Order Code RS22163
Updated April 6, 2006
CRS Report for Congress
Received through the CRS Web
The United States and Europe: Current Issues
Kristin Archick
Specialist in European Affairs
Foreign Affairs, Defense, and Trade Division
Summary
The United States and Europe share a long and intertwined history. Both sides of
the Atlantic face a common set of international concerns, have few other comparable
partners, and share a deep economic relationship. Nevertheless, numerous foreign
policy and trade conflicts have seriously challenged U.S.-European relations in recent
years. This report examines the current state of the transatlantic relationship and key
issues that may have implications for U.S. interests during the second session of the
109th Congress. It will be updated as events warrant. Also see CRS Report RL32577,
The United States and Europe: Possible Options for U.S. Policy, by Kristin Archick.
The Current State of U.S.-European Relations
The Ties that Bind. The United States and Europe share a long and intertwined
history. The two main pillars of the modern transatlantic relationship — NATO and the
European Union (EU) — were created in the aftermath of World War II to deter the
Soviet threat and to promote prosperity, security, and stability in Europe. The U.S.
Congress and successive U.S. administrations have strongly supported both organizations
as means to foster democratic states, reliable military allies, and strong trading partners.
Many observers stress that the security and prosperity of the United States and
Europe remain inextricably linked, even after the end of the Cold War. Both sides of the
Atlantic face a common set of challenges — from countering terrorism and weapons
proliferation to ensuring the stability of global financial markets — and have few other
comparable partners. Proponents of close U.S.-European ties argue that neither the
United States nor Europe can adequately address such diverse concerns alone, and the
track record shows that they can accomplish much more when they work together. U.S.
and European forces are promoting stability in the Balkans and Afghanistan. U.S. and
European law enforcement authorities have sought to intensify police and judicial
cooperation since September 11 to root out terrorist cells in Europe and elsewhere. The
United States and EU also share a mutually beneficial, increasingly interdependent trade
and investment relationship, and U.S.-EU cooperation has been critical in making the
world trading system more open and efficient.
Congressional Research Service ˜ The Library of Congress

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A Relationship Challenged. Despite the shared history, similar interests, and
close economic ties, the transatlantic partnership has been fundamentally challenged in
recent years as numerous trade and foreign policy disputes have emerged. Although
Europeans are not monolithic in their views, most states object to at least some elements
of U.S. policy on a range of issues, including Iraq, the Israeli-Palestinian conflict, the
treatment of prisoners at Guantánamo Bay and Abu Ghraib, aircraft and export tax
subsidies, and climate change. European arms sales to China have also surfaced as a
point of tension in the transatlantic relationship.
Some observers argue that recent U.S.-European frictions have been driven by
personality and style differences among U.S. and European leaders. Many Europeans
viewed the first-term Bush Administration as inclined toward unilateralism and largely
uninterested in Europe. At the same time, analysts also blame some European leaders for
the recent difficulties; they suggest, for example, that French President Jacques Chirac
and former German Chancellor Gerhard Schroeder expressed their opposition to the war
in Iraq recklessly, without due consideration for the broader transatlantic relationship.
Other experts stress that the current tensions in U.S.-European relations are deeper
and structural, set in motion by the end of the Cold War and the September 11 terrorist
attacks. Such structural changes include different policy preferences for managing threats
and the U.S.-European defense capabilities gap. Europe’s own bloody history has led
many European governments to place great emphasis on the use of multilateral
institutions to address international crises and legitimize force. Meanwhile, the United
States views this approach as only one option, especially after September 11. And some
U.S. officials see little value in trying to bridge U.S.-European policy gaps given the
limited abilities of most European countries to contribute significantly to U.S. military
operations to counter terrorism or weapons proliferation, especially outside of Europe.
Another structural factor affecting U.S.-European relations is the EU’s evolution.
Since the end of the Cold War, EU members have moved beyond economic integration
and taken steps toward political integration with decisions to develop a common foreign
policy and defense arm. Although these initiatives remain works in progress, they have
come further and faster in recent years than many EU skeptics expected. The EU has
established new political and defense decision-making bodies, and has succeeded in
forging consensus on common policies on the Balkans, the Middle East peace process,
and Iran, to name a few. The EU has also led several crisis management missions in the
Balkans, Africa, and elsewhere. Some observers suggest that the EU’s apparent progress
to date in the foreign policy and defense fields has given the Union a new self-confidence.
EU members are increasingly assessing foreign policy decisions with an eye toward
establishing a larger role for Europe on the world stage. EU members consult with each
other on foreign policy concerns to a greater degree than ever before, and often before
consulting Washington. As a result, Washington does not hold quite the same influence
over the European allies as it once did, and EU members are perhaps quicker to challenge
U.S. policies with which they do not agree.
Europeans have generally responded positively to the Bush Administration’s efforts
in its second term to improve transatlantic relations. Some observers note that President
Bush’s visit to the EU institutions while in Brussels in February 2005 demonstrates U.S.
recognition of the EU’s political evolution. They also suggest that U.S. statements in
favor of a “strong Europe” have helped alleviate European anxieties about U.S. support

