RESTRICTEDWORLD  TRADE
ORGANIZATIONWT/TPR/S/102
26 June 2002
(02-3443)
Trade Policy Review Body
TRADE POLICY REVIEW
EUROPEAN UNION
Report by the Secretariat
This report, prepared for the sixth Trade Policy Review of the European Union,
has been drawn up by the WTO Secretariat on its own responsibility.  The
Secretariat has, as required by the Agreement establishing the Trade Policy
Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the
World Trade Organization), sought clar ification from the European Commission
on the EU's trade policies and practices.
Any technical questions arising from this report may be addressed to Mr. Willy
Alfaro (tel. 022-739 53 72).
Document WT/TPR/G/102 contains the policy statement submitted by the
European Commission.
Note: This report is subject to restricted circulation and press embargo until the end of the meeting 
of the Trade Policy Review Body on the European Union.European Union WT/TPR/S/102
Page iii
CONTENTS
Page
SUMMARY OBSERVATIONS vii
(1) R ECENT ECONOMIC DEVELOPMENTS vii
(2) P OLICY DEVELOPMENTS viii
(3) I NSTITUTIONAL DEVELOPMENTS ix
(4) E XTERNAL TRADE RELATIONS ix
(i) WTO ix(ii) Preferential trade agreements and arrangements ix
(5) T
RADE POLICY MEASURES x
(6) M EASURES AFFECTING PRODUCTION AND TRADE xii
(i) Company law xii(ii) Competition policy xii(iii) Subsidies xiii(iv) Intellectual property rights xiii
(7) D
EVELOPMENTS IN SELECTED SECTORS xiii
(i) Agriculture xiii
(ii) Fisheries xiv(iii) Financial services xiv(iv) Telecommunications and information society xiv
I. ECONOMIC ENVIRONMENT 1
(1) M
AIN CHARACTERISTICS 1
(2) R ECENT ECONOMIC DEVELOPMENTS 2
(3) P OLICY DEVELOPMENTS 3
(i) Objectives of economic policy 3(ii) Economic and monetary union (EMU) 4
(iii) Public finances  6
(iv) Structural reforms  7
(4) D
EVELOPMENTS IN TRADE 10
(i) Merchandise trade 10(ii) Commercial services trade 11
(5) O
UTLOOK 12
II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES 13
(5) G ENERAL FRAMEWORK 13
(i) Overview 13
(ii) Institutional framework 13
(iii) Transparency and public consultations 14
(2) E NLARGEMENT 15
(3) C OMMON COMMERCIAL POLICY 16
(i) Objectives 16(ii) Framework 16
(iii) Instruments 17
(4) E
XTERNAL TRADE RELATIONS 19
(i) WTO 19WT/TPR/S/102 Trade Policy Review
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Page
(ii) Regional trade agreements 21
(iii) Preferential trade agreements and arrangements 24
III. TRADE POLICIES AND PRACTICES BY MEASURE 26
(1) M EASURES DIRECTLY AFFECTING IMPORTS 26
(i) Customs procedures 26
(ii) Customs valuation 28(iii) Rules of origin 28(iv) Community tariff 29(v) Indirect taxes 30
(vi) Prohibitions, restrictions, surveillance, and licensing requirements 31
(vii) Safeguard measures 36(viii) Product regulations and standards 37(ix) Government procurement 46(x) State-trading (as defined in GATT Article XVII) 48(xi) Anti-dumping and countervailing measures 48
(2) M
EASURES DIRECTLY AFFECTING EXPORTS 50
(i) Procedures 50(ii) Prohibitions, restrictions and licensing 50(iii) Duties 51(iv) Export subsidies 51(v) Export assistance 51
(vi) State-trading enterprises 51
(3) M
EASURES DIRECTLY AFFECTING PRODUCTION AND TRADE 52
(i) Legal framework for businesses 52(ii) Competition policy 54(iii) Subsidies 59
(iv) Intellectual property rights protection 63
IV. DEVELOPMENTS IN SELECTED SECTORS 69
(1) A
GRICULTURE 69
(i) Main characteristics 69(ii) Common Agricultural Policy (CAP) 70(iii) Developments in selected sectors 73
(2) F
ISHERIES 77
(i) Main characteristics 77(ii) Common Fisheries Policy (CFP) 78
(3) F
INANCIAL SERVICES 83
(i) Main characteristics 83(ii) Policy developments 85
(4) T
ELECOMMUNICATIONS 91
