EU OPS QA

Order Code RS21372

Updated July 3, 2008

The European Union: Questions and Answers

Kristin Archick

Specialist in European Affairs

Foreign Affairs, Defense, and Trade Division

Summary

This report describes the European Union (EU), its evolution, governing institutions, trade policy, and efforts to forge common foreign and defense policies. The report also addresses the EU-U.S. and EU-NATO relationships, which may be of interest to the second session of the 110th Congress. It will be updated as events warrant.

For more information, see CRS Report RS21344, European Union Enlargement, by Kristin Archick, and CRS Report RL34381, European Union-U.S. Trade and Investment Relations: Key Issues, coordinated by Raymond Ahearn.

What Is the EU?

The EU is a treaty-based, institutional framework that defines and manages economic and political cooperation among its 27 member states (Austria, Belgium, Bulgaria, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands,Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom). The Union is the latest stage in a process of European integration begun after World War II to promote peace and economic prosperity in Europe. Its founders hoped

that by creating communities of shared sovereignty — initially in areas of coal and steel production, trade, and nuclear energy — another war in Europe would be unthinkable.

Since the 1950s, this European integration project has expanded to encompass other economic sectors, a customs union, a single market in which goods, people, and capital move freely, a common agricultural policy, and a common currency (the euro). Over the last decade, EU member states have taken significant steps toward political integration as well, with decisions to develop a common foreign policy and closer police and judicial cooperation.

How Does the EU Work?

The EU represents a unique form of cooperation among sovereign states; it has been built through a series of binding treaties. EU members work together through common institutions (see next question). The EU is divided into three “pillars;” subjects and decision-making processes differ in each. Pillar One is the European Community, which encompasses economic, trade, and social policies ranging from agriculture to education.

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In Pillar One areas, by far the most developed and far-reaching, members have largely pooled their national sovereignty and work together in EU institutions to set policy and promote their collective interests. Decisions in Pillar One often have a supranational character because most are made by a majority voting system. Pillar Two aims to establish a Common Foreign and Security Policy (CFSP) to permit joint action in foreign and security affairs. Pillar Three seeks to create a Justice and Home Affairs (JHA) policy to foster common internal security measures and closer police and judicial coordination. Under Pillars Two and Three, members have agreed to cooperate but decision-making is intergovernmental and by consensus. Thus, members retain more discretion and the right to veto certain measures.

How Is the EU Governed?

The EU is governed by several institutions. They do not correspond exactly to the traditional division of power in democratic governments. Rather, they embody the EU’s dual supranational and intergovernmental character:

! The European Commission is essentially the EU’s executive and has the sole right of legislative initiative. It upholds the interests of the Union as

a whole and ensures that the provisions of the EU treaties are carried out properly. The 27 Commissioners are appointed by the member states for

five-year terms. Each Commissioner holds a distinct portfolio (e.g., agriculture). The Commission represents the EU internationally and negotiates with third countries primarily in areas falling under Pillar One. However, the Commission is primarily an administrative entity that serves the Council of Ministers.

! The Council of the European Union (Council of Ministers) is comprised of ministers from the national governments. As the main decisionmaking

body, the Council enacts legislation based on proposals put forward by the Commission. Different ministers participate depending on the subject under consideration (e.g., economics ministers could convene to discuss unemployment policy). Most decisions are made by majority vote, but some areas — such as CFSP and taxation — require unanimity. The Presidency of the Council rotates among the member states for a period of six months.

! The European Council brings together the Heads of State or Government of the member states and the Commission President at least twice a year.

It acts principally as a strategic guide and driving force for EU policy.

! The European Parliament consists of 785 members. Since 1979, they have been directly elected in each member state for five-year terms under

a system of proportional representation based on population. The Parliament cannot initiate legislation like national parliaments, but it

shares “co-decision” power with the Council of Ministers in a number of areas, and can amend or reject the EU’s budget.

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! The Court of Justice interprets EU law and its rulings are binding; a Court of Auditors monitors the EU’s financial management. A number

of advisory bodies represent economic, social, and regional interests.

Why and How Is the EU Enlarging?

The EU sees enlargement as crucial to promoting stability and prosperity in Europe, and furthering the peaceful integration of the continent. The EU began as the European Coal and Steel Community in 1952 with six members (Belgium, France, Germany, Italy, Luxembourg, and the Netherlands). Denmark, Ireland, and the UK joined in 1973, Greece in 1981, Spain and Portugal in 1986, and Austria, Finland, and Sweden in 1995. With the

end of the Cold War, the EU saw an historic opportunity to extend the political and economic benefits of membership to central and eastern Europe. On May 1, 2004, the EU welcomed 10 states (Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia) as new members. Bulgaria and Romania completed accession talks in December 2004 and acceded to the Union on January 1, 2007. Accession negotiations establish the terms under which applicants will meet and enforce EU rules and regulations. Turkey was recognized as an EU candidate in 1999 but remained in a separate category for several years as it sought to comply with the EU’s political and economic criteria for membership. In October 2005, the EU opened accession talks with Turkey, but these are expected to take at least a decade to complete and have already encountered some difficulties. The EU has cautioned that thenegotiations with Turkey are an “open-ended process, the outcome of which cannot be guaranteed.” The EU also began accession talks with Croatia in October 2005. Macedonia was named as an EU candidate in December 2005, but no date has yet been set for the start of its membership talks.

