By Paul Nathanson, Senior Vice President and Managing Director, PBN-USA

In Washington, DC, EU expansion is being met with optimism, trepidation, curiosity and indifference -- depending upon to whom you are talking.

It's almost a daily occurrence in Washington to attend a conference or read a research report on the issues of outsourcing, trade issues with China and even intellectual property protection. However, unlike in the capitals of Europe, conferences "inside the beltway" on the implications of EU expansion are few and far between. This reflects the USA-centricity of our policy makers and opinion leaders. Imagine the global frenzy that would result if the United States and Mexico agreed to form a full economic and political union -- which would be equivalent in terms of demographic, geographic, economic, political and social integration to the recent EU enlargement.

Despite the lack of public policy "buzz" in Washington, the merger of "New Europe" with "Old" (as some in the Bush Administration might say) has profound implications for some industry sectors in the United States. As recently reported in USA Today, EU expansion will immediately result in the U.S. poultry industry losing 3% of its export market costing U.S. farmers $50 million. The 10 new members of the EU will no longer be importing U.S. poultry since the EU banned US poultry exports in 1996 because of chlorine used by U.S. farmers.

Trade Disputes Grow Larger

The EU and the United States are each other's largest trading partners, accounting for 40 percent of the world's trade. Yet in the past several years, EU-United States disagreements over trade have reached a fever pitch. The EU led the successful efforts to declare President Bush's imposition of steel tariffs in 2002 a violation of U.S. WTO obligations, threatening $3 billion in retaliatory tariffs against U.S. exports. Together with pressure by domestic U.S. steel consumers, the EU's stance heavily influenced President Bush's decision to terminate the tariffs in 2003.

The 10 countries new to the EU will now be joining in these trade disputes against the United States. For example, the EU is threatening to impose retaliatory sanctions against the U.S. for other WTO violations, including the FSC/ETI Tax Law, a provision of U.S. tax law that allows U.S. companies to exclude their foreign source income from tax, and the Byrd Amendment, which funnels dumping duties collected by the U.S. government to the U.S. companies that file the trade petition. The collective weight of 25, rather than 15, countries imposing trade sanctions against the United States carries even more might.

But So Do Opportunities

Despite these trade disagreements, EU expansion -- and the reintegration of Europe -- brings tremendous opportunities for U.S. companies. The U.S. enjoys close relations with all 10 new members and U.S. investment in these countries already exceeds $150 billion. From Microsoft to U.S. Steel, U.S. companies have made major commitments in the 10 new European countries and will benefit greatly from standardized rules, regulations and tariffs.

Rockwell A. Schnabel, U.S. ambassador to the EU, expressed the thoughts of many U.S. business leaders about EU enlargement: "By bringing these 10 new states in as full members, the EU is extending a zone of peace, stability, democracy and prosperity to a part of the continent that just 15 years ago enjoyed none of those things," he said. "That's good for them, it's good for Europe as a whole, and it is good for the U.S."

Email Paul: paul.nathanson@pbnco.com