: European Union. External trade

: European Union. External trade

European Union: July 2002

The new WTO report, along with a policy statement by the European Commission,

will serve as the basis for the trade policy review of the EU which will take

place on 24 and 26 July 2002 in the Trade Policy Review Body of the WTO.

See also:

> Second press release <tp199_e.htm>

> Chairpersons concluding remarks <tp199_e.htm>

As key trade liberalization supporter, EU keeps markets open except for

textiles and agriculture back to top <>

Pursuing trade liberalization through multilateral, regional and bilateral

initiatives, the European Union has maintained its markets largely open

except for textiles and agriculture says a new WTO report on the trade

policies on the EU. The EUs position as the worlds leading exporter of

goods and the second largest importer is testimony both to the importance of

trade to the European consumer and producer, and to the significance of the

EU as a market for most WTO Members, notably developing countries, the report

adds.

Since its last trade policy review, the EU has maintained the momentum of its

internal economic integration agenda, the report says. It has continued to

advance towards the completion of its Internal Market by pursuing product and

capital market reform, has undertaken the final step towards a single

currency in the euro area, largely maintained control of public finances

despite lower economic growth, and has actively enforced competition policy.

The report states that maintaining a supportive policy environment for economic

operators has been vital to reviving growth prospects of the European economy

in 2002. Economic growth in the EU slowed sharply in 2001 (1.7%), down

from 3.3% in 2000, mainly as a result of external shocks (higher oil prices,

burst of technology bubble, 11 September, etc.). GDP growth in 2002 is expected

to be 1.5%, followed by a rebound to 2.9% in 2003. Inflation rose to 2.3% in

2001, from 2.1% in 2000 (the medium-term target by the European Central Bank is

2%). Unemployment continued to decline in most Member States in 2001 despite

slower economic growth.

The report notes that the strategic goal for the EU for 2010, set by the

Lisbon European Council, is to become the most competitive and dynamic

knowledge-based economy in the world capable of sustainable growth with more

and better jobs and greater social cohesion. The 2002 Broad Economic Policy

Guidelines for the EU and the Member States emphasize safeguarding

macroeconomic stability by fulfilling pledges for budgetary balance made in

the Stability and Growth Pact and continued moderation in wage demands.

The single currency facilitates cross-country price comparisons, and thus

strengthens the Internal Market, the report notes. Non-EU countries also

benefit through lower costs for international trade transactions. The main

benefit of Economic and Monetary Union (EMU), however, is the lasting

contribution of price stability to the foundations for sustained economic

activity, the report adds.

The report states that progress in other areas of the Internal Market has

been slower. Political agreement was reached at the Barcelona European

Council in March 2002 to open non-household use of electricity and gas to

competition as of 2004, and to ensure cross-border electricity

interconnectivity of at least 10% of production capacity by 2005. On postal

services, the scope of business segments reserved to the incumbent postal

operator is to be reduced in 2003 and again in 2006, and a decisive step to

full liberalization could take place in 2009.

The EU continues to pursue trade liberalization through multilateral,

regional, and bilateral initiatives, the report says. At the multilateral

level, the EU played a leading role in building support for the launch of the

Doha Development Agenda. At the regional level, new trade agreements were

concluded and existing agreements with candidate countries were deepened.

Bilateral negotiations on prospective extra-regional agreements also

continued. In addition, a new scheme for the grant of preferences to

developing countries was adopted, including enhanced preferences for least-

developed countries.

The EU grants preferential access to most of its trading partners for some or

all imports: in 2002, nine WTO Members are subject to exclusively Most-

Favoured-Nation (MFN) treatment in all product categories: Australia; Canada;

Chinese Taipei; Hong Kong, China; Japan; Republic of Korea; New Zealand;

Singapore; and the United States. These countries accounted for 45.2% of EUs

total merchandise imports in 2001. For other trading partners, the most

beneficial treatment is granted to Least Developed Countries (LDCs) and the

Overseas Countries and Territories, followed by the African Caribbean Pacific

(ACP) countries and countries having concluded free-trade agreements with the

EU, and then countries under the Generalized System of Preferences (GSP)

only.

The report notes that the EU market for non-agricultural products continues to

be largely open. Except for textiles and clothing products, where following its

WTO commitments, the EU has only lifted restrictions on 20% of products

restricted in 1990, leaving the elimination of the remaining 80% of restricted

imports back-loaded for the final stage at the end of 2004.

The overall simple average MFN tariff is estimated at 6.4% for 2002. The

simple average applied tariff on non-agricultural products is 4.1%, slightly

lower than at the previous TPR, due to tariff reductions for certain

chemicals, textiles, iron and steel products, and toys. The simple average

tariff on agricultural products is, at 16.1%, about four times higher than

that on non-agricultural products, with above average tariffs on products

subject to the Common Agricultural Policy (CAP). Tariff escalation remains,

in particular on processed products.

On agriculture, according to the Organisation for Economic Co-operation and

Development (OECD), support to producers declined to € 97.9 billion in

2000 from € 107.6 billion in 1999, mainly due to world market prices

rising faster than domestic prices, as well as currency movements, rather

than significant changes in policy. The report states that opportunity to

reform the milk quota or sugar quota regimes was not seized, with extensions

adopted instead. Pressures to adapt the CAP to new requirements are arising

from enlargement, where the EC has proposed a progressive introduction of

direct payments. Decline in consumer confidence in the CAP is due to a number

of food safety crises, which the Community is addressing, notably by a new

framework for food safety law. The report notes that funding for the CAP

continues to represent the single largest expenditure; 44% of the total

budget of € 93 billion in 2000.

The report states that on trade remedies, the EU is the second most frequent

user of anti-dumping measures, behind the United States, but some 40% of the

anti-dumping investigations initiated by the EU are terminated without

measures being taken. Safeguard action was taken in March 2002 on 15 steel

products in response to the United States safeguard action on steel imports.

The EU continues to make frequent use of the special safeguard mechanism

under the WTO Agreement on Agriculture to impose snap-back tariffs.

The EU and the Member States have put in place new regulations for certain

products notably in relation to the safety of products and the disposal of

waste requiring economic operators, including those outside the EU, to

adapt. The report notes that certain trading partners of the EU perceive

these new product regulations as significant trade barriers, and are

concerned with preserving the viability of the international standard-setting

process. A controversy exists concerning the placement on the EU market of

genetically modified organisms (GMOs) and products that may contain GMOs or

GMO derivatives. Amendments to the legislation are under consideration to

ensure compliance with WTO rulings.

The report notes that the long-standing proposal for a European company was

adopted in October 2001, to be in place by 2004, and will simplify company

law requirements for enterprises established in at least two Member States.

Foreign companies will also have this option, under certain conditions. The

Commission has continued to vigorously enforce the rules on antitrust

activities and mergers with a Community dimension, to complement national

competition law enforcement.

The report notes that to strengthen intellectual property rights protection,

the EU adopted harmonizing directives on resale rights for the author of an

original work of art, and copyright and related rights for the digital

environment. No agreement has been reached on the ECs proposal to create a

unitary Community patent, due to issues of translation as well as

jurisdiction.

Note to Editors

Trade Policy Reviews are an exercise, mandated in the WTO agreements, in

which member countries trade and related policies are examined and evaluated

at regular intervals. Significant developments which may have an impact on

the global trading system are also monitored. For each review, two documents

are prepared: a policy statement by the government of the member under

review, and a detailed report written independently by the WTO Secretariat.

These two documents are then discussed by the WTOs full membership in the

Trade Policy Review Body (TPRB). These documents and the proceedings of the

TPRBs meetings are published shortly afterwards. Since 1995, when the WTO

came into force, services and trade-related aspects of intellectual property

rights have also been covered.

For this review, the WTOs Secretariat report, together with a policy

statement prepared by the European Commission, will be discussed by the Trade

Policy Review Body on 24 and 26 July 2002. The Secretariat report covers the

development of all aspects of the European Unions trade policies, including

domestic laws and regulations, the institutional framework, trade policies

and practices by measure, and developments in selected sectors.

Attached to this press release are the Summary Observations of the Secretariat

report and parts of the government policy statement. The Secretariat and the

government reports are available under the country name in the full list of

trade policy reviews <tp_rep_e.htm>. These two documents and the

minutes of the TPRBs discussion and the Chairmans summing up, will be

published in hardback in due course and will be available from the Secretariat,

Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.

