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National Trade Data Bank
ITEM ID     : ST BNOTES EC
DATE        : Oct 28, 1994

AGENCY      : U.S. DEPARTMENT OF STATE
PROGRAM     : BACKGROUND NOTES
TITLE       : Background Notes - EUROPEAN COMMUNITY (EC)

Source key      : ST
Program key     : ST BNOTES
Update sched.   : Occasionally
Data type       : TEXT
End year        : 1993
Date of record  : 19941018
Keywords 3      :
Keywords 3      : | EUROPEAN COMMUNITY

BACKGROUND NOTES:  EUROPEAN COMMUNITY, JANUARY 1993
PUBLISHED BY THE BUREAU OF PUBLIC AFFAIRS
US DEPARTMENT OF STATE

JANUARY 1993

Official Name:  EUROPEAN COMMUNITY (EC)

PROFILE

Background
Headquarters:  Brussels, Belgium.    Established:  As three
distinct European communities:  On April 18, 1951, (effective
July 23, 1952), when the European Coal and Steel Community (ECSC)
Treaty was signed in Paris, and on March 25, 1957, (effective
January 1, 1958), when the treaties for the European Atomic
Energy Community (EURATOM) and the European Economic Community
(EEC) were signed in Rome.  The ECSC was created to integrate
coal and steel production, EURATOM to develop common uses of
nuclear energy among member nations, and the EEC to merge
separate national markets into a single market with common
economic policies.  The Single European Act, signed in February
1986,  (effective July 1, 1987), amends these treaties by
establishing specific provisions for completion of the single
market by January 1, 1993, and for intensifying cooperation among
member states in the areas of economic and monetary union,
promotion of research and technological development, improvement
of the environment, and social policy.  The act also
institutionalizes cooperation in the field of foreign policy.

Purposes:  To build foundations for peace through economic and
political cooperation and to create a federation of Europe.

Members:  The Six--Belgium, Germany, France, Italy, Luxembourg,
Netherlands.  The Nine--in 1973, Denmark, Ireland, and the United
Kingdom joined the Six.  The Ten--in 1981, Greece joined the
Nine.  The Twelve--Spain and Portugal joined the Ten on January
1, 1986.  In 1990, the Laender (states) of the former German
Democratic Republic entered the Community as part of a unified
Germany.

Official Languages:  Danish, Dutch, English, French, German,
Greek, Italian, Portuguese, and Spanish.

Population (1990):  345 million.

Gross Domestic Product (GDP) (1990):  $6 trillion.

Average Per Capita  GDP  (1990):  $17,400.

Organization
Principal Organs:  Council of Ministers, Commission, Parliament,
Court of Justice.

Principal Areas of Community Responsibility:  Internal and
external trade, agriculture, monetary coordination, common trade
and commercial policies,  development assistance, science and
research, the environment, common social  policies, European
political cooperation.

Budget (1992):  $86 billion, financed by customs duties and
agricultural levies, a 1.4% value-added tax collected on the
goods and services consumed in member countries, and a percentage
contribution  based on each country's gross domestic product.

Trade
Imports (1991):  From non-EC countries-- $812 billion.  From
US--$103 billion (24% of US exports).

Exports (1991): To non-EC countries--$522 billion.  To US--$86
billion (16% of EC external exports).

EC and US Officials
Commission President:  Jacques Delors, France.
US Representative to the EC: Ambassador James F. Dobbins, 40
Boulevard du Regent, B-1000, Brussels, Belgium;  Tel.
32-2-513-4450.
EC Representative to the US: Ambassador Andreas Van Agt, 2100 M
St., NW, Suite 707, Washington, DC 20037; Tel. [phone].

INSTITUTIONS
Since July 1967, the three communities have functioned with
common institutions.  The main EC institutions are:  the Council
of Ministers, which has final decision-making authority; the
European Commission, which formulates policies and legislation
and implements decisions of the Council; the European Parliament,
which advises the EC on policy development and proposals
emanating from the Commission; and the European Court of Justice,
which interprets the EC treaties and legislation.  Other EC
institutions are the Court of Auditors, which oversees financial
management of the Community, and the Economic and Social
Committee, an advisory body.  Member states have agreed to
relinquish a degree of national sovereignty to EC institutions
and to cooperate in the joint administration of these powers.

The European Commission
The Commission, headquartered in Brussels, is made up of 17
commissioners appointed by common agreement of the 12
governments.  Each country is represented.  The United Kingdom,
France, Germany, and Italy each supply two commissioners.
According to the treaties, members of the Commission act
independently of their governments and of the Council and
represent the interests of the Community as a whole.  Each member
has responsibility for one or more policy areas.

