RESTRICTED  WORLD  TRADE  
ORGANIZATION  WT/TPR/S/136 
23 June 2004  
 
(04-2591) 
Trade Policy Review Body  
   
 
  
 
TRADE POLICY REVIEW 
 
European Communities1 
 
Report by the Secretariat 
 
  
 
This report, prepared for the Trade Polic y Review of the European Communities, 
has been drawn up by the WTO Secretariat on its own responsibility.  The 
Secretariat has, as required by the Agreement establishing the Trade Policy 
Review Mechanism (Annex 3 of the Ma rrakesh Agreement Establishing the 
World Trade Organization), sought clarification from the Government the 
European Communities on its trade policies and practices. 
 
Any technical questions arising from this report may be addressed to 
Messrs. Ricardo Barba (5088), Allen Dennis (6844), and Jacques Degbelo 
(5583). 
 
Document WT/TPR/G/136 contains the policy statement submitted by the 
Government of the European Communities. 
                                                      
1 Previous Trade Policy Reviews of the European Communities had used the "European Union" in the 
title.  At the request of the Commission, the title has been changed to the "European Communities". 
Note: This report is subject to restricted circu lation and press embargo until the end of the 
meeting of the Trade Policy Review Bo dy on the European Communities. European Communities WT/TPR/S/136 
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CONTENTS 
 
   Page 
SUMMARY OBSERVATIONS viii 
(1) T HE ECONOMIC ENVIRONMENT  viii 
(2) I NSTITUTIONAL FRAMEWORK  viii 
(3) T RADE POLICY INSTRUMENTS  ix 
(4) S ECTORAL POLICIES  x 
(5) T RADE POLICY AND TRADING PARTNERS  xi  
I. ECONOMIC ENVIRONMENT 1 (1) M
AIN CHARACTERISTICS  1 
(2) R ECENT ECONOMIC DEVELOPMENTS  4 
(3) T RADE PERFORMANCE AND INVESTMENT  8 
(i) Trade in goods 8 (ii) Trade in services 9 
 (iii) Foreign Direct Investment 12 
(4) O
UTLOOK  14 
II. TRADE REGIME 16 
(1) I NSTITUTIONAL FRAMEWORK  16 
(2) P OLICY FORMULATION AND IMPLEMENTATION  17 
(3) T RADE POLICY OBJECTIVES  19 
(4) T RADE REGULATIONS AND BUSINESS ENVIRONMENT  20 
(5) T RADE AGREEMENTS AND ARRANGEMENTS  22 
(i) Overview 22 
(ii) WTO 24 
(iii) Preferential tr ade agreements and arrangements 27 
III. TRADE POLICIES AND PRACTICES BY MEASURE 37 
(1) I NTRODUCTION  37 
(2) M EASURES DIRECTLY AFFECTING IMPORTS  37 
(i) Customs procedures and valuation 37 
(ii) Common customs MFN tariff 40 (iii) Other duties and taxes 45 
(iv) Duty and tax exemptions and concessions 49 
(v) Rules of origin 50 (vi) Tariff preferences 51 
(vii) Import prohibitions, restrictions and licensing 52 
(viii) Contingency trade measures 54 (ix) Technical barriers to trade 59 
(x) Sanitary and phytosanitary measures 63 
(xi) Government procurement 66 
(3) M
EASURES DIRECTLY AFFECTING EXPORTS  70 
(i) Registration and Documentation 70 (ii) Export taxes, charges and levies 70 WT/TPR/S/136 Trade Policy Review 
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   Page 
 