Since December 1989, the following reports have been completed: Argentina

(1992 and 1999), Australia (1989, 1994 and 1998), Austria (1992), Bahrain

(2000) Bangladesh (1992 and 2000), Barbados (2002), Benin (1997), Bolivia (1993

and 1999), Botswana (1998), Brazil (1992, 1996 and 2000), Brunei Darussalam

(2001), Burkina Faso (1998), Cameroon (1995 and 2001), Canada (1990, 1992,

1994, 1996, 1998 and 2000), Chile (1991 and 1997), Colombia (1990 and 1996),

Costa Rica (1995 and 2001), Côte dIvoire (1995), Cyprus (1997), the

Czech Republic (1996 and 2001), the Dominican Republic (1996), Egypt (1992 and

1999), El Salvador (1996), the European Communities (1991, 1993, 1995, 1997,

2000 and 2002), Fiji (1997), Finland (1992), Gabon (2001), Ghana (1992 and

2001), Guatemala (2002), Guinea (1999), Haiti (2002), Hong Kong (1990, 1994 and

1998), Hungary (1991 and 1998), Iceland (1994 and 2000), India (1993, 1998 and

2002), Indonesia (1991, 1994 and 1998), Israel (1994 and 1999), Jamaica (1998),

Japan (1990, 1992, 1995,1998 and 2000), Kenya (1993 and 2000), Korea, Rep. of

(1992, 1996 and 2001), Lesotho (1998), Macao (1994 and 2001), Madagascar

(2001), Malaysia (1993, 1997 and 2001), Malawi (2002), Mali (1998), Mauritius

(1995 and 2001), Mexico (1993, 1997 and 2002), Morocco (1989 and 1996),

Mozambique (2001), New Zealand (1990 and 1996), Namibia (1998), Nicaragua

(1999), Nigeria (1991 and 1998), Norway (1991, 1996 and 2000), OECS (2001),

Pakistan (1995 and 2002), Papua New Guinea (1999), Paraguay (1997), Peru (1994

and 2000), the Philippines (1993 and 1999), Poland (1993 and 2000), Romania

(1992 and 1999), Senegal (1994), Singapore (1992, 1996 and 2000), Slovak

Republic (1995 and 2001), Slovenia (2002), the Solomon Islands (1998), South

Africa (1993 and 1998), Sri Lanka (1995), Swaziland (1998), Sweden (1990 and

1994), Switzerland (1991, 1996 and 2000 (jointly with Liechtenstein)), Tanzania

(2000), Thailand (1991, 1995 and 1999), Togo (1999), Trinidad and Tobago

(1998), Tunisia (1994), Turkey (1994 and 1998), the United States (1989, 1992,

1994, 1996, 1999 and 2001), Uganda (1995 and 2001), Uruguay (1992 and 1998),

Venezuela (1996), Zambia (1996) and Zimbabwe (1994).

The Secretariats report: summary back to top <>

TRADE POLICY REVIEW BODY: EUROPEAN UNION

Report by the Secretariat - Summary Observations

The European Union (EU) plays a vital role in the WTO and its support for the

rules-based multilateral trading system is crucial to the ability of the

system to deliver the benefits from trade to all its Members. The EUs

position as the worlds leading exporter of goods and the second-largest

importer is testimony both to the importance of trade to the European

consumer and producer, and to the significance of the EU as a market for most

WTO Members, notably developing countries. This interdependence is the result

of a longstanding commitment to the multilateral trading system, in addition

to an extensive network of regional trade agreements and preferential trade

arrangements.

The EU was very important in building support for the launch of the Doha

Development Agenda (DDA) in November 2001. The EU, together with its trading

partners, worked to rebuild confidence and cooperation within the WTO. It has

also sought to improve public understanding of the WTO through greater

transparency and interaction with parliamentarians and civil society

representatives. The continued commitment of the EU to the WTO and the

multilateral trading system will be critical to the success of the DDA.

Recent Economic Developments

Since its last Trade Policy Review in mid 2000, the EU has maintained the

momentum of its internal economic integration agenda. It has continued to

advance towards the completion of its Internal Market by pursuing product and

capital market reform, has undertaken the final step towards a single

currency in the euro area, largely maintained control of public finances

despite lower economic growth, and has actively enforced competition policy,

to complement Member State domestic reform. Trade policy developments have

been supportive of this agenda, by maintaining largely open markets for non-

agricultural products (except for textiles and clothing), proceeding on WTO

liberalization commitments, and supporting further deepening of multilateral

commitments, while further expanding the extensive system of regional trade

agreements.

Maintaining a supportive policy environment for economic operators has been

vital to reviving growth prospects of the European economy in 2002. Economic

growth in the EU slowed sharply in 2001, with a slight contraction in GDP in

the final quarter of the year. Growth was 1.7% in 2001 down from 3.3% in

2000. The slowdown is attributed by the Commission mainly to a sequence of

external shocks higher oil prices, the burst technology bubble, weak

external demand, exacerbated by the shock to confidence of the events of 11

September. The Commissions Spring 2002 forecasts are for a recovery to

develop in the course of the year, due in part to the strengthened economic

prospects of the United States, the EUs main external trade partner. A

weaker first half, however, is expected to lead to a decline in the growth

rate recorded for 2002 as a whole, to 1.5%, followed by a rebound to 2.9% in

2003.

Inflation in the EU rose to 2.3% in 2001, from 2.1% in 2000 and 1.2% in 1999.

Contributing factors in 2000 were higher energy prices and the decline of the

euro and, in early 2001, rising food prices. Price pressures eased in mid

2001, but higher food prices and indirect tax increases lifted inflation in

early 2002. Although euro area inflation in 2001 was above 2%, the medium-

term target set by the European Central Bank (ECB), the Commission expects

the target to be met in Q2 2002.

Unemployment rates continued to decline in most Member States in 2001 despite

slower economic growth. The Commission expects a slight rise in unemployment

in the EU as a whole in 2002, even as the recovery proceeds, due to the

lagged nature of employment adjustment to cyclical upturns. A decline to 7.5%

is forecast for 2003.

Slower economic growth had a marked impact on external trade developments in

2001. The value of merchandise exports rose by 4% in 2001, compared with 23%

in 2000, while imports were 1% lower in value. Merchandise exports were

estimated at € 1,051 billion and imports at € 1,020 billion in

2001, reducing the EUs merchandise trade deficit to € 45 billion in

2001, from € 91 billion in 2000.

Policy Developments

The strategic goal for the EU for 2010, set by the Lisbon European Council,

is to become the most competitive and dynamic knowledge-based economy in the

world capable of sustainable growth with more and better jobs and greater

social cohesion. The 2002 Broad Economic Policy Guidelines (BEPG) for the EU

and the Member States emphasize safeguarding macroeconomic stability by

fulfilling pledges for budgetary balance made in the Stability and Growth

Pact (SGP), and continued moderation in wage demands. Other objectives

include raising productivity through product market reform, fostering

entrepreneurship and the knowledge-based economy, and financial market

integration. Member States are to reduce labour costs, strengthen incentives

for people to take up work and participate in the labour force, and remove

barriers to labour mobility. Sustainable development is to be promoted.

The 11 Member States that launched the euro area on 1 January 1999 were

joined by Greece on 1 January 2001. Euro banknotes and coins were put into

circulation on 1 January 2002, to be used in all transactions. The single

currency facilitates cross-country price comparisons, and thus strengthens

the Internal Market. Non-EU countries also benefit through lower costs for

international trade transactions. The main benefit of Economic and Monetary

Union (EMU), however, is the lasting contribution of price stability to the

foundations for sustained economic activity.

The ECB conducts monetary policy for the euro area with the core objective of

price stability. After progressively tightening monetary policy throughout

2000 in the face of persistent inflationary pressures, the ECB shifted to a

more accommodating stance in May 2001 as price pressures eased. After the

euro fell below a level that the ECB considered posed a risk to price

stability, the ECB intervened to support the euro in September 2000 in a

concerted G-7 action, and on its own in November 2000. The euro has since

recovered to about US$0.90, 25% below its level of 1 January 1999.

Following the progress made in 2000 by all Member States, towards the goal of

budgetary balance or surplus, slippage occurred in 2001 due to the onset of

slower economic growth. Most governments still in deficit position

anticipated even greater difficulty in meeting their deficit targets in 2002.

To maintain the credibility of the SGP, activation of the early warning

system was considered for certain Member States whose deficits were forecast

to be close to the 3% excessive deficit level, but activation was set aside

following pledges to meet agreed balanced budget targets by 2004. Pressures

on deficits should ease in 2003 as a result of the anticipated recovery.

Other public finance concerns are the relatively high levels of government

debt in certain Member States, as well as the substantial pressure of ageing

populations on social welfare systems.

Under EMU, structural reforms have assumed a greater importance in fostering

the conditions for growth, due to the combination of a strict anti-

inflationary monetary policy stance and fiscal policy constraints under the

SGP. Since the last Review of the EU in mid 2000, good progress has been made

on achieving the goal of fully integrated securities markets by 2003 and

financial markets by 2005 under the Financial Services Action Plan (FSAP),

and on fostering the information society through more competitive markets

for telecommunications services and a new framework for e-commerce.

Progress in other areas of the Internal Market has been slower. Political

agreement was reached at the Barcelona European Council in March 2002 to open

non-household use of electricity and gas to competition as of 2004, and to

ensure cross-border electricity interconnectivity of at least 10% of

production capacity by 2005. On postal services, the scope of business

segments reserved to the incumbent postal operator is to be reduced in 2003

and again in 2006, and a decisive step to full liberalization could take

place in 2009.

Institutional Developments

The Treaty of Nice was agreed in December 2000, to prepare EU institutions

for enlargement in the light of the objective of the candidates

participation in the 2004 elections to the European Parliament. Of particular

significance to the WTO is the exclusive Community competence that would

apply to negotiations of agreements that concern services (with certain

exceptions), and the commercial aspects of intellectual property rights upon

ratification by all Member States of the Treaty of Nice (ten had done so by

May 2002). To prepare for the next phase of work on the EU treaties in 2004,

the Convention on the future of Europe, launched in March 2002, is engaged in

a deeper and wider debate about the future of the European Union.

