 20 July 1999, made progress in particular regarding the recognition of the animal health status of EU Member States.

There are promising signs to expedite this recognition process in a near future (Classical Swine Fever, Exotic Newcastle Disease, Swine Vesicular Disease) although the full implementation of Article 6 of the Veterinary Equivalence Agreement has not been assured yet.

Some of these trade barriers are adversely affecting exports of beef, certain matured pork meat products and meat preparations from EU Member States. Also Grade A milk products (milk, cream, fermented dairy products, etc) are largely forbidden entry into U.S. territory. The Veterinary Equivalence Agreement provides a framework to work towards the recognition of mutual equivalence of EU and US sanitary standards in these areas, but the pace of these discussions is very slow. Other SPS-related exist for plant health cover imports of fresh fruits, perennials and nursery stock as well as standards and certification of ornamental plants established in growing media and propagation material (including vitis-wine plants).

U.S. import permits are required for new non-manufactured agricultural products. The time between applying and inclusion on the list of approved products can take several years, even when other products from the same area of production with the same phytosanitary risks are permitted (this concern also applies to the conclusion of Pest Risk Analyses (PRA) by the U.S. authorities). Difficulties have been noted for fruits as well as for plants, although they are even more explicit for plants. In addition, provisions of the Bioterrorism Act represent a barrier for European imported perishable products with a limited shelf life.

In the field of public procurement, the main U.S. trade barriers are contained in a wide array of clauses in federal, state and local legislation and regulation giving preference to domestic suppliers or products, or excluding foreign bidders or products altogether. In addition, there are federal restrictions on the use of federal grant money by State and local government. These restrictions are called “Buy America” (Buy America Act or BAA). Taken together, these restrictions, such as the "Buy America" provisions of the Department of Transportation (DoT), cover a significant proportion of public purchasing in the U.S. However, as the U.S. International Trade Commission noted in its 2004 report: The Economic Effects of Significant U.S. Import Restraints, the complexity and partially overlapping nature of existing restrictions make it nearly impossible to determine the total value of government-purchased imports subject to these restrictions. Regarding development aid, restrictive provisions for U.S. Food Aid purchases and transportation require that at least 75% of tonnage is transported on vessels carrying the U.S. flag. Moreover, on a significant number of sectoral issues, "Buy American" restrictions are imposed for ball and roller bearings, on electrical and electronic equipment and are the legal basis of local content requirements for steel in public procurement cases.

Another practical limitation lies in the lack of transparency related to sub-federal procurementopportunities. Unlike the EU - where all tender notices for central and sub-central procurements are published on a single electronic site free of charge (the TED data base) - only U.S. federal notices are published on a single electronic site (fedbizopps.gov). This situation effectively hinders foreign suppliers’ access to sub-federal procurement markets. Potential bidders do not know where to look for relevant procurement opportunities and/or information relating to sub-federal purchases.

Despite the fact that the WTO Government Procurement Agreement (GPA) substantially increased tendering opportunities for both sides, the EU remains concerned about the wide variety of discriminatory "Buy America" provisions that persist. Small business set-aside schemes, exemplified by the Small Business Act of 1953, also limit bidding opportunities for EU contractors. Extraterritorial subfederal selective public procurement laws restrict the ability of EU and other companies to do business with specific countries if - at the same time - they wish to bid for contracts in various U.S. States and cities. There have been further efforts within U.S. Congress to add restrictions to foreign procurement in the context of the annual authorisation and appropriations process. Some of the proposed amendments raised concerns as to their compatibility with the WTO GPA.

The Department of Defense (DoD) also has significant procurement expenditures that exclude foreign suppliers of goods or services. The DoD is the largest public procurement agency within the U.S. government, spending billions of dollars annually on supplies and other requirements. Many procurements fall under “national security” exceptions to open procurement obligations. The concept of “national security” was originally used in the 1941 Defense Appropriations Act to restrict DoD procurement to U.S. sourcing. Now known as the “Berry Amendment”, its scope has been extended to secure protection for a wide range of products only tangentially-related to national security concerns.

There has been a trend towards making the DoD’s other domestic preferences, apart from the BAA, less restrictive by expanding them to qualifying countries which maintain reciprocal memoranda of understanding (MoU) with the U.S. In practice, all North Atlantic Treaty Organisation (NATO) countries (except Iceland), all major non-NATO allies of the U.S. such as Australia and New Zealand as well as Sweden, Finland and Austria have signed MoUs with the U.S. allowing for a waiver of the corresponding restrictions.

The Commercial Space Act of 1998 applies national security restrictions to space launching services.These restrictions, which initially applied to the launch of military satellites, are now also applied on national security grounds to satellites for civilian use. The measures are part of a set of co-ordinated actions to strengthen the U.S. launch industry and are clearly detrimental to European launch service providers. European operators remain effectively barred from competing for most U.S. government launch contracts which account for approximately 50% of the U.S. satellite market.