European Union WT/TPR/S/30
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I. THE ECONOMIC ENVIRONMENT
(1) Introduction
1. Thepaceofeconomic growth intheEuropean Union (EU)hasbeen, onaverage, modest since
the1995 Trade Policy Review (around 2percentperyear), buthasshown signs ofstrengthening in
1997. Economic andfinancial convergence among Member States hasimproved; inflation hasdeclined;
long-term interest ratedifferentials havefallen; andexchange rateshavestabilized within theExchange
RateMechanism (ERM) oftheEuropean Monetary System (EMS). Fiscal consolidation wasretarded
byslower-than-expectedeconomicgrowthbuthasprogressed.MacroeconomicpoliciesinmanyMember
States reflect current efforts toqualify forthesingle currency, scheduled tobeintroduced on
1January 1999. Anoverview ofsome basicfeatures oftheEUeconomy byMember States iscontained
inTable I.1while recent economic performance isnoted inTable I.2.
Table I.1
Major features oftheEUeconomy byMember State, 1995
Area
('000km2)Population
(million)
1995GDP per
capita (ECU)a
1995Share inGDP (percent)b
Agriculture
1994Industry
1994Services
1994Construction
1994
Austria 83.6 8.0 22,202 2.4 30.4 58.7 8.6
Belgium 30.5 10.1 20,295 1.7 23.9 69.0 5.4
Denmark 43.0 5.2 25,347 3.7 21.8 69.3 5.2
Finland 338.1 5.1 18,946 5.2 27.5 62.1 5.2
France 549.0 56.4a20,847 2.5 22.9 69.9 4.7
Germany 356.7 81.5 22,644 1.0 28.5 64.8 5.8
Greece 132.0 10.4 8,369 14.7 18.4 59.1 6.2
Ireland 70.2 3.6 13,074 7.5 29.2 58.2 5.0
Italy 301.3 57.3 14,518 2.9 26.8 65.1 5.2
Luxembourg 2.6 0.4 32,218 1.5 23.5 67.5 7.6
Netherlands 41.5 15.4 19,645 3.6 22.8 68.0 5.5
Portugal 92.1 9.9 8,041 5.1 28.4 61.3 5.2
Spain 504.8 38.7a11,038 3.7 24.8 63.1 8.5
Sweden 450.0 8.8 19,861 2.1 25.0 68.9 5.1
United Kingdom 244.1 57.5c14,648 1.6 25.9 67.4 5.1
Total EU 3,239.5 368.5 17,478 2.4 25.9 66.2 5.6
Memorandum:
United States 9,373.0 262.8 20,142 1.9 20.7 73.3 4.3
Japan 377.7 125.2 30,613 2.1 27.5 53.8 10.8
a Provisional data.
b Shares maynotaddto100duetorounding andstatistical discrepancies.
c Eurostat estimates.
Source: Eurostat, National Accounts ESA(Detailed Tables byBranch), 1970-94; Eurostat, Demographic Statistics 1996; OECD, Quarterly
National Accounts, No.3/95andNational Accounts, Vol.II,1996.
2. Exports havebeenthemaincontributing factor toeconomic growth, intheperiod, benefiting
fromanimproved international environment andmoderate unitlabour costs. Manufacturing exports
havebeenincreasingly oriented towards Asian markets andmodern-technology products. Nevertheless,
concern remains about therelatively highconcentration ofEUtrade inmedium-technology products
andlow-growth geographical areas.1Trade inservices, oneoftheEU'sstrongholds, islikely tobenefit
from ongoing liberalization inthissector.