(iii) Export prohibitions, restrictions and licensing 70 
(iv) Export subsidies 71 (v) Export assistance 72 
(4) M
EASURES AFFECTING PRODUCTION AND TRADE  72 
(i) State-owned enterprises 72  (ii) Competition policy and regulatory issues 73 
(iii) Intellectual property rights protection 78 
IV. TRADE POLICIES BY SECTOR 84 
(1) I
NTRODUCTION  84 
(2) A GRICULTURE  85 
(i) Main features 85 (ii) Common agricultural policy (CAP) 86 
(3) F
ISHIERIES  100 
(i) Main features 100 (ii) Common Fisheries Policy (CFP) 101 
(4) E
NERGY  107 
(5) M ANUFACTURING  109 
(i) Overview 109 
(ii) Selected industries 113 
(6) S ERVICES  116 
(i) Overview 116 
(ii) Financial services 117 (iii) Telecommunications and postal services 122 
(iv) Transport 126 
(v) Tourism 132 
REFERENCES 134 
APPENDIX TABLES 141 European Communities WT/TPR/S/136 
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CHARTS 
 Page  
 
I. ECONOMIC ENVIRONMENT 
 
I.1 Direction of EC's merchandise trade, 1998-02 10 
I.2 Structure of EC's merchandise trade, 1998-02 11 
III. TRADE POLICIES AND PRACTICES BY MEASURE 
 
III.1 Applied MFN tariff distribution, 2004 43 
III.2 Tariff escalation by ISIC 2-digit, 2004 43 
III.3 MFN tariff distribution by sector (ISIC1 definitions), 2004 45 
III.4 Total anti-dumping measures imposed, 1991-03 57 III.5 Total contervailing measures imposed, 1991-03 59 
IV. TRADE POLICIES BY SECTOR 
 
IV.1 EC's tariff ISIC, 2004 112 
 
TABLES 
I. ECONOMIC ENVIRONMENT 
 
I.1 Selected indicators of the EC-15, euro area and C-10, 2003 1 
I.2 Euro exchange rates, 1996-03 4 I.3 Growth in real GDP and expenditure components of EC-15 and euro area, 2000-03 5 
I.4 Key macroeconomic indicators, 2002-03 5 
I.5 EC-15's trade in services, 1999-02 12 I.6 EC-15's and C-10's FDI inflows and outflows, 2001-02 13 
II. TRADE REGIME 
 
II.1 Typology of EC's regional agreements, May 2004 23 
II.2 Selected recent EC notificatio ns to the WTO, as of May 2004 25 
III. TRADE POLICIES AND PRACTICES BY MEASURE 
 
III.1 Structure of the EC MFN tariffs, 2002 and 2004 42 
III.2 Structure of the EC MFN tariff, by WTO sectors, 2004 42 III.3 Summary analysis of EC MFN tariff, 2004 44 
III.4 VAT rates applied in EC member States (as at 1 May 2003) 46 
III.5 Excise duties, end 2003 48 III.6 Anti-dumping measures, 1998-03 58 
III.7 Countervailing measures, 1996-04 59 
III.8 WTO notifications of technical regulations by the EC and member States, 1995-03 62 III.9 Notification of emergency measures 63 
III.10 Open procurement indicators, 1995, and 2000-02 69 
III.11 EC State aid as percentage of GDP, 2001 77 III.12 EC State aid by sector, 2001 78 
III.13 Patent application at the European Patent Office by bloc of origin, 1996-2002 80 
 
 WT/TPR/S/136 Trade Policy Review 
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 Page  
IV. TRADE POLICIES BY SECTOR 
 
IV.1 Selected agricultural statistics, 2002 85 
IV.2 EAGF guarantee and guidance expenditure by member State, and national  expenditure on agriculture, 2002 88 
IV.3 Main indicators of support by commodity, 1986-02 89 
IV.4 Transfers associated with agri cultural policies in the EC, 1986-02 90 
IV.5 Current and reformed CAP for ke y arable crops and animal products 95 
IV.6 EC policy options for sugar: advantages and disadvantages 100 
IV.7 Intervention mechanisms of the CMO in fishery and aquaculture 106 
IV.8 Tariffs and tariff quotas on fishery products 107 
IV.9 Structure and size of the manufacturing sector in the CEEC and the EC-15, 2000  110 IV.10 Selected telecommunica tions indicators, 2002 123 
 