What Was the EU Constitution and Why a New Reform Treaty?

In June 2004, the EU concluded work on a constitutional treaty that contained changes to the EU’s governing institutions and decision-making processes. Commonly referred to as the “constitution,” this new treaty grew out of previous EU efforts to institute internal reforms to enable an enlarged EU to function more effectively. The constitution also sought to boost the EU’s visibility on the world stage. In order to come into effect, the constitution had to be ratified by all member states through either parliamentary approval or public referendum. The constitution’s future was thrown into doubt following its rejection by French and Dutch voters in separate referendums in the spring of 2005. Reasons for its rejection varied, ranging from public unease with further EU enlargement to fears that it could lead to the creation of a European “superstate.” In December 2007, EU leaders approved a new reform treaty — the Lisbon Treaty — to essentially replace the proposed constitution. Although the term “constitution” was

dropped, experts say that the Lisbon Treaty preserves over 90% of the substance of the original constitution. Major innovations include appointing a single individual to serve as president of the European Council, creating a new chief EU diplomat position, and simplifying EU voting procedures. EU officials presented the Lisbon Treaty as a document that could be ratified by parliaments, thereby avoiding risky public referendums in most EU states, except Ireland, which was required by law to hold a public vote. In June 2008, Irish voters rejected the Lisbon Treaty. Irish opponents argued that it would

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reduce Ireland’s influence in the EU, undermine Ireland’s neutrality, and eliminate its ability to set its own tax rates. EU leaders have called on the ratification process to continue in other EU states, and have given Irish officials until October 2008 to propose a way forward. EU officials hope that the Lisbon Treaty will still be able to enter into force before the next European Parliament elections in the spring of 2009.

Does the EU Have a Foreign Policy?

The EU is seeking to build a Common Foreign and Security Policy (CFSP). Past attempts to further EU political integration foundered on national sovereignty concerns and different foreign policy prerogatives. But in 1993, EU members concluded that the Union must increase its weight in world affairs to match its growing economic clout. CFSP decision-making is dominated by member states; they develop common policies in areas in which they can reach consensus, and ensure that national policies are in line with agreed EU strategies and positions (e.g., imposing sanctions on Serbia). In 1997, EU leaders proposed creating a High Representative for CFSP; in 1999, they appointed Javier Solana, NATO’s former Secretary General, to the position, which is often referred to as “Mr. CFSP”. Many analysts credit Solana with boosting the EU’s visibility on the world stage, and with forging EU consensus on issues such as the Balkans and the Middle East peace process. Skeptics argue, however, that the EU is still far from speaking with one voice on other key foreign policy challenges. The European Commission also plays a role internationally, but should not be confused with CFSP or its High Representative. Benita Ferrero-Waldner, the External Relations Commissioner, coordinates the Commission’s

diplomatic activities and manages its aid to non-member states. The Lisbon Treaty, if approved, would combine the Ferrero-Waldner and Solana posts into a single position.

Does the EU Have a Defense Policy?

The EU is also attempting to forge a European Security and Defense Policy (ESDP) to give CFSP a military backbone. Momentum for this project picked up speed in 1998, when former UK Prime Minister Tony Blair reversed Britain’s traditional opposition to a European defense identity outside NATO; it intensified after NATO’s 1999 Kosovo air campaign exposed serious European military deficiencies. In December 1999, the EU decided to establish an institutional decision-making framework for ESDP and a 60,000-strong rapid reaction force by 2003 — able to deploy within 60 days for at least a year — to undertake the “Petersberg tasks” (humanitarian assistance, search and rescue, peacekeeping, and peace enforcement). In June 2004, the EU agreed to enhance ESDP through the creation of several “battlegroups” of 1,500 troops each that will be able to reach trouble spots, especially in Africa, within 15 days. EU forces will not form a standing “EU army”; troops and assets at appropriate readiness levels will be drawn from existing national forces in the event of an EU operation. The EU has created three defense decision-making bodies, but improving military capabilities has been difficult, especially given flat or declining European defense budgets. Serious capability gaps exist in strategic airlift, command and control systems, intelligence, and other force multipliers.

What is the Relationship between NATO and the EU?

The EU asserts that ESDP is intended to allow the EU to make decisions and conduct military operations “where NATO as a whole is not engaged;” ESDP is not aimed

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at usurping NATO’s collective defense role. Most EU NATO members, led by the UK, insist that EU efforts to forge a defense arm be tied to NATO, as do U.S. policymakers. Advocates argue that building more robust European military capabilities for ESDP will also benefit the alliance. The NATO-EU relationship was formalized in December 2002, which paved the way for the implementation in March 2003 of “Berlin Plus,” an

arrangement permitting the EU “assured access” to NATO operational planning capabilities and “presumed access” to NATO common assets. “Berlin Plus” was designed to help ensure close NATO-EU links, and prevent a wasteful duplication of resources. Since then, the EU has launched several crisis management missions in the Balkans, Africa, and elsewhere, with varying degrees of NATO support. Nevertheless, NATO-EU

relations remain somewhat strained. This is due in part to the differences in membership in both organizations and disputes between Turkey (a NATO member) and the EU. U.S. officials have also been wary that some EU member states, traditionally led by France, would like to build a more independent EU defense arm. New French President Nicolas Sarkozy, however, has taken a more pragmatic approach; he backs a strong ESDP, but has downplayed it as an alternative to NATO and supports closer NATO-EU cooperation.