1European Commission (1996a); andEuropean Commission (1996b).European Union WT/TPR/S/30
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Table I.2
Overall performance oftheEUeconomy andgrowth rates inMember States, 1992-96
(a) Overall performance oftheEUeconomy
1992 1993 1994 1995a1996b
Annual percentage change
GDP (at1990 market prices) 1.0 -0.6 2.9 2.4 1.6
Private consumption 1.8 -0.3 1.7 1.8 1.9
Public consumption 1.7 1.1 0.4 0.6 0.7
Gross fixed capital formation -0.9 -6.5 2.4 3.7 1.1
Final domestic demand including stocks 1.1 -1.9 2.5 2.1 1.4
Exports ofgoods andservices 3.7 1.7 8.5 6.9 4.0
Imports ofgoods andservices 3.9 -2.7 7.6 5.8 4.0
Private consumption price deflator 4.7 4.1 3.3 3.0 2.7
Realunitlabour costs -0.2 -1.1 -2.4 -1.6 -0.7
Money supply (M2/M3 annual change) 5.6 6.6 2.4 5.4 ...
Percent
Nominal short-term interest rate 11.2 8.6 6.5 6.7 5
Unemployment rate 9.4 10.9 11.3 10.9 11.0
Percentage ofGDP atmarket prices
Gross savings rate 19.0 18.4 19.0 19.9 19.6
Gross investment ratea20.2 18.4 19.0 19.2 18.6
Current account balance -1.2 0.0 0.0 0.7 1.0
a Estimates.
b Forecast.
(b) Growth rates inMember States
1992 1993 1994 1995 1996
Annual percentage change
Austriaa2.0 0.4 2.3 1.4 1.0
Belgium 1.8 -1.6 2.3 1.9 1.4
Denmark 0.2 1.5 4.2 2.7 2.4
Finlanda-3.6 -1.2 4.5 4.5 3.3
France 1.3 -1.5 2.8 2.2 1.3
Germany 2.2 -1.2 2.9 1.9 1.4
Greece 0.4 -1.0 2.2 2.0 2.6
Ireland 3.9 3.1 7.3 10.7 8.4
Italy 0.6 -1.2 2.2 2.9 0.7
Luxembourg 1.9 0.0 4.2 3.8 3.6
Netherlands 2.0 0.2 3.4 2.1 2.8
Portugal 1.1 -1.2 0.8 2.3 3.0
Spain 0.7 -1.2 2.1 2.8 2.2
Swedena-1.4 -2.2 3.3 3.6 1.1
United Kingdom -0.5 2.2 3.9 2.5 2.1
a Member oftheEUsince 1995; pre-membership figures initalics.
Source: European Commission (European Economy, 1996Broad Economic Policy Guidelines, No.62,1996andSpring 1997forecasts).WT/TPR/S/30 Trade Policy Review
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5. Until recently, economic growth wastooweak inmostMember States toallow anysignificant
reduction intheunemployment ratesexcept inDenmark, Ireland andFinland, andtoalesser extent
theUnited Kingdom.3Intheother Member States, therateofunemployment haseither stabilized
ordeteriorated since 1993. TheEUaverage hasremained stable at11percentsince 1993.4
Unemployment wasthehighest inSpain (22.2 percentin1996), Finland (16.0 percent), France and
Ireland (12.3 percent), andItaly(12.0 percent) while thelowest ratesarerecorded inLuxembourg
(3.1percent), Austria (4.1percent) andDenmark (6percent) (Table I.3).
