THE US IRAQ CONTRACTS BAN COULD BE THE MOMENT OF TRUTH FOR THE EU

In case we forgot, the US Administration, which unilaterally took the decision to invade Iraq, now unilaterally has taken the decision to decide which countries can provide assistance to help reconstruct the country. To make matters worse, White House spokesman Scott McClellan, who reacted yesterday following considerable amount of world criticism after the announcement by the Pentagon, said that nations that wanted to be eligible for a slice of the reconstruction money could do so by participating militarily. 

The European Commission said yesterday it was investigating whether a US decision to exclude Iraq war opponents from bidding for contracts to rebuild the country meets world trade rules. 

"We are now going to start looking into the 26 contracts in order to make sure that limitations to competition for these public procurement contracts to certain countries is compatible with World Trade Organization rules," European Commission spokeswoman Arancha Gonzalez said. 

As strange as this may sound, it appears to us that this newly developing political crises between the US Administration and the EU could be the best thing that happened to the EU.  For one it could provide the incentive for the EU member states to get their act together on a variety of issues, including the new Constitution and a strong role by the Commission in coordinating foreign policy, based on majority vote.  It also comes at a very opportune moment, as the leaders of the European Union member states will be coming together this weekend to discuss the new European Constitution.

Chris Patten, the European Union's external-relations commissioner, told the European Parliament the rift over Iraq threatens the bloc's common foreign policy with long-term paralysis. He also warned the United States that this war in Iraq without the proper United Nations backing would not be legitimate and that the EU would find it difficult to finance post-conflict reconstruction in Iraq without such UN authorization.  

Addressing the European Parliament in Strasbourg, Patten traced the EU's woes to the unwillingness of the bloc's member states to give the European Commission a coordinating role in foreign policy or to abide by majority votes when decisions are made.

Patten said the problem is far from new, pointedly quoting from a speech he had given in Paris nearly three years ago: "The EU's problems have never been more evident than over the last few miserable weeks, which have also amply illustrated what I said three years ago in Paris that: 'All member states should acknowledge what those actually doing the work of the EU's common foreign and security policy have long understood, that mere intergovernmentalism is a recipe for weakness and mediocrity, a recipe for a European foreign policy of the lowest common denominator. That will become more and more obvious as the union takes in new members." 

Also speaking in Strasbourg, the president of the European Commission, Romano Prodi, said that EU member states have "an obligation to give proof of loyalty and mutual solidarity" in their foreign-policy decisions. Prodi said the EU member states on the UN Security Council have a "particular requirement" to coordinate their actions and defend the interests of the bloc

In the context of retaliatory measures, the US Administration hopefully is aware that the EU and the US both account for around one fifth of each other’s bilateral trade, a matter of euro 1 billion (exchange rate euro 1 = $1.21 ) a day. In 2002, exports of EU goods to the US amounted to euro 240 billion (17.7 % of total EU exports), while imports from the US amounted to euro 175 billion ( 24.2 % of total EU imports).

When we look at investments we see that the links in this area are even more substantial. The EU and US are each other’s largest trade and investment partners. The total amount of 2-way investment amounts to over €1.1 trillion, with each partner employing about 4 million people in the other. The share of EU investment in the US amounted to more than 52% of EU foreign direct investment over the period 1998-2001 (euro 162.663 mio a year in average), while US investment in the EU amounted to more than 61% of EU FDI inflows over 1998-2001 (euro 72.041 mio a year in average).  

The two economies are interdependent to a high degree. Close to a quarter of all US-EU trade consists of transactions within firms based on their investments on either side of the Atlantic. The transatlantic relationship defines the shape of the global economy as a whole, as either the EU or the US is also the largest trade and investment partner for almost all other countries

Being the largest players in global trade, the EU and US are therefore committed to a politically and economically significant co-operation agenda, be it on bilateral issues or in the multilateral framework of the WTO. 

The motives of the US Administration by issuing this statement on the reconstruction of Iraq are very clear and the EU must respond in kind. Unfortunately this issue is not only about Iraq, but really about the existence and validity of the EU as an independent player on the world scene.