(i) Main characteristics 91(ii) Policy developments 92
(5) E-C
OMMERCE 97
(i) Main characteristics 97(ii) Policy developments 97
REFERENCES 103
APPENDIX TABLES 109European Union WT/TPR/S/102
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Page
CHARTS
I. ECONOMIC ENVIRONMENT
I.1 Merchandise trade developments in the EU, 2000-01 10
TABLES
I. ECONOMIC ENVIRONMENT
I.1 Major features of the EU and euro area, 2000 1
I.2 Growth in real GDP and expenditure components of EU-15 and euro area, 1998-01 2I.3 Internal Market Scoreboard, March 2002 8I.4 Commercial services exports and imports (extra-EU), 1992-00 11
I.5 Spring 2002 forecasts of real GDP growth for the EU and the euro area, 2002 and 2003 12
III. TRADE POLICIES AND PRACTICES BY MEASUREIII.1 Seizures of counterfeit and pirated goods in EU Member States, 1999-00 26
III.2 Applied MFN, tariff 2002 30III.3 EC's liberalization of quantitative restrictions on imports of textile and clothing products 34III.4 WTO notifications of technical regulations by the EU and Member States, 1995-01 39
III.5 Open procurement indicators, 1995 and 2000 46
III.6 Anti-dumping actions, 1991-01 49III.7 Selected innovation indicators, 1997-99 60III.8 State aid cases, 2000 to January 2002 62III.9 Patent statistics, 1999-00 66
IV. DEVELOPMENTS IN SELECTED SECTORS
IV.1 Selected agricultural statistics for Member States, 2000 and 2001 69
IV.2 EAGF Guarantee and Guidance expenditure by Member State, and national expenditure on
agriculture, 2000 71
IV.3 Old and new tariff suspensions and tariff quotas for fishery products 82IV.4 Legislative measures of the Financial Services Action Plan adopted between 2000
and March 2002 86
IV.5 Legislative programme of the Financial Services Action Plan, 2002-03 87IV.6 Telecommunication markets in the EU, 2001 91IV.7 Internet penetration rates, 2001 92
APPENDIX TABLES
I. ECONOMIC ENVIRONMENT
AI.1 Merchandise exports (extra-EU trade) by region and country, 1995 and 1998-00 109
AI.2 Merchandise imports (extra-EU trade) by region and country, 1995 and 1998-00 110AI.3 Leading merchandise exports (extra-EU trade) by SITC Rev.3 category, 1997-00 111AI.4 Leading merchandise imports (extra-EU trade) by SITC Rev.3 category, 1997-00 112
II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES
AII.1 Selected most recent WTO documents of the European Communities, 1995 to 9 April 2002 113
AII.2 Regional trade agreements of the European Union, 2002 115WT/TPR/S/102 Trade Policy Review
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Page
III. TRADE POLICIES AND PRACTICES BY MEASURE
AIII.1 Applied MFN tariffs by HS Chapter, 2002 116
AIII.2 Quantitative restrictions on imports of textile and clothing products after Stage III
of liberalization, 2002-04 120
IV. DEVELOPMENTS IN SELECTED SECTORS
AVI.1 Main indicators of support by commodity, 1986-00 122
AVI.2 Share of telecoms incumbents in call segments, 2001 123European Union WT/TPR/S/102
Page vii
SUMMARY OBSERVATIONS
1. The European Union (EU) plays a
vital role in the WTO and its support for the
rules-based multilateral trading system iscrucial to the ability of the system to deliver
the benefits from trade to all its Members.  The
EU’s position as the world’s leading exporter
of goods and the second-largest importer is
testimony both to the importance of trade tothe 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 andpreferential trade arrangements.
2. 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 tradingpartners, 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 civilsociety representatives.  The continued
commitment of the EU to the WTO and the
multilateral trading system will be critical to
the success of the DDA.