Transparency in the functioning of the EU has been further enhanced during

the period under review by a new policy adopted in 2001 to give all persons,

regardless of their nationality, access to documents of Community

institutions, subject to limits for the protection of public and private

interests. The Commission has made increasing use of public consultations to

provide input into proposals for Community action, in keeping with the White

Paper on European Governance.

External Trade Relations

The overall objectives of the EUs trade policies have remained largely the

same during the period under review. The EU continues to pursue trade

liberalization through multilateral, regional, and bilateral initiatives. At

the multilateral level, the EU played a leading role in building support for

the launch of the DDA in November 2001. At the regional level, new trade

agreements were concluded and existing agreements with candidate countries

were deepened. Bilateral negotiations on prospective extra-regional

agreements also continued. In addition, a new scheme for the grant of

preferences to developing countries was adopted, including enhanced

preferences for least-developed countries.

Notable actions undertaken by the EU to build support for the launch of the

DDA include: the Everything-but-arms (EBA) initiative, adopted in March

2001, to expand market access for least-developed countries (LDCs);

supporting the resolution of implementation-related concerns; and providing

resources for enhanced levels of trade-related technical assistance, for

which the EU and Member States are major donors.

In addition, the EU continues to be an active participant in all the regular

activities of the WTO and periodically notifies its trade policy developments

to the WTO. The EU is among the leading users of the dispute settlement

procedures to enforce the multilateral trade obligations of its trading

partners, and is frequently involved as a respondent. Disputes with the

United States continue to be the leading category.

Preferential trade agreements and arrangements

The EU grants preferential access to most of its trading partners for some or

all imports: in 2002, nine WTO Members are subject to exclusively MFN

treatment in all product categories: Australia; Canada; Chinese Taipei; Hong

Kong, China; Japan; Republic of Korea; New Zealand; Singapore; and the United

States. These countries accounted for 45.2% of EUs total merchandise imports

in 2001. For other trading partners, the most beneficial treatment is granted

to LDCs and the Overseas Countries and Territories (OCT), followed by the ACP

and countries having concluded free-trade agreements with the EU, and then

GSP-only countries.

The EU expanded its free-trade agreement with Switzerland through the

completion of seven bilateral agreements, on land-based transport, air

transport, free movement of people, agriculture, research, procurement, and

technical barriers to trade, which should enter into force in 2002. With the

ten candidates from Central and Eastern Europe (CEEC), protocols on

reciprocal tariff concessions on agricultural products raised the share of

CEEC duty-free agricultural exports to the EU to 75%, and the share of EU

duty-free exports of agricultural products to the CEEC to 61%.

Free-trade agreements are also being used as an instrument to integrate the

Western Balkans. Stabilisation and Association (SAA) agreements were

concluded with the Former Yugoslav Republic of Macedonia (FYROM) and Croatia.

Albania and certain countries and territories of the former Yugoslavia

Bosnia-Herzegovina, the Federal Republic of Yugoslavia, including Kosovo

remain under the regime of Autonomous Trade Measures (ATM), which runs until

the end of 2005.

Further progress was also made on the Euro-Med agreements to replace non-

reciprocal agreements, and advance the goal of a Euro-Med free-trade area by

2010.

A new Council Decision on the OCT association arrangements was adopted in

November 2001 to continue the regime without major modification until the end

of 2011. A revised GSP scheme applies for 2002-04, with GSP-plus treatment

available to LDCs under the EBA, as well as to countries that combat drug

production and trafficking, and to encourage adherence to core labour

standards or to environmental standards.

Trade Policy Measures

The EU market for non-agricultural products (except for textiles and clothing

products) continues to be largely open. In addition to tariffs, imported

products are subject to value-added tax (VAT) and excise duties in the Member

State of destination. The EU has bound 100% of its tariff lines in the WTO,

and tariffs applied on products are closely aligned to bound levels.

The overall simple average MFN tariff is estimated at 6.4% for 2002. The

simple average applied tariff on non-agricultural products is 4.1%, slightly

lower than at the time of the previous Review in mid 2000, due to tariff

reductions for certain chemicals, textiles, iron and steel products, and

toys. The simple average tariff on agricultural products is, at 16.1%, about

four times higher than that on non-agricultural products, with above average

tariffs on products subject to the Common Agricultural Policy (CAP). Evidence

of tariff escalation remains, in particular on processed products.

Tariffs well above the average also apply to textiles and clothing products.

The EU has long maintained restrictions on imports of textile and clothing

products from a number of developing countries and transition economies.

Following its WTO commitments, the EU integrated a further 18.08% of textiles

and clothing products on 1 January 2002, bringing to 51.39% the imports

integrated into GATT 1994 since 1995. It involved the lifting of restrictions

on 11 product categories, accounting for 15% of products restricted in 1990.

To date, the EU has lifted restrictions on 20% of products restricted in

1990, leaving the elimination of the remaining 80% of restricted imports

back-loaded for the final stage at the end of 2004.

As of 1 January 2002, the EU had in place definitive anti-dumping measures

(duties and/or undertakings) on 175 product categories, down from 192 in

1999. The EU is the second most frequent user of these measures, behind the

United States, but some 40% of the anti-dumping investigations initiated by

the EU are terminated without measures being taken. Products imported from

China are the most frequently affected. The EU also had 16 definitive

countervailing measures in place, up from 6 in 1999, with products from India

the most frequently affected.

Safeguard action was taken in March 2002 on 15 steel products in response to

the United States safeguard action on steel imports. Supplementary duties

are to be triggered by volumes rising above 2001 levels to prevent diversion

of trade from the U.S. market onto the EU market. The Commission also

proposed the Council agree additional duties of between 8% and 100% on

imported products from the United States as re-balancing measures, given

the failure of the two parties to agree compensation for the Article XIX

measure on steel imposed by the United States. The EU continues to make

frequent use of the special safeguard (SSG) mechanism under the WTO Agreement

on Agriculture to impose snap-back tariffs.

During the period since the last Review in mid 2000, the EU and the Member

States have put in place new regulations for certain products notably in

relation to the safety of products and the disposal of waste requiring

economic operators, including those outside the EU, to adapt. Although

international standards may be used as the basis for regulations, to

facilitate trade, the Commission has stated that standards cannot replace

governmental responsibility to safeguard a high level of protection

concerning health, safety and the environment. Certain trading partners of

the EU perceive these new product regulations as significant trade barriers,

and are concerned with preserving the viability of the international

standard-setting process. Another concern is ensuring that the multilateral

processes for consultation on proposed regulations are effective. While

proposed regulations are subject to WTO notification requirements to allow

concerned Members to comment, participation in the consultations phase,

before the Commission issues the proposal, is also desirable should resources

permit.

To build consumer confidence in food safety after a number of food scares on

the Community market, the EU adopted a new framework for national food law

and food safety procedures. Scientific evidence is to underpin food safety

policy, with the precautionary principle to be used where appropriate. A new

European Food Safety Authority (EFSA) was also established to provide

scientific advice to the Commission on food policy matters, as well as to

Member States should they so request. A number of Member States have

established authorities with mandates at national level to ensure independent

scientific advice. New regulatory requirements have also been put into place

with respect to labelling of food products of all origins to ensure

traceability.

One area of reported controversy concerns the placement on the EU market of

genetically modified organisms (GMOs) and products that may contain GMOs or

GMO derivatives. Although the new legislative framework for authorizations is

tighter in a number of respects, certain Member States remain opposed to

placement on the market without comprehensive labelling requirements on

traceability, currently under consideration. Another area of controversy

concerns the ban on the use of hormones as growth promoters, on which the

Commission has conducted a risk assessment in recent years. Amendments to the

legislation are under consideration to ensure compliance with WTO rulings.

A key objective of the EU is to manage waste more effectively, as a result of

which new requirements on producers have been imposed or are under

consideration. The EU directive on end-of-life vehicles and the proposed

directive on waste electronic and electrical equipment (WEEE) depart from the

previous practice of delegating waste management to public authorities by

introducing producer responsibility for the treatment, recovery, and

disposal of products. This is intended as a financial incentive for producers

to design their products to facilitate waste management, particularly

recycling. Other requirements could also result from the Integrated Product

Policy currently under elaboration.

The burden of conformity assessment procedures is reduced for certain non-EU

third countries through Mutual Recognition Agreements (MRAs). New MRAs were

recently concluded with Japan and Switzerland, and are already in force with

Australia, Canada, Israel, New Zealand, and the United States. A similar

outcome is secured for the CEEC under concluded Protocols to the Europe

Agreements on Conformity Assessment and Acceptance of Industrial Products

(PECAs). Although a number of developing countries would also benefit from a

reduced burden of conformity assessment as a result of MRAs, the EU has

established its own criteria for such agreements to be concluded.

Measures Affecting Production and Trade

The EU has continued to pursue the objective of a more integrated environment

for company activity in the EU, currently segmented into 15 Member State

regimes, although harmonized in a number of respects under Community law. The

long-standing proposal for a European company was adopted in October 2001, to

be in place by 2004, and will simplify company law requirements for

enterprises established in at least two Member States. Foreign companies will

also have this option, under certain conditions. The Commission plans to

propose the consolidation of the tax base for European companies to

facilitate their operation. Another significant proposal concerns the use of

International Accounting Standards (IAS) by 2005, which will enhance the

transparency and comparability of financial statements, currently subject to

national reporting standards.

