RESTRICTEDWORLD  TRADE
ORGANIZATIONWT/TPR/S/72
14 June 2000
(00-2253)
Trade Policy Review Body
TRADE POLICY REVIEW
THE EUROPEAN UNION
Report by the Secretariat
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 clar ification 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
Note: This report is subject to restricted circulation and press embargo until the end of the meeting
of the Trade Policy Review Body on The European Union.The European Union WT/TPR/S/72
Page iii
CONTENTS
Page
SUMMARY OBSERVATIONS vii
(1) R ECENT ECONOMIC DEVELOPMENTS vii
(2) I NSTITUTIONAL DEVELOPMENTS viii
(3) E XTERNAL TRADE RELATIONS viii
(i) Basic objectives viii(ii) WTO viii
(iii) Preferential trade agreements and arrangements viii
(4) M
ARKET ACCESS FOR GOODS ix
(5) M ARKET ACCESS FOR SERVICES x
(6) P ROTECTION OF INTELLECTUAL PROPERTY RIGHTS x
I. ECONOMIC ENVIRONMENT 1
(1) I NTRODUCTION 1
(2) R ECENT ECONOMIC DEVELOPMENTS 2
(i) Growth patterns 3(ii) Labour market performance 4(iii) Public finances 5(iv) Inflation 7
(v) Monetary policy 7
(vi) The exchange rate 8
(3) D
EVELOPMENTS IN TRADE 8
(i) Composition of merchandise trade 10(ii) Direction of trade 11
(4) O
UTLOOK FOR 2000 AND 2001 12
Annex I.1:  Stage 3 of the Economic and Monetary Union: the euro 14
II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES 18
(1) I NTRODUCTION 18
(2) G ENERAL FRAMEWORK 19
(i) Recent developments 19(ii) Legislative procedures 19
(iii) Trade and trade-related policy-making 22
(iv) Transparency and consultation of the public 23
(3) O
BJECTIVES OF ECONOMIC AND TRADE POLICY 24
(i) Internal Market 24(ii) Agenda 2000 25(iii) Market access strategy 26
(4) E
XTERNAL TRADE RELATIONS 28
(i) WTO 28(ii) Preferential trade agreements 32(iii) Preferential arrangements 35(iv) Partnership and cooperation agreements 37
(v) Other agreements on trade and economic relations 37WT/TPR/S/72 Trade Policy Review
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III. TRADE POLICIES AND PRACTICES BY MEASURE 39
(1) O VERVIEW 39
(2) M EASURES DIRECTLY AFFECTING IMPORTS 40
(i) Customs procedures 40(ii) Customs valuation 42
(iii) Rules of origin 42
(iv) Community tariff 43(v) Indirect taxes 48(vi) Prohibitions, restrictions, and licensing requirements 51(vii) Safeguard measures 56
(viii) Product regulations and standards 56
(ix) Government procurement 63(x) State-trading (as defined in GATT Article XVII) 65(xi) Anti-dumping and countervailing measures 66
(3) M
EASURES DIRECTLY AFFECTING EXPORTS 69
(i) Procedures 69
(ii) Prohibitions, restrictions, and licensing 70
(iii) Duties 71(iv) Export subsidies 71(v) Export assistance 71(vi) State-trading enterprises 71
(4) M
EASURES AFFECTING PRODUCTION AND TRADE 71
(i) Legal framework for businesses 71
(ii) Subsidies 75(iii) Competition policy 79(iv) Intellectual property rights protection 83
IV. TRADE POLICIES BY SECTOR 88
(1) O
VERVIEW 88
(2) A GRICULTURE 89
(i) Features 89(ii) Common Agricultural Policy (CAP) 91
(3) D
EVELOPMENTS IN SELECTED MANUFACTURING INDUSTRIES 99
(i) Overview 99
(ii) Automobiles 100
(iii) Pharmaceutical 105(iv) Aerospace 109(v) Shipbuilding 111
(4) S
ERVICES 114
(i) Overview 114
(ii) Financial services 116
(iii) Telecommunications 122(iv) Transport services 129(v) Audio-visual 137
Annex IV.1 Electronic commerce 142
Annex IV.2 EC Financial Services Schedule in GATS 145
REFERENCES 147
APPENDIX TABLES 155The European Union WT/TPR/S/72
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CHARTS
Page
I. ECONOMIC ENVIRONMENT
I.1 External trade by sector, 1998 11
I.2 External trade by partner, 1998 12
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Protective effect of duty regime for lemons, 1999 45
III.2 Standard rates of corporation tax in the European Union 74
IV. TRADE POLICIES BY SECTORIV.1 EU share in world trade of principal traded products, 1997 91
IV.2 Share of Member States in EU final production of agriculture and
in EAGGF guarantee section expenditures, 1998 93
IV.3 Tariffs on non-agricultural manufactured products, 1999 101IV.4 Trade in the automotive sector, 1995-98 102IV.5 Trade in the pharmaceutical sector, 1995-98 106IV.6 Capacity and market shares in shipbuilding 111
IV.7 Trade in the shipbuilding sector with selected countries, 1995-98 113
IV.8 Local interconnection rate, September 1999 and March 2000 126IV.9 Cost of international calls and its average annual variation, as of 1 August 1999 127IV.10 Trade balance of selected transport services, 1992-97 130IV.11 Cross-border routes and number of competitors, 1992-97 133
IV.12 Airfares by number of carriers on the route 134
IV.13 Nationality of major open-registry fleets, as at 31 December 1997 135IV.14 Growth of non-free-to-air share of content provider revenues, 1995 and 2005 138IV.15 Trade in audio-visual services between the European Union and
North America, 1993-98 139
TABLES
I. ECONOMIC ENVIRONMENT
I.1 Major features of the EU economy by Member States, 1998 2
I.2 Overall performance of the EU economy, 1996-99 3I.3 Main economic indicators by Member State, 1996-98 5I.4 Extra-EU trade by EU Member States, 1998 9
II. TRADE POLICY REGIME:   FRAMEWORK AND OBJECTIVES
II.1 Breakdown by area and Member State of non-transposed Directives 24
II.2 Preferential trade agreements of the European Union, 1999 31
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Applied MFN tariff, 1999 44
III.2 Summary of MFN and preferential regimes, 1999 47III.3 VAT rates by Member State, 1999 49WT/TPR/S/72 Trade Policy Review
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Page
III.4 Excise taxes on selected products by Member State, 1999 51
III.5 Quantitative restrictions on imports of textile and clothing products 54III.6 WTO notifications of technical regulations by the EC and Member States, 1995-99 62III.7 Summary of the EU's main commitments under the Agreement on
Government Procurement, 2000 66
III.8 Anti-dumping actions, 1990-99 69
IV. TRADE POLICIES BY SECTOR
IV.1 Basic agricultural statistics in Member States, 1998 89
IV.2 Distribution of final agricultural production of selected items by Member State, 1998 90IV.3 Consumption and self-sufficiency in selected primary agricultural products, 1997-98 90IV.4 EAGGF Guarantee Section expenditure by selected crop and economic measure, 1998 94IV.5 Tariff protection on the EU's leading agricultural product imports, 1999 97IV.6 Transfers associated with agricultural policies, 1986-99 98
