Order Code RS21372
Updated March 7, 2005
CRS Report for Congress
Received through the CRS Web
The European Union: Questions and Answers
Kristin Archick
Specialist in European Affairs
Foreign Affairs, Defense, and Trade Division
Summary
This report provides answers to key questions related to the European Union (EU).
It describes the EU’s evolution, its 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. It will be updated as events warrant. For more information,
see CRS Report RS21344, European Union Enlargement, and CRS Issue Brief
IB10087, U.S.-European Union Trade Relations: Issues and Policy Challenges.
What Is the EU?
The EU is a treaty-based, institutional framework that defines and manages
economic and political cooperation among its 25 member states (Austria, Belgium,
Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece,
Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland,
Portugal, 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.
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
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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 25 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 decision-
making 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 732 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.
! 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.

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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 U.K. 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 negotiations in December 2004 and hope to join the EU
in 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 December 2004, the EU agreed to
open accession talks with Turkey in October 2005, provided that Turkey continues to
make progress on reforms and extends its customs union to the EU’s 10 new members,
including Cyprus. Turkey’s membership talks are expected to take at least a decade to
complete, and the EU has cautioned that the negotiations are an “open-ended process, the
outcome of which cannot be guaranteed.” In June 2004, the EU named Croatia as another
candidate, and Macedonia has also applied for EU membership.
What Is the EU “Constitution”?
In July 2003, European officials finished work on a draft “constitution” that merges
the EU’s four existing treaties into a single document and lays out new proposals for
institutional reform. This draft “constitution” — or constitutional treaty — was produced
by the 105-member Convention on the Future of Europe, which had been charged with
overhauling the EU’s institutions and decision-making processes to enable an enlarged
EU of 25 or more members to function effectively. The Convention also sought to boost
the EU’s visibility on the world stage and the Union’s democratic legitimacy. In October
2003, the EU convened an Intergovernmental Conference to debate the Convention’s draft
“constitution” and to codify any alterations of the EU’s functions. After some contentious
debates, EU leaders concluded work on this “constitution” in June 2004. It must now be
ratified by all EU members; thus the “constitution” will probably not take effect until
2006 at the earliest. Some member states will hold public referenda on ratification, which
could prove controversial in states with significant numbers of Euro-skeptic voters.
Many of the provisions in the new “constitution” represent compromises between
big and small states, and between states that favor greater EU integration and possibly an
eventual, federal “United States of Europe,” and those that prefer to keep the Union on
an intergovernmental footing in which members can better guard their national
sovereignty. Major innovations include abolishing the EU’s rotating presidency and
appointing a single individual to serve as president of the European Council for up to five
years, creating a new foreign minister, and simplifying EU voting procedures.

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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, such as Iraq.
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 EU “constitution,” if approved, would
combine the Ferrero-Waldner and Solana posts into a single EU foreign minister 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 and provide member states with more tools for dealing
with future crises. Momentum for this project picked up speed in 1998, when U.K. 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 further 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. Some members believe that the EU should develop
a combat capability equivalent, for example, to NATO’s role in the 1999 Kosovo conflict.
But EU forces will not form a standing “EU army”; rather, 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
at usurping NATO’s collective defense role. Most EU NATO members, led by the U.K.,

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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. France — the other key driver of ESDP — would prefer a more
autonomous EU defense arm. The EU and NATO hold regular meetings at ambassadorial
and ministerial level. In December 2002, the EU and NATO resolved a long-running
dispute between Greece and Turkey that had been holding up final agreement on “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. With “Berlin Plus” in place, the EU took over a small NATO peacekeeping
operation in Macedonia from March to December 2003. In December 2004, the EU took
over the NATO-led force in Bosnia. An EU planning cell will soon be established at
NATO headquarters and NATO liaison officers will be stationed at the EU.
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 since been
extended to include negotiations on services and intellectual property. 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, with annual two-way flows of goods, services, and foreign direct investment
exceeding $1.1 trillion, and total stock of two-way direct investment reaching over $1.6
trillion. Most of this economic relationship is harmonious, but trade tensions persist. The
EU welcomed the repeal of the U.S. export tax subsidy in October 2004, and ended trade
sanctions in January 2005 imposed on the basis of a WTO ruling; the EU remains
unhappy, however, with parts of the U.S. legislation that leave the tax breaks in place for
contracts already signed on aircraft and other heavy goods U.S. exports may also face EU
retaliation for the Byrd Amendment, which disburses anti-dumping duties to affected
domestic producers. Meanwhile, Washington has lodged a WTO case against the EU’s
ban on approvals of genetically-modified products, and a U.S.-EU trade dispute over beef
hormones also remains. At the same time, the United States and the EU have been
working to diffuse confrontation in the WTO over government subsidies for their
respective aircraft manufacturers, Boeing and Airbus. 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 the ability to impose

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concessions on the other. Another factor may be that many disputes involve clashes in
different domestic values, political priorities, and regulatory systems. Nevertheless, fears
of an all-out trade war are usually exaggerated.
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 regular U.S.-EU
summit in June 2004, President Bush met with then-Commission President Romano Prodi
and Prime Minister Bertie Ahern of Ireland, the presidency country during the first half
of 2004. 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 — such as Germany — that seek an “ever closer union” through
greater integration, and those that prefer to keep the Union on an intergovernmental
footing. For example, the U.K. 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. For instance, smaller states initially resisted
abolishing the EU’s rotating presidency in favor of an appointed individual because they
worried it could mean a loss of influence and equal standing for them. 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.

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