Table I.3
Main economic indicators bymember State, 1994-96
Interest ratesa
(percent)Unemploymentb
(percent)General government
balance
(percentofGDP)Inflationc
(percent)
1994 1995 1996d1994 1995 1996d1994 1995 1996d1994 1995 1996d
Austria 7.6 7.2 6.3 3.7 3.8 4.1 -4.6 -5.3 -3.9 2.9 1.3 2.0
Belgium 7.8 7.5 6.5 10.0 9.9 9.8 -5.1 -4.1 -3.4 3.2 1.6 2.0
Denmark 7.9 8.3 7.2 8.2 7.1 6.0 -3.6 -1.9 -1.6 1.8 2.1 2.1
Finland 8.4 7.9 6.0 18.1 16.9 16.0 -6.2 -5.2 -3.2 1.1 1.0 0.6
France 7.3 7.6 6.3 12.3 11.6 12.3 -5.6 -4.8 -4.1 2.1 1.7 1.8
Germany 6.9 6.8 6.2 8.4 8.2 9.0 -2.4 -3.5 -3.8 2.7 1.9 1.9
Greece 21.2 17.3 14.0 8.9 9.1 9.0 -12.1 -9.2 -7.4 10.8 9.3 8.3
Ireland 8.6 8.3 7.3 14.3 12.4 12.3 -1.7 -2.0 -0.9 2.6 2.0 1.7
Italy 10.4 11.9 9.2 11.4 11.9 12.0 -9.6 -7.0 -6.7 4.6 5.8 4.4
Luxembourg 6.4 6.1 5.2 3.2 2.9 3.1 2.9 1.7 1.8 2.3 0.7 1.9
Netherlands 6.9 6.9 6.2 7.1 7.0 6.6 -2.4 -2.3 -1.8 2.7 0.9 2.0
Portugal 10.4 11.5 8.6 7.0 7.3 7.3 -6.4 -6.0 -4.1 4.8 4.2 3.1
Spain 10.1 11.3 8.7 24.1 22.9 22.2 -6.3 -6.6 -4.4 4.8 4.7 3.6
Sweden 10.7 10.2 8.0 9.8 9.2 10.0 -10.3 -7.7 -3.6 3.0 2.4 1.2
United Kingdom 8.1 8.2 7.8 9.6 8.8 8.2 -6.8 -5.6 -4.4 2.5 2.6 2.8
Total EU15 8.3 8.4 7.2 11.3 10.9 11.0 -5.5 -5.0 -4.3 3.3 3.0 2.7
Memorandum:
United States 7.1 6.6 6.4 6.1 5.6 5.4 -2.4 -1.8 -1.4 2.4 2.4 2.8
Japan 4.4 3.4 3.0 2.9 3.1 3.4 -1.2 -2.0 -3.1 0.3 -0.3 0.2
a Long-term (OECD andEuropean Commission).
b Eurostat definition forunemployment.
c Consumer price index.
d Estimates.
Source: OECD (June 1997), Economic Outlook; andEuropean Commission (1996).
3Denmark experienced thelargest reduction inunemployment, from arateof10.1 percentin1993 toa
rateof6percentin1996.
4"Structural" unemployment intheEUisestimated bytheInternational Monetary Fund ataround 8-9percent
ofthelabour force (International Monetary Fund, 1997).European Union WT/TPR/S/30
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(ii) Economic policies andconvergence
6. Preparations fortheintroduction ofasingle currency inEurope by1January 1999havebecome
aprincipal focus ofeconomic policies intheCommunity anditsMember States. Theintroduction
ofthesingle currency islikely tobethemostimportant macroeconomic factor governing theexternal
trading relations oftheEUanditsMember States inthenextfewyears.
7. TheTreaty ontheEuropean Union requires thatthehighest levelof"economic convergence",
asmeasured byfourcriteria, istobeachieved before thelocking ofexchange rates.5Efforts tothis
endareguided bythetwoconvergence procedures, theBroad Economic Guidelines fortheMember
States andtheCommunity, which aretobetaken asthereference fortheconduct ofeconomic policies
intheEU,andtheExcessive Deficit Procedure, bywhich theCouncil monitors thesituation ofpublic
finances inMember States. InitsRecommendations ofJuly1996, theCouncil reaffirmed thatthe
macroeconomic framework intheCommunity should bebased onastability-oriented monetary policy,
sustained efforts toconsolidate public finances inmost Member States, andnominal wage trends
consistent withtheprice stability objectives.6
8. Overall, thesituation inrelation totheconvergence criteria improved between 1994 and1996
(Table I.3). Inflation isgenerally low. Fiscal positions andmonetary policies (asreflected inthe
evolution ofinterest rates) haveshown greater convergence, resulting inmore stable exchange rates
within theEuropean Monetary System. Achieving thefiscal criteria hassofarremained themain
challenge.