IV.7 EU trade in individual services sectors, 1992 and 1997 115
IV.8 Overview of transposition of recent harmonization directives, 1 October 1999 125IV.9 Number of operators in EC telecommunication services, August 1999 128Annex Table Schedule of sector-specific commitments 146
APPENDIX TABLES
I. ECONOMIC ENVIRONMENT
AI.1 Leading merchandise imports by SITC Rev.3 category, 1995-98 (extra-EU trade) 157
AI.2 Leading merchandise exports by SITC Rev.3 category, 1995-98 (extra-EU trade) 168AI.3 EU services trade by sector, 1996 and 1997 159AI.4 Balance of payments of the euro area, 1997-99 160AI.5 Merchandise imports by region and country, 1995-98 161
AI.6 Merchandise exports by region and country, 1995-98 162
II. TRADE POLICY REGIME:   FRAMEWORK AND OBJECTIVESAII.1 Selected WTO documents of the European Communities, 1995-99 163
AII.2 Complaints initiated by the European Union, 1995-99 167
AII.3 Complaints against the European Communities and/or its Member States, 1995-99 171
III. TRADE POLICIES AND PRACTICES BY MEASUREAIII.1 Applied MFN tariffs by HS Chapter, 1999 173
AIII.2 Simple average tariffs under MFN and preferential regimes, by HS Chapter, 1999 176
AIII.3 Quantitative restrictions on imports of textile and clothing products by category
and country coverage 179
IV. TRADE POLICIES BY SECTOR
AIV.1 Principal traded agricultural products by selected destination/origin, 1998 181
AIV.2 Applied MFN tariffs by ISIC Rev.2 category, 1999 182AIV.3 Summary of intra-EU air transport packages 185The European Union WT/TPR/S/72
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SUMMARY OBSERVATIONS
(1) RECENT ECONOMIC DEVELOPMENTS
1. Since its last Trade Policy Review in
1997, the European Union (EU) has continued
to make significant progress towards thecompletion 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 offlexibility 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 introducedon 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 ratepolicy 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 theEU.  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 deregulatedsectors such as telecommunications. In
addition, a wave of mergers and acquisitionshas 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 ratehas 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 employmentstrategy 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 slowdownwas 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) wasaffected 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 theshare 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 jobcreation is expected to continue at a rate
above 1% over the next two years, withWT/TPR/S/72 Trade Policy Review
Page viii
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 expandedrange 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 in1999.
(3) E
XTERNAL TRADE RELATIONS
(i) Basic objectives
11. The basic objectives of the EU's trade
policy regime have remained largely the samesince 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 broaderagenda 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 accordinglyfocussed 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 concludedmutual 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 moreeffectively 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 WTOand 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, frominformation technology products and
pharmaceuticals, to financial services and
telecommunications.
14. The EU is a leading user of the
dispute settlement procedures to enforcemultilateral 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 complyingwith 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 ensurethat 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 bilateralThe European Union WT/TPR/S/72
Page ix
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 firstpreferential 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
Lomé Convention.  The Partnership
Agreement of Suva continues the EU's non-
reciprocal trade preferences until 2007 at thelatest, 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-agriculturalproducts.  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 positiveinducement – to countries adhering to core
labour standards or to environmental
standards.
(4) M
ARKET 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 onSafeguards, 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, andquotas;  the EU's first and second stageintegration 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.  Stateaid 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 Länder 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.  TheEU'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 basedon the entry price.  As a result, more open
conditions of access generally apply to items
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22. 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 ofsupport 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 aboutone-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 thefuture, 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 haslong been a central objective of the EU to
ensure a better use of public monies, but
results to date are disappointing.
(5) M
ARKET 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 theseinternal policy developments on conditions of
competition in these sectors have beenreinforced 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 ofEuropean 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. Amore 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 takenplace 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 theAction 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 thesector 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 couldenhance the economic performance of the
sector.
(6) P
ROTECTION 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 unitaryThe European Union WT/TPR/S/72
Page xi
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 computerprograms.  Initiatives are also planned toestablish 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.