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This report, prepared for the Trade Policy Review of The European Union, has been drawn up by the WTO Secretariat on its own responsibility. The Secretariat has, as required by the Agreement establishing the Trade Policy Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the World Trade Organization), sought clarification from the European Commission on the EU's trade policies and practices. Any technical questions arising from this report may be addressed to Ms. A. Enders (tel. 739 53 67); Mr. I. Alves (tel. 739 55 82); or Mr. W. Alfaro (tel. 739 53 72). Document WT/TPR/G/72 contains the policy statement submitted by The European Union All the document (PDF format - 1 meg.) CONTENTS
I. ECONOMIC ENVIRONMENT 1
II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES 18 (1) INTRODUCTION 18
(3) OBJECTIVES OF ECONOMIC AND TRADE POLICY 24
(4) EXTERNAL TRADE RELATIONS 28
III. TRADE POLICIES AND PRACTICES BY MEASURE 39
IV. TRADE POLICIES BY SECTOR 88
REFERENCES 147 APPENDIX TABLES 155 I. ECONOMIC ENVIRONMENT I.1 External trade by sector, 1998 11 III. TRADE POLICIES AND PRACTICES BY MEASURE III.1 Protective effect of duty regime for lemons, 1999 45 IV. TRADE POLICIES BY SECTOR IV.1 EU share in world trade of principal traded products, 1997 91 TABLES I. ECONOMIC ENVIRONMENT I.1 Major features of the EU economy by Member States, 1998 2 II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES II.1 Breakdown by area and Member State of non-transposed Directives 24 III. TRADE POLICIES AND PRACTICES BY MEASURE III.1 Applied MFN tariff, 1999 44 IV. TRADE POLICIES BY SECTOR IV.1 Basic agricultural statistics in Member States, 1998 89 APPENDIX TABLES I. ECONOMIC ENVIRONMENT AI.1 Leading merchandise imports by SITC Rev.3 category, 1995-98
(extra-EU trade) 157 II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES AII.1 Selected WTO documents of the European Communities, 1995-99 163 III. TRADE POLICIES AND PRACTICES BY MEASURE AIII.1 Applied MFN tariffs by HS Chapter, 1999 173 IV. TRADE POLICIES BY SECTOR AIV.1 Principal traded agricultural products by selected
destination/origin, 1998 181
(1) RECENT ECONOMIC DEVELOPMENTS 1. Since its last Trade Policy Review in 1997, the European Union (EU) has continued to make significant progress towards the completion of the Internal Market, including with the introduction of the euro. Since 1997, led by domestic demand, growth has risen to an average of some 2.5% a year and inflation has declined to historically low levels, of 1.2% in 1999. Unemployment, however, remains high, at 9.2%. Capitalizing on the economic potential of a quickly changing and competitive international environment is seen as requiring a correspondingly high degree of flexibility in labour, goods and services markets 2. In the framework of the Growth and Stability Pact, macroeconomic policies of Member States have been supportive of the economic recovery, geared to fiscal discipline and price stability. The euro was introduced on 1 January 1999 for 11 of the 15 Member States. The European Central Bank (ECB) now conducts monetary policy for the euro area with the objective of maintaining price stability (below 2%). No active exchange rate policy is in principle pursued for the euro, which had declined by over 20% against the dollar by April 2000 3. Structural policies have also been supportive of growth in the economy of the EU. The Community's initiatives to complete the Internal Market are aimed at improving the efficiency and functioning of markets for goods, services and capital. Notable efforts have been made to liberalize financial services (whose effects on capital markets were enhanced by the euro), and telecommunications, supported by the EU's WTO commitments 4. Greater importance has been given to an effective competition policy due to the structure of markets in newly deregulated sectors such as telecommunications. In addition, a wave of mergers and acquisitions has taken place in sectors affected by Internal Market initiatives or the rising importance of electronic commerce. More generally, increasingly globalized markets have boosted transatlantic merger activity 5. Job creation is the EU's central economic policy objective, to be realized through improved competitiveness of European enterprises, operating in a business environment enhanced by EMU and more efficient markets. Although the jobless rate has been declining steadily since 1997, and dipped into single digits in 1998 for the first time in five years, it is still above the natural rate. To achieve more efficient labour markets, a Community-wide employment strategy has been in place since 1998, with National Action Plans for each Member State 6. International trade trends have largely mirrored domestic economic developments. The EU's export and import growth (in value terms) fell sharply in 1998 compared with 1997, although the slowdown was more marked on the export side. These trends continued in 1999, with export growth estimated at 3% compared with 9% growth for imports. In addition to stronger internal demand, import growth (in value terms) was affected by the more than doubling of the price of oil on world markets, and the declining euro. The EU's longstanding surplus on merchandise trade gave way to a deficit of _ 13.7 billion in 1999 7. The composition of the EU's trade shifted sharply away from Asia in 1998, due to the crisis in emerging markets. Sustained growth in the United States – the EU's leading trade partner – has accordingly boosted the share of this market to 22% of the EU's exports in 1998. Central and Eastern Europe have also gained in importance, reaching a share of over 15% in EU exports 8. Real GDP growth in the EU is expected to accelerate from 2.3% in 1999 to 3.4% in 2000 and 3.1% in 2001. Net job creation is expected to continue at a rate above 1% over the next two years, with employment increasing by 1.3% in 