Competition policy

The Commission has continued to vigorously enforce the rules on antitrust

activities and mergers with a Community dimension, to complement national

competition law enforcement. To focus its efforts on fighting cartels and

other serious infringements of antitrust rules, the Commission has proposed a

major simplification of the notification requirements for individual

agreements. In 2001, a record number of cartel cases were closed, with fines

reaching € 1.8 billion.

Merger activity continued to be high. For mergers of a transnational

character, the Commission has cooperated actively with the competition policy

authorities of EEA members and, on the basis of bilateral agreements, with

those in Canada, the United States, and the CEEC, to promote convergence of

decisions and remedies; an agreement with Japan is also expected. To promote

convergence on a wider basis, the Commission played a leading role in the

launch of the International Competition Network (ICN) in late 2001. The EU

has long been an advocate of a multilateral agreement on competition.

A development of major significance to consumers in the EU, where car price

differentials remain high, is the Commissions proposed new draft block-

exemption regulation for motor-vehicle distribution and servicing agreements

between carmakers and dealers, to enter into force on 1 October 2002. Foreign

carmakers that have not established a distribution system in the EU will also

benefit, as most restrictions on multi-brand sales are to be lifted.

Subsidies

At EU level, funding for the CAP continues to represent the single largest

expenditure; 44% of the total budget of € 93 billion in 2000. Structural

operations account for 35% of the budget, with research and technological

development a distant third.

At Member State level, latest available figures show that State aid was €

80 billion in 1999, amounting to 1% of the EUs GNP. Member States have pledged

to reduce levels of state aid by 2003, and to shift the emphasis of subsidies

from supporting individual companies or sectors towards tackling horizontal

objectives of Community interest, such as employment, regional development,

environment and training or research. More generally, Member States are

encouraged to increase public and private investment in R&D to promote a

knowledge-based European economy.

The Commission has played a supportive role in efforts to advance domestic

reform by vigorously enforcing rules on state aid to individual enterprises,

in particular for non-notified aid. In July 2001, the Commission launched a

large-scale state aid investigation into business taxation schemes, which are

said to be less transparent than other forms of assistance, and raise the

potential for harmful tax competition.

Also significant is the Commissions decision to firmly abide by state aid

rules on airline carriers in the aftermath of the events of 11 September,

with the exception of assistance for supplementary insurance. To ensure a

more level playing field with non-EU carriers and fill a void in the GATS

Agreement, the Commission proposed a new instrument to react against unfair

competition from subsidized third-country airlines.

In certain sectors, the Commission has faced greater difficulty. Aid to

shipbuilding was to be discontinued but its prolongation has been proposed on

a defensive basis to pursue a WTO dispute settlement proceeding. Aid to the

coal mining industry will continue until 2010. Although most EU mines cannot

compete with imported coal, the industry that remains in four Member States

has long been assisted on social and regional grounds.

Intellectual property rights

To strengthen intellectual property rights protection, the EU adopted

harmonizing directives on resale rights for the author of an original work of

art, and copyright and related rights for the digital environment. A new

unitary right on a Community design was created, in addition to the Community

trade mark and Community plant variety. No agreement has been reached on the

Commissions proposal to create a unitary Community patent (including a

centralized court for its enforcement), due to issues of translation as well

as jurisdiction. Also outstanding is the proposal to harmonize legislation

for patents on software (computer-implemented inventions).

On enforcement, customs authorities reported an increase of one third in

seizures from 1999 to 2000 under legislation implementing the TRIPS Agreement

at the border. The trend continued in 2001 with a further increase of 27% in

the number of cases. The Commission has attributed the rising trend to (a) an

increased focus of customs authorities, better targeting and sharing of

information; and (b) an increase in and expanded range of counterfeit and

pirated goods that are traded. In 2002, the Commission intends to propose a

harmonizing directive on enforcement of IPRs, which is said to be stricter

than the minimum standards required by the TRIPS Agreement.

Developments in Selected Sectors

Agriculture

Since its last Review in mid 2000, the EU has implemented the Agenda 2000

reforms to the CAP agreed in Berlin in March 1999; the opportunity to reform

the milk quota or sugar quota regimes was not seized, with extensions adopted

instead. Pressures to adapt the CAP to new requirements are arising from

enlargement, where the Commission has proposed a progressive introduction of

direct payments. Other pressures to adapt the CAP are arising in the context

of the ongoing WTO negotiations on agriculture, where the EU has submitted a

proposal. Also of potential significance is the decline in consumer

confidence in the CAP due to a number of food safety crises, which the

Community is addressing, notably by a new framework for food safety law, as

noted above.

According to the latest publicly available OECD figures, support to producers

declined to € 97.9 billion in 2000 from € 107.6 billion in 1999,

mainly due to world market prices rising faster than domestic prices, as well

as currency movements, rather than significant changes in policy.

Fisheries

Since its last Review in mid-2000, the EU has been moving towards

consideration of possible revisions to the Common Fisheries Policy (CFP), to

apply as from 2003, although no concrete proposals had been made as of 1 May

2002. Negotiations on subsidies to fisheries are on the DDA.

The Commissions Green Paper issued in 2001 on the operation of the CFP to

date notes the difficulty of reconciling objectives in the sector

supporting fishing activity in regions and areas of the Community where it is

of social and economic importance, while attempting to protect increasingly

fragile fishery resources. A number of measures were taken by the Community

in 2000 and 2001 to address fishery conservation concerns, including lower

catches for 2002 to prevent further deterioration of certain stocks. Reaching

political agreement on a new fleet management policy has been more difficult,

although Commission estimates point to significant excess capacity as one of

the causes of resource depletion.

Financial services

Completion of the FSAP occupies a central role in the Lisbon strategy to

lower costs of capital and foster a more entrepreneurial culture. Financial

market integration is among the key potential benefits of the euro. Between

2000 and March 2002, the EU adopted 15 legislative measures, including to

complete the regulatory frameworks for the banking and insurance sectors

through provisions on reorganization and bankruptcy, money laundering, and

reducing the cost of cross-border payments in euros. A new Lamfalussy

approach to securities-market legislation was agreed with the Council and

European Parliament to focus legislation on core principles and delegate

implementing powers to the European Securities Committee (ESC), chaired by

the Commission, and advised by a Committee of European Securities Regulators

(CESR).

A large number of legislative proposals are under consideration for adoption.

The Barcelona European Council agreed in March 2002 that priority attention

should be given in 2002 by the Council and the European Parliament to

adoption of the proposed Directives on collateral, market abuse, insurance

intermediaries, the distance marketing of financial services, financial

conglomerates, prospectuses, occupational pension funds, and the IAS

Regulation. The Commission also intends to issue a revised proposal for a

Takeover Bids Directive (rejected by the European Parliament in mid 2001).

Telecommunications and information society

Fostering the information society is a central plank of the Lisbon

strategy. Under the eEurope Action Plan, the local loop unbundling (LLU)

regulation was in place as from January 2001, a revised legislative package

for electronic communications was adopted in February 2002, to be transposed

by May 2003, and the legislative framework for e-commerce was substantially

advanced to build trust and confidence in the Internet.

For the future, the Commission sees substantial benefits for the European

economy from extensive use by consumers of high-speed Internet connections

and wireless 3G technologies. Although the EU is among the world leaders in

mobile communications, household use of the Internet lags that of other OECD

countries, although business use is comparable. A new eEurope Action Plan for

2005 is to be adopted at the Sevilla European Council in June 2002.

As from January 2000, all Member States were required to have initiated the

process of LLU to foster infrastructure-based competition on the local access

network and thereby accelerate the supply of broadband connections. Incumbent

telecom operators were required to provide competitors with physical access

to local loops, but progress is conceded to have been slow. The new

electronic communications package contains changes intended to bring about

more competitive licensing conditions and fee structures orientated to cover

administrative costs. In addition, a progressive alignment with competition

policy is to be achieved in market segments where effective competition has

been achieved.

A proposed privacy directive is under consideration. It would require

providers of public telecommunication services and networks to guarantee the

security of their networks, to ensure the confidentiality of communications

and to delete traffic data. Under current legislation, transfers of personal

data to a non-EU third country are only permitted when adequate protection

is determined, or under limited conditions. The Commission has progressively

extended the scope for such transfers by recognizing the adequacy of the data

protection regimes of Hungarian, Swiss, and U.S. companies participating in

the safe harbour arrangement, and certain data transfers to Canada.

The e-Commerce Directive, which entered into force on 17 January 2002,

establishes that contracts concluded by electronic means are recognized as

such, and legal barriers to their conclusion are removed, complementing the

e-signatures Directive. In addition, a new regulation on jurisdiction and the

enforcement of judgments in civil and commercial matters gives EU consumers

the right to sue foreign Internet providers of goods and services in the

consumers local court rather than in the foreign jurisdiction.

In February 2002, the EU adopted a new policy on the value-added taxation of

electronic deliveries of information society services (e.g., software, music,

video) to consumers in the EU from service providers established outside the

EU, which are currently not assessed VAT.

Government report back to top <>

TRADE POLICY REVIEW BODY: EUROPEAN UNION

Report by the Government - Part IV

The EUs trade policy at global level

The EU and the WTO

Strengthening and promoting the multilateral system

An open and strong multilateral trading system is the best guarantee

against the threat of unilateralism and constitutes one of the key tools to

manage the process of globalisation. The EU will continue to work to reinforce

the WTO, enlarging and improving its system and promoting a more active

participation of all its Members, including in the negotiations now underway.