The Commission's major responsibility is to oversee the
implementation of the EC treaties and applications of decisions
by Community institutions.  The Commission has investigative
authority and can take legal action against persons, companies,
or member states that violate Community rules.   The Commission
initiates EC policy by making proposals to the Council of
Ministers and steers its proposals through the Council.  These
may include measures beyond the scope of trade and commerce, such
as education, public health, consumer protection, the
environment, research and technology, and aid to developing
countries.  The collection and disbursement of EC funds is a
third important Commission responsibility.

The 1987 Single European Act gave the Commission authority to
implement Council decisions; for example, the commissioners may
negotiate trade agreements with non-member states on behalf of
the Community.  The Commission's independence and its "right of
initiation" of policy account for much of its supranational
authority.  To balance that independence, the Commission is
subject to censure by the Parliament, which can force the entire
Commission to resign as a body by a two-thirds majority vote.
(This action never has been taken.)

The President of the Commission is appointed to a renewable
2-year term by the Council of Ministers.   The Com-mission's
administrative staff of 16,700 is divided into 23
Directorates-General.  In 1995, the terms of the commissioners
will be expanded to 5 years to correspond to the terms of members
of the European Parliament.

Council of Ministers
The Council of Ministers is the primary decision-making body of
the Community.  It is composed of ministers representing national
governments.  Each member state serves as Council President for 6
months in rotation.  The presidency country presides at all
meetings of the member states and serves as spokesman in dealing
with countries on inter-governmental matters, including efforts
to coordinate the foreign policies of the member states.  A
member state's foreign minister is regarded as its principal
representative in the Council.  Foreign ministers deal with the
most important and wide-reaching topics, while more specific
decisions are made by the ministers of agriculture, finance,
industry, energy, social affairs, and others, deepening on the
issue to be  discussed.

EC members have the following votes in the Council:  Germany
(10), France (10), Italy (10), United Kingdom (10), Spain (8),
Belgium (5), Greece (5), Netherlands (5), Portugal (5), Denmark
(3), Ireland (3), and Luxembourg (2).   The 1987 Single European
Act created a less restrictive decision-making process by
allowing most voting in the Council by qualified majority (54 out
of a total of 76 votes), rather than unanimity especially in
areas relating to the internal market.  Exceptions include
certain health and safety and taxation proposals.

The various ministerial groups meet monthly.  A Committee of
Permanent Representatives, consisting of member country
ambassadors to the Community in Brussels, and the Council
Secretariat assist the Council.

European Council
The Single European Act formally established the European
Council, which had met on a regular basis since 1975.  The
European Council includes the Heads of State and Government and
the President of the Commission.  It meets at the end of each
member's council presidency to discuss general problems regarding
the Community, the progress of political cooperation, and foreign
policy issues.

European Parliament
The European Parliament is the only EC institution that directly
represents European citizens.  It serves as a public forum to
debate issues of importance to the Community.   The Commission
must consult the Parliament before proposals are forwarded to the
Council of Ministers for decision.  The Parliament has
significant power over budgetary matters and can amend or reject
the budget as well as approve its adoption.  Since 1987, it also
has had the right to amend or reject certain legislation approved
by the Council, which can overrule the Parliament only by a
unanimous vote.  Although it cannot veto individual ministers,
the Parliament has the power to pass a vote of no-confidence in
the Commission by a "motion of censure," which would require the
entire Commission to resign.  The Parliament also may approve or
disapprove applications of non-member countries to join the
Community as well as new association agreements.

The European Parliament has been elected by universal suffrage
since 1979.  Previously, deputies had been nominated by national
legislatures.  The 518 deputies of the Parliament are elected to
5-year terms and are grouped by political affiliation, rather
than by nationality.  They include Socialists, Christian
Democrats, Liberals, Conservatives, Communists, and Greens.

Many of the Parliament's specialized committees have emphasized
development of truly European policies in areas such as the
internal market, energy, industrial restructuring, and regional
development funding.  Direct elections ensure full public
representation in the Community, and important tasks for the
deputies include promoting the Community's work within their
constituencies and increasing public support for an integrated
Europe.

The Parliament meets monthly in week-long plenary sessions in
Strasbourg.  The Secretariat staff of 3,500 is located in
Luxembourg; most committee and political group meetings are held
in Brussels.