 
APPENDIX TABLES 
I. ECONOMIC ENVIRONMENT 
 
AI.1 Destinations of EC's exports, 1998-02 145 
AI.2 Sources of EC's imports, 1998-02 146 
AI.3 Structure of EC's exports, 1998-02 147 AI.4 Structure of EC's imports, 1998-02 148 
 
AI.Estonia 1 Main economic indicators, 1998-02 157 AI.Estonia 2 Balance-of-payments, 1998-02 158 
AI.Estonia 3 Structure of exports, 1995-02 159 
AI.Estonia 4 Structure of imports, 1995-02 160 AI.Estonia 5 Destinations of exports, 1995-02 161 
AI.Estonia 6 Origins of imports, 1995-02 162 
AI.Estonia 7 Strucutre of customs tariffs, 2002 and 2003 163 AI.Estonia 8 Applied MFN tariff averages by HS2, 2003 164 
AI.Estonia 9 Applied MFN tariff statistics, by ISIC Rev. 2 category, 2003 168 
 AI.Latvia 1 Main economic indicators, 1998-02 171 
AI.Latvia 2 Balance-of-payments, 1998-02 172 
AI.Latvia 3 Structure of exports, 1995-02 173 AI.Latvia 4 Structure of imports, 1995-02 174 
AI.Latvia 5 Destinations of exports, 1995-02 175 
AI.Latvia 6 Origins of imports, 1995-02 176 
AI.Latvia 7 Strucutre of customs tariffs, 2002 177 
AI.Latvia 8 Applied MFN tariff averages by HS2, 2002 178 AI.Latvia 9 Applied MFN tariff statistics, by ISIC Rev. 2 category, 2002 182 
 
AI.Lithuania 1 Main economic indicators, 1998-02 185 AI.Lithuania 2 Balance-of-payments, 1998-02 186 
AI.Lithuania 3 Structure of exports, 1995-02 187 
AI.Lithuania 4 Structure of imports, 1995-02 188 AI.Lituania 5 Destinations of exports, 1995-02 189 
AI.Lithuania 6 Origins of imports, 1995-02 190 
AI.Lithuania 7 Strucutre of customs tariffs, 2002 191 AI.Lithuania 8 Applied MFN tariff averages by HS2, 2002 192 
AI.Lithuania 9 Applied MFN tariff statistics, by ISIC Rev. 2 category, 2002 196 
 European Communities WT/TPR/S/136 
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 Page  
 
AI.Malta 1 Main economic indicators, 1998-02 199 
AI.Malta 2 Balance-of-payments, 1998-02 200 AI.Malta 3 Structure of exports, 1995-01 201 
AI.Malta 4 Structure of imports, 1995-01 202 
AI.Malta 5 Destinations of exports, 1995-02 203 AI.Malta 6 Origins of imports, 1995-01 204 
AI.Malta 7 Strucutre of customs tariffs, 2002 205 
AI.Malta 8 Applied MFN tariff averages by HS2, 2002 206 AI.Malta 9 Applied MFN tariff statistics, by ISIC Rev. 2 category, 2002 210 
II. TRADE REGIME 
 
AII.1 EC's regional trade agreements notified to the WTO, as of May 2004 149 III. TRADE POLICIES AND PRACTICES BY MEASURE 
 
AIII.1 Applied MFN tariff averages by HS2, 2004 151 
AIII.2 Some recent TBT related EC  directives and decisions 155 
 WT/TPR/S/136 Trade Policy Review 
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SUMMARY OBSERVATIONS 
 
