The Iraqi crisis and the resulting chill in EU - US relations is spilling over into the economic sphere. Some serious US politicians are still calling for boycotts of French and other European made goods. The EU accuses the US of giving its own firms the major contracts for the reconstruction of Iraq. On 6 April, the US Trade representative Robert Zoellick called upon Europe to 'join the US in expanding prosperity' by cutting agricultural subsidies. Meanwhile Chris Patten and Pascal Lamy have appealed for people to stop shouting in their article 'Let's put away the megaphones'. The progress over the next few months, in preparation for the WTO summit in Cancun in September, will determine whether the EU and US will sit at the table together as true partners ready to sacrifice special interest groups for the benefit of themselves, each other and the developing world, or whether they will bicker and slow down talks.

Anything less than true EU-US leadership would strengthen the underlying trend of growing US unilateralism in trade issues. Already the US is concluding more and more bilateral trade agreements. Clearly few countries have any real negotiating strength when dealing with the US on its own and the deals will be lopsided, but still better than nothing (in the absence of mulilateral deals coming from the WTO's Doha round). With unilateralists still gaining the upper hand in the White House following the Iraqi crisis, there is little hope to see the trend reversed any time soon.

The focus on Iraq is also drawing Washington's attention away from trade issues. In January, the US was planning to decide whether or not to take the EU to the WTO over its moratorium on biotech products. In the end, the EU was let off the hook; the cabinet meeting to discuss the issue could not be held because the relevant cabinet members were busy on other things. In this case the focus on Iraq served to cool down an ongoing dispute. On other occasions, the White House will not have the will to take and explain decisions that benefit society as a whole but affect special interest groups adversely. For example, don't hold your breath for any end to the US tariff on imported steel, especially when the Chairman of the International Steel Group (now the largest steel company in the US) defends an extension of the tariffs by saying "the tragic flaw in free trade is that we are the only ones who practice it". Who is going to argue with him at this time?

Optimism could arise from a study released in March by the Center for Transatlantic relations. It shows the incredible extent to which the economies of the EU and the US have become linked. The study shows that trade itself only accounts for 20% of Transatlantic commerce. Investment between the EU and US is flourishing and much bigger than any other investment flow in the world. For example, three quarters of foreign investment in the US comes from Europe. During the 1990s, US firms invested twice as much in the Netherlands alone as in Mexico. Europe accounts for more than half of all sales made by US companies abroad. Put differently, we are becoming so integrated that it is becoming difficult to label McDonald's (with its European employees, shareholders and suppliers) as "American" or to call LVMH "French". If we add to this the fact that the headline grabbing trade disputes represent less than one percent of trade between the EU and the US, we can conclude that commercial relations between the EU and US are just too deep and too important and to fail. Indeed, the US would find it difficult to finance its military expenditure and its budget deficits without European finance.

This is true as far as the EU and US are concerned. The tragedy is that many developing nations are totally dependent on exporting products that the EU and US argue about. The real victims of the disputes on steel, bananas, cotton and sugar are not so much the producers the EU and the US are trying to protect, but the nations that have little other means of earning a living. So if protection to cotton farmers serves a relatively small group of producers in 'swing' states in the southern US, it effectively ruins the economies of several African nations.

So what should Europe do? In my view, the answer is simple. Europe should take its economic destiny into its own hands by actually implementing the measures it committed to at the Lisbon summit with the goal of becoming the world's most competitive economy by 2010. This includes labour market and pension reform, as well as the overhaul of the Common Agricultural Policy proposed by the European Commission. All this can be achieved in the socially responsible way that characterises Europe. Politicians have a duty to explain to the electorates why these changes are necessary. The Iraq war, US economic weakness and pneumonia in Asia are simply feeble excuses of our politicians for failing to inject some dynamism into Europe's economies.

Europe should remain the defender of the multilateral trading system as managed through the World Trade Organisation by sticking itself to the rules it wants others to adhere to. This will enable the EU to defend its rights vigorously through the WTO system and set an example for developing nations that must begin to wonder whether the WTO rules should be taken seriously. With the US still publicly subscribing to the same goals, the EU and US must take their opportunity before the meeting in Cancun in September.