Europe and the US as Friendly Competitors

THE increasing economic integration of Western Europe resulting from the essential completion of the European Community's 1992 agenda is an appropriate time to consider the problems and potential of the developing economic relationship between the United States and the EC. The creation of the single market in Europe is a positive event, yet it will generate winners and losers on both sides of the Atlantic.

The business relationships are bound to become more intricate as the US and the EC compete in what is increasingly a global marketplace. It is vital that both regions learn how to be friends and competitors simultaneously. In that spirit, we must acknowledge that, for American business firms, the rise of the EC presents both threats and opportunities.

The fundamentally favorable factor flowing from developments in the EC is that the 12 countries have been reducing restrictions on business, trade, and labor. Despite gaps in implementation, people as well as goods and investments are able to move much more readily from one common market nation to any other. That is bound to make European businesses more efficient as they achieve economies of scale and as products and services are standardized.

The big negative - from the viewpoint of other nations as well as the EC's own consumers - is that the trade wall around the Community is not coming down. In the words of the Federal Reserve Bank of Chicago: ``Not only did formation of the EC result in a reduction in restrictions on trade between members, it began the process of setting common trade restrictions against nonmembers.''

The impacts of EC economic unification will be uneven. The major winners will be the stronger European companies who will enjoy the benefits of economies of scale and growing domestic markets. These firms bring a understanding of European needs, capabilities, and cultures.

Likely winners will also include US firms with an established presence in Europe. The implications of that presence, it turns out, are ambivalent. Most of the goods sold there by American multinational firms are produced in the EC by European workers. The rationale for American firms favoring direct investment in Europe over exports from the US was made clear recently by a representative of Pfizer, the American pharmaceutical firm: ``Pfizer does not have a choice about whether to manufacture in the European Community or not. If we are going to sell in Europe, we have to manufacture there.''

Quite a few US firms will be losers from the creation of the single European market, finding it more difficult to export to Europe. US-based companies also will face tougher competition here at home from stronger EC businesses.

Losers from EC economic unification will include high-cost European companies that have been sheltered within their own national markets from continentwide competition. Not all barriers will be down. Each EC nation continues to possess individual values, needs, cultures, language - and tax systems. No matter what changes the EC makes, the French are not going to make a stampede for German wine. The British will still want cars with steering wheels on the ``wrong'' side.

Not all developments in the EC have been positive, even from a European viewpoint. Concern has been aroused by the failure of the 12 member nations to rapidly approve and carry out the Maastricht agreement on financial integration. Progress surely will be more cautious in the years ahead. Their simultaneous failure to take a forceful stand in Bosnia also has contributed to a feeling of unease in assessing the EC's future. However, these political setbacks should not deflect from their accomplishments in integrating the industrial and commercial markets.

Business firms and consumers of North America and Western Europe will become tied more closely together in the decade ahead. Those alliances and cooperative relationships will not be forced by governments. Rather, they will be encouraged by economic opportunities and technological possibilities. We will learn how simultaneously to be friends and competitors.