(1) T HE ECONOMIC ENVIRONMENT  
1. The internal economic integration 
process of the European Communities (EC) 
was advanced by the adoption of a single currency in the euro area on 1 January 2002.  The EC has also enlarged to 25 member States, with ten new members (C-10) since 1 
May 2004: Cyprus, Czech Republic, Estonia, 
Hungary, Latvia, Lithuania, Malta, Poland, Slovak Republic, and Slovenia. With the C-10, the EC population increased by 20%, its land area by 23.1% and its GDP by 5%. In the main, this seventh Trade Policy Review (TPR) 
of the EC covers the trade policies and 
practices of its 15 member States (EC-15), before enlargement. 
2. The EC-15 has pursued its monetary 
discipline, which, combined with the 
appreciation of the euro against major 
currencies, helped to reduce inflation from 2.2% in 2001 to 2% in 2003. In 2002, the EC-15 registered its first current account surplus since 1998 (€ 57.2 billion, equivalent to 0.7% of GDP), followed by a surplus (€ 49.7 billion) 
in 2003. This was partly due to a trade surplus 
(€ 4.8 billion in 2002), derived from the negative growth differential between the EC-15 and its main trading partners (with buoyant demand, notably from the United States and 
Asia), and the lagged pass-through effects of 
the appreciation of the euro on the trade balance. 
3. The EC's GDP growth rate has slowed 
since 2001 (from 3.6% in 2000 to 0.8% in 
2003), reflecting slower productivity growth, 
structural rigidities, a reduction in investment expenditure, and lagging private consumption. The decline in economic growth translated into an increase in the unemployment rate, which rose from 7.6% in 2001 to 8.1% in 
2003. The ratio of the public deficit to GDP 
increased from 1% in 2001 to 2.6% in 2003, as a result of both revenue decrease and expenditure increase, with some member States breaching the Stability and Growth 
Pact (SGP) with repect to fiscal accounts. Long-term sustainability of public finances in 
the EC-15 is also made difficult by the relatively high levels of government debt in certain member States, to some extent because 
of ageing populations. 
4. In the Broad Economic Policy 
Guidelines (BEPG) for 2003-05, the Council emphasized that measures identified, under the 2000 Lisbon strategy, to make the EC the most 
"competitive and dynamic  knowledge-based 
economy in the world by 2010", should be speedily implemented. Recent trends in the EC's trade performance have raised hopes of the recovery of its economy in the coming months. 
(2) I
NSTITUTIONAL FRAMEWORK  
5. The most important change to the 
institutional framework of the EC since its last Trade Policy Review, in July 2002, has been the entry into force of the Treaty of Nice on 1 
February 2003, to gear the workings of the EC 
institutions to its enlargement. Under the Treaty, the EC's competence has been extended to cover the negotiation and conclusion of agreements on trade in services and commercial aspects of intellectual 
property. Reforms to simplify and improve the 
regulatory environment and promote a culture of dialogue and participation have also been ongoing. 
6. The EC's trade policy is geared 
towards the liberalization of its trade regime, 
through both the multilateral and preferential routes. At the multilateral level, the EC continues to be a key player, including in the launch and ongoing implementation of the 
Doha Development Agenda (DDA). It accords 
at least MFN treatment to all WTO Members. In general, the EC meets its WTO notification obligations, thereby contributing to the transparency of its trade regime.  The EC and its member States are leading contributors to 
the WTO's Global Trust Fund for technical 
cooperation. The EC is also a leading user of the WTO dispute settlement system; during the period under review, it was a complainant in seven cases and a third party in 19 disputes, European Communities WT/TPR/S/136 
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most of which were against the United States. 
As a consequence of its enlargement to 25 members, procedures relating to a re-negotiation of the EC's tariff concessions have 
commenced; the EC's preferential trade 
relations were consolidated, as the Europe and Association Agreements concluded with the acceding countries were terminated, and the new members have adopted the EC's 
acquis communautaire. 
7. The EC has in place several 
preferential trade agreements (PTAs), and negotiations for new PTAs are ongoing. During the period under review, the EC concluded agreements with Chile, Egypt, 
Jordan, and Lebanon. Negotiations are 
ongoing with Albania; Syria; MERCOSUR; countries in the Gulf region; and with groups of African, Caribbean and Pacific (ACP) States, under the economic partnership 
agreements. However, in order to focus efforts 
on the multilateral negotiations, no new negotiations were commenced during the period. The EC continues to offer non-reciprocal trade preferences to almost all ACP countries under the Cotonou Agreement; and 