Does the EU Have a Trade Policy?

Yes. EU member states have a common external trade policy in which the European Commission negotiates trade deals with other countries and trading blocs on behalf of the Union as a whole. The EU’s trade policy is one of its most well-developed and integrated policies. It evolved along with the common market, which provides for the free movement of goods within the EU, to prevent one member state from importing foreign goods at cheaper prices due to lower tariffs and then re-exporting the items to another member with higher tariffs. The scope of the common trade policy has been extended to include negotiations on services and intellectual property in some cases. The Council of Ministers has the power to establish objectives for trade negotiations and can approve or reject agreements reached by the Commission. EU rules allow the Council to make trade decisions with a weighted voting system, but in practice, the Council tends to employ consensus. The Commission and the Council work together to set the common customs tariff, guide export policy, and decide on trade protection or retaliation measures where necessary. The EU also plays a leading role in the World Trade Organization (WTO).

How Are U.S.-EU Trade Relations Doing?

The United States and the EU share the largest trade and investment relationship in the world. The value of two-way flows of goods, services, and income receipts from investment totaled $1.3 trillion in 2006. U.S. and European companies are also the biggest investors in each other’s markets; total stock of two-way direct investment reached $2.2 trillion in 2006. Most of this economic relationship is harmonious, but trade tensions persist. One key dispute relates to government subsidies that the United States and EU allegedly provide to their respective civil aircraft manufacturers, Boeing and Airbus. In 2005, U.S.-EU talks to diffuse confrontation over this issue failed, and both sides have revived their complaints in the World Trade Organization (WTO). U.S.-EU conflicts over hormone-treated beef and bio-engineered food products also remain. Many analysts note that resolving U.S.-EU trade disputes has become increasingly difficult, perhaps partly because both sides are of roughly equal economic strength and neither has

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the ability to impose concessions on the other. Another factor may be that many disputes involve clashes in different domestic values, political priorities, and regulatory systems.

Does the United States Have a Formal Relationship with the EU?

Yes. For decades, the United States and the EU (and its progenitors) have maintained diplomatic and economic ties. Washington has strongly supported European integration, and U.S.-EU trade and investment relations are extensive. The 1990 U.S.-EU Transatlantic Declaration set out principles for greater consultation, and established regular summit and ministerial meetings. In 1995, the New Transatlantic Agenda (NTA) and the EU-U.S. Joint Action Plan provided a framework for promoting stability and democracy together, responding to global changes, and expanding world trade. The NTA also sought to strengthen individual ties across the Atlantic, and launched a number of dialogues, including ones for business leaders and legislators.

Who Are U.S. Officials’ Counterparts in the EU?

At least once a year, the U.S. president meets with the president of the European Commission and the EU’s rotating presidency, represented by the head of government whose country holds it at the time of the meeting. For example, at the last U.S.-EU summit in June 2008, President Bush met with Commission President José Manuel Barroso and Prime Minister Janez Jansa of Slovenia, the presidency country during the first half of 2008. The U.S. Secretary of State’s most frequent interlocutors are the High Representative for CFSP, the External Relations Commissioner, and the foreign minister of the EU presidency country. The U.S. Trade Representative’s key interlocutor is the European Commissioner for Trade, who directs the EU’s common external trade policy. Other U.S. cabinet-level officials interact with Commission counterparts or member state ministers in Council formation as issues arise. Numerous working-level relationships between U.S. and EU officials also exist. A Delegation in Washington, DC represents the European Commission in its dealings with the U.S. government, while the U.S. Mission to the European Union represents Washington’s interests in Brussels.

How Do European Countries View the EU?

All EU member states believe that the Union magnifies their political and economic clout (i.e., the sum is greater than the parts). Nevertheless, the EU has always been divided between those members that seek an “ever closer union” through greater integration and those that prefer to keep the Union on an intergovernmental footing. For example, the UK has more frequently sought to guard its national sovereignty and, along with Denmark and Sweden, does not participate in the single European currency (the euro). Another classic divide in the EU falls along big versus small state lines. Small

states are often cautious of initiatives that they fear could allow EU heavyweights to dominate the Union. Another key difference relates to security postures; Austria, Finland, Ireland, and Sweden practice non-aligned foreign and defense policies, which sometimes complicates the formulation of common European positions in these areas. In addition, the recent rounds of EU enlargement to the east have brought in many new members with

histories of Soviet domination, which often color their views on issues ranging from EU reform to relations with Russia; at times, such differences have caused frictions with older EU member states and have slowed EU decision making.