Court of Justice
The Court is the final authority for the interpretation of EC
laws as embodied in its treaties, regulations, and directives.
Complaints about member-state treaty violations may be lodged by
other member states or by the Commission.  Member governments, EC
institutions, and individuals have the right to contest
Commission and Council actions in the Court.

The Court resolves conflicts between Community and national laws.
EC judgments in the area of EC law overrule those of national
courts.  The Court's decisions are binding on all parties and are
not subject to appeal.   Court decisions generally have tended to
strengthen EC institutions and promote integrated EC policies.

Member governments appoint 13 justices, one from each member
state plus a president of the Court for renewable 6-year terms.
The judges are assisted by six advocates-general.  Court
decisions are reached by a simple majority.  The Court meets in
Luxembourg.

The Single European Act introduced a new Court of First Instance,
which essentially serves as a lower court.  It has jurisdiction
in matters covered by the treaty establishing the European Coal
and Steel Community (ECSC), in the field of competition law, and
in actions brought by EC officials.

Economic and Social Committee
This advisory body of 189 members represents various economic and
social sectors, including labor, employers, and other interest
groups such as consumers, agriculture, and professional
associations.  The Committee enables a broad spectrum of groups
to be represented in EC decision-making.  Through a mandatory
consultation process, the Committee submits its opinions on EC
policies and legislative proposals to both the Council of
Ministers and the Commission.

BUDGET
Since 1975, the Community has been fully funded from its own
resources.  These are derived from customs duties levied under
the Common Customs Tariff, levies on agricultural imports from
non-member states, and a 1.4% value-added tax collected on the
goods and services consumed in member countries.  Faced with the
additional costs associated with the implementation of the 1992
single market program, in 1988, the Council approved the
introduction of a fourth source of revenue, based on a percentage
of member countries' gross domestic product.

Budget expenditures are principally for agricultural support,
regional and social measures, development assistance to Third
World countries and to Central and Eastern Europe, and
administrative costs.  The Commission prepares the preliminary
draft of each year's EC budget.  The Council discusses the
preliminary report and then submits a draft budget to the
Parliament, which can amend or reject the budget and is
responsible for its final adoption.

The approved EC budget for 1992 is $86 billion.  The largest
budget item, accounting for about two-thirds of the total, is
agricultural expenditures under the Common Agricultural Policy
(CAP).  Other major budget items are energy and industrial
programs, research, and development assistance to poorer regions
of the Community, Central and Eastern Europe, and Third World
nations.

PATH TO EUROPEAN INTEGRATION
History
Peaceful union of European countries had been a dream for
centuries, but not until the period following World War II did
the process of economic and political integration begin.  After
the economic chaos of the war, governments sought ways to rebuild
their economies and avoid future conflict.  The Brussels Pact of
1948 created the first post-war European intergovernmental
organization.  The United Kingdom, France, Belgium, Netherlands,
and Luxembourg agreed to establish a common defense system and to
consult on economic and cultural matters.  Since governments
remained reluctant to cede authority to a supranational body, the
organization was based on cooperation rather than on formal
integration.  The military aspects of the pact were soon
overshadowed by the creation in 1949 of the North Atlantic Treaty
Organization (NATO), an expanded military alliance including the
United States and Canada. In the political sphere, the Council of
Europe--organized the same year by the five members of the
Brussels Pact with Ire-land, Denmark, Norway, Italy, and
Sweden--had as its goal greater European unity and the protection
of human rights.  However, all decisions were made by unanimous
agreement, which weakened the Council.

In May 1950,  French Foreign Minister Robert Schuman proposed
that French and German coal and steel production be managed by a
common authority within an institution open to other European
countries.  Ratified by the Governments of France, the Federal
Republic of Germany, Italy, Belgium, Netherlands, and Luxembourg
(the Six), the European Coal and Steel Community began
functioning in 1952.  It was the first international organization
with an integrated federal governing body, the ECSC High
Authority.  Members of the High Authority were independent of
national governments, and decisions were binding on member
states.  A long-term objective of both Schuman and ECSC President
Jean Monnet was to establish a structure for the eventual
political unification of Europe through economic integration.

With Europe's immediate defense problem met by NATO, efforts were
concentrated on economic questions.  Under the direction of
Belgian Foreign Minister Paul Henri Spaak, the foreign ministers
of the Six met to discuss proposals for an integrated economic
system and a common structure for the development of nuclear
energy.  In 1957, the Six agreed to establish the European
Economic Community (the EEC or Common Market) and the European
Atomic Energy Community (EURATOM).  The two treaties formally
establishing the new communities to work with the ECSC were
signed by the Six in Rome on March 25, 1957.  The EEC and EURATOM
began operating on January 1, 1958.  The wide-reaching EEC was
given less supranational authority than the ECSC, although
economic union was viewed as a prerequisite for eventual
political integration.

