The bilateral economic relationship between the United States and the European Union (EU) is the largest such relationship in the world—and it is growing. It is a relationship forged over several centuries, since the European colonization of North America. The modern U.S.-European economic relationship has evolved since World War II. It has broadened as the 6-member European Community expanded into the present 28-member European Union. The ties have also become more complex, covering a growing number and type of trade and financial activities that intertwine the economies on both sides of the Atlantic into an increasingly interdependent relationship. For Members of Congress and other policy makers, the EU remains a significant participant in the U.S. economy and a major factor in policy considerations. For example, the EU and its members are influential members of the World Trade Organization (WTO), the Organization for Economic Cooperation and Development (OECD), the International Monetary Fund (IMF), and the World Bank. These countries, together with the United States, play decisive roles in developing and implementing the missions of those institutions. Despite the tightness of the bilateral relationship, policy tensions arise, generating tensions within the relationship, sometimes leading to bilateral trade disputes. The issues that arise are becoming more complex, reflecting the growing integration of the U.S. and EU economies. Yet, in spite of these disputes, the U.S.-EU economic relationship remains dynamic and one within which trillions of dollars of economic activity transpire. The United States and the EU have embarked on an effort to bind their economic relationship even more tightly with negotiations to form a free trade agreement—the Transatlantic Trade and Investment Partnership (TTIP). This report provides background information and analysis of the U.S.-EU economic relationship for Members of the 113 th Congress as they contemplate the costs and benefits of closer U.S. economic ties with the EU. It examines the economic and political framework of the relationship and the scope and magnitude of the ties based on data from various sources. In addition, the report analyzes the implications these factors have for U.S. economic policy toward the EU. The report will be revised as events warrant. The United States has been a strong advocate for the construction of close economic ties among the West European countries since the end of World War II. During the Cold War, the European Community served U.S. foreign policy and national security interests as a force of stability that drew former enemies—(West) Germany and France—closer together and that helped to build Western Europe into an economic bulwark against the Soviet Bloc. The formation of an economically unified Europe has served U.S. economic interests as well by accelerating European economic growth and development, which has opened trade and investment opportunities for the United States. Many studies have concluded that the formation of the EU has had a net positive economic impact on the world as a whole because it has led on balance to more trade creation than diversion of trade from other countries. The EU became a more closely knit entity with the formation of the European Monetary Union comprising 17 of the 28 members of the EU and their adoption of a common currency, the euro. That union is under challenge as the members of the eurozone confront the current debt crisis. U.S.-EU economic relations exist within a framework of economic, political, and security factors. Some of these factors have promoted closer economic relationships, while others have created tensions that have, at times, threatened to undermine the relationship. The U.S.-EU economic relationship dominates the world economy by the sheer size of the combined economies. The combined population of the United States and the EU members approaches 800 million people who generate a combined gross domestic product (GDP) that is roughly equivalent to over 40% of world GDP in 2012. Combined EU and U.S. world merchandise trade accounts for about 47% of all world trade. In other words, the U.S.-EU economic relationship has clout. The United States and the EU member countries are of roughly equivalent levels of economic development and are among the most advanced in the world. As a group they include the world's wealthiest and most educated populations. The United States and the members of the EU, with a few exceptions, are major producers of advanced technologies and services. As a result, U.S.-EU trade tends to be intra-industry trade; that is, trade in similar products, such as cars and computers, dominates two-way trade flows. Furthermore, the United States and the EU have advanced and integrated financial sectors which facilitate large volumes of capital flows across the Atlantic. These capital flows account for a significant portion of the bilateral economic activity. The dominance of security and defense matters is another factor influencing U.S.-EU ties. Twenty-two of the EU-28 are members of NATO, and represent an overwhelming majority of NATO's 28 members. NATO members must deal with a number of issues that pertain to foreign trade, such as defense-related government procurement, product standardization, controls of exports of dual-use technologies and related products, and economic sanctions. National security and foreign policy concerns strongly dominated the U.S.-European relationship during the Cold War. The 159-member WTO (and its predecessor, the General Agreement on Tariffs and Trade (GATT)) is a critical part of the EU-U.S. bilateral economic framework. The WTO provides the principles and rules under which the United States and the EU conduct much of their trade. The basic principles of most-favored-nation (MFN), or nondiscriminatory, treatment and of national treatment of imports of goods and services and of foreign investments, along with WTO rules on trade-related intellectual property rights, investment, and trade remedy practices (antidumping and countervailing duties and safeguards), are the foundation of U.S. and European trade and investment policies. The WTO also provides the mechanism by which the United States and the EU resolve many of their bilateral trade disputes. To a lesser extent, the OECD is an important element in the U.S.-EU framework. Largely consisting of fully industrialized countries, the 34-member OECD coordinates economic policies and reviews economic conditions and polices of its members and those of some non-members. The OECD also has some rules and guidelines for trade and investment practices of its members. For example, the OECD Arrangement on Official Export Credits curbs the subsidization of exports. EU and U.S. policies and practices form another element of the bilateral economic framework. The United States and the EU share a commitment to open trade and investment. The United States and European countries were largely instrumental in establishing the post-World War II foundation for an open international economic system. This commitment has played a large role in the strong economic ties between them. Yet, the two sides differ in some significant policy areas, for example, the EU's Common Agricultural Policy, conflicting competition policies, and the U.S. extraterritorial application of economic sanctions against Cuba and other countries. These policy differences have been a source of significant bitterness and controversy. The EU as a unit is the largest merchandise trading partner of the United States. In 2012, the EU accounted for $265.1 billion of total U.S. exports (or 17.1%) and for $380.8 billion of total U.S. imports (or 16.7%) for a U.S. trade deficit of $115.7 billion. At the same time, the United States is the largest non-EU trading partner of the EU as a whole. In 2012, EU exports to the United States accounted for 17.1% of total exports to non-EU countries, while EU imports from the United States accounted for 11.4% of total imports from non-EU countries. For a number of years, the United States realized trade surpluses with the EU. However, since 1993, the United States has been incurring growing trade deficits with the EU ($125.1 billion in 2013). Among the top U.S. exports to the EU have been aircraft and machinery of various kinds, including computers, integrated circuits, and office machine parts. A large share of U.S. imports from the EU has consisted of passenger cars; machinery of various types, including gas turbines; computers and components; office machinery; and parts and organic chemicals. Within the EU, Germany, the United Kingdom, and France are the leading U.S. trading partners, followed by the Netherlands and Italy. The EU is the largest U.S. trade partner when trade in services is added to trade in merchandise. In 2012 (latest data available), the EU accounted for $193.8 billion (or 30.7% of the total in U.S. services exports). Of this amount, $31.4 billion derived from receipts for various travel services, $10.3 billion from payments for passenger fares, and $14.9 billion for other transportation fees (freight and port services). Another $47.2 billion were in receipts for royalties and licensing fees, and $88.9 billion derived from other private sector services, including business, professional, and technical services (including legal services), and insurance. Also included under services are revenues from transfers under U.S. military contracts, which equaled $0.7 billion in 2012. In 2012, the EU accounted for $149.7 billion (or 34.4% of total U.S. services imports)—including travel services ($21.7 billion), passenger fares ($13.2 billion), and freight and port fees ($18.6 billion). Royalties and licensing fees accounted for another $18.4 billion. In addition, other private sector services accounted for $66.0 billion of imports. Also included were payments of $10.4 billion in defense-related expenditures. Table 2 indicates that the United States has consistently run surpluses in services trade with the EU.