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for further European integration. Nevertheless, transatlantic tensions have not
disappeared, and contentious issues remain.
Key Issues in U.S.-European Relations
Role of NATO and the EU. In February 2005, then-German Chancellor
Schroeder effectively proposed a stronger role for the EU in transatlantic policy-making.
He asserted that NATO is “no longer the primary venue where transatlantic partners
discuss and coordinate strategies,” and that the U.S.-EU dialogue “in its current form does
justice neither to the Union’s growing importance nor to the new demands on transatlantic
cooperation.”1 Schroeder’s arguments were interpreted by many as suggesting that the
EU, rather than NATO, should be the United States’ primary interlocutor on issues such
as Iran’s nuclear program and arms exports to China. The French appear to back this
view. Some European officials complain that Washington has been reluctant to discuss
major foreign policy issues in NATO, and that NATO is not suited to confront challenges
that they believe could be better addressed through EU diplomatic and economic tools.
The Bush Administration reacted coolly to the ideas embodied in Schroeder’s statement;
U.S. officials are concerned that a formal strategic dialogue with the EU could ultimately
erode NATO, where the United States has not only a voice but also a vote. Others suggest
that the United States has little to worry about because the EU is still far from speaking
with one voice on contentious issues, such as Iraq, and most European NATO allies
continue to view the United States as their ultimate security guarantor. In addition, EU
momentum in the foreign policy and defense fields may be in for a period of stagnation
following the rejection by French and Dutch voters of the EU’s constitutional treaty in the
spring of 2005. Many expect EU attention in the near to medium term to be focused on
internal reforms rather than external challenges.2
European Capabilities. Successive U.S. administrations and the U.S. Congress
have called for enhanced European defense capabilities to enable the allies to better share
the security burden both within and outside of Europe. Washington continues to press
European NATO members to develop more mobile and interoperable forces able to tackle
a wide variety of missions, including countering terrorism and weapons proliferation.
U.S. officials support EU efforts to develop an EU defense arm, known as the European
Security and Defense Policy (ESDP), provided that it is tied to NATO and results in more
robust European military capabilities. To date, the EU has established a 60,000-strong
rapid reaction force, created links to NATO that it maintains will prevent a wasteful
duplication of resources, and conducted several crisis management operations. The EU
took over the 7,000-strong NATO mission in Bosnia in December 2004. The EU has also
agreed to enhance its rapid reaction capabilities further by 2007 with 13 battlegroups —
of 1,500 troops each — able to deploy within 15 days. However, improving European
military capabilities remains difficult given flat European defense budgets. Some worry
1 German Chancellor Gerhard Schroeder, Speech to the 41st Munich Conference on Security
Policy (in absentia), Feb. 12, 2005, available at [http://www.securityconference.de].
2 Quentin Peel, “An Alliance of Conflicting Priorities,” Financial Times, Feb. 17, 2005; “Let’s
Talk, But Where?” The Economist, Feb. 26, 2005.