In 1973, the United Kingdom, Denmark, and Ireland were admitted,
creating the EC Nine.  The Government of Norway also had agreed
to accession, but membership was rejected in a referendum.
Greece joined the Community in 1981, and Spain and Portugal
became members in 1986, creating the EC Twelve.  In 1990, the
five states of the former German Democratic Republic entered the
Community as part of a united Germany.

The primary aim of the Paris and Rome treaties establishing the
European Communities was to remove the economic barriers that
divided the member countries as the first steps toward political
unity.  To accomplish this, the treaties called for members to
establish a common market, a common customs tariff, and common
economic, agricultural, transport, and nuclear policies.  The
institutions and policies established by the treaties provided a
framework within which the 12 EC members agreed to integrate
their economies and eventually consider forming a political
union.

Customs Union
The authors of the EC treaties recognized that the economic
keystone of unity would be a customs union permitting the free
movement of goods, services, capital, and people within member
states.  In 1958, the Community began the difficult process of
eliminating all trade barriers among its members.  Ten years
later, all member-to-member duties were abolished, and a common
external tariff of the Six was established.  By 1977, this union
was extended to include the new EC members--the United Kingdom,
Denmark, and Ireland.

The common external tariff is key to the customs union.  Each EC
member charges the same duty on a given import from a non-member
country.  Agricultural imports are subject to the Common
Agricultural Policy, which places variable levies on agricultural
imports to raise their prices to those of EC-produced
commodities.

Although tariffs have been eliminated within the Community,
several kinds of non-tariff barriers still exist.  Some member
states maintain protectionist measures that the Community has not
yet been able to eliminate entirely, such as limiting public
works contracts and adopting unilateral technical or safety
standards that restrict trade.  Numerous health and safety
barriers to agricultural trade still exist.  Individual firms and
governments can register trade restriction complaints with the
Commission, which attempts to eliminate the barriers through
binding judicial action.

In 1991, exports among Community members were $859 billion, while
external exports were $522 billion, accounting for 17.1% of world
commerce.  This makes the EC the world's largest trading unit.
EC imports from third countries in 1991 were $812 billion, mostly
raw materials and unprocessed goods.  Most EC exports are
processed goods such as machinery and vehicles.

As provided for in Article 113 of the Treaty of Rome, all member
states adhere to a common EC commercial policy.  It provides for
major decisions on trade policy to be taken by the Council of
Ministers by majority vote and assigns to the Commission
considerable executive and negotiating authority.  The
Community's trade policy is based on the General Agreement on
Tariffs and Trade (GATT), to which all community members are
contracting parties.

Single European Act and EC '92
The establishment of a customs union among the Six resulted in an
expansion of trade which grew from $7 billion in 1958 to $60
billion in 1972.  The enlargement of the Community to include
Denmark, Ireland, and the United Kingdom in 1973 marked the
beginning of a period of limited growth, inflation, and high
unemployment.  By the mid-1980s, the Community recognized that,
despite progress in many areas, its aim of creating a true common
market (the dismantling of all barriers within the Community
restricting the free movement of people and trade) had not been
realized.  In March 1985, Jacques Delors, President of the EC
Commission, outlined to the European Parliament the "single
market" program, designed to chart a course for completion of an
integrated market by the end of 1992.  A Commission White Paper
in June 1985 listed legislative measures needed to eliminate all
physical, technical, and fiscal barriers to the completion of a
unified economic area with free movement of persons, goods,
services, and capital.  By October 31, 1992, the Commission had
tabled 282 proposals.  Of these, 216 have been approved by the
European Council and the European Parliament.  However, only 68
have been implemented in all 12 EC member states.

On July 1, 1987, after ratification by member governments, the
Single European Act (SEA) came into force.  The act contained
revisions in the treaties necessary to assure completion of the
1992 program.  It extended the principle of qualified majority
voting in the Council of Ministers (thus streamlining the
decision-making process).  It also gave the Community new
responsibilities (in the areas of social policy, promotion of
research and technological development, and improvement of the
environment) and increased support for the least developed member
states.  Budgetary measures adopted in February 1988, which
placed limits on the growth of agricultural spending and doubled
the allocation for structural funds (resources targeted for
regions that are underdeveloped or affected by industrial decline
or unemployment), signaled the commitment of member states to
implement these provisions.