The EU has continued and will do so in the future to work assiduously for the

earliest possible accession on commercially viable terms of all

candidates having applied to join the WTO, in particular LDCs. In this respect,

the EU very much welcomes the Peoples Republic of China and Chinese Taipei

accession to the WTO during the period covered by this review, after 15 years

of long and arduous negotiation. Their accessions constitute a big step towards

making the WTO a truly global organisation.

The EU attaches the greatest importance to the correct and timely

implementation of the agreements to which all WTO members have subscribed as

an essential element for a well-functioning multilateral trading system. In

this context, the EU welcomes the fact that during the period under review,

both before and at Doha, many concerns related to implementation could be

resolved, and that agreement was reached on a framework to address the

outstanding issues. The EU continues to actively participate in

implementation-related discussions, including those related to special and

differential treatment, with a view to settling all outstanding issues to the

satisfaction of all WTO members, and remains open to considering proposals to

readjust agreements as part of the single undertaking.

During the period of this review, the EU has participated actively in the

various phases of the WTO negotiations on agriculture and services since the

launch of the built-in-agenda negotiations in January 2000. In that

respect, the EU and other Members have submitted several papers on

agriculture, including a comprehensive negotiating proposal. Other technical

papers submitted cover such issues as export competition and non-trade concerns

(labelling and food safety). The EU position, based on Article 20 of the

Agreement on Agriculture (AoA), takes into account the need to aim at a balance

between trade concerns (market access, export competition, domestic support)

and non-trade concerns (the protection of the environment, the sustained

vitality of rural communities, food safety and other consumer concerns

including animal welfare), which reflect important societal goals. Moreover,

the EU considers that further liberalisation and expansion of trade for

agricultural products are an important contribution to sustained and continued

economic growth, in both developed and developing countries.

On the services side, during the period covered by this review the EU

played an active part in the work of the Council for Trade in Service, the

Special Sessions and their respective subsidiary bodies. The EU has tabled

proposals not only on its overall approach to the services negotiations but

also for most of the sectors covered by the GATS.

As regards intellectual property rights, the EU has continued to participate in

the TRIPs built-in agenda and acted as a facilitator in the discussions

on TRIPS and health when preparing for the new round. Following the successful

decision on TRIPS and Health taken at Doha, the EU is now developing ideas to

improve access to medicines for countries without domestic production.

The EU continues to be an active user of the WTO dispute settlement

mechanism. Since the date of the previous report, the EU has requested

consultations with other WTO Members on seven occasions. Those procedures are

still ongoing.

As a complainant, and also as a third party, the EU has been especially

active in the field of trade defence (Anti-dumping, Countervailing duties and

Safeguards). The dispute settlement activity in this area has significantly

contributed to the clarification of key provisions of the relevant agreements.

In this regard, the EU would highlight the systemic importance of the case

against the 1916 US Anti-dumping Act (DS136), which concerned the use of

instruments other than duties against dumping of exports, and the cases on

safeguard measures, such as US-Wheat Gluten (DS166). The interest of the EU

in preventing the misuse of trade defence instruments is broadly shared among

WTO Members. The complaint against the US Continued Dumping and Subsidy Offset

Act (DS217), which has been brought by 11 co-complainants, best exemplifies

this general concern within the WTO Membership. Other important areas where the

EU has brought dispute settlement cases are intellectual property and

subsidies. In the latter field, the landmark FSC case (DS108) on the use of

tax breaks as export subsidies provided further evidence of the need to address

the sequencing of Articles 21.5 and 22.6 DSU.

Regarding the cases in which the EU was the defendant, the EU would like

to underscore the results of the asbestos case (DS135), which reaffirmed that

health protection can be set as an overriding goal of public policy. The EU

would also highlight its efforts to achieve mutually satisfactory settlements

to trade disputes, which have notably led to a solution that puts an end to the

longstanding banana dispute (DS27). The EU remains fully committed to the

successful resolution of the other cases where the EU is the defendant.

A key EU priority continues to be the full integration of developing

countries, in particular the least developed countries (LDCs), in the

multilateral trading system and the global economy, so as to help them benefit

from the opportunities for growth and development. The EU was therefore one of

the main proponents of the development-centred round of new negotiations

launched in Doha, and in addition to this has taken action autonomously to help

developing countries in their efforts to integrate. In particular, the EU

adopted in February 2001 the Everything But Arms (EBA) initiative, which grants

duty-free and quota-free access for all LDC exports to the EU. The EBA has

already taken effect, with only three products rice, sugar and bananas

subject to a transition to duty -free and quota-free access. The EU welcomes

the subsequent commitment by other developed countries to enact similar

initiatives in favour of LDCs.

Experience has shown that many countries have difficulties in making use of the

trade opportunities offered, and improved market access therefore must be

complemented by capacity building measures. The EU supports trade related

assistance and capacity building in its bilateral programmes and as part of

its participation in multilateral co-operation. As regards bilateral

programmes, the EU redefined its development policy priorities in 2000,

identifying trade as a development priority, and has since then begun to

mainstream trade actions in all bilateral and regional programmes, including

support for WTO negotiations, rule-making and supply side. At the multilateral

level, the EU was the primary contributor to the WTO Doha Development Agenda

Global Trust Fund, with the European Community and Member States together

contributing more than 60% of total pledges made in March 2002. The EU believes

that the needs for trade related assistance go beyond the competence of the WTO

Secretariat as such and requires increased efforts and closer co-operation

among international organisations, in particular the Bretton Woods

institutions, UNCTAD, UNDP and ITC, including in the Integrated Framework for

Trade-related Technical Assistance for LDCs and other similar mechanisms.

The access of EU goods and services to markets around the world for the benefit

of consumers and business world-wide remains a primary objective for the EU.

The EUs market access strategy focuses on the elimination of important

market access barriers, by using to the full the various multilateral and

bilateral instruments and opportunities at its disposal: the WTO dispute

settlement procedure, consultation and bilateral agreements with WTO members

and others, and the new negotiating round. A new version of the market access

database, the operational tool of the strategy, was released on the internet

during the period of this review.

The EU retains the option to use, where necessary and appropriate, relevant

trade defence instruments, in the form of anti-dumping and anti-subsidy

measures, to counter unfair injurious trading practices from third countries.

Given the importance of its trade flows, the EU is an overall moderate user of

such instruments. In its actions, the EU takes care of the concerns of

developing countries. It is noteworthy that although EU legislation provides

for the possibility to apply safeguard measures, the EU has made very limited

use of this instrument since the entry into force of the WTO agreements.

Indeed, the EU has only imposed one such measure since 1992. The exceptional

measure on imports of steel was taken in 2002 in full conformance with the

safeguards agreement. It followed the own US safeguard measures which

effectively closed the US steel market. On the contrary, the EUs safeguard

measures took the form of generous TRQs, which preserved traditional levels of

imports on its market. The EU attaches the greatest importance to all WTO

members adhering to effective WTO disciplines in the area of trade defence.

Preparing and launching a broad and balanced round

Drawing from the lessons of the Seattle Conference, which failed to launch a new

round of multilateral trade negotiations, the EU like others adapted its

approach to the new round, in particular by recognising that the WTO needed to

work in a more inclusive and transparent way vis-à-vis all Members, and

improve communication with the outside world. On the substance of the lessons

drawn from Seattle, the EU took into account other Members opinions

especially developing countries and continued bridge building efforts with

trading partners in order to overcome differences. This modified approach was

set out in the EC strategy paper of December 2000 which was generally

well-received as a sign of flexibility and creativity. The EU thereafter

continued efforts to launch an ambitious round, recognising that only a broad

agenda could both reconcile different Members views and take account of all

Member essential interests. Supported by the EUs extensive consensus building

efforts with other WTO Members, in particular developing countries and LDCs,

the modified strategy was certainly one element in securing support for the

successful launch of a new round of trade negotiations at the 4th

Ministerial Conference at Doha in November 2001.

The DDA, encompassing both market access and rule making, and driven by a

strong development objective, offers a major opportunity to promote global

economic growth and sustainable development, and to further strengthen the

rules-based multilateral trading system.

The fundamental reasons for a broad round that pertained before Seattle have

remained valid in the preparatory period before Doha and beyond. First, as

regards further trade liberalisation, both developed and developing

countries seek improved market access for their products and services, in order

to increase international economic growth, to fully participate in the global

economy and to restore business confidence at a critical juncture of the world

economy. Agriculture, services and non-agricultural tariffs are all therefore

key areas for improving market access.

On agriculture, the EU was already committed to negotiations under the

built-in agenda and recognised that in a new round many participants expected

to go beyond Article 20 of the Agreement on Agriculture in terms of the level

of ambition. The EU continuously showed its readiness to play its part in these

negotiations by setting the pace and gradient of further reform, including a

deadline for the conclusion of the negotiations. The EU aimed at Doha to ensure

that the outcome would balance its interests in its capacity as a major

exporter and importer of agricultural products, while taking account of the

non-trade dimension of agricultural policy. The Doha Ministerial brought a

satisfactory outcome on agriculture, in confirming the commitment to negotiate

on market access, domestic support and all forms of export subsidies, without

prejudice to the final outcome, and clearly acknowledging the multifunctional

nature of this sector and the need to take fully into account the interest of

developing countries.