to developing countries in general under its 
GSP scheme, including its "Everything But Arms" initiative for tariff- and quota-free access to almost all exports from least developed countries.  
8. Currently, the EC's purely MFN 
regime applies to nine WTO members, which account for some 36% of its merchandise trade. The EC's preferential trade agreements have so far resulted in free trade with the 
concerned partners in industrial goods and 
limited liberalization of trade in agricultural goods, i.e. a certain share of its trade with preferential partners is still under the MFN regime. Some PTAs also provide for liberalization of some services subsectors. 
Under its reciprocal preferential agreements, 
liberalization is underta ken asymmetrically, 
with the EC liberalizin g at a faster speed. 
Increasingly, its PTAs are taking into account trade rules (e.g. trade defence instruments, 
standards and technical regulations) and environmental considerations, and are with or 
seek to encourage other regional groupings. 
(3) T
RADE POLICY INSTRUMENTS  
9. The EC's MFN tariff has remained 
largely unchanged since its last TPR. The 
average applied MFN tariff rate has remained fairly stable at 6.5% in 2004. However, the tariff structure remains complex, particularly on agricultural products. Non-ad valorem 
duties, applied on some 46% of agricultural 
tariff lines, comprise specific, mixed, compound and "entry price" (variable) duties; and in some cases, these duties are applied according to the technical content of products and could vary with the season. Agricultural 
products attract the highest tariff rates, 
reaching up to an ad valorem equivalent of 209.9% on whey and products consisting of natural milk constituents. In aggregate, due to 
the relatively high protection of agricultural 
products, the tariff shows mixed escalation, 
negative from the first stage of processing to semi-processed goods, and then positive to fully processed products.  Export subsidies 
(mostly on agricultural products), though on the decline, remain relatively high. 
10. Import prohibitions maintained in the 
EC are generally based on international agreements. Import licences are required for surveillance, quota management, and safeguard purposes. Tar iff quotas maintained 
on textiles and clothing are due to expire by 31 
December 2004. Other tariff quotas, applied to some 89 agricultural products, are filled at about 67%. 
11. Customs procedures are harmonized 
amongst EC member States, although their 
uniform implementation remains a challenge. Under its "Customs 2007 programme", the EC is improving its customs administration through, inter alia, the implementation of various communication and information 
exchange systems to support the creation of a 
paperless (electronic) customs environment. Similar information technology systems are being implemented to improve the administration of VAT and excise duties, both WT/TPR/S/136 Trade Policy Review 
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of which apply to imports and locally 
produced goods at the same rates, though not fully harmonized among EC member States. During the period under review, directives 
were adopted to ensure that VAT is collected 
at the place where certain services are consumed (recipients destination). 
12. The EC remains a leading user of 
contingency trade remedies; in 2002 and 
2003, it initiated a total of 27 anti-dumping, 4 
countervailing and 3 safe guard investigations . 
Technical regulations remain partially harmonized among EC member States. At the Community level, the Old-Approach Directives specify detailed technical requirements, and 
the New-Approach Directives specify the 
essential requirements. Conformity assessment is carried out by bodies designated by member States; however for some products, the EC accepts the supplier's declaration of 
conformity. Some developed countries take 
part in the EC's conformity assessment activities through mutual recognition agreements. The EC is also engaged in several assistance programmes with developing countries in the field of technical regulations. 
On food safety, the EC attaches great 
importance to the need to maintain a high level of safety at all levels of the food chain. To this effect, Community-wide legislation on sanitary and phytosanitary standards has been 
adopted. Concerns have been  raised by third 
countries about some of these regulations. 
13. The EC has taken measures to 
simplify, modernize, and make more flexible its public procurement regime. In May 2004, 
reforms relating to the coordination of public 
procurement procedures were approved. Measures taken in the area of competition policy include: legislative reforms aimed at modernizing the enforcement system for EC competition rules, and reducing the incidence 
of anti-competitive practices in the motor 