In addition to defining an action program for achieving the
single market, the SEA endorsed the objective of economic and
monetary union, including a  single currency.  Institutional
decisions in this area would continue to be subject to unanimity
in the Council and ratification by member states.  The SEA also
formalized procedures for cooperation in foreign policy among
member states and renewed support for the objective of European
political union.

European Monetary System
In 1970, the Werner Report (named after the Luxembourg Prime
Minister) proposed a plan for economic and monetary union within
the Community.  As a first step in harmonizing policy, the
currency "snake" (a set of upper and lower limits of exchange
rates) was established in 1972.  Central banks of participating
countries pledged to intervene in the currency market to keep the
value of their currencies within fixed limits.

In 1979, the European Monetary System (EMS) replaced the snake in
an effort to reduce exchange rate fluctuations.  The EMS provides
for frequent discussions among central bankers and for
intervention in foreign exchange markets to maintain the value of
each currency within a narrow range (generally 2.25%) of the
European Currency Unit (ecu).  All Community members belong to
the EMS, though not all participate in the system's exchange rate
mechanism.  In addition to currency swap arrangements for defense
of currency parities, the EMS includes a reserve fund.

The EMS created the ecu in 1979.  It is the Community's budget
and accounting unit, created by member states depositing 20% of
their gold and US dollar reserves with the European Monetary
Cooperation Fund.  It is a combination of differing proportions
of 12 member currencies, reflecting the size of their economies.

Economic and Monetary Union
The concept of economic and monetary union, characterized by
irrevocably fixed exchange rates, a single currency, a single
monetary authority, and a common monetary and exchange rate
policy, was a natural corollary to the completion of the internal
market.  At the December 1991 summit in Maastricht, Netherlands,
EC heads of government reached agreement on a draft treaty on
European economic and monetary union (EMU).  The EMU treaty
provides a timetable for moving to full economic and monetary
union.

Stage 1 (1990-93).  Involves strengthening economic coordination,
bringing all EC members' currencies into the exchange rate
mechanism of the European Monetary System, and lifting
restrictions on internal EC capital flows.

Stage 2 (1994-96).  A transitional period, will involve increased
economic convergence ( in terms of inflation, fiscal policy,
interest rates, and exchange rate stability) and creation of a
transitional European monetary authority.

Stage 3.  In 1997, if a majority of EC members are politically
willing and economically prepared for full EMU, exchange rates
will be irrevocably fixed, monetary powers will be transferred
from national central banks to a European central bank, and a
single currency will be created.  (If the move to Stage 3 does
not occur in 1997, it will start definitely by January 1, 1999,
for those countries which have met the treaty's economic
convergence criteria.)

EMU will not go into effect until the Maastricht Treaty package
is ratified by all 12 member states.  As of January 1993, the
ratification process was still underway.

POLITICAL COOPERATION
The original EC treaties give the Community wide economic powers
but little political authority.  As the Community has begun to
consolidate economic and monetary union, it also has re-examined
its political responsibilities.

The Single European Act underlined the commitment of Community
members to achieving "European Union."  At a landmark summit held
in Maastricht, Netherlands, in December 1991, the Heads of State
and Government agreed to further amendments in the EC treaties to
move the Community toward greater political union, including more
unified foreign and defense policies.  The Maastricht treaty
increased the scope of the Commission's authority to include the
areas of environment, consumer and health protection, education,
and culture.  It established a  "citizenship of the union,"
giving an EC citizen the right to live anywhere in the Community
and vote in local and European elections.  It committed member
states to work for common rules regarding immigration and asylum
policy and to exchange information on terrorism and drug
trafficking.  The treaty also proposed an economic "cohesion"
fund to channel re-sources to poorer countries and expanded
language on protection of workers' rights.

Although coordination of foreign policy was not included in the
original EC treaties, it has been undertaken voluntarily since
1970, when a limited form of European political cooperation,
based on regular meetings of foreign ministers, began to occur.
The 12 foreign ministers now meet regularly to coordinate broad
lines of members' international policies.  These meetings take
place in the context of European political cooperation, which
also includes regular meetings of EC political directors, who
oversee numerous working groups made up of officials from all EC
states, responsible for geographic and functional areas of
foreign policy.