(a) Public finances
9. Thesituation ofMember States 'public finances hasimproved since thelastreview through
better control ofspending, and,insome Members, taxincreases. However, progress waslimited by
slower-than-expected economic growth in1996, andtheCommission regretted thattheMember States
hadnottaken greater advantage ofthegood economic conditions prevailing in1994 andearly 1995,
toachieve larger deficit reductions.7
5AsdescribedintheSecretariatreportforthepreviousTPR,thecriteriaconcerninflation,governmentfinance
(both deficit anddebt), exchange rates andinterest rates. They arereferred toinArticle 109joftheMaastricht
Treaty, ingeneral terms, anddetailed inaspecial Protocol attached tothatTreaty. Forthegovernment finance
criterion, further detail canbedrawn from Article 104c ontheexcessive deficit procedure. While theTreaty
refers tothe"sustainability ofthegovernment financial position, byreference totheexcessive deficit procedure",
theProtocol ontheconvergence criteria specifies that"thegeneral government deficit should notexceed 3per
centofGDP", andthat"thegeneral government netdebtshould notexceed 60percentofGDP". Atthesame
time, Article 104c oftheTreaty mayallow forexceptions if,forthedeficit, "theratiohasdeclined substantially
andcontinuously andreached alevel thatcomes close tothereference value ortheexcess ofthereference value
isonlyexceptional andtemporary", andforthedebt, "iftheratio issufficiently diminishing andapproaching
thereference value atasatisfactory pace". Thecombination ofthese legal textswillprovide sufficient leeway
totheHeadsofStateorGovernmenttointerpretthefiscalcriteriawhentheymeet nextspringtotaketheirdecision
onthefirstgroup ofparticipating countries.
6European Commission (1996c).
7European Commission (1996c).WT/TPR/S/30 Trade Policy Review
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10. Theaverage general government deficit intheEUwasreduced from 5.5percentin1994 to
4.3percentin1996(Table I.3).8While allEUMember States except Germany achieved some deficit
reduction in1996, 11outofthe15stillexceeded the3percentcriterion inthatyear. While theratio
ofgeneral gross debttoGDP continued torisefortheCommunity asawhole, from 68.1percent
in1994to71.2percent1995andanestimated 73.2percentin1996, mostMember States achieved
astabilization orareduction oftheirratios in1996.
11. Most EUMember States arecommitted toreducing theirdeficits to3percentofGDPorunder
in1997, withaviewtoqualifying forthesingle currency. TheHeads ofState orGovernment are
tomeetinthespring of1998todecide onthelistofeligible Member States onthebasisofbudgetary
out-turns for1997.9
(b) Monetary andexchange ratepolicies
12. Theaverage rateofinflation intheEUhascontinued tofallsince theprevious Trade Policy
Review, from 3.3percentin1994, to3percentin1995 and2.7percentin1996. According to
reportsbytheCommissionandtheEuropeanMonetaryInstitute,thisallowedalargemajorityofMember
States (12)tocomply withtheprice stability criterion forthesingle currency in1996. Lowinflation
figures reflect stability-oriented monetary policies, anabsence ofwage pressures (partly linked tohigh
unemployment) andlowcapacity utilization insome member States. Thegradual reduction ininflation
andtheeasing ofcurrency fluctuations within theEMS areassociated withasignificant reduction in
long-term interest ratedifferentials intheCommunity.
13. Theexchange ratestability within theEMS since mid-1995 allowed fortheintroduction ofthe
Finnish Markka intotheERM on14October 1996, andthereturn, afterathree-year absence, ofthe
Italian Liraon5November 1996.10While therealeffective exchange rateoftheECU remained
relatively stable in1995, itbegan todepreciate in1996 concurrently withtheappreciation ofthe
U.S.dollar.