As far as services are concerned, the EUs objective was to make

progress in the ongoing GATS 2000 negotiations on liberalisation of

international trade in services. Apart from reaching improved market access

world-wide for its services exports, the EU encourages an increased

participation by developing countries in the negotiations. The EU therefore

welcomes the agreement reached in Doha on the dates for the submission of

requests and initial offers which are important elements to ensure progress in

the negotiations, and hopes to see through the negotiations an increase in the

number and quality of market access and national treatment commitments across

services sectors and modes of supply, as well as further development of

regulatory disciplines. Developing countries in particular are likely to

benefit significantly from further liberalisation of services sectors which

continue to grow in importance. Liberalisation of the service sector however

needs to be accompanied by an appropriate institutional and regulatory

framework to ensure competition, to allow governments to pursue non-economic

objectives, and to ensure continued access to essential services for the poor.

Implementing appropriate institutional and regulatory safeguards is

particularly a challenge for many developing countries, which is why the EC and

its Member States are putting such emphasis on trade related technical

assistance and capacity building (TRTA/CB).

In respect of non agricultural market access, the EU in the period under

review continued to favour an ambitious mandate that includes the elimination

of barriers with a comprehensive product coverage without any a priori

exclusions. The EU was therefore pleased that at Doha agreement was reached on

a mandate that is more ambitious than those of previous rounds, and more

specific in that Members have agreed to reduce or as appropriate eliminate

tariff peaks, high tariffs and tariff escalation. As with other elements of the

Doha Agenda, negotiations on market access for non-agricultural goods are

likely to have more fruitful results if placed within the wider framework of

the DDA negotiations aimed at achieving a more transparent and predictable

multilateral system of rules.

Regarding WTO Rules, the EUs view during the period under review

continued to be that the scope of WTO rule making needed to be broadened if the

multilateral system were to respond to the effects of globalisation, and if

traders and investors world-wide were to enjoy a predictable, transparent and

non-discriminatory framework in which to make economic decisions and to

compete. Decisions to negotiate multilateral agreements on investment,

competition, trade facilitation and public procurement as well as a

clarification of the interaction of important trade and environmental issues

therefore continued to constitute a key element of the EU agenda for the round.

From an EU point of view it has continued to be equally important to seek

improvements to existing rules in such areas such as trade defence or technical

barriers to trade, and regional trade agreements, in order again to improve

transparency and predictability for traders, investors, consumers and

governments.

As part of its revised strategy for the new trade Round, the EU in the period

under review consciously decided to adjust its negotiating objectives in

several key rulemaking areas, to take account of the opinions of other WTO

Members. On investment, the EU sought simply to put manufacturing

investment on the same footing that services FDI already enjoyed in the GATS

an approach with several years of history and with which WTO Members were by

then familiar. The EU strongly welcomes therefore the objective set at Doha to

establish a multilateral framework aimed at improving the conditions for

Foreign Direct Investment world-wide. The result is of high importance for the

EU in its capacity as one of the main sources for FDI around the world, but

indeed constitutes a golden opportunity for all WTO members to develop a

balanced framework of rules that will ensure a level playing field with more

stable and predictable investment conditions world-wide and be conducive to

sustainable development.

On competition, the EU in its revised strategy suggested some basic

rules that would help all Members to strengthen their ability to deal with

anti-competitive practices. The decision at Doha to work towards a multilateral

framework on competition policies, following the current preparatory phase,

will contribute towards the more effective application of domestic competition

regimes and be of benefit for consumers and EU business operating abroad around

the world.. The elements for such a framework agreed at Doha correspond to

those proposed by the EU, and reflect a realistic and progressive approach

towards the development of competition disciplines at multilateral level,

including the need to respond to the particular interests and concerns of

developing countries.

It was equally important to the EU to seek a WTO agreement on trade

facilitation aiming at streamlining customs procedures, cutting costs and

red tape, which continues to be a major constraint on developing countries

export performance. Such an agreement would imply significant savings by

helping governments to improve efficiency of controls and, ultimately, higher

revenue intakes. The Doha mandate on trade facilitation reflects the objective

shared by many Members of simplifying customs and related trade procedures,

including transit measures to boost trade between developing countries in

particular. The mandate also reflects the development objectives of trade

facilitation, including the notion that assistance to build capacity should be

an integral part of the work and be approached in a systematic manner.

Regarding government procurement, the EU had in the period of this review argued

in favour of negotiating a set of rules on transparency, as a means to reduce

the trade-distorting effect that different procurement practices may have. The

EU welcomes the fact that the WTO at Doha recognised the important contribution

that procurement makes to the economy and its effect on trade, and launched

negotiations. Multilateral rules on transparency in government procurement

although not requiring the opening up of procurement to WTO Members, will

increase knowledge of procurement methods and promote contract opportunities

while maintaining existing preferences to domestic suppliers.

On environment, an issue of importance for trade predictability but also

a domestic sensitive issue for the EU, it was made clear that the EUs agenda

was a finite one the objective was not to change WTO disciplines but to

clarify or confirm the existing rules especially as interpreted by recent

panels. The EU sought for a mandate on environment that was specific, that the

outcome should be clarification, and that it should be non-discriminatory and

non-protectionist. The agreement in Doha to begin a negotiation to better frame

the interaction between the WTO and environmental issues is thus a significant

step for the trading system, and reflects the EUs and other members calls for

increased action in the WTO in favour of sustainable development.

Regarding trade defence rules, the EU in the period under review was

receptive to the proposal for a balanced negotiation on WTO rules to take place

that will meet the demands of developing countries and allow them to search for

improvements to the existing WTO Agreements without calling into question their

basic principles. These objectives have been met in the Doha mandate.

As regards regional trade agreements, the EU objective to start

negotiations for clear and quite strict rules defining the conditions to be

met, for FTAs and regional agreements to be WTO-compatible, was also

satisfactorily agreed.

The EU approached Doha with several objectives regarding the TRIPS

agreement, all of which have been met. The Doha declaration contains a

clear provision that negotiations on multilateral register will have to be

completed by the 5th WTO Ministerial Conference and refers also to the TRIPs

mandate for negotiations on extension of the coverage of geographical

indications for the benefit of business and consumers around the world. It also

stipulates that the issue of TRIPS/CBD relationship and protection of

traditional knowledge be examined and that appropriate action should be taken,

reflecting the EUs commitment to take account of developing countries

interests in this area.

In addition to helping to launch negotiations on TRIPS within the Doha agenda,

the EU also played a crucial bridge-builder role in the adoption of a

Declaration on TRIPs and public health, that reflects the EUs

conviction according to which the TRIPs Agreement can and should be interpreted

and implemented in a manner supportive of WTO Members right to protect public

health. This Declaration, which is in line with the position adopted by the EU,

is a major achievement, which succeeds both in safeguarding the TRIPs Agreement

while recognising the importance of Members being able to pursue their

legitimate public health goals.

The EU has played an active role in the DSU review. In accordance with

the Doha Declaration, the DSU negotiations aim to agree on improvements and

clarifications not later than May 2003. The EU has recently submitted a

comprehensive contribution to the negotiation process that it hopes will help

WTO Members to fulfil the Doha mandate.

In all its considerations regarding the future shape of the negotiating agenda

the EU was at pains to ensure that the round included the interests of

developing countries. This concerns in particular negotiations to improve

market access in key sectors like agriculture and textiles, strengthening and

tightening of trade defence rules, a review of the development aspects of the

subsidies agreements, extension of TRIPS to cover products of importance to

developing countries, an across the board review of special and differential

treatment provisions, and substantial support to build capacity.

The EU has also remained committed in the past two years to develop a meaningful

dialogue, involving in particular the ILO and the WTO, on questions relating to

trade, labour, and social development. The Commissions communication 18

July 2001 on Promoting Core Labour Standards and Improving Social Governance

in the Context of Globalisation addressed the issue in a comprehensive manner

by suggesting a multi-disciplinary work programme. The EU is committed to help

promote the effective application of core labour standards globally, while

eschewing the use of trade sanctions to enforce them. Internationally, it

recognises the key role of ILO and the need to strengthen ILO instruments for

the effective application of core labour standards. All Member States but two

have ratified all eight core ILO conventions. In addition, the joint forum

between ILO and WTO which since Seattle has emerged as the preferred way

forward remain a key element of the strategy. In this context, recent ILO

developments notably the creation of the World Commission on the Social

Dimension of Globalisation are very positive. The EU aimed at Doha for a

statement reflecting Memberss attachment to improving the WTO/ILO dialogue on

social development questions. Although the Doha outcome on trade and social

development is from an EU point of view too modest, it does still provides a

basis to make progress on the issue, and the EU will work to ensure that WTO

does indeed contribute constructively to the ILO process.