Under the Maastricht treaty, the Council of Ministers, after
consultation with member states, the Parliament, and the
Commission, would approve common foreign policy and security
measures by unanimous vote.  A new defense dimension will be
added to the scope of the Community's activities by expanding the
role of the Western European Union (WEU), an alliance of 10 EC
countries (Denmark and Ireland are not members), to provide for a
European defense alliance.  The WEU will implement EC decisions
with defense implications.

The Maastricht treaty must be approved by all EC countries prior
to implementation.  Ratification ran into difficulties when the
treaty was rejected by the Danes in a referendum in June 1992.
Ratification in the United Kingdom has been delayed until Danish
objections are overcome, unlikely before mid-1993.  An
intergovernmental conference scheduled to take place in 1996 will
evaluate progress toward political union.

THIRD WORLD RELATIONS
Improving relations with developing countries in Africa, the
Caribbean, and the Pacific area has been a high priority for the
Community since its creation.   The Community has concluded
cooperation agreements with more than 100 Third World countries.
In addition to its desire to con-tribute to the economic and
social advancement of less developed countries, the Community
seeks reliable supplies of primary products and markets for its
exports.  The EC has become one of the major providers of  Third
World assistance with programs such as food aid, rural
development, and refugee relief.  In 1991, assistance was about
$7.3 billion.  (The EC program is separate from assistance
programs provided by member states.)

The Community's most notable accomplishment has been the creation
of a series of conventions creating a framework for development
cooperation with more than 60 African, Caribbean, and Pacific
(ACP) states, most of which were former colonies of the EC
states.  Launched in Yaounde in 1963 and 1968 and expanded at
Lome in 1975, the agreements provide aid for development
projects, free access to EC markets for almost all ACP
manufactured imports, and incentives to promote European
investment in the developing states.  The conventions were
renewed in 1979, 1985, and in 1989 for a 10-year period
be-ginning in 1990.  The most recent agreement (Lome IV) puts
greater emphasis on market-oriented economic reform in recipient
countries and on human rights.  About 40% of EC aid is directed
to the ACP states.  Since 1978, 40% of ACP ex-ports have gone to
the Community, which imports about 10% of its raw materials from
the Lome signatories.  Community exports to ACP markets enjoy
most-favored-nation treatment.

One of the most important and innovative aspects of the Lome
Convention is Stabex (export receipts stabilization system).  A
kind of insurance policy against poor trade years, Stabex
provides currency transfers to countries heavily dependent on a
small number of commodities for export earnings in years when
export receipts drop significantly because of poor harvests or
low world prices.  Lome IV is designed to encourage
diversification to other crops.  The Lome Convention provides a
similar export receipts stabilization system, Sysmin, to cover
mineral export earning losses.

The EC has been an active participant in the multilateral side of
the Middle East peace process.  It is a co-organizer of working
groups on economic development, water resources, refugees, and
the environment.

The Community is linked with almost all the countries of the
Mediterranean by a network of agreements which provide duty-free
access for industrial products and some agricultural products as
well as direct grants and loans from the European Investment
Bank.  Turkey, Cyprus, and Malta have applied for EC membership.

The Community's ties to the developing countries of Asia and
Latin America are less structured.  These usually take the form
of bilateral agreements, which allow for preferential trade
treatment under the Community's Generalized System of Preferences
and certain types of development aid.

RELATIONS WITH EFTA COUNTRIES
Relations with the group of countries participating in the
European Free Trade Association (Sweden, Norway, Finland,
Iceland, Switzerland, and Austria) are strongly influenced by the
progress of the single market program.  Founded in 1960 as an
alternative to the Community, EFTA is now the Community's largest
trading partner.  Free trade agreements were concluded between
the Community and each of the EFTA countries in 1972-73, after
two EFTA members, Denmark and the United Kingdom, joined the EC
(Portugal followed in 1986).

The EC and EFTA countries signed an agreement to create a
European Economic Area (EEA) in February 1992.  The agreement
will create an enlarged single market in which goods, services,
capital, and persons move freely between all member states.  EC
and EFTA countries also will expand cooperation in research and
development, environmental issues, education, and social policy.
EFTA states will have to adopt certain EC regulations relating to
the single market but will not be able to participate in the EC
legislative process.  The treaty also contains provision for the
establishment of an EEA court, council of ministers, and joint
committee.  Once it is ratified by all 19 national parliaments
and by the European Parliament, the EEA will create a trading
zone of 495 million people.  It was scheduled to enter into force
on January 1, 1993.  However, in a December 1992 referendum,
Switzerland rejected participation in the EEA, requiring the
other countries to adjust the conditions of the agreement.