(iii) Theroadtoeconomic andmonetary union
14. AttheEuropean Council inMadrid inDecember 1995, theHeads ofState orGovernment
confirmed thattheEUwould enter thethirdstage ofEconomic andMonetary Union andintroduce
thesingle currency on1January 1999. Thiswasreaffirmed insuccessive European Councils inFlorence
(June 1996), Dublin (December 1996) andAmsterdam (June 1997). TheHeads ofStateorGovernment
alsoapproved areference scenario setting outthesteps ofthechangeover, decided onthename of
theEuropean currency, theeuro, andcompleted other technical andlegalpreparations (Box I.1).
8In1996, thereduction intheaverage deficit wasmainly achieved through spending cuts(intheorder of
0.5percentofGDP), andthrough anincrease ingovernment receipts (about 0.2percentofGDP).
9European Monetary Institute (1996); andEuropean Commission (1996d).
10TheMarkka entered theERM atarateof3.04totheDeutsche Mark and5.800661 totheECU, while
theLiraentered atarateof990totheDeutsche Mark and1,906.48 totheECU. While thefluctuation margins
of15percenthave remained unchanged, currencies have generally fluctuated inrecent months inarelatively
narrow band of3percent.European Union WT/TPR/S/30
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BoxI.1: Thereference scenario forthechangeover tothesingle currency
TheEuropean Council adopted inMadrid a"reference scenario" fortheintroduction ofthesingle
currency, setting clear dates anddeadlines forthevarious stages ofthechangeover. These stages are:
Before theentry intoStage 3
Early in1998: theEuropean Council, composed ofHeads ofState orGovernment, will
confirm which Member States areeligible toenter Stage 3oftheEMU.
Nolater than1July1998: theEuropean Central Bank (ECB) willbecreated.
Start ofStage 3
According tothereference scenario, theeuro willbeintroduced intwostages: firstfornon-cash
transactions, andthree years later, atthelatest, forcashtransactions:
1January 1999: Stage 3oftheEMU begins on1January 1999 withtheirrevocable fixing
ofexchange rates among currencies ofparticipating Member States and
against theeuro. From thatdate, monetary andexchange ratepolicies
willbeconducted inthenewcurrency andanewtradeable public debt
willbeissued ineurobytheparticipating Member States. Theeurowill
beacurrency initsownright andtheofficial ECU basket willcease to
exist. That substitution willnotaffect thecontinuity ofcontracts, unless
otherwise provided bythecontract itself.
byoraround 1January 2002: Euro banknotes andcoins willbeintroduced intheparticipating Member
States, andwill circulate alongside national notes andcoins fora
maximum period ofsixmonths. Attheendofthisperiod, theeuro will
have completely replaced thenational currencies andthechangeover will
becomplete. Thereafter, national banknotes andcoins may stillbe
exchanged atthenational Central Banks.
Source: Conclusions oftheEuropean Council inMadrid (15/16 December 1995).
15. Particular attention wasgiven totheclarification ofprocedures aimed atmaintaining ahigh
levelofconvergence intheCommunity inStage 3andsmooth exchange relationships between theeuro
zoneandnon-participatingcountries.ExistingproceduressuchastheBroadEconomicPolicyGuidelines
andtheExcessive Deficit Procedure willremain inforceafter1999.11Tocomplement theseprocedures,
in1997theCommunity adopted anewsetofguidelines, under the"stability andgrowth pact", toensure
thatbudgetary disciplines would berespected bytheMembers oftheeurozoneinStage 3.12With
11Article 104(c)oftheEUTreaty provides forastrengthening ofsanctions against Member States which
arerepeatedly inasituation ofexcessive deficit.