(1) R
ECENT ECONOMIC DEVELOPMENTS
3. 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 bypursuing 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 policydevelopments have been supportive of this
agenda, by maintaining largely open markets
for non-agricultural products (except fortextiles and clothing), proceeding on WTO
liberalization commitments, and supporting
further deepening of multilateral
commitments, while further expanding theextensive system of regional trade agreements.
4. Maintaining a supportive policy
environment for economic operators has been
vital to reviving growth prospects of the
European economy in 2002.  Economic growthin 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 Commission’s
Spring 2002 forecasts are for a recovery to
develop in the course of the year, due in part
to the strengthened economic prospects of theUnited States, the EU’s 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.
5. 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.  Pricepressures 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.
6. 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 recoveryproceeds, due to the lagged nature of
employment adjustment to cyclical upturns.  A
decline to 7.5% is forecast for 2003.WT/TPR/S/102 Trade Policy Review
Page viii
7. 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 EU’s merchandise trade
deficit to € 45 billion in 2001, from € 91
billion in 2000.
(2) P
OLICY DEVELOPMENTS
8. 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 andbetter 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 wagedemands.  Other objectives include raising
productivity through product market reform,
fostering entrepreneurship and the knowledge-
based economy, and financial market
integration.  Member States are to reducelabour 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.
9. 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 facilitatescross-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 sustainedeconomic activity.10. 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 inMay 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.
11. Following the progress made in 2000
by all Member States, towards the goal ofbudgetary 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 wasconsidered 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.  Pressureson 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 ageingpopulations on social welfare systems.
12. 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 policystance 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.European Union WT/TPR/S/102
Page ix
13. 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-householduse 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 theincumbent postal operator is to be reduced in
2003 and again in 2006, and a decisive step to
full liberalization could take place in 2009.
(3) I
NSTITUTIONAL DEVELOPMENTS
14. The Treaty of Nice was agreed in
December 2000, to prepare EU institutions for
enlargement in the light of the objective of thecandidates’ 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 concernservices (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 ofwork 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.
15. 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 ofCommunity 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.
(4) E
XTERNAL TRADE RELATIONS
16. The overall objectives of the EU’s
trade policies have remained largely the sameduring the period under review.  The EU
continues to pursue trade liberalization
through multilateral, regional, and bilateral
initiatives.  At the multilateral level, the EUplayed 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.  Bilateralnegotiations 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.
(i) WTO
17. 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.
18. 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 disputesettlement 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.
(ii) Preferential trade agreements and 
arrangements
19. 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;WT/TPR/S/102 Trade Policy Review
Page x
and the United States.  These countries
accounted for 45.2% of EU’s 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 bythe ACP and countries having concluded free-
trade agreements with the EU, and then GSP-
only countries.
20. The EU expanded its free-trade
agreement with Switzerland through thecompletion 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.  Withthe 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%.
21. 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.
22. 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.
23. 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 combatdrug production and trafficking, and toencourage adherence to core labour standards
or to environmental standards.
(5) T
RADE POLICY MEASURES
24. The EU market for non-agricultural
products (except for textiles and clothing
products) continues to be largely open.  Inaddition 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 areclosely aligned to bound levels.
25.  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 lowerthan 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 onproducts subject to the Common Agricultural
Policy (CAP).  Evidence of tariff escalation
remains, in particular on processed products.
26. Tariffs well above the average also
apply to textiles and clothing products. TheEU 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 textilesand 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 in1990.  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.
27. As of 1 January 2002, the EU had in
place definitive anti-dumping measures (dutiesand/or undertakings) on 175 productEuropean Union WT/TPR/S/102
Page xi
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 investigationsinitiated 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, withproducts from India the most frequently
affected.
28. 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 levelsto 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.
29. During the period since the last
Review in mid 2000, the EU and the Member
States have put in place new regulations forcertain 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 thebasis 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 assignificant 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 onproposed regulations are effective.  While
proposed regulations are subject to WTO
notification requirements to allow concerned
Members to comment, participation in theconsultations phase, before the Commission
issues the proposal, is also desirable should
resources permit.
30. To build consumer confidence in food
safety after a number of food scares on theCommunity 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 toprovide 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 ensureindependent scientific advice.  New regulatory
requirements have also been put into place
with respect to labelling of food products of all
origins to ensure traceability.
31. 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 anumber 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 banon 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.