Austria, Finland, Norway, Sweden, and Switzerland have applied
for membership in the EC.  Accession negotiations with all except
Switzerland will start on February 1, 1993.

RELATIONS WITH CENTRAL AND EASTERN EUROPE
Between 1988 and 1990, the EC established limited economic and
cooperation agreements with all the countries of Central and
Eastern Europe.  Since then, the Community has designed a new
type of association agreement which goes beyond economic
cooperation.  In addition to a phased approach to free trade
between the EC and each nation (whereby the Community will reduce
its tariff and other import barriers more rapidly than
association countries), these agreements consist of industrial,
technical, and scientific cooperation; financial assistance; and
political dialogue.

In December 1991, association agreements were signed between the
EC and Czechoslovakia, Hungary, and Poland.   As a result of the
dissolution of Czechoslovakia on January 1, 1993, the
Czechoslovak agreement is being renegotiated with the successor
states, the Czech Republic and the Slovak Republic.  Agreements
with Bulgaria and Romania were concluded in late 1992.  Pending
ratification of these agreements by the parliaments of all
participants and the approval of the European Parliament, the
Community's generalized system of trade preferences has been
extended to these countries on an ad hoc basis.  The EC also
signed trade and cooperation agreements with Albania, Estonia,
Latvia, and Lithuania in May 1992.  These agreements provide for
reduction of quantitative trade restrictions, reciprocal
most-favored-nation treatment, and economic cooperation.  In
November 1992, the EC concluded a similar pact with Slovenia.

The Commission provides substantial assistance to the countries
of Central and Eastern Europe.  Grant technical assistance is
provided through the PHARE program (Poland and
Hungary--Assistance with Restructuring the Economy), which has
been extended to Albania, the Baltics, Bulgaria, the Czech
Republic, the Slovak Republic, Romania, and Slovenia.  Its aim is
to strengthen the process of political and economic reform, with
special emphasis on developing and improving the private sector.

In addition to the Community's bilateral efforts, after the
economic summit of industrialized countries in 1989, the EC
Commission began coordinating aid to Central and Eastern Europe
by the Group of 24 (G-24) countries--the EC, EFTA, US, Canada,
Japan, Australia, New Zealand, and Turkey.  The Community also
was instrumental in the creation of the European Bank for
Reconstruction and Development, a multilateral endeavor to
support investment and development of market economies in these
countries.

RELATIONS WITH THE NEW INDEPENDENT STATES
 In January 1992, the Community announced its plan to negotiate
partnership and cooperation agreements with the states of the
former Soviet Union to replace the trade and cooperation
agreement signed by the EC and the Soviet Union in 1989.  This
agreement had included most-favored-nation status as well as
financial aid and was prompted by the introduction of efforts at
political and economic reform.  The new agreements would provide
for close political and economic relations, including trade,
economic, and financial cooperation, political dialogue, and
cultural cooperation.  Negotiations will begin first with Russia,
Belarus, Ukraine, and Kazakhstan.

EC officials have indicated that assistance to the new
independent states in their transition to democratic institutions
and free market economies is an important priority, and the
Commission ranks among the top donors to the new states.

US-EC RELATIONS
The United States continues to support European efforts to
achieve economic and political integration.  The United States
and the Community maintain a continuing dialogue on political and
economic issues of mutual interest and engage in direct
negotiations on trade and investment issues.  While the US has
expressed its support for the EC's efforts to develop an
integrated market, it is concerned that the economic and business
opportunities offered by the single market not be offset by the
introduction of new trade barriers.  The US holds regular
meetings with the EC to discuss aspects of the Single Market
program and to resolve differences, many concerning agriculture.

The "Declaration on US-EC Relations" of November 23, 1990,
identifies common goals and principles of the US-EC partnership.
It institutionalizes regular consultation and cooperation on
economic, scientific, educational, and cultural matters and
establishes a framework for regular and intensive consultation.

Biannual consultations between the US President and the President
of the European Council and the President of the Commission take
place every 6 months.  The US Secretary of State and the 12 EC
Foreign Ministers also meet on a biannual basis to discuss
foreign policy issues; ad hoc consultations between the foreign
minister of the presidency country or the foreign ministers of
the Troika (the current presidency country and its immediate
predecessor and successor) and the US Secretary of State are
scheduled as necessary.  Delegations from the US House of
Representatives and the European Parliament meet twice yearly to
discuss US-EC relations.  Close consultation is further
maintained through the US Mission to the European Communities,
headed by an ambassador in Brussels, and through the delegation
of the European Communities in Washington, DC, headed by the EC
ambassador.