12Thestability andgrowth pactincludes several aspects, among which, astrengthening ofthesurveillance
andcoordinationofbudgetarypositions,andaspeedingupandclarificationoftheimplementationoftheexcessive
deficit procedure. Thenewprovisions strengthened economic sanctions against Members oftheeurozonewhich
exceed thereference value of3percentofGDP forthegeneral government deficit (except in"exceptional
circumstances"). Aspecial chapter dealing withemployment policies wasalsoincluded. Details aresetout
inCouncil Regulation 1466/97 of7July1997.WT/TPR/S/30 Trade Policy Review
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respect toexchange rates, theTreaty requires Member States tocontinue treating theirpolicies asa
matterofcommoninterest(Article109(m)).ThebroadprinciplesofasuccessortothecurrentEuropean
Monetary System were adopted attheEuropean Council ofDublin.
16. Twoprincipal trade-related benefits maystemfromtheintroduction ofasingle currency: the
elimination oftransaction costsassociated withcurrency conversion, andgreater transparency within
thesingle market oftheEU. Theformer costs havebeenestimated bytheCommission atbetween
0.25and0.5percentoftheCommunity 'sGDP annually; inrespect ofthelatter, pressure toremove
remaining barriers inthesingle market should increase aspriceandcostscomparisons among Member
States become easier. Boththeseconsequences should benefit intra- andextra-Community tradealike.
Athirdclosely related benefit which mayhavemore significant consequences forintra-EU tradewould
stemfrom theelimination ofexchange rateriskswithin theeurozone.
17. Theintroduction ofasingle currency isalsolikely toaffect world trade although itsfull
implications arenotentirely clear. Aggregate intra- andextra-EU exports currently account forabout
40percentofworld exports atmarket rates. Anestimated 35to40percentofworld trade, including
intra- andextra-EU trade, isdenominated inEuropean currencies.13Twoeffects aregenerally foreseen:
aneffect onthedenomination ofinternational tradeflows, andaneffect onthepredictability andsecurity
oftrade flows intoandfrom theeuroarea.
18. From 1January 1999, intra-EU transactions previously expressed innational currencies will
beautomatically converted intotheeuro. Interms ofinvoicing, intra-EU tradewillbecome domestic
trade, i.e.itwillcease togiverisetointernational transactions intheforeign exchange market. In
thatsense, about 20percentofpre-EMU international currency transactions fromintra-EU tradewill
simply disappear. Theshare oftheeuroininternational invoicing willtherefore beconfined totoday's
extra-EU trade, i.e.about 20percentofworld transactions (onthehypothesis thatmonetary union
incorporates alarge majority ofEUMember States). Thequestion ofwhether global invoicing in
theEuropean currency mayexceed 20percentdepends onwhether there willbeaswitch totheeuro
ininternational markets where theposition oftheEUisstrong (aerospace, certain commodities, or
intrade withregions liketheCEECs, Mediterranean orACPcountries). Atthisstage, thisquestion
remains open.
(3) Trade andInvestment Patterns
(i) EUtrade patterns
19. Reflecting thestrength oftheinternational environment and,toalesser degree, therecovery
intheEUeconomy, thevalue oftheCommunity 'sexternal merchandise trade grew by10percent
in1994, 7percentin1995 and8percentin1996 (Tables AI.1toAI.4). Extra-EU exports grew
atarateof11percentin1994, slowing to9.5percentin1995and9percentin1996. Import growth,
which stood at10percentin1994, fellto5percentin1995 and6percentin1996, asaresult of
slower growth indomestic demand andrealeffective exchange ratedepreciation inmain members
oftheEMS.
20. TheEU'smerchandise trade balance moved fromalarge deficit in1991 (ECU 70billion) to
equilibrium in1993and1994, andasurplus ofECU44billion in1996. Thisturnaround canprincipally
13Seeinparticular Hartmann (1996); and,more recently, Bacchetta andAuboin (1997). TheIMFhasalso
produced estimates initslatest World Economic Outlook (October 1997).European Union WT/TPR/S/30
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beexplained bytheinversion ofcycles (i.e.growth rates) between theEUanditsmaintrading partners
inthe1990s.