2000 and 1.2% in 2001. However, further structural reforms would need to accompany economic growth in order for the unemployment rate to be pushed below the forecasted 7.9% in 2001 (2) INSTITUTIONAL DEVELOPMENTS 9. The Treaty of Amsterdam revised the founding treaties of the EU in May 1999 to bring the Community closer to its citizens. The European Parliament is engaged in co-decision with the Council for an expanded range of areas, and the scope of qualified majority voting in the Council is also wider. The EU is committed to greater openness of decision-making through transparency and consultation of civil society in all policy areas, including on trade policy matters 10. Preparations for enlargement continued with all applicants from Central and Eastern Europe formally joining the process in February 2000. An Intergovernmental Conference is meeting in 2000 to address the institutional issues raised by enlargement. Other related issues are the functioning and financing of the major Community programmes on agriculture, and structural operations. A reform of the Common Agricultural Policy (CAP) was thus agreed in 1999 (3) EXTERNAL TRADE RELATIONS (i) Basic objectives 11. The basic objectives of the EU's trade policy regime have remained largely the same since the last Review. The EU continues to pursue multilateral, regional, and bilateral initiatives to liberalize trade. At the multilateral level, the EU is a proponent of a new round of negotiations, with a broader agenda than the one "built-in" to the Uruguay Round, where negotiations began in 2000. At the regional level, the EU's new generation of agreements emphasize a greater reciprocity of market-access commitments than in the past, and concern a broader range of trading partners. Development policy is accordingly focussed more narrowly on least developed countries and GSP beneficiaries 12. With major trading partners, the EU is emphasizing the reduction of non-tariff barriers to trade resulting from product regulations and standards, and has concluded mutual recognition agreements on the results of conformity assessment. In addition to such initiatives, the EU and the United States have strengthened the framework for their relations, both inside and outside the WTO, to more effectively manage their trade conflicts (ii) WTO 13. The EU is a key participant in the WTO. Notifications of trade policy developments are regularly made to the WTO and are in principle also available to the public in keeping with the EU's policy of transparency. Uruguay Round commitments are being implemented on schedule, although the extent of actual trade liberalization appears to be modest. The EU is part of all WTO initiatives to liberalize trade, from information technology products and pharmaceuticals, to financial services and telecommunications 14. The EU is a leading user of the dispute settlement procedures to enforce multilateral trade obligations of its trading partners, and is also frequently involved as a respondent, often on transatlantic disputes. Most complaints are settled at an early stage, but the EU has had difficulties in complying with rulings in two high-profile cases – bananas and hormone-treated beef – leading to retaliation authorized by the WTO against the EU's exports in 1999. The EU does however recognize that its efforts to ensure that WTO trading partners comply with their obligations must be accompanied by its own rigorous compliance with the agreements (iii) Preferential trade agreements and arrangements 15. Since 1995, "Euro-Mediterranean" association agreements to establish bilateral The European Union free-trade areas were concluded with Israel, Jordan, Morocco, the Palestine Liberation Organization, and Tunisia; an agreement at negotiator's level was reached with Egypt in 1999. A free-trade agreement with South Africa came into force in 2000. The EU's first preferential trade agreement in the Americas was concluded in November 1999, with Mexico, and negotiations started in 2000 with Chile and MERCOSUR 16. In February 2000, the EU and the African, Caribbean and Pacific (ACP) countries agreed on a successor to the Fourth Lom é Convention. The Partnership Agreement of Suva continues the EU's non-reciprocal trade preferences until 2007 at the latest, to permit the parties to conclude new trading arrangements, with the aim of WTO-compatibility. WTO Members are considering a request for a waiver 17. For most developing country trade partners, the Community's GSP scheme offers preferences on (mainly) non-agricultural products. Supplementary preferences are available to least developed countries, as well as countries combatting drug production and trafficking. A new feature is the additional preferences on offer – as a positive inducement – to countries adhering to core labour standards or to environmental standards (4) MARKET ACCESS FOR GOODS 18. To the benefit of its consumers, the EU has a largely open market for non-agricultural products, with an average MFN tariff of 4.2% in 1999, compared with 4.9% in 1996. In addition, the EU removed six quantitative restrictions under the WTO Agreement on Safeguards, notably Germany's restriction on coal (in place since 1958), and the "consensus" with Japan on imports into the EU of motor vehicles of Japanese origin (in force from 1991 to 1999) 19. Textiles and clothing is subject to above-average tariffs, tariff escalation, and quotas; the EU's first and second stage integration of the sector into GATT 1994 lifted quotas on 12 of the 52 product categories restricted in 1990 (5.4% of restricted imports), affecting only a handful of developing countries. Anti-dumping measures are in place on imports of iron and steel products, electronic products, and chemicals from a number of origins, and a rising trend for measures in force is expected for 2000 due to the three-fold increase in the number of initiations of new investigations in 1999. State aid undermines