The US has an important economic relationship with the EC.  As a
bloc, the EC is America's largest trading partner.  Total US-EC
trade exceeded $190 billion in both 1990 and 1991.  In 1991, US
imports from the EC were $86 billion and represented 18% of total
US imports.  US exports to the EC were $103 billion and
represented 24% of total US exports.  In 1991, the US trade
surplus with the EC rose to $17 billion, up from $6 billion in
1990.  EC exports to the United States consist mainly of
machinery, precision equipment, iron and steel, and other
manufactured products.  US exports to the EC include machinery
and transportation equipment, agricultural products, chemicals,
and mineral fuels.  The US and the Community also have
significant ties in the area of direct investment.  By the end of
1991, the EC had invested $232 billion  in the US, while the US
had invested $189 billion in the EC.

The United States and the Community cooperate closely in several
multilateral organizations, including GATT, OECD, and the
"Quadrilaterals" (periodic meetings of the EC, US, Japan, and
Canada).  The US is hopeful that progress will continue in the
GATT multilateral trade negotiations and that both sides will
succeed in resolving differences on agricultural policies.  The
Community's CAP has allowed the EC to become self-sufficient in
many agricultural commodities and has provided stable incomes to
the European farming population.  However, through its
complicated network of protection, price supports, and subsidies,
it has created large surpluses of many agricultural products,
displaced some US farm exports, and increased prices to European
consumers.  The global reform of agricultural policies, including
the CAP, remains an important US objective.

The need to provide financial and technical aid to the new
emerging democracies in Eurasia led to a new phase of cooperation
between the Community and the US.  Through the G-24 process, the
1992 coordinating conferences on assistance to the former Soviet
Union, and the international financial institutions (the
International Monetary Fund, the Inter-national Bank for
Reconstruction and Development, and the European Bank for
Reconstruction and Development), the EC and the US assist those
countries committed to achieving democracy and market reform.

Diplomatic Representation.  The United States maintains close
relations with the Community through its mission in Brussels.
The US Mission is directed by Ambassador James F. Dobbins and is
located at 40 Boulevard du Regent, B-1000, Brussels, Belgium;
Tel. [phone]; Telex 846-21336.

The EC Delegation to the United States is headed by Ambassador
Andreas Van Agt.  Its Press and Public Affairs Office is located
at 2100 M Street, NW, 7th floor, Washington, DC, 20037; Tel.
202-862-9500.  The EC Press and Public Affairs Office in New York
City is at Three Dag Hammarskjold Plaza, 245 East 47th Street,
New York, NY 10017; Tel. [phone].

FUTURE  DEVELOPMENTS
Since its foundation as a customs union, the EC's authority and
influence have expanded greatly as its role in managing the
process of integration has evolved.  The possibility of a united
Europe, once only an ideal, is now closer to reality than ever
before.  Spurred by revolutionary political change and the
continued success of its efforts to achieve economic and monetary
integration, the Community now faces a new agenda, quite
different from the challenges it has confronted in the past.  Of
the measures required to complete the internal market, some of
the most complicated issues--such as tax harmonization, border
controls, and social policy--have not yet been reviewed by the
Council of Ministers, and many have not yet been ratified by
member states.  Meeting the 1992 deadline and implementing the
reforms outlined in the Single Act will test the commitment of EC
members to the principle of true integration.

Austria, Sweden, Switzerland, Finland, Malta, and Cyprus have
applied for EC membership.  No decision has been reached on
Turkey's long-standing application for EC membership.  Possible
enlargement of the Community to 16 or more members may require
reform of EC institutions, especially the Presidency and the
Parliament.  The eventual expansion of the Community to include
the countries of Central and Eastern Europe and possibly some of
the new independent states of the former Soviet Union also must
be considered, although no decision is expected before the end of
the decade.

A major intergovernmental conference scheduled for 1996 will
evaluate progress in economic and monetary union and consider
greater coordination of foreign policy and security matters.

Published by the US Department of State Bureau of Public Affairs
-- Office of Public Communication -- Washington, DC -- January
1993 -- Editor:  Elaine McDevitt; Managing Editor:  Peter Knecht

Department of State Publication 9155 Background Notes Series --
This material is in the public domain and may be reprinted
without permission; citation to this source is appreciated.

For sale by the Superintendent of Documents, US Government
Printing Office, Washington, DC 20402