industry and air transport sector; block exemptions in specified areas; and a revision of the merger regulation. On intellectual property protection, legislation was adopted 
on, inter alia, the registration of EC designs; 
protection of geographical indications and designations of origin for agricultural 
products and foodstuff;  and on measures to 
combat counterfeiting and piracy. 
(4) S
ECTORAL POLICIES  
14. Since its last TPR, the EC has 
continued to reform its Common Agricultural Policy (CAP) by lowering distortions, achieving greater market orientation, and reducing agricultural supp ort, mainly through 
the decoupling of payments from production. 
However, tariff protection at an average rate of 10% for agriculture (major division 1 of ISIC, Revision 2), or 16.5% using the WTO definition of agricultural products, and domestic support, coupled with the limited 
liberalization of trade in agricultural products 
under the EC's preferential trade agreements, continue to limit foreign competition and to generate surpluses of some products. The policy has made subsidies important for 
exports of certain surpluses, as well as of some 
processed agricultural products. 
15. Since 2003, the EC has a new 
Common Fisheries Policy (CFP), aimed at achieving biologically, environmentally, and economically sustainable fisheries by, inter 
alia, better conserving fish stocks, protecting 
the marine environment, and ensuring the economic viability of the European fleets. The main changes to the previous CFP are: the adoption of a long-term approach to fisheries 
management; a new fleet policy; socio-
economic measures; access to waters and resources; and involvement of stakeholders in decision-making. 
16. The EC has an energy-intensive 
economy, which is about 50% self-sufficient in 
energy. Support is still granted for, inter alia, more efficient environmental friendly energy. Modifications to the energy policy guidelines are envisaged to achieve security of energy supply, complete the EC internal market, and 
enhance competition in the subsector. Under 
recently enacted legislation, the electricity and natural gas markets have been further liberalized and made more efficient. European Communities WT/TPR/S/136 
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17. EC's productivity growth in 
manufacturing has continued to decelerate.  The sector is also a major beneficiary of state aid. The EC is implementing wide-ranging 
programmes to make manufacturing more 
productive. Tariffs on manufactured imports (major division 3 of ISIC, Revision 2) average 6.4%, with relatively high rates on some processed food products. 
18. The services sector is, by far, the most 
important contributor to the EC's real GDP and employment. Nevertheless, the sector has lagged behind others in creating a single market, largely because of differences in regulation across member States. The EC has 
taken steps to address some of the structural 
problems in certain services subsectors, particularly through the Financial Services Action Plan (FSAP), the reform of the regulatory framework on telecommunications, 
and progress on the Action Plan for 
Transport. Further liberalization of services is considered as the most important mid- and long-term goal of EC reforms, since it would boost the overall "competitiveness" of the economy. 
(5) T
RADE POLICY AND TRADING 
 P ARTNERS  
19. The EC has a long-standing 
commitment to the multilateral trading system and participates actively in various PTAs. It 
was fundamental in building support for the 
launch of the DDA and has been instrumental in advancing it by tabling proposals in several areas. The unrelenting commitment of the EC to the WTO is vital to a successful conclusion 
of the DDA.  
20. Enlargement has consolidated trade 
relations within Europe. Enlargement and the EC's PTAs have also contributed to further improving competition in the economy. However, the wide variety of PTAs, with different trade liberalization agendas and 
trading rules (including rules of origin) 
further complicates the EC's trade regime. Moreover, for preferential trading partners, absence or delays in alignment of their regimes may lead to trade diversion to the 
detriment of their exports. Nevertheless, the 
decision by the Council not to launch new preferential trade negotiations may relax pressure on demand for administrative and negotiating resources. 
21. The EC market is open for non-
agricultural products and somewhat protected 
for agricultural goods. The EC is the world's leading exporter and the second-largest importer of goods. This is indicative of the importance of trade to the EC, and of the 
significance of the EC market for the world at 
large. Therefore, further simplification of the EC's trade regime, notably of its tariff structure on agricultural products, harmonization of trade-related procedures at 
the EC-25 level, and the continuation of 
structural reforms would substantially contribute to the promotion of world trade and to the improvement of the EC's resource allocation.