21. Ontheexport side,thelasttwoyears weremarked bytherapid growth ofEUexports toAsia
(a15percentincrease peryearinvalue between 1993and1996). Thelargest increases wererecorded
inexports toJapan (growing at15percentperyear) andtothenewly industrialized countries (NICs)
(17percentperyear).14Asaresult ofthese trends, theshare ofAsian countries intotalEUexports
grewby2percentage points, from19to21percent. Exports tocentral andeastern European countries
(CEECs) grew from 8.7percentofthetotalin1993 toover11percentin1996, reflecting the
development ofbilateral economic linksunder theEurope Agreements (Chapter II(5)(ii)(a)). While
exports totheMediterranean basinremained stable atabout 12percentofthetotal,theshares ofexports
totheUnited States (thelargest single export market, taking 18.3percentofEUexports), EFTA and
ACP countries havedeclined slightly.
22. Overall, thegeographical distribution ofEUimports hasremained relatively stable since1993,
except foranincrease inimports from central andeastern Europe (from 6.5percentofthetotalin
1993to8.6percentin1996). TheEU'smainimports originate fromtheUnited States (19.5 percent),
EFTA andotherOECD countries (13and7.2percent,respectively), andJapan (9percent)(Chart I.2).
14TheNICs, asdefined here, include Hong Kong China, Singapore, Thailand, Malaysia, Chinese Taipei
andtheRepublic ofKorea.WT/TPR/S/30 Trade Policy Review
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European Union WT/TPR/S/30
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23. BroadsectoraltradepatternshaveremainedrelativelyunchangedsincethepreviousTradePolicy
Review. TheEUexports mainly machinery andtransport equipment (45percentoftotalexports),
paper, textiles andother made-ups (around 17percent), chemicals (13percent)andfood, beverages
andtobacco (7percent)(Chart I.3).Thefastest growing exports weretelecommunications equipment
(growth of40percentperyearbetween 1993 and1996) (Table AI.1). Major categories ofimports
include machinery andtransport equipment (around 32percentoftotalimports, covering office
machines, electrical machinery, roadvehicles andother machinery andtransport equipment), fuel
products (around 14percent), paper, textiles andmade uparticles (around 13percent), food,beverages
andtobacco (8percent)andchemicals (8percent). Thefastest growing imports wereironandsteel
(25percentperyear) andoffice anddataprocessing machines (17percentperyear).
24. TheEUistheworld 'slargest exporter andimporter ofservices. EUtrade inservices has
continued tobenefit fromthecurrent pattern ofinternational deregulation, technical progress, andhigh
demand fornew, technology-based services. Between 1992 and1994, exports ofcomputer and
information services doubled (Table AI.5). While theEUsurplus inservices declined between 1992
and1994 (from ECU 20billion to14billion), itrecorded alarge surplus infinancial, professional
andconstruction services. TheEUiscurrently theonlyregion running asurplus inbothmerchandise
andservices trade.
(ii) Developments inMember States
25. According toarecent survey bytheCommission, thelifting ofintra-EU trade barriers under
thesingle market programme hasresulted inanincrease inrealintra-EU trade inmanufactures from
20percentoftotaltradein1985to30percentin1995.15In1995, thevalue ofintra-EU merchandise
trade wasaround 68percentoftotalEUtrade, increasing fromsome 61percentin1985. Over the
sameperiod, theincrease fortheservices sector wasfrom47to50percent. While thesefigures show
some increase ininward orientation, theCommission points outthatextra-EU manufacturing imports
alsoincreased theirshare oftotalEUconsumption between 1980 and1993 from 12to14percent
(Chapter II(4)(ii)).
26. Among theMember States, countries suchasItaly, theUnited Kingdom andGermany maintain
higher thanaverage extra-EU trade, butevenforthese countries theshare ofintra-EU trade asa
percentage oftotaltradecontinued togrow between 1993and1995(Table I.4).Significant differences
continue tobeseenwithregard tothirdcountry partners, withGermany having astronger orientation
towards theCEECs andtheUnited Kingdom having stronger tieswiththeUnited States andJapan.