conditions of competition in parts of the manufacturing sector, and aid levels have remained largely unchanged since the last Review, except for Germany where aid to the new L ä nder declined sharply 20. Conditions of access are also affected by the EU's numerous preferential trade agreements and arrangements, which make exclusively MFN treatment applicable only to imports from eight WTO Members: Australia; Canada; Hong Kong, China; Japan; Republic of Korea; New Zealand; Singapore; and the United States. The most beneficial treatment is granted to least developed countries and ACP countries (95% of lines are duty free), followed by regional trade agreements (80%), GSP beneficiaries (54%), and countries only subject to MFN (20%) 21. Conditions of access on agricultural products are affected by the operation of the CAP. High levels of self-sufficiency apply to primary agricultural products, such as wheat, dairy products, and meat, with spillover effects on world markets. The simple average tariff on agricultural products is estimated at 17.3%, although access on high-tariff items mainly takes place through tariff quotas. The EU's allocation and administration of tariff quotas has been highly controversial in the WTO in the case of bananas. Other complexities of the border regime for agricultural items produced in the Community include duties assessed in specific terms, on the basis of ingredients or the season, or based on the entry price. As a result, more open conditions of access generally apply to items not produced in the EU (e.g. coffee, cocoa). In addition to border measures, the Community spent some _ 45 billion (US$50 billion) on the CAP in 1999, making agriculture – at 45% of the budget – the most visible item of Community expenditure. OECD estimates indicate that the level of support to agricultural producers in 1998-99 reached the previous historical high of 1986-88, although direct payments (which are subject to production-limiting programmes) have risen in importance to account for about one-quarter of the total. A further shift to direct payments is foreseen by the reform of the CAP agreed in 1999, with cuts in market price support for cereals, dairy, and meat 23. Product regulations and standards are a key market access issue, both for the Internal Market and for trading partners. The Community has concluded mutual recognition agreements on the results of conformity assessment with Australia, Canada, New Zealand, Switzerland, and the United States, and is negotiating one with Japan. For the future, market access conditions for exporters of foodstuffs are likely to be affected by the EU's policy of greater food safety, linked to a number of "food scares" at Community level 24. Government procurement is also a key market access issue for the Internal Market and for trading partners. Procurement of goods and services accounted for some 14% of Community GNP, or over _ 1,000 billion, in 1998. Greater competition in this area has long been a central objective of the EU to ensure a better use of public monies, but results to date are disappointing (5) MARKET ACCESS FOR SERVICES 25. The EU is committed to continue removing restrictions to competition and trade in the services sector. Among subsectors, however, the pace of liberalization differs significantly. Since the last Review in 1997, major legislative developments have taken place in financial services and telecommunications. The effects of these internal policy developments on conditions of competition in these sectors have been reinforced by the EU's commitments in the WTO providing national treatment to foreign service providers. In contrast, WTO commitments have not been made for transportation and audio-visual services, and EU legislation provides for various forms of European or bilateral preference 26. Starting in 1998, in parallel with WTO commitments, telecommunication services and infrastructure in the EU were opened to competition, including to foreign operators. A more competitive market has rapidly developed. Legislative changes aimed at harmonizing disparate conditions and standards are to be completed by the end of 2001. A concentration of suppliers has taken place to exploit economies of scale in the provision of long-distance and mobile telephony services, subject to the Commission's active enforcement of EU competition law 27. Developments relating to financial services include the implementation of the Action Plan for the sector, to harmonize regulation where necessary, as well as the structural change to capital markets resulting from the introduction of the euro in 1999. In addition, the EU's WTO commitments in the sector came into force in March 1999, extending the principle of the single passport to foreign providers in banking and insurance. Growth has been especially dynamic in banking and securities 28. Notwithstanding the importance of these developments, an increasing exposure of the services sector to competitive forces inside and outside the EU has revealed certain structural rigidities whose correction could enhance the economic performance of the sector (6) PROTECTION OF INTELLECTUAL PROPERTY RIGHTS 29. Community initiatives to complete the Internal Market have to some extent harmonized regimes of the Member States, supplemented by instruments creating unitary The European Union Community rights on trade marks and plant varieties. Since the last Review in 1997, new harmonization initiatives apply to the legal protection of biotechnological inventions and to the protection of designs, and an initiative is planned for the patentability of computer programs. Initiatives are also planned to establish new unitary rights through a "Community design" and a "Community patent". A 1999 study highlights infringements of trade marks and copyright, with worst affected areas being computer software, audio-visual and clothing
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