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that a minority of EU countries, led by France, favor an EU defense arm independent of
NATO, which they fear would weaken NATO and mean less U.S. influence in Europe.3
Countering Terrorism. European countries and the EU have been active partners
with the United States in the fight against terrorism in the years since September 11, 2001.
Washington has welcomed EU efforts to boost police and judicial cooperation among its
25 member states, stem terrorist financing, strengthen border controls, and improve
transport security. The EU and the United States have concluded several new agreements
on police information-sharing, extradition, mutual legal assistance, container security, and
exchanging airline passenger data. Nevertheless, some challenges remain. European
opposition to the U.S. death penalty may still impede extradition of terrorist suspects. EU
data privacy concerns about sharing passenger information with U.S. authorities persist,
as do a few notable differences in the U.S.-EU terrorist lists. Some EU members continue
to resist adding suspected Hamas-related charities or the Lebanese-based Hizballah to the
EU’s common terrorist list. Furthermore, many Europeans fear that the United States is
losing the battle for Muslim “hearts and minds” as a result of the war with Iraq, the
prisoner abuse at Abu Ghraib, and the detentions at Guantánamo Bay. Europeans have
also expressed concerns about a November 2005 Washington Post report of alleged
“secret” CIA prisons for terrorists in some eastern European countries and the U.S.
practice of rendition. Meanwhile, some U.S. observers believe that European countries
are not fully integrating Muslims into their societies, which is contributing to the
emergence of more militant Islamists in Europe. Despite these frictions, others argue that
Europe remains vulnerable to terrorist attacks, and U.S.-EU law enforcement cooperation
serves mutual interests, and will thus continue.4
Iraq. U.S.-European tensions over Iraq have abated to some degree, but still linger.
U.S. officials have been frustrated with what they view as minimal military or financial
assistance from some European countries in stabilizing Iraq. Many European leaders
claim that failure in Iraq is not an option, but have been reluctant to engage robustly in
reconstruction efforts. France and Germany, for example, have been unwilling to deploy
troops to Iraq to bolster a military campaign that they did not approve. Some European
troop contributors have withdrawn or reduced their forces in the U.S.-led coalition
because of financial constraints on already tight defense budgets and domestic pressure
amid ongoing violence in Iraq. The United States, however, has had some success in
gaining European support for training Iraqi security forces. In February 2005, NATO
announced that all 26 allies had agreed to contribute to NATO’s training mission, either
with personnel or financially. European officials point out that the EU and member states
have pledged a combined total of over $1 billion for Iraq’s reconstruction since 2003. In
July 2005, the EU also launched a small mission to train Iraqi police, administrators, and
judges, primarily outside of Iraq because of security concerns.5
3 See CRS Report RL32342, NATO and the European Union, by Kristin Archick and Paul Gallis.
4 Also see CRS Report RS22030, U.S.-EU Cooperation Against Terrorism, by Kristin Archick.
5 European Union Fact Sheet, “EU Support for Iraq,” June 2005; also see CRS Report RL32105,
Post-War Iraq: Foreign Contributions to Training, Peacekeeping, and Reconstruction, by Jeremy
Sharp and Christopher Blanchard.

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Iran. The United States and Europe share similar goals with respect to Iran —
including encouraging reforms and curbing Tehran’s nuclear ambitions — but
Washington has generally favored isolation and containment, while the EU has preferred
conditional engagement. France, Germany, and the UK (the “EU3”) tried to persuade Iran
to end activities that could lead to nuclear weapons production in exchange for political
and trade rewards. In late 2004, Iran agreed to temporarily suspend its uranium
enrichment work, and Iran and the EU3 opened talks on a long-term agreement on
nuclear, economic, and security cooperation. European leaders sought to encourage U.S.
engagement in this process in order to bolster their own negotiating position. In March
2005, the United States offered limited economic incentives if Iran agreed to cooperate
with the EU3. However, the EU3’s negotiations with Iran largely stalled in August 2005,
following Iran’s resumption of uranium conversion, an early stage in the nuclear fuel
cycle. In response, the EU3 and the United States began working on an International
Atomic Energy Agency (IAEA) resolution to refer Iran to the U.N. Security Council,
where Iran could face diplomatic and trade sanctions. By February 2006, the EU3 and the
United States gained Russian and Chinese approval for an IAEA resolution reporting Iran
to the Security Council, but Russia and China continue to oppose sanctioning Iran. On
March 29, 2006, the U.N. Security Council issued a statement criticizing the Iranian
nuclear program and directing the IAEA to report within 30 days on Iranian compliance
with previous demands to curtail its nuclear work. This Security Council statement was
weaker than that initially proposed by the United States and the EU3. Some Europeans
worry that Washington may ultimately conclude that diplomacy has failed to address the
Iranian nuclear threat and that a military option should be considered.6
Israeli-Palestinian Conflict. European governments and the EU believe that a
just and lasting settlement of the Israeli-Palestinian conflict is vital to promoting stability
in the region and diminishing the terrorist threat. European officials assert that the only
way to guarantee Israel’s security is to create a viable Palestinian state. European
policymakers believe that progress on the “road map” for peace and its two-state solution
— developed by the diplomatic “Quartet” of the United States, the EU, Russia, and the
United Nations — is impossible without U.S. leadership, but some contend that
Washington has not done enough to get Israeli-Palestinian negotiations back on track.
Although the EU welcomed Israel’s withdrawal from the Gaza Strip in August 2005,
European policymakers remain concerned that Israel views its disengagement from Gaza
and possible unilateral steps in the West Bank as an alternative to the road map. Some
Europeans believe that the Bush Administration has been working more robustly to
promote peace since the start of its second term and view U.S. Secretary of State
Condoleezza Rice’s role in brokering a November 2005 deal on security controls for Gaza
border crossings as extremely positive. As part of this accord, the EU is assisting with
monitoring the Rafah border crossing between Gaza and Egypt. Like the United States,
the EU has called on Hamas, which won a majority in the January 2006 Palestinian
legislative elections, to renounce violence and recognize Israel or face cuts in international
aid. The EU is the largest donor of foreign assistance to the Palestinians. However, some
observers suggest that differences between the United States and EU over funding and
contacts with a Hamas-led Palestinian government could emerge, given that some EU
members may be more inclined to promote change in Hamas through engagement.7
6 See CRS Report RL32048, Iran: U.S. Concerns and Policy Responses, by Kenneth Katzman.
7 See CRS Issue Brief IB91137, The Middle East Peace Talks, by Carol Migdalovitz.

