Litigation Weighs on Trade

Article excerpt


A few months ago the European Union-United States Economic Summit ushered in a new phase of trans-Atlantic relations. Both sides launched an ambitious initiative to bring about trans-Atlantic economic integration.

The trans-Atlantic business community now expects further practical steps when the newly created Transatlantic Economic Council meets in a few weeks in Washington. European businesses also hope the U.S. legal system, already weighing heavily on European investors and business partners, will not add to the costs by increasing the litigation risks of doing business with U.S. companies.

The paramount importance of a good trans-Atlantic business climate is evident. The United States and Europe are each other's most important economic partners. The trans-Atlantic economy accounts for about 60 percent of global gross domestic product (GDP) and 70 percent of global foreign direct investment. Trans-Atlantic trade in goods and services accounts for two-fifths of global trade. Europe is the most important source of direct investment in the U.S. and vice versa.

Today, some 12 to 14 million jobs on both sides of the Atlantic depend on trans-Atlantic economic relations. Yet despite all that, there are still too many restrictions hindering trans-Atlantic trade and investment, first and foremost nontariff barriers. Reducing such barriers and further liberalizing the trans-Atlantic market place could lead to an increase in GDP of more than 3 percent on both sides of the ocean.

A particular concern is the pending Supreme Court ruling on scheme liability in the case of Stoneridge vs. Scientific Atlanta, a case for which the court will hear arguments today. The possibility of being drawn into expensive lawsuits is a major factor companies in Europe must consider when deciding to do business with the United States. When finally entering into a business relationship, the costs of minimizing litigation risks are considerable. The main reason is that core features of the U.S. system such as class actions, punitive damages and discovery are not known in Europe, at least not to the extent they are used in the U.S.

While it is perfectly legitimate that U.S. lawmakers design the legal environment as they see fit, companies in Europe are worried by a growing tendency to impose U.S. legal regulations directly on foreign companies or in ways that make their effects felt beyond the country's borders. …