(iii) Investment trends
27. EUinward andoutward foreign direct investment (FDI) flows werebalanced between 1992
and1994, atECU 64billion each. TheUnited States isthelargest recipient ofFDIoriginating in
theEU,accounting foraround 50percentbetween 1992 and1994. FDIintheEUisalsogrowing
rapidly, absorbing around 44percentofglobal foreign investment intheearly 1990s, compared to
28percentinthemid-1980s.16Inward investment fromtheUnited States during thisperiod averaged
42percentoftotalinward FDI. Other OECD countries accounted for29and12percentofinward
15European Commission (1996e).
16European Commission (1996f).WT/TPR/S/30 Trade Policy Review
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andoutward FDI,respectively. Switzerland wasthesecond largest investor intheEU,investing ECU
5billion in1994 alone.
Table I.4
Trade byEUMember States
Total trade (ECU million) Extra-EU trade (percent)a
Exports 1995 Imports 1995 Exports 1995 Imports 1995
Austria 43,729 50,292 34.5 24.1
Belgium andLuxembourg 133,255 123,332 23.5 27.8
Denamrk 37,760 33,738 33.3 29
Finland 30,955 22,530 42.5 35
France 230,245 221,245 37.0 31.5
Germany 389,265 338,647 42.9 41.4
Greece 8,302 19,463 40.6 30.4
Ireland 33,412 24,196 26.6 36.1
Italy 176,654 155,948 43.2 39.5
Netherlands 155,328 141,612 20.1 36.8
Portugal 17,418 24,931 19.9 26.1
Spain 72,913 84,090 32.8 32.5
Sweden 61,069 49,681 40.7 31.4
United Kingdom 181,256 207,959 40.2 44.7
Total EU 1,571,561 1,497,664 36.3 36.4
Memorandum:
United States 446,400 589,400 ... ...
Japan 338,700 256,800 ... ...
... Notavailable.
a Share intotaltrade.
Source: Eurostat "External andintra-European Union trade", June1997.
28. Among thenon-OECD countries, Central andEastern Europe isthemaindestination forEU
investments, attracting, onaverage, over13percentofEUFDIbetween 1992and1994; thisisexpected
toriseunder plans forfurther integration. Nearly halfofEUinvestments intheCEECs originate
inGermany, buttheUnited Kingdom, theNetherlands andFrance arealsobecoming major investors.
EUinvestment intheemerging economies ofAsiaandLatin America, while stillrepresenting alimited
share oftotalinvestment (7and4percentrespectively), isalsoincreasing atarapid pace. Countries
inthese regions thathaverecorded thelargest increases inFDIfromtheEUinclude China, Malaysia,
Thailand, Argentina andBrazil.
(4) Outlook
29. Economic activity isestimated bytheCommission tohavebottomed outinthefirsthalfof
1996.17Recent figures confirm thestrengthening ofconfidence andgrowth bothinthesecond half
of1996andthefirstquarter of1997. Domestic demand inmostMember States hasbeenstrengthening,
withthedecline ininterest ratesmaking itselffeltininterest-sensitive sectors oftheeconomy. Current
17European Commission (1997a).European Union WT/TPR/S/30
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GDP projections fortheEUasawhole arearound 2½percentoverall for1997. Although most
Member States areforecast togrow atbetween 2.2and3.3percent, thehighest growth isexpected
inIreland (around 6.5percent)andFinland (around 4.5percent); while thelowest ratesareexpected
inItaly(around 1percent) andAustria (1.5-1.7 percent). Unemployment fortheEUasawhole
isexpected tostabilize inthemiddle of1996before slowly declining, although again therearemarked
differences intheprojections byMember States, withtheUnited Kingdom theonlyoneexpected to
show amarked decline inunemployment in1997(IMF). Inflation should remain low,andeventually
decline toaround 2percent, astheEUeconomy continues toshow excess capacity.