32. A key objective of the EU is to manage
waste more effectively, as a result of whichnew 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 andWT/TPR/S/102 Trade Policy Review
Page xii
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 forproducers to design their products to facilitate
waste management, particularly recycling.
Other requirements could also result from the
Integrated Product Policy currently under
elaboration.
33. 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 andSwitzerland, 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 anumber 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.
(6) M
EASURES AFFECTING PRODUCTION 
AND TRADE
(i) Company law
34. The EU has continued to pursue the
objective of a more integrated environment forcompany 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 wasadopted 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 Europeancompanies 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 reportingstandards.
(ii) Competition policy
35. The Commission has continued to
vigorously enforce the rules on antitrust
activities and mergers with a Communitydimension, 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 majorsimplification of the notification requirements
for individual agreements.  In 2001, a record
number of cartel cases were closed, with fines
reaching  € 1.8 billion.
36. Merger activity continued to be high.
For mergers of a transnational character, the
Commission has cooperated actively with thecompetition 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 withJapan 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 advocateof a multilateral agreement on competition.
37. A development of major significance
to consumers in the EU, where car price
differentials remain high, is the Commission’s
proposed new draft block-exemptionregulation 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.European Union WT/TPR/S/102
Page xiii
(iii) Subsidies
38. 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.
39. At Member State level, latest available
figures show that State aid was € 80 billion in1999, amounting to 1% of the EU's 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.
40. 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, theCommission 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.
41. Also significant is the Commission’s
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.  Toensure 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.
42. In certain sectors, the Commission has
faced greater difficulty.  Aid to shipbuildingwas to be discontinued but its prolongation
has been proposed on a "defensive" basis topursue 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 thatremains in four Member States has long been
assisted on social and regional grounds.
(iv) Intellectual property rights
43. To strengthen intellectual property
rights protection, the EU adopted harmonizingdirectives 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 theCommission’s 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 harmonizelegislation for patents on software (computer-
implemented inventions).
44. On enforcement, customs authorities
reported an increase of one third in seizures
from 1999 to 2000 under legislationimplementing 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 ofcustoms 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 harmonizingdirective on enforcement of IPRs, which is
said to be stricter than the minimum standards
required by the TRIPS Agreement.
(7) D
EVELOPMENTS IN SELECTED 
SECTORS
(i) Agriculture
45. Since its last Review in mid 2000, the
EU has implemented the Agenda 2000 reforms
to the CAP agreed in Berlin in March 1999;WT/TPR/S/102 Trade Policy Review
Page xiv
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 progressiveintroduction 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 thedecline 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.
46. 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.
(ii) Fisheries
47. 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, althoughno concrete proposals had been made as of 1
May 2002.  Negotiations on subsidies to
fisheries are on the DDA.
48. The Commission’s Green Paper
issued in 2001 on the operation of the CFP todate 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 increasinglyfragile 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 tosignificant excess capacity as one of the
causes of resource depletion.
(iii) Financial services
49. Completion of the FSAP occupies a
central role in the Lisbon strategy to lower
costs of capital and foster a moreentrepreneurial 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 regulatoryframeworks 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 tosecurities-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).
50. 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 theEuropean Parliament to adoption of the
proposed Directives on collateral, market
abuse, insurance intermediaries, the distance
marketing of financial services, financial
conglomerates, prospectuses, occupationalpension 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).
(iv) Telecommunications and 
information society
51. 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 legislativepackage for electronic communications was
adopted in February 2002, to be transposed byEuropean Union WT/TPR/S/102
Page xv
May 2003, and the legislative framework for
e-commerce was substantially advanced to
build trust and confidence in the Internet.
52. 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.
53. As from January 2000, all Member
States were required to have initiated theprocess 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 withphysical 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 feestructures 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.
54. A proposed privacy directive is under
consideration. It would require providers of
public telecommunication services andnetworks to guarantee the security of their
networks, to ensure the confidentiality of
communications and to delete traffic data.
Under current legislation, transfers ofpersonal 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 theadequacy of the data protection regimes of
Hungarian, Swiss, and U.S. companies
participating in the "safe harbour"
arrangement, and certain data transfers to
Canada.
55. 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 andthe 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.
56. 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 providersestablished outside the EU, which are
currently not assessed VAT.