Finally, improvements were registered during the period under review regarding

transparency and the participation of Civil Society. Domestically,

the EU intensified its efforts at policy dialogue and consultation with

representatives of civil society, recognising that it is primarily at the

domestic level within the jurisdiction of each Member that such

consultation and arbitration between different social partners and interests

must take place. Within the WTO, the EU consistently encouraged more frequent

and structured dialogue with parliaments and civil society representatives, and

was pleased that it was possible, both before and at Doha for Members to

discuss issues in a constructive way with a civil society which is now playing

a fuller role in WTO work than ever before and with no detrimental effect on

the essentially and rightly intergovernmental nature of the WTO. Fewer in

numbers and less prominent in Doha than in Seattle, civil societys influence

was nonetheless more clear: the Doha outcome on TRIPs and health for example

reflects a commendably prompt and operational WTO response, inter alia to a

civil society campaign launched less than two years earlier. The EU will

continue to seek improvements to the transparency and effectiveness of the

organisation, including possible institutional improvements. In this respect,

the Doha declaration, despite not being very specific, clearly provides a

mandate for greater transparency, above all vis-à-vis the members of the

organisation. In addition, on issues such as consultation and open meetings,

the Secretariat will, with its greater autonomy, be able to launch more

intensive dialogue with parliaments and civil society. Further thought needs

however to be given to WTO reform in order to improve in particular the

efficiency of decision-making. Finally, part of the efforts to improve the

institutional working of the WTO relates to the ongoing review of the DSU,

where the EU favours the introduction in the DSU of sufficient flexibility for

parties to decide whether all or parts of the proceeding should be open to the

public, as well as a better definition of the framework and conditions for the

submission of amicus curiae briefs.

In sum, the far-reaching results of the Doha Conference reflect very

well the EUs overall objectives for the next negotiating round: a fourfold

agenda to further liberalise market access, update and improve WTO rules,

promote a development agenda and address issues of public concern. The

declarations are both faithful to the EUs negotiating mandate and reflect our

broad political and economic objectives, the interest of business and civil

society as well as the global economic interest, including the needs of

developing countries. The emphasis on developing country needs and on

sustainable development is particularly welcome.

As the major systemic gain, Doha potentially takes the WTO into a new

era where its commitment to sustainable development always central to its

mandate is now made more explicit and more operational. The result of this

new round should over time significantly improve the contribution of the WTO to

sustainable development and improve international economic governance, policy

aims that find their parallel in the EUs own continued construction. Both

multilaterally and within the EU, a balance between rule making and progressive

liberalisation continue to represent the right policy mix to encourage

sustainable development and the better management of economic change. The EU

sees its immediate task now to carry out negotiations in a way that reflects

the objectives of the Doha Development Agenda and the EUs own goals.

Bilateral and regional trade relations

In addition to its support for the multilateral trading system the EU is

engaged in developing trade relations with other trade partners in the world

through a number of preferential trade regimes, free-trade areas and regional

initiatives, and other bilateral relations. Many of these relationships

reflect the global economic and trade reach of the EU which remains the

major trading partner for many countries or are the expression of broader

geopolitical objectives. As a matter of trade policy however, the EUs active

engagement in a range of regional trade initiatives reflects above all the

view that in the right circumstances such relations can and indeed must

contribute to and strengthen the multilateral system.

Preferential trade regimes

The new ACP-EU Partnership Agreement signed on 23 June 2000 in Cotonou,

and whose trade provisions took effect from 1 August 2000, provides for the

negotiation of new WTO-compatible arrangements, which progressively remove

barriers to trade and enhance co-operation in all trade-related areas, to be

concluded and put into effect by the end of 2007. In the meantime, and in order

to facilitate the transition, the non-reciprocal trade preferences applied

under the 4th Lomé Convention have been maintained and are sanctioned by

a waiver obtained at Doha. The Cotonou preferences include duty-free access for

all industrial and a large part of agricultural and processed agricultural

products as well as preferential tariffs for almost all the remaining

agricultural products. The beef and veal and sugar protocols are also

maintained during the preparatory period but will be reviewed in the context of

the new trading arrangements.

The present regulation governing the EU scheme for Generalised trade

preferences, GSP, entered into force in 1 January 2002 and will cover

the period until the end of 2004. It is based on the guidelines the EU adopted

for the period 1995 to 2004. The EU GSP now covers virtually all sectors and

fully incorporates the new EBA initiative which was adopted in February 2001

and which grants duty free access to all products from LDCs. The tariff

modulation has been simplified with the establishment of two categories of

products/sensitivity. Procedures concerning graduation, withdrawal, safeguard

and the special incentive arrangements have been harmonised and clarified. The

preferential margins that were eroded as a result of progressive trade

liberalisation have been restored by reducing ad valorem duties on sensitive

products by a flat rate of 3,5 percentage points and specific duties by 30%.

The special incentive arrangements have been made more attractive by further

reducing ad valorem and specific duties by an additional 5 percentage points

and 30% respectively. Finally, the GSPs role as a tool to foster sustainable

development has been reinforced, predictability has been enhanced by requiring

that graduation and exclusion only occur where the conditions are fulfilled

during three consecutive years.

In order to strengthen the political stabilisation and economic development of

the region, the EU introduced on 18 September 2000 (amended on 20 November 2000

and 18 December 2001) Autonomous Trade Measures (ATMs) in favour of the

countries of Western Balkans to be applied until 31 December 2005. Based on

a former rather liberal trade regime towards the Western Balkans, the ATMs

abolish the remaining tariff ceilings for practically all industrial products

with the exception of certain textile products and improve market access for

agricultural and fishery products. ATMs are the forerunner to the conclusion of

Stabilisation and Association Agreements (SAA), already concluded with the

Former Yugoslav Republic of Macedonia (FYROM) and Croatia. Trade

provisions of the EU-FYROM SAA entered into force on 1 June 2001, those of the

EU-Croatia SAA on 1 January 2002 by means of an Interim Agreement. They aim at

creating a free trade area on goods over a transitional period of ten years for

FYROM and six years for Croatia and envisage a progressive and reciprocal

liberalisation of trade in services. They also set out obligations in areas

such as competition and state aid rules and intellectual and industrial

property rights. The three other Western Balkan countries (Bosnia-Herzegovina,

Albania and Federal Republic of Yugoslavia) which benefit from the ATMs are

eligible for such Agreements as soon as they meet the relevant political and

economic criteria.

Under the EC Treaty, since 1958, the Overseas Countries and Territories

(OCTs) are linked to the Community under a specific Association, the purpose of

which is to promote the economic and social development of these dependent

countries and territories, and to establish close economic relations between

them and the Community as a whole. In November 2001, the Overseas Association

Decision was amended to better contribute to these aims and to promote the

effective integration of the OCTs in the global economy, as well as developing

their trade in both goods and services vis-à-vis regional and world

markets. Therefore, in addition to confirming the free access to the EU already

provided for OCT goods, the decision seeks to step up liberalisation and

co-operation in services and trade-related areas over a ten-year period ending

on 31 December 2011.

Free trade areas

The EU has been linked to all ten Central and Eastern European countries

by Europe Agreements since 1999. As a result, industrial products are now in

free circulation between the signatories and the EU since the beginning of

2001. Restrictions remain in only a few sectors, such as agriculture. The

Europe Agreements also contain provisions regarding the free movement of

services, payments and capital in respect of trade and investments, free

movement of workers, and co-operation in the field of environment, transport

and customs. Furthermore, they provide for legislative approximation with EU

legislation, particularly in the areas relevant to the internal market, such as

competition and protection to intellectual, industrial and commercial property.

The Association Agreements with Cyprus and Malta cover similar fields.

The EU has established a Customs Union with Turkey covering industrial

products. Steel and coal products are in free circulation, whereas concessions

have been exchanged by both parties in trade in agricultural products. Further

negotiations started in 2000 to liberalise trade in services and public

procurement.

The EUs bilateral trade relations with Switzerland are based on the

existing agreements: the free-trade agreement of 1972. Since 1994 the EU and

Switzerland have been involved in negotiations covering a wide range of

specific sectors. Seven new agreements in the sectors of free movement of

persons, air and land transport, scientific and technological co-operation,

agriculture, conformity assessment and public procurement will enter into force

in summer 2002. Since June 2001, negotiations have been underway in the

additional areas of statistics, environment, trade in processed agricultural

products and co-operation against fraud, while negotiations on the taxation of

savings are about to start. In April 2002 the European Commission decided to

propose the start of negotiations with Switzerland in four new areas, including

the establishment of an FTA on services.

The EU has concluded bilateral association agreements with 8 Mediterranean

countries. These agreements contain a political component, a trade

component, and a co-operation component. The agreements with Tunisia, Morocco

and Jordan have entered into force in March 1998, March 2000 and May 2002

respectively. The trade provisions of the agreements with the Palestinian

Authority (signed in February 1997) are being applied on an interim basis.

Concerning Israel, a new Euro-Med Association agreement entered into force on 1

June 2000. Agreements with Egypt and Algeria have been signed and need still to

be ratified. The agreement with Lebanon has been initialled and the parties

intend to implement the commercial part on the basis of an Interim agreement.

Negotiations are ongoing with Syria. The individual agreements foresee the

establishment of a free trade area between each country and the EU for goods

and progressive opening of the agricultural markets. In addition, they contain

provisions for liberalisation in the area of services, capital movement and

competition.

The negotiations between the EU and the Cooperation Council for the Arab States

of the Gulf (GCC) have also restarted in earnest since the GCC decided

to apply a common customs tariff at the latest in 2005 and the adjustment of

the original EU negotiating mandate, which dated from 1991.