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EU Arms Embargo on China. The EU has been considering lifting its arms
embargo on China, which was imposed after the 1989 Tiananmen Square crackdown.
France and other EU members claim that the embargo hinders the development of a
“strategic partnership” with China and closer economic ties. EU officials assert that the
embargo is largely symbolic; some EU members have continued to export certain types
of military equipment to China. The EU stresses that if and when the embargo is
overturned, it will put in place a strengthened EU arms export control regime that will be
more effective in controlling arms sales to China and elsewhere. Washington firmly
opposes ending the EU embargo, believing it would send the wrong signal on China’s
human rights record and might help alter the balance of power in East Asia, especially in
the Taiwan Strait. U.S. officials are skeptical that a tighter EU export control regime
would contain sufficient enforcement and transparency mechanisms to dissuade future
European arms sales to China. Although many observers had expected the EU to lift the
embargo in mid-2005, some EU members grew hesitant amid strong U.S. opposition,
lingering human rights concerns, and China’s adoption in March 2005 of a new “anti-
secession law” warning of the possible use of force against Taiwan. As a result, ending
the embargo does not appear to be high on the EU’s agenda for the near term. Still, the
EU is politically committed to overturning the embargo, and some believe its end is
ultimately only a matter of time. The United States and the EU have begun a “strategic
dialogue” on China and other Asian security issues, but U.S. officials insist that the talks
are not a negotiation over terms to allow the EU to lift its embargo.8
Economic Relations. The United States and the EU share the largest trade and
investment relationship in the world. Two-way flows of goods, services, and foreign
investment exceeded $1.3 trillion in 2004. U.S. and European companies are also the
biggest investors in each other’s markets; total stock of two-way direct investment is over
$1.6 trillion. 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 late May
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). The EU is also
imposing WTO-sanctioned tariffs on some U.S. exports in response to the Byrd
Amendment, which disburses anti-dumping duties to affected domestic producers. U.S.
exports may soon face further EU retaliation in an ongoing export tax subsidy dispute.
Congress thought it had repealed the alleged subsidy in 2004, but the EU challenged
several transitional features of the new law that provided temporary benefits to a few U.S.
companies. Meanwhile, Washington has lodged a WTO case against the EU’s ban on
approvals of genetically-modified food products, and a U.S.-EU trade dispute over beef
hormones also remains.9

8 Also see CRS Report RL32870, European Union’s Arms Embargo on China: Implications and
Options for U.S. Policy, by Kristin Archick, Richard Grimmett, and Shirley Kan.
9 For more information, see CRS Issue Brief IB10087, U.S.-European Union Trade Relations:
Issues and Policy Challenges, by Raymond Ahearn; and CRS Report RL30608, EU-U.S.
Economic Ties: Framework, Scope, and Magnitude, by William Cooper.

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