	Introduction

This report discusses disputes in the World Trade Organization (WTO) between the UnitedStates and the European Union (EU). The report begins with an overview of the issues to beaddressed, and continues with a brief description of the WTO dispute settlement process, a summaryof U.S.-EU dispute settlement history, and a review of issues arising from cases of longstandingnon-compliance. The 108th Congress inherits several U.S.-EU disputes where the WTO has ruled that U.S. laws violate world trade obligations. In some cases, barring abolition or significant modification of thestatutes in question, the EU could decide to retaliate against U.S. exports this year or next. U.S.-EU efforts to provide leadership to the world economy in recent years, however, have been affected by a number of trade disputes. Moreover, in cases involving beef hormones, bananas, export tax benefits, and other trade laws,attempts to settle disputes have met with refusal or inability by one side or the other to comply in atimely manner with the WTO panel rulings. (1) Non-compliance withWTO panel and Appellate Body rulings by a key Member arguably weakens the credibility andauthority of the WTO and serves as a poor model for the rest of the world. (4) The aim of the processis "to secure a positive solution to a dispute,"the preferred outcome being "a solution mutually acceptable to the parties to the dispute andconsistent with the covered agreements"; absent such a solution, the primary objective of the processis withdrawal of an offending measure, with compensation and retaliation being avenues of lastresort. Implementation of Panel and Appellate Body Reports (Art. The EU caseload against the United States may be viewed assomewhat heavier than the U.S. caseload against the EU because a number of the cases filed by theUnited States against the EU or its Member States involve the same or similar subject matter;moreover, the EU has pursued a greater number of cases through the full panel process. In the music licensing case, the disputing parties agreed to have the level of trade injury determined in an arbitration under Article 25 of the DSU, which provides for binding arbitration asan alternative means of dispute settlement. (14)

	Non-Compliance in Selected Cases

While the majority of U.S.-EU disputes do get resolved satisfactorily, a number of cases arecurrently testing the implementation articles of the DSU. Two of the more difficult of these cases-- beef hormones and the ETI Act export subsidy -- do not involve routine commercial disputesover trade or customs regulations, but rather tax policy and internal national regulation, particularlyof social and health matters. To deal with the problem of non-compliance, both Washington and Brussels may haveto give greater attention to a number of concerns and policy considerations, including choice of casesinitiated, limitations of panel decisions, the role of mediation and conciliation, and the adoption ofremedies that are trade liberalizing. Under thesecircumstances, some type of politically agreed upon compromise may be viewed as preferable to aquasi-judicial WTO ruling pending efforts to clarify the rules in subsequent multilateral negotiations. Assuming that some disputes with a highly charged political content are not well suited for the panel and appellate body process, greater efforts could be made to get the contending parties to settletheir differences through bilateral negotiations, through mediation, or by agreeing to arbitration froman outside ( i.e. , non-WTO) party.
U.S.-EU relations have been affected by a number of trade disputes in recent years. While the majority of trade disputes do get resolved, attempts to settle some of the disputes have been met withrefusal or inability by one or another of the parties to comply in a timely manner with the WorldTrade Organization (WTO) panel rulings. The 108th Congress inherits several of these disputeswhere the WTO has ruled that U.S. laws violate trade obligations. Absent U.S. compliance throughlegislative action, the EU could in some cases decide to retaliate against U.S. exports this year ornext. In the meantime, the EU remains in non-compliance with its WTO obligations to allowimports of beef treated with hormones. Beyond raising U.S.-EU trade tensions, non-compliance bya key WTO member arguably weakens the credibility and authority of the WTO and its disputesettlement process.
The initiation and resolution of disputes under WTO agreements is carried out under the Uruguay Round Dispute Settlement Understanding (DSU), considered a cornerstone of the WTOsystem. The WTO dispute settlement process has a more quasi-judicial orientation than thequasi-diplomatic orientation of the prior GATT system, in which negotiation and conciliationgenerally prevailed over multilateral enforcement of rules. The DSU provides for virtually automaticestablishment of panels, adoption of panel and appellate reports and, where requested, authorizationto impose retaliatory measures; deadlines are set out for various stages of the process. These featuresensure that complaints are heard and promote implementation of WTO rulings, thus makingavailable to all WTO Members the means to clarify trade rules and redress trade injury. At the sametime, the process continues to retain certain diplomatic elements in that its primary aim is to "securea positive solution to a dispute," with the preferred outcome being a "solution mutually acceptableto the parties to the dispute and consistent with the covered agreements." Opportunities forsettlement are provided at a number of points in a procedure.
U.S. and EU instances of longstanding non-compliance have for the most part not involved routine commercial disputes over trade or customs regulations, but rather tax policy and internalnational regulation, particularly of social and health matters. While ambiguity in WTO agreementsmay give rise to disputes in these difficult areas, the automatic features of the DSU also allow partiesto pursue such cases through the full dispute process, even though it may be evident from the outsetthat implementation of an adverse WTO ruling may be subject to overwhelming domestic oppositionin the defending country. To deal with the problem of non-compliance in difficult cases, bothWashington and Brussels may need to give greater attention to a number of concerns and policyconsiderations, including choice of cases initiated, limitations on panel decisions, role of mediationand conciliation, and adoption of remedies that are trade liberalizing. Assuming that some disputesare not well-suited for the DSU process, greater efforts may be needed to settle differences throughbilateral negotiations and political compromises, through mediation, or by agreeing to arbitrationfrom an outside ( i.e. , non-WTO) party. This report will be updated periodically. For more on theWTO dispute settlement process and U.S.-EU Trade Relations, see CRS Report RS20088 and CRS Issue Brief IB10087.