The EU and Mexico Free Trade Agreement entered into force on 1 July

2000. The positive trade performances of both sides demonstrated the

potentialities of this agreement: the EU has inverted the tendency to lose

market share after the Mexico entry into NAFTA and Mexican products have found

new diversified market opportunities in the EU. To favour a better use of the

market access opportunities given by the progressive elimination of import

duties, parties are now enhancing regular cooperation on non-tariff barriers.

The FTA covers trade in goods to be fully completed for the most part by 2003

with limited longer transitional periods for Mexican industrial products until

2007 and for agricultural products until 2010. The FTA also covers services,

public procurement, competition and IPR.

Negotiations on an Association Agreement between the EU and Chile, which

started at a first round of negotiations in April 2000, were finalised on 26

April 2002. The agreement will include a political dialogue, a co-operation

pillar and a trade pillar. As for trade, apart from a free trade area in goods,

services and government procurement, the future agreement is to include

provisions regarding investment, customs and trade facilitation, intellectual

property rights, competition and a dispute settlement mechanism. The future

agreement is currently under internal adoption procedures.

Negotiations on an Interregional Association Agreement with Mercosur

started in April 2000. The future agreement is to include a political dialogue,

a co-operation pillar and a trade pillar. Negotiations are taking place on a

bi-regional basis from customs union to customs union. This reflects one of the

key objectives of the EU vis-a-vis Mercosur, notably the strengthening of the

Mercosur integration process. The second stage of negotiations where launched

in July 2001. By now, most text proposals on the different negotiating items

have been exchanged. In addition, both sides have exchanged their tariff

offers. The third stage of negotiations is currently being prepared.

Following the conclusion with South Africa of a Trade, Development and

Co-operation Agreement in 1999, agreements on trade in wine and spirits were

signed on 28 January 2002. They have been applied provisionally since then.

Negotiations on fisheries have yet to be concluded.

Regional initiatives

The EUs trade relationship with Asia continues to be an important priority. The

Economic Pillar of the Asia-Europe meeting (ASEM), established in 1996,

links the EU and the 15 EU Member States with Japan, China, Korea, Thailand,

Malaysia, the Philippines, Singapore, Indonesia, Vietnam, and Brunei in a

dialogue process aimed at facilitating trade and improving investment between

all partners. The most recent Trade Facilitation Action Plan for defines a

number of objectives intended to reduce and eliminate barriers to trade in

areas such as standards and certification, customs, IPR, SPS, and electronic

commerce. In trade terms, the Asian ASEM partners accounted for approximately

26% of world exports in 2000 with the EU being their largest partner, and this

region is the EUs own second most important destination for its imports.

The EUs relationship with the San José group and the Andean

Community is based on two regional Framework Cooperation Agreements that

entered into force 1999 and 1998 respectively. Both regions benefit from the

EUs GSP. The Madrid Summit in May 2002 agreed to new initiatives to negotiate

political and co-operation Agreements between the EU and the two regions

respectively, as well as to intensify bi-regional economic and trade

cooperation. The aim is to establish conditions under which, after the

completion of the DDA, bi-regional Free Trade Agreements between the EU and

each of the two regions could become feasible and mutually beneficial.

Other bilateral relations

Good trade relations between the EU and the United States have

traditionally constituted an important element in the overall management of the

trading system. During the period under review, close EU-US cooperation was

certainly instrumental in achieving a successful outcome at Doha. Bilateral

trade relations between the two biggest trade entities in the world have also

remained robust marked by the launch in 1995 of the New Transatlantic Agenda

(NTA) and by an agreement in 1998 on the Transatlantic Economic Partnership

(TEP). Through the establishment of this framework the parties reaffirmed their

shared commitment to strengthen the multilateral trading system and agreed to

aim at breaking down remaining mostly regulatory barriers to trade across

the Atlantic while preserving a high level of protection for health, safety,

consumers and the environment. This partnership produced substantial results in

particular on mutual recognition of certain technical regulations in the area

of goods, while negotiations are ongoing in the area of services (architects,

engineers, insurance). Moreover, in 2002, the European Commission and the US

federal authorities developed a set of Guidelines for Regulatory Co-operation

and Transparency and agreed to launch a Positive Economic Agenda designed to

expand this co-operative effort to other areas where mutually beneficial

arrangements can be found. The EU and the US also agreed in 1999 on a set of

principles to provide for an effective Early Warning System designed to prevent

a number of disputes from escalating by facilitating their resolution at an

early stage. However, some disputes remain and among these our two major

disagreements concern the US safeguard measures on steel and the lack of

progress by the US in complying with WTO rulings on Foreign Sales Corporations

(FSC/ETI). Both sides continue to seek ways to conclude an agreement on trade

in wines. Discussions on an agreement are also ongoing to replace the current

withdrawal of concessions in the hormones case by compensation.

Trade relations with Canada are marked by the EU-Canada Joint

Declaration and Action Plan of December 1996. Furthermore, the EU and Canada

agreed to undertake the EU-Canada Trade Initiative (ECTI), which is a

comprehensive programme covering multilateral and bilateral trade areas. This

framework of co-operation bore early fruit with the conclusion of agreements on

Mutual Recognition of Conformity Assessment, Veterinary equivalence, Customs

co-operation and co-operation regarding competition matters. Negotiations

towards the conclusion of an agreement on trade in wines and spirits are

ongoing. In addition, Canada and the EU are currently engaged in an assessment

of future measures to enhance their trade and investment relationship. This

assessment would start with the examination of the results of an on-going

business survey on existing barriers to EU-Canada trade and investment.

Finally, the Canadian Government and the European Commission have recently

agreed to initiate a new regulatory co-operation dialogue.

The EU and Japan share a strong commitment to the Multilateral Trading

System. The close EU-Japan co-operation contributed to the adoption of the DDA.

The EU has put the emphasis of its bilateral economic dialogue on facilitating

market access for goods and services and improving the investment climate in

Japan through structural reform. A two-way deregulation dialogue was launched

in 1994 in the framework of which the EU and Japan exchange an annual list of

proposals for regulatory reform in their partners respective markets. On 1

January 2002 a Mutual Recognition Agreement (MRA) entered into force which

permits acceptance of conformity assessment conducted in one party according to

the regulations of the other in four product areas.

This marks an important step in facilitating market access. On 8 December

2001, the EU-Japan Summit launched a decade of co-operation by adopting the

EU-Japan Action Plan, which includes the objective of strengthening the EU-

Japan economic and trade partnership.

Joint declarations on bilateral relations with Australia (1997) and with

New Zealand (1999) strengthen the dialogue for further liberalization of

trade in goods and services. Mutual Recognition Agreements in relation to

conformity assessments for goods have also been concluded with each of these

countries, and agreement was reached on a veterinary agreement with New

Zealand.

A strengthening of trade relations between China and the EU is happening

at both the multilateral and the bilateral level. The EU, which has been a keen

advocate of Chinas accession to the WTO, has a three-fold strategy

vis-à-vis China: monitoring the implementation by China of her

commitments made in the context of her WTO accession; supporting this

implementation and Chinas economic and trade reforms through partnership, in

particular by offering EU expertise through a range of co-operation programmes;

developing cooperation with China on the DDA and engaging constructively in the

new multilateral negotiations. Bilaterally, the EU is addressing trade issues

through its dialogue with China, the main forum for which are the EC-China

Joint Committee and its subordinate bodies.

The current relationship between Korea and the EU is founded on

increasingly shared political values, strong economic links, and support for

South Koreas sunshine policy of engagement with the North. A notable sign of

the progress in EU relations with Korea was the entry into force, on 1 April

2001, of the Framework Agreement for Co-operation and Trade. This Agreement

commits both parties to work towards fostering growth of two-way trade and

investment, while providing a better framework for economic co-operation.

EU relations with Russia and other countries of the CIS are based on the

Partnership and Co-operation Agreements (PCAs) concluded over the last decade.

Preliminary discussions have taken place between the EU and Russia to explore

the concept of a Common European Economic Space, which the two sides launched

at the EU-Russia Summit in May 2001. The focus of this initiative is in the

regulatory field. Stable relations with Russia and with the other CIS countries

will remain critical for the EU, particularly as the next EU Enlargement will

bring a number of Central and Eastern European Countries into the Union. Trade

and economic issues will remain an important element of the EUs overall

relationship with them. In addition, the EU has continued and will do so in the

future to work for the early accession to the WTO on appropriate terms of

Russia and other CIS countries that are not yet members, as this will promote

the closer integration of these countries into the global economy.

The EU and India continue to deepen their bilateral trade reflecting the

potential of the two sides, to strengthen their development and economic

cooperation and to improve the quality of the economic and trade links. Both

sides continue to engage in a close High level Economic Dialogue and its

sub-commissions where regular consultations on trade and others issues are

held. At the 28 June 2000 Summit both sides agreed to establish a regular high

level dialogue on WTO issues. The EU-India summit in autumn 2001 adopted the

Joint Initiative on enhancing trade and investment with key joint

recommendations.

Regarding EU-Pakistan relations, a number of actions have been prepared,

including the signature of a 3rd Generation Co-operation Agreement

in November 2001. A comprehensive package of trade preferences was agreed by

the Council. Measures include a quota increase of 15% for textiles and clothing

products and zero duty imports of clothing products under the GSP drug regime

for the period 2002-2004. In May 2002, the European Commission adopted a five

year strategy (2002-2006) for its cooperation with Pakistan. Priorities set in

this Country Strategy Paper